SOCIO-ECONOMIC IMPACT OF A BUSINESS

IMPACT ON THE CONSUMER

A new business, especially one that is innovative and focused on bringing some new product or service to the market, is always
welcome to the consumer who is looking value for his money. If the new business is selling a product that has close substitutes in the
market, then the owners of the business will try his best to win the consumers away from the existing sellers by offering something that
will benefit the buyers.

How can the new business accomplish this? One good way is to innovate the product; come up with new features that are not found in
the existing competing goods. This can be in the form of a better appearance, a new feature or ingredient or a new convenient way of
making the product available. A new business therefore means new products or services available to the buyers, giving them more
choices.

As long as a new business can provide new goods and services, better quality of goods and more options, the consumer can benefit
from it. But if a business comes up with a low quality good and does not provide the consumer value for his money, then this business
will have a negative impact on the market.

IMPACT ON SUPPLIERS AND INVESTORS

A new business will also provide opportunities for suppliers and investors. If a new construction company is set up, then this opens up
opportunities for the other businesses that will supply them their needs: tools, wood, cement, steel, paints, nails, screws, and
decorators. Many suppliers will not get a chance to sell to the newly established business, which means income for them.
Demand for the goods provided by the suppliers will increase. These suppliers will now need to produce more of them, and they will
need to hire more workers who will earn wages from being employed. More capital will be needed to invest in the production of these
tools and materials, generating again income for the economy. Investors get to earn returns on their investments, which capital plowed
back into more investments and generating more income for the economy, thus, leading to economic growth.

IMPACT ON THE GOVERNMENT

The government will also benefit from the establishment of new businesses, through revenues earned on fees collected from them and
on taxes imposed on the incomes of the businesses.

Before a business can be set up, it has to meet requirements to start operating. First, the business owner has to apply to start its
business. Licenses have to be obtained. Organizational fees have to be paid. On the municipal level, the government earns revenue
from these fees and licenses. This means money added to their local budget to provide social services to the community, for the
development of the company, to pay salaries of officials and workers, to maintain peace and order and to subsidize public schools.

On the national level, the government gets to impose taxes on the incomes earned by the business. Employees hired by these
businesses also to have pay personal income taxes to the Bureau of Internal Revenue (BIR). For employed workers, these taxes are
regularly withheld by their employers and remitted to the BIR.

These tax revenues fuel development because they are used by the government for national activities and for budget allocations for its
programs. The national government has revenues to finance its projects, to pay government officials, to build schools, to improve the
military, to promote peace and order all over the country, to build housing for the poor, and to provide health services and improved
welfare programs for the people.

IMPACT ON HOUSEHOLDS
New businesses mean employment opportunities for the Filipinos. Those who have jobs but are earning low wages may find better
paying jobs with the new companies. Unemployed workers looking for work may have the chance of being employed by these
companies. The pool of unemployed workers will definitely decrease. Being employed will enable them to buy their basic needs and
even some luxuries. This means that their quality of life and their standard of living will improve.

Acquisition of wealth and assets can now follow both for the business owners and the employees they hire. Profits earned by the
owners can be invested back into the business for expansion, or some can be withdrawn by the owners which they can use to buy new
cars or new houses. Success stories on television shows feature rags-to-riches stories of entrepreneurs who used to be very poor, but
with hard work and persistence, were able to make their businesses succeed, enabling them to send their children to good expensive
schools, building big houses, buying two or more cars housed in their garage. The owners, because of their success, manage to
acquire wealth and buy assets which are fruits of their hard work.

With the growing focus on preserving the environment for future generations, businesses also get to contribute their share. So-called
green structures for buildings are means used to prevent further damage to the environment. Instilling the value of recycling and
reusing of resources among employees and family members may also become the advocacy of these businesses. Spreading
information on the dangers of global warming may be promoted by the business owners. Thus, businesses become instruments for
society to have a better place to live in.

IMPACT ON THE COMMUNITY

Corporate Social Responsibility (CSR) has become a growing trend among businesses today. As a result of this, corporations and
even small businesses have increased their focus on projects that provide scholarships to poor but deserving students, allocating
budgets for housing for low income families such as participation in programs like the Gawad Kalinga, environmental protection
including tree planting, elimination of pollution, and other environmental related programs. Communities benefit from business-
sponsored activities that include sports fests and wellness programs, livelihood projects, micro financing, and even medical and dental
missions.

SOCIO-ECONOMIC AND GOVERNMENT IMPACT ON BUSINESS

GOVERNMENT IMPACT ON BUSINESS

While the government increasingly spends on socio-economic services to improve business condition, size and inadequate
infrastructure and support services limit the growth opportunities of micro enterprises. Declining debt payments to local and
international debtors have given way to more spending on services like road development and education. On the other hand, size limits
business access to technology, credit and market networks in the absence of government support services (Chapter 3). On top of the
limitation size, poor road conditions and inadequate support industries further limit production and marketing by adding cost to doing
business. Poor road condition increases transport cost and the risk of perishability especially of agricultural and fishery products. High
costs of electricity and real estate acquisition increase production cost especially of manufacturers. Other difficulties in doing business
in the country are high taxes, costly registration, bureaucratic corruption. Foreigners and foreign companies face the same obstacles in
developing local operation and marketing.

HOUSEHOLD IMPACT ON BUSINESS

Although the country’s is still young with a majority (68%) aged below 29 years old, it is gradually becoming older with declining fertility
and mortality rates (Figure 4.5). More than one-third (35%) aged 15 to 34 years old are given to sophisticated consumption. One-third
(33%) aged up to 14 years old are children needing growing up care and only seven percent (7%) aged 60 years old and above need
elderly support. But as fertility rate (children per woman) is declining, so is the proportion of children needing growing up care (below 15
years old). For example, fertility dropped from 2000 to 2010 while the percentage of children up to age 15 years old correspondingly
dropped from thirty-seven percent (37%) to just thirty-three percent (33%). Also, mortality rates of all ages dropped from 2000 to 2010,
life expectancy correspondingly increased from 67 to 71 years old with onehalf of the population not younger than 23 from 21 years old
in 2000. Fast forward, the National Statistics Office (NSO) forecasts elderly population to increase to almost ten percent (10%) in 2023
from just seven percent (7%) in 2010.

However, the declining purchasing power of wage has marginalized the consumption of said age groups in at least forty percent (40%)
of families (Figure 4.6). Coupled with inadequate wage, unemployment has also trapped more than one-fourth (26%) of families in
poverty (Figure 4.7) A typical family hardly saves and spends most income on food (43%) and housing, utilities, and fuel (21%). Figure
4.8 shows that only a pittance (8%) is spent on education and health. Thus the Philippines has the lowest rate (% of income) of savings
mostly of corporations even in the ASEAN region (Chapter 2). Due to limited purchasing power income, many Filipino consumers have
become price sensitive and are only able to afford cheap but shoddy items. Low quality characterizes local products especially
manufactures that are largely food items. Low quality consumption can mean inadequate care for the young (below 15 years old) and
the elderly. Also, as nonessentials are crowded out of the budget, so is sophisticated consumption especially of the youth (15-34 years
old). In the end, some micro businesses may be crowded out of the market in the view of limited consumer demand due to inadequate
income.
 Figure 4.1. Population in 2010 (by Age Group)

20%
28%

12%

5%

2% 33%

15-29 0-14 75-over 60-74 45-59 30-44

TRADE AND CAPITAL MOVEMENTS

The external sector shapes the foreign exchange market (foreign currency inflow-outflow) through its trade, capital movements, and
financial flows. Trade includes factor payments such as remittances from overseas contract workers and profit remittances of foreign
companies to their home countries. Capital movements include both short and long-term foreign investments in the country and Filipino
investments abroad. Financial flows involve international debts and loans and their repayments.

Foreign currency (largely in dollars) inflow less outflow payments define the Balance of Payment (BOP) of the economy. Foreign
currency receipts from abroad (inflows) eventually sell for pesos while foreign currencies for payments to other countries (outflows) are
bought with pesos. From the viewpoint of the economy, a BOP surplus means that more foreign currencies are being sold for peso than
those being brought with pesos. Likewise, a BOP deficit means that less foreign currencies are being sold for pesos than those being
brought with pesos.

As part of its regulatory function, the government through the Central Bank competitively buys and sells foreign currencies in the
foreign exchange market to balance supply and demand and stabilize the exchange rate. The Central Bank buys foreign currency
surpluses with pesos and sells them for pesos to fill the shortfalls in times of deficit in order to stabilize the foreign exchange market.

The economy’s production is yet to go deeper into more technology-based stages that it imports the capital goods and final goods
even including consumer items that it could otherwise produce. But in only exports raw materials and some consumer items using low
technology (e.g., garments). Local manufacturing which largely produces light manufactures (low technology) of food and other
consumer items can hardly stand up to imported competitive products. Machineries and electronics exports are simply products from
their imported components assembled locally by transnational corporations. As mentioned in Chapter 3, electronics exports hardly
contribute to local output and employment being importeddependent and without much need for technology.

As the country exports little but imports much, it spends more but hardly earns foreign currencies (largely dollars). What buoy the
foreign currency market are net capital inflows (foreign investment, loans) that offset trade deficits (imports exceed exports) resulting in
mostly BOP surpluses. Nonetheless, foreign exchange rate (peso to foreign currency) is relatively high making peso imports costly
while exports are becoming more competitive with more peso profit margin for the same dollar price. Unfortunately, local production can
hardly fill in for costly imports as handicapped by limited scale, access to technology and government incentives against the backdrop
of stiff import competition. On the other hand, they have to contend with higher cost of doing business due to costly capital and material
imports. Thus, local businesses engage in low technology production and trade that includes cheap and shoddy imports of consumer
items.

Further stifling the foreign currency market is the decline of its existing exchange rate against rising local prices (inflation) that makes
the peso overvalued against the dollar in recent years. The increasing value of the pesos together with the other Asian currencies
against the weakening dollar stems from capital flows avoiding the recession in the U.S. and Europe and finding opportunities in Asia.
The resulting decline of the real exchange rate (exchange rate divided by price index) has two (2) implications. Imports are becoming
cheaper relative to local goods while exports are becoming less competitive with less peso profit margin for the same dollar price. Much
less are exports competitive as our neighbors and rivals (Malaysia, Thailand, and Indonesia) have successfully reversed their
exchange rate conditions to make their exports more competitive. In turn, cheapening imports with less competitive exports further fans
foreign currency demand relative to supply to keep the exchange rate high. Despite Central Banks’s intervention to minimize
fluctuations by buying and selling dollars, the peso-dollar exchange rate is still above forty (40) pesos. Thus, imports for an important
dependent economy is still costly while exports continue to lose price competitiveness.