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Understanding Philippine manufacturing sub-sectors

Manufacturing Subsectors by technology classification

The manufacturing sector is highly diverse, composed of a wide range of subsectors. These subsectors can be groups into three technology groups: low, medium and high. Below is the gross value added of each of these subsectors at the end of 2013, grouped by technology level. Food manufactures is still by far the largest manufacturing subsector, followed by radio, tv and communication equipment and apparatus, which we know better as electronics and semi-conductor, and third is the chemical and chemical products sub-sector.

2013 GVA of Manufacturing Sub-sectors

Low-tech sectors are generally less capital-intensive and more labor and/or resource intensive. While medium and high technology sectors are generally more capital-intensive and less reliant on labor cost and/or resources. Note the word “generally” since the products within this subsectors can have very varied characteristics in terms on capital and labor requirements.

Low technology subsectors has less entry-barriers, require less skills, and provide huge employment opportunities, but subject to strong competition from lower cost countries specially when they’re highly globalized with low trade barrier, like garments and footwear. Higher technology subsectors require higher skilled labor, and more sophisticated use of technology and capital.

By classifying the sub-sectors intro these three technology groups, it becomes easier to understand their needs, allowing us to identify targeted interventions that will enable them to be competitive. For instance, low-technology sub-sectors would require the availability of low labor cost migrating from the basic sector, whereas high-technology would need innovative talent and skills upgrading. This classification also allows us to understand where to direct our human resources, which is to higher value sub-sectors, which will raise the total productivity of the manufacturing sector in the long-term.

Shifting to higher technology levels

As countries progress and climb up the value chain, you see a consistent reduction in share of low tech secttors, for instance food manufactures, and an increase in the medium to high-tech subsectors. See from the charts below taken from UNIDO 2103 Industrial Development Report,  how South Korea evolved from 1963 to 1998, reducing their share of their low tech sector in favor of their high-tech sector. Compared to Kenya that hardly changed their structure through out the same period.

Changes in value added by manufacturing industry

The relative  size of the Philippine high-technology sector which includes electronics, semi-conductor and chemicals is encouraging. Growing our machinery and transport sector should accelerate our growth as well as diversify our high-tech sector. There is of course, a lot of value in expanding our medium technology sector which represents key industries that enable us to integrate the various subsectors. These medium technology sectors are easier to develop compared to high-tech sectors, and can provide employment for our  low-skilled labor that maybe not find opportunities in the low-tech sector due to competition from lower cost countries.

This is why we have more than 20 sectoral roadmaps today. Each sector has a role to play in our economy. The more sectors we participate in, the more opportunities we provide to our investors, both foreign and local, to our entrepreneurs and to our workers.

Growth of the manufacturing subsectors

Finally, let’s take a look at the growth of each of these sub-sectors in the last three years, from 2010-2013.

3 year average growth of manufacturing subsectors

Furnitures and fixtures is the fastest growing sector, averaging 57% in the last 3 years, followed by chemical and chemical products at 39% per annum, and wearing apparel who seems to be making a come back at 11% per annum. One needs to take into account the actual size of these sub-sectors to put the growth into context. So while food manufactures is the largest, it a low growth industry. Chemicals has both scale and high growth. Furnitures and wearing are relatively smaller industries, but are gaining ground.

Radio, TV, communication equipment and apparatus (electronic and semi-con) has experience low but still positive growth the last few years. Interestingly, transport equipment has seen a contraction in the last three years, in spite rapid growth in motor vehicle sales. Hopefully, this translates to the expansion of the local production of motor vehicles in the next few years.

I hope this short note helps us understand the value of classifying manufacturing sub-sectors by technology level, and how they contribute to the overall growth of the manufacturing industry.

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