After missing the boat decades ago, the Philippines now has a “unique but fleeting” window of opportunity to build itself as a high-value manufacturing powerhouse in Southeast Asia, said Jaime Augusto Zobel de Ayala, head of conglomerate Ayala Corp.
In a keynote speech during the Manufacturing Summit 2016 Tuesday, Zobel said manufacturing has evolved in the last 20 years amid technological breakthroughs that have enabled extreme connectivity and automation around trends such as artificial intelligence, robotics, the internet of things and autonomous vehicles. This was the same reason why global tech giants like Apple and Google were now into car designing, he said.
With the rise of hybrids and electric cars alongside constant innovation in automotive systems, Zobel said the current 40 percent share of electronics over the total cost of a car would increase to over 50 percent by 2025.
Zobel also noted an emerging shift in supply chain strategy, where manufacturers like Lenovo and Inditex (owner of the Zara retail chain) were increasingly finding it more sensible to produce goods closer to their core markets.
Ayala’s electronics manufacturing arm Integrated Micro-Electronics Inc. (IMI) has adopted a similar “nearshoring” strategy by building an automotive electronics segment in eastern Europe or Latin America to be physically closer to the original equipment manufacturers.
“Reflecting on these emerging trends, I believe the Philippines can position itself as a viable destination for manufacturing investments,” Zobel said, citing the country’s sound economic fundamentals and abundance of qualified workforce alongside favorable trends in global manufacturing.
Zobel is particularly upbeat on the automotive industry, citing the strong growth in vehicle sales since the country passed the “motorization” (a phenomenon whereby purchases of cars rise) threshold of $2,500 per capita gross domestic product in 2012. In the Philippines, vehicle sales have been growing at an average rate of 18 percent annually.
Out of the 320,000 units in vehicle sales recorded last year, Zobel noted only 30 percent was locally manufactured.
“I believe this presents a compelling opportunity to take on a ‘build where you consume’ strategy for the Philippine automotive industry. Traditionally, our manufacturing industry has been focused on the lower end of the value chain. For many years, the semiconductors and electronics segments have been the most dominant contributor to the industry,” Zobel said.
He also cited the evolution of IMI as a global provider of electronics manufacturing services for the automotive, industrial, medical, and telecommunications industries. IMI is now the 21st largest electronics manufacturing service (EMS) provider and the sixth largest automotive EMS supplier in the world.
But achieving a sustainable revival of the manufacturing industry would require collaborative efforts between the government and the private sector, Zobel said.
“I believe it is imperative that we develop an integrated country strategy for the manufacturing sector under a single and unified roadmap across the entire spectrum of the supply chain. The country’s strategy should cover a wide range of areas like policies, incentives, as well as mechanisms to empower the micro, small, and medium enterprises, who are important participants in the manufacturing supply chain,” Zobel said.
He suggested a rethinking of the government’s Comprehensive Automotive Resurgence Strategy (CARS) program to incorporate the changing nature of electronics. CARS seeks to attract new investments to revitalize the Philippine automotive industry.
Zobel added the Philippines would also need to accelerate investments in infrastructure development, particularly in transport. He welcomed the government’s move to raise infrastructure spending to at least 5 percent of gross domestic product in 2017.