Environmental Analysis To fully assess the feasibility of the business idea of a custom-made jeans service shop, EALA Inc. has made two key environmental analyses: macro- and microenvironment analysis. The macro-environment analysis takes into the account the political situation under the Philippine government; the economic environment, which mentioned pertinent economic indicators that are relevant to the analysis of the market and described the current economic situation in the country; the cultural environment, which took note of important socio-cultural demographics to better understand the target market; and the technological environment, which listed capabilities that the local garments industry has as of the moment. On the other hand, the micro-environmental analysis focused on the garments industry in which the group wishes to enter. The analysis discussed the developments and issues in the local garments industry. In addition, as part of the micro-environmental analysis, the group considered the retail trade in the Philippines as well as possible competitors within the industry. A. Macroenvironment Analysis Political Environment The country is currently facing political instability, as there is a desire to change our current political system to a parliament type, thus creating a pessimistic hype for some potential long-term investors because of possible negative political issues that loom ahead, which can cause economic tribulations. Not to mention the unending corruption issues of our politicians, the alleged election fraud and corruption charges against the president and her family, the dawn of value-added tax resulting to higher prices, and the time-to-time resignation of the president’s economic team. Such political crises negatively affect the profitability of the country’s businesses due to rating outlook downgrades and higher interest rates. If debt levels continue to decrease and higher foreign reserves were maintained, there would be no major negative effect on business profitability.1

“Philippine Political Crisis Could Hurt Business Profitability.” [Online] Available. http://en.ce.cn/World/biz/200507/14/t20050714_4189155.shtml, July 14, 2005.


In the meantime, the country’s political crisis has brought international credit rating companies to downgrade the country’s debt payment credit ratings and also affected Asian Development Bank to threaten the country with suspension of loans if fiscal and other reforms remain stagnant if the political crisis would not be resolved. The political crisis may not just negatively affect the country’s economic performance, but may also damage the confidence of the consumers and investors as well as hinder the developments in the financial markets. Ultimately, the political crisis only serves to aggravate the country’s external variability to global trends such as growth moderation, rising interest rates and oil prices.2 Economic Environment The country is currently suffering from a weaker economic base as a direct result of the political instability, which has resulted in higher interest rates, low credit ratings, and other performance risks as the value of peso continues to grow weaker. These further on result in a steady increase in the unemployment rate of Filipinos. The lack of local job opportunities has also increased the trend of “brain drain” as more and more Filipinos seek jobs abroad. However, a robust growth in the economy is being anticipated though it would be moving at a slower pace than that achieved in the previous year. A positive outlook is also being projected from the growth in the performance of major industry players last 2004. The service sector, particularly that of telecommunications and trade continues to lead in providing potential industry growth and development. (Cayetano: 2005) Gross National Product. As of the third quarter of last year, the Gross National Product, at Current Prices, amounted to 4,150,771 million pesos. There has been

“Rating Firms’ Outlook on RP Turns Negative.” [Online] Available. http://www.bworld.com.ph/BW071205/topstory.php, August 2005.


a 0.7 percent decrease in GNP, making the 2004 13.5 percent rate down to the current 12.8 percent.3 Gross Domestic Product. By the end of last year’s third quarter, Gross Domestic Product at current prices amounted to 3,836,727 million Pesos. As compared to the 14.1 percent GDP growth rate from 2004, there has been a big 3.7 percent decrease leaving 2005’s GDP down to 10.4 percent. However, it is expected to grow approximately by 5.5 percent this year. The expected growth in GDP in 2006 can be attributed to the growth in personal consumption, the recovery in government spending, and also the strong demand for export products.4 Personal Consumption Expenditure. Personal consumption expenditure is

currently 72.9 percent of GNP, a decrease from last year’s 73 percent, experiencing an annual change of 5.8 percent. Wage Rate. Currently, the minimum wage rate in Metro Manila is currently pegged at Php 288 to Php 325 a day (eight working hours per day), the highest among the regions. However, there is an ongoing legislation in Congress to increase the minimum wages to cushion the impact of the expanded valueadded tax on workers.5 Inflation. As of the year ended 2005, Inflation rate rocketed to 7.6 percent from the previous year’s 6.0 percent - a 1.6 percent difference. The Bangko Sentral ng Pilipinas is targeting the inflation rate to average between four to five percent in 2006. The inflation forecast for the year, however, is placed at 7.5 to 8.2 percent.6 According to the BSP, there is little sign of any inflationary pressures
3 4

“National Accounts Third Quarter 2005” [Online] Available. http://census.gov.ph, January 11, 2006

“Selected Economic and Financial Indicators.” [Online] Available http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005

“Selected Economic and Financial Indicators.” [Online] Available http://www.bsp.gov.ph/statistics/sefi/sefip1_files/filelist.xml, August 2005.

Gil C. Cabaccungan, Jerome Aning, “Palace: It’s Time Congress Enacted Wage Increase”[Online] Available http://news.inq7.net/nation/index.php?index=1&story_id=55347, November 3, 2005


building in the Philippine economy. The BSP Deputy Governor Diwa Guinigundo also said that the planned rise in the sales tax to 12 percent from 10 in February could cause an upward blip in inflation levels, but that would be short-lived.

However, high oil prices will remain as the main threat to inflation this year, which have already taken some of the buoyancy out of consumer spending last year. But amidst the threats, the strong peso and easing food prices help balance inflationary risks. Foreign Exchange Rate. As the year opened, the Peso closed at its highest for the past eight months at roughly Php 52.00 a Dollar. If the political situation slowly stabilizes, the country can experience a continuous lift in the peso. Factors that can strengthen the peso include political stability, income remittances from OFWs, inflows from portfolio investments, and proceeds from government bond sale.8 The 2006 Fiscal program assumed that the average exchange rate would settle at Php56.00 to a US Dollar, and that the benchmark 91-day Treasury bill rate would hit eight percent.

Value-added Tax. The month of February has been welcomed with the imposition of, the new 12 percent value added tax. Moves by the government to raise the level of value added tax (VAT) from 10 percent to 12 percent would hit hardest the country's poor and its small businesses, the American Chamber of Commerce of the Philippines said. They also asserted that any increase in VAT would pose a serious burden on the country's poor and small to medium size enterprises and would also lead to greater tax avoidance. With the current minimum wage rates, it is highly doubtful if the Filipino wage earner could absorb price hikes to be triggered by the increase in VAT as well as other taxes.


“Economic Statistics.” [Online] Available http://www.philippinebusiness.com.ph/economic_stats/economy.htm, August 2005.
8 9

“Inflation Seen to Remain Stable”, B5 Business Section, The Philippine Daily Inquirer, January 25, 2006 “Government Expects Billions in Savings” The Philippine Daily Inquirer. January 23, 2006


Employers likewise may not be prepared to incur additional expenditures particularly at this time of economic crises, concluded by the business group.10 Socio-Cultural Environment Population. Population in the Philippines is increasing at a 1.84% growth rate and is now currently pegged at 87.9 million Filipinos. The highest concentration of people is found in the NCR, Southern Tagalog, Central Luzon, and Western Visayas. The age structure of the population is divided into three brackets. The first one is from 0-14 years old, which include 35.4% of the population. The second bracket of ages 15 to 64 comprises of 60.6% of the population. The third age bracket, which is composed of Filipinos 65 years old and above, covers only 4%. The median age for males is 21.77 years whereas for females, it is only 22.8 years. Based on the 2000 Census of Population and Housing taken by NSO, it was found that there were more men composing the population with 50.4% than women with 49.6%. From 1995 to 2000, the sex ratio was pegged at 101.4 Labor Force. The total number of individuals within working age (15 years old and over) is equivalent to 54,194,000, of which 64.8% participates in the labor force. The employment rate in the country is currently 91.7%, an increase from last year, whereas the average unemployment rate is currently 8.3%, increasing at a 0.3% rate. Almost half (49%) of the total unemployed individuals in the Philippines are aged 15-24 years old. The underemployment rate is currently 26.1%. According to the NSO’s Labor Force Survey, men and women comprise 61 and 39% of the 2002 labor force, respectively. In addition, it was found that women had a 51.7% labor participation rate while men participated in the labor force at a rate of 80.8%. The Survey also showed that, in 2002, the 89.9% of the total labor force were employed. Employment rate for women was 89.9% whereas

“Increase in VAT will hurt poor, small businesses”. [Online] Available http://www.inq7.net, January 27, 2006


men’s employment rate was at 89.9%. In terms of major occupation groups, majority of professionals, clerks and officials and special-interest organizations, corporate executives, managers, managing proprietors and supervisors were women. On the other hand, majority of plant and machine operators and assemblers, farmers, foresters and fishers, and tradespersons were men. In terms of major industry groups, more women belonged in the education, health and social work, and wholesale and retail trade industries while more men were found to be dominant in the construction, transportation, storage and communication, and fishing industries. Consumption and Expenditure. According to NSO, average income and expenditure has shown an increasing trend as of 2003. The target market of the business, which is NCR, was one of the top three regions in terms of average income. The other two were CALABARZON and Central Luzon. These top three regions posted estimates of income that were higher than the average income of 148,757 pesos in 2003. The annual average saving as of 2003 showed a downward trend. However, on the average, Filipino families in all regions earned more than they spent, as stated in NSO’s 2003 Family Income and Expenditure Survey results. In 2003, families located in NCR showed the biggest annual saving of 46,923 pesos. In 2004, personal consumption grew at a rate of 5.8% due to double-digit growth of income remittances. In the first quarter of 2005, there appeared a decrease in personal consumption expenditure, which can be attributed to higher prices of goods and services. There was a slowdown in growth for food, beverages, clothing and footwear, household furnishings, household operations, and miscellaneous expenditures as well as fuel, light and water due to low electricity consumption. phone usage. Technological Environment On the other hand, expenditures on transportation and communication increased due to rise in road and railway ridership and mobile


Industrialization. The manufacturing, along with the closely associated activities in the clothing and garment production, continues to be one of the driving forces of industrialization the world over. The clothing industries have fought to maintain their share of the total value that is created throughout the series of apparel design, manufacturing and distribution. Automation. At present, technology in the garment industry here in the Philippines consists mainly of automation of the processes. These include the automated designing of the patterns as well as that of fabric laying and cutting. Electronically controlled mechanisms are also used for stitch formation and fabric feeding for the basic sewing machines.

The last of the processes include

automated machines and devices for pressing the clothes. In addition, current developments in machineries include designs which enable fast adjustments of equipment from one style to another thus eliminating the non-productive handling of fabrics and garments. In the process, quality is thus being improved.

Other developments. The Garments and Textile Board of the Philippines has recently installed an Electronic Data Interchange (EDI) system to reduce processing time to help improve production and delivery lead-time. It allows garment manufacturers-exporters (GMEs) to transact with GTEB electronically. The costs associated with implementation of EDI include the costs for acquiring the software and the hardware themselves, training and ongoing costs such as Value-Added Network (VAN) charges, maintenance and support costs. 13 In addition, the leading companies in the industry have started to acquire CAD/CAM techniques, Quick Response and Just in Time philosophies to allow flexible manufacturing.

11 12

Byrne, Chris. “The Impact of New Technology in the Clothing Industry: Outlook to 2000” [Paper]

“Clothing Engineering.” [Online] Available http://www.fs.uni-mb.si/en/study/ects/IP%20-%20Clothing%20engineering.pdf

“Electronic Data Interchange – A Management Overview.” [Online] Available +costs+OR+fee&hl=en&client=firefox-a. August 2005


B. Microenvironment Analysis The Garments Industry The Philippine local garment industry started as a cottage industry in the late 1940’s. The pioneers are engaged in dressmaking, tailoring as well as subcontracting activities for the Americans. The golden years of the garment industry was in the 1970’s, during which the Philippines was considered to be a nice and attractive place to buy or manufacture apparels. This continued on for about ten more years, which then catapulted many garment manufacturers as leaders in the export business. During the 1980’s, the government implemented the structural adjustments program (SAP) as trade policies shifted from trade protectionism to trade liberalization. The program opened doors for foreign companies to increase their investments as well as encouraged the local manufacturers to tap into the potential of the industry. What made the local garment industry a viable investment for foreign companies was the high quality of the Filipino labor force – highly trainable, industrious, and highly literate. The local garment industry is currently involved in the production of men’s, women’s, children’s, and infant’s wear, gloves, undergarments, stockings and socks, neckwear and other apparel. Subcontracting activities include performing embroidery and sewing services (i.e. printing, dyeing, knitting, laundry, finishing, pattern-making and design-making). In addition, it is the country’s leading employer of the manufacturing sector, with industrial relations no longer an issue, and with minimal labor problems. Through the help of Garments/Textile Industry Tripartite Council Board, industrial relations are continuously being improved upon. The government also has provided different means to adapt to the changing HR needs of workers in the garments industry. Such actions that would help make the industry more competitive, and thus, improve the HR scenario, include productivity enhancements like skills upgrading, productivity-


based wages, trade facilitation, market/product development and financing assistance.

As of the 18th of July this year (2005), accounting for 6% of total export receipts were the articles of apparel and clothing accessories. This was the country’s second top earner which garnered almost $192.9 million in revenues or a 7.4% increase from last year’s $179.6 million. The industry for articles of apparel and clothing accessories is the country’s second biggest dollar earner albeit it experienced a decline of 4.0% in terms of value of production index. However, it experienced a gain of 27.5% in volume net sales from last year. The improvement in the performance of garments exports can be attributed to the shift towards higher value-added items due to the improvement also in the high-end premium categories. According to Garments and Textile Exports Board (GTEB) Executive Director Serafin Juliano, the growth of the local garments industry stems from the country’s advantages and its improving competencies in moving up the value chain. Improved performance is also a result of cost-effective manufacturing and logistics systems as well as increased store sales locally made premium products. The current implementation of the quota-free scheme resulted in the shift of brand market and product mix combinations of garments exports as well as enabling the garments manufacturers to align its sourcing strategies with local capabilities, product design specifications, and consumer preferences. Despite the stiffer competition resulting from the abolition of the quota system, the local garments industry will benefit from the freedom to source with the most efficient suppliers at the lowest costs and with the shortest cycle times. Other Issues Threats to the local garments industry include high power and labor costs and smuggling of imported clothes that were undervalued and can be sold at very

I-Transporte, Aletha. “IR/HR Implications in the Garments Industry.” [Online] Available www.fu-berlin.de/iira2003/papers/track_3/Workshop_3_2_Trasporte.pdf. August 2005.


cheap prices.

Cheap imported second-hand clothes define ukay-ukay and its

proliferation serves to damage the local garments industry that cannot compete with such low prices, and also incurs losses for the government. As of 2002, demand for ukay-ukay clothes was 4%. For 2003, we could only conclude that the demand must have risen due to higher prices of clothing. In addition, 4% of the demand also attributed to preference for foreign brands over local ones. It was said that the root of this was the inability of local manufacturers to compete with foreign brands in terms of quality. One reason for such a trend includes the inclination of local producers to set aside quality products for export while bringing poorer ones to the local market. Garment manufacturers in the country would want to take hold of the relatively higher payments foreign markets offer, as a result, more focus is thus being employed in the quality of the apparels they produce for exports. quality for local brands. Another reason for the local consumers’ preference for imported used clothes is the lower price. Legally imported second-hand clothes have lower prices than local brands because of the lower labor cost and the modernized facilities that other textile and clothing manufacturing countries have. Relevant Industry Indicators Customer Price Index. The consumer price index (which is a measurement of the changes in the price level of goods and services that most people buy for their day-to-day consumption) increased from last year to 129.4 overall, gaining 9.1 points. In the National Capital Region, the consumer price index also increased to 131.4, a gain of 10.2 points, whereas for areas outside NCR, the customer price index is128.6, a gain of 8.8 points. Monthly, the consumer price index for the clothing commodity group shows an upward trend.16

In the long run, this particular action increases the

tendency for local consumers to patronize foreign brands due to the lack of


Bacalla, Tess B. “Gov’t Fails to Stem Flow of Smuggled Goods.” [Online] Available http://www.manilatimes.net/others/special/2004/oct/25/20041025spe1.html, October 25, 2004.

“Summary Inflation Report: Consumer Price Index.” [Online] Available http://www.census.gov.ph/data/pressrelease/2005/cp0506tx.html July 5, 2005.


Clothing Inflation Rate. The clothing inflation rate for this year is 3.6 while it was 2.7 as of last year. The clothing inflation rate experiences a year-on-year change of 0.9%.

Philippine's Top Exports (2001-2003)
Machinery/ Transport 4% Other Products 17% Food 3% Coconut Products 1% Garment and Textile 7%

Electronics 68%

Figure 1 | Philippines Top Exports (2001-2003)

Major Product Classifications. The major products produced in the local garments industries include garments, non-garments and textile products. As of March 2004, garments accounted for 88% of the product share in total exports. Non-garments, which include luggage, home textile furnishings, tents, nets, industrial clothing, has 7% of the total share. The remaining 5% share of total export sales is composed of textile products such as fabrics, yarns and fibers.17 Political Developments in the Garments and Textile Industry The government is working with the private sectors of the garments and textile industry in launching investment missions that would establish strategic alliances with foreign partners and attract investments in apparel, textile and production of accessories. Through the introduction of ASEAN Free Trade Agreement and the World Trade Organization (WTO), opportunities for investments are presented as a result of tariff reduction and the phasing out of

“The Philippine Garments and Textile Industry Profile (as of March 2004).” [.pdf file sent by Garments and Textile Export Board c/o Jennelyn Gatuz] August 2005


quotas with low demand as well as the growth for remaining quotas of products that are import-sensitive. Such developments would reduce the industry’s production costs and also minimize smuggling, which is one threat to the industry. To enhance investments in the industry, the government offers incentives such as income tax holidays, additional deduction for incremental labor expenses during the first five years from registration of the company, tax and duty exemption from taxes and duties on selected imported spare parts, unrestricted use of consigned equipment, employment of foreign nationals, simplified customs procedures, access to bonded manufacturing warehouses, tax credit for taxes and duties paid on raw materials used for the exported products. To improve the industrial relations in the industry, the Garments and Textile Industry Tripartite Council Board was revived to serve as a venue for resolving issues and any conflicts. Unwarranted industrial action or harassment is put off through this forum. According to Philippine Exporters Confederation, Inc. problems regarding industrial relations are very minimal within the industry through the help of the Council Board.18 Clothing and Footwear Retailing in the Philippines Consumer expenditure on both clothing and footwear amounts to 73.3 billion pesos in 2002. A 12.9% increase is estimated for 2003 which will result in spending of P82.8 billion in this sector. Spending on these items increased by 40.3% over the review period. Filipinos in general has strict fashion sense and invests much of their money on clothing and footwear. The Filipino upper and middle-income classes are known to be more fashion-conscious as compared to other Asian countries. The average purchasing power is low but the income gaps across socio-economic classes are wide which then allows the middle and upper income classes to be fashionable.


“Dressing Up For Success.” [Online] Available http://www.philexport.ph/garments.html. August 2005.


Men’s wear increased by 32.8% in expenditure while the women’s and children’s wear increased by 47.2%. Men’s and boy’s wear expenditure amounted to about 28.3 billion pesos in 2002 and nearly 33.0 billion soon after, estimating around 37.6 billion pesos in the succeeding years. On the other hand, expenditure on women’s, girl’s and children’s wear amounted to 32.6 billion pesos in 2002 and increased to 36.8 billion pesos the following year.

Table 1 | Consumer Expenditure on Clothing and Footwear | 1999 - 2003 (in billion pesos)

1999 Clothing Men's and Boy's Wear Women's, Girl's and Children's Wear Footwear TOTAL 53.3 28.3 25

2000 57.1 30.7 26.4

2001 61.2 31.6 29.6

2002 65.6 33 32.6

2003 74.4 37.6 36.8

5.8 59

5.9 63

6.8 68

7.7 73.3

8.4 82.8

A total of 77 billion pesos was the total turnover of clothing and footwear retailers in 2002, which estimated a total of 86 billion pesos in 2003, an 11.7% increase. Sales in 2003 increased by 36.5% from the 1999 sales of 63 billion pesos. Clothing and footwear specialists are able to hold their ground against mixed retailers. Majority of this is ready-to-wear which is the major merchandise carried by department stores and variety stores. Since there is this perception that these merchandises, especially house brands, are mass-produced, Filipinos would usually buy from specialty shops for more choices and exclusive styles. This is because there is a clothing shop that caters to every Filipino’s taste in fashion, style and age group. Clothing and footwear specialists also abound in shopping malls and tiangges. Many of these specialists have concessions in department stores as well for


these are proven venues that still attract the most people. They maintain these concessions even with their existing own separate outlets. Local shops such as Bench, Penshoppe, and Bayo are able to complete well with foreign brands such as Giordano, Gap and Guess. Flea markets also abound clothing specialists who has their own retail outlets at the same time. The Greenhills bargain center, which started the “tiangge” fad, has stall owners who still operate their permanent outlets at the same area. Many of them also have their branches in other shopping malls and strip malls. “Tiangges” allow them to reach to more clientele who would still prefer to shop in areas near them rather than going to their outlets. Specialists considered multiples or private retail companies operating in 10 or more branches are benefiting from the expansion of shopping malls in Metro Manila and other key areas nationwide. Sales of multiples have increased by 46.4% over the period, from 7.6 billion pesos in 1999 to 11.2 billion pesos in 2003. Multiples still remain as a minority which constitutes only 13% of the total retail sales of specialists in this sector. Many multiples enjoy success at present which all started out as independents. Small independent shops are expanding their operations through franchising or forming an informal buying group. These are areas especially those outside the Metro Manila which contributes to the increase of sales by the affiliated retailers and franchised retailers. There are still non-affiliated independents that cater to the Class CDE market and are present in areas which named stores are not able to reach. Sales of independents have increased by 35% in about five years from 55.4 billion pesos in 1999 to 74.8 billion pesos in 2003.

Table 2 | Retail Sales by Type of Outlet | % Growth (1999-2003)

1999/2003 Clothing and Footwear Specialists Multiples Independents TOTAL 47.4 35 82.4

2002/2003 12 11.6 23.6


Retail Distribution Department stores and variety stores (Mixed retailers) dominate the sales of men’s and boy’s wear and children’s wear. This is because there are much fewer clothing and apparel specialists who cater to their market as compared to the female wear. In this sense, women have more choices especially when it comes to apparel specialty shops. About 56.6% of the total sales of women’s and girls’ wear were sold through specialists while around 40.4% were sold through mixed retailers.19 Still, there are few clothing and footwear specialists that can be considered as multiples. They contribute to only about 10% of the total sales for this sector. This means that there is still room for a major chain to enter this retail sector which could carry the men, women and children’s merchandises.

Table 3 | Retail Distribution of Clothing/Footwear Retailer's Core Product 2003 (percentage of value)

Men's / Boy's Clothing / Footwear Specialists Multiple Affiliated Independents Department Stores Variety Stores Others TOTAL

Women's / Girls



Fashion Accessories

1.5 21.9 18.9 42.0 13.5 2.2 100.0

7.6 25.3 23.7 32.3 8.1 3.0 100.0

32.0 1.3 52.0 9.0 2.7 100.0

8.0 18.2 26.5 32.0 12.1 3.2 100.0

3.8 8.7 67.0 9.5 11.0 100.0

Source: Eurominotor estimates based on DTI, trade press and industry associations

In 2002, the six leading specialist retailers (Stores Specialists, Zenco Sales, Surplus Marketing, Suyen Corp., Golden ABC, & Cinderella Marketing) were estimated to have a combined market share of 7.5% in the clothing and footwear sector. Slight increase in 2003 by 7.8% was foreseen. This is because only three of these will exceed sales by 1 billion pesos. This sector is loosely organized by

Euromonitor, Retail Industry in the Philippines. 2003 p.150 Philippine Retail Association (PRA) Library


mixed retailers like SM and Robinsons Department Stores. Although the market shares of mixed retailers and specialists are almost the same, the large number of specialists from whom customers can choose seems to prevent any major specialist from becoming dominant in the market.

Table 4 | Leading Clothing and Footwear Retailers Market Shares 2002 - 2003

2002 Stores Specialist Zenco Sales Surplus Marketing Suyen Corp. Golden ABC Cinderella Marketing Others TOTAL 2.1 1.6 1.4 0.8 0.8 0.7 92.5 100.0

2003 2.2 2.0 1.4 0.8 0.8 0.7 92.2 100.0

C. PORTER’S FIVE FORCES Buyers Clothing is one of the three fundamental human needs. Everybody needs to buy clothing. Clothing includes wearing apparel such as shirt, pants, among others. Pants, particularly denim jeans have been termed as the most popular wearing apparel on earth.20 This clothing product is worn by almost everybody thus, considering everyone as its consumer. However, buyers usually buy in smaller quantities and do not purchase regularly. Buyers can also easily switch from one competitor to another in case of product dissatisfaction or if they just want to try other brands. Personal consumption expenditures in the Philippines have been fairly resistant to adverse changes in the past and in the current Asian crisis as well. Although

A Short History of Denim [Online] Available http://www.levistrauss.com/Downloads/History-Denim.pdf


spending on clothes as a percentage of income has been declining, percent total per capita expenditures on clothing have been increasing, representing 47 billion pesos in 1997, a growth rate of nearly 12.6 percent from 1991 to 1997.21 Jeans customization is somewhat an old concept because of the proliferation of tailoring shops. These shops cater buyers who can be dissatisfied with the jeans available in the market or who just wants to alter a jeans bought from a certain store. However, the idea of custom-fit jeans is still a fresh concept in the garments industry, particularly in the Philippines. Only few buyers, particularly those in the upper class, avail/can avail these products because of the products’ perceived high-end status and high price. Suppliers Denim has always been made of cotton. Philippine raw cotton production supplies less than 3 percent of total domestic cotton requirements, thus Philippines manufacturers continue to rely on imports to meet domestic demand. The United States is likely to remain the largest supplier of combed cotton, followed by Pakistan, Australia and South Africa. With the end of the quota system for garments starting in 2005, domestic cotton consumption is forecast to decline next year. The garments and textile sector is the single largest buyer of raw cotton and the garments sector is country's second highest export earner.22 New Entrants Barriers to entry include global and local policies implemented in the textiles and clothing industry, capital requirements, access to distribution channels, product differentiation, and cumulative experience, among others. For instance, the World Health Organization (WHO) Agreement on Textiles and Clothing (ATC) took effect on January 1, 1995. Under its provisions, the US negotiated market access with several developing countries, including the
21 22

Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html Philippine Cottons and Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html


Philippines, which are major exporters to the US market. The Philippines agreed to improve access to its market. Under this agreement the Philippines is obligated to reduce and bind tariffs, and to reduce and eliminate non tariff barriers. In line with its commitments, the Philippines have bound its textile and apparel tariffs at the following rates: 20 percent for yarn, 10-12.5 percent for man-made fibers, 30 percent for sewing thread; 30-50 percent for floor covering, and 30 percent for textile made-ups. Under its WHO obligations, the Philippine Government initiated a general tariff reduction program to reduce tariffs on raw materials to 3 percent and on finished goods to 10 percent by 2003. In January, 2004, the Government plans to introduce a uniform 5 percent tariff rate. Another instance is Value-Added Tax applied to all imports, assessed at 10 percent of the value of goods, plus duty. The Philippines is a member of ASEAN and a participant in the ASEAN Free Trade Area (AFTA). AFTA contains a preferential tariff scheme (CEPT) which requires intra-regional tariffs to be reduced to 0-5 percent by the year 2003. Textiles are on a fast-track schedule for tariff reductions to 0-5 percent by the year 2000. CEPT also requires intra-regional reduction in non-tariff barriers and harmonization of customs procedures and product standards. The Philippine Government provides incentives to promote investment in preferred activities and geographic areas and for export. Investment incentives include: income tax holidays; tax deductions for labor expenses, infrastructure, capital equipment and spare parts, and investment in less-developed areas. On the other hand, export incentives include: exemption from advance payment of customs duties; tax credits for imported raw materials and spare parts, domestic substitution of imports, export revenue; and various exemptions for duty on imports. A variety of financing programs and guarantee schemes is available through state-sponsored institutions.23


Cotton Textile and Apparel Products [Online] Available http://www.fas.usda.gov/mos/em-markets/reports.html


Capital requirements include high-speed and highly-efficient sewing machines, high-quality denim fabric, among others. Human resources in the form of tailors are also essential in this business. New entrants will not find it difficult to meet distribution network requirements since there are various alternative channels for them to sell their products. New entrants can easily distribute their products without having to invest in creating new distribution networks. Product and service differentiation requires vast outlays in several stages of the value chain, most especially in advertising and promotion. Learning curve effects make a difference as companies with more experience gain advantage through having more cost-efficient manufacturing processes. Substitute Products Ready-made retail products are considered substitutes for custom-made clothing. Moreover, denim pants could be replaced by shorts and skirts as bottom apparel. The denim fabric could also be replaced by other fabrics such as those used in khaki pants and slacks. Industry Competitors The Philippine garment industry dates to the 1950s and the emergence of cottage-level industries that replaced homework. As the industry began exporting during the 1970s, it experienced rapid growth, growing an average of 30 percent between 1972 and 1980. The industry is at a crossroads of uncertainty regarding the effects of global trade liberalization. It is expected that the removal of quotas will cause further erosion in the industry, with only larger, well-capitalized firms able to survive.24


Cotton Textile and Apparel Products in Philippines [Online] Available http://www.fas.usda.gov/mos/emmarkets/reports.html


The garment industry is comprised of many players, both operating on a large scale and small scale basis. The industry is a growing one; exports of garments are steadily increasing too as more foreign companies continues to trust the skills of local manufacturers in producing quality garments. The local garments and textile industry is the country's consistent second top performer in terms of export revenue. The Philippines is also one of the main product suppliers for high-end clothing brands such as GAP, Old Navy, Ann Taylor, Liz Clairborne, and Polo Ralph Lauren.25 Customers are free to change their suppliers thus creating high uncertainty for competitors. In terms of origin and operating styles, competitors may range from boutiques, specialty stores, bazaars, tiangges, direct selling agents, department stores to big malls. A relatively large amount of money is tied in equipments such as high-speed sewing machines and inventories, but liquidating such assets is relatively easy. Competitor Analysis While there are definitely countless jeans and pants manufacturers in the market, EALA Inc. has narrowed down its direct competitors to those that offer customized-pants service offer. Among its closest competitors are stores that promise comfortable fit and one-of-a-kind trendy designs to their final product. Indirect competitors are the makers of ready-to-wear pants that offer almost the same characteristics as described earlier.


Behind the Seams http://www.philippinebusiness.com.ph/archives/magazine/vol11-2004/11-/forecast.htm\


Figure 2 | Competitor Map

VIKTOR Jeans The business idea started three years ago, when Victorino Caluza, an aficionado of designer jeans, prompted in putting up a store that offers customized jeans in his own unit in Mega Plaza in Ortigas. “Fashion, in a way, is individualism. You want to be different. You can be trendy wearing different brands, but you know ‘marami’ kayo may-ari nun. Viktor is about good fitting jeans that makes you look and feel good. Viktor is about exclusivity,” the jeans maker points out. Men and, most especially, women have difficulty finding a pair that fits all over. An expensive pair does not guarantee the jeans will fit perfectly. Every single body is unique so it’s almost impossible to buy jeans that have the perfect combination. This is where Viktor comes in.


Product and Market Strategy Ino Caluza initially started with 4 collections of designs when he recently opened his store in the 4th level of Podium in Ortigas. He works on his designs periodically and offers them at the customer’s request mix of fit, cut, fabric, and all the way to other jeans elements like zipper, stitches and thread. Viktor promises to give its customers the perfect pair of jeans, as in his tagline – A good pair of Viktor can get you laid back. Customers are primarily members of the high social class society as a greater proportion of Viktor’s customers are celebrities and young professionals who are into the trendy and sophisticated themes carried by most of Viktor pants. To keep its customer go back to his shop, he offers them free alteration for fitting updates. He also keeps a database of his customers and sends them letters/notices whenever new designs are available. By yearend, the company plans to launch brand ‘Vik,’ targeting a younger market with a budget. A new store at SM’s Mall of Asia will house the new brand. Customers will have fewer choices though compared to the original Viktor series, but pay between P2,000 to P3,000 only for a pair. Toppers Haute Couture The store was established in the 70’s first promoting service to the working class. The quality of the end products made serve to be the lasting source of the business as it kept its operations through the years. Toppers showcases haute couture servicing for both men and women, ranging for ages 30 and up. Product and Market Strategy The shop offers a wide range of tailor servicing from polo, pants to suits. As what any tailor shop does, it offers their services along with a splash of fabrics and different cuts as requested by the customer.


While the shop is primarily for anybody who wants his clothing custom-made, but because of its store appearance, customers tend to perceive that the shop is focusing on the older market, the adult and the professionals.

Figure 3 | Toppers Haute Couture

Current Price Profile of Key Competitors Viktor charges its customers a range of P3,950 to P5,700 for a single pair of pants. For rush jobs, customers are charged an additional P300. The amount increases as more details are added on the design and as the fabric becomes harder to be supplied. He also specializes in offering a one-of-a-kind jean design ranging from Php7000 and up. On the other hand, the tailor shop located along Katipunan offers their custom-made pants service at the cost of Php600 a pair.

Table 5 | Competitor Strengths and Weaknesses


STRENGTHS has developed a strong brand equity among the aficionados of designer jeans, first to offer the kind of idea in the Philippine clothing industry, offers a wide range of trendy designs to choose from, a guarantee on fit alterations



the price is way up high from the affordability of the target market, it takes seven to 10 days for a pair to be made.


Toppers Haute Couture

has limited design offers as the owner is traditionally oriented in tailor making, cuts affordable range of price and fit are enclosed to a range to students who want limited number only, their pants tailor-made perception that the store is focused only in the adult and professional market.


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