Multinationals get 'royalty' treatment in the Philippines
If you want to do business in the Philippines, watch out for Lilia R. Bautista.
To wit: when Colgate-Palmolive Company recently wanted high royalty payments from a Filipino firm to make and sell an old line of products, Mrs. Bautista stepped in and ordered a lower royalty.
''Why should we pay for an old invention?'' asked the governor of the Philippines Board of Investment. ''We only acknowledge new products as worthy of high royalties.''
With the eye of a Philippine eagle, Mrs. Bautista guards the imports of new technology into this Asian nation.
She goes to battle against big multinational corporations by helping local companies negotiate contracts with the foreign firms -- a sometimes harrowing trial for a business person from a poor country.
On the average, she saves Filipino companies about $75,000 a year on each contract, lowering royalties to be paid multinationals for patented products or technology.
''Now Filipino companies say they are no longer at the mercy of foreign companies,'' states Mrs. Bautista.
But royalties, which cause the Philippines to lose foreign exchange, are just the front line for dealing with multinationals.
Like many developing countries, the Philippines is in a hurry to emerge from an primarily agricultural country to a Western-style industrial nation, sometimes leapfrogging decades of research and development by swallowing technologies whole.
''Japan did it, why not us?'' is the common refrain.
In fact, the world's developing nations have set a goal, known as the ''Lima target,'' of commanding 25 percent of global manufactured products by the year 2000. To do so, these nations are setting up new sets of rules on the latest hot trend in development, ''technology transfer.''
Between 1971 and 1977, direct foreign investment in developing Asian nations totaled $13.2 billion, more than four times the corresponding total for 1967 to 1971.
Among Southeast Asian nations, the Philippines is considered a leader in screening technology imports. In 1978 it set up a multiagency Technology Transfer Board (TTB) with Mrs. Bautista as vice-chairman.
In her own words, Mrs. Bautista is a mother to each Filipino firm taking a step to join up with a foreign firm. ''It is like a child. If it is not helped, it will never walk. But if it has a crutch by leaning on a foreign company, it will never take off on its own.''
To aid the budding firms, a five-year limit is set on contracts with foreign firms, so that patents, royalties, export restrictions, and other parts of a joint venture or licensing arrangement are eventually up for grabs by the local company.
After five years, says Mrs. Bautista, the Filipino firm will have picked up enough technical knowledge to go on its own.
''Before it was a jungle. A foreign company could really get their hooks into a local firm. They were getting 10 percent royalties and placing all sorts of restrictions on exports (from the local firm),'' she says.
''Some investors don't even know we exist. We have helped with negotiations gradually, without disruptions.'' Thailand and Indonesia, says Mrs. Bautista, have asked TTB for help in setting up similiar agencies in their countries.
Mrs. Bautista finds each country's companies different to deal with. In the last decade, the United States share of foreign business in the Philippines has dropped from 67 percent to 42 percent, while Japan's share jumped from 7 percent to 22 percent.
The US government opposes many of the TTB's restrictions, but US companies are often willing to transfer all their technology, she says. Japan, from its experience of importing US technology, is very helpful, too - up to a point.
''The Japanese always hold something back on technology tranfer,'' she finds. 'It's usually a key part made only in Japan.
One key area for TTB is trademarks. It provides a tax break to the foreign parent company if it does not require its international brand name to be used on local products, allowing a local name instead. This saves the local firm from paying a royalty on the trademark.
One unsuccessful effort was trying to prevent parent firms from charging higher than ''world market prices'' for raw materials to its local licensee. Monitoring world prices proved too difficult.
At one time, TTB tried to pressure foreign investors to set up research labs in its subsidiaries or licensees, but found the parent company unwilling to duplicate its own lab efforts.
''If we do our jobs well, we should phase ourselves out of business. As companies learn to negotiate contracts, we can leave the scene. But that won't happen until the Philippines builds up a research capability,'' she said.