Philippines Manufacturing Trends 2020
This article is part of our “manufacturing in Asia 2020” series. This time we focus on the Philippines.
We interviewed Joona Selin, the local market specialist at Asian Insiders. He gives us great insights into the local manufacturing industry and uncovers business opportunities for foreign companies.
We hope you’ll get actionable information from this interview.
“What are the main industries in the Philippines?”
Joona Selin: The Philippine industrial profile consists of mining & quarrying, manufacturing, construction, and electricity, gas, and water supply, making up one-third of GDP. Driven by the government’s ‘Build, Build, Build’ infrastructure program, the construction sector has grown double digits since 2017, posting 10.7% growth in the first three quarters of 2019, while contributing 8.1% to GDP.
Manufacturing, on the other hand, contributed 22.6% to GDP as of Q3 2019, while posting a modest 2.3% growth in the first three quarters of 2019. The top 5 categories for manufacturing are:
1. Food manufacturing (USD 14.9B industry, half-year 2019)
2. Radio, television and communication equipment and apparatus (USD 3.8B)
3. Chemical and chemical products (USD 2.1B)
4. Petroleum and other fuel products (USD 1.3B)
5. Beverage industries (USD 1.1B)
“What are is the outlook for the main industries in 2020?”
Joona Selin: The ‘Build, Build, Build’ program is expected to continue to pave the way for further growth in industrial activity, as major infrastructure projects will be completed. In late 2019, The Department of Trade and Industry launched a USD 500M program for securing manufacturing revitalization and transformation (SMART program), which is expected to support the adoption of new technologies, new processes, products, services as well as the development of new business models. The SMART program is expected to spur the growth of the manufacturing sector, in conjunction with the administration’s Inclusive Innovation Industrial Strategy (i3S). The i3S highlights the growth and development of 15 major industries, while priority activities are in the following sectors:
- Electrical and electronics
- Metal products, machinery, and equipment
- Aerospace parts and Maintenance, Repair, and Overhaul (MRO)
“What are the main trends in manufacturing in the Philippines for 2020?”
Joona Selin: Through the SMART program, the government emphasizes the importance of the global value chain, the adoption of Industry 4.0, as well as innovation and R&D, as well as industrial development in rural areas. Some recent manufacturing investments are targeted at addressing supply chain gaps and reducing import dependence, such as:
- Huili Investment Fund, HBIS Group and Steel Asia Project (USD 4.4B): hot rolled coils with an annual capacity of 4.5M MT, slabs with an annual capacity of 600K MT
- Steel Asia Project: USD 1B investment to produce nails, staple wires, paperclips and construction-grade steel products such as wire rod, wire mesh, medium & steel sections
- Florida Blanca Steel Industries Corp: USD 50M to produce steel pipes
“What are the main innovations in manufacturing in the Philippines?”
Joona Selin: Buzzwords such as IoT, Robotics, Drones, AR, cognitive cloud, and 3D Printing are all mentioned under the government’s priority activities in the electrical and electronics sector. However, know-how and technologies from abroad are essential to be able to develop capabilities in the domains mentioned. As such, it is up to the foreign investors to enter the market and build the capacity in the said areas.
When it comes to Artificial Intelligence (AI) and machine learning gathers interest, but the impact of new technologies is more pressing in the service sector and especially among the 1.3 million direct employees in the IT-Business Process Management sector, rather than in manufacturing.
“What are the main challenges in manufacturing in your country for 2020? “
Joona Selin: At the recent Manufacturing Summit held in December 2019, DTI Secretary Ramon Lopez cited the US-China trade war, import competition, the lack of raw materials, and reduced export demand as the main challenges for manufacturing. For instance, the lack of integrated steel mills (until the recent USD 4.4B investment into the first integrated steel mill goes into production), as well as insufficient local cement production results in heavy import-reliance from countries like China and Vietnam.
Pertinent challenges, such as inefficient infrastructure, high cost of power, and HR development also remain as deterrents in the sector. However, the government also has development programs in place to address these long-term issues, although it would be unrealistic to expect drastic results within the calendar year 2020.
“What are the main opportunities in manufacturing in the Philippines for 2020?”
Joona Selin: In the automotive sector, there is a specific program for electric vehicles (EV), which includes the eco-PUV (public utility vehicle) modernization program, an initiative that aims to replace outdated PUVs such as jeepneys, and an incentive program for the production of electric vehicles. Hand in hand with e-vehicles goes the development of battery technologies, constituting another area of opportunity. Since these are priority sectors for the government, incentives are available for investors.
“What are the DOs and DON’Ts for those who want to manufacture in the Philippines?”
- The role of human resources is crucial. The workplace is a second family, and employees are loyal, as long as development opportunities are present, and people are taken care of.
- The importance of site selection: logistics and supply chain have to be carefully considered – there are plenty of industrial parks as available locations to choose from, but how does that fit into the big picture of where the clients are, where the raw materials come from, and where to find staff.
- Most locators choose to establish operations in industrial parks, which have sufficient infrastructure, services, and security in place. Industrial parks accredited with the Philippine Economic Zone Authority provide the highest standard of operations.
- The government grants incentives for manufacturing investors, make sure to talk to the Board of Investments as well as the Philippine Economic Zone Authority early on.
“What to keep in mind when looking for the right manufacturing partner?”
Joona Selin: Long-term perspective and spending time to get to know the manufacturing partner is key. Finding a strategic alignment is also crucial when selecting the partner, especially when tapping the local market. A good example of a win-win partnership is between Danish Connovate and Philippine Imperial Homes, who recently partnered up to set up local manufacturing of concrete panels to cater to the needs of the domestic market. Without a local partner like Imperial Homes, Connovate would not have had the same access to enter the Philippine market. At the same time, Imperial Homes would not have had the technology to offer to the local market without the partnership.
“Does the US-China trade war have an impact on the Philippines’ manufacturing industry in 2020?”
Joona Selin: The Philippines is expected to gain more interest as a manufacturing destination among firms who are looking at migrating their operation because of the trade war. California-based Ever Win is one example of a company who relocated their manufacturing from China to the Philippines in 2019.
On the other hand, China is an important trading partner for the Philippines, so changes in global market dynamics and value chains also have an impact on Philippine imports and exports. The current administration has also shifted focus from a traditionally western-oriented trade policy to include China as an increasingly important trading partner.