Philippines
Introduction
In 2011 the population of the Philippines will reach 106m compared to 91m in Vietnam. Furthermore, the Philippines' 2010 GDP per capita (PPP) of $3,500 compared favorably with the $3,100 of Vietnam. In 2008 the number of passenger cars in use per 1000 people numbered 11 in the Philippines and Vietnam.
Notwithstanding these distinct and rare similarities, the Philippines has fallen behind Vietnam in motorcycle adoption; the annual sales in 2009 reaching 750,000 compared to Vietnam's 2,7 million.
Motorcycle industry background
In 1973 Honda started a JV that marked the beginning of production and sales of their products in the Philippines before forming Honda-Philippines Inc. in 1983. They were closely followed by Kawasaki in 1974 who invested in a local corporation, which became an affiliate in 1996. Suzuki formed a JV in 1975 which became a subsidiary in 1985, adding 4-wheeler production in 1999. However, Yamaha vehicles have been assembled and distributed by Norkis Trading Co., Inc. since 1962 until the creation and start of production by Yamaha Motor Philippines in 2007.
Motor vehicle parts and components including motorcycles have consistently appeared in the governments Investment Priorities Plan which grants foreign investors of good standing with various incentives. The terms and conditions of the Plan are a major source of debate. Beyond protection from competing imports by tariff barriers, those who meet the various investment criteria can expect advantages including:
Fiscal Incentives:
Income tax holiday;
Exemption from taxes and duties on imported spare parts;
Exemption from wharfage dues and export tax, duty, impost and fees;
Modified duty rate for capital equipment by virtue of E.O. 313*;
Tax credits; and
Additional deductions from taxable income.
Non-fiscal incentives:
Employment of foreign nationals;
Simplification of customs procedures;
Importation of consigned equipment; and
The privilege to operate a bonded manufacturing/trading warehouse subject to custom rules and regulations.
Honda,Yamaha and Suzuki have and will undoubtedly continue to target these incentives in their investment plans. Nevertheless, faced with the prospect of globalization and free trade that will allow importation of low-cost motorcycles, all major brands must formulate a strategy to remain competitive.
Suzuki has plans to expand its localization program in line with the government's program to establish backward linkages with allied companies in the industry. Suzuki declared in 2009 that each tricycle manufactured contained as much as 45% local components, although the engine was still 100% from Japan. This level of localisation is expected for a product that is in its construction partially unique to the Philippines and still falls significantly lower than the equivalent levels achieved in Vietnam by Honda and Yamaha.
Furthermore, in 2011 Suzuki announced a new plant at a cost of $26m that will increase motorcycle production capacity from 85,000 to 175,000 and reinforce the only integrated motorcycle and automobile manufacturer in the Philippines.
Population of urban areas for 2011
Transport infrastructure
The Metro Manila urban population is one of the highest in the world and 49% of Filipinos live in urban areas compared to 30% in Vietnam. The MRT and LRT trains systems are about half the size of that of Taipei and Singapore, but together with tricycles, taxi, buses and jeepneys they combine to reach all parts of the city. This mitigates the need for individual transport on the part of citizens. Such an extensive and integrated system does not exist in the major cities of Vietnam and represents the key reason for the difference in the demand for motorcycles.
In particular the Philippines is famous for the fulfillment of its light transport needs through its unique use of tricycles and jeepneys in highly flexible public transport networks across the nation.
Jeepneys are a Philippine invention derived from recycled Jeeps left over from World War II, although modern Jeepneys are based on second hand Japanese trucks. They run on a definite route and the fare varies depending on the distance traveled. The average jeepney seats about 16 (8 on each side) but some drivers squeeze in as many passengers as they can. Those in a hurry may stand on the external running boards or sit on the roof. Most jeepneys have loud stereos and no air-conditioning.
Filipino tricycles are motorcycles (not underbone) that have been modified in the Philippines to add a roofed sidecar designed to carry two people and one pillion rider. They operate in a similar way to a traditional taxi and reach across most parts of urban and rural Philippines. To the individual lacking his or her own transport, they offer maximum flexibility at the lowest cost and exist in such numbers that they represent an important market for manufacturers.
Motorcycle market
Due to the workhorse role assigned to motorcycles in the Philippines, the public perception has long been one of low end utility transport which reflects negatively on owners. A lack of new products and creative marketing by major players has helped consolidate the situation. In the hectic streets of Metro Manila, accidents involving motorcyclist invariably sees them coming off worst. This adds to the perception of motorcycles as dangerous.
Modern underbone models have recently been marketed to the Filipino youth in an attempt to separate this class of motorcycle from conventional backbone motorcycles. By focusing on rider road safety on the one hand and the excitement of circuit racing on the other many of the negative perceptions traditionally associated with motorcycles are changing. In a climate of rising fuel costs, the message of modernity, low cost, independence and fun has begun to resonate. On the back of growing confidence that the Philippine market is on the cusp of significant growth, in 2011 Sumisho who provide financing for motorcycle buyers and dealers, entered the market.
There is an irony here that should not be underestimated. Underbone motorcycles are derived from the original Honda Cub designed in 1958 and are viewed as 'old fashioned' in developed markets. The lack of competition in the Philippines has allowed Japanese makers to market such products unchallenged as modern. This represents a major barrier to entry for European makers who may wish to enter the Philippines.
Conclusion
Despite the lower adoption of motorcycles in the Philippines compared to Vietnam, the market is poised for significant growth as untapped demand is satisfied. Yamaha, Suzuki and Honda have made significant investments in building capacity inside the Philippines and we can expect a continuous increase in marketing activities to stimulate sales growth in particular among young people.