PH losing cost competitiveness to Vietnam

Some Japanese manufacturers said they have already cut as much expenses as they could, leaving no more room for cost reduction as they received fewer production orders during the pandemic, according to a survey from the Japan External Trade Organization (Jetro).

On Tuesday, Jetro released the summary report of its annual survey, which sought to shed a light on the current situation of Japanese companies in the Philippines. Surveyed were 133 companies, 59 of which were manufacturers.

Thirty-eight percent of the manufacturers said they had “no more room for further cost reduction,” which was worse than the 26 percent who said the same in Jetro’s 2019 survey. More than half or 56 percent said they found it difficult to procure more local raw materials and parts.

“Although Japanese manufacturers are trying to raise local procurement, they still need to import many parts and raw materials from abroad,” the report read, noting that the production cost in Vietnam has gotten lower than the Philippines.

“The international cost competitiveness of the Philippines gets weaker than last year, while many respondents can no longer find any room [to cut] cost,” it said.

The summary report was prepared by Takashi Ishihara, executive director of Jetro-Manila. A full copy of the survey report would be available in English sometime this month or in early February.

It was conducted from August to September last year, with slightly fewer respondents. In 2019, the survey covered 139 companies.

Jetro said “many respondents pointed out negative factors” in the country, although they also cited some advantages, namely reasonable compensation for workers and favorable tax incentives.

While the respondents flagged problems caused by insufficient infrastructure like expensive electricity costs, traffic congestion and unstable telecommunications, they also pointed at an “unstable politic[s] and society” as well as an “inconsistent implementation of administrative rules by each official.”

Only 5 percent of the respondents have already normalized their operations, with 29 percent expecting to recover in the first of half of 2021 and 39 percent in the second half.

Only 34 percent said they were expanding while 57 percent said they would maintain status quo.

Eight percent said they would scale down and 1-percent said they would pullout, according to the Jetro results. INQ