F&M Asia is bullish on the Philippine IT sector

Despite ups and downs over the past two decades, the Philippines has not only shown great resiliency but also has consistently moved on a path going towards achieving unprecedented growth especially in the information technology (IT) sector.
Fritz and Macziol Asia (F&M Asia) president and managing director Lutz H. Kunack sees the domestic IT sector looming large sooner than most people might think and there’s a reason to further expand it.
Lutz, is a German businessman and lawyer, who has been in the Philippines for 15 years.  In the latter part of the 1980’s, Lutz was a leading provider of training and educational systems for the school market in Japan, the U.S., and Europe.
Since then, as fifth generation leader of a family business that is 130 years old, Lutz has led the Kunack group of companies into achieving steady and rapid growth.  Today, the Kunack group continues on its growth path in Asia with a substantial number of employees.
“Notwithstanding a recent talk about the country’s demographic dividend paying off and the immense growth recently posted by its IT-BPO industry, the Philippines’ radical economic growth will come into focus as investment policies and their implementation come in closer sync with positive developments around the world,” says Lutz.
Lutz was drawn to doing business in the Philippines as a business investor in the 1980’s just as the country was coming to terms with vast changes in its politics and economy
Over the years, Lutz says he has developed faith in its people and believes they can achieve great things.
“The Philippines is a unique multicultural nation with cultural elements from China, Malaysia, USA and even Europe.”
“I see this mix as an asset when applied properly, and is clearly and evidently found in the Filipino ingenuity and the ability to bounce back against adverse conditions.”
“Many times, it is not how you act, but how you react to conditions that matters most. Notwithstanding that the country is blessed with an abundance of natural resources,” said Lutz.
“If balanced mindfully, and with some discipline that I know is inherent in every Filipino, I see no reason why this country cannot reinvent itself and be an economic force to be reckoned with as it was during the 50s, 60s and even parts of the 70s.”
Lutz has a firm grasp of the economy flow and development in the Asia Pacific Region and the Philippines, using his investment expertise and abundant capital background to capture key growth opportunities.
His  insight and deep understanding of policy developments across the region was mostly like an acumen he developed at Humboldt College in Germany where he graduated in 1988 with a bachelor’s degree in law and at Konstanz University in 1995 with a doctoral degree in law, earning with it a summa cum Laude.
Leading systems integrator
F & M Asia is a wholly-owned subsidiary of Royal Imtech N. V., a European technical services provider in the fields of electrical engineering, information and communication technology and mechanical engineering.
Royal Imtech N. V. is a 5.1 Billion Euro company.   F & M is one of the leading systems integrators in the country, providing software, hardware and services. It partners with the leaders in the IT industry worldwide such as IBM, EMC, Oracle, Cisco, Microsoft and VMWare.
Recently, F&M’s performance in Asian IT markets boosted the performance of its European parent company Royal Imtech NV.
In 2012, F & M Asia has provided automation and systems integration solutions for Holcim, Metro Bank and Trust Co., Smart Telecom, Globe Telecom and SM Shoemart.
As a result, F&M Asia’s mother company Royal Imtech N.V. maintained solid performance in the first half of 2012 with its operational EBITA (earnings before interest, taxes and amortization) margin surging at 5.6 percent growth.
Recently, the Aquino Administration indicated that one of the reasons buoying its optimism in the future economic growth is that the Philippines is entering into its demographic window – a phase in national development when most of a nation’s population reaches working age.
Lutz takes note of this demographic window but points out the development of policies that responds to the needs of the industry.
Growing IT opportunities
“In the larger scheme of things, we see opportunities for IT continuing to grow in Asia and the Philippines can be a major player in this larger development. On the level of policy in the Philippines, one major development is the passage of the Data Privacy Law (RA10173),” said Lutz.
“We think the passage of this law brings the Philippines up to global standards and creates a lot of opportunities for vendors of IT security products and services.  More importantly, it creates a secure atmosphere that will certainly boost more IT-BPO investments.”
The Philippine  Business Processing Association of the Philippines (BPAP) highlighted the local IT-BPO sector’s outstanding performance in 2011—a marked increase of $11 billion in revenue by 24 percent from 2010, and providing jobs to 638,000 employees, 22 percent more than in the previous year, with the industry surpassing their projected 20-percent annual growth rate.
BPAP said the industry will bring in $25 billion a year by 2016, making up 9 percent of the Philippine gross domestic product (GDP), 10 percent of the sector’s global market share and employing 1.3 million Filipinos.
Lutz says his company has similar readings as far as IT growth in the Philippines is concerned, but it is pegged on how the entire Philippine economy will grow.
“As economic growth accelerates, we can expect government and business revenue to level up and make the need for more efficient, more reliable IT systems becomes even more compelling.  That most certainly will be good for Fritz and Macziol here in Manila, but more importantly,it makes it more probable for the Philippines to emerge as a major IT hotspot,” said Lutz.
“In the larger sphere of IT, the Philippines will provide a lot of talent and expertise in the global IT industry.  I believe this was recently highlighted by the recent landing of NASA’s science rover Curiosity where Lloyd Manglapus, a Filipino senior software engineer at the NASA Jet Propulsion Laboratory, made sure that the flight software performed perfectly.”
Despite his packed schedule which has brought Lutz shuttling to various continents and then back to the Philippines, takes extra effort to put his family on top priority.
When not pulling in 12 to 15 hours a day, in meetings, conferences and on business travel, Lutz never fails to find time and have breakfast with his wife and his young daughter to catch up.
“Family gives us balance, a focal point from which we can gauge what is truly important in this life. It is our true north, our primary bearing in a world of shifting landscapes.”
A lover of the great outdoors, Lutz’s regimen includes many sports activities such a cycling, water and racket sports and the passion for the ‘beautiful game” of soccer or football to the Europeans.
His company decided to marry his love for football and the Philippines by sponsoring the Philippine Army football team.
“It truly is our privilege to contribute whatever we can to sports in his country. I see a lot of future in football here. I am also looking at creating a foundation or tying up with an outreach program.”
“It is not about reaping benefits from a community then giving back to it anymore.  That is almost like an after-thought.  In my opinion, in today’s modern corporate world, it should happen simultaneously,” says Lutz.

SMEs urged to improve business strategies, innovation

The Economic and Research Institute for ASEAN and East Asia (ERIA) has urged small and medium enterprises (SMEs) to improve their business strategies and innovation activities in order to benefit from the internatonal product networks (IPN).

Dr. Dionisius Narjoko of ERIA told a recent forum organized by the Philippine Instittute of Development Studies that innovative SMEs have better chance to participate in IPNs, noting that promoting innovation is crucial considering these networks and sustainable development.

Narjoko underscored the importance of integrating these companies, especially the labor-intensive ones, with IPNs in achieving the ASEAN SME development and inclusive growth.

“SMEs in IPNs are less financially constrained, and have better access to financial sources. They get lower interest rate on loans; they have better cash flow,” he noted.

IPNs would also lead to the successful development of clusters, attract more foreign direct investments that can create more technology spillovers, and boost a firm’s technological and innovative capability.

But while these SMEs can benefit more from these networks, Narjoko expressed concern about the significant threat of survival.Narjoko said building technological capability is one way to boost a firm’s competitiveness. To boost SMEs in ASEAN, there is also a need to strengthen the regional institutional arrangements for supporting SMEs.

Exporters hit prohibitive licensing fee for labor subcontractors

The Philippine Exporters Confederation (Philexport) has raised a concern of a government decision to regulate labor contracting and subcontracting.

“We laud the objectives and benefits of regulating contractors to curb fly-by-night operators and protect the principals,” said Philexport president Sergio R. Ortiz-Luis, Jr. in a letter to DOLE Sec. Rosalinda Baldoz.

However, a main harmful issue raised by Philexport is the prohibitive licensing and registration fee of P25,000 to legalize  the operations of labor contractors and subcontractors of parts of a bigger company’s production system.

The fee should be reduced to a more reasonable P1,000 since most members of PHILEXPORT  are micro, small and medium enterprises  that already face so many obstacles to becoming more competitive, Ortiz-Luis argued. 

The issue on labor sub-contracting became a national controversy when many contractors from security guard agencies, providers of messengerial and janitorial services and at least one retail chain were found to have violated Philippine labor laws.

The issue has become too hot, several congressmen and senators have filed bills in both houses of Congress seeking to criminalize labor-only sub-contracting.

Subcontracting practice is only common in the construction business before the globalization of trade set in during the early nineties.  It has grown to become a common practice worldwide and is now known as “outsourcing” of parts or components of a product or a company’s non-core service like customer relations or sales. In the country, it created the business process outsourcing industry.

In the exporting segment of the domestic economy, outsourcing  has become a competitive weapon practiced by the giants and smaller exporters from ship-builders to handicrafts and furniture-makers. To meet big orders on time, the bigger exporters have enlisted smaller enterprises to manufacture parts. Example is the leg of a table which is later assembled into a complete product.

Foreign direct investments up 9.4% in 2nd quarter

Foreign direct investments (FDI) in the Philppines for the second quarter of 2012 rose by 9.4 percent to P 44.1 billion from P40.3 billion recorded in the same period last year.
The National Statistical Coordination Board (NSCB) reported that the total approved FDI for the first six months of 2012 reached P62.6 billion, up slightly by 0.4 percent from last year’s P 62.3 billion.
The top three investing countries for the second quarter of 2012 were Japan, Netherlands, and the United States of America (USA).  Japan bested other countries as it pledged P17.4 billion or 39.6 percent share during the quarter. 
Following behind are Netherlands and the USA, committing P9.8 billion and P4.3 billion, or 22.3 percent and 9.7 percent of the total approved FDI, respectively, during the quarter.
Manufacturing remains the top industry to receive investments as its share to total foreign commitments reached 80.4 percent or P35.4 billion during the quarter. 
Transportation and storage came in second with investment pledges valued at PhP 2.5 billion, contributing 5.8 percent, followed by real estate activities at P1.9 billion or 4.4 percent share. 
Meanwhile, approved investments of foreign and Filipino nationals reached P202.8 billion in the second quarter of 2012, increasing by 27.2 percent from last year’s P159.4 billion.
Filipino nationals continued to dominate investments approved during the quarter, sharing 74.6  percent or P151.2 billion worth of pledges.
The bulk of the investments committed by Filipinos are intended to finance activities in electricity, gas, steam and air conditioning supply, contributing P95.1 billion and with a share of 46.9 percent, followed by manufacturing at P38.6 billion or 19.0 percent share, and real estate activities at P30.8 billion or 15.2 percent share.

Textile exporters urged to tap Indian market

A top official of the Federation of Philippine Textile Industry has urged local textile exporters to tap the Indian market by offering good quality products at reasonable prices.
Shashank Pareek, director of FPTI stressed that natural products such as the Philippine piña, abaca and other indigenous fibers have huge competitive advantage in the Indian market. India’s 1.2 billion population utilize around 4.8 billion kilos of textiles a year.

Youngsters who comprised about 40 to 50 percent of Indian population are beginning to look for new products when they try out.

Pareek said half of the middle class estimated at 600 million consists of educated young professionals who have a lot of earning power.  He also encouraged Filipino exporters to participate in trade fairs in India.

Pareek said the Philippine embassy in India, which has offices in New Delhi, Mumbai and Kolkata, also promotes and facilitates trade between the two countries.