PHILIPPINE MANUFACTURING RESURGENCE, CARS PROGRAM, & ELECTRONICS UPGRADING

Transcription

1 PHILIPPINE MANUFACTURING RESURGENCE, CARS PROGRAM, & ELECTRONICS UPGRADING Rafaelita M. Aldaba Department of Trade and Industry Board of Investments INVESTMENT & BUSINESS ENVIRONMENT SEMINAR ON MANUFACTURING IN THE PHILIPPINES 6 December 2016, Plaza Hotel Korea

2 Presentation Outline WHERE ARE WE WHERE DO WE WANT TO GO HOW TO GET THERE PH Breakout Economy: strong macro fundamentals, rising middle class, increasing business & consumer confidence, young, English speaking highly trainable workforce, government focused on implementation of new industrial policy, investment promotion agencies at par with neighbors

3 CURRENT STATE OF THE PHILIPPINE MANUFACTURING INDUSTRY PH is Asia s new economic tiger To sustain its strong growth & take advantage of huge opportunities & address challenges, PH must continue to improve its competitiveness

4 PH Economic Performance GDP Growth Source: World Development Indicators, The World Bank CHN IDN MYS PHL THA VNM Amid economic & global uncertainty, PH has grown by 6.3% in the last 6 years from 2010 to 2015 Q3 2016: China 6.7%, Vietnam 6.4%, Philippines 7.1%, Malaysia 4.3%, Thailand 3.2%, Indonesia 5% PH impressive growth: Asia s new economic tiger 4

5 PH a new growth area, new investment location 20 Industry Growth: PH vs Selected East & Southeast Asian Countries China Indonesia Malaysia Philippines Thailand Vietnam PH Industry growth: 7.3% (2012); 9.3% (2013, highest), 7.5% (2014 highest), 5.9 (2015) - PH industry growth Q1-Q3 2016: 8.2% with 7% manufacturing growth 5

6 2009 Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Manufacturing -- an important growth driver Quarterly Growth Performance AGRI., HUNTING, FORESTRY AND FISHING MANUFACTURING SERVICE SECTOR GROSS DOMESTIC PRODUCT Manufacturing: 7.7% average growth from 2010 to 2015 Conditions that converged for manufacturing: good macro performance; rising costs in China; PH growing market; middle class; governance & economic reforms; young English speaking workforce; moderate wage increases

7 Comparison of Wage Rates Wages for workers & engineers are relatively lower than China, Malaysia, & Thailand (monthly rates in US$) Australia New Zealand South Korea Hong Kong Singapore Taiwan China Thailand Malaysia Philippines Indonesia India Vietnam Pakistan Laos Cambodia Sri Lanka Bangladesh Australia New Zealand Hong Kong Singapore South Korea Taiwan Malaysia China Thailand Pakistan India Laos Philippines Indonesia Sri Lanka Vietnam Cambodia Bangladesh Workers Engineers Source: Japan External Trade Organization (JETRO). Survey on Business Conditions of Japanese Companies in Asia and Oceania (2015)

8 Average Manufacturing Growth by Sector (in %) All Manufacturing Furniture & fixtures Chemical & chemical products Publishing & printing Fabricated metal products Machinery & equipment except electrical Basic metal industries Beverage industries Non-metallic mineral products Footwear & leather Wood, bamboo, cane Radio, TV & communication equipment Wearing apparel Office, accounting & computing machinery Paper & paper products Food manufactures Rubber & plastic products Electrical machinery & apparatus Textile Transport equipment Tobacco Miscellaneous manufactures Petroleum & other fuel products Furniture & fixtures, chemicals, publishing & printing; fabricated metal; & machinery & equipment are driving manufacturing growth

9 Manufacturing Structure: (in %) Food manufactures Radio, TV & communication equipment Chemical Furniture & fixtures Beverage Petroleum & other fuel Miscellaneous Non-metallic mineral Electrical machinery & apparatus Wearing apparel Transport equipment Textile Basic metal Machinery & equipment ex electrical Rubber & plastic products Office, accounting & computing machinery Fabricated metal Wood, bamboo, cane Paper Publishing & printing Footwear & leather Tobacco Food manufacturing dominates followed by radio, TV, & communication equipment; chemicals; furniture; & beverages

10 Manufacturing Total Factor Productivity (TFP) TFP 1996=1 % Change LP FE OLS LP FE OLS Rising TFP trend between 2006 & 2012; increases except in 2009 TFP: output per unit of labor & capital combined; increases in TFP indicate efficiency (better techniques) & increases in productive capacity of an industry that exceeds increase in supply of factors of production Productivity change can be due to technical progress, accumulation of human capital

11 TFP Changes in Selected Sectors (%) Machinery & equipment, nec; office, accounting & computing machinery 200 Electrical machinery & apparatus, nes; radio, tv & communication equipment; medical, precision, & optical instruments LP FE -200 LP FE Basic metals, fabricated metal products, ex machinery & equipment 100 Motor vehicles, trailers; other transport equipment LP FE Notable performance in machinery and equipment, nec & electrical machinery, nes, radio, tv & communication equipment LP FE

12 TFP Changes in Selected Sectors (%) Food, Beverages, & Tobacco Products 80 Chemicals & Chemical Products LP FE LP FE Coke, Refined Petroleum, Other Fuel Products, Rubber & Other Non-metallic mineral Products LP FE Increases in TFP observed from 2006 to 2012 Chemicals exhibited some fluctuations, increased by 28% in 2012 Food increased by 69% in 2012 Coke, refined petroleum went up by 57%

13 WHERE DO WE WANT TO GO Sustainable, inclusive, & higher growth trajectory by transforming industries to become regional & global manufacturing & services hubs, create more & better jobs towards shared prosperity for all

14 NEW INDUSTRIAL STRATEGY Employment & Entrepreneurship Overall Objective: alleviate poverty & uplift quality of life of all Filipinos thru sustainable economic growth that generates more income opportunities through employment & entrepreneurship Innovative, value-adding, technology enhanced & competitive industries Competitive policy environment & efficient ecosystem to promote supply of quality goods at affordable prices Entrepreneurial culture & competency to develop MSMEs & more economic activities & employment in all regions More inclusive business models & social enterprises to link small enterprises into value chain of big business Facilitate trade to maximize FTA gains Exports backed by competitive domestic industries, clustering, MSME sourcing Foreign investments that are job-creating & accelerate infrastructures to attract investments like ports, roads, transport Protection of consumers against unfair trade practices like profiteering & substandard products 14

15 HOW TO GET THERE MANUFACTURING RESURGENCE PROGRAM - AUTO CARS Program - ELECTRONICS Government is addressing the most binding constraints to industry growth, pursuing industry measures to deepen GVC participation of PH industries, linking together manufacturing, agriculture & services

16 Part 3: How to get there Manufacturing Resurgence Program Goal: create globally competitive, innovative industries, improving competitiveness & productivity o Growth oriented action to upgrade industries, move up the value chain, from low productivity to high productivity sectors structural change o Remove obstacles to growth Investments o Deepen participation in regional production networks/global value chains Role of Government: Enabler, coordination/facilitation o Government not proximate cause of growth, but private sector, investment & entrepreneurship o Create proper environment for private sector development GVC-focused industrial policy o Define position in the GVC, how do we plug into global/regional production networks Cluster-based industrial strategy to build strong & competitive regional economies

17 Strategy to make manufacturing an engine of growth & source of more & better Jobs Coordination mechanism Horizontal measures Vertical measures Promotion Power, smuggling, logistics, infrastructure Improve regulation, reduce cost of doing business Competitive exchange rate 30% value added; 15% employment Close supply chain gaps Expand domestic market & exports HRD & skills SME development Innovation & green growth open trade regime, sustainable macro policies, sound tax policies & administration, efficient bureaucracy, secure property rights, institutions 17

18 P a r t 1 : A U T O C U R R E N T S T A T E & S T R E N G T H S Cavite Pampanga Metro Manila Characteristics Auto Industry Cluster in Calabarzon Rated capacity: 200,000 units/year 4 carmakers Parts & components: 272 Employment: 68K Net exporter of parts: Exports US$4.3B (7% of total) Strong current comparative advantage: ignition sets, radio receivers, external power, lead-acid electric accumulators, brake system, transmissions, air filters for engines, tires, etc Highly skilled labor & technical manpower Batangas Laguna Vehicle 7 plants electrodeposition painting systems Parts 3 stamping, 5 transmission, 6 wiring harness, 2 large injection, 3 suspension system, 2 tool & die, 50+ others

19 Value Added Simple Representation Auto Global Value Chain R&D Services Design Marketing Purchasing Distribution Production Pre Production Production Post Production PH supplies transmissions to Toyota and Mitsubishi Aspiration to become a production hub in the region 19

20 Mapping the Philippines in the Auto GVC FUNCTIONS R&D & DESIGN MATERIAL SUPPLY PARTS SOURCING PARTS INTEGRATION ASSEMBLY MARKETING & SERVICES COST FOR AUTOMAKER Low to med:10% Low: <10% High: 40-70% Low: <10% Medium to high: 20% Standardizer Source: Elms & Low, 2013 Material supplier glass, rubber, plastic, steel, textile, electronics Component specialists body panels, mechanical & electrical wheels, tires, seats, engines, transmission Integrator 1 st tier Assemble r Distributor Exporter

21 3 rd Wave of motorization in PH ASEAN Market Size 1.7 MILLION VEHICLES 2.5 MILLION VEHICLES 3-6 MILLION VEHICLES Thailand s Snapshot GDP per capita : US$2,603 Population : 62 Million Domestic Sales : 626K units Production : 923K units ASEAN Market Share 37% Production Indonesia s Snapshot GDP per capita : US$2,980 Population : 238 Million Domestic Sales : 764K units : 764K 702K units ASEAN Market 31% Share Indicator GDP/capita (US$) Population (M) Motorization starts at GDP/capita level US$2,500 Source: Sugata, M. (2014). TMPC

22 Large Opportunities in ASEAN Auto Market Demand for light vehicles, Millions of units ASEAN market 10-12M units by potential for left hand drive market to be as high as ~2M units Right hand drive Left hand drive ~ ~ Indonesia Thailand Malaysia Philippines Vietnam Others 1 Source: Mckinsey (2013) IHS Global Insights, Economist Demand for LVs CAGR, % ~1.00 ~1.30 ~0.60 ~0.15 ~0.07 ~ ~0.4 ~0.4 ~0.2 1 Others includes Cambodia and Laos ~0.9 ~0.9 ~

23 Goals The CARS Program o Revive auto manufacturing, generate employment, attract investments, build domestic scale, develop PH into a regional auto manufacturing hub Coverage o Vehicle Production o Parts Manufacturing: body shell assembly, large plastic assemblies, common parts, strategic parts not currently produced in PH, shared testing facilities Fiscal Incentives o Time-bound; Output/performance-based o Fiscal support not exceeding PhP27B spread over 6 years o 3 models: 200K units per model o Fixed Investment Support (40%): Invest in parts & shared facility o Production Volume Incentive (60%): Exceed 100,000 units in production volume per model

24 Common & Strategic Parts 1.Auto grade fabric 2.Engines, engine parts & assembly 3.Engine mounts 4.Transmissions/transaxl e parts & assembly 5.Constant velocity joints 6.Axles 7.Grill 8.Lamps 9.Shock absorber, struts 10.Suspension members 11.Wiper motor mechanism, blade 12.Steering wheel 13.Electric power steering system 14.Window regulators 15.Combination meter/instrument cluster 16.Chassis & sub-frame 17.Interior finishing 18.Electric Relays, switches 19.Alternator, starter motors 20.Seat mechanism/seat recliner & sliders 21.Retractable seat belts 22.Aluminum radiators, evaporators, condensers & oil coolers 23.Plastic fuel tanks 24.Fuel pumps 25.Brake system & components 26.Aircon compressor & parts 27.Air bag systems 28.Auto glass 29.Door & rear view mirrors 30.Tie rods 31.Clutch disk 32.Clutch cover 33.Locks 34.Motors

25 Who are eligible to enroll in the program Participants Qualifications Car Maker Internationally-recognized carmaker Proven track record Multinational operation: R&D, manufacturing, marketing & after sales services in Asia, Europe, N.America Parts Maker Endorsed by the Participating Car Maker (PCM) to manufacture parts of its enrolled model Original Equipment Manufacturing auto parts maker proven track record Shared Testing Facility Provider Collectively endorsed by the PCMs proven track record Mitsubishi Motors PH Corporation: Mirage/Mirage G4 Toyota Motors PH Corporation: Vios Third slot: to be opened

26 Criteria for evaluating applications Track record & model competitiveness including global & domestic sales New investments in body shell assembly & large plastic parts assemblies Planned volume no lower than 200K units over model life up to maximum of 6 years Economic impact of investment plan: parts manufacturing, linkages, strategic & common parts, employment, consumer welfare Impact on overall competitive environment & long term industry development Safety, fuel efficiency, emission level standards (no lower than standards under the Clean Air Act)

27 Non- Fiscal Measures o Adoption of national standards for auto parts & certification of international quality systems (TS 16949) & environmental management system (ISO 14001) o Alignment of PH standards with other countries: labor incentives, customs procedures & systems, technical, environment & safety standards o Strict implementation of vehicle registration regulations Motor Vehicle Inspection System o Full implementation of the automated import & export documentation system o Streamline regulatory procedures to reduce cost o Allocation of road user s tax to improve infrastructure o Demand stimulating measures: easy consumer financing & others

28 Mode of Payment to Participants Tax Payment Certificate (TPC) TPC -- mode of payment of incentive to registered Participants TPC shall be used to pay tax liabilities such as income, VAT, excise, and customs duties Joint Administrative Order among Departments of Finance, Budget & Management, & Trade & Industry- Board of Investments to cover the payment settlement process, responsibilities & ground rules Bureaus of Internal Revenue & Customs have internal implementing guidelines to operationalize scheme 28

29 Envisioning the Future 350 CARS Program to sustain the growth & development of the industry from 2016 and beyond Actual Production Actual Imports Projected Production Projected Imports

30 Part 2: PH Electronics Industry SECTOR ACTIVITY MAJOR PLAYERS IC Active Discrete Passives Multiple end markets Storage/o ffice parts Assembly & test Photovoltaic cells, Diodes, Transistors Capacitors, Resistors PCBs/Boxbuild Spindle motors, magnetic head, printer parts TI,STMicroelectronics, ON, Analog, Maxim, Fairchild, Microsemi, Cypress, NXP Sunpower, Excelitas Kyocera, Rohm, SAMSUNG Daeduck, STI-aero EMS: Mitsumi, Tsukiden, Katolec, Test Solution, Cal- Comp, SIIX; IMI, Ionics Nidec, TDK, Panasonic, SAMSUNG Smart EMS Storage HDDs Western Digital, Toshiba Auto Sensors navigation Fujitsu 10, Continental Temic Consumer: cameras, DVD players RICOH, FUNAI Office equipment: printers, ink, cash sorters GLORY, EPSON, LEXMARK, CANON, BROTHER, 3D FAB (3D Printers)

31 ELECTRONICS INDUSTRY: Current State Performance & Structure Contribution to Manufacturing Value Added: 21% Growth rate: 7.3% ( 13); 5.5% recent years Largest source of exports: 42% (US$24B) 420 firms: Japanese, Korean, American PH largely dominated by SMS Major Strengths Automatic Where the Data industry Processing Where Equipment it is now Parts for has Office been or ADP Machines Radio broadcast receivers Electricity distributing equipment, nes Transistors, Valves, etc Electric Power Machinery & Parts Potential Strengths Medical Instruments, nes Electrical Machinery & Apparatus,nes

32 Government Policies 1950s-1970s: Import Substitution Policy Electronic Local Content Program ( 75) Progressive Export Program for Consumer Electronics ( 87) 1980s-1990s: Trade Liberalization 1990: 20-50% tariff range; 2000: 0 tariffs for EDP, most semiconductors & office equipment products 1990s: Investment Incentives & Economic Zones 2012: Industry Roadmap: talent development, conducive business environment, industry/country promotion and SME development, and R&D capability development 2013: Support facilities for device and materials testing, product development and integrated circuit (IC) design Advance Device & Materials Testing Laboratory Electronics Product Development Center : postgraduate training for IC Design/microelectronics modules Philippine Institute for Integrated Circuits: product development hub for SMEs

33 PH in the Electronics Value Chain RESEARCH AND DEVELOPMENT IN MATERIALS SCIENCE, NEW ALGORITHMS, EMBEDDED SOFTWARE DEVT Software Silicon Technology Application SEMICONDUCTOR MANUFACTURING SERVICE (SMS) SEMICONDUCTOR FOUNDRY DESIGN OPERATIONS 2 PACKAGING/PRODUCT DESIGN NEW MANUFACTURING TECHNOLOGY, PROCESS EFFICIENCIES, TEST DEVELOPMENT Wafer Fab Technology Product PACKAGING DESIGN, TEST DEVELOPMENT, PRE-MANUFACTURING Package Selection/ Application R&D Produc tization OUTSOURCED SMS ASSEMBLY EFFICIENCIES INVENTORY MANAGEMENT Ramp To Production Distri bution 7 CUSTOMER SERVICE CUSTOMER SERVICE After Sales Service Repair and Warranty Other After Sales Support ELECTRONICS MANUFACTURING SERVICE (EMS) 6 5 Distribution Direct Order Fulfillment Shipment OUTSOURCED EMS LOGISTICS MANAGEMENT ASSEMBLY AND FINAL TESTING SHIPMENT AND DISTRIBUTION Production PCB Assembly Component Assembly Full System Assembly Cable/harness Assembly Logistics Management Sourcing/strategic Purchasing Procurement Warehousing Kitting OEM R&D MARKETING MARKETING RESEARCH STRATEGY AND DEVELOPMENT SYSTEMS INTEGRATION PRE-MANUFACTURING DESIGN, TEST DEVELOPMENT Product Or Component Design

34 Electronics Upgrading Directions Semiconductor & electronics design & service with focus on Integrated Circuit (IC) Design o Lattice Semi, Bitmicro, Xinyx Upgrade IC back-end sector to more middle-end advanced packaging technologies o Integrated Device Manufacturing: TI, Analog, STM, Fairchild, Maxim, A&T, Phoenix, PSI, Tonghsin o Outsourced Semiconductor Assembly & Test (OSAT): Amkor Niche Original Design Manufacturing (ODM) & subassembly/module o PSI, Liteon, IMI, Emscai, IQXPRZ Electronics Manufacturing Services: auto electronics, power electronics, Electronic Data Processing, consumer electronics Develop linkages with ODM/ Original Equipment Manufacturing (OEM) business: auto/consumer/aerospace electronics, medical industrial instrumentation, EDP, renewable energy o ODM: Fox, Micrologic; OEM: Canon, Lexmark, Epson, Murata o EMS: IMI, Ionics

35 To upgrade & move up the GVC labor inputs, technologies, standards, regulation, products, processes & markets Innovation & research ecosystem o Efficient & homogeneous standards, testing & QA institutions o R&D infrastructure, investments in scientific & technological research; incentives for establishment of S&T parks to facilitate industry collaboration in high-tech activities, incentives for local R&D & training o Better protection & enforcement of IPR Linkages with ODM/OEM business (auto/consumer electronics, EDP, renewable energy) Talent development: PhD level microelectronics & layout engineering competencies, R&D scientists Support industries: materials & equipment providers Telecommunications & logistics: high speed communication networks

36 Through a more pro-active government focused on creating globally competitive & innovative industries, the Philippines is now one of Asia s brightest spots and an excellent place to invest. For more information, visit our website at industry.gov.ph