Overview
Metro Manila remains the commercial capital of the Philippines. It is made up of 17 cities and serves as the location for most national importers and distributors. Within Metro Manila, key central business districts (CBDs) include Makati City, Ortigas Center in Mandaluyong City, Bonifacio Global City in Taguig, and the Bay Area in Pasay City. These districts host numerous multinational company headquarters, commercial bank offices, and high-end retail establishments.
Beyond Metro Manila, prominent regional commercial centers include Pampanga, Baguio City, Cebu City, Iloilo, Davao City, and Batangas. Cebu City, the third largest city in the country, and Iloilo serve as primary trading hubs for the Visayas region. Davao City, the second largest city in the Philippines, maintains a dominant trade position in Southern Mindanao owing to its extensive land and maritime linkages to surrounding provinces.
According to the Philippine Ports Authority (PPA), cargo throughput in 2024 rose to 289.52 million metric tons, a 6.26 percent increase over 2023. Container throughput reached 7.83 million twenty-foot equivalent units (TEUs), up by 4.26 percent, while total ship calls surged to 621,807, reflecting a 10.5 percent increase from the previous year. Passenger traffic climbed to 78.74 million, an increase of 6.9 percent. Container volume growth was observed across regions: Luzon ports handled 5.935 million TEUs (up 4.9 percent), Visayas handled 449,008 TEUs (up 3.4 percent), and Mindanao handled 1.441 million TEUs (up 1.7 percent).
The Manila International Container Terminal (MICT), managed by International Container Terminal Services, Inc. (ICTSI), a Philippine based global port operator, and South Harbor, operated by Asian Terminals, Inc. (ATI), a Dubai based company, continue to manage the majority of international and transshipment cargo.
The use of local agents or distributors remains essential for market entry and expansion. There are two prevalent types of importers in the Philippines: stocking distributors and indenters. Stocking distributors are contractually obliged to purchase and keep inventory of an agreed volume of goods, while indenters act as intermediaries between foreign suppliers and end users, reducing inventory risks. Buyers working with indenters typically secure financing in advance, often through letters of credit. Under such arrangements, the local agent earns a commission on the indent sale and frequently provides after-sales service.
In selecting local partners, especially for U.S. firms, it is important to verify whether potential agents are accredited vendors of target clients, as procurement opportunities often require accreditation. For government projects, distributors must be familiar with the New Government Procurement Act (Republic Act No. 12009) and the United States Foreign Corrupt Practices Act (FCPA). Many United States companies also make use of the U.S. Commercial Service International Company Profile (ICP) program to assess the credibility and capacity of prospective agents.
Using an Agent or Distributor
Agent/distributor arrangements are common in the Philippines. Local companies are often eager to pursue discussions once they have examined a U.S. firm’s website/product literature and have determined that there is a market for the product.
Contracts between U.S. manufacturers and their Filipino agents/distributors typically contain the following key elements:
- General Provisions: Identification of parties to the contract, duration of the contract, conditions for cancellation, definition of covered goods, definition of territory or territories, and, whenever necessary, sole, and exclusive rights,
- Rights and Obligations of Manufacturer: Conditions of termination, protection of sole and exclusive rights, sales and technical support, tax liabilities, conditions of sale, delivery of goods, prices, order refusal, inspection of distributor’s books, trademark/patent protection, information to be supplied by the distributor, marketing, advertising and sales promotion, responsibility for claims/warranties, and inventory requirements,
- Rights and Obligations of Distributor: Safeguarding manufacturer’s interest, intellectual property rights, payment arrangements, contract assignment, customs clearance, observance of conditions of sale, after-sales service, and information to be supplied to the manufacturer.
There are no laws that impede termination of an agent/distributor contract, should either party wish to do so. Contracts usually specify that 30-day notice be given in the event of cancellation, or as mutually agreed upon by both parties. Standard agent commissions range from 5 to 10 percent but vary by industry. Legal assistance in drafting and enforcing contracts is highly recommended. Other companies wish to engage in initial non-disclosure agreements (NDA) to start exchanging information on pricing modeling and other project specifications.
A prototypical Philippine agent or distributor profile does not exist. Firms can range in size, from small (fewer than 25 employees handling a few specialized products on behalf of a limited number of manufacturers) to large trading companies handling a wide range of products and suppliers. Some firms focus on the Metro Manila area, whereas others provide additional service to provincial commercial centers such as Angeles/Clark City, Bacolod, Cebu, Cagayan de Oro, Davao, Iloilo, and Baguio, either directly or through a network of dealers, retailers, sub-agents, and/or re-sellers.
Local agents and distributors working with foreign suppliers often employ forward sales or indent arrangements. In a forward sales arrangement, distributors place an order from the foreign supplier and then sell the product to the local end-user or customer. Under an indent arrangement, end-users or customers directly place orders with the supplier. The indenter then receives a pre-determined commission for each successful sale. In some instances, distributors and/or their respective dealers also maintain inventories to serve the recurring requirements of major customers.
Corporate agents/distributors must register with the Philippine Securities and Exchange Commission (SEC). Sole proprietorship agents must register with the Department of Trade and Industry (DTI). U.S. firms selecting a Philippine representative should consider, among other factors, the following: (a) whether the distributor has sufficient financial strength to maintain appropriate stock, provide effective after-sales service, or offer competitive payment terms; (b) whether the representative’s geographic sales area covers strategic markets in the Luzon, Visayas, and Mindanao regions; and (c) their experience in the sector or with similar products or services.
U.S. firms seeking agents or distributors in the Philippines are encouraged to use the services of the U.S. Commercial Service Philippines, which include International Partner Search (IPS), International Company Profile (ICP), and Gold Key Service (GKS). More information is available on Trade.gov.
Establishing an Office
The principal forms of business organization in the Philippines are sole proprietorships, partnerships, and corporations. Other less common business structures include joint stock companies, joint accounts, business trusts, and cooperatives.
Multinational firms, depending on the nature of their intended business activity in the Philippines, may avail of the following modes of entry into the Philippine market: subsidiary, regional headquarters (RHQ), regional operating headquarters (ROHQ), branch office, and representative office.
For more information on business registration requirements, and incentives for each mode of entry, you can access the information from the Philippine Board of Investments.
The State Department’s Investment Climate Statements provides information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees. To access the ICS, visit the U.S. Department of State’s Investment Climate Statements website.
Franchising
The industry is still one of the main contributors to the growth of the Philippines as it continues to expand. The Philippine Franchise Association (PFA) cites the importance of franchises in the economy as they contribute around 7.2 percent to the GDP. Many international franchises consider the Philippines to be a prime destination. Franchises, particularly from Thailand, the Republic of Korea, and other ASEAN countries, have come to the Philippines with new products. Popular franchise concepts are food, retail, education, home and lifestyle, health, and wellness, with the food segment growing around 8 to 10 percent despite market uncertainties.
The country is a prime destination for many international franchises as there is around a 90 percent success rate for start-ups; the PFA targets to open around 200,000 franchise outlets and other establishments for the next three yearsby 2028, generating around two million direct and indirect jobs. The growing middle class helps the upward trajectory of this sector with the population’s increasing purchasing power. There is a shifting trend toward consumer preference for sustainability, convenience, and anticipating the needs of the Gen Z and Gen Alpha populations.
The Philippine Franchise Act of 1995 and Executive Order 169 of 2022 are the rules and regulations that protect local and international franchisors and franchisees, ensure fairness in agreements, and prevent industry exploitation. Important considerations for the prospective U.S. franchisors are franchise disclosure requirements, franchise registration under the Securities and Exchange Commission (SEC), and minimum terms for franchisees to promote fair practices and protection for SMEs.
Direct Marketing
Direct selling or direct marketing is popular among the lower-income segment of the country, which is around 60 percent of the population. Filipinos are enticed to engage in such business activities due to the minimal requirements to start their businesses. The Direct Selling Association of the Philippines is the leading association for direct selling, with approximately 35 members. Popular concepts are agriculture, personal care products, household items, and clothes.
Social media platforms like TikTok are an emerging trend for direct marketing. Live selling, where the seller showcases their products to a live audience, is a popular method for engaging with potential buyers and increasing brand awareness. Face-to-face selling remains the most effective way to sell, as a significant portion of the lower-income segment remains unconnected to the internet, and potential buyers are encouraged to touch and feel the actual products physically. Moreover, a Filipino trait, “malasakit” or compassion, plays a significant role in the effectiveness of direct selling in the country, where friends, family, or relatives are encouraged to buy in support of their endeavors.
U.S. direct marketing companies are required to register in the Philippines through the Securities and Exchange Commission (SEC) and obtain relevant permits from the Bureau of Customs (BOC), among other requirements.
Joint Ventures/Licensing
Foreign businesses can operate in the Philippines through joint ventures with local enterprises. The Philippine government does not require the submission of licensing or technology transfer arrangements for approval and registration by the Intellectual Property Office. Voluntary submission is strongly encouraged to ensure compliance with Sections 87 and 88 of the Intellectual Property Code since non-conformance with Section 87 on Prohibited Clauses and Section 88 on Mandatory Provisions automatically renders the arrangement unenforceable. The Intellectual Property Office (IPOPHL) may allow exemption from conformance with Sections 87 and 88 after an evaluation under the provisions of Section 91 on Exceptional Cases.
The Intellectual Property Code of the Philippines defines technology transfer arrangements as contracts or agreements involving the transfer of systematic knowledge for the manufacture of a product, the application of a process, or the rendering of a service, including management contracts; and the transfer, assignment, or licensing of all forms of intellectual property rights, including licensing of computer software except computer software developed for the mass market. Distributorship agreements with the Philippine partner will be included in the coverage if they contain the licensing of trademarks.
Due Diligence
It is wise for a U.S. company to perform appropriate due diligence on their potential business partner, agent or representative. To help with this important process, the U.S. Commercial Service in the Philippines offers the International Company Profile (ICP) service. The ICP provides information on Philippine companies, including general business information, background and product information, key officials, references, financial data/creditworthiness information, and reputation. For more information or to order an ICP, please contact the U.S. Commercial Service Philippine office at BusinessPhilippines@trade.gov. Alternatively, you may visit a U.S. Department of Commerce office nearest you.
After carefully selecting partners, U.S. suppliers should be prepared to support and work closely with their local distributors, agents, or representatives.