PHILIPPINE MANUFACTURING
INDUSTRY ROADMAP and
GLOBAL VALUE CHAINS
Rafaelita M. Aldaba
Ateneo de Manila University
Professional Schools, Rockwell, Makati City
November 12, 2014
1
Outline
Objective: implications of GVCs on the growth
& development of PH manufacturing
• Global Value Chains
• Manufacturing Performance
• Philippine Manufacturing Industry Roadmap
• Services Vision and Strategy
• Future Implications
2
Part 1: GVCs
STAN SHIH’S SMILE CURVE
HIGHER
VALUE
ADDED
CONCEPT, R&D
SALES, AFTER SERVICE
DISTRIBUTION
DESIGN
BRANDING
MARKETING
MANUFACTURE
LOWER
TIME
• Opportunities for upgrading & diversification in both upstream
& downstream in goods & services
• Strategic positioning in the GVC
3
Distribution of value for Iphone
Cost of inputs
materials
22%
Source: Kraemer et al 2011
Cost of inputs
China labor
2%
Unidentified
profits
5%
S.
Japan
Korea profits
profits Taiwan
1% EU
profits
profits
5%
1%
1%
NonApple US
profits
2%
Cost of inputs
non-China labor
3%
Apple profits
58%
• GVCs require high quality services embodied in production &
increasingly outsourced
• US (Apple) captures 58.5% of Iphone sales price
• Korea: 5%
• Japan: 0.5%; China: 1.8%
• Most value: product design, software development, product
management, marketing & other high wage functions kept by Apple
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• Trend: dispersion of functions
Distribution of Value for Ipad
Cost of inputs
China labor
2%
Cost of inputs
non-China
labor
5%
Cost of inputs
materials
31%
Apple profits
30%
Distribution &
retail
15%
Unidentified
profits
S. Korea
Non-Apple US
5%
profits Japan profits Taiwan profits
profits
1%
2%
7%
2%
Source: Kraemer et al 2011
• For Ipad, US: 30% & 15% distribution & retail
• Korea: 7%, Taiwan: 2%, China: 2%
5
Auto Global Value Chain
FUNCTION
R&D &
DESIGN
COST FOR
AUTOMAKERS
Low to
Low: <10% High: 40-70%
medium
: 10%
MATERIAL
SUPPLY
Material
Standardizers
(R&D, model designToyota, Honda, etc.)
PARTS
PARTS
ASSEMBLY
SOURCING INTEGRATION
Component
specialists
Low: <10% Medium to
high: 20%
Distributor
Integrators
1st tier
Assemblers
suppliers
Glass,
rubber,
plastic, steel,
textile,
electronics
MARKETING
& SERVICES
Body panels,
mechanical
& electrical
Wheels,
tires, seats,
engines,
transmission
Exporter
6
Global auto production network
Source: Toyota Motor Corporation
• Toyota’s IMV Project: transmission (Phils. & India), diesel
engine (Thai), gas engine (Indonesia)
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Electronics GVC
8
Part 2: Impressive Growth Performance
PH as ASIA’S NEW ECONOMIC TIGER
GDP Growth
16.0
14.0
12.0
10.0
PH
8.0
TH
INO
6.0
VN
4.0
PRC
2.0
MAL
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-2.0
-4.0
• PH growth rate: 6.8 (‘12), 7.2% (’13, 2nd to China 7.7%)
• H1 (’14): PRC 7.45%, MAL: 6.3%, PH 6%, INO 3.8%, TH 0.1%
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Manufacturing Resurgence
Industry Growth
20.0
15.0
PH
in %
10.0
TH
5.0
INO
VN
-10.0
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
-5.0
2000
0.0
PRC
Year
• Industry growth: 7.3% (‘12); 9.3% (’13, highest)
• Manufacturing resurgence: 5.4% (‘12); 10.3% (‘13);
8.8% (H1’14)
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WHAT MAKES PH DIFFERENT
Market Opportunities
• Growing market & middle class: demographic sweet spot
Labor
• Young, English speaking, highly trainable workforce
• Moderate wage increases
Operating Environment
• Strong macroeconomic fundamentals
• Political stability, business/consumer confidence
Policy Focus
• New Industrial Policy & a more pro-active Government
• Industry programs to support manufacturing resurgence
• Philippine Economic Zone Authority, Board of Investments,
Subic, Clark: investment facilitation, investor care
Improved competitiveness ranking (World Economic Forum)
• Rank #52 in 2014-15 from rank #59
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Part 3: Roadmap for Structural
Transformation
Vision: globally competitive manufacturing
Phase I 20142017
-Rebuild capacity
existing industries,
strengthen
emerging
industries,
maintain
competitiveness of
comparative
advantage industries
Phase II
2018-2021
-Shift to high value
added activities,
investments in
upstream
industries
-Link & integrate
industries
-SMEs & large
enterprises
Phase III 20222025
-Participate as
hubs in regional
& global
production
networks for
auto,
electronics,
machinery,
garments, food
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Strategic Actions, Complementary Measures
Coordination
mechanism
Horizontal
measures
• Investment
promotion
• Power, smuggling,
logistics &
infrastructure
• Competitive
exchange rate
Vertical
measures
30% value
added; 15%
employment
Required
Components
• Materials
• Skills
• Energy
• Capital
• Digital
technology
• Close supply chain gaps
• Expand domestic market &
exports
• HRD & skills
• SME development
• Technology upgrading,
innovation, green growth
open trade regime, sustainable macro policies, sound tax policies & administration,
efficient bureaucracy, secure property rights, institutions that promote adaptive
research & patent regime, access to finance & technology for SMEs
13
Services Vision & Strategic Actions
• Vision: globally competitive services sector to create quality
jobs and to move up value chain
Increase investments
in infrastructure
services
• Logistics ,Telecommunications, Finance,
Energy, Water
• Crucial for competitiveness improvement,
production networks & GVCs
Move up to high
value added services
in GVCs
• Services embedded in manufacturing
• R&D, design, logistics, financial, marketing,
distribution, after-sales services
Address horizontal
issues
•
•
•
•
Investment promotion
Regulatory & policy environment
HRD, skills development, SME support
Industry-academe linkages, Innovation
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Manufacturing: Comparative Advantage
• Motor vehicle
• Engineered Products
– Motor vehicle: body panel stamping, engines, transmissions,
transaxle, large injection molded parts
– E-vehicles: controller assembly, motor, battery, charging stations
– Shipbuilding & Aerospace: parts & components
• Chemicals: oleochemicals, petrochemicals & derivatives, chlor-alkali
• Auto electronics, LED, solar, office equipment, communication radar,
Electronic Data Processing, office equipment, consumer electronics
• Virgin pulp paper
• Copper wires & copper wire rods
• Basic iron & steel products, long steel products, flat hot/cold rolled
products
• Tool & die: simple, compound, & progressive dies for metal stamping
& forging; molds for die casting, plastic injection or blow molding;
jigs & fixtures for metal cutting & forging
• Food Processing/Manufacturing
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Services: Comparative Advantage
• Pool of skilled workers: main source of strength
• Current comparative advantage : IT-BPM
• Potential comparative advantage
 Creative/knowledge-based services
 Services embedded in manufacturing
 Medical tourism, Tourism & travel related
 Educational, recreational, cultural & sporting
 Aircraft maintenance, repair, &overhaul
 Ship repair
 Distribution (retail, franchising)
 Construction & engineering
 Transport support
 Energy, Public infrastructure & logistics, Public Private
Partnership projects
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IT-BPM Services from PH
IT Application services
Business Process services
Engineering services
App dev’t & maintenance
 Application development
 AD integration & testing
 Application maintenance
System integration
 Analysis, Design
 Development
 Integration & testing
 Package implementation
IT Infrastructure Services
 Help desk, Desktop support
 Data centre services
 Mainframe
 Network operations
 IT consulting
Software product development
 New product development
 System testing
 Localization/Support
 Gaming
Horizontal processes
 Contact centers
 Human resources
 Finance & accounting
 Supply chain: procurement
logistics management
Industry/vertical processes
 Banking & insurance
 Telecom
 Public sector, Utilities
 Health care, High-tech
 Oil & Gas, Consumer prods
Knowledge Process
Outsourcing
 Business research, financial
research
 Animation
 Data analytics
 Legal process & patent
research
 Other high-end processes
Manufacturing
engineering
 Upstream product
engineering
- Concept design
- Simulation
- Design engineering
 Downstream product
engineering
- CAD/CAM/CAE
- Embedded software
- Localization
 Plan & process
engineering
Architecture design
 Design process
 Building
Management models
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How to move up the GVC
• Competitiveness: technology & human capital upgrading
• Types of Upgrading: process, product, functional, chain
• GVCs deepened globalization by affecting both
manufacturing & services
o Services embedded in manufacturing
• Required components for manufacturing: Materials,
Skills, Energy, Capital, Technology
o
o
o
o
Human resource development & skills trainings
Power issue
Investment promotion
Manufacturing innovation ecosystem, link R&D to business,
new product development (3D printing could boost
innovation)
• GVC-oriented industrial policy
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With or without AEC, we need to pursue a
new industrial policy to make our industries
competitive and create an environment
conducive to private sector development.
This could lead to more investments,
increased competition, more innovation,
increased productivity, sustainable &
inclusive growth, & more & better jobs!
THANK YOU!
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