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Opena, Camilo Lalap

EXPORT BEHAVIOR AND INCENTIVES OF THE AGRIBUSINESS FIRMS IN THE PHILIPPINES

The Ohio State University PH.O. 1983

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University Microfilms International

EXPORT BEHAVIOR AND INCENTIVES OF THE AGRIBUSINESS FIRMS IN THE PHILIPPINES

DISSERTATION

Presented in Partial Fulfillment of the Requirements for The Degree Doctor of Philosophy in the Graduate School of The Ohio State University

BY

Camilo Lalap Opena, M.B.A.

*******

The Ohio State University 1983

Reading Committee: Approved by: Dr. Lee C. Nehrt Dr. Wesley Johnston Dr. David E. Hahn Advisor Faculty of Internationa] Dr. Charles Ingraham Business 0 Copyright by Camilo Lalap Opena 1983 To my wife Luz, and kids Aristotle and John and To my parents

11 ACKNOWLEDGEMENTS

I would like to express my sincere thanks and gratitude to the following: Dr. Lee C. Nehrt, for chairing the dissertation committee, for supervision and guidance throughout the study, and for endorsing financial assistance to the World Trade Institute. The other members of my dissertation committee. Dr. Wesley Johnston, Dr. David Hahn and Dr. Charles Ingraham, for their valuable comments and suggestions. Director Robert Keller and the World Trade Institute for financial support for the study. The Board of Investments of the Philippines, for the list of registered exporters and endorsements to the firms. Dean Pedro Sandoval, Jimmy Williams and the faculty of the Department of Management, University of the Philippines at Los Banos, for their valuable comments and suggestions. Dr. Robert Nygren and Fred Ruland for the statistical consultation and computer programs. Marjorie King, Cindy Coykendale and Mary Anne Herbst for the kind assistance on daily routines of the Ph.D. program. Dr. Uche Okeafor, Don Howard and Fred Westfall for making the office life friendly and enjoyable. Mr. Frank Turma for editing the dissertation. And finally, to my wife and kids and the whole Opena and Banayo Family, for the never-ending inspiration and moral support. Thanks to all. VITA

July 15 , 1949...... Born - Batangas, Philippines 1970...... Bachelor of Science In Agri­ business, University of the Philippines 1970-1971 ...... Research Assistant, National Research Council of the Philip­ pines 1972 ...... Instructor, University of the Philippines at Los Banos 1973-1974 ...... Scholar, Southeast Asian Regional Center for Graduate Studies in Agriculture (SEARCA) 1974...... Master in Agribusiness Management, University of the Philippines 1975-1978 ...... Assistant Professor, University of the Philippines at Los Banos 1978-1981 ...... World Bank Scholar, The Ohio State University, Columbus, Ohio 1981-1982 ...... Graduate Teaching Associate, The Ohio State University, Columbus, Ohio 1982 ...... M.B.A. The Ohio State University, Columbus, Ohio FIELDS OF STUDY Major Field: International Business Minor Field: Agribusiness Management

Studies in International Business. Professors David Ricks, Riad Ajami and Robert Driskill Studies in Agribusiness Management. Professors David Hahn, Mike Woolverton and Charles Ingraham Studies in Marketing. Professors Michael Czinkota, James Robeson and Donald Larson.

iv TABLE OF CONTENTS

Page

ACKNOWLEDGMENTS...... i ü VITA...... iv LIST OF TABLES...... -...... vii

CHAPTER I. INTRODUCTION...... 1 Background...... 1 Statement of the Problem...... 19 Limitations of the Study...... 22 Possible Contributions of the Study, 24 Organization of the Study.. 26 II. REVIEW OF LITERATURE...... 28 Overview...... 28 Export Incentive Studies... 29 Export Behavior Studies.....,.,.... 40 Export Studies in the Philippines.., 53 Summary...... 57 III. RESEARCH DESIGN...... 59 Overview ..... 59 Scope of the Study...... 60 The Availability of Incentives Criterion...... 61 The Status of Exporting Activity Criterion...... 62 The Size Critertion...... 63 The Type of Industry Criterion,..,.. 64 The Questionnaires...... 66 Hypotheses...... 73 The Universe of Concern...,..... 79 The Target Group...... 80 Data Collection...... 81 Data Analysis,...... 83 TABLE OF CONTENTS (conf'd)

CHAPTER Page IV. RESULTS AND IMPLICATIONS...... 8 7 Overview...... 8 7 MANOVA Results on Incentives...... 88 MANOVA Results on Status of Exports.... 102 MANOVA Results on Type of Industry 108 MANOVA Results on Size...... 115 Chi-Square Test Results...... 124 V. SUMMARY AND CONCLUSIONS...... 131 Summary...... 131 Conclusions of the Research...... 132 Contributions of the Study to Literature...... 138 Contributions of the Study to Philippine Policy...... 139 Areas for Future Research...... 141 APPENDICES...... 144 A. Investment Incentives Act...... 145 B. Export I::; ontives Act...... 149 C. Questionnaires...... 157 BIBLIOGRAPHY...... 167

VI LIST OF TABLES

Table Page 1. Principal Exports of the Philippines...... 3 2. Leading Exports of Non-Traditional Manufacturers...... 5 3. Traditional Exports of the Philippines 6 4. Exports of Non-Traditional Manufactures.... 7 5. Exports of Processed Foods...... 11 6. Handicrafts Exports by Type of Product 12 7. Top Export Markets for Philippine Products. 13 8. Foreign Trade of the Philippines...... 15 9a. Results of Hypothesis Testing...... 87 9b. Cell Means for Individual Factors...... 88 10. Perceived Exporting Effects...... 91 11. Perceived Processing Effects...... 91 12. Perceived Export Motivators (Initial Exporting)...... 92 13. Perceived Export Motivators (Present Exporting)...... 94 14. Perceived Export Obstacles (Initial Exporting)...... 95 15. Perceived Export Obstacles (Present Exporting)...... 96 16. Perceived Role of Export Incentives on Export Activity Decisions...... 98 17. Perceived Importance of Market Groups 99 18a. Results of Hypothesis Testing...... 102 18b. Cell Means for Status of Exporting Activity...... 103 19a. Results of Hypothesis Testing...... 107 19b. Cell Means for Type of Industry...... 108 20a. Results of Hypothesis Testing...... 114 20b. Cell Means for Size of Sales...... 115 21. Chi Square Test for Availability of Incentives and Size...... 124 22. Chi Square Test for Availability of Incentives and Status of Exporting Activity...... 126 23. Chi Square Test for Availability of Incentives and Type of Industry...... 12 7

vii CHAPTER I

INTRODUCTION

Background

The Philippines is one of the developing economies in Southeast Asia with still a predominantly agricultural economy. Its fertile land permits the cultivation of a variety of tropical products. Agriculture led the economy in the earliest period of rapid growth when exports expanded in response to trade preferences enjoyed in the US market. Hence, for the past several decades, traditional ex­ ports of the Philippines consisted mainly of agricultural commodities like coconut, sugar, lumber and their by-products, all exported in raw or semi-processed form(table 1). However, in the decades of the 50's and the 60's, the eoonomic development programs of the Philippines focused on the development of agribusiness industries engaged in processing and marketing of agricultural raw materials, both for domestic consumption and export. Agribusiness in­ dustries combine agricultural production and industriali­ zation. They provide forward and backward linkages to agri­ culture in the task of serving the needs of both farmers and consumers. In view of this, the agribusiness sector has been assured of government support as laid out in the Table I. Principal Cxports of the Philippines: 1971 -1980 (F.O. B. Vcilue in thousanJ V •S. dollars)

Conmodity^ 1971 1972 1973 1974 1975 1976 1977 1978 19 7 9 1930*

Total exports" 1,189,247 1,168,433 1,037,188 2,724,989 2,294,^70 2,573,676 3,,150,887 3,424,8-6 4,601,19v 3,593,910

Total, ten principal exports 381,593 861,869 l,378,06o’’ 2,093,038 1,586,080 1,573,776 1,,884,745 1,779,325 2,271,3^3 1,689,558

Coconut oil 102,016 82,826 151,083 380,021 225,795 294,839 412,238 620,572 742,513 260,587 Copper concentrates 153,128 174,635 290,281 393,184 212,081 265,879 267,800 250,387 440,360 303,520 Sugar 220,124 210,552 273,966 737,966 580,736 426,522 511,708 196,903 211,553 267,509 Lumber 10.650= 14,786= 35,117 30,068= 27,229= 68,195 66,682 85,190 198,345 88,231 Logs 196,043 157,339 303,564 215,643 166,881 135,222 133,834 144,869 144,407 51,688 Iron ore agglomerates 8,342= 8,298= 16,736= 11,537= 11,905= - 57,047= 103,967 120,016 65,441 Plywood 24,115 34,140 58,057 26,089 20,602 43,165= 40,589= 71,970= 107,183 48,176 Desiccated coconut 21,723 18,930 32,456 60,300 30,429= 37,494 90,047 81,888 107,001 56,537 Gold - - 25,110= 53,104 53,251 48,921 58,729 75,738 103,280 122,855 Bananas and plantains 15,389 24,580. 27,831 45,479 73,104 75,618 72,461 84,127 96,685 57,674 Copra 107,773“ 118,717= 165,764= 139,784= 172,318= 149,722= 200,525= 135,684= 89,128 24,017 Copra oil cake/meat 15,942= 17,470= 22,785 27,887 33,331= 54,523 58,151 69,059 85,519 32,615 Nickel, unwrought — — —— 29,609 54,335'* 70,721= 50,160 79,036 59,306 Pineapple, in syrup 25,340 22,680 19,696 30,625 34.705 46,739 55,508 59,766 73,756 40.261 Non-glutinous rice, semi-milled or wholly milled, whether or not polished or glazed 11 5,200 14,451 46,330 30,849 Sulfides, metallic (including polysulfides) 6,900 6,079 16,302 15,874 45,284 Coffee, not roasted raw or green 50 7 2,583 24,676 44,618 33,526 43,730 34,422 Shrimps and prawns, fresh chilled or frozen 11,102 6,386 7,056 14,413 16,608 20,363 35,-50 Veneer - ---- 17,882 20,073 22,278 34,590 19,211 Tun.i. frozen (except fillets) ------13,296 19,377 3m ,438 32,914 Trousers, breeches & the like, men’s & boys' outer­ wear of cotton, not knitted 136 1,080 5,039 3,777 18,746 23,978 23,820 29,461 Furniture, n.e.s. of rattan - - - 2,839 2,833, 5,242 11,190 13,6 10 -8,502 .9,3": Molasses, inedible 12.0 73 10,826 18,366 27,671 33,878= 24,410 20,459 16,0m : 2^,860 ■8,53 3 Abaca fibers, 'jnmanufacc»jreJ 13,155 13,018 19,631 37,533= 14,544 18,477 17,515 15,233 25,365 16.7-5 Chrome ore 6,037 6,194 9,179 12,569 12,319 14.836 25,098 24,592 ::,-;i 16.5 32

,Ba s e d on 1974 rankink'.. ‘"Sun jf domostic export ^ inc fi , xp^rts. From Jjtiu.iry to June onlv. Includes 539,961 th':i;s.iui vort oi cold bullion exports, but do not appear in the list, ^ni: -.jt "...iKc it t>’ the I 'r • pilncipal rxports tor the yeir. e c u pri:.oip.il ' . r the .'eir.

',e; burertu ; ; 1- 're !.. i Tr i i p p ire 'i ea r h o o k . 19‘lj . 3 economic development plan prepared by the National Eco­ nomic Development Authority(NEDA) of the Philippines(Appen­ dix A). Agribusiness small and medium= scale industries in a rural economy can absorb a substantial fraction of excess labor from the farms. They can open markets and provide financing and technical links to small farmers. Agribusiness industries will directly expand the employment of both farm and landless rural families in agricultural production and off- farm enterprises. Hence, they can improve income distribution and help the government decentralize indus­

trial development to the rural areas.^ Expanding agricultural exports through production of processed or semi-processed commodities in substitution for traditional primary exports has been a major develop­ ment strategy in many less-developed economies. Popular belief among trade economists as well as policy-makers that less-developed countries have a comparative advantage in the processing of primary products before being sold in the export market has added much weight to the conclu- 2 sion that there is a need to promote processed exports.

William Rodgers, " The Role of Small Agribusiness Firms' in Agricultural Development", Agribusiness Worldwide. January, 1982 , p.14. . , .

^ Q.M. Meier, "Industrialization via Export Substitu­ tion", Leadirig_I^saeBin_Economic_^^ Uni- versity Press, New York, 1976, p.6yi. 4 It is widely acknowledged that less-developed econo­ mies like the Philippines have a comparative advantage in the manufacturing of resource-based, labor-intensive processed primary products.

From 1970-79» the growth of exports of non-traditio- nal manufactures like electronics, garments, handicrafts and processed foods has been tremendous. The FOB value in million US dollars of non-traditional manufactures in= creased from $94.52M in 1970 to $1,519-531VI in 1979(table 2). This is indicative of the growing role of non-traditional manufactures in the exporting activities of the Philippines, It is interesting to note that from 1976 to early

1 9 8 0, traditional exports grew at an annual average growth rate of only 14.48# while that of non-traditional exports grew at 35■ 32?5(table 3)* Some of the non-traditional ex­ port products like copra and sugar suffered negative growth rates for the period mentioned. Other traditional exports like logs and tobacco showed very low average export growth

rates of 2^ and 6fo respectively. In terms of non-traditional manufactures(table 4), it can be noted that all of the product categories exhibited significant increases from 1976 to the first quarter of

1 9 8 0. Electronics, for example, had an average growth rate

of 71^ with a major share in total exports. Footwear and furniture had average growth rates of 1239& and 84^ but Table 2. Leading Exports of Non-Tradxtional Manufactures: 1970-1979. (F.O.B. value in million U.S. dollars)

Itea 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979

Total 94.52 107.53 115.98 226.79 327.36 374.25 573.62 769.34 1,076.16 1,519 .53

Electrical and electronic equipment and components - 0.28 0.44 11.32 27.11 47.25 84.98 124.26 253.44 412 .49 Garments 36.21 35.73 38.80 57.96 94.03 107.02 184.66 249.67 326.34 404 .22 Handicrafts 6.52 9.16 12.88 27.38 46.00 78.18 94.83 84.06 100.11 133..56 Chemicals 5.42 6.97 6.28 10.59 15.92 22.09 27.01 54.15 59.89 112,.81 Food products and beverages 8.25 8.99 11.21 15.01 17.48 14.66 28.68 43.67 46.76 57..03 Non-metallic mineral manufactures. particularly cement 3.02 11.00 9.95 25.16 36.40 32.22 28.07 38.64 42.20 30..31 Textile, y a m , fabrics and related 8.73 15.15 12.41 23.61 31.,42 products 2.81 5.29 3.54 17.31 7.16 8.73 15.15 12.41 23.61 31..42 Machinery and transport equipment 1.06 2.10 2.12 3.43 5.48 9.53 16.11 26.11 36.87 47..31 Wood manufactures excluding plywood. veneer and lumber 3.95 5.69 7.72 17.23 24.80 16.88 15.48 13.83 20.67 31..38 Cordage, cable, ropes anû twines 1.93 2.10 3.14 4.55 9.71 7.63 10.35 12.35 12.48 16..79 Furniture and parts -- -- - _ 9.76 21.75 26.64 54.,89 Footwear ------5.04 10.20 32.18 50..26 Others 25.35 20.22 19.90 36.85 43.26 30.06 53.50 78.24 94.27 137..06

Source: Bureau of Foreign Trade: Philippine Yearbook, 1981. Table 3. Traditional Exports of tbe Philippines (1976-198D) . (^^OB Value in Million U.S. Dollars). Ave. Annual. 1976 1977 1978 ■ 1979 190 Growth Rate Traditional Exports Coconut products 536.57 728.86 871.66 964.86 171.46 22.04 Copra 149.72 200.52 135.68 89.13 13.85 (10.91) Coconut oil, crude 294.84 380.14 585.03 683.21 116.94 33.20 Dessicated coconut 37.49 90.05 81.89 107.00 25.03 53.93 Copra meal & cake 54.52 58.15 69.06 85.52 15.64 16.42 Forest Products 267.92 261.43 324.32 484.59 101.34 23.69 Logs 135.29 133.73 144.87 144.11 29.53 2.29 Lumber 68.20 66.99 85.20 198.36 39.22 52.74 Plywood & Veneer 64.43 60.71 94.25 141.83 32.69 33.32 Mineral Products 280.72 292.90 274.98 462.99 185.79 22.20 Iron ore Copper concentrates 265.88 267,80 250.39 400.36 179.01 23.36 Chrome ores 14.84 25.10 24.59 22.63 6.78 19.71 Base metal ores and concentrates - - Sugar Products 450.93 526.81 212.94 238.44 74.20 (10.26) Centrifugal sugar 426.52 506.35 196.90 211.55 67.15 (11.65) Molasses, inedible 24.41 20.46 16.04 26.89 7.05 9.95 Gold 16.43 71.27 75.74 103.28 66.03 125.47 Pineapple, in syrup 46.74 55.91 59.77 73.76 23.46 16.64 Petroleum products 11.35 17.97 20.71 35.65 12.70 48.57 Gas, oil 0.02 0.26 - 4.25 - 496.74 Petroleum products for int'l. delivery 11.33 17.71 20.71 31.40 12.70 41.62 Tobacco, unmanufactured 27.51 27.88 29.30 32.51 6.12 5.80 Unmanufactured abaca fibers 18.48 17.52 15.29 25.37 6.92 16.00 Sub-total ,656.65 2,000,55 1,884.71 2,421.45 648.02 14.48 Non-traditional Exports 441.66 38.40 Manufactured 573.62 769.52 1,076.16 1,519.53 214.61 28.93 Unmanufactured 291.69 351.14 435.99 620.21 61.96 Special Transactions 0.14 0.45 0.29 0.29 0 .11 35.32 Sub-cotal 865.45 1 ,121.11 1.512.44 2.140.03 656.38

Other Special 10.69 8.26 (8.54) Transactions 27.95 14.97 5.89 4,572.17 1,312.66 21.95 Domestic Exports 2.550.06 3.136,.63 3,403.04 29.02 15.47 Re-exports 23.62 14,,26 21.84 1,312.66 21.83 TOTAL EXPORTS 2,513.68 3,150,.89 3.424.88 4,601.19

.First quarter of 1980 only. Covers the period 1976-1979.

Source; Foreign Trade Statistics of the Philippines. National Census & Statistics Office. Tabla 4. Eaparta af ■aa-Tradlelaaal Mtoafacearaa 1976 - 1980^ < r a Talaa U Mllllan VI Dallart)

1976 1977 1978 1979 1980^ Àaarata àmatal Crawth Bata 1 lactrleal & alaetraate aoelpmaat & oi#iaiata 84.98 124.26 293.44 412.49 139.18 70.98 gin— ta 184.66 849.67 326.34 404.22 98.92 29.93 ■aallcrafta 94.83 84.06 100.11 133.56 36.93 13.71 Chaalaala 27 .n 94.19 99.89 112.81 29.89 66.48 Voad vrodacta & baaaraga# 28.68 43.67 46.76 97.03 23.49 27.10 Varataire * parta 9.76 21.79 26.64 94.89 17.44 83.79 Vaataaar S.64 10.20 32.18 90.26 17.23 124.68 Machlaary 4 traaapart ■ y < p — t 16.11 26.11 36.87 47.31 11.17 43.87 Taxtlla, para. SAriaa 4 ralatad pradaeta 15.19 12.41 23.61 31.4213.21 39.88 BatU a r a * aaalwark 4 athax aaad aaaafac- taraa aniadlas plyaaal, aaaaar 4 UaÉhar 19.48 13.83 20.67 31.38 6.12 30.20 Da«#ataille aiaaral maaafaetarai, parti- calaarly caaaat 28.87 38.64 42.20 30.31 10.81 6.23 Cardaca, tabla, rapaa 4 twlaaa 10.19 12.39 12.48 16.79 3. 18.40 Otbara 93.90 78.24 94.97 137.06 33.36 37.31

Ta tel D p a r t a af Vaa- TradltlaMl Maafaetaraa 973.67 769,97 1.076.161.919.53 441 .66 38.40

î/ Virât vaartar s( 1980 aoly

3/ Caaare tha rarloO 1976 - 1979

Baarea of Balle Data; V e r a l m Irada Statlitlca of tha ThlllaaUai j Ratlaaal Canaaa * Statlatlea Office ,

Vraparad by; 801 - I D 8 with very low shares in terms of total exports of non-

traditional manufactures. Garments showed a 30?^ average growth rate and a major share in total exports. Handi­ crafts showed a 14?5 average growth rate while food products had Z7fo, with both products having relatively high shares of total exports. On the overall, the exports of non-traditional manufactures had been opening tremendous opportunities for processing indigenous raw materials from Philippine agriculture and exporting the finished products in the world markets. A case in point is the food processing industry. Food manufacturing has existed in the Philippines for many years. The first brewery was built in 1890, a sugar mill as early as 1914, and a pineapple canning plant in 1920. Filipinos have been drying and fermenting fish, curing meats, and producing many processed foods, as a matter of tradition. With the government emphasis to achieve self-suffi­ ciency in food and its recognition of the need to deve­ lop agro-industrial establishments in the Philippines, the food manufacturing industry expanded. The industry today produces a wide variety of products, most of which, only a few years ago, were imported. Canned and cured meats, pregerved fruits, canned 9 vegetables, confectioneries, snack items, dairy products, coffee, noodles and traditional food products that emerged from predominantly kitchen-scale operations, are now common items in supermarket shelves.^ Food manufacturing today is an important sector of the entire manufacturing establishments. It produces about one-fourth of the value added in all manufacturing sector and employs one-fifth of the total manufacturing labor force. In general, the food processing industry is producing Western-type processed foods using established food pro­ cessing technology and adapting these to local raw ma­ terials. The quantity and value of selected processed foods exported from 1977-81 are shown in table 5- Processed fish topped the list in terms of FOB values, followed by

confectioneries, processed fruits and vegetables, cereal products and processed meat in that order. The Ministry of Trade has identified very recently frozen and processed tuna and dessicated coconut as two of the most promising export products this year. The World Bank has identified fish, meat, fruit and vegetable processing as key agri­ business areas with very high potential for export deve- lopment.

3 Alicia Lustre, " The Food Processing Industry of the Philippines", Paper presented at the Symposium on Food Processing, Asian Productivity Organization, japarl,' 1977.’

^ World Bank Mission Report, Philippines, 1976 JO

Table ,5 . Exports of Processed Foods, F.O.B. value in thousand $ (1977-81)

1981 1980 1979 1978 1977

Processed meat 1,444 1,475 1,370 985 609

Processed fish 55,708 34,138 8,264 6,451 1,863

Cereal products 2,753 1,985 1,833 1,414 1,152

Processed fruits and vegetables 3,749 7,931 4,601 3,370 3,420

Confectioneries 4,305 1,663 1,399 2,493 2,680

Others 56,379 33,482 17,320 14,850 15,439

Total 124,338 80,674 34,787 29,563 25,163

Sournft! Bureau of Foreign Trade, Philippine: 11 Another industry in the Philippines that has become a major non-traditional export processor is the handi­ craft industry. The craft industries play a pivotal role in the economic development of less-developed eco­ nomies. As vital to the national economy as boosting the Philippines' foreign exchange reserves is the in­ dustry's capacity to generate employment, thus allevia­ ting the unemployment problem. As of 1980, the handi­ craft industry has given employment to some 148,145 factory workers and 766,880 contractual workers, a total of 915.021 workers.^ Philippine handicrafts has taken its place in the ranks of the country's dollar earning industries. The distribution of Philippine handicraft exports from 1971 to 1980 by type of product is shown in table 6. By type of product, the handicraft industry covers shellcraft, bags and baskets, fibercraft, shopping bags, articles of basketware and household utensils. As shown on the table, the export performance of all types of handicrafts, especially articles of basketware and bags and baskets, has been improving tremendously. In terms of markets, the top export markets for Philippine products are the United States, Japan, West Germany and Holland(table 7). Exports to these markets

^ Bureau of Foreign Trade, Registration Division. Iiale ", Handicrafts expurls bv type ,f product 1571-1980, Philippines,

1971 1975 197o 197' 19 76 1979 1980'“

HanâicrafCs 9,308 53,398 61,798 5o,907 59,701 99,4uj

Household I'censiis of Wood :,349 19,839 12,654 6,648 8,073 10,051 12,150

Carved Articles of Wood 1,393 6,168 5,541 7,167 5,622 9,521 2,781

Shellcraft 586 21,623 12,045 7, 796 5,819 7,136 9,23;

Imitation Jewelry 2,779 3,395 3,811 7,988 12,656 11,057

Bags and Baskets 38 2,944 5,133 8,486 14,762 19.118 19,395

Shopping Bags, Handbags, and Purses 15 1,200 5,344 2,055 1,353 1,884 ; ,8 32

Articles of Basketware or of Wickerworks 92 3,127 7,438 11,671 12,109 20,72 5 30,?''.

Plaiting Materials - 5,223 9,768 6,„63 4,475 3,325 9 ,

Source: Philippine Export Cou:icil. Bureau of Foreign Trade.

‘ Preliciinarv TABLE 7

TOP 10 EXWHT MARKETS (F.O.B. Value In US$)

19R0 C hange RM* COUNTRY 1 9 8 1 4 . 4

TOiM. 5,722.156,764 5,787,787,554 100.0 (1.13)

U N in s f f m m 1,740,476,065 30.4 1,576,404,547 27.2 10.41 3 . JAPAN 1,250,486,998 21,9 1,533,332,615 26.5 (18.45) 3 . v e im a js s s (nouand) 319,807,637 5.6 365,768,295 6.3 (12.56) 4 . WEST GBVWIY 240,253,467 4.2 255,061,389 4.4 (5.81) S. mxaccNG 221,721,358 3.59 1*1,653,268 3.3 15.69 6 . K x m , REPUBLIC or 198,300,846 3.5 202,553,447 3.5 (2.10) 7 . UNITED KINSXM CT OlEAT BRITAIN AND NORTHBVl IRELAND 192,924,936 3.4 146,608,676 2.5 31.59 8 . UNION OF SOVIET SOCIALIST republics (USSR) 171,007,224 3.0 l*'),2>n,1?o 3.3 (9.661 9 . INDONESIA 153,624,107 2.7 107,162,245 1.9 43.40 10. S2SBACQBS 12S.232.55&- . 2.3 112.612.800 1.9 14.75

Source I Bureau of Foreign Trade 14

constitute about 60^ of total export sales of the Philippines. The United States is still the most important export market for Philippine products, especially for agricultu­ ral exports. The Philippines had enjoyed preferential agreements with the United States through the Laurel- Langley agreement which terminated in 1974. The termina­ tion was a serious blow to the Philippines' balance of trade. Continous efforts have been generated to find new markets for Philippine products. There is growing interest now for the European Economic Community and the Middle East markets, as evidenced by the increasing promotion for Philippine products in these regional trading centers. In the case of the Middle East, there is massive export­ ation of Filipino workers to the region which opened mar­ ket opportunities for Philippine products, especially processed foods. The termination of trade preferences for Philippine products in the US markets, coupled with the huge price increases in oil imports from OPEC countries caused ser­ ious effects on the balance of trade of the Philippines. This is evidenced by the fact that while the Philippines had been suffering deficits in balance of trade as far back as 1954, the deficits have been increasing at a higher rate since 19?4(table 8). 15 In recognition of this problem, Republic Act no.61351, otherwise known as "Export Incentives Act" was formulated so as to grant incentives and exemptions to registered export producers, export traders and service exporters (Appendix B).^ Republic Act no. 6135 states " A policy of the State to actively encourage, promote and diversify exports of manufacturing and of services utilizing do­ mestic raw materials to the fullest extent possible, and to develop new markets for Philippine products in order to attain a rising level of production and employment, increase foreign exchange earnings, hasten economic development of the nation and assure that the benefits of development accrue to the Filipino people". Furthermore, to streamline investments, the Board of Investments prepared a list of specific incentives for the investors in agro-industrial enterprises(Appen­ dix A)^ Based on the plan, specific companies engaged in agribusiness were identified as priority firms and in the preferred areas for investment and export incentives.

Preferences were given to companies that are processing indigenous raw materials for Philippine agriculture, have high export potential and are labor-intensive in­ dustries. Among the listed projects were grain processing, meat processing, fruit and vegetable processing, fish processing and various handicrafts.

^ Prepared by the Board of Investments, Philippines Table 8. Foreign Trade of tile Philippines: 1954-1930 (r .0.8. Value in million U.S. dollars).

Exports^ Imports Balance of trade Total Average Average Year Percent to Percent to favorable (+) Trade Value exchange Value exchange total trade total trade unfavorable (-) rate rate

1954 863.73 412.09 47.71 2.000 451.64 52.29 2.000 39.55- 1955 955.60 419.26 43.87 2.000 536.34 56.13 2.000 117.OB- 1956 982.29 472.68 48.12 2.000 509.61 51.88 2.000 36. 93- 1957 1,052.05 430.66 40.94 2.000 621.39 59.06 2.000 190.73- 1958 1,013.09 459.81 45.39 2.000 553.28 54.51 2.000 93.47- 1959 1,026.50 505.54 49.25 2.000 520.96 50.75 2.000 15.42- 1960 1,159.96 535.44 46.16 2.000 624.52 53.84 2.000 S9.08- 1961 1,162.92 540.75 46.50 2.000 622.17 53.50 2.000 81.42- 1962 1,170.51 580.28 49.57 3.430 590.23 50.43 3.820 9.95- 1963 1,415.93 770.57 54.42 3.708 645.36 45.58 3.854 125.21+ 1964 1.581.42 779.38 49.28 3.900 802.04 50.72 3.874 22.66- 1965 1,630.99 795.74 48.79 3.900 835.25 51.21 3.874 39.51- 1966 1,751.02 877.41 50.11 3.900 873.61 49.89 3.890 3.80+ 1967 1,952.45 891.50 45.66 3.900 1,060.95 54.34 3.902 169.45- 1968 2,157.25 962.11 44.60 3.900 1,195.14 55.40 3.913 233.03- 1969 2,164.95 983.17 45.41 3.900 1,181.78 54.59 3.913 198.61- 1970 2,301.49 1,142.19 49.63 5.729 1,159.30 50.37 5.764 17.11- 1971 2,450.08 1,189.25 48.54 6.305 1,260.83 51.46 6.391 71.58- 1972 2,502.03 1,168.43 46.70 6.682 1,333.60 53.30 6.605 165.17- 1973 3,433.81 1,837.19 53.50 6.755 1,596.62 46.50 6.754 240.57+ 1974 5,868.25 2,724.99 46.44 6.791 3,143.26 53.56 6.772 418.27- 1975 5,753.65 2,294.47 39.88 7.238 3,459.18 60.12 7.230 1,164.71- 1976 6,207.16 2,573.68 41.46 7.384 3,633.48 58.54 7.466 1,059.80- 1977 7,065.65 3,150.89 44.59 7.346 3,914.76 55.41 7.436 763.87- 1978 8,157.07 3,424.87 41.99 7.314 4,732.20 58.01 7.392 1,307.33- 1979 10,742.92 4,601.19 42.83 7.323 6,141.73 57.17 7.400 1,540.54- 1980 6,356.90 2,762.99 43.46 n.a. 3,593.91 56.54 830.92 -

Sum of domestic exports and re-exports.

Source: Bureau o f Foreign Trade

Includes late entries submitted to Customs in 1972, by Elizalde Steel Rolling Mills, Inc., aggregating $34,944,351 (1968- $1,907,807; 1969 - $7,765,874; 1970 - $12,558,442; 1971 - $12,512,228); by Calinog-Lambunao Sugar Mill Integrated Farming, Inc. aggre­ gating $9,399,699 (1969 - $8,737,599; 1970-$220,129; 1971-$44,971) and by Dacongcogon Sugar & Rice Milline Co., Inc. aggregating $393,069 (1970 - $300,506; 1971 - $92,563).

O n 17 Most of the projects are export substitution in na­ ture and involved processing of indigenous raw materials. Traditionally, the Philippines has exported these products in raw form and then imported finished products as true of other developing countries. Inadequacy of local tech­ nical expertise and capital are two of the reasons for this. With the entry of foreign investments and increased local entreprenuership, the processing of local raw ma­ terials and exporting them in semi-processed or processed form is being encouraged. The specific export and investment incentives granted to the recipient companies can be categorized into : tax credits protection from infringement of patents capital gains tax exemption accelerated depreciation deduction of pre-operating and organizational expenses net operating loss carryover employment of foreign nationals h) anti-dumping protection

1 ; deduction of freight expenses j; deduction of research and development expenses k) deduction of labor training expenses

1) free use of foreign exchange The export incentive program was done on a very gene­ ralized approach regardless of the size of firm, type of 18 product or industry, status of the exporting activity, and type of ownership of the firms. Some of the poten­ tially eligible exporters who applied to the program were rejected. This led to two groups of registered ex­ porters in the Philippines, one group exporting with incentives, and another group exporting even without the incentives. The applications are processed through the Board of Investments, which is under the Ministry of Trade and Industry. For the agro-industrial enterprises, evaluation of the project studies is administered under the agro-in­ dustrial division of the Board of Investments. Judging from the list of companies registered with the Board of Investments, the majority of the exporting companies are Filipino-owned. A major criticism in the administration of the program was its bias towards the big and influential firms. Some of the people administering the program have tie-ups with some of the exporting firms. Excessive paperworks and delays are also claimed in processing the applications. The Philippines is still in the process of locating potential oil sources. The heavy dependence on foreign oil will be a lingering problem to the balance of trade. It is very critical, then, that the export and investment incentives be able to encourage increased exports so as to alleviate the balance of payments position of the 19 Philippines. High export potential was identified in the non-traditional export manufactures group which process indigenous raw materials from Philippine agriculture.

How the agribusiness exporters reacted to the export incentives granted and which type of incentives / they felt to be relevant and adequate to their exporting activities will be the main focus of the study.

Statement of the Problem

By and large, exporting is a very desirable and pro­ fitable activity for Philippine enterprises. Should there be a possible export opportunity, channeling as much pro­ ducts as possible in the export market is considered the best course of action. Very high profit expectations are attached to the export market. It is widely acknowleged that exporting is more profitable than selling in satura­ ted local markets. Besides, being in the export market is a status symbol for many firms. In the case of agricultural products in general, the abundance of the products coupled by low local demand is a major reason of going into the export markets. For handicrafts, Filipino households consider them too common or too local for their use. There is very little local demand consisting of high-income buyers and tourists in the urban areas. However, the demand is too small while 2 0 the stores are concentrated in the tourist belts, making the domestic price much lower than the export price. In terms of local market for processed foods, the Filipinos are generally fresh-food eaters. Also, fresh foods are generally cheaper than manufactured foods. Con­ sidering the low income per capita of the bulk of the popu­ lation, very few households will prefer processed foods. Furthermore, many households are capable of processing and cooking their own meat, fruit and vegetable products be­ cause the housewives are not working. Hence, big food manu­ facturers have no recourse but the export markets. Despite the high enthusiasm of the firms in going to the export markets and the desirability of exporting,. as set by the economic environment surrounding the local mar­ ket of these products, the impact of global recession and stiff competition are major problems for the exporters. In a developing economy like the Philippines, where the exporters are mostly small and have limited financial and managerial resources, export incentives could play a crucial role in the export performance and export activity decisions of the companies. As will be seen in the next chapter, a review of the literature hints that export incentives are important but not critical motivators to exporting. The studies, however, weœ conducted mostly in the developed economies, though, the respondents are small and medium-sized firms. A small 2 1 scale firm in a developed economy might be in the large category in most less-developed economies. Besides, though small, companies in the developed economies have greater financial and managerial resources than most firms of the same category in less- developed economies.

The past studies made very general statements, often­ times opinions, as to the role of export incentives in the decision-naking process of exporting. In fact, export incentives were just a minute part of many studies, and no specific issues as to the role of export incentives in export decisions were addressed. In the Philippines, export behavior and incentives as a field of research are very understudied areas. None of the various articles and dissertations reviewed dealt specifically on export behavior and incentives for Philip­ pine exporters. In terms of policy-making, it is relevant that the behavior and needs of the clientele be incorporated in the policy-making process. This study focuses on the export behavior and export incentives of selected agribusiness industries, being re­ cipients of both export incentives(Appendix B) and invest­ ment incentives(Appendix A). Specifically, the study ad­ dresses the following research questions; 1. What are the perceived motivation and obstacle factors to exporting by the agribusiness exporters? Is export assistance perceived as an important motivator to 2 2 exporting? Is the lack of export assistance considered as a serious obstacle to the export decision and to the present exporting activities? 2. What are the perceived benefits associated with exporting and the additional processing of the products by the agribusiness exporters? 3. Is availability of incentives a factor in the ex­ porting activities of firms? Can other criterion variables like size, status of the exporting activity and type of industry be a factor in the exporting activities of the agribusiness firms? 4. Which of the granted incentives are perceived by the firms as very important to their export activities? Which of the various types of incentives are perceived to be adequate and which types are not adequate? What is the perceived role of export incentives in the export activity decisions like export expansion and export promotion? 5. What particular market groups are being perceived as very important to the future exporting activities of the agribusiness firms in the Philippines?

Limitations of the Study

The sample size of 102 companies is very small. Also, having only processed food and handicraft industries in the study posed serious threats to the generalizability of the 23 study across agricultural exports. The export industry of the Philippines is largely dominated by raw agri­ cultural exports like sugar, coconuts, coffee and bananas. Hence, generalization across agricultural exports should be done with caution. However, within the confines of the agribusiness export manufactures, the processed food and handicraft industries are the best choices. There­ fore, the results of the study should be generalizable to agribusiness export manufactures. However, the small­ ness of sample size would still be a limitation. The study is exploratory and descriptive. The sample size is limiting to perform in-depth analysis of causality. Hence, implications in terms of policy need further evi­ dence and a bigger sample size. Also, the inclusion of industrial products like electronics would largely im­ prove the generalizability- of the exporting behavior results. Another limitation of the study in terms of genera­ lizability is the non-inclusion of exporters not regis­ tered with the Board of Investments. The exporters regis­ tered with the Board could be classified as more prog­ ressive and probably larger exporters than the non-regis- tered ones. The perceived export obstacles might be viewed by the non-registered exporters as being very serious. The non-registered exporters are probably experiencing 24 greater decreases in export volumes than the regis­ tered firms. Along this line, the concentration of the sample in Greater Manila area is another limitation of the study. The exporters around Manila and vicinity are probably larger and more progressive than exporters far from Manila. Proximity to export trading companies, fi­ nancial centers and other assistance centers has placed Manila companies at an advantageous position. In view of this limitations, it is felt that the perceived export problems might be more serious for the exporters not registered with the Board and far from Manila. However, in as much as the evaluation of the export incentives can only be done by those that did receive them, the study was limited to the exporters registered with the Board of Investments.

Possible Contibutions of the Study

Possible Contributions to Literature The study will clarify a de-emphasized factor in the export activity of firms; the role of export incen­ tives in the initial and present export decision process. The role of export incentives in export activity deci­ sions like expansion of export volumes, increased pro­ motional efforts in the export markets, and increasing export production capacities will also be studied. 25 The developed models on the pre-export behavior of firms did not consider the export assistance as a background variable in the initial export decision process. Even in terms of increasing export volumes, no refe­ rence was made as to the role of export incentives in generating enthusiasm to increase export volumes. Many of the developed models of a firm's pre-export behavior considered technology advantage, unique product, and management aspirations for profit and growth as backgound motivational factors to initiate exporting, but net export incentives. Furthermore, this study will investigate export behavior in a less-developed economy setting where agricultural rather than manufactured exports predomi­ nates. The study will verify the universality of the motivational and obstacle factors to the exporting deci­ sion found to be applicable in the developed economies.

Possible Contributions to Philippine Policy The major contribution of this research will be the evaluation of the export incentives in an effort to develop policy guidelines as to how the incentives program can be improved. The various types of incentives granted so far will be evaluated as to importance and adequateness in terms of the needs of the agribusiness exporters. Exporters without incentives were also asked 26 about their perception of the role of export incen­ tives in key export activity decisions like export expansion and export promotion, assuming that the export incentives were made available to them. In the Philippines, the export incentives are also tied up to the investment incentives, giving priority to pioneering industries that are engaged in the pro­ cessing of indigenous raw materials and exporting the products in processed form. This research will identify what specific types of incentives have been beneficial to the firms so far and what particular types of firms have been benefited most by the incentives. The provision of incentives was also done on a generalized approach regardless of the product or in­ dustry. This study will verify the applicability of this approach to the handicraft and food processing industries.

Organization of This Study

Chapter II is the review of the literature. Various studies done on export behavior and incentives found relevant in this research undertaking were reviewed to set the stage for the study. Various gaps in the lite­ rature were identified and the strengths and weaknesses of past studies were presented. 27 , Chapter III describes the research design employed in the study. The interview approach to data-gathering is discussed. Also, the various analytical approaches like univariate and multivariate analysis of variance and chi-square tests of relationships among variables are presented. The features of the questionnaires and sampling method are also discussed in this section. Chapter IV deals with the results and implications of the study. The tabulated results across the criterion variables are analyzed and compared. Together with the chi-square test results, implications in terms of export behavior and incentives are inferred. The pre­ cautionary factors in drawing implications are also discussed especially limitations as to generalizability and causality.

Chapter V summarizes the highlights of the study and conclusions. Policy implications of the study are discussed and important differences in terms of the criterion variables are summarized. Limitations ^and areas for further research are identified in the light of the findings of the study. Improvements of the export incentive administration through the Board of Investments are recomiriended. CHAPTER II

REVIEW OF LITERATURE

Overview

The purpose of Chapter II is to review the past studies relevant to the research problem and methodology presented in Chapter I. The review of literature consisted of both the Philippine studies and export behavior and incentive studies done in the United States and other countries. As far as Philippine studies are concerned, the majority of the studies are master's dissertations and economics in nature. None of the studies had really dealt on the business side of exporting. Hence, this study will be the first of its kind in the Philippines. On the other hand, the studies reviewed, regarding the U.S. and other countries' experience in export incentives and export behavior, were mostly doctoral dissertations and have industrial companies as respondents. None of the studies touched on the agribusiness sector of exporting, which is the strong sector in most less-developed economies. The review of literature was divided into three parts:

A. Export Incentive Studies 28 29 B. Export Behavior Studies C. Export Studies in the Philippines

A. Export Incentive Studies:

Olson^ studied export promotion measures for the Swedish textile and clothing industries. The three major export pro­ motion programs were evaluated, namely: export activity sub­ sidies, collective market investigations, and collective exhibitions. In terms of the tax incentives, the study found that many firms, especially the less experienced ones, applied for export activity subsidies as part of the program to build up new market representations, inspired by the results of the search for new export opportunities. When the projects were initiated, the decision-makers in the firms which lacked mar­ ket-specific experience perceived considerable uncertainty over the export market. A majority of the less experienced firms reported that they would have marginally reduced the scale of their export activities had they not received any export subsidies. In the case of the export-experienced firms, the decision-makers reported that the scale of their export activities within the frame of the observed projects has been unaffected by the export subsidies. Advertising and trade fair participation were mentioned as the areas which could have been sacrificed without the subsidies.

Hans C. Olson and Finn Weidersheim-Paul. The Export Propensity of the Non-Exporting Firms, Working Report, Depart­ ment of Business Administration, University of UPPSALA, Sweden (1975), pp. 5-73. 30 In terms of collective market investigations, firms which participated in the collective market investigation pro­ gram called ECK (Export Action for Central Europe) were inter­ viewed. The results indicated that the market services pro­ vided by ECK, such as market reports, list of customers, and individual services, were considered very valuable by the firms. A majority of the firms reported that ECK has supplied them with more complete information about the markets of cur­ rent interest than they had ever previously had in prépara- 2 tion for entry into a new market. Those who held this opinion also believed that they had been able to reduce their own efforts for information collection due to the ECK. From the results, it was obvious that the collective market investi­ gation has meant considerable benefits to the participating firms. In terms of collective exhibitions, decision-makers in the less market-experienced firms placed greater importance than those in the more market-experienced firms on information collection as a motive for their participation. The former group, to which the collective exhibitions were more often the only activities carried out in the market during the period, have also more generally been able to specify valu­ able information collected in connection with the collective exhibitions.^ This may be the reason why the less experienced

^Ibid., p. 56. ^Ibid., p. 58 31 exporters reported that the experience drawn from the collec­ tive exhibitions will cause changes in their subsequent mar­ ket plans. An overriding conclusion from the whole study is that export stimulation measures affect a firm's export behavior in different ways, due to the differences in their degrees of previous export experience.^ Consequently, an export stimula­ tion program should first identify the target group's needs in terms of the previous export experience. Furthermore, the results indicated that the export sub­ sidies were found to have their largest influence upon firms with little or no previous export experience. A study of the effect of tax incentives on exports, its implications to policy makers, was conducted by Rabino.^ The major research question addressed in the study is: Do Ameri­ can manufacturers view DISC (tax incentive to export] as assisting them in becoming more competitive in export markets? A DISC is a U.S. corporation that has been granted a limited tax deferral on a portion of its profits from export sales of products that are manufactured in the United States. The study examined the perceptions of executives in the DISC-electing firms regarding the export stimulating effects of DISC. It was hypothesized that DISC affected promotion.

'^Ibid. , p. 59, ^Samuel Rabino. "Tax Incentives," Journal of Interna­ tional Business Studies, Spring, 1980, pp. 74-82. 32 production, and planning considerations for firms having the following characteristics: high sales volume, long involve­ ment in export marketing, export high technology products, and high proportion of exports to total sales. In-depth interviews were conducted with corporate offi­ cers and tax consultants in designing the research question­ naire. The resulting questionnaire was then pre-tested with six high-ranking officers in multinational corporations and with two presidents of small companies. Four independent vari­ ables were identified: size, export intensity, export exper­ ience, and the firm's products. The revised questionnaire was then sent to the chief executive officers of the respon­ dent firms. To measure the degree of the firm's evaluation of DISC, a rating scale was used indicating the respondent's agreement or disagreement to a set of statements about the possible con­ tributions of DISC to the export marketing efforts of the firm. The total score for the eight statements produced the total rating score, i.e., a negative opinion (low total score) was defined in the study as using the DISC primarily to increase after tax profits while a positive opinion (high score) was defined as the application of the DISC savings to several promotional and price-like decisions and planning vari­ ables as well. For companies with several products, the rat­ ing scores were separated on a product to product basis. Separate analyses were conducted for Exporters and Multi­ nationals. The Exporter's rating of DISC suggests that it 33 was very instrumental in expanding some of their export mar­ keting activities, such as their search for new export markets. The Multinationals, on the other hand, viewed DISC as much less important in terms of its effect on export marketing activities. For example, on the statement where DISC'S con­ tribution to the increased search for new markets was being asked, the mode of the Exporter's responses was 6 (agree) while that of Multinationals was 2 (disagree).^ Regression and factor analysis were also conducted using the value of DISC as the dependent variable and the respon­ dents' characteristics like export intensity, size, technology, and export experience as the independent variables. The results indicated that the value of DISC was inver­ sely related to all of the predicting variables except export intensity. This implies that the larger the company, or the higher the technology embodied in the product, or the longer the involvement of the company on exporting, the less the value of DISC to them. High export intensity, on the other hand, was associated with an increased value of DISC. In terms of groups, both the Multinationals and experienced Expor­ ters, who export high technology products, and are large in size, tended to perceive the value of DISC as low in terms of 7 increased marketing and promotional activities. The overall opinion of the Exporters was somewhat more favorable.

^Ibid. , p. 79. ^Ibid. , p. 81. 34 The study concluded that Multinationals did not view the DISC program as a significant factor in stimulating their mar­ keting activities. However, the existence of DISC was viewed by the executives as indicative of a favorable attitude towards business. The Exporters, on the other hand, per­ ceived DISC as an important but not critical motivator to their export marketing activities. Considering the fact that Exporters were generally smaller than Multinationals, the study indicates that the DISC was perceived by small firms as important to their export marketing activities. Increasing manufacturer's awareness of export opportunities, coupled with programs which minimize perceived risk of exporting, might encourage small manufacturers to start exporting. Another U.S. study dealing on export assistance is the

Q study by Czinkota and Ricks. The perceived needs and inter­ ests of importers of U.S. goods are examined and compared to the assistance requests of exporting firms. The approach was indirect because the needs of foreign importers was investiga­ ted through the preceptions and opinions of U.S. exporters themselves.

The executives were asked to rank-order the 20 attributes of the export product offering of the firm. It was perceived that physical product, service to the customer, communications

g Michael Czinkota and David Ricks. "Export Assistance: Are We Supporting the Best Programs?" Paper presented at the annual meeting of the Academy of International Business, Mon­ treal, Canada, 1981. 35 and sales effort seems to be the issues which are thought to be of greatest value to the customer abroad. This was based on the mean values of the ranks based on a four point scale. In terms of improvability of the services, the exporters perceived that gathering market information is a major area where more information can be obtained than what is currently collected. Sales effort and communications, plus service activities like technical advice, parts and repair service 9 are also reported to be highly improvable. The rank order on the 20 attributes of the export-pro­ duct offering of the firms was then compared with the rank order of the assistance desired from the Department of Com­ merce. Strong declines have taken place in the rankings of the physical product, and service considerations with only communications remaining constant in the rankings. Other attributes, however, moved high in the rankings for assistance, like the gathering of market information, obtaining financial information and information on business practices.

It was found that a great discrepancy exists between what the exporters believe to be the assistance needed to help sales and what the same exporters were requesting for assis­ tance. The implication was that the Department of Commerce was not providing a market-oriented assistance program based

®Ibid., p. 76. ^°Ibid., p. 76. 36 on what the foreign customer needs. It was simply responding to the request for assistance by the U.S. exporters. A major weakness of the study is the attempt to gather foreign customer's perceptions based on the point of view of the U.S. exporters. While the exporters might be knowledge­ able of what the buyer needs, the difference's in the environ­ ment and situations existing in the buyer's countries might result in different responses. Hence, the conclusions of the study are not sound. In an article on export credit insurance by the United Nation's Conference of Trade and Development,^^ it was noted that export credit insurance forms an important element of export incentives in the developing countries as a means of expanding exports of manufacturers, especially non-traditional exports. Export credit insurance safeguards the exporter on deferred payment risks. Commercial risks are buyer's insol­ vency, or protracted payment default. Non-commercial risks are political risks, economic risks like foreign exchange shortages, and catastrophe risks due to natural disasters. Broad risk coverage enables producers and exporters to venture into new markets and new lines of exports with greater confidence. An analysis of the markets covered by the nine selected government - sponsored export credit insurance institutions

United Nations Conference on Trade and Development. "Export Credit Insurance as a Means of Diversifying the Non - Traditional Exports," 1979. 37 in developed market-economy countries and developing countries in 1973 revealed that in most cases, the greater part of the insured exports went to developed-market economy countries. In the case of the United States, slightly more than 50 per­ cent of total exports insured were sold to markets in Africa, Asia, and Latin America. In the case of Belgium, 74.2 per­ cent of the total insured export volume was shipped to coun­ tries like Africa, Asia and Latin America. For the rest of the countries studied, like Australia, Austria, Canada, Hong­ kong, India, Israel, and New Zealand, the bulk of insured exports were to the developed country markets. 13 This is attributable to the fact that the amount of insured exports is influenced by the total exports to a certain market. While the risks involved in exporting to the developing coun­ tries are generally higher, the fact that the other seven nations in the study are exporting bigger volumes to the developed country markets, made this country emphasize export credit insurance to the developed country markets. The study found that the product breakdown of insured exports was as follows: 48.1% machinery and transport equip­ ment; 13.8% other manufactured goods; 11.8% food exports; 9% other primary products, e.g., wool, wood and hides and skins; 8.6% metals and metal products; and 6.1% chemicals and pharmaceuticals.

l^Ibid., P- 6. l^Ibid., p. 7 l^Ibid., P- 48. 38 The UNCTAD study concluded that in the overall, there is a strong need for export credit insurance, particularly, for small and medium-sized exporters in the developing countries. Because of the small export volumes, scanty financial resour­ ces, and managerial and marketing difficulties, especially when they first enter the export field, small and medium­ sized exporters are in much greater need for protection against foreign trade risks than are big firms. Large con­ cerns sell their goods to a large number of buyers in many countries who are oftentimes customers of long standing. Government or government-backed export insurance can render the exporter valuable assistance in export debt col­ lection and in winning export orders against foreign competi­ tors . Czinkota^^ investigated export development strategies for selected U.S. industries. It was found that when firms are differentiated into stages in the exporting process, each group differed significantly as to their assistance require­ ments and problems associated to exporting. The completely uninterested firms believe that exports will not contribute to the firm's profit or growth. Hence, the assistance requirement is an increased awareness level of benefits from exporting through role models of successful firms in exporting.

Michael Czinkota. Export Development Strategies in Selected Industries of the United States, (unpublished Disser- tatin) 1979. l^ibid., p. 119. 39 The partially interested firms believe that exporting may be a desirable activity and undertake exploration of export possibilities. Problem areas for this group are financing, information on business practices, technical advice, and sales effort. The assistance requirements are export finan­ cing or government guarantee for small loans, and provision of technical and communication services through the field officers. The exploring firms believe that exporting will contri­ bute to the firm's growth and profits and are actively explor­ ing export possibilities. Assistance is seen as valuable in the areas of obtaining financial information, information on business practices, marketing information gathering, and handling documentation and communication. Tax deferrals may be a significant incentive to increase profitability of exploring firms. 18 The experimental exporter believes that exporting is favorable but little exploration of exporting takes place. Assistance is sought in the areas of marketing information gathering, information on business practices, handling of doc- 19 umentation, obtaining financial information and communication. Increased participation of these firms in foreign exhibitions should be encouraged.

l^Ibid., p. 120. l^Ibid., p. 122. l^Ibid., p. 123 40 The experienced small exporter viewed exporting favorably but questioned the past profitability of export activities. The assistance requirements are in financing (Eximbank) and taxation (DISC) , and market information gathering. Training seminars on the export financing will be useful to the firms in this stage. The experienced large exporter viewed exporting in a very favorable light and plans to be continuously active in the future. Important assistance is in the areas of provid­ ing repair service, preferential tax treatments, financing and funds transfer. These firms should be encouraged to train their personnel abroad to provide the product support services. The study concluded that the granting of incentives on a generalized approach as currently practiced is inefficient.

B. Export Behavior Studies

In a study on export behavior for smaller-sized Wiscon- sin manufacturing firms, Bilkey and Tesar 2 2 developed a stages model in the internalization process of firms on the basis of the exporting activity. The stages are:

One -- The Firm is unwilling to export and would not even fill an unsolicited export order.

Z^Ibid., p. 125. Z^Ibid., p. 126. 2 2Warren Bilkey and George Tesar. "Export Behavior of Smaller-Sized, Wisconsin Manufacturing Firms," JIBS, Winter,1979 41 Two -- The firm fills unsolicited export order but does not explore the feasibility of exporting. Three -- The firm explores feasibility of exporting. Four -- The firm exports experimentally to several markets. Five -- The firm is an experienced exporter to these markets. Six The firm explores the feasibility of export­ ing to additional markets, that are psycho­ logically, further a w a y . 23

In terms of perceived obstacles to exporting, Bilkey and Tesar found that the major barriers were: difficulty in understanding foreign business practices, different product standards and consumer standards in foreign countries that make U.S. products unsuitable for export, difficulty in col­ lecting money from foreign markets, and difficulty in obtain­ ing adequate representation in foreign markets. The study concluded that government seeking to stimulate exports should undertake a complex of programs, so that some­ thing would be appropriate for firms at each stage in the export development process. Less experienced exporters can be more motivated by increasing management's international inter­ est, obtaining export orders for firms, instituting management development programs and reducing the perceived obstacles to exporting. More experienced exporters can be motivated more by making exporting more profitable by means of taxation (DISC)

^^Ibid., p. 93. Z^ibid., p. 95. 42 In terms of countries, an industrialized country would have most of its exporters in Stage 5 while those in the developing countries will be most likely in Stage 1, so a developing coun­ try should not blindly imitate the export development pro- grams that are appropriate for an industrialized country. 2 5 In the area of segmenting U.S. firms for export develop­ ment studies, a study by Czinkota and Johnston^^ dealt on four segmentation approaches, namely: level of international activities, managerial attitudes, size and service orienta­ tion of the firms. The four segmentation approaches were applied to a common set of data gathered from small and medium sized U.S. manu­ facturing firms. Significant data points for each of the seg­ mentation variables considered in the study were compared by running multiple analysis of variance for the group of fac­ tors and univariate analysis of variance for the individual factors. The effectiveness of each of the segmentation vari­ ables was then compared on the basis of the significant data points generated by each variable. It was revealed that the level of international activities is the most effective criterion variable in differentiating the firms. For both the export dimensions and the individual export comparisons, the international stages yielded the

^^Ibid., p. 95. ^^Michael Czinkota and Wesley Johnston. "Segmenting U.S. Firms for Export Development," Journal of Business Research, Vol. 9, 1981. 43 highest number of significant data points (47 out of 110) 2 7 when compared with the other grouping methods. In a related study on size as determinant of the export­ ing attitudes and activities of small and medium-sized U.S. manufacturing firms, Johnston and Czinkota 2 8 noted that when firms are differentiated on the basis of size of sales, inter­ esting differences were found in the areas of exporting atti­ tudes, perceived problems, and activities based upon the size of firms, but the differences are small. A small firm was defined as having an annual sales volume of five million dol­ lars and below. A medium size firm is one having sales volume of between five million to fifty million dollars. The study concluded that small and medium-sized firms are quite similar in their export behavior, and therefore, the across-the-board policy of the Federal government to stim­ ulate exports using size as the classification variables does not seem appropriate. It was pointed out that probably size would be more important as a discriminatory variable at a much higher sales volume. It was pointed out, however, that size should not be discarded as a differentiating variable in future research

^^Ib.id. , p. 362 . ^^Wesley J. Johnston and Michael Czinkota. "Size of the Firm as a Determinant of Exporting Attitudes and Activities," Working Paper Series 80-37, The Ohio State University, May, 1980 .

^ ^ I b id ., p. 19. 44 efforts. Continuous research on size and other segmentation variables like level of international activities, managerial orientation, export experience and marketing orientation of firms was recommended. In terms of export behavior, a study by Ogram^® on small manufacturing firms in Georgia, used matched pairs of one exporter and one non-exporter of the same characteristics like product type and size of export sales. The interviews were made with the chief executive officers or other senior officers. The time period of three years is used as a general guide for involvement in exporting since it was felt that com­ panies with only one or two year's experience in exporting in many instances should be considered new to exporting. A non­ exporter could include a company that has never exported or has exported before but phase out its export activity. The internal stimuli examined are profit, excess domestic capacity, competition, productive efficiency, seasonal pro­ ducts, and management philosophy. The external stimuli are insurance against recession, orders from foreign buyers, trade mission activities, foreign and domestic trade fairs, U.S. Department of Commerce export activity, general state of the domestic economy, and DISC. The environmental variables are perceptions of risks like expropriation risk, cost involv­ ing product adaptation, price, packaging, communication.

30 E.W. Ogram, Jr.. "Exporters and Non-Exporters: A Pro­ file of Small Manufacturing Firms in Georgia," Export Manage­ ment , Czinkota and Tesar, Editors, 1982. 45 insurance, clerical, shipping, and management time, foreign exchange controls, and devaluation. The interview guide involved ordinal responses along with some open-ended ques­ tions on attitude towards exporting. The results indicated that exporters consider themselves as a group to be more aggressive than conservative in their export management philosophy. Profit motivation is a major factor in the export decision. Exporters in general had a lower risk perception but higher profit expectation than the non-exporters. Exporters had a broader view of their poten­ tial market, that is local, state, regional, and overseas as market potential whereas non-exporters took a much narrower 31 view of their potential market. All exporters had some awareness of the Department of Commerce export assistance programs. Most of the non-expor­ ters were not aware of the assistance but expressed interest to learn about them. In terms of barriers, government regulations and unneces­ sary paperwork were perceived as significant barriers by both exporters and non-exporters. Non-exporters perceived that all clerical, packaging, transportation and communication costs of exporting were higher than domestic firms. Exporters per­ ceived the same costs to be higher than domestic but a moderately lower magnitude than the non-exporters. Product adaptation was not perceived as a barrier by both groups

^^Ibid., p. 74. 46 stating that the end-use of the product in two markets are the same so that there was no reason to adapt the product. In terms of export problems, the exporters reported that compet­ ing with foreign suppliers, acquiring financing for export sales, and documentation requirements are major problems. 3 2 The exporters are generally operating at a higher per­ centage of their operating capacity and with higher percentage of R6D to sales than the non-exporting group. In the attempted integration of the literature on the export behavior of firms, Bilkey concluded that for maximum success, the export stimulation programs should be tailored to the export development position of the firms to be stimula­ ted. Experienced exporters would tend to be stimulated to increase exports by devaluating the currency and by removing perceived obstacles to exporting. The non-exporters, on the other hand, would be stimulated to export by being provided with export orders and through managerial assistance like export extension programs and export consulting services. Other stimulants to the non-exporters will be the programs propagandizing the attractiveness of exporting like trade association meetings, advertising, and international education within schools.

S^ibid., p. 75

7 7 Warren Bilkey. "An Attempted Integration of the Liter­ ature on the Export Behavior of Firms," Journal of Inter­ national Business Studies, Spring, 1978.

3^1bid. , p. 43. 47 In terms of the developed models of a firm's pre-export behavior, the model of Olson and Wiedersheim-Paul^^ (chart 1) identified internal and external export stimuli to which the decision-maker is exposed. A fortuitous order or first export order was considered an important but not decisive factor in exporting. Market opportunities abroad, competition, economic integration and government export stimulation measures are also important internal factors in the export decision. As far as internal export stimuli factors, Olson and Weidersheim-Paul considered in their model that excess capa­ city, product characteristics, and expansion objectives are important factors in the export decision of firms. The model was not tested empirically but the decision­ maker's perception and conclusions drawn from the stimuli were presumed to be the keys to the export decision. Hence, the decision-makers' cognitive style as to whether he is pas­ sive or active with regards to the export decision will also affect the pre-export behavior. A path model of the firm's export behavior (chart 2) was developed by Cavusgil and presented in Bilkey's integration of literature on export behavior of firms. 37 From the model.

Hans C. Olson and Finn Weidershim-Paul. "The Export Propensity of the Non-Exporting Firms." Working Report, Department of Business Administration, University of UPPSALA, Sweden, 1975. ^^Ibid., p. 286. ^^Bilkey, op. cit., p. 38. 48

Factors Affecting the Pre-Export Behaviour

Cha.r"fe 1 • Factors Affecting the Pre-export Behaviour of the Firm.

FIRM CHARACTERISTICS Product Characteristics Domestic Market EXPORT STIMULI Optimal Scale of Production EXPOSED TO THE FIRM Location in Domestic Market Potential Export Markets

DECISION-MAKER CHARACTERISTICS

- Cognitive Style - Degree of International Orientation

PERCEIVED EXTERNAL EXPORT STIMULI PERCEIVED INTERNAI EXPORT STIMULI Perception of Present or Future Perception of Prosont or - Fortuitous Order Future : - Market Opportunity - Excess Capao i ty - Competition - Product Char.icterist ios - Government Stimulation - Expansion objectives Economic Integration

DECISION ABOUT PRE-EXPORT BEHAVIOUR

REACTIVAT INC DOMES nr l)isc 0 n c i mipiis No df I i bor.T t c Expfrt Elf#t t; préparai ions made ipr Expert Sales

ACTIVE PASSIVE - Actively seeking -Passive!y wa i t ing Export Debut for Export Debut J, ...... - « P

[ËEXPORT SALE [ n o EXPORI SALE ]

Source: Olson and Weidersheim Paul. Factors Affecting the Pre- export Behavior of Non-exporting Firms, p . 285 . Chart 2. Cavusgil's path model of a firm’s export behavior. Numbers are the blvariate correlation coefficients between the variables connected [Cavusgil, 1976, p. 130].

BACKGROUND Firm is in a technology- Firm has a Management has high VARIABLES intensive Industry unique product aspirations for:

\ + . l l N > . 1 5 +.2; Profit Security of Growth +.11 growth Investment

+.23 Influences Prefers firm size home market INTERVENING > f ^ /+.24 ^^-.15 VARIABLES Management's expectations Allocation of firm's resources to: regarding effects of planning for exporting, exploring exporting on firm's +.37 exporting, forming export department, profit, grov/th, etc. etc.

+ .48 +.46

DEPENDENT VARIABLE Probability of firm exporting”!

Source: Bilkey, p. 38 45* ID 50 the background variables identified to affect the pre-export behavior are the technology advantage or having the firm in a technology-intensive industry and the unique product factors. These background factors in turn affect the firm's expecta­ tions of exporting effects oh firm's profit and growth as intervening variables. These variables together with the man­ agement's high aspirations for security of investment will lead to the allocation of the firm's resources for planning to export and exploring export possibilities or setting up an export department. Obviously, the above path model did not consider export incentives from the government as a possible background or intervening factor that might have affected the export deci­ sion. It seems that export incentives are assumed to be insig­ nificant factors or could be a neglected area of research in terms of its role in exporting. 38 A study by Albaum focused on the obstacles and problems faced by both exporting and importing firms in the Pacific Northwest. A questionnaire survey was conducted on 700 U.S. small businesses in the region. In terms of exporting problems, the major problems repor­ ted were: locating overseas distributors, financing export

38 G. Albaum. "Overseas Opportunities and Problems Facing Small Business in the Pacific Northwest," Paper presented in the annual meeting of the Academy of International Business, Las Vegas, Nevada. 51 sales, competing with foreign suppliers, documentation require­ ments, locating foreign markets, and lack of customer leads. The lack of assistance from the government was not viewed as a major problem. 39 The study dealt on familiarity with assistance programs. The U.S. Department of Commerce's export assistance programs turned out to be the most familiar to the respondents. It was also the most widely used and perceived to be the most use­ ful. Other programs evaluated were the export credit programs of the State government. Small Business Administration, Export-Import Bank and the Overseas Private Investment Corpor­ ation . In a motivation study commissioned by the Minnesota Dis­ trict Export Council,it was found that profit was the major factor in deciding to export. Competition was found to have an insignificant relationship to the decision-making process. However, awareness of export assistance was found to have sig­ nificant relationship to export decision.

^^Ibid. , p. 22. ^"^Ibid. , p. 25. ‘^^Minnesota District Export Council. The Decision to Export: Some Implications, January, 1976. ^^Ibid. , p. 11. 52 In terms of awareness to export assistance, all exporters were found to be aware of the assistance sources. Non-expor­ ters were unaware but expressed interest in learning the sources. For export obstacles, the most common impediments to export decision reported are communication, language, culture, documentation and procedures. The greatest obstacle was infer­ red to be "psychological," depending on the conservatism or aggressiveness of management Finally, an export behavior study was conducted by Simp­ son and Kujawa^^ on small and medium-sized Tennessee manufac­ turing firms. Two groups were compared: exporters against non-exporters. The study profiled export decision-makers in terms of the benefit and risks associated to exporting. Significant differences were found between exporters and non-exporters in terms of cost, profit and risk factors asso­ ciated to exporting.The identified motivators to export­ ing were: excess capacity, profit, entry of domestic competi­ tors into export markets, and production of a domestically seasonal product.

"*^lbid. , p. 17. ^^Claude Simpson and Duane Kujawa. "The Export Decision Process --An Empirical Inquiry, Journal of International Busi­ ness Studies, Spring, 1975. "^^Ibid. , p. 112. 53 The study concluded that export stimulus, like an unsoli­ cited export order from a foreign customer, is a significant but not sufficient condition for a positive export decision. Most of the above studies were conducted in the U.S. and other countries. Inasmuch as this study will focus on Phili- pines exporters, it is relevant to review studies conducted in the Philippines regarding exporting.

C. Export Studies in the Philippines:

Nakpil^^ evaluated the export sector's position as a receiver of rediscounted loans. It was revealed that from 1970-1976, the export sector had an average yearly share of 28.26% of the loans and the amount increased at only a yearly rate of 0.04%. It was concluded that inasmuch as the share of the funds going to exports remained fairly constant throughout the period in question, there was no great increase in the willingness to fund the export sector on the part of banks. In terms of what export program is emphasized, the export loans were pro­ vided mostly to diversify export through inducement of the non-traditional exports. De la Llana^^ studistudied export financing in the Philippines The export credit requirements by Philippine exports was

A. Nakpil and S. Sanchez. "Export Credit Incentives at the Central Bank," (unpublished Dissertation, University of the Philippines, 1975. de la Liana. "Exports Financing Facilities: (unpub­ lished Dissertation), University of the Philippines, 1969. 54 limited to short-term credit only. Such credit has been pro­ vided for by the commercial banking system, in the absence of a specialized institution for the financing of exports in the country. So far, the commercial banks have adequately met the short-term financing needs of the Philippine exporters. However, it was opined that as exports are expanding and as export products begin to include a greater amount of manu­ factured goods, short-term credit facilities will prove to be inadequate to meet the needs.

A Q Borja studied export taxation in the Philippines. The export tax was imposed in May 1970 in the leading exports such as copra, centrifugal sugar, logs, and copper concentrates, which constitute 70% of the total exports. The windfall is the difference between the peso proceeds from exports under the devaluation and the peso proceeds from exports if the devaluation had not taken place. The initial effect of a rise in the exchange rate is an increase in cash income from a given quantum of exports. The methodology involved computing the windfall tax gains by comparing the gross earnings in dollars of the export products and multiplying these by the exchange rates prevailing before the devaluation. The same dollar values are then multiplied by the pertinent rate after the devalua­ tion .

4 8 A. Borja. "Export Taxation in the Philippines: A Study on the Windfall Absorption," (unpublished Dissertation], University of the Philippines, 1977. 55 Export taxes represent a withdrawal of funds from pri­ vate hands and thus can serve as an effective device to siphon off the windfall gains of the exporters and producers brought about by the devaluation. The results revealed that the aggregate windfalls amounted to P113 billion for the four commodities from 1971- 1974, but the total tax collection was only P1.9 billion or 16.9% of the total. It was concluded that the export tax has not been effective in capturing the windfall gains. Alban 49 studied the employment effects of export-oriented industries. Some initial estimates of total employment revealed a significant contribution by exports to the total labor absorption of approximately 12.1%. While the greater part of this contribution originates from the non-manufactur­ ing exports (96.6%), primarily from forestry, mining and agriculture, support via inclusion in the export priorities plans of the Board of Investments has been mainly given to the manufactured exports apparently reflecting the avowed policy of diversification. Dapul^^ studied some (determinants of the Philippines' non-traditional exports from 1960 to 1974. It was found that

N. Alban. "Employment Effects of Some Philippine Exports." Seminar Paper, University of the Philippines' School of Economics, 1972. ^*^S. Dapul. "Some Determinants of the Philippine Non- Traditional Exports (1960-1974)." (unpublished Dissertation), University of the Philippines, 1977. 56 the annual growth rate for the period studied was a dramatic 36.6%, which even exceeded the expectations of the World Bank study in 1971 projecting the growth to be only 17.5% a year. Regression analysis was conducted, whereby the quantity of the non-traditional exports was the dependent variable. The independent variables in the regression model were: export price, volume of domestic production, gross domestic sales, domestic prices of the non-traditional export products, total quantity of world exports, and the price of the total world exports. The results revealed that the t-values of the correla­ tion coefficients were insignificant. The existence of auto­ correlation was cited as the reason. Domestic production and domestic gross sales, prices of exports and world prices, domestic price and export prices were found to be autocor­ related. Generally, however, the quantity of the non-tradi- tional exports showed more responses towards both the domestic and export prices. In another study on the non-traditional export manufac­ tures, Derpo and Ignacio^^ observed the greater expansion in volume of the country's non-traditional exports compared to that of the traditional exports, which was attributable to the relative]y greater emphasis given to the non-traditional

L. Derpo and C. Ignacio. "Philippine Major Traditional and Non-Traditional Exports: A Comparative Study," (unpub­ lished Dissertation), University of the Philippines, 1979. 57 export manufacturers in terms of export incentives. They also opined that unless new markets or new uses of the products are developed, there will be very little room for expansion in the volume of the traditional export commodities since the demand in the existing markets has already been saturated. The more concentrated the market, the more the country could maintain a favorable trend in export earnings. It was also found that the more dispersed the destination of exports, the greater the possibility of fluctuating earnings. Despite the findings of their study, they suggested a policy of diversification in terms of export products. Finally, Derpo and Ignacio recommended that the Philip­ pines should improve on its production methods for higher quality goods and for greater efficiency in order to become a more reliable supplier of goods in the export market. The above studies revealed that the growth of exports of non-traditional manufacturers in the 70's has been higher than the growth of the traditional exports, the reason being that the export markets for traditional export products of the Philippines has been saturated.

Summary

None of the various studies is conclusive as to the role of export assistance in the exporting activity decisions of firms except Rabino's study. Rabino noted that for exporters, DISC was very instrumental in expanding some of their export marketing activities, like, their search for export markets. 58 However, it was found that the larger the company, or the higher the technology embodied on the product, or the longer the involvement of the company on exporting, the less the value of DISC to them. Most of the studies considered export incentives as only an incidental part of their research, again with the exception of Rabino's study which dealt purely on the evaluation of DISC. Several studies dealt only with small and medium­ sized firms, claiming that these firms are the ones in dire need of assistance anyway. In terms of export behavior, profit, managerial urge, excess capacity, and. fortuituous orders from customers were found to be the most important motivators. Export assistance like trade leads was reported to be important but not critical motivator in the export decision. In the Philippines, none of the studies were found to deal with export behavior and incentives specifically. However, some studies questioned why incentives granted by the Board of Investments were so biased towards manufacturers. In terms of gross export earnings and employment, the non-manufactured exports have a bigger contribution. However, it was claimed by some studies that the export market of the non-manufacturers group has reached its saturation point. CHAPTER III RESEARCH DESIGN

Overview

The study is an interview approach to export behav­ ior and incentives in the non-traditional export manufac­ tures group of the Philippines. Two groups of registered exporters were compared; exporters with incentives and exporters without incentives.

Analysis of variance was the main method of statis­ tical analysis employed in the study, utilizing both the univariate and multivariate analysis. Cross-tabs of factors compared as to relationships were also carried out using chi-square tests of independence. Cramer's V and phi coefficients of relationships were used for mea-, suring degree of relationships, the two coefficients being efficient for nominal variables. The overriding objective of this research was to determine differences in export behavior and attitudes to export assistance between exporters with incentives compared to exporters without incentives. Hence, availa­ bility of export incentives is one of the criteria used in classifying exporters into groups. Other criterion variables found relevant in differentiating the companies into groups are: status of the exporting activity, size of firm, and type of industry.

59 6o

The interviews were conducted through the help of two questionnaires, one for exporters with incatives and another one for exporters without incentives. Copies of the questionnaires are presented in Appendix C.

Scope of the Study

The study covers two of the non-traditional export manufactures group of the Philippines, the handicraft and food processing industries. The two industries are engaged in processing indigenous raw materials from agriculture and therefore, classified in the study as agribusiness industries. Agribusiness encompasses the processing and marketing of agro-based products. The two industries considered in the study were both agro-based and export-oriented. As such, they qualify for both the export and investment incentives presented in Appendices A&B respectively. This study focused on the evaluation of these incentives, both of which are admi­ nistered through the Board of Investments.' The exporting firms included in the study are only those registered with the Board of Investments. In as much as the export and investment incentives programs is administered by the Board, the recipients turned out to be only those registered with the Board. Hence, in terms of evaluating the incentives, only those registered with the Board could respond to the questions. 61 The Availability Of Incentives Criterion Due to the intricacies and political environment surrounding the administration of the program on export

and investment incentives, two groups emerged out of the registered exporters with the Board of Investments. It was felt that if one has to measure the influence of export incentives, the best two groups to compare are : exporters with incentives compared to exporters without the incentives. Hence, the availability of export incen­ tives was one of the criteria used in delineating across groups, the theory being that if the two groups differ in some parameters of exporting behavior and attitudinal statements about the export incentives, then the export assistance could have caused the difference, though of course, a lot of other factors might have caused the difference. Holding other factors constant is difficult unless we can put companies in laboratory conditions and isolate the effects of individual factors. Considering the fact that the majority of Philippine exporters are small and faced with financial and marketing difficulties, the availability of export incentives to some exporters could effect significant differences in export behavior and attitudes to export incentives among the exporters. Hence, export incentives are expected to play a key role in the future exporting decisions of the firms such that its unavailability to some exporters could ■62 be a I ' ' rmi expor ! Of ■ be a determining factor in the contin exporting operations.

■ : ( The Status of Exporting Activity . If: a 1 ^ O 1 expo li 'ig E ■ ■' In a less developed economy set c: tf. the 1 rns p ' ' exporting activity is crucial because of 9 :t ■mit I il the firms are small and very vulnerab prie ? mere, ■ ,i nr of economic shocks like global recess or d c reasi ? rir price increases. A firm may be increa on V I d r-j. or decreasing its volume of export ac 1 ■ the world market conditions. In the case of processed food su por1 ] " 01 t';, for l;"He o ■ irr- exporters of the Philippines, the low le 'c pel] • oxp ■-' for those products and stiff competit: 1- pelled exporters to rely heavily on t] The . :t, t ! ! . The fact that there is practically no tun ■ in " the : irt - turn to in case of depressed world ma: the exporters in a precarious situatii in ■ ' "xp the export market could spell the fati ent ■ i se ■ prises. Hence, it was felt important • f i r n t ' firms in terms of status of their expi o ve t‘ e ] 1 over the last three years. Presumably dif r nee differences in export behavior and at' exp -1 inc Î export incentives for firms that are ; tai : ' ar taining and decreasing export volumes 63 In terms of policy, export incentives should be geared more towards the companies that are decreasing the level of exports. It is important to determine if there is a relationship between availability of export incentives and status of the exporting activity. If it turned out that the recipients have been those that are increasing exports, the export incentives might have caused the increase but then companies with decreasing exports should also be given priority in export incen­ tives.

The Size Criterion

As established in the literature, size is a factor in exporting. This could be attributed to differences in financial,marketing, and managerial resources across the firms. In relation to export incentives, size is felt to have a major bearing because small firms are supposed to be the ones to be given assistance. This is the reason why many studies focused on small and medium­

sized firms. Specific to Philippine conditions, size is an inte­ resting criterion in the light of the claims that the export incentive program was biased towards large firms. Considering the politics involved in the export incentive administration process, it was felt crucial to probe the 64 differences of export behavior and attitudes towards export incentives when firms are classified into small, medium and large categories. In developing the size criterion, discussions were held with the staff of the Board of Investments. Due to the wide variety of products covered by the handicraft and food processing industries, total sales for all products was considered to be the most appropriate mea­ sure of size. Of course, total assets and number of em­ ployees will also be acceptable measures of size. The sizes of total sales in delineating companies by cate­ gories were: one million and below-small ; one million to ten million-medium; and ten million and above-large. Considering the claims of some companies that the export incentive program had been biased towards big firms, the relationship between size and availability of export incentives would be important for policy purposes. Hence, breaking the companies into groups by size might generate relevant policy implications to improve the administration of the program.

The $ype of Industry Criterion

Among the various studies and the various countries where the studies had been conducted, the export assis­ tance was generalized across industries. Exporting behav­ ior and attitude towards export incentives plus the 65 assistance needs of all exporters were presumed to be the same across all industries. In many less-developed economies, however, agrioultu- industry exports prevail over industrial exports. Agricul­ tural exports have to contend with unique export obstacles like product perishability due to pests and diseases. Weather conditions are big problems in agriculture. Also, due to biological requirements of production, it is diffi­ cult to control the inventories in agriculture, making supply and demand problems more difficult. These unique characteristics in agriculture might have caused differen­ ces in behavior and attitude regarding export and invest­ ment incentives. The study dealt with two agribusiness industries, han­ dicrafts and processed foods. Due to the nature of the raw materials that go into the manufacturing process, handi­ crafts are generally less perishable than the processed food products. Handicrafts are generally usable across all consumer groups while processed foods have to cater to an ethnic group, particularly, Chinese-Filipino community. Product quality is more emphasized in handicrafts to be competitive in world markets. Food is food regardless of markets despite some adjustments in taste and mixture of ingredients to suit a particular market. Hence, product differentiation via quality is more practiced in the han­ dicraft exports, though, product differentiation through 66 branding is practned in the processed foods market. In

terms of size, the handicraft companies are generally smaller than processed food firms. Also, the handicraft firms are mostly Filipino-owned while processed food companies, especially the big ones, are foreign-owned.

These factors might have caused differences in the export behavior and perceived role of export incentives in the export activity decisions across the two indus, tries I despite the fact that they are both agribusiness in nature.

The Questionnaires

Two questionnaires were used as data colleotion ins­ truments to guide the interview?,one for exporters with incentives, and another questionnaire for exporters with­ out incentives. Eleven research areas were investigated in the study, developed by the researcher based on his perceptions of relevant export behavior areas in the Philippines. Some of the questions were based on the past studies done in the field. The first research area dealt with the general cha­ racteristics of the firms. The individual factors consi­ dered are number of employees(whole firm), number of employees(export division), years in business, years in exporting and percentage export sales as a proportion of total sales. These factors oould have a bearing in terms 67 of export behavior of the firms.

In terms of the questionnaires, the general cha­ racteristics refer to questions respectively. The second research area consisted of exporting effects on some barometers of performance, i.e. profit and growth. Under the overalliheading of perceived effects of exporting, the companies were compared as to perceived role of exporting to the company's profit, growth, mar­ ket share, competitive edge and the development of the

Philippine economy in general. This are questions 9*1,9

9,2,9.3,9.4,and 9*5 respectively. It was notai in the literature on past studies that profit is a major factor in exporting. In the case of Philippine handicraft and processed food firms, heavy dependence on the export market might have caused them to rely on exporting for higher market share, competi­ tive edge and even growth, growth being a function of sales. Furthermore, in the light of current development efforts to encourage exporting, firms might perceive a crucial role of exports in the development of the Philippine economy as a whole. Area three dealt with perceived effects of additio­ nal processing on profit, growth, market share, com­ petitive edge, and the development of the Philippine 68 economy. This are questions 10.1,10.2,10.3,10.4,and 10.5 respectively.

Additional processing is a major development goal of the Philippine export and investment incentives program. The processing of indigenous raw materials from Philippine agriculture is being encouraged. Hence, the attitude of export-producers as to the perceived effects of additional processing was studied. The fourth research area in the study investi­ gated the export motivators in the initial export de­ cision. A checklist of probable export motivators was developed through the literature and the pre-test fin­ dings to suit the Philippine firms. The resulting list of export motivators consists of: profit expectations, excess capacity. Department of Trade(leads), product advantage, competitive pfessure(local market), manage­ ment export experience, and export incentives. These factors are in question 12 of the question^ naires for both exporters with and without incentives. During the pre-test, a problem occured due to unavailability of the incentives to some firms and even to present recipients; some of them did not have incentives at the time of the initial export effort. To resolve this, it was explained during the interview that exporters should assume that the incentives were 69 available to them at that time.

A capture-all category,"others, specify" was inclu­ ded in the questionnaire to take care of factors not included in the list of motivators. The same is true in the case of perceived ohr^tacles to exporting. Area five dealt with the perceived motivators in the present exporting activity. The list of export motivators tested in the present export activity was the same as the list of initial export motivators. The status of present export motivators is the subject of question 13 of both questionnaires. The non-recipients were asked to assume that export incentives were available to them at the time of the study. Area six dealt with the perceived obstacles in the initial export effort. A list,of export obstacles was developed through the literature and pre-test opinions of respondents. The perceived obstacles evaluated are foreign exchange risks, non-payment risks, product perisha­ bility, lack of export assistance, competition abroad,lack of export experience, documentation requirements, locaxing overseas markets, tariffs and restrictions and higher mar­ keting costs. These export obstacles constitute question 14 of the questionnaires. Area seven dealt'with the export obstacles in the present export effort of the firms. The respondents vjere 70 asked to evaluate the same checklist of obstacle factors in relation to their present exporting. This is question

15 of the questionnaires.

The eighth research area investigated in the study is the evaluation of the perceived importance of export incentives. In view of the fact that exporters without incentives cannot respond to these questions, this ques­ tion was asked only from the exporters with incentives.

This area is investigated through question ?2 of the "with incentives" questionnaire. The various types of incentives, as provided in the export and investment incentives package(Appendix A&B), were enumerated and the respondents were asked to gauge each kind of incen­ tive as to degree of importance in relation to their exporting activities. Comparisons are therefore, possible only within

ft the with incentives" group only,where exporters were grouped into with/small, with/medium, and with/large categories. Other comparisons were made using status of exporting activity and type of industry as the cri­ terion variables within the "with incentives" group. The different types of incentives evaluated are : tax credits, protection from infringement of patents, capital gains tax exemption, acceletated depreciation, deduction of pre-operating and organizational expenses, net operating loss carryover, employment of foreign 71 nationals, anti-dumping protection, deduction of freight expenses, deduction of labor training expenses, and free use of foreign exchange. Area nine dealt with the perceived adequateness of each type of export incentives. The same types of incen­ tives evaluated as to importance were evaluated as to adequateness to the needs of the agribusiness exporters. In terms of the questionnaire, evaluation of adequate­ ness refers to question in the "with incentives" ques­ tionnaire. Area ten looked on the importance of market groups. Despite the heavy dependence of Philippine exporters on the US market, the degree of importance of each market groups may differ when firms are classified as to size, availability of incentives, status of the exporting act­ ivity and type of industry. The other regional trading blocs to which the Phil- 1 lippines is exporting are : ASEAN countries, Japan.and other Asian countries, Oceania, North America, Middle East, and Western Europe. The evaluation of market groups is question 1? of both questionnaires.

1 ASEAN -- Association of Southeast Asian Nations, consisted of : Philippines, Malaysia, Indonesia, Singapore and Thailand. 72 The eleventh research area dealt with the perceived role of exporting on key export activity decisions. To determine how exporters perceive the role of the export incentives on some critical export decisions, their agree­ ment or disagreement to a set of statements was gathered through question 18 of the questionnaires. The exporters without incentives were asked to take the position as if they had received the incentives. The specific statements relate to export incentives’ role in: search for export markets, increased share of ex­ ports to total sales, expansion of export production capacity, increased promotional efforts in the export markets, and . reduced perceived risks to exporting. The exporters were asked if the export decision was a matter of demand and com­ petition or other factors, and not really due to export in­ centives. The role of export incentives in future expansion decisions of exporting was also asked. Furthermore, the export­ ers were asked about their perception of export incentives on the level of involvement in export marketing in case the program gets abolished. This last question attempts to mea­ sure the degree of relevance of export incentives on the expor­ ting operations of the firms. The choices given are : negli­ gible, moderate, considerable, critical or discontinuation of export operations. A five-point Likert scale was used to measure the degree of acceptance of the statements by the exporters. 73 Hypotheses

Various hypotheses are then formulated on the basis of the criterion variables and the research areas for investi­ gation. The hypotheses are: 1. hypotheses for groupings as to availability of incentives

HI.1. There is no significant difference: in the over­ all general characteristics among firms with or without incentives. HI.2. There is no significant difference in the over­ all exporting effects among firms with or with­ out incentives HI.3. There is no significant difference in the over­ all processing effects among firms with or with­ out incentives. HI.4. There is no significant difference in the over­ all perceived motivators in the initial export decision among firms with or without incentives. HI.5. There is no significant difference in the over­ all perceived motivators in the present export­ ing activity among firms with or without incentives. HI.6. There is no significant difference in the over­ all perceived obstacles in the initial exporting activity among firms with or without incentives. 74

HI.7. There is no significant difference in the overall perceived obstacles in the present exporting activity among firms with or without incentives. HI.8. There is no significant difference in the overall perceived importance of export incentives among

firms with or without incentives. HI.9. There is no significant difference in the overall perceived adequateness of export incentives among firms with or without incentives. HI.10. There is no significant difference in the overall perceived importance of market groups among firms with or without incentives. HI.11. There is no significant difference in the overall perceived role of export incentives to key export decisions among firms with or without incentives.

2. hypotheses for groupings as to status of export­ ing activity

H2.1. There is no significant difference in the overall general characteristics among firms classified as to exporting status. H2.2. There is no significant difference in the overall exporting effects among firms classified as to exporting status. H2.3. There is no significant difference in the overall processing effects among firms classified as to exporting status. 75

H2.4. There is no significant difference in the overall perceived motivators in the initial export deci­ sion among firms classified as to export status. H2.5. There is no significant difference in the overall perceived motivators in the present exporting activity among firms classified as to exporting status. H2.6. There is no significant difference in the overall perceived obstacles in the initial exporting activity among firms classified by exporting status. H2.7. There is no significant difference in the overall perceived obstacles in the present exporting acti­ vity among firms classified by exporting status. H2.8. There is no significant difference in the overall perceived importance of export incentives among firms classified as to exporting status. H2.9. There is no significant difference in the overall

perceived adequateness of export incentives among firms classified as to exporting status. H2.10. There is no significant difference in the overall perceived importance of market groups among firms classified as to exporting status. H2.11. There is no significant difference in the overall perceived role of export incentives to key export decisions among firms classified as to exporting status. 76 3. hypotheses for groupings as to type of industry

H3.1. There is no significant difference in the overall general characteristics among firms classified as to type of industry. H3.2. There is no significant difference in the overall exporting effects among firms classified as to type of industry. H3.3. There is no significant difference in the overall processing effects among firms classified as to type of industry. H3.4. There is no significant difference in the overall perceived motivators in the initial export decision among firms classified as to type of industry. H3.5. There is no significant difference in the overall perceived motivators in the present exporting activity among firms classified as to type of industry. H3.6. There is no significant difference in the overall perceived obstacles in the initial exporting activity among firms classified as to type of industry. H3.7. There is no significant difference in the overall perceived obstacles in the present exporting activity among firms classified as to type of industry. 77 H3.8. There is no significant difference in the overall perceived importance of export incentives among firms classified as to type of industry. H3.9. There is no significant difference in the overall perceived adequateness of export incentives among firms classified as to type of industry.

H3.10 There is no significant difference in the overall perceived importance of market groups among firms classified as to type of industry. H3.11 There is no significant difference in the overall perceived role of export incentives to key export decisions among firms classified as to type of industry. hypotheses for groupings as to size of sales. H4.1. There is no significant difference in the overall general characteristics among the classified as

to size of sales. H4.2. There is no significant difference in the overall exporting effects among firms classified as to

size of sales. H4.3. There is no significant difference in the overall processing effects among firms classified as to

size of sales. H4.4. There is no significant difference in the overall perceived motivators in the initial export deci­ sion among firms classified as to size of sales. 78 H4.5. There is no significant difference in the overall perceived motivators in the present exporting activity among firms as to size of sales. H4.6. There is no significant difference in the overall perceived obstacles in the initial exporting activities among firms classified as to size of sales. H4.7. There is no significant difference in the overall perceived obstacles in the present exporting activity among firms classified as to size of sales. H4.8. There is no significant difference in the overall perceived importance of export incentives among firms classified as to size of sales. H4.9. There is no significant difference in the overall perceived adequateness of export incentives among firms classified as to size of sales. H4.10 There is no significant difference in the overall perceived importance of market groups among firms classified as to size of sales. 79

H4.11. There is no significant difference in the overall perceived role of export incentives to key export decisions among firms classified as to size of sales.

The Universe of Concern: The program on export and investment incentives is administered through the Board of Investments. Inasmuch as the study aims to determine, among other things, the role of export incentives in export activity decisions, the respondents have to be recipients of the incentives, plus another group that did not receive the incentives for comparison purposes. In view of this, the universe of concern was defined to involve only the exporters registered with the Board of Investments. A total of 872 exporters were found to be registered with the Board of Investments, either as recipient or non-recipient of the incentives. This list is called the 1980 "Exporter's Directory" prepared by the Board of Investments. This list of registered exporters served as the basis for choosing the industries and the firms to be interviewed. 80

The Target Group:

The "Exporter's Directory" consisted of both agribusi­ ness and industrial exporters. Inasmuch as the investment incentives and partly the export incentives favor agribusi­ ness industries as the recipient areas, and in view of the high export potential of non-traditional export manufac­ tures, the study will be more appropriate and reflective of export incentive programs if focused on the non-traditional export manufacturing industries. Hence, stratified sampling was employed whereby only the industries processing indi­ genous raw materials from Philippine agriculture are to be considered. Four industry recipients of export incentives meet this requirement, namely: furniture, garments, handi­ craft, and processed foods. The other non-traditional export manufacturers like electronics were not considered despite their high export performance because they are not agribusi­ ness industries. After consultations with the personnel of the Board of Investments, it was found out that the garments industry is utilizing mostly raw materials provided by foreign-owned companies. The local garment companies just provide the labor input of the production process. Consequently, the 81 garment industry was not considered as a respondent industry because it does not manufacture raw materials from Philip­ pine agriculture. Surprisingly though, quite a number of garment exporters were granted export and investment incen­ tives, again, reflective of how misapplied the incentives are. On the other hand, furnitures had a very low share in the total export performance (3.6%) so it was also dropped as a respondent industry. Hence, the target groups are companies falling under the processed food and handicraft industries. With the help of the Board of Investments, export-producers were identi­ fied and then classified into : exporters with incentives and exporters without incentives. A total of 40 food processors are exporting with incen­ tives and 25 are exporting without incentives. For handi­ crafts, there are 59 exporters with incentives and 51 are exporting without incentives. Hence, the total number of companies expected to be interviewed was 175, consisting of 99 exporters with incentives and 76 exporters without incen­ tives. The author, attempted to interview all of the pos­ sible 175 respondents. However, some were too distant to visit and others refused to cooperate with the survey.

Data Collection, and Final Sample:

Data collection was done through interviews with the export manager or general manager. Normally, initial con­ tacts were arranged through telephone to set appropriate 82 time and place for the interview. In some instances, arrangements were made through persons working with the com­ pany. Endorsements were also solicited from the Board of Investments though some companies, especially the non-reci­ pients, are somewhat unresponsive to the endorsements. The endorsements were then used mostly for exporters with incen­ tives . As some of the companies were hesitant to provide data, especially confidential information, efforts were exerted to contact an influential person to endorse the interview. Despite these attempts, jiowever, some exporters rejected the interview, sometimes outright during the telephone conversa­ tion. Many companies who rejected the interview reasoned that there is global recession and their companies are run­ ning into problems in the export market. Some exporters with­ out incentives were very hesitant to give interviews, espe­ cially those rejected from the program. The Chinese-owned companies, though classified as Filipino-owned, were the most difficult to convince to provide data. They seem to be very suspicious of the potential tax implications that may come up. However, some Chinese-owned companies were very cooperative in providing data. Another problem encountered during the survey is the wrong addresses provided by the Board of Investments. To trace the new addresses, people in the old location were asked and by word of mouth, the new addresses were traced. 83 After initial rejection for interviews, follow-up attempts were made. Several companies with higher prob­ ability of giving data were contacted at least three times. If there were persons who might intercede with the company, attempts were made to contact them. If everything failed, it was considered a reject interview. Out of the possible 175 companies contacted, a total of 102 exporters cooperated to provide data for this research. They consisted of 54 exporters with incentives and 48 expor­ ters without incentives. By status of exporting activity, the distribution is 38 exporters increasing volume, 50 maintaining and 14 exporters decreasing volume of exports. By size of sales, the distribution is 59 small, 28 medium and 15 large exporters. By type of industry, the sample distribution is 28 processed food and 74 handicraft expor­ ters interviewed for the study. The analysis was carried out on the basis of the four cri­ terion variables and sample distribution above.

Data Analysis :

The data were coded and then analyzed using the Statis­ tical Package for Social Sciences [SPSS].^ A total of 87 factors were involved in the analysis which make up the export behavior and export incentives variables.

^Norman H. Nie, et al.. Statistical Package for Statis­ tical Sciences, 1975. 84 The analysis of variance technique was felt to be.the appropriate statistical test because of the categorical nature of the data involved in this study. In comparing individual factors between groups, univar­ iate analysis of variance and Scheffe test were employed. In case of comparing two groups only, T-test was used which is basically the same as univariate test. The groups were tested as to differences in the means of perceived respon­ ses of individual factors, i.e., response on the effect of exporting on profit only, or growth only, taking one factor at a time on a given grouping. Of the several tests in comparing groups, the Scheffe test is considered to be the most conservative and most appropriate for examining all possible linear combinations of group means. Also, it is acknowledged that Scheffe is an exact test for unequal group sizes, as is the case in this research. Scheffe is then considered as the most appropriate test.

In testing the overall effects of a given group of fac­ tors, i.e., exporting effects taken as a whole, multivariate analysis of variance was used. Multivariate analysis of variance compared between the individual factors taken as a whole. Hence, in the case of exporting effects for example, its overall impact to profit, growth, market share, competi­ tive edge, and the development of the Philippine economy is tested all in one analysis of variance (hereinafter referred to as ANOVA) model. 85 ANOVA is a powerful statistical technique that is used to determine whether the differences among two or more means are greater than would be expected by chance alone. ANOVA permits the control of or level of signifi­ cance at a predetermined level when testing the simultan­ eous equality of the number of means. All differences for all pairs of any number of means are examined simultaneously to see if one or more of the means deviate significantly from one or more of the other means. The null hypothesis is:

Ho= "l = "2 = " 3 "j The assumptions underlying ANOVA analyzing variable test are:

a. normality b. homogeneity of variance c. independence of observations in the population

In testing the hypothesis, ANOVA gives sums of squares or SStotai which is a composite term for treatment effects and sampling error. The sources of variation are due to differ­ ences between group means and differences among the observa­ tions within the groups. Hence, the total sum of squares is composed of . SS«ithim.

When the sum of squares are divided by their respective degrees of freedom, a variance estimate termed as mean 86 squares is computed. The two mean squares are termed mean squares between and mean squares within correspondingly. The last step in the analysis of variance is computing the calculated F which is simply the ratio of MS to MS . b The calculated F value is then compared to the critical F based on the nominal level of significance and the degrees of freedom for the numerator (MSy) and the denominator (MS^). Hence, if calculated F is greater than critical F, the null hypothesis is rejected. Multiple comparison tests compare the differences among groups and identify which particular group caused the signi­ ficance of the overall difference. This is where the Scheffe test was used to test the significance among groups. CHAPTER IV

RESULTS AND IMPLICATIONS

Overview

The individual hypotheses and the corresponding results based on the analysis of variance tests are presented in the next tables. In table 9^, for example, columns 1 and 2 define the research area Investigated and the corresponding number of the hypothesis for that particular research area. Columns 3 and 4 show the type of test used and the level of significance of a given hypothesis. Column 5 deals with the decision as to whether a given hypothesis is accepted or not. To indicate which particular individual factor accounted for the significance of a given research area, the individual significant factors are presented in column 6. The indivi­ dual factors were tested using the t-test in case of compar­ ing two groups, i.e., availability of incentives and type of industry segmentation variable. In the case of three groups being compared where size and status of exporting activity are used as segmentation variables, the Scheffe test was used to indicate which groups caused the significance. The type of test used for each individual factor is shown in column 7 of each table. Table 9a r e s u l t s o f h y p o t h e s i s t e s t i n g

With or Without Incentives PVRT. nP iDECISIOHI significant i n d i v i d u a l FACTORS I UNIVARIATE WWoVa- . -( LEVEL OP I DECISION RESEARBH AREAS I h y p o t h e s i s I TESTS SIGNIFICANCE > STUDIED number of employees , „ (whole firm) ' T-tes*. A. General Characte­ reject «1.1 growtn, market share ~ in-*.* ristics competitive edge | T-ter* competitive edge', devël'oprre'rt'ôjr''" B. Exporting Effects Hi.2 Reject Philippine econcmy______L.t'llll__ C. Processing Effects Wilks hi.3 product advantage, export ; assistance T-test D. Export Motivators Wilks Reject (Initial Exporting Hl.'t ' ( Deci sion) Reject _product advantage, management, T-test Wilks export experience, export i E. Expert Motivators (Present Exporting assistance______Activity) ; «1.5 %on-payment risks, lack of expert6 X p C I U Üassistance, 0 0 4 C vw»«< » lack— of expoft Reject -* ------v.Aerv.t.T' n a r k e t i r — ^ - Export Obstacles 1 experience, higher marketing f Initial Exporting costs "f Decision) non-payment risks T-test Reject lack of export assistance G. Export Obstacles Wilks (Present exporting Activity)

H. Importance of Export Wilks Incentives

I. Adequateness of Export Wilks Incentives

T-test Not None Wilks J-. Importance of the reject Market Groups Reject total sales, expansion cf plant T-test .023 production capacity, increased K.Role of Export Incen­ Wilks imM!v%( abd tives in the Export entives group tmi}. Activity Decisions 1/ non-in 00 00 89 A. With or Without Incentives:

When the exporters are grouped on the basis of avail­ ability of export incentives in export activities, signifi­ cant differences were found in terms of overall exporting effects, processing effects, export motivators (both initial and present) , export obstacles (both initial and present), and role of export incentives on export activity decisions taken as a whole bundle of factors. In terms of general characteristics and market groups, no significant differen­ ces were found in terms of the overall group of factors con­ sidered under the two research areas (table 9^) . For indivi­ dual factors, please refer to table 9^. On an individual factor basis, number of employees was found to be significant as a background factor. In terms of exporting effects, growth, market share and competitive edge were found to be significant. From table 10, it can be inferred that the "with incentives" group perceived higher effects of exporting on profit, growth, market share, com­ petitive edge and in the development of the Philippine econ­ omy. Both groups, however, reported critical roles of exporting in the development of the Philippine economy. As far as the effects of additional processing are con­ cerned, the factors, competitive edge and development of the Philippine economy, are significant. The "with incentives" group reported much higher effect of additional processing on the development of the Philippine economy (table 11). 90 Table 9b Cell Means for Individual Factors With or Without Incentives

Cell Means RESEARCH AREAS STUDIED With Without A. General Characteristics: «« Number of employees(whole ) 188.38 46.77 Number ot employees(export) 10.97 Years in business 11"37 9.14 Years in exporting °>31 7-33 Percent export sales 76.48 82.92

B. Exporting Effects

Profit 3.60 3 .54,, Growth 3.96 3>46*, Market Share 3.78 3>35** Competitive Edge 3-76 3.31 Development of the economy 4.09 3.92

C. Processing Effects Profit 3.77 3.49 Growth 3.77 3.55 Market Share 3.59 3.34., Competitive Edge 3.77 3.25*, Development of the economy ‘*•^■7 3.7^

D. Export Motivatorsdnitial Exporting) Profit expectations 1.41 1 -54 Excess capacity 3.15 Department of Trade(leads) 3.26 3.30,, Product advantage 1.42 1.98 Competitive pressure(local) 1.87 1 -49 Management export experience 2.05 2.29,, Export incentives 2.54 3.20

E. Export Motivators(Present Exporting)

Profit expectations 1.2c l . n Excess capacity 3.20 3.34 Department of Trade(leads) 3.24 3.4i,, Product advantage 1.33 2 . )8 Competitive pressiire(local ) I .58 1.72,* Management export experience 1.83 2.3c,, Export incentives 2.6'i 3.64

signi i i cant at 91

Toble 9t continued)

Cel l W e a n s F. Export Obstaclesdnitial Exporting) With Without Foreign exchange risks 3-30 Non-payment risks 3*22 Pro diet perishability 3.11 Lack of export incentives 3.00 Competition abroad 1.96 Lack of export experience 2.52 i !98** Documentation requirements 3.21 2.78 Locating overseas markets 1.93 1.87 Tariffs and restrictions 3.13 Higher marketing costs 2.77

G. Export Obstacles(Present Exporting)

Foreign exchange risks 3.38 Non-payment risks 3.37 Product perishability 3.^0 Lack of export incentives 3.28 2 !43** Competition abroad 1.77 1.69 Lack of export experience 3.^2 3.48 Documentation requirements 3.^0 3.28 Locating overseas markets 2.40 2.60 Tariffs and restrictions 3.23 3.36 Higher marketing costs 2.84 2.96 §/ H. Importance of Export Incentives

Tax credits Protection for patents Capital gains tax exemption Accelerated depreciation Deduction of pre-operating and organiz. tional expenses Net operating loss carryover Employment of foreign nationals Anti-dumping protection Deduction of freight expenses Deduction of research and development expenses Deduction of labor training expenses Free use of foreign exchange

•* significant at .05 5/ no corrpari son because the non- incentlver rroup cannot respond. 92

Table 9i, ( continued ,

Cell Means I. Adequateness of Export Incentives §Z With Without Tax credits Protection for patents Capital gains tax exemption Accelerated depreciation Deduction of pre-operating and organizational expenses Net operating loss carryover Employment of foreign nationals Anti-dumping protection Deduction of freight expenses Deduction of research and development expenses Deduction of labor training expenses Piee use of foreign exchange

J. Importance of Market Groups

ASEAN countries 2.75 2.85 Other Asian countries 2.81 3.02 Oceania 2.b9 2.47 North America 1.43 1.36 Middle East 3.11 3.28 Western Europe 1.45 1.48 K. Export Incentive Statements

Search for export markets 2.54 2,94,. Increased share of exports 2.32 3.17.. Expansion of export capacity 2.40 3 .13.. Increased export promotion 2 .57.. 3.26 Reduced perceived export risks 2.37 2.53 Export is a matter of 3.15 3.06 demand and coropetimion 3.04 Role in export expansion 2.72 Impact of abolition of incentives 2.91 1.06

significant at .05

^ rif comparison becJiuso iv,’n- incentive’:: group cartnel r e s p o n d . 93 This finding implies that the exporters with incentives have a better appreciation of the influence of additional process­ ing on the economic development of the country.

Table 10 PERCEIVED EXPORTING EFFECTS FACTORS WITH WITHOUT ALL RANK Profit 3.80* 3.54 3.68 3 Growth 3.96 3.48 3.74 2 Market share 3.78 3.35 3.58 4 Competitive edge 3.76 3.31 3.55 5 Development of the Philippine economy 4.09 3.92 4.01 1 *Mean responses based on five-point scale where I 1- -decrease greatly 2 --decrease slightly 3--no effect 4 --increase slightly 5 --increase greatly

Table 11 PERCEIVED PROCESSING EFFECTS FACTORS WITH WITHOUT ALL RANK Profit 3.77* 3.49 3.64 3 Growth 3.76 3.55 3.67 2 Market share 3.59 3.34 3.48 5 Competitive edge 3.77 3.25 3.53 4 Development of the Philippine economy 4.27 3.76 4.03 1 *Mean responses based on: 1--decrease greatly 2 - -decrease slightly 3--no effect 4--increase slightly 5--increase greatly 94 In terms of the ranking of the means, the perceived effects of exporting and additional processing on the develop­ ment of the Philippine economy had the highest rank, followed by growth and profit, in that order. The perceived effects of additional processing on all the factors ranged from "no effect" to "increase slightly." The same is true in case of the perceived effects of exporting. Table 12 PERCEIVED EXPORT MOTIVATORS (Initial Exporting) WITH WITHOUT MOTIVATORS INCENTIVES INCENTIVES ALL RANK

Profit expectations 1.41^ 1.54 1.26 1 Excess capacity 3.15 2 .80 3.23 6 Department of Trade (leads) 3.26 3.30 3.27 7 Product advantage 1.42 1.98 1.48 2

Competitive pressure 1.87 1.89 1.88 3 Management export experience 2.05 2.29 2.17 4 Export assistance 2 .54 3.20 2.84 5 ^Means of responses on a four point scale where; 1--very important 2--moderately important 3-- important 4 --not important

Profit expectation is the most important motivator in the initial export decision of agribusiness exporters in the Philippines. It is perceived as a very important motivator in making the export decision. (Table 12) 95 Product advantage and competitive pressure are next to profit as motivators. The two motivators received a moder­ ately important evaluation from the exporters. The experience of management in exporting also received moderately important valuation, though lower than competitive pressure. Hence, managerial urge is also an important factor in the export decision. Export assistance received an important but fairly low valuation as an export motivator. This confirms the conten­ tion of other studies that export assistance is an important but not a critical factor in the export decision-making of firms. It is important to note, however, that the "with incen­ tives" group have generally higher perceptions of the impor­ tance of export incentives as motivators in the export deci­ sion than do firms without incentives. This can be attributed to the fact that the non-incentives group generally have a negative reaction to the export incentives. The non-incen­ tives group felt they can export with or without assistance. Their attitude is that they would be glad to export with the export incentives, but if not available, they would still go ahead and export anyway because the export market is profit­ able and they do not have a big local market in which to sell their products. Further evidence of this attitude is the finding in table 13 on present export motivators wherein the "without incentives" group reported a higher profit expecta­ tion than exporters with incentives. However, the 96 "non-incentives" group reported a "practically not important" role of export assistance in the export decision. The significant factors in terms of export motivators in the present exporting effort of firms are excess capacity, profit expectations. Department of Trade (leads], export experience and export assistance. Except for profit expecta­ tions, the exporters with incentives reported higher means of importance on all the export motivators.

Table 13 PERCEIVED EXPORT MOTIVATORS (Present Exporting] WITH WITHOUT MOTIVATORS INCENTIVES INCENTIVES ALL RANK

Profit expectations 1.26^ 1.12 1.20 1 Excess capacity 3.21 3.34 3.28 6 Department of Trade (leads] 3.24 3.41 3.32 7 Product advantage 1.33 2.38 1.39 2 Competitive pressure 1.58 1.72 1.69 3 Management export experience 1.83 2.36 2.08 4 Export assistance 2.65 3.64 3.06 5 ^Mean responses on a four point scale where: 1--very important 2--moderately important 3--important 4 --not important Profit turned out to be the most important inducer for the agribusiness exporters' decision to export and even in increasing present volume of exports. Export assistance turned out to be important but not a critical factor in the export decision. 97

Table 14 PERCEIVED EXPORT OBSTACLES (Initial Exporting) WITH WITHOUT EXPORT OBSTACLES INCENTIVES INCENTIVES ALL RANK Foreign exchange risk 3.30^ 3.52 3.40 10 Non-payment risk 3.22 2.55 3.19 9 Product perishability 3.11 3.15 3.14 7 Lack of export assistance 3.00 2.37 2.99 5 Competition abroad 1.96 1.70 1.96 1 Lack of export experience 2.52 1.98 2.56 3 Documentation requirements 3.21 2.78 3.11 6 Locating overseas markets 1.92 1.88 2.06 2

Tariffs and restrictions 3.14 3.15 3.15 8 Higher marketing costs 2 . 77 2.17 2.57 4 ^Mean responses based on a four point scale where: 1--very serious 2--moderately serious 3--serious 4--not serious

In terms of perceived obstacles to the initial export decison, competition abroad and locating overseas markets are the two most serious obstacles in the export decision. This finding indicates that the exporters need more assistance in the area of product technology and market promotion. The exporters without incentives reported the problems in a slightly more serious level than the exporters with incentives

The other serious obstacles encountered in the initial export effort are lack of export experience, higher marketing 98

costs, and lack of export assistance. Again, the exnorters without incentives reported the seriousness of these prob­ lems at a higher level than exporters with incentives (Table 14). Lack of export assistance only ranked 5th out of a pos­ sible 10 export obstacles. This implies that lack of export assistance is felt as a serious obstacle to engaging in exporting, but again, not serious enough as to make firms not export just because they do not have the assistance. Table 15 PERCEIVED EXPORT OBSTACLES (Present Exporting) WITH WITHOUT EXPORT OBSTACLES INCENTIVES INCENTIVES ALL RANK Foreign exchange risk 3.38^ 3.49 3.43 9 Non-payment risk 3.36 2.45 3.37 8 Product perishability 3.40 3.04 3.25 7 Lack of export assistance 3.28 2.43 3.27 4 Competition abroad 1.77 1.69 1.87 1 Lack of export experience 3.42 3.48 3.45 10

Documentation requirements 3.40 3.28 3.35 6 Locating overseas markets 2.40 2.60 2.49 2

Tariffs and restrictions 3.23 3.36 3.30 5 Higher marketing costs 2.84 2.96 2.90 3 ^Means of responses based on a four point scale where: 1--very serious 2--moderately serious 3 - -serious 4--not serious 99

In the present exporting efforts of firms, the two most serious problems are still the competition abroad and locat­ ing overseas markets. It is apparent from these findings that the two most crucial areas future incentive efforts should focus on are the development of new products that will com­ pete better in the export market and improved market promotion and search for trade leads (Table 15). Higher marketing costs is still a serious problem in the present export marketing efforts of firms which can be attri­ buted to the high freight costs due to oil prices. Lack of export assistance is a serious problem especially for the exporters without incentives. For exporters with incentives, the inadequateness of incentives is perceived as a seriuus problem. The lack of export experience dropped from 3rd during the initial export decision to 10th in the present export acti­ vities. Presumably, the exporters attained a degree of confi­ dence by being in the export business. Foreign exchange risks and non-payment risks were not reported as serious problems for the firms interviewed. The results on export motivators and obstacles revealed that export assistance is perceived as an important motivator and the lack of assistance as a serious obstacle, both in the initial and present exporting efforts of the exporting firms. However, the level of means of importance or seriousness revealed that export assistance is not a critical factor in determining whether a firm would export or not. There are 100 more important factors, such as profit expectations and com­ petition, that force firms to explore foreign markets. This assertion is further supported by table 16 wherein exporters perceived that export incentives resulted in an increased share of exports to total sales.

Table 16 PERCEIVED ROLE OF EXPORT INCENTIVES ON EXPORT ACTIVITY DECISIONS WITH WITHOUT STATEMENTS INCENTIVES INCENTIVES ALL RANK Export incentives resulted in : 1. Increased search for export markets 2.54 2.94 2.73 3 2. Increased share of exports to total sales 2.32 3.17 2.72 2 3. Expansion of export production capacity 2.40 3.13 2.75 4 4. Increased promotional efforts in the export markets 2.58 3.26 2.90 6 5. Reduced perceived risks to exporting 2.37 2.53 2.45 1 6. Important role in future export expansion decisions 2.72 3.04 2.88 5 7. Impact of abolition of export incentives on the level of involvement in , export marketing 2.91 1.96 2.48 ^Means of responses based on: 1--strongly agree 4--disagree 2--agree 5--strongly disagree , 3--neutral Means of responses based on: 1--negligible 3--considerable 5--discontinuâtion of 2--moderate 4--critical export operations 101

The exporters with incentives are generally more affirm­ ative as to the perceived role of export incentives in increa­ sing the percentage of exports to total sales and increasing the search for export markets. In fact, the exporters with incentives had more favorable responses than the exporters without incentives when asked about the role of export incen­ tives in export activity dejcisions of firms. Should the export incentive program be abolished, the exporters with incentives reported that the impact on their level of involvement in export marketing would be considerable, while exporters without incentives felt the impact would only be moderate, even if the incentives were made available to them.

Table 17 PERCEIVED IMPORTANCE OF MARKET GROUPS WITH WITHOUT MARKET GROUPS INCENTIVES INCENTIVES ALL RANK ASEAN countries 2.75 2.85 2.80 4

Other Asian countries 2.81 3.02 2 .91 5 OCEANIA 2 .49 2.47 2.49 3

NORTH AMERICA 1.43 1.37 1.40 1 MIDDLE EAST 3.11 3.28 3.19 6 WESTERN EUROPE 1.45 1.47 1.46 2 ^Mean responses based on: 1--very important 2--moderately important 3-- important 4--not important 102

From table 17, it can be inferred that the United States is the most important market for both groups of exporters, with or without incentives. North America is still the major market for almost all of the exports of the Philippines despite termination of trade agreements between the United

States and the Philippines. The next most important market is Western Europe. The growth of the European Economic Community as a regional trad­ ing bloc has opened opportunities for some LDC's to increase trade relations with them. In the Philippines, for example, many of the exporters interviewed expressed interest in seek­ ing more export prospects in the Western Europe markets. It is worth noting that the exporters with incentives and without incentives perceived with almost the same importance the markets where Philippine exports are being marketed. This may imply that exporters with incentives have practically the same markets as the exporters without incentives.

B . Status of Exporting Activity Criterion:

When firms were classified as to the status of exporting activity, namely: increasing, maintaining, or decreasing volume of exports, significant differences were found in the overall group of factors about general characteristics, export motivators (present exporting), export obstacles (ini­ tial exporting), importance of export incentives and importance of market groups. In terms of exporting effects, processing effects, initial export motivators, present export obstacles. .103 adequateness of export incentives and role of export incentives in export activity decisions, the overall means were found to be insignificant. In terms of individual factors (table 18^), none of the individual factors was found to be significant as a general characteristic of the company. For exporting effects, profit, growth, and market share factors were found to be significant. As export motivators, profit expectations were found to be the significant factors for both the initial and present export marketing effort of firms. Excess capacity, export experience and export incentives were also significant factors. The exporters increasing their current level of exports have a slightly higher perception of each motivator. In the area of export obstacles, product perishability and competition abroad were the two significant factors among the groups. In terms of the means, lack of incentives and locating overseas markets are the most serious problems facing firms that are decreasing volume of exports. In terms of evaluation of export incentives, significant differences in the means were found for tax credits and capi­ tal gains tax exemption, with the firms having a decreasing volume of exports providing the lowest means among the three groups as to adequateness. In the area of perceived role of export incentives to the export activity decisions, signifi­ cant differences were noted in increased share of export, expansion of export capacity, and impact of abolition of the i’able 18a RESULTS OF HYPOTHESIS TESTING Incfeasing, Maintaining and Deceeasing Volume of Exports MANOVA . . LEVEL OF DECISION SIGNIFICANT INDIVIDUAL FACTORS UNIVARIAl RESEARBH AREAS HYPOTHESES ’TESTS SIGNIFICANCE TESTS STUDIED Scheffe General Characte­ Wilks .044* Reject none ristics '2.1 Not profit, growth, market share SchefIe Exporting Effects Wilks .056 reject H2.2 not .294 none Scheffe Processing Effects H2.3 Wilks reject not profit expectations Export Motivators Wilks Scheffe (Initial Exporting .115 reject Decision) Wilks .000 Reject profit expectations,excess ca­ Export Motivators pacity. Dept. of Trade(leads), Scheffe (Present Exporting ^2.5 export experience, export assie - Activity) tanre . Wilks .014* Rejeet product perishability, F. Export Obstacles competition abroad Scheffe ( Initial Experting ^2.6 Decision) not Scheffe ' Wilks .054 Export Obstacles reject none (Present Ex porting "2.7 Activi ty )

Importance of Wilks .002* reject Scheffe none Export Incentives '2.8

Wilks .457 not tax credits, capital gains tax Adequateness of reject exemption. Scheffe 1 Export Incentives "2.9 Middle East, Western Importance of the 'Wilks .009* Reject Europe Scheffe Market Groups H2.10 not increased share of exports to k—* Role of Export Incen­ Wilks .298 Scheffeg tives in the Export reject total sales, expansion of Activity Decisions '2.11 export -capacity, impact o£ abolition of incentives 105

Table ISp

Cell Means for Status of Exporting Activity (i) (2) (3) MSEARCH AREAS STUDIED Increase Maintain Decrease Significant Groups A. General Characteristics: Number of employees(whole ) 176,,11 63..96 187,.92 Number o( employees(export) 35.,16 11,.17 33,.75 Years in business 10,.89 8,,84 14,.07 Years in exporting 7.,?6 7,,06 12,.29 Percent export sales 75..79 62,,00 80,.71 B. Exporting Effects

Profit 4.03 3.46 3.50,, 1&2 Growth 4.11 3.46 3.71,, 1&2 Market Share 3.81 3.34 3.79 1&2 Competitive Edge 3.76 3.38 3.57 Development of the economy 4.13 3.94 3.92

C. Processing Effects

Profit 3.78 3.44 3.93 Growth 3.84 3.50 3.78 Market Share 3.59 3.31 3.71 Competitive Edge 3.60 3.48 3.50 Development of the economy 4.72 3.89 4.00

D. Export Motivators(Initial Exporting)

Profit expectations 1.42 1.36 2.00 2&3 Excess capacity 3.16 2.96 2.64 Department of Trade(leads) 3.21 3.32 3.29 Product advantage 1.58 1.70 1.93 Competitive pressure(local) 1.84 1.86 2.00 Management export experience 1.97 2.32 2.14 Export incentives 2.61 3.12 2.50 E. Export Motivators(Present Exporting)

Profit expectations 1.16 1.12 1.62,, 2&3 Excess capacity 3.03 3.57 2.'-'0,, 162 Department, of Trade(leads) 2.97 3.6: 3.08 1 A.' Product advantage 1.61 2.00 1 .77 Competitive pressure(local ) 1.47 1 .72 1.8 :,, Management export experience 1 .5'. ,-.:h 1 PA'i Export incentives 2.61 i .: p .'.77 J A.-'

** significant at .0'; 106

Tat le 18b(cont,i nucd )

Cell Mnar.c '

F. Export Obstaclesdnitial Exporting") ) (2 ) (3 ) Significant Increase Maintain Decrease Groups Foreign exchange risks 3,18 3 .51* 3.57 Non-payment risks 2.92 2 .9b 2 .77,, ProriiPt perishability 2.81 3.40 3 .00 1&2 Lack of export incentives 2.94 2.56 2 .62,, Competition abroad 1,79 3.70 2.54 I&3 , 2&3 Lack of export experience 2.41 2 .06 2.62 Documentation requirements 3 .14 2.92 3.00 Locating overseas markets 1 .84 1.98 1 .78 Tariffs and restrictions 3.32 3 .06 2.92 Higher marketing costs 2.76 2.27 2.54 0. Export Obstacles(Present Exporting)

Foreign exchange risks 3.16 3.63 1.14 Non-payment risks 2.92 2 .9ft 3.00 Product perishability 3.08 3.41 3.01 Lack of export incentives 3.00 2.79 2.92 Competition abroad 1.72 1.60 2.31 Lack of export experience 3.36 3.59 3.15 Documentation requirements 3.14 3.55 3.17 Locating overseas markets z . 5 ^ 2.60 1.92 Tariffs and restrictions 3.33 3.31 3.09 Higher marketing costs 2.81 3.00 2.73 H. Importance of Export Incentives

Tax credits 1.10 1.24 1.00 Protection for patents 3.07 3.00 3.67 Capital gains tax exemption 2.07 2.24 2.17 Accelerated depreciation ■ 2.33 2.20 1.50 Deduction of pre-operating and organiz tional expenses 2.93 2.12 2.20 Net operating loss carryover 2.70 1 .94 2.50 Employment of foreign nationalr 3.43 3.71 3.80 Anti-dumping protection 3.20 3.18 4.00 Deduction of freight expenses 2.1? 1.53 1.83 Deduction of research and development expenses 2.90 3.06 2.6c Deduction of labor training expen =;es 3 -V< 3.00 2.20 Free use nf foreign exchange 2.'',f 1.02 .'■.00

signifinatit at, .0"^ 107

Table iBjj(continued)

Cell Weans Adequateness of Export Incentives (i) (2 ) (3) Significant Increase Maintain Decrease Groups Tax credits 1.79 2.71 ■3.33 1&2 . 1&3 Protection for patents 3.12 3.29 Capital gains tax exemption 2.08 3.07 1&3 Accelerated depreciation 2.96 3.60 2.83 Deduction of pre-operating and organizational expenses 3.15 3.67 3.50 Net operating loss carryover 2.96 3.33 3.31 Employment of foreign nationals3,38 3.87 3.67 Anti-dumping protection 3 .18 3.56 3.66 Deduction of freight expenses 2.60 3.13 3.67 Deduction of research and development expenses 3.29 3.69 3.83 Deduction of labor training expenses 3.21 3.75 3.77 Free use of foreign exchange 2.82 3.31 3.20 J. Importance of Market Groups

ASEAN countries 2.62 2 . 8 k 3.17 Other Asian countries ■ 2.72 3.10 2.67 Oceania 2.56 2.39 2.67 North America 1.45 1.30 1.67 Middle East 2.89 3.50 2.85 Western Europe 1.57 1.26 1.92 2&3 K. Export Incentive Statements

Search for export markets 2.50 3.06 Increased share of exports 2.30 3.05 2.62,, 142 Expansion of export capacity 2.36 3.10 2.46 142 Increased export promotion 2.68 2.21 2.38 Reduced perceived export risks 2.47 2.42 2.46 Export is a matter of demand and competiéi on 3.21 3.18 2.54 Role in export expansion 2.69 3.02 2.85 Impact of abolition of incentives 2 . 8 k 2.16 2.5P" 142

significant at .05 108 incentives. The significant differences were found between firms increasing and firms maintaining volume of exports.

C. Type of Industry Criterion:

When firms were categorized into processed food and handicraft exporters, significant differences in the overall means were found on general characteristics, exporting effects, export motivators (initial and present), export obstacles (initial and present), and importance of market groups. Non­ significant differences were found in the overall means of groups of factors like processing effects, importance of incen­ tives, adequateness of incentives, and role of export incen­ tives in the key exporting decisions (Table IP^). On an individual factor basis (table IPy) number of employees was found to be significant, with processed foods reporting higher number of employees hired. Years in business and percentage of export sales to total sales were also sig­ nificant. Processed food exporters have longer business and export experience than handicraft exporters, but the latter have a higher export share as portion of total sales. The domestic market for processed foods is a little higher than for handicrafts. Profit, growth and competitive edge as effects of export­ ing were found to be significant. Processed foods exporters have a generally higher perception of the effects of exporting. Product advantage, competitive pressure, and management export experience were found to be significant factors for TaDie RESULTS OF HYPOTHESIS TESTING Processed Foods and Handicraft Industries RESEARBH AREAS HYPOTHESES MANOVA* ' ; LEVEL OF DECISION SIGNIFICANT INDIVIDUAL FACTORS UNIVARIATl STUDIED TESTS SIGNIFICANCE TESTS ■ number of employees(whole firm) T-test A. General Characte­ H^ 2 Wilks .000* Reject years in business, percentage ristics cxso'T't Bales.------.043* (profit, gi'owtM, competitive B. Exporting Effects Ha.? "i^ks Reject edge, market share T-test C. Processing Effects .907 not rej ict none T-test H 3.3 Wilks product advantage, competitive D. Export Motivators Wilks pressure, export experience T-test (Initial Exporting .000* Reject Decision) "3 .4 competitive pressure Wilks E. Export Motivators export assistance T-test (Present Exporting «3.5 .000* Reject Activity) Wilks product perishability, competi­ F. Export Obstacles .000* Reject tion abroad, higher marketing ( Initial Exporting “3.6 costs T-test Decision) product perishability, compe­ 0. Export Obstacles Wilks .000* Reject tition abroad, lack of export T-test (Present i^^xporting "3.7 experience, documentation requii •e- Activity) .mentSk,higher marketing costs employment of foreign nationals, H. Importance of Export Wilks Not anti-dumping protection, deducti in Incentives «3.8 .078 reject of R&D and labor training expen­ T-test ses, free use.^of foreign exchang >

.101 Not I. Adequateness of Export j Wilks None T-test Incentives reject «3.9 ! ASEAN countries, other Asian •I. Importance of the Wilks .000* Reject countries. Middle East, North T-test Market Groups Ht in America, Western Europe Not K. Role of Export Incen­ Search for export markets T-testg tives in the Export Wilks .115 reject Activity Decisions «3.11 1 110

Table 19^ Cell Means for Tvne of Industry

Cell Means

RESEARCH AREAS STUDIED Processed Foods Handicraft

A. General Characteristics :

Number of employees(whole ) ' 330.54 5 0 .4 7 Number ol employees(export) 31.37 Years in business 17.14 ^7:74" Years in exporting 10.57 Percent export sales 66.79

B. Exporting Effects

Profit 4.07 Growth 4.14 Market Share 3.93 Competitive Edge 3.94 I f Development of the economy 4.21 3.93 C. Processing Effects

Profit 3.81 Growth 3.77 3.63 Market Share 3.58 3.44 Competitive Edge 3.56 3.5] Development of the economy 4.15 3.99 D. Export Motivators(Initial Exporting) Profit expectations 1.39 1.50 Excess capacity 3.18 Department of Trade(leads) 2.92 3.29 Product advantage 2.11 Competitive pressure(local) 2.18 Management export experience 1.86 Export incentives 2.50 2.97 E. Export Motivators(Present Exporting)

Profit expectations 1.19 1.21 Excess capacity 3.00 3.37 Department of Trade(leads) 3.21 3.35 Product advantage 1.89 Competitive pressure(local) 1.96 !:??■• Management export experience 1.86 Export incentives 2.32 V . u "

significant at .05 Ill

Table 19b (continued) Cell Weans

F. Export Obstaclesdnitial Exporting) Processed Foods Handicraft

Foreign exchange risks 3.19 3.49 Non-payment risks 3.11 Product perishability 2.54 3:36" Lack of export incentives 2.70 Competition abroad 2.21 1:69" Lack of export experience 2.56 2.15 Documentation requirements 2.96 3.03 Locating overseas markets 1.82 1.93 Tariffs and restrictions 3.19 Higher marketing costs 3.0^4 G. Export Obstacles(Present Exporting) Foreign exchange risks 3.30 3.49 Non-payment risks 3.11 2.88,, Product perishability 2.62 3.46 Lack of export incentives 2.96 2.86,, Competition abroad 2.38 Lack of export experience 2.88 Documentation requirements 2.86 M l: Locating overseas markets 2.19 2.61 Tariffs and restrictions 3.23 3 .32,, Higher marketing costs 3.20 2.77 H. Importance of Export Incentives

Tax credits 1,28 1.06 Protection for patents 2.94 3.21 Capital gains tax exemption 2.39 2.00 Accelerated depreciation- 2.33 2.31 Deduction of pre-operating and organiz. ticnal expenses 2.76 2.51 Net operating less carryover 2.61 Employment of foreign nationals 3.06 Anti-dumping protection 2.83 M g: Deduction of freight expenses 2.12 1.83 Deduction of research and developmenl expenses 2.35 Deduction of labor training expenses 2.63 Free use of forfign exchange 1.94

significant at .05 112

Table 19^ (continued) Cell Means n: I. Adequateness of Export Incentives Processed Foods Handi craft

Tax credits 2.17 2.32 Protection for patents 3.07 3.34 Capital gains tax exemption 2.77 2.52 Accelerated depreciation 2.83 3.27 Deduction of pre-operating and organizational expenses 3.28 3.39 Net operating loss carryover 3.15 3.12 Employment of foreign nationals 3.29 3.70 Anti-dumping protection 3.08 3.57 Deduction of freight expenses 3.23 2.79 Deduction of research and development expenses 3.21 3.71 Deduction of labor training expenses 3.33 3.49 Free use of foreign exchange 2.81 3.19 J. Importance of Market Groups

ASEAN countries 2.37 Other Asian countries 2.31 Oceania 2.8S North America 1.89 Middle East 2.6A 3.40**iiii! Western Europe 1.93

K. Export Incentive Statements

Search for export markets 2.29 2.89 Increased share of exports 2.37 2.85 Expansion of export capacity 2.81 2.72 Increased export promotion 2.82 Reduced perceived expert risks 2:36 2.48 Export is a matter of demand and competition 3.19- 3.10 Role in export expansion 2.52 3.00 Impact of abolition of incentives 2.58 2.4t

significant at .05 1 1 3 export motivators. Handicraft exporters reported a higher perception of product advantage, which can be attributed to the fact that product differentiation via quality is more possible in handicrafts than in processed foods. Competitive pressure in the local market was felt more strongly by the handicraft exporters, again, indicating its limited local demand. Export experience and export assistance were perceived as motivators at a higher level by the processed food expor­ ters. Processed food exporters have longer years in business and consisted of more firms larger in size than the handi­ craft firms. Product perishability, competition abroad, documentation requirements and higher marketing costs were the significant problems in terms of obstacles. Because of their nature, food products are generally more perishable than handicrafts. Competition abroad was serious for both groups with the handi­ craft exporters feeling it more seriously than the processed food exporters. Processed food exporters reported more serious problems on documentation requirements as an obstacle associated to exporting. The two major problems for both groups are competition abroad and locating overseas markets. The lack of export assistance is only a slightly serious obstacle in the initial export effort of firms. 114

Considering the market groups, significant differences were found in several market groups. Both food and handicraft exporters reported North America as the major market but the handicraft exporters reported higher importance valuation for North America and Western Europe than food exporters. On the other hand, the food exporters reported a higher degree of importance of the ASEAN and other Asian countries due to the fact that the demand for food is ethnic to the Chinese food eating communities in Asia. In this context, food sales to the Middle East is also mostly high due to the upsurge of Filipino labor in the Middle East. In terms of export incentives, both handicraft and pro­ cessed food exporters gave high valuation on tax credits as an incentive, with handicraft exporters giving a higher valu­ ation of the importance of tax credits. However, in terms of qualitative incentives, like employment of foreign nationals, the processed food exporters had a higher valuation. Also, in terms of other incentives directly applicable to large firms, like deduction of research and development expenses and free use of foreign exchange, the processed food exporters reported a higher degree of importance and adequateness. More of the large firms are in the processed foods industry, so the processed foods industry is more directly benefited by the incentives tailored for the large firms. 115

D. Size as Criterion:

When the exporters were classified into small, medium and large firms, significant differences in the overall means were found in terms of: general characteristics, export motivators (both initial and present), export obstacles (initial and present), importance of export incentives and importance of market groups. The export obstacles for the present export effort and the adequateness of export incentives are very close to being significant. Non-significant differ­ ences were found for exporting effects, processing effects, and the role of export incentives in key export activity decisions (table 20^). On an individual factor basis (table 20^), the number of employees for both the whole firm and the export division were significant. The size of the labor force is an accepted indicator of size, and, in the study, the large firms have a far higher number of employees than the small and medium sized firms. Years in business and years in exporting were also significant, again, with the large firms having an advantage. This could be a reason why the large firms considered manage­ ment export experience as an important motivator to exporting. In terms of percent export sales to total sales, smaller firms have a higher percentage, which can be attributed to the fact that most of the handicrafts fell in the small firms' cate­ gory. The limited local market for handicrafts has forced them to go into export markets. Table 20a RESUITS OF HYPOTHESIS TESTING Small, Medium and large Firms DECISION SIGNIFICANT INDIVIDUAL FACTORS | UNIVA^^I^ATE RESEARBH AREAS LEVEL OF h y p o t h e s e s SIGNIFICANCE STUDIED iTESnTESTS number of employees^whole firm T and export division, years in j ^^heffe A. General Characte- ! Wilks U i .000 Reject ri sti cs Scheffe Not growth 3. Exporting Effects Hu. 2 Wilks .375 reject ■ T ‘ Not Scheffe C. Prccisiîne Effects growth .179 T-e jpp.t HU.3 (Lwuks- excess capacity, export exper­ Scheffe 5. Export Motivators ; Reject ience, export assistance (Initial Exporting | Wilks .000 HU-'l Decision) profit expectations, excess L capacity, export experience, Scheffe E. Export Motivators Wilks .000 Reject (Present Exporting exportV assistance - __ ___ Activity ) foreign exchange risks, product I or Cl 1 . Scheffe Wilks perishability,nhabilitv, lack of export F. Export Obstacles .000 Reject assistance, competition abroad, ( Initial Exporting Hu.6 lack of export experience. Decision) r- foreign exchange risks, product Not Scheffe G. Export Obstacles Wilks .067 reject perishability, lack of export (Present 'txpcrting Hu.7 experience Activity) tax credits, employment of foreliin .015 Reject nationals,free use of foreign ,H. Importance of Export Hu.8 Wilks exchange, deduction oft researct Scheffe Incentives and developmontgcpenses and labor training' expenses. accelerated depreciation,employ • I. Adequateness of Export| .058 Not ment of foreign nationals,anti- Scheffe Wilks reject Incentives ' Hu.9 dumping protection, free use of foreign exchange, deduction of R*I>-and-lober training expencee - ASEAN countries,* * - — other— Asian o*r» Scheffe Reject J. Importance of the Hu. 10 Wilks .000 countries. Middle East, Western Market Groups Europe------Not Search for export markets. Scheffe Increased share of exports to K. Role of Export Incen­ .39? reject tives in the Export H'U.ll Wilks total sales Activity Decisions

Os 117 Table 20b Cell Weans for Size of Sales Cell Means (1) (2) (3) RESEARCH AREAS STUDIED Small Medium Large Significant groups , >neral Characteristicsi 1&|^1&3 Number of employees(whole ) 20.05 159.51 Number of employees(export)■ 10.08 26.00 1&3 Years in business 7.11 10.25 143. 243 Years in exporting 6.75 6.57 143, 2&3 'ercent export sales 84.07 73.21 73.33

B-. -X porting Effects

Profit 3.61 3.86 3 .60, Growth 3.54 4.03 3.93 142 Market Share 3.41 3.66 3.73 Competitive Edge 3.42 3.71 3.73 Development of the economy r. Processing Effects

Profit 3.49 3.78 4.00,, Growth 3.56 3.63 4.23 143 Market Share 3.36 3.56 3.85 Competitive Edge 3.42 3.59 3.84 Development of the economy 3.86 4.29 4.07

]). Export Motiva tors (Initial Exporting)

Profit expectations 1.49 1.29 1.73,, Excess capacity 2.85 3.44 2.80 142 Department of Trade(leads) 3.29 3.18 3.40 Product advantage 1.61 1.89 1.60 Competitive pressure(local) 1.78 2.11 1 .80., 143 Management export experience 2.39 1.96 1.66., Export incentives 3.00 2.92 2.07 1&3, 243 E. Export Motivators(Present Exporting)1

Profit expectations 1 .08 1.26 1.53% 143 Excess capacity 3.52 3.23 2.33 143, 243 Department of Trade(leads) 3.49 3.04 3.13 Product advantage 1.9? 1.70 1.47 Competitive pressure(local) 1.56 1.85 1 .60,, Management export experience 2.41 1.67 1 .53,, 143, 142 Export incentives 3.67 2.62 1.73 143, 243, 142

significant at .05 118

Table 20fc (continued) Cell means F. Export Obstacles(Initial Exporting) Small Medium Large Significa nt groups Foreign exchange risks 3.60 3.38 2.67 1&3 Non-payment risks 2.93 3.04 2 .60-, Product perishability 3.37 3.04 1&3 Lack of export incentives 2.47 3.31 1&2 Competition abroad 1.58 2.33 t i " 1&2 Lack of export experience 2.00 2.74 2 !43** 1&2 Documentation requirements 3.11 3.00 2.67 Locating overseas markets 1.88 2.04 1.73 Tariffs and restrictions 3.19 3.30 Higher marketing costs 2.23 2.93 1:66" l&Z G. Export Obstacles(Present Exporting)

Foreign exchange risks 3.63 3.37 2.80 l&T Non-payment risks 2.96 3.04 2.66,, Product perishability 3.47 3.16 2.47 1&3 Lack of export incentives 2.83 3.20 2.60 Competition abroad 1.53 2.04 2.07,, Lack of export experience 3.62 3.40 2.87 1&3 Documentation requirements 3.47 3.25 3.00 Locating overseas markets 2.71 2.29 2.00 Tariffs and restrictions 3.43 3.25 2.87 Higher marketing costs 2.93 2.96 2.66 H. Importance of Export Incentives

Tax credits 1.08 1.00 1.45 2&3 Protection for patents 3.43 2.94 2.73 Capital gains tax exemption 1.88 2.44 2.18 Accelerated depreciation ■ 2.45 2.33 2.00 Deduction of pre-operating ■ ' and organiz. tional expenses 2.58 2.72 2.40 Net operating loss carryover 2.21 2.83 e * e 7,, Employment of foreign nationals 3.87 3.55 2.30,, 1&3 Anti-dumping protection 3.58 3.22 2.60 1&3 Deduction of freight expenses 1.63 2.41 1.80 Deduction of research and development expenses 3.35 3.12 1.73** 1&3, 2&3 Deduction of labor training ,, expenses 3.42 2.88 2.20,, 1&3 Free use of foreign exchange 3.32 2.41 1.40 1&3. 1&2

significant at .05 119

Table 20fc (continued)

Small Medium Large Sienifi cant I. Adequateness of Export Incentives àrnups

Tax credits 2.58 1.71 2.45,, Protection for patents 3.64 3.07 2.70 143 Capital gains tax exemption 2.52 2.57 2.78,, Accelerated depreciation 3.59 2.86 2.56 143 Deduction of pre-operating and organizational expenses 3.69 3.20 2.76** 143 Net operating loss carryover 3.30 3.29 2.44,, Employment of foreign nationals 3.87 3.57 2.90 143. 243 Anti-dumping protection 3.76 3.43 2.44 143, 243 Deduction of freight expenses 3.00 2.80 2.89 Deduction of research and development expenses 3.91 3.47 2.70** 143 Deduction of labor training expenses 3.73 3.40 2.89%% 143 Free use of foreign exchange 3.52 2.50 2.90 142 J. Importance of Market Groups

ASEAN countries 3.07 2.31 2. 60%% 142 Other Asian countries 3.32 2.12 2.64 142, 143 Oceania 2.38 2.56 2. 7 9 , , North America 1.14 ■1.92 1. 53., 142 Middle East 3.66 2.67 2. 3 3 , , 142, 143 Western Europe 1.26 1.70 1. 80 142, 143

K. Export Incentive Statements ** Search for export markets 3.02 2.57 1.87.•« 1&3 Increased share of exports 2.95 2.63 1.93 143 Expansion of export capacity 2.88 2.77 2.14 Increased export promotion 3.93 2.88 2.36 Reduced perceived export risks 2.49 2.47 2.20 Export is a matter of demand and competition 3.27 3.07 2.53 Role in export expansion 3.00 2.76 2.57 Impact of abolition of incentives 2.28 2.62 3.00

significant at .05 120

In terms of export motivators, it is worth noting that profit expectations emerged as the most important motivator. The small firms reported slightly higher valuation of profit as a motivator, indicating that regardless of size, profit is the most important inducement for firms to export. Manage­ ment export experience and export incentives were significant factors, with the large firms having a higher perception of the two factors.

Competitive pressure was also significantly higher for small firms, probably because, being small, they have less capacity to compete in the limited domestic market. On the other hand, large firms reported excess capacity and management export experience as very important motivators, significantly higher than for small firms. This could be due to the fact that large firms have larger production capacities than small firms. Management export experience, coupled with the higher level of expertise of management of the large firms, could be the reason for their reporting that export experience of manage­ ment is a strong motive in going into the export market. Considering export assistance as a motivator in the initial export effort, large firms reported a slightly higher valuation compared to the small firms. This finding is indica­ tive of the possible effect of the bias in administration of the program towards large firms. As evidenced by the test on relationship between export assistance availability and size, there is really then a trend for exporting assistance to be more available to the large firms (table 21). Even in terms 121 of present exporting activities, export assistance was per­ ceived as a very important motivator by the large firms, but not important by the small firms. In terms of export obstacles, the significant problems are foreign exchange risks, competition abroad, lack of export assistance, and lack of export experience. Foreign exchange risks was reported as a serious problem to large firms. Competition abroad, lack of export experience, and lack of export assistance were more serious for the small firms than for the large firms (table 20^). Comparing the means by groups (table 20^) it is noted that, across small, medium, and large firms, tax credit was ranked high. This could be attributed to the fact that tax credit is the most common incentive and most of the companies received this form of incentive. Besides, the impact of tax credit is measurable or quantifiable in terms of profit while others, like protection of patents, are hard to measure. The other moderately important incentives are; capital gains tax exemption, deduction of pre-operating and organiza­ tional expenses, and net operating logs carryover. Again, these have a quantifiable impact to the company's profit, but they are only for new enterprises. This could be the type of incentives designed to motivate investments in pioneering agri­ business manufacturing ventures. Qualitative incentives, like protection of patents, anti-dumping protection and employment of foreign nationals, received a low ranking. The big firms, however, gave these 122 qualitative incentives a relatively higher evaluation than the two other groups, probably because the big firms are in a better position to take advantage of these incentives. The patents and employment of foreign nationals are generally applicable to big firms only. In fact, it should be noted that the big firms had a higher evaluation on almost all types of assistance compared to small and medium-scale firms. This is understandable from the standpoint of big firms being more capable of obtaining the benefits accruing from the program. Incentives, like patents and deduction of research and development expenses, would generally apply more to the big firms than the small ones. Even in the area of free use of foreign exchange, the big firms had the edge, because they are the ones who used mostly imported capital equipment for their manufacturing operations.

The statistical test relating the size of the firms to availability of incentives indicated a significant chi-square value indicating a significant relationship between size and availability of incentives. Looking at the distri­ bution of firms by size, more large firms are converged in the "with incentives" group and more small firms in the "with­ out incentives" category. All these findings point to the assertion that there is a bias towards big firms in the implementation of the program. However,unless causality relationships between size and availability of incentives could be established, these con­ clusions should be drawn with caution. It is very possible 123 also that firms that are enjoying the incentives become large as a result of the availability of incentives. In terms of perceived adequateness of each type of incentive (table 20^), tax credit was perceived as the most adequate incentive, but across the three groups of firms, the overall evaluation is only "moderately adequate." In fact, the small firms assigned tax credits a quite low ade­ quateness level. Even large firms reported low evaluations of adequateness of incentives in general, even tax credits. This finding implies that there is plenty of room for bridg­ ing the gap between what the companies desire and what the Board of Investments has granted as incentives. The next best incentives in terms of adequateness are capital gains tax exemption and deduction of freight expense. This trend somehow reflects the evaluation of importance of incentives where the two incentives also ranked next to tax credits in terms of importance. The other incentives received low adequateness evalua­ tions across the three sizes of firms, with the small firms giving the lowest valuation. In the case of qualitative incentives, the small firms gave very low adequate valuations. This could be attributed again to the fact that patents and employment of foreign nationals and even research and develop­ ment-related incentives apply more to the large firms than the small firms. 124

Overall, an important pattern emerging from this analysis is that the large firms, in general, had benefited more from the export and investment incentives program than did the small and medium-scale firms. Having received most of the incentives and possibly on a higher adequateness levels than the small and medium-scale firms, the large firms will natur­ ally have a more favorable attitude towards the export incentive program as a whole. However, in view of the lack of causality established between export incentives and size, these conclusions should be taken with caution.

Relationship Tests on Availability of Incentives:

It was noted during the interviews that a number of firms claimed that the large firms were favored in the provision of investment and export incentives. As revealed by this study, the large firms generally gave higher evaluations of impor­ tance and adequateness of the incentives. Hence, it was felt relevant to test the relationship between the availability of incentives and size of the firms. Another area worth looking into in terms of the relation­ ships is the availability of incentives against the status of exporting activity of the firms. Though the availability of the incentives might have been a reason for the firms to increase exports, it is important to find out how the firms maintaining and decreasing volume of exports are doing in terms of the availability of the incentives. 125

Handicraft exporters are generally smaller and Fili­ pino-owned. Processed food exporters, on the other hand, are generally bigger though the ownership is well-distributed. Both industries are perceiving different levels of motivators and obstacles in their exporting activities. Though size appeared to be the most important segmentation variable, the type of industry also did fairly well in differentiating the firms. Hence, it was felt critical to determine if being in the processed food or handicraft business is a factor in the distribution of incentives. To test the relationship between the availability of export incentives and the size of firms, the chi-square test was done (table 21). From the results, it can be inferred that the chi-square significance level is less than .05, indicative of a significant relationship between the two nomi­ nal variables. The Cramer's V coefficient was .254, meaning a low but positive relationship exists between size and avail­ ability of incentives. If we consider the distribution of the firms, only 25 (42%) of the small firms got the assistance, compared to 18 (64%) of medium-sized and 11 (73%) of the large firms. On the other hand, 34 (58%) of the total small firms interviewed fell in the "without incentives" category, compared to 10 (36%) of the medium-sized and 4 (27%) of the large firms. The results indicate that more small firms are clustered in the "without incentives" category, while more medium and large firms were in the "with incentives" group. Though the TABLE 21 CHI-SQUARE TEST OF INDEPENDENCE

CROSS TABULATION OF WITH OR WITHOUT INCENTIVESBY SVOL SALES VOLUME COUNT ROW PCI ROW COL PCT TOTAL TOT PCT Small Medium Large With I. 25 18 II 54 Incentives 46.3 33.3 20.4 52.9 42.4 64.3 13.3 24.5 17.6 10.8 Without 2. 34 10 4 48 Incentives 10.8 20.8 8.3 47.1 57.6 35.7 26.7 33.3 9.8 3.9 COLUMN 59 28 15 102 TOTAL 57.8 27.5 14.7 100.0 Chi Square = 6.59514 with 2 degrees of freedom significance = 0.0370 Cramer ' sV= 0.25428 Contingency Coefficient = p.24644 Lambda (asynmetrLcD = 0.18750 with Y Dependent =0.0 with SVOL dependent Lambda (symmetric) = 0.09890 Uncertainty Coefficient (ASYNMETRIC) = 0.04778 with dependent = 0.03465 with SVOL dependent. Uncertainty Coefficient (SYMMETRIC) = 0.04017 Kendall's Tau B = -0.24345 significance = 0.0053 N) Kendall's Tau C = -0.25913 significance = 0.0053 OY Gamma = 0.44401 Somers' D (asymmetric)= -0.22793 with Y dependent = -0.26003 with SVOL Dependent Somers' E (symmetric) = -0.24293 ETA = 0.25428 with Y dependent = 0.24856 with SVOL dependent PEARSON'S R = 0.24856 significance = 0.0059 127 sample size is too small to make generalizable conclusions, the results verify the claims of some small firms that the implementation of the program was somehow favoring the big firms. This finding has important policy implications. Another test of relationship explored is between the availability of assistance and the status of exporting acti­ vity. The chi-square value indicated again a significant relationship between availability of incentives and status of exports. For the firms increasing their present volume of exports, 30 (79%) had the incentives compared to 18 (36%) of the firms maintaining export volume and 6 (43%) of the firms decreasing volume of exports. On the other hand, for firms increasing exports, S (21%) are without incentives, compared to 32 (64%) of the firms maintaining export volumes, and 8 (57%) of the firms decreasing volume of exports (table 22) . The Cramer's V coefficient of .404 indicated a moderate positive relationship between the two nominal variables, the availability of incentives and status of exporting activity. The results revealed the moderate relationship between the two variables, implying that the firms increasing their volume of exports are clustered more on the "with incentives" group while firms maintaining and decreasing volume of export sales tend to be more in the "without incentives" group. Again, in terms of policy, this will have important implica­ tions in terms of distributing the benefits of the export incentives. TABLE 22 CHI-SQUARE TEST OF INDEPENDENCE CROSS TABULATION OF

WITH OR WJTHOUT INCENTIVES BY SVOL SALES VOLUME COUNT ROW ROW PCT TOTAL COL PCT 1 2 3 TOT PCT Incieasing Maintaining Decreasing With 1. 30 18 6 54 Incentives 55.6 33.3 11.1 52.9 78.9 36.0 42.9 29.4 17.6 5.9 Without 2. 8 32 8 102 INCENTIVES 16.7 66.7 16.7 100.0 21.1 64.0 57.1 7.8 31.4 7.8 COLUMN 38 50 14 102 TOTAL 37.3 49.0 13.7 100.0

Cramer's V = 0.40399 Contingency Coefficient = 0.37458 Lambda (Asymmetric) = 0.33333 with Y dependent = 0.23977 with FB 3 dependent Lambda (Symmetric) = 0.28000 Uncertainty Coefficient (Asymmetric) = 0.12387 with Y dependent = 0.08652 with FB 3 dependent Lfricertainty coefficient (Symmetric) = 0.10188 Kendall's Tau B = 0.33693 significance = 0.0002 Kendall's Tau C = 0.36909 significance = 0.0002 to Gamma = 0.55556 OD Somers' C (Asymmetric) = 0.30651 with Y dependent = 0.37037 with FB3 dependent Somers' D (Symmetric) = 0.33543 ETA = 0.40399 with Y dependent = 0.32908 with FB3 dependent Pearson's R = 0.32908 significance = 0.0004 129

The last chi-square test of relationship conducted was between availability of incentives and the type of industry. The chi-square significance turned out to be higher than ,05, implying that there is no significant relationship between availability of assistance and the type of industry. The phi- coefficient was only .140, indicative of very low relationship between the two nominal variables tested (table 23). Looking at the distribution of firms, 18 (64%) of the processed food exporters fell in the with incentives cate­ gory compared to 36 (49%) of the handicraft exporters. On the other hand, 10 (36%) of the processed food exporters are with­ out incentives compared to 38 (51%) of the handicraft exporters. The results imply that though more processed foods received incentives in terms of percentages, the difference is not significant. TABLE 23 œi-SQUARE TEST OF INDEPENDENCE

CROSS TABULATION OF WITH OR WITHOUT INCENTIVES BY SVOL SALES VOLUME COUNT ROW PCT ROW COL PCT TOT PCT Food i. Handicraft 2. TOTAL With 1. 18 54 Incentives 33.3 66?7 52.9 64.3 48.6 17.6 35.3 Without 2. 10 38 48 Incentives 20.8 79.2 47.1 35.7 51.4 9.8 37.3 Corrected Chi Square == 1.41547 with 1 degree of freedom significance = 0.2342 Raw Chi Square == 1.99373 with 1 degree of freedom significance = 0.1580 Phi = 0.13981 Contingency Coefficient = 0.13846 Lambda (Asymmetric) = 0.04167 with Y dependent =0.0 with TOI dependent Lambda (Symmetric) = 0.02632 Uncertainty Coefficient (Asymmetric) = 0.01431 with Y dependent = 0.01684 with TOI dependent Uncertainty Coefficient (Symmetric) = 0.01547 Kendall's Tau B = 0.13981 significance = 0.0800 Kendall's Tau C = 0.12457 significance = 0.0800 Gamma = 0.31034 Somers' D (Asymmetric) = 0.15637 with Y dependent = 0.12500 with TOI dependent Somers' D (Symmetric) = 0.13894 ETA = 9.13981 with Y dependent = 0.13985 with TOI dependent Pearson's R = 0.13981 significance = 0.0805 C H A P T E R V

SUMMARY AND CONCLUSIONS Summary

An interview study of the export behavior and attitude towards export and investment incentives was conducted on two of the non-traditional export manufacturers in the Philip­ pines, the handicraft and food processing industries. Four variables were used in the study: namely, the availability of export incentives, status of the exporting activity, size of the firm, and type of industry. The sample was taken from the list of exporting firms registered with the Board of Investments, the agency administering the export and invest­ ment incentives. In terms of the incentives, the study focused on the export and investment incentives specific to the agro-indus­ trial projects in the country. In view of the saturation of export markets for traditional export products, the manufac­ ture and exportation of products that process indigenuus raw materials from Philippine agriculture are being encouraged.

The research areas investigated are those focusing on the export motivations and obstacles encountered by exnorting firms, the role of export incentives in developing exports,

131 132

and the perceived evaluation of the importance and adequate­ ness of each type of incentives. Two questionnaires were used in data collection, one for the exporters with incentives and another for the export­ ers without incentives. Analysis of variance, both univariate and multivariate methods, was the main statistical tool used in the analysis. Chi-square tests of relationships were also applied on several criterion variables.

Conclusions

The research centered upon five major questions. These

questions and the results of the survey whicli apply to them are given below.

1. What are the motivational and obstacle factors associated to exporting, and, is export incentive considered an important motivator in the initial and present export mar­ keting efforts of firms?

Profit expectations turned out to be the most important

inducement among the exporters to enter export markets. Even small firms were highly motivated by profit. Exporters with­ out incentives enter export markets without the benefits of export assistance because they feel exporting will be profit­ able . Competitive pressure was the second important motivator. This is especially true in the case of the handicraft 133 exporters, due to very small local market for their products. Even the processed food exporters are export-oriented due to limited local demand for processed foods in the Philippines. In terms of export obstacles, locating overseas markets and competition abroad are the most serious problems, both in the initial and present exporting efforts of the firms. Export incentives were reported as important but not cri­ tical factors in the export decision. The lack of incentives, however, was felt seriously to be an export obstacle, espe­ cially by the exporters without the incentives. 2. What is the perception of the exporters on the bene­ fits associated to exporting and additional processing of their products?

The exporters generally felt that exporting and addi­ tional processing are very vital for the development of the Philippine economy. Considering the balance of trade problems encountered by the country in relation to the high oil imports, the exporters feel that exporting will largely improve the balance of payments. In terms of additional processing, the Philippines had been exporting raw materials and then import­ ing back the goods in finished forms. It is felt that if the indigenous raw materials from Philippine agriculture were pro­ cessed locally and then exported, the Philippines would be able to generate more export earnings and minimize trade deficits. 154 In terms of the firms' performance, the exporters per­ ceived that exporting and additional processing would contri­ bute tremendously to profit and growth. This may be attri­ buted to the high expectations of the firms that exporting is very profitable.

3. Is the availability of incentives a factor in export­ ing, and what other criterion variables can determine differ­ ences in the export behavior and attitude towards the export incentives?

Significant differences were found between the "export­ ers with incentives" compared to "exporters without incentives," in terms of overall exporting effects, export motivators (both initial and present) , export obstacles (both initial and present), and the role of export incentives in key export activity decisions. It can be concluded that export incentives have a bear­ ing in terms of export behavior of the firms. The exporters with incentives were found to have a generally more favorable attitude toward exporting and toward export incentives than the exporters without incentives. Should the incentives program be abolished, the exporters with incentives feel that the impact on their level of involve­ ment in export marketing will be considerable, compared to only a moderate impact in the case of the exporters without incentives. 135

Export incentives are then perceived as important but not critical factors in the export decision and exporting activities of firms. The type of industry was a significant factor in terms of export motivators and obstacles, but not in terms of the attitude towards export incentives. Processed foods export­ ers have generally a higher level of perception of the effects of exporting than handicraft exporters. The status of exporting activity turned out to be a not significant factor in exporting. Firms with an increasing volume of exports, however, have generally more favorable attitude towards the exporting and additional processing of their products compared to firms that have a constant or decreasing volume of exports. Size was found to be a factor both in exporting and attitude towards export incentives. Large firms have gener­ ally more favorable attitude towards export incentives and exporting as compared to small and medium-sized firms.

Size turned out to be the most effective segmentation variable in differentiating the firms.

4. Which of the granted incentives are perceived to be very important to their export activities? Which of the incentives are perceived to be adequate in terms of the need? What is the perceived role of export incentives in the export activity decisions ]ike export expansion and export promotion? 136 Tax credit turned out to be the most important incentive granted to the exporters. This is reflective of the fact that tax credit is the most common incentive and also, that its impact on the company's profit is direct and measurable. The deduction of freight expenses and capital gains tax exemption received moderately important valuation. The high price of oil which affected the less developed economies might have caused the exporters to perceive the subsidy on freight expenses as next to tax credit in terms of importance. Most of the qualitative incentives received an almost not important "rating' especially from the small firms. This can be attributed to the fact that incentives like "protection from infringement of patents" and "employment of foreign nationals" seem to suit more the large firms than small ones. In terms of adequateness, all the incentives in general received a low rating of adequateness, reflecting a desire on the part of the exporters to have the levels of incentives increased. Tax credit was viewed as the most adequate incen­ tive, though it received only a moderately adequate valuation. It was perceived that export incentives have resulted in an increased share of exports to total sales and an expan­ sion of export production capacity. The exporters agreed that the export incentives have reduced their perceived risks associated with exporting. Should the export incentive pro­ gram be abolished, the exporters felt that the impact on their level of involvement in export marketing would be considerable. 137

Hence, though the role of export incentives has not been critical, the abolition of the program might mean a consider­ able reduction in the export activities of the firms inter­ viewed.

5. What particular market groups are perceived as very important to the future export activities of the agribusiness exporters?

The North American market turned out to be the most impor­ tant market for the handicraft and processed food exporters of the Philippines. This can be attributed to the fact that, despite the termination of trade preferences or the Laurel- Langley agreement in 1974, the Philippines has to continue relying heavily on the United States market. The next best market for future export activities is the Western European market. The European Economic Community is developing into a major export market for Philippine products. New programs on export marketing promotion and trade exhibits are geared to this market. The other market groups like Oceania, the ASEAN countries, other Asian countries (including Japan), and, the Middle East, were perceived as slightly important export markets. The Middle East, however, is being targeted as a major market, especially for processed foods, due to big labor export in that region. 138

Contributions to the Study to Literature

The study investigated the role of export incentives in the export decision, export expansion and export promotion. It turned out that export incentives are important motivators but not as critical as expected profit and competitive pres­ sure, in terms of the export decision. However, the lack of incentives was perceived as a serious obstacle in the export decision and in export growth. Philippine exporters per­ ceived that export incentives were important in reducing the level of export risks. Also, incentives were per­ ceived to have a moderate role in the areas of expanding export production capacity and increasing share of exports to total sales. The abolition of export incentives would probably have considerable impact on the level of involvement in export marketing. This study showed that in a less developed economy setting, where most of the exporting firms are small and inexperienced, the export incentives are perceived to have a considerable role in exporting. This study revealed significant differences in perceived motivators and obstacles to exporting between processed foods and handicraft industries, though both products are agri­ business in nature. These findings imply that generalization of export incentives across agricultural and industrial sec­ tors is not plausible, because even in the two agribusiness industries, handicraft and processed foods, there exist 139 differences as to incentive needs and perception of impor­ tance of a certain incentive.

Contributions of the Study to Philippine Policy

A major contribution of this research is in the area of improving the administration of the export and investment incentives program. This research provides evidence that the large firms and firms with an increasing volume of export sales have better chances of getting the incentives than those that are needing them most: the small and medium­ sized exporters and firms experiencing decreases in export volume. Apparently the benefits of the program are going to the wrong beneficiaries. Large firms and firms with an increasing volume of sales in the export market might also benefit from the incentives, but then, more efficiency can be attained from a social benefit standpoint if the incen­ tives will cater first to the more needy firms. In terms of causality, it is also possible that the large firms have a higher volume of sales and larger in size due to avail­ ability of incentives. Hence, this conclusion should be taken with caution depending on cause and effect relationships between size and availability of incentives. Regarding firms with an increasing volume of export sales, there is a "chicken and egg" issue to be settled because the increase in export sales might have been brought about by the availability of export incentives. However, the fact remains that the firms experiencing reduction in 140 export volumes should be given priority to get the incentives. It was revealed by the study that all types of incen­

tives with easily measurable monetary effects to the firm's financial position or profit were evaluated highly. On the other hand, the qualitative incentives were reported to be practically unimportant, especially by the small exporters. More emphasis, then, should be placed on the quantitative incentives which were rated very important by almost all exporters across the four criterion variables. In fact, even

smaller firms felt tax credit is a very valuable incentive and they evaluated it higher than the large firms. Apparently, the types of qualitative incentives included in the program package of export and investment incentives fit only the needs of the large firms. In terms of patents, small firms can barely enjoy such benefits. Furthermore, even in some of the quantitative incentives like deduction of research and development expenses and free use of foreign exchange, it seems that the large firms are in a better position to take advantage of the benefits accru­ ing from the program. The large firms are the ones who engage in research and development and import capital equipment and raw materials. Hence, it can be inferred from the study that the export and investment incentives program was designed to service the big firms, not the ailing small firms. The Board of Investments is playing a key role, not only in exporting but also in manufacturing, because of its 141 administration of a complex of incentives. It seems that administrative requirements imposed by the Board of Invest­ ments makes it easier for the large firms to effectively benefit from the incentives. Excessive paperwork and delays were the common complaints about the investment and export

incentive program, especially by small firms. Due to the politics involved, the program seems to ^ facto discrimin­ ate against small and even medium-scale firms. There is also regional discrimination. The Board of Investments has only one office, located in Manila. It is imperative for companies far from the main office of the Board to send representatives to Manila to apply for the incentives. This usually requires more than one visit and can be costly for small exporters. It is very important, then, for the Board of Investments to simplify incentive application procedures to encourage the development of small and medium-scale exporters and for regional dispersal of the benefits from the program. Cutting the amount of paperwork and maintaining a one-stop section, where all the supportive papers from other concerned agencies will be processed, will minimize red tape and hasten the processing of the applications.

Areas for Future Research

This study was an attempt to lay the groundwork for an in-depth analysis of causality on the role of export and investment incentives on the performance of exporters in the Philippines. 142

For future research endeavors, it would be relevant to obtain the quantitative values of each of the various types of incentives granted by the Board of Investments. With this additional information, causality models using path analysis can be undertaken to probe the causality of export incentives and other variables on export performance and key exporting decisions. It is important to look also at the perceptions of the exporters not registered with the Board of Investments. Considering the various benefits that would accrue to the firms, other than the incentives, should they get registered, it is surprising that many of the exporters are not regis­ tered with the Board, Hand in hand with this approach is the extension of the study into regional exporters far from the Manila area. This would enable an in-depth study on location as a possible factor in exporting in the Philippines. Locational effects related to the availability of incentives and the obstacles attached to it can also be studied. Another research area for additional information is the perceived motivations and obstacles of the non-exporting firms in the Philippines. Identification of companies that might have interest in exporting, should export incentives be made available, will provide added dimensions to model the pre-export behavior of exporters. The awareness of the firms regarding the package of incentives should also be studied to help to design a promotional campaign for the pro­ gram and to determine whether setting up regional centers 143 for the Board of Investments is worthy of consideration. As it stands, procedural limitation is a big problem for the effectiveness of the investment and export incentives program. The study should be extended to include industrial export­ ing. The electronics exporters, for example, are playing a key role on the non-traditional export manufacturers group of the Philippines. Inclusion of the export behavior and attitudes towards export and investment incentives of this industry would permit comparison across agribusiness and industrial sectors of the economy. This study revealed dif­ ferences across handicraft and processed foods which are both agribusiness products. The above refinements would enable in-depth analysis of the benefits and costs associated with investment and avpo.Tt incentives administered by the Board of Investments. Finally, econometric modeling studies on the benefits and costs of the export and investment incentives program at the macro level should provide vital insights on the efficiency of the program in terms of economic costs. Mea­ suring the effects of the program in terms of balance of payments, export earnings, and other national income accounts would be a big step towards verifying the implications of this research. 144

APPENDICES 145

APPENDIX A

Incentives and Protection For Agro-Industries

To attract investors to invest in agro-industrial enter­ prises listed in the priority areas, they are allowed vari­ ous incentives by the Board of Investments. In 1977, Presidential Decree No. 1159 was issued prescri­ bing incentives for investments in agricultural enterprises. For individual investors in registered agricultural enter­ prises, the following benefits are granted:

1) Protection from infringement of patents and other proprietary rights; 2) Capital gains tax exemption - Exemption from income tax on the portion of gains realized from the sale, disposition, or transfer of capital assets that are invested in new issues of capital stock of a registered enterprise within six months from the date the gains were realized; provided the said stocks are not dis­ posed of within a period of five years.

In addition to the incentives mentioned above, investors in pioneer agricultural enterprises are entitled to the follow­ ing benefits: 146

1) Tax allowance for investments - the amount of actual investment will be deducted from the taxable income up to maximum of 20 percent of each taxable income; provided that the investment is made within seven years from the registra­ tion of the enterprise and the stocks are held for the least three years.

2) Capital gains tax exemption - investment must be made in new stock issues or to purchase stocks owned by for­ eigners in pioneer enterprises within six months from the date of registration; provided that the stocks are held for at least three years. 3) Tax exemption on the sale of stock dividends the sale occurs within seven years from the date of the regis­ tration of this enterprise.

In the case of registered agricultural enterprises, those engaged in any of the preferred investment areas are granted the following incentives:

1) Deduction of pre-operating and organizational expen­ ses from taxable income over a period of not more than ten years from the start of operations; 2) Accelerated depreciation to the extent of not more than twice the normal rate if the expected life is ten years or less; or depreciated over a number of years from five to expected life if the latter is more than ten years; 147

3) Net operating loss carry-over - net operating loss incurred in any of the first ten years may be deducted from taxable income for the six years immediately preceding such loss. 4) Tax exemption on imported capital equipment made within seven years from the date of registration of the enterprise. In cases of replacement or modernization of existing facilities, or for the expansion of projects, the return to equity of which is between 20 percent to 33 1/3 percent more deferrment in payment of taxes and duties will be allowed.

5) Tax exemption on breeding stocks and genetric mater­ ials imported within seven years from the date of registra­ tion of the enterprise. 6) Tax credit equivalent to 100 percent of the value of compensating tax and custom duties that should have been paid for locally purchased capital equipment if they were imported. 7) Tax credit for withholding tax on interest on for­ eign loans.

8) Employment of foreign nationals in technical, supervisory or advisory positions for not more than five years provided such employment is made within five years from the date of registration of the enterprise. 9) Deduction from taxable income of profits reinvested in the business. 148

10) Anti-dumping protection, or protection from unfair competition with imported products within a limited period. 11) Deduction of one-half the value of labor-training expenses from taxable income up to a maximum of 10 percent of direct labor wage. 12) Deduction of 25 percent of research and develop­ ment and management training expenses from taxable income, but not to exceed 10 percent of taxable income. 13) Application, in payment of taxes, of 100 percent of the amount of necessary and major infrastructure works undertaken. 14) Deduction of 30 percent of freight and transporta­ tion expenses incurred within five years from the date of registration of the enterprise.

Pioneer agricultural enterprises are granted the follow­ ing additional incentives aside from those enumerated above:

1) Exemption from all taxes, except income tax, to the extent of the following:

a) 100 percent for the first three years; b) 7 5 percent for the fourth and fifty years; c) 50 percent for the sixth and seventh years; d) 2 5 percent for the eighth and ninth years; and e) 10 percent for the tenth year. 149

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3. Aectlaratad dapraclatlea

Carry arar ta dadactloo from taaabla Incarna of aat apatatinc loaaaa ta* currad la aay af âia fixât 10 ytaxa toadlataly fallcmla# tha yaar af (S) (» aueh laaa. a i

3. taaaptlao from tariff datloa and corn* paaaatlop tax an lapoxtatlana af ma* (3)(11)(10) (•) (11) (10) (11) cblaary, aqulpmant and apara parta. m s a x a

Tarn credit a^laalaet ta 100 perçant af tha raina of eompanaatla# tea and cuatoma dutlaa that mamId haro boon paid on aachlaary, o#olpmaat and aparo parte (purcbaaad from a domaatlc naan- (3) (•) facturer), had tfaaaa Itana bean Inpartad a X X

7. Tax credit far tax vltKhald an latoroat payman ta an faralgn laana prarldad math credit la w t anjoyad by lender - rami tt%a In hla cauotry and raglatarad antarprlaa baa aaauaad liability for tax payment Am max & l cent'a)

kxpori iaeaativo W iBuoetamn^ Yneontiuo ict Baport Bxpart Sormieo Plllolno-omnod Parl.ao omaed fro Ne a r Trader Bxportar Monaor Floamex Ftoaoar

s. Klgbt M • ^ U f f nattaMt* ta M M r * i * » r y taclmtaal or aWrioory poaltlona wltbla ftra yaara fra# Taglftratloa

9. Deduction from taxable Income la the year relavaataeat « w made of a cortelo yercoata*o of the aaoaat of undletrlbutod yroflta or aor> ylut traoaforrod to eafltal atech for yrocureneat of aaehlaery and (J) aqulyoaot and other ai^aaalen. a (S) 10. Aact-duaplnt protoetlea 11. yrotectloo from (O' <») eommetltlem.

13. Ixaaptloa from all tasaa aadar the ■iCtonal loteraal Xooaooa Coda, except Inceme tax on a gradually (») dlnlnlahlng pero*=fdd»« a (t) 13. Nat-oparatlee tariff protaetloa

14. Tax cradle eqotualaat Co aalaa, conpanietlag ami apaelfle taxaa aad dutlea ea auyyllea, ram aa- tarlala tad aeml-mamfactaring producta ueod la tha maoafoctara, proceeding or production of expert (1) producta.

A) AnBD>ns(eM't)

TaSitSStTncSntRnFT* Wert Service Filletne-ewaeS fereten-eeneS TrWw W e r t e r Pioneer Pleoeer Pteeeer

15. AdJitienet deduction Pro# teuble income of direct teber eeit end locel rev metertele utllieed in the manufecture of mr p o n producta hot not axceeding 25 percent of total export rereauee for producera. 10 percent fer tradara end SO per­ (7) («) (*) (9) cent for aarrlca exportera.

16. Preferenca in the grant of (5)(i2)(i*) (laxi*) (ii)a*) govemmant loana; a s s

17. E^lopmant of foreign natlenala vtthln fire paara from operation or even after eald period in (12)(ld) exeeptionel ceaea;

IS. beaptlon from expert and atafcllt- xecton taxee;

19. Additional deduction from taxable income oi 1 percent of ineremnntal ())(*) (3)W export aalea; and

20. Additional Incentiree vfwnarer preceaalag ar mamifeehiring plant ia located in an area daalgnated bp SOI ae neeeaaaxp fer proper diaporaal af ladnatsp ar A i c b ia deficient In infraatree«area, public utllltlea and ether feci- {•) litiea.

3.. 'irre : Board of Investments, Philippines 154

APPENDIX B (cont'd)

Subject to Central Bank regulations. (1) Applicable to service exporters producing and exporting television and motion pictures or musical record­ ing and catering primarily to foreign tourists (Tourism Incentives are now granted by the Philippine Tourism Authority). (2) Provided registered export producer is engaged in a pioneer area. (3) Applicable whenever a registered export producer or export trader shall use a brand name for an export pro­ duct that distinguishes it from products produced in the Philippines. (4) Applicable whenever financial assiztance is exten­ ded by an export trader to export producers in an amount equivalent to no less than 20 percent of the export trad­ er's export sales during the years. (5) In general, applicable only to all projects for expansion or upgrading of export products under List A of the Export Priorities Plan and to both pioneer and non­ pioneer projects under List B. (6) Same as No. 1 but limited to expansion projects only and service exporters catering primarily to foreign tourists (Tourism Incentives are now granted by the Philip­ pine Tourism Authority). 155 (7) Applicable to all registered export producers, except foreign firms in non-pioneer areas exporting 70 percent of their production. (8) Additional incentives consist of using an amount equivalent to double the export producer's direct labor cost in applying the reduced income tax formula and/or tax credit on infrastructure. (9) In the case of traditional exports, local raw material component is not included in the computation of the said deduction. (10) Applicable to new and expanding non-pioneer pro­ jects with total assets not exceeding P100,000 for the first two years of commercial operation. Non-pioneer pro­ jects with assets exceeding with said amount and expanding non-pioneer projects with less than 20 percent return on equity are entitled only to reduced tariff and compensa­ ting tax, on a dividend payment basis for a period not exceeding 10 years. Expanding non-pioneer projects with 20 percent or greater return on equity shall be entitled to more deferrment of taxes and duties without any deduc­ tion thereof. (11) Applicable to new or expanding pioneer projects with less than 20 percent return on equity. Expanding pioneer projects with 20 percent or greater return on equity and existing pioneer projects desiring to replace and modernize their facilities are entitled to more deferrment of taxes and duties without any reduction thereof. 1 5 6 (12) Applicable to enterprises at lease 60 percent Filipino-owned.

(15) More liberal terms, e.g., shorter holding period required of Filipino investors in pioneer projects. (14) Grant of incentives would depend on the extent of operations registered with the BOX.

Source: Board of Investments (BOX). 157

APPENDIX C WITH INCCTTIT-K EXPORTER'S QUESTIONNAIRE

A. GENERAL INFORMATION LOCATION_____ MAJOR EXPORT PRODUCTS; RAW PROCESSED

TYPE OF OWNERSHIP: CHECK ONE

__ 100% Philipinu-owned MNC Branch MNC Subsidiary Joint Venture SALES VOLUME

Ml MUlion G below Ml m i l ion to MID Million _ PIOMillion and above Total Sales NUMBER OF EMPLOYEES:

Whole Firm Export Division Only

How long have you been in business?______

EXPORT STAGES:

1. At present is your firm engaged in exporting? Yes No

If yes, did your firm explore actively your first export order? __ Yes No If Yes, how? __

2. Did your firm experiment first on several markets before doing the export activity? Yes No

3. Over the last 3 years, how would you characterize your firm in terms of export activity? Check one

increasing volume of exports __ maintaining some level of exports decreasing volume of exports

4. How long have you beenin the export business? ______years

5. Does your firm consider expanding exports to additional markets? Yes No

L. EXPORT ACTIVITY:

6. What was your export sales volume last year? Check one.

P500,000 and below ___ P500,000 to P1,000,000 ___PI Million and above Exoort Sales

7. What percentage of your annual sales did you export last year? Check one.

1-10. __ 11-20T 21-30% 31-407 41-50% 51-60% 61-70%_ 71-80; 81-90% ___ 91-100%

8. What percentage of your annual sales do you intend to export ______this year _ _ _ _ _ next year? 1-lU 11-20-L 21-30. 31-40% 41-50 51-60 51-70 71-80' 81-90 91-100' H Vn next year 00 1-10' 11-20V 21-30= 31-40' 41-50 51-60: 31-70; 71-80 81-90 91-100" 9. In thé imiediate future, what do you feel would be the effect of exporting on the following ractors: Circle one.

FACTORS; DECREASE DECREASE NO INCREASE INCREASE GREATLY SLIGHTLY EFFECT SLIGHTLY GREATLY Firm's Profit...... 1 2 3 5 Firm's Growth...... 1 2 5 Firm's Market Share...... 1 2 3 5 Firm's Competitive Edge...... 1 2 3 5 Development of the Philippine Economy. 1 2 3 5 10. What do you feel the impact of additional processing of your products on the following factors?

FACTORS: DECREASE DECREASE NO INCREASE INCREASE GREATLY SLIGHTLY EFFECT SLIGHTLY GREATLY Firm's Profit...... 1 2 3 5 Firm's Growth...... 1 2 3 5 Firm's Market Share...... 1 2 3 5 Firm's Competitive Edge...... 1 2 3 5 Development of the Philippine Economy. 1 2 3 5

11. Please indicate your agreement or disagreement with the following set of questions regarding exporting: SA = Strongly Agree, A = Agree, N = No Opinion, D = Disagree and SD = Strongly Disagree SA SO 1. Exporting is a desirable task for my fir 1 a - 2. My firm has exportable products...... 1

3. My firm is planning in increasing its exports in the near future......

4. Exports could make a major contribution to my firm's growth...... 1 5. Exports could make a major contribution to my firm's profits...... 1 •6. My firm always tries to fill export orders...... 1 7. Profits from our exports have fully met my expectations...... 1 8. Exporting is no different from doing business locally...... 1

D. EXPORT MOTIVATORS/RISKS 12. In your initial exporting activity, how important did you feel the following factors are in your decision to export?

MOTIVATORS: VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT Profit Expectations 2 3 Excess Capacity 2 3 Dept, of Trade (Leads) 2 3 Product Advantage 2 3 Competitive Pressure (local) 2 3 Management Export Experience 2 3 VO Export Incentives (if available) 2 3 Others (Specify) 2 3 13. In your present exporting activity, how important do you feel the following factors are in increasing your volume of exports?

MOTIVATORS: VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT Profit Expectations 2 3 Excess Capacity 2 3 Dept, of Trade (leads) 2 3 Product Advantage 2 3 Competitive Pressure (local) 2 3 Management Export Experience 2 3 Export Incentives (if available 2 3 Others (Specify) 2 3

14. In your initial exporting activity, how serious did you feel the following obstacles are in your export decision?

OBSTACLES VERY SERIOUS MODERATELY SERIOUS SERIOUS NOT SERIOUS

Foreign Exchange Risks... Non-Payment Risks...... Product perishability.... Lack of export incentives... Competition abroad...... Lack of export experience.. Documentation requirements. Locating overseas markets.. Tariffs and restrictions... Higher marketing costs... Others (Specify).

15. In your present exporting activity, how serious do you feel the following obstacles are in increasing your volume of exports

OBSTACLES VERY SERIOUS MODERATELY SERIOUS SERIOUS NOT SERIOUS

Foreign Exchange Risks...... 1 2 3 Non-Payment Risks...... 1 2 3 Product perishability...... 1 2 3 Lack of export incentives...... 1 2 3 Competition abroad...... 1 2 3 Lack of export experience...... 1 2 3 Documentation requirements...... 1 2 3 Locating overseas markets...... 1 2 3 Tariffs and restrictions...... 1 2 3 Higher marketing costs...... 1 2 3 Others (Specify)...... 1 2 3

E. EXPORT MARKETS 1C. What is the percentage distribution of your export sales to the following market groups?

ASIAN COUNTRIES OTHER ASIAN COUNTRIES OCEANIA NORTH AMERICA MIDDLE EAST WESTERN EUROPE OTHERS (SPECIFY) 17. How would you rate the following market groups in terms of importance to your exporting marketing efforts? MARKET GROUPS VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT o\ Asian Countries..... 1 2 3 O Other As an Countries. 1 2 3 Oceania...... 1 2 3 North America...... 1 2 3 Middle East...... 1 2 3 Western Europe...... 1 2 3 Others (Specify).... 1 2 3 Export Incentives I. Hov) would you rate export incentives as a motivator in your initial export decision?

VERY IMPORTANT MODERATELY IMPORTANT i m p o r t a n t NOT important

2. Please rate the following incentives in terms of importance to your exporting activity.

TYPES OF INCENTIVES VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT

Tax credits...... 1 2 3 Protection from infringement of patents... 1 2 3 Capital gains tax exemption. :...... 1 2 3 Accelerated depreciation...... 1 2 3 Deduction of pre-operating and operational expenses...... 1 2 3 Net operating loss carry-over...... 1 2 3 Employment of foreign nationals...... 1 2 3 Anti-dumping protection...... 1 2 3 Deduction of freight expenses...... 1 2 3 Deduction of R&D expenses...... 1 2 3 Deduction of labor training expenses...... 1 2 3 Free use of foreign exchange ...... 1 2 3 3. Please rate the following incentives in terms of adequateness to your need.

TYPES DF INCENTIVES VERY ADEQUATE MODERATELY ADEQUATE ADEQUATE NOT AD QUATE

Tax credits...... 3 Protection from infringement of patents... 3 Capital gains tax exemption...... 3 Accelerated depreciation...... 3 Deduction of pre-operating and operational expenses...... 3 Net operating less carry-over...... 3 Employment of foreign nationals...... 3 Anti- umping protection...... 3 Deduction of freight expenses...... 3 Deduction of R&D expenses...... 3 Deduction of labor training expenses...... 3 Free use of foreign exchange ...... 3 18. Please indicate your agreement or disagreement with the following statements:

STATEMENTS STRONGLY STROSGLY AGREE AGREE NEUTRAL DISAGREE DISAGREE 2 3 Export incentives have resulted in my search for export markets...... Export incentives have resulted in increased share of exports to total sales...... Export incentives have resulted in the expansion of export production capacity...... Export incentives have increased promotional H efforts in export markets...... ON Export incentives have reduced my perceived t-i risks to do exporting...... 6. Export decision is a matter of demand and com­ petition or other factors and does not depend on export incentives...... 7. Export incentives will have an important role in my future export expansion decisions 8. Should export incentives be abolished, the impact on my level of involvement in export marketing will be : ncpliqible moderate considerable critiral or discontinuation of export operations 19. Over the last 3 years, did you receive any government financial assistance (loans) to do exporting?

Yes No

20. Over the last 3 years, did you receive any technical assistance from the government?

Yes No

21. Over the last 3 years, did you receive any marketing assistance?

Yes No

22. What is your future export marketing plan?

23. Comment on the export assistance of the government. How can the program be improved?

24. Are you aware of international technical assistance by world organizations like the World Trade Institute? Yes No If no, would you be interested in soliciting this assistance? Yes No If yes, what types of assistance you know they provide______

25. What types of additional incentives you think would be important to your exporting activity?

Name of the Firm

Name of person interviewed_

H 0\ rv) EXPORTER'S QUESTIONNAIRE ■XITriOn LNCE.TIVES

A. GENERAL INFORMATION LOCATION MAJOR EXPORT PRODUCTS: RAW PROCESSED

TYPE OF OWNERSHIP: CHECK ONE

100» Phi 1ipine-owned MNC Branch MNC Subsidiary Joint Venture SALES VOLUME

Ml MUIioa 5 below . Ml ItlliDn-to MID Mniion _ PIOMillion and above ■Fetal: Sal es NUMBER OF EMPLOYEES:

Whole Firm Export Division Only

How long have you been in business?______

B. EXPORT STAGES:

1. At present is your firm engaged in exporting? Yes No

If yes, did your firm explore actively your first export order? ______Yes No If Yes, how? __ 2. Did your firm experiment first on several markets before doing the export activity? Yes No

3. Over the last 3 years, how would you characterize your firm in terms of export activity? Check one

increasing volume of exports __ maintaining sane level of exports decreasing volume of exports

A. How long have you been in the export business? ______years

5. Does your firm consider expanding exports to additional markets? Yes No L. EXPORT ACTIVITY:

6. What was your export sales volume last year? Check one.

P500,000 and below ___ P500,000 to R1,000,000 T1 Million and above Export Sales

7. What percentage of your annual sales did you export last year? Check one. 1-10% 11-20% 21-30% 31-40% 41-50% 51-60% 61-70% 71-80% _81-90î ___ 91-100% o\ 8. What percentage of your annual sales do you intend to export ______this year next year? w

1-lU 11-20-'% 21-30^ 31-40% 41-50' 51-60' 51-70. 71-80% 81-00 91-100'

next year

1- 10' 11- 20% 21-30 31-40 51-6 0 . 3 1 -7 0 71-80 81-90 0 1-100 9. In the imiediatc future, what do you feel would be the effect of exporting on the following factors : Circle one.

FACTORS; DECREASE DECREASE NO INCREASE INCREASE GREATLY SLIGHTLY EFFECT SLIGHTLY GREATL Y Firm's Profit...... 1 2 3 S Firm’s Growth...... 1 2 3 5 Firm's Market Share...... 1 2 3 5 Firm's Comoetitive Edge...... 1 2 3 5 Development of the Philippine Economy. 1 2 3 5 10. What do you feel vas the impact of additional processing of your products on the following factors?

FACTORS: DECREASE DECREASE NO INCREASE INCREASE GREATLY SLIGHTLY EFFECT SLIGHTLY GREATLY Firm's Profit...... 1 2 3 5 Firm's Growth...... 1 2 3 5 Firm's Market Share...... 1 2 3 5 Firm's Competitive Edge...... 1 2 3 5 Development of the Philippine Economy. 1 2 3 5

11. Please indicate your agreement or disagreement with the following set of questions regarding exporting: SA = Strongly Agree, A Agree, N = No Opinion, D = Disagree and SO • Strongly Disagree

SA SO 1. Exporting is a desirable task for my firm. 1 T 2. My firm has exportable products...... 1 5 3. My firm is planning in increasing its exports in the near future...... 1

Exports could make a major contribution to my firm's growth...... 1 Exports could make a major contribution to my firm's profits...... 1 My firm always tries to fill export orders...... 1 Profits ft'om our exports have fully met my expectations...... 1 Exporting is no different from doing business locally...... 1

D. EXPORT MOTIVATURS/RISKS IZ. In your ir'itial exporting activity, how important did you feel the following factors are in your decision to export?

MOTIVATORS: VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT Profit Expectations 2 3 Excess Capacity 2 3 Deot. of Trade (Leads) 2 3 Product Advantage 2 3 Competitive Pressure (local) 2 3 "anacement Export Exp.'rience 2 3 Export 'ncentives (if available) 2 3 0\ Others (Specify) 2 3 13. In your present exporting activity, how important do you feel the following factors are in increasing your volume of exports?

MOTIVATORS: VERY IMPORTANT MODERATELY IMPORTANT IIPORTANT NOT WORTANT Profit Expectations 2 3 Excess Capacity 2 3 Oept. of Trade (leads) 2 3 Product Advantage 2 3 Competitive Pressure (local) 2 3 Management Export Frperience 2 3 Export Incentive-. 11 ■' available) 2 3 Others (Specify) 2 3

IT. In your initial exporting activity, how serious did you feel the following obstacles are in your export decision?

OBSTACLES VERY SERIOUS MODERATELY SERIOUS SERIOUS NOT SERIOUS

foreign Exchange Risks... non-Payment Risks...... Product perishability.... Lack of export incentives... Competition abroad...... Lack of export experience.. Documentation requirements. Locating overseas markets.. Tariffs and restrictions... Higher marketing costs... Others (Specify).

In your present exporting activity, how serious do you feel the following obstacles are in increasing your volume of exports

OBSTACLES VERY SERIOUS MODERATELY SERIOUS SERIOUS NOT S RIOUS

Foreign Exchange Risks... 2 3 Yon-Payment Risks...... 2 3 Product perishability.... 2 3 Lack of export incentives.. 2 3 Competition «broad...... 2 3 Lack of export experience.. 2 3 Documentation requireme.its. 2 3 Locating overseas markets.. 2 3 Tariffs and restrictions... 2 3 Higher marketing costs... 2 3 Others (Specify)...... 2 3 E. EXPORT MARKETS

>C. What is the percentage distribution of your export sales to the following market groups?

ASlAf. C-3'JI.T?!ES other ASIAN COUNTRIES OCEANIA NORTH AMERICA MIDDLE EAST WESTERN EUROPE OTHERS (SPECIFY)

How would you rate the following market groups in terms of importance to your exporting marketing efforts?

MARKET GROUPS VERY IMPORTANT MODERATELY IMPORTANT IMPORTANT NOT IMPORTANT 5^ A:i an Countries...... 1 2 3 ijthen As an Counf ies...... 1 2 3 Oceania...... 1 2 3 No'"th America... 2 3 East... 2 3 2 3 If hOf t f C V f , I 2 3 18. Should you be eligible for incentives, please indicate your agreement or disagreement with the following statements: STRONGLY disagree T gree "' agree neutral DISAGREE 1. Export incentives would have resulted in my 5 search for export markets...... ^ ^ 2. Export incentives would have resulted in 5 increased share of exports to total sales.... 1 r 3. Export incentives would have resulted in expansion of export production capacity 1 Z J 5 4. Export incentives would have increased 5 promotional efforts in export markets...... 1 Z 3 5. Export incentives would have reduced my 5 perceived risks to do exporting...... 1 ‘ 6. Export decision is a matter of demand and competition or other factors and does not depend on export incentives...... 1 ‘ 3 5 7. Export incentives will have an important role 5 in my future export expansion decisions 1 % ^ ,,, 8. Should export incentives be abolished, the impact on my level of involvement in export marketing will be: negligible moderate considerable critical o r discontinuation of export operations. 19. Over the last 3 years, did vou receive any government financial assistance (loans) to do exporting? Yes No 2' Over the last 3 years, did you receive any technical assistance from the government? " Yes No

21. Over the last 3 years, did you receive any marketing assistance? Yes No 22. What is your future export marketing plan?______

23. Connent on the export assistance of the government. How can the program be improved?

24. Are you aware of international technical assistance granted by world organizations like the World Trade Institute? Yes No If no, would you be interested in soliciting this assistance? Yes No. If yes, what types of assistance you know they provide:

25. What types of additional incentives you think would be important to your exporting activity?

Name of the Firm ___ Title of person interviewed

ON0\ 167

BIBLIOGRAPHY

Periodicals

Abella, Manuel. "Employment Implications of the Investment and Export Priorities Plan." Seminar Paper, School of Economics, 1972. Alban, Nestor. "Employment Effects of Some Philippine Exports." Seminar Paper, UP School of Economics, 1972 . Albaum, G. "Overseas Opportunities and Problems Facing Small Business in the Pacific Northwest." Paper presented in the annual meeting of the Academy of International Business, Las Vegas, Nevada, 1979. Bautista, Romeo. "Our Excess Capacity in Philippine Manufac­ turing." Discussion Paper, UP School of Economics, 1972.

______. "Employment Effects of Export Expansion in the Philippines," Malayan Economic Review, 1974. Bilkey, Warren. "An Attempted Integration of the Literature on the Export Behavior of Firms," Journal of Inter­ national Business Studies. Spring, 1978. and George Tesar. "Export Behavior of Smaller- Sized, Wisconsin Manufacturing Firms," Journal of International Business Studies, Spring, 1978. Brady, Donald and W. Bearden. "Effect of Managerial Atti­ tudes on Alternative Exporting Methods," Journal of International Business Studies, Winter, 1979. Czinkota, Michael and David Ricks. "Export Assistance: Are We Supporting the Best Programs" Paper presented at the annual meeting of the Acadamy of International Business, Montreal, Canada, 1981. ______and Wesley J. Johnston. "Segmenting U.S. Firms for Export Development," Journal of Business Research vol. 9, 1981. 168

Guinness, N. and Elair Little. "The Influence of Product Characteristics on the Export Performance of New Industrial Products, Journal of Marketing, Spring, 1981. Johanson, Jan and J. Vahlne. "A Model for Decision-Making Process Affecting The Pattern and Role of The Internationalization of the Firm." Journal of International Business Studies, Spring, 1977. Johnston, Wesley J. and Michael Czinkota. "Size of the Firm as a Determinant of Exporting Attitudes and Acti­ vities," Working Paper Series 80-37, May, 1980. Lustre, Alicia 0. "The Food Processing Industry of the Philip­ pines." A Paper presented at the Symposium on Food Processing, Asian Productivity Organization, Tokyo, Japan, 1977. Mercado, Nestor J. "The Export Sector and Its Significance," Economic Research Journal, Vol. X, No. 4, 1976. Michell, Pari. "infrastructure and International Marketing Effectiveness," Columbia Journal of World Business, Spring, 1979. Minnesota District Export Council. The Decision To Export: Some Implications, January, 1976. Ogram, E. W. Jr., "Exporters and Non-Exporters: A Profile of Small Manufacturing Firms in Georgia," in Export Management, Czinkota and Tesar, Editors, 1982. Ortaliz, Wilhelm. "Government Programs Affecting the Philip­ pine Food Processing Industry," Paper presented in the First National Food Congress, Philippine International Convention Center, 1981. Pablo, Rizalino. "The Need for Improved Pattern of the Philippine Foreign Trade," Phillipine Economic Review, Vol. VI, No. 10, 1977. Paterno, Vicente et al.. "Export and Other Incentives, Mar­ keting and Quality Control," Paper delivered during the First National Conference of Exporters, 1973. Rabino, Samuel. "Tax Incentives," Journal of International Business Studies, Spring, 1980. Rexisen, R.J. and R. J. Holloway. "Minnesota Manufacturers in the World Marketplace," Paper presented at the annual meeting of the Academy of International Business, Montreal, Canada, 1981. 1 6 9

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Savasini, J.A. Export Promotion. A Case of Brazil, Praeger Publishers, New York, 1978.

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Pons, Eduardo. "Export Performance of Selected Philippine Agricultural Commodities," Unpublished Dissertation, University of the Philippines, 1978. Recto, Aida A. "An Analysis of the International Demand for Philippine Coconut Products," Unpublished Disserta­ tion, University of Minnesota, 1971. Sena, Eden. "A Reappraisal of the Philippine Export and Economic Development," M.S. Thesis, University of the Philippines, 1981.