April 19, 2015 1:00 pm JST
Consumer trends

Solid economy gives Filipinos taste for finer things

MINORU SATAKE, Nikkei staff writer

A home appliance store in Makati shows off a Panasonic refrigerator.

MANILA -- The consumer market in the Philippines is becoming more robust and vibrant as economic growth swells the ranks of the middle class.

     The Southeast Asian country's per capita gross domestic product is expected to exceed $3,000 this year, raising expectations for stronger demand for big-ticket items. The Philippines has long been a laggard compared with neighbors such as Thailand, but it now appears poised for a period of solid growth, supported by stable macroeconomic conditions.

What you need

Companies are responding to the growth of middle-class consumers in the country by bringing higher-end products to market. Japan's Panasonic, which has been manufacturing and selling household appliances in the Philippines for nearly five decades, has started offering high-end products locally this year.

     At an electronics store in Makati, a business district in Metro Manila, a large Panasonic refrigerator has pride of place near the entrance and is emblazoned with a "made in Japan" sign. Its price tag, at around 90,000 pesos ($2,000), puts it beyond the reach of most Filipinos.

     Up to now, Panasonic has focused its marketing in the Philippines on cheaper products -- two-drum washing machines and window air conditioners. The reason was straightforward: Decades of political turmoil and economic stagnation hampered the growth of the middle class and kept most Filipinos poor.

     Signs of change started appearing last year. Panasonic's sales of single- and two-drum washing machines priced under $100 fell in 2014, while those of automatic washing machines imported from Thailand and elsewhere priced around $300 grew by about 20% from the previous year. Similarly, sales of more expensive air conditioners with an outdoor unit increased by 20-30%.

Rich pickings

The country's per capita GDP will exceed $3,000 in 2015, according to a forecast by the International Monetary Fund. The $3,000 mark is widely considered the threshold for a takeoff in consumer spending on such durable goods as consumer electronics and cars.

     In response to the Philippines' brisk growth, Panasonic's local unit persuaded headquarters to offer upscale fridges made in Japan. The company also plans to expand its lineup of automatic washing machines from three models to eight.

     "Our competitors are also launching high-priced items here," said a marketing manager at Panasonic's Philippine unit.  "We are trying to boost our brand's recognition among young Filipino consumers, who may be our customers five years down the road."

     The auto market also points to a new class of confident consumers in the Philippines. In 2014, 270,000 new cars were sold in the country. That is a lot less than in Thailand or Indonesia, where car sales run to more than 1 million a year. But last year sales were up 30% in the Philippines, and this year sales will top 300,000, according to a forecast by the Chamber of Automotive Manufacturers of the Philippines, a trade group that includes big Japanese carmakers.

"Sick man" no more

The Philippine economy is growing strongly after decades in the doldrums. The period of stagnation, which earned the Philippines the dubious title "sick man of Asia," was the product of the economic turmoil during the latter part of the dictatorship of President Ferdinand Marcos, followed by the People Power revolution of 1986, led by Corazon Aquino.

     That change brought greater political freedom, but also confusion and more economic missteps. Things have taken a decisive turn for the better under President Benigno Aquino, Corazon's son, who was elected in 2010 and launched reforms to root out corruption and restore the country's fiscal health.

     The Philippines' growth potential is attracting much international attention. Its population has been growing by around 2% a year and topped 100 million in 2014. Another plus is its large pool of English-speaking workers. The improving economy has drawn a raft of companies eager to expand their operations. 

     Aquino's term expires in 2016 and he is barred from running again under a law designed to prevent another Marcos-style dictatorship. The Philippines' economic engine is finally firing on all cylinders. The challenge for Aquino's successor will be to keep it running smoothly.

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