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Philippine Manufacturing….more diverse than you think!

I use to have an impression that majority of our manufacturing are semiconductors and electronics, and this is because they represent the largest part of our total exports. But looking at the 2009 Annual Survey of Philippine Business & Industries which covers both exporters and domestic manufacturers, we see that semiconductors & electronics only account for 14% of the total revenue in manufacturing and there are so many more manufacturing sub-sectors contributing to the economy. The pie-chart below demonstrates this.

Do keep in mind that the ASPBI survey does not include all existing manufacturers, they only include those with at least 20 employees, and that the survey only take a representative sample or significant part for each industry.

The ASPBI not only reports revenue figures, it has a wealth of data. I would like to highlight some interesting facts to demonstrates the diversity of our manufacturing sector.

Most Number of establishments
The plastic industry has the highest number of establishments in the survey, 349, followed by garments with 295, and food with 285.

Most number of employees
There were 841,473 workers employed by the establishements in this survey. Semi-conductor & electronics lead with 89,817 workers, followed by food production & processing with 71,425, then garments with 70,692 workers

Highest Addition to Fixed Asset
Office, accounting and computing machinery recorded the highest with PHP19.4 billion, Basic precious and non-ferrous metals,PHP13.8 billion, and Building and repairing of ships and boats, PHP7.3billion.

Highest Total Compensation
The manufacturing sector provided compensation worth Php 179 Billion, with semicon & electronics leading with Php 25Billion, Food production and Processing with Php 15 Billion and Other Chemicals with Php 12 Billion.

For more details, visit NSO website: http://www.census.gov.ph/data/sectordata/2009/aspbi09_sectd01a.htm


My Message:

My point is that diversity exists in Philippine manufacturing, and that we produce more products that we think we do. We need to support these industries, allow them to prosper, allow them to create more employment, let them be a source of knowledge and skills for our entrepreneurs and workers, a source of innovation for new products and new industries.

However, how diverse is it versus the manufacturing powerhouses in Asia like China, Thailand, Malaysia? This, we will tackle in future posts….

Meneleo Carlos Jr. speech during the 1st PHL Manufacturers & Producers Summit

Thank you all for your appreciation, interest and support of our Basic and Manufacturing Sectors and what they can do for our society, our economy, and our environment.  We especially want to thank

  • Our friends in DTI, BOI, BPS and other attached agencies for their support and even greater support in the months ahead based on our initial meetings,
  • Our friends in the other agencies of government whom we will partner with to grow Philippine industry,
  • Our sponsors who helped to make this event possible
  • Our media friends whom we hope will have gained a better understanding of what industry can do for our people and help us to get connected,
  • And finally our members and associates who have steadfastly moved the ball forward to make us globally competitive.

During the past few hours we have come to appreciate what makes industry operate well in other countries as well as here.

First of all we have come to understand and appreciate how  industry can contribute more to our society, our economy, and our environment – all the way from the basic sectors up to  manufacturing. 

  • We know that industries are a series of value-adding stages that make up the supply chains. We know that in all chains, we are only as strong as the weakest link. This was recently highlighted by the failure of major supply chains caused by the Tsunami in Japan and the floods in Thailand which have disrupted the electronic and automotive industries. We must therefore help each other to strengthen our own supply chain’s weakest link.
  • We know that industry can accommodate a lot of labor, and even temporary labor that come from the seasonality of agriculture, in some basic construction works like building roads and bridges. It also is a training ground to continually add knowledge and skills so that our country-side workers can become skilled workers and find more regular employment here and abroad. Manufacturing absorbs our surplus of farm workers.
  • We also know that industry depends much on infrastructures for transportation, telecommunications and power, to connect it well with its supply chain here and abroad. Unlike, services which can be provided virtually, the manufacturing industry needs to handle and process materials and goods to work effectively. So we are only as strong as the infrastructures will allow us.

Second, we believe that we have proven the socio-economic rationale for the all-inclusive growth that we have long sought. We have shown how the link between the basic sectors and manufacturing have produced the inclusive growth that has characterized the economies of Thailand, Malaysia, Indonesia, and Vietnam.

  • It is good to remind ourselves of what our Constitution calls for in Article XII Section 1  which reads,  “The State shall promote industrialization and full employment based on sound agricultural development and agrarian reform, through industries that make full and efficient use of human and natural resources, and which are competitive in both domestic and foreign markets. However, the State shall protect Filipino enterprises against unfair foreign competition and trade practices”.
  • In Thailand, much of the automotive industry is supported by the demand for pickup trucks by the Thai farmers who operate profitably with the help of industry.
  • The high-end industries that the Japanese and other developed countries have invested in Thailand have trained workers who graduated from the earlier successes of their agro-industrial revolution – and who originally came from the farms.
  • In other words, manufacturing has also provided a market for high-school, vocational school, and college graduates through what are now popularly called teaching companies.

Third and finally, we are pleased to note that the DTI has organized and structured itself to fully support industry from the basic sectors rooted in our land and seas,  up to the consumer goods that the global markets demand.

  • We understand that DTI is structuring itself to address the challenges of the Basic Sector, the Manufacturing sector, and the Infrastructure & Services Sector. This is an essential first step in order to be able to address the diverse issues affecting each of these critical sectors. While we will add as much value to the products of the basic sector, we will need the infrastructures to enable us to physically accomplish this. We can only be as competitive globally as these infrastructures and services will allow.
  • We also understand that the DTI wants industry to organize itself along the different supply chains so that the weak links can be identified and addressed along the formal approaches to industrial development, by analyzing the strengths, weaknesses, opportunities and threats of each chain link.
  • These will provide the basis for effective dialogue and action programs to be undertaken. We expect these action programs to become effective because they are specific in a coherent supply chain and not clouded by  irrelevant issues.
  • At the same time, we hope that the other branches of government as well as the DTI will strengthen their negotiating skills as we maneuver through the maze of bilateral and multilateral trade and investment agreements to buy time for our people and our industry.

For we need to give our basic sectors all the chance to rise from their poverty levels by providing them the elbow room to develop with the help of industry – towards our principal objective of providing INCLUSIVE GROWTH or GROWTH FOR ALL.

Nov 24, 2011

Mr. Meneleo Carlos Jr. is Chairman Emeritus of the Federation of Philippine Industries


ADB’s Dr. Norio Usui’s Presentation during the 1st Philippine Manufacturers & Producers Summit

So many people are asking for a copy of ADB Senior Country Economist Dr. Norio Usui’s presentation during the 1st Philippine Manufacturers & Producers Summit. He pointed out that the Philippines cannot sustain inclusive economic growth if we rely only on the Service sector and neglect Industry, in particular the Manufacturing Sector. He backs it up with tremendous amount of data. But best of all, he describes in minute detail our evolving Manufacturing Space and where we can go to grow in the future. Attached is his complete presentation.

FPI Summit Structural Transformation 24 Nov 2011 by Dr. Norio Usui (ADB)

Dr. Josef Yap (PIDS) Presentation during the 1st Philippine Manufacturers & Producers Summit

Dr. Josef Yap, President of the Philippine Institute of Developmental Studies (PIDS) presentation during the 1st Philippine Manufacturers and Producers Summit. Dr. Yap comprehesive presentation provided a snap shot of the Philippine economy, described critical developmental constraints, the Philipine Development Plan and the importance of the manufacturing sector and firm-level competitiveness.

Attached is Dr. Yap’s presentation:

Philippine Economy Structural Issues by Dr Josef Yap

How big is manufacturing in the Philippines….reading the NSO’s 2009 ASPBI Results

The NSO published last Nov 23, 2011 the preliminary results of the 2009 Annual Survey for Philippine Business and Industries for the Manufacturing Sector. I like reading this compared to National Accounts and GDP because it’s easier for businessmen and manufacturers like me to understand……I’m not an economist, though sometimes I dream I can be one….

I like the ASPBI because it helps me understand the size and scale of the entire manufacturing industries as well as provide numbers to all the different kinds of manufacturing activities. Allow me to highlight some data to help us appreciate this highly strategic sector of the economy. Note that this survey covers only establishments that employs 20 or more, which means it doesn’t include small and informal establishments.

  • Number of Establisments Surveyed: 4,908

  • Total Combined Revenues: Php 3.26 Trillion (equivalent to US$ 75 Billion)

  • Total Employees: 841,473

  • Total Compensation to Employees: Php 179 Billion

Visit the NSO site for the 2009 ASPBI Preliminary report. http://www.census.gov.ph/data/sectordata/2009/aspbi09_sectd01a.htm

In our next post, we will analyze the ASPBI report and talk about the different types of manufacturing in the Philippines.

Until then, happy weekend….hope you find great things to buy for Christmas, Made in the Philippines.

The 1st Philippine Manufacturers and Producers Summit (Nov 24, 2011)

The Federation of Philippine Industries held the 1st Philippine Manufacturers and Producers last Nov 24, 2011 with over 350 participants including policy makers and government officials from the DTI, DOST, DENR, Tarriff Commission, National Competitiveness Council, private sector representatives from a wide range of Industry Associations, economist, repersentatives from foreign chambers, JICA, NGOs, Philippine Inventors, corporate members and media.

Opening Remarks by FPI Chairman Jesus Arranza

Keynote Speaker was DTI Secretary Gregory Domingo.

Manufacturing & Producing in the Philippines
Economist Dr. Josef Yap, President of the Philippine Institute of Developmental Studies (PIDS) and Dr. Norio Usui, Seniour Country Economist of the Asian Development Bank presented the state of manufacturing in the Philippines.

The FPI recognized this year’s winners in the FPI Sustainability Awards (more details in a separate post).

Sucesss & Challenges of Manufacturing and Producing in the Philippines
They held a excellent panel which included 6 corporate leaders namely, Chris Nelson of PMFTC, Dean Lao Jr. ofChemrez, Edgar Chua of Pilipinas Shell, Jiraphat Oebchokchai, Mariwasa-Siam Ceramics, Christiane Marie Cheng-Medina of Uratex Philippines, Vicente Co of Manly Plastics


  The Path Forward by DTI Undersecretary for Industrial Policy and Trade Policy Adrian Cristobal and FPI President George Chua.

Closing Remarks by FPI Chairman Emeritus Meneleo Carlos Jr.


Investing in Philippine manufacturing… and why now after all these years.

The challenge is in inducing foreign and domestic investments in manufacturing in the Philippines and we have heard so many reasons not to invest in the Philippines, and choose Vietnam or Indonesia instead. From high power cost, to rising labor cost vis-a-vis our competitors, to land ownership, poor infrastructure, to corruption and poor governance. No doubt these are disincentives to investing, but investors choose based on different requirements. The most common and relevant measure for choosing a location for manufacturing is total production cost and availability of skilled labor. Tax incentives are fleeting if the cost rises fast or if the labour pool dries out quickly. Low power cost are relevant only to products that consumes a lot of electricity. Lack of land ownership and corruption never stopped thousands of investors from going to China, Vietnam and Indonesia. High labor cost never stopped the manufacturing sector in Singapore.

There is a lot of capital, the banking sector is as healthy as ever, always looking for better returns. There’s also lots of “foreign” capital coming from OFWs. As foreign remittances begin driving the growth of small and medium enterprises, their investment can be directed towards manufacturing and not just service related businesses like retail, restaurants, etc. Manufacturing is not only for large enterprises. Countries like Japan are supported by hundreds of thousands of manufacturing SMEs who specializes on products that are procured by larger manufacturers.

Now if all if this is true, why did countless number of enterprises lose their livelihood in the past 20 years of globalization and liberalization, where everything can be done in China, and everything can be imported cheaply to the country.

The answer is in the only constant that we know…..change. Things have changed.

First, Japanese companies are looking at relocating again from Japan due to the strength of the yen and for some, due to their vulnerability to natural calamity as demonstrated by the recent earthquake and tsunami.

Second, the huge exodus of manufacturing from Coastal China due to the rapid rise in labour cost and shortage of skilled labour

Third, macro-economic condition, national leadrship and governance in the Philippines has never been this conducive to investments

Fourth, there continues to be an abundance of labour from rural and urban sectors and potentially, given the right conditiions, the availability of highly skilled manufacturing talent from overseas Filipinio workers.

We have never seen this unique combination of conditions in the past twenty years. The Philippines is in a position to capitalize on this today and start a virtuous cycle of growth and prosperity.

– end.

This article is prepared by Roberto Batungbacal to elicit discussion and comments. Views expressed are entirely those of the author. Questions and comments can be addressed to the author (bobbybatungbacal@gmail.com).

Why Manufacturing is Strategic to the Economy

Manufacturing has far more benefits than just employment opportunities. Manufacturing has the highest Multiplier Effect to the economy compare to other sectors. Based on studies of The Manufacturing Institute, the manufacturing sector has a Multiplier Effect of 1.4.*

What is Multiplier Effect? Let me give an example. For every liter of paint manufactured, it required a range of chemical raw materials, packaging like metal or plastic containers, printed paper labels, delivery trucks, it required capital equipment that grinds, blends filters and stores the product. It requires building a factory, warehouse, offices. It employed chemist in laboratories, engineers and operators to run and maintain the plant. It requires utilities like electricity and water. It requires “services” such as financial, marketing, sales and logistics services.

That is why Manufacturing is called the engine of the economy. Many services exist because of manufacturing…and many service jobs will disappear if manufacturing disappears.

Manufacturing is indispensible. It is imperative for the growth of any economy. Even the most competitive and advanced economies like Singapore and Switzerland understands the strategic importance of their manufacturing sector. The US, UK and other western countries are seeking to bring back manufacturing into their country. The recent credit crisis and the current global financial crisis, further highlights the vulnerability of service related jobs, and the urgent need to create manufacturing jobs.

Manufacturing is also essential to innovation. Innovation is today’s buzz word because growth is the way out of the financial crisis and stagnation. To grow you need to create something new or use something existing in a new or different way. Apple didn’t invent the MP3 player, they just made it more simple and easy to use and called it iPod. That is innovation. Now everybody knows that Apple no longer manufactures their products. They’re made in China. But as the inventors stay farther and farther away from the production of the product, then innovations becomes more difficult for the designer, but at the same time, innovation becomes easier for the producer. After all, the producer works with the product every single day.

*The Manufacturing Institute, Facts about Modern Manufacturing, 2009.

Our Manufacturing is definitely growing…but not fast enough.

The impression that manufacturing is stagnant in the Philippines is due to one famous statistics: Manufacturing as a % of GDP…which has been constant at around 24% from year 2000 to 2006.

Data suggest that it is flat, in a plateau, stagnant. But the truth is manufacturing is growing, every year, and if percentage is constant, then it is growing at the exact rate as the GDP.

Now, is 24% good or bad? Depends….it’s certainly lower than China, Thailand and Malaysia. But these countries are the world’s factories…manufacturing powerhouses.  But on the other hand, 24% is higher than that those of three of the BRICs countries Brazil, Russia, India. It’s even higher than highly industrialized countries like Japan and Italy.* 

So, in absolute terms, manufacturing is growing, but not enough, given the rise in our population, our expanding labour pool and the increasing unemployment from the rural sector which is the consequence of slower growth in the agricultural sector.

But then is it possible to shift agricultural labor to the fast growing service sector? Yes, and we see that every day, as the rural non-farm poor flock the city to take up informal jobs as domestic helpers, drivers, construction workers, jobs with low productivity, limited learning opportunities and no job security. These are the jobs beyond reach of mandated minimum wage.

As history has shown, only manufacturing can absorb agricultural workers, providing them the possibility of secure, increasing productive work, and learning opportunities that increase one’s chances of improving his or her well-being.

*Based on figures from the World Economic Forum’s Global Competitiveness Report

Alive….But Where are Our Products?

Why is it that the statistical data doesn’t “jive” with our personal experience. It says manufacturing dominates the economy, and yet most of the products in my grocery list are not made in the Philippines. Most of the things I buy from the mall, clothes, shoes, appliances, electronics are made every else but the Philippines. Are the surveys wrong? Poor data collection? Flawed interpretation and analysis of the data?

One answer is that a huge part of the manufactured goods are for export hence they don’t end up in our store shelves, while a lot of imported goods can be sold competitively. That’s free trade. Another answer is in the way products are manufactured today. In the globalized world, components are made in the most “total-cost” advantage country. Electronic chips are made in Japan, Korea or Taiwan, assembled and tested in Philippines, Malaysia, Thailand, then packaged into an electronic products like a mobile phone or computer in China. So, is your mobile phone made in Japan, Philippine or China? There’s a similar process in the automobile industry, clothing, appliance. In the globalized world where trade is friction less, then it works.

So the key to participating in this manufacturing model is to get into these regional production networks. Fortunately, Southeast Asia, is currently in these regional production streams. So far, the electronic and semi-conductor sector have thrived in regional production networks. But this is probably the only success story. This success needs to be duplicated in the other manufacturing subsectors of the Philippines in order to diversify our production.

Countries are now realizing that diversifying their manufacturing products is imperative to economic growth.* The more diversified your basket of goods, the more stable your total production versus the changes in global demand for different product groups. The more diversified your products, you increase your ability to innovate and create new things. As you diversify, you have more complimentary products to offer. For instance, a robust domestic chemical, plastic, rubber and metal industry would have many raw materials and parts to offer Toyota, Samsung, Sony or Apple.

*Based on the work of Dani Rodrik and Ricardo Hausmann. (Harvard University, John F. Kennedy School of Government )

Learn more, see works of Dani Rodrik, Ricardo Hausmann.

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