Why Lotte's Chexit to Focus on Southeast Asian Nations is a Must-Grab Massive Business Opportunity for the Philippines
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| The Korea Times |
However, the Korean government deployed a U.S. Terminal High Altitude Area Defense (THAAD) anti-missile system on a golf course in Korea owned by Lotte despite strong opposition from China. In retaliation, Beijing started to impose tougher regulations on Lotte's subsidiaries in China. Lotte Mart and Lotte Department Store closed down their businesses in China in 2018, followed by Lotte Chilsung Beverage and Lotte Confectionery the next year.Lotte also planned to build an amusement park in Shenyang, Liaoning Province, which took a long time to get permission from the Chinese government. The project finally got the green light in April 2019, but was halted soon after due to the outbreak of the coronavirus pandemic in China.When Lotte closes down its headquarters in China, it will only have one department store operating in Chengdu. The store continues to make a profit, but the amount has been decreasing gradually. Lotte Chemical remains open in China, but it also displayed poor performance there in the first quarter of this year.On the other hand, Lotte's retail businesses in Indonesia and Vietnam are displaying stellar performances.
I would say that China's fatal flaw is when it started to impose stricter regulations on Lotte's subsidiaries in China. This was as The Korean Times says most likely politically motivated. China, as a political entity, shouldn't have done that. Instead, they could've just remained apolitical since this pull off of the Lotte subsidiaries would mean lesser taxes collectible for the Chinese government. I would say that tit's a very bad move.
What it could mean for the Philippines if Lotte decides to focus on Southeast Asia?
Inviting Lotte Confectionery to operate in Bacolod
Bacolod, city, northwestern portion of the island of Negros, Philippines. On a coastal plain washed by Guimaras Strait, it lies opposite Guimaras Island and has been called the Philippine sugar capital because of its central location within the nation’s most important sugar-producing area. Bacolod’s growth began after 1800, when it was first used as a convenient gathering point for traffic bound for Iloilo, on the island of Panay. With subsequent development of the sugar plantations, it became Negros’ most populous urban area and a regional trade centre. Its outport, Pulupandan, is situated to the south along the main coastal highway and is an important fishing port.
I feel like comparing Bacolod to Okinawa in Japan like I compare Hyderabad from India to Legaspi, Albay, in the Bicol Region. The quality of sugarcane in Bacolod may be what Lotte Confectionery needs as a fresh raw ingredient at a lower cost. It could help assist the sugar farmers in Bacolod to gain more customers. There might be a lot of agricultural products but there may be too few buyers. I believe Tiger Sugar in Bacolod is using Bacolod's sugar cane. Maybe the Tiger Sugar branches around the Philippines might be using Bacolod's sugar cane. Agricultural improvement is useless unless there are people to buy the crops. It would be a waste if there's much produce but too few buyers. I don't want excess crops to be wasted like in Venezuela. Sure, one can say there are also exports to other countries. However, an increase in customers within the Philippines is just as important.
I think this operation will encourage the local dessert industry in Bacolod to push harder. I think Merzci and Bongbong's will have to be more creative. Maybe, these industries will try to target Japan and South Korea as their next places. Though, it could also be a creative partnership if Lotte will get a local Filipino partner, maybe start off with 50-50 or any preferred shares between them like Gong Cha's Korean partner did in Taiwan. It could be a good alternative if Lotte decides to get a Filipino partner in Bacolod if they want to. Then again, there's also the option of operating without a Filipino partner. Either way, the choice is entirely theirs as long as there's no 60-40 restrictions in regards to shares ownership.
Why I also want to invite Lotte Chemical to do business in the Philippines
In terms of sales, Lotte Chemical ranks behind only LG Chem in the domestic chemical industry. It is one of the world's largest producers of chemical products such as polyethylene and ethylene.Lotte Chemical began as Honam Petrochemical, which was established in 1976 through technological collaboration between companies including Japan's Mitsui group. Lotte group acquired the business in 1979. Honam became Lotte Chemical in 2012, when its management was integrated with Kp Chemical.In South Korea, Lotte Chemical has the world's biggest ethylene capacity. Its plants in Yeosu, South Jeolla Province, and Seosan, South Chungcheong Province, each have 1 million-ton production systems.The company is also expanding its international presence.In 2018, it plans to open a joint plant with U.S. company Axiall in the state of Louisiana. The facility is to produce ethylene from shale gas. This stands to boost Lotte Chemical's ethylene capacity to 3.7 million tons.In 2010, the South Korean company acquired Malaysia's Titan Chemicals, now called Lotte Chemical Titan Holding.Seeking to reduce its heavy reliance on commodity chemicals, Lotte Chemical intends to reinforce its water treatment business. In addition, it has research-and-development programs focused on large-scale battery products, such as energy storage systems.
Of course, this will require some strict environmental control. Lotte Chemical can be allowed to operate without a Filipino partner. However, the location must be within reason to where they can operate without otherwise harming residents or that they follow pollution-control policies. These policies include proper waste disposal and transparency. I think allowing Lotte Chemical to invest in the Philippines would also mean more Filipino chemistry graduates don't have to fly to places where Lotte Chemical is. Instead, it'll become an employment opportunity. Filipinos seeking to practice their chemist or chemical engineering profession can get employed at Lotte Chemical Philippines. The first ones that Lotte Chemical will hire are those who are directly available.
Just realizing that Lotte Chemical is also involved in the water treatment business makes me think of this. Filipinos involved in water distilling may have another source of supplies to help distill waters. It may also be an opportunity to help make more drinkable water for Filipinos. It would also be the start to get more foreign firms to help in the water treatment problem. The only restrictions are that they don't violate any rules regarding safe drinking water and other environmental laws. This in turn will give more Filipinos a clean water supply regardless of what use they will have for water.
Overall, Lotte, like any foreign investment, will help the national industry
Pages 57-58
After several years of disheartening trial and error, we concluded that Singapore's best hope lay with the American multinational corporations (MNCs). When the Taiwanese and Hong Kong entrepreneurs came in the 1960s, they brought low technology such as textile and toy manufacturing, labor-intensive but not large-scale. American MNCs brought higher technology in large-scale operations, creating many jobs. They had weight and confidence. They believed that their government was going to stay in Southeast Asia and their businesses were safe from confiscation or war loss.I gradually crystallized my thoughts and settled on a two-pronged strategy to overcome our disadvantages. The first was to leapfrog the region, as the Israelis had done. This idea sprang from a discussion I had with a UNDP expert who visited Singapore in 1962. In 1964, while on a tour of Africa, I met him again in Malawi. He described to me how the Israelis, faced with a more hostile environment than ours, had found a way around their difficulties by leaping over their Arab neighbors who boycotted them, to trade with Europe and America. Since our neighbors were out to reduce their ties with us, we had to link up with the developed world-America, Europe, and Japan-and attract their manufacturers to produce in Singapore and export their products to the developed countries.The accepted wisdom of development economists at the time was that MNCs were exploiters of cheap land, labor, and raw materials. This "dependency school" of economists argued that MNCs continued the colonial pattern of exploitation that left the developing countries selling raw materials to and buying consumer goods from the advanced countries. MNCs controlled technology and consumer preferences and formed alliances with their host governments to exploit the people and keep them down. Third World leaders believed this theory of neocolonialist exploitation, but Keng Swee and I were not impressed. We had a real-life problem to solve and could not afford to be conscribed by any theory or dogma. Anyway, Singapore had no natural resources for MNCs to exploit. All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.
Page 66
Our job was to plan the broad economic objectives and the target periods within which to achieve them. We reviewed these plans regularly and adjusted them as new realities changed the outlook. Infrastructure and the training and education of workers to meet the needs of employers had to be planned years in advance. We did not have a group of readymade entrepreneurs such as Hong Kong gained in the Chinese industrialists and bankers who came fleeing from Shanghai, Canton, and other cities when the communists took over. Had we waited for our traders to learn to be industrialists we would have starved. It is absurd for critics to suggest in the 1990s that had we grown our own entrepreneurs, we would have been less at the mercy of the rootless MNCs. Even with the experienced talent Hong Kong received in Chinese refugees, its manufacturing technology level is not in the same class as that of the MNCs in Singapore.
Pages 68-69
If I have to choose one word to explain why Singapore succeeded, it is confidence. This was what made foreign investors site their factories and refineries here. Within days of the oil crisis in October 1973, I decided to give a clear signal to the oil companies that we did not claim any special privilege over the stocks of oil they held in their Singapore refineries. If we blocked export from those stocks, we would have enough oil for our own consumption for two years, but we would have shown ourselves to be completely undependable. I met the CEOs or managing directors of all the oil refineries-Shell, Mobil, Esso, Singapore Petroleum, and British Petroleum on 10 November 1973. I assured them publicly that Singapore would share in any cuts they imposed on the rest of their customers, on the principle of equal misery. Their customers were in countries as far apart as Alaska, Australia, Japan, and New Zealand, besides those in the region.
This decision increased international confidence in the Singapore government, that it knew its long-term interest depended on being a reliable place for oil and other business. As a result, the oil industry confidently expanded into petrochemicals in the late 1970s. By the 1990s, with a total refining capacity of 1.2 million barrels per day, Singapore had become the world's third largest oil-refining center after Houston and Rotterdam, the third largest oil trading center after New York and London, and the largest fuel oil bunker market in volume terms. Singapore is also a major petrochemical producer.
To overcome the natural doubts of investors from advanced countries over the quality of our workers, I had asked the Japanese, Germans, French, and Dutch to set up centers in Singapore with their own instructors to train technicians. Some centers were government-financed, others were jointly formed with such corporations as Philips, Rollei, and Tata. After 4 to 6 months of training, these workers, who were trained in a factory-like environment, became familiar with the work systems and cultures of the different nations and were desirable employees. These training institutes became useful points of reference for investors from these countries to check how our workers compared with theirs. They validated the standards of Singapore workers.
If Lotte does more business in the Philippines--it will be under Philippine laws. In short, even if it will operate without a Filipino partner, it will still be subjected to business and immigration laws. A foreign investor is like a tenant. A mall opens its space to non-owners to do business so it can gain revenues through monthly rentals. Businesses are subjected to respective fees such as the business permit, sanitary permit, and more importantly taxes. There's the Value Added Tax, withholding tax, quarterly tax, and income tax. They will also be required to pay local suppliers and services if they expect to continue doing business. The only time Lotte is considered to have gotten richer is when it keeps its net income after taxes. The same applies to all foreign investments--they're only wealthier based on their net income after taxes.