1. PHILIPPINE MANUFACTURING INDUSTRY ROADMAP and GLOBAL VALUE CHAINS
Rafaelita M. Aldaba
Ateneo de Manila University
Professional Schools, Rockwell, Makati City
November 12, 2014

2. 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

3. Part 1: GVCs STAN SHIH’S SMILE CURVE
HIGHER
CONCEPT, R&D
SALES, AFTER SERVICE
DISTRIBUTION
DESIGN
VALUE
ADDED
BRANDING
MARKETING
MANUFACTURE
LOWER
TIME
Opportunities for upgrading & diversification in both upstream & downstream in goods & services
Strategic positioning in the GVC

4. Distribution of value for Iphone
Source: Kraemer et al 2011
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
Trend: dispersion of functions

5. Distribution of Value for Ipad
Source: Kraemer et al 2011
For Ipad, US: 30% & 15% distribution & retail
Korea: 7%, Taiwan: 2%, China: 2%

6. Auto Global Value Chain
FUNCTION
R&D & DESIGN
MATERIAL SUPPLY
PARTS SOURCING
PARTS INTEGRATION
ASSEMBLY
MARKETING & SERVICES
COST FOR AUTOMAKERS
Low to medium: 10%
Low: <10%
High: 40-70%
Medium to high: 20%
(R&D, model design-
Toyota, Honda, etc.)
Standardizers
Material suppliers
Component specialists
Integrators 1st tier
Assemblers
Distributor
Exporter
Glass, rubber, plastic, steel, textile, electronics
Body panels, mechanical & electrical
Wheels, tires, seats,
engines, transmission

7. Global auto production network
Source: Toyota Motor Corporation
Toyota’s IMV Project: transmission (Phils. & India), diesel engine (Thai), gas engine (Indonesia)

8. Electronics GVC

9. Part 2: Impressive Growth Performance PH as ASIA’S NEW ECONOMIC TIGER
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%

10. Manufacturing Resurgence
Industry growth: 7.3% (‘12); 9.3% (’13, highest)
Manufacturing resurgence: 5.4% (‘12); 10.3% (‘13); 8.8% (H1’14)

11. 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 from rank #59
WHAT MAKES PH DIFFERENT

12. Part 3: Roadmap for Structural Transformation Vision: globally competitive manufacturing
-Rebuild capacity existing industries, strengthen emerging industries, maintain competitiveness of comparative advantage industries
-Participate as hubs in regional & global production networks for auto, electronics, machinery, garments, food
-Shift to high value added activities,
investments in upstream industries
-Link & integrate industries
-SMEs & large enterprises
Phase III
Phase II
Phase I

13. Strategic Actions, Complementary Measures
Required Components
Materials
Skills
Energy
Capital
Digital technology
30% value added; 15% employment
Horizontal measures
Coordination mechanism
Vertical measures
Close supply chain gaps
Expand domestic market & exports
HRD & skills
SME development
Technology upgrading, innovation, green growth
Investment promotion
Power, smuggling, logistics & infrastructure
Competitive exchange rate
Equates to use of electronics/computer/telecoms
techniques (ICT) to add to manufacturing
capabilities
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

14. Services Vision & Strategic Actions
Vision: globally competitive services sector to create quality jobs and to move up value chain
Logistics ,Telecommunications, Finance, Energy, Water
Crucial for competitiveness improvement, production networks & GVCs
Increase investments in infrastructure services
Services embedded in manufacturing
R&D, design, logistics, financial, marketing, distribution, after-sales services
Move up to high value added services in GVCs
Investment promotion
Regulatory & policy environment
HRD, skills development, SME support
Industry-academe linkages, Innovation
Address horizontal issues

15. 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

16. 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
Energy: exploration & development of energy sources, power generation
Public infrastructure & logistics: airports, seaports; air, land & water transport, water treatment & supply

17. 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

18. 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
Services embedded in manufacturing
Required components for manufacturing: Materials, Skills, Energy, Capital, Technology
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

19. 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!