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Status of Manufacturing

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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