Sunday, October 24, 2010

Business Opportunities In The Philippines

There really are lots of ways to make money in The Philippines... and the return on investment can be truly spectacular. There is a simple reason for this: If a poor Filipino has a capital fund of only $50, he cannot survive if that money is only earning him a $10 return per year. While a 20% annual return on investment in America would be wonderful, an indigent Filipino needs to earn a 20% return on investment per day in order to feed his family. Granted, it may take hard work to get a 20% return on investment per day... but that is what he does to survive.

The problem most foreigners have when coming here to make money is that they don't think like Filipinos. Wealthier Filipinos look to their poorer counterparts, find out what they are doing, and then just go large with it.

The other day, I was talking to my friend Geoff, and he was telling me about the coconut oil business. Coconut oil is created from the dessicated rind (the white stuff) of coconuts. Poor folks take 500 kilograms of coconut rind (purchased for about 2,500 pisos... $65), leave it out in the sun for 3 days (if you've been to The Philippines, you probably have seen this), and then take the resulting 200 kilograms of dessicated rind to the coconut oil producer and sell it for 3,700 pisos... $95. That's about a 50% return on investment in 3 days... 400 pisos per day.

What the wealthier Filipino businessman does is build a giant 20-foot by 20-foot grill, puts 1000 kg of coconut rinds on it, lights a slow-burning fire under it, and within 24 hours, he has 350 kg to take to the oil producer... earning 2,500 pisos per day in the process. There is no big technological jump here, or huge investment in equipment. (The grills are just 4 cement walls and iron bars.) Instead, it is just taking a traditional way of doing something here and applying mass-production to it. Instead, it is just having the capital necessary to build the grills... having enough money to be able to buy the wood to light the fire.

All agriculture and traditional manufacturing here is the same way. The difference between a guy who sells 20 papayas per day and a guy who sells 2000 papayas per day is essentially the number of papaya trees each owns.

Yes, of course there are the very wealthy Filipinos who have much larger operations upon which real economies of scale can be drawn. I'm sure that somewhere in The Philippines, somebody has built an automated coconut oil making machine in which whole coconuts go in, and within an hour barrels of coconut oil come out. That's a rare (and yes, even more lucrative) level of industry in The Philippines compared with the working population as a whole. But that is indeed another level of business beyond the scope of this discussion.

The simple upshot is that the best business opportunities in The Philippines are the simplest. They are the easiest to set up, and the least risky and least costly to lose or have fail. And, let's face it: This is a country where your attempts at making money may run into brick walls. In a place like this, logic dictates that ten $2000 business ventures are much safer than a single $20,000 scheme.

It is easy to be fooled into thinking that the well-to-do Filipinos earn their money in retail or the service sector... but that's just because those are the visible operations that you come across on a day-to-day basis. But those are the secondary efforts of a family's conglomerate of business interests.

If you were to ask the owner of some store you are in (and not the person who is running the place... that's the owner's nephew or cousin or something), I am sure he or she will tell you that it is the big rubber plantation, or the fleet of fishing boats — and not the internet cafĂ© or the lechon manok stand or the boutique at the mall — that is their bread and butter.

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