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No, 100% FDI SHARES OWNERSHIP Doesn't Equal to Putting Filipino Businesses Out of Businesses


Some time ago, I wrote a blog entry where I explained that many Filipinos misunderstand what FDI means. Right now, it's time to answer another misconception. It's the misconception that 100% FDI ownership (often just called 100% FDI, which I believe can be a misleading term) means that Filipino businesses will be put out of business. I was thinking about the concept because it's highly misleading. 

For one, we're talking about share ownership, not a foreign takeover

This comment I read on Facebook is epic levels of foolishness. I decided to translate it into English and avoid naming the person:

Do all types of businesses have to be 100% foreign-owned? Even selling *banana cue*? Are eateries, market stalls, barber shops, vape shops, *sari-sari* stores, locksmiths, welding shops, photocopy and printing shops, etc., all going to be 100% foreign-owned? 

The question asked by someone I'll just label as Pirate Flag here is downright stupid! It's now time to really address what FDI really means. Investopedia defines it as:

Foreign direct investment (FDI) is an ownership stake in a foreign company or project made by an investor, company, or government from another country.

Generally, the term is used to describe a business decision to acquire a substantial stake in a foreign business or to buy it outright to expand operations to a new region. The term is usually not used to describe a stock investment in a foreign company alone. FDI is a key element in international economic integration because it creates stable and long-lasting links between economies.

It becomes a terrible hurdle whenever the Philippines has the stupid 60/40 rule. For example, an FDI sees the potential of the Philippines, but the company has to do the following:

  1. Look for a local oligarch partner to get a 60% partnership where the FDI owns the shares. Honestly, the arrangement is just overpriced rent.
  2. When the local partner gets 60%, that means the profits (which are barely even half of revenues) don't go to the mother company (or are used in the Philippine branch) and must be split 60-40 between the Filipino partner and the foreign partner. 

Image by Sabrina Jiang © Investopedia 2020

Once again, it's because people have the tendency to mistake revenues for profits. I was looking at those annoying fake doctor ads on Instagram, and I was thinking about the claim that doctors refuse to share their "secret remedy" because it will "put them out of business". I went to the hospital for check-ups and surgeries. The facility uses a lot of electricity, and backup generators are needed 24/7, as patients could die without proper life support. The cost of the procedure isn't the same as the profit derived from the procedure. I'm aware that I'm paying for a reasonable overhead, as without it, what would the hospital use to improve its services? Without profits, hospitals wouldn't be able to improve services over time for the comfort of patients!

Honestly, we don't see that the types of FDI don't even take over, but they could serve as growth catalysts 

The fearmongering that Pirate Flag is putting out that FDIs will also mean that banana cue sellers (okay, I'm hungry for it but I'm told to watch my health), eateries, market stalls, barber shops, vape shops, *sari-sari* stores, locksmiths, welding shops, photocopy and printing shops, etc. will be 100% foreign-owned is misleading. Instead, what Pirate Flag has refused to see is that having more FDI would mean this one:
  1. More Filipinos with income from salaries means that there would be more people who would be able to spend their money at banana cue (or, in my case, I prefer to have it home-prepared), eateries, market stalls, barber shops, vape shops (but I don't do vaping), sari-sari stores (which are convenient), locksmiths, welding shops, photocopy and printing shops, etc.
  2. I have seen foreigners who have actually availed of such services. I have seen foreigners who have been eating banana cue because it's pretty much standard tourist practice. We see Filipinos try street food abroad too. 
  3. Any practical mind would think of buying local where one goes. For example, a foreigner wouldn't look for an imported company to meet their needs. If a Filipino can offer quality delivery service, the foreign business owner says, "Okay, we're in!" The Filipino driving a multicab gets paid accordingly. The foreigner gets the delivery done, and if the service is good, the foreigner would be part of the Filipino's growth. The foreigner may also avail of the local barbershop that gives a good haircut, if a haircut is really needed.
  4. We also need to think in the long run, where local businesses can also benefit from an increase in customers. If your customer has competition, then getting that competition as part of your customer database is indeed an opportunity. 
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