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Philippines Participation in GVCs: Analysis and Findings

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Duke CGGC reports key findings for the Philippines in Manufacturing Global Value Chains project at a public forum at the Makati Diamond Residential Suites in Manila on June 2, 2016. The presentation highlighted the position of the Philippines in each of the five industries (aerospace, automotive, electronics & electrical, chemicals and paper) and focused on potential upgrading trajectories for each. The project was supported by USAID, RTI, and DTI and BOI in the Philippines.

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Philippines Participation in GVCs: Analysis and Findings

  1. 1. 30 PHILIPPINES PARTICIPATION IN GVCS ANALYSIS AND FINDINGS Penny Bamber June 2, 2016 “Enhancing Philippine Participation in GVCs” BOI-DTI, USAID, RTI, Manila,The Philippines 27/06/2016 © Duke CGGC
  2. 2. •  DTI-BOI Industry Development Program & Manufacturing Resurgence Program •  Used the DUKE CGGC global value chain framework to study 5 industries: –  Automotive, Aerospace, Electronics & Electrical, Chemicals and Paper sector –  Sectors selected for a variety of reasons including potential for export earnings, employment creation, technology transfer and value addition to raw materials. 31 PHILIPPINES IN MANUFACTURING GVCS Study Objective: How can the Philippines add value and be more competitive in these five respective GVCs? 27/06/2016 © Duke CGGC
  3. 3. •  Global analysis –  Review of academic & grey literature –  Interviews with industry experts –  Analysis of global trade & production data •  Philippines analysis –  Extensive use of relevant Industry Roadmaps, firm press releases –  Past academic & technical studies –  Interviews with close to 70 stakeholders –  3 Firm-level datasets: •  PSA Customs data – imports & exports (dummy variables) 2007-2014 •  DTI-BOI firm registration 1974-2015 •  PEZA firm and activity registration 1974-2015 (Sept) 32 METHODOLOGY 27/06/2016 © Duke CGGC
  4. 4. •  Demand and supply have shifted from traditional markets to emerging regions, especially Asia-Pacific •  Supply chain rationalization and growing power of global suppliers •  Innovation opening doors for new entrants 33 MANUFACTURING TRENDS FOR SELECTED GVCs 27/06/2016 © Duke CGGC
  5. 5.   AEROSPACE AUTOMOTIVE ELECTRONICS & ELECTRICAL CHEMICALS PAPER Exports in 2014 US$604 million US$3.98 billion US$28.8 billion US$2.2 billion US$127 million Share of global market 0.15% 0.28% 1% 0.2% 0% Share of exports 1% 6.4% 47% 3.5% 0.002% No of Jobs 6,000 57,000 345,000 50,000 6,000 Recent growth in sector Solid growth in exports past five years; increased FDI Steady growth, overall CAGR of 5% 2007 -2014. Steady growth in both exports and investments; 2007 global dip & 2009 Intel departure Rapid growth in exports since 2007, double regional exports Exports have declined since 2010 peak following mill closure. Main GVC Activities Components & Sub-Assembly Components & Assembly (wiring/ chassis systems) Assembly & Testing (Semiconductors) Commodities; Small participation in final goods Recycled Paper Milling/ Conversion 34 FINDINGS AT A GLANCE 27/06/2016 © Duke CGGC
  6. 6. 35 THE PHILIPPINES IN THE ELECTRONICS & ELECTRICAL GVC 27/06/2016 © Duke CGGC
  7. 7. •  Rapid increase in # of products with electronic content – “3Cs” - largest share, others (auto & industrial) are fastest growing 36 ELECTRONIC & ELECTRICAL GVC: KEY TRENDS Relative size of electronics markets, 2014 3Cs – Computers, Consumer Electronics, Communications 69% Automotive 10% Medical 8% Industrial 6% A&D 7% 27/06/2016 © Duke CGGC
  8. 8. $0 $5 $10 $15 $20 $25 $30 $35 2007 2010 2012 2014 Electronic Components Final Electronic Products and Specific Parts Electrical Equipment Final Electrical Products and Specific Parts 37 THE PHILIPPINES IN THE ELECTRONICS & ELECTRICAL GVC US$28.8B 13% electrical 87% electronics 47%ALL PRODUCT EXPORTS TOPTEN INTEGRATED CIRCUITS 2.8%GLOBAL EXPORTS Philippines E&E Exports, 2007-2014 (US$ billions) 345KWORKERS FDI DRVEN 1970s 2016 1/3 manufacturing workforce 27/06/2016 © Duke CGGC
  9. 9. 38 THE PHILIPPINES IN THE E&E GVC Electrical! R&D and Design! Electronic! Plastic &! Glass! Silicon! Packaging! Metal! Chemicals! ICs! $12B, 51 firms!Semiconductor! Wafers, 0 firms! Active Discrete! $3B, 38 firms! Medical! $0.1B, 7 firms! Industrial Equipment ! $1B, 31 firms! $0.4B, 21 firms! Computers/Storage/Office! $7B, 55 firms! Bare PCB! $0.5B, 21 firms! Wire & Cables! $0.1B, 13 firms! Switchgear ! $1.0B, 23 firms! Motors/Batteries! $0.2B, 8 firms! IC Design! < 5 firms! Panel Boards! $0.02B, 5 firms! Number of Exporting Firms! Zero! 1 < X 10! 11 < X 29 ! Over 30! Passives! $0.5B, 6 firms! Transformers! $1.6B, 19 firms! Other! $0.5B, 4 firms! $0.6B, 40 firms! Consumer/Communications! $1B, 48 firms! $2.1B, 47 firms! $4.7B, 17 firms! $0.3B, 16 firms! $0.7B, 20 firms! Consumer Appliances! $0.2B, 28 firms! Electrical Industrial Equipment! $0.2B, 9 firms! $0.1B, 14 firms! $0.1B, 15 firms! Inputs! Final Products & ! Product-Specific Parts! Components! 27/06/2016 © Duke CGGC
  10. 10. 39 OPPORTUNITIES FOR UPGRADING •  Strengthen and expand automotive E&E (EMS, batteries, motors, etc.) •  Backward linkages in common electro-mechanical products (e.g. passive components, circuit boards, electrical equipment) •  Entry into electrical equipment final products: networking & infrastructure improvements & industrial end market •  Functional upgrading in analog and power ICs for automotive applications Short to Medium Term Medium to Long Term 27/06/2016 © Duke CGGC
  11. 11. 40 THE PHILIPPINES IN THE AUTOMOTIVE GVC 27/06/2016 © Duke CGGC
  12. 12. •  Large, global industry: US$1.4 trillion in exports (2014); organization is complex and in midst of significant transition –  Bulky and model-specific parts-production close to final assembly plants – regional production systems –  Lighter, higher value, and/or parts are produced at a distance to take advantage of scale economies and low labor costs –  Increasing amount of electronic & electrical components in cars with e-vehicle and self-driving vehicles 41 AUTOMOTIVE GVC: KEY TRENDS 27/06/2016 © Duke CGGC
  13. 13. 42 THE PHILIPPINES IN THE AUTOMOTIVE GVC 6.4%ALL EXPORTS EXPORTS !33%PAST DECADE US$4 Billion Exports 70-80% HIGH SCHOOL GRADUATES 6/10TOP AUTO EXPORTERS 51%AUTO EXPORTS CAGR 07-14:13% 4.2% (07) 6.3% (14) Wire Harnesses SHARE OF GLOBAL EXPORTS ! #1 Electronics & Electrical #2 Chassis System #3 Body Systems #4GLOBAL EXPOTER + HALF AUTO EMPLOYMENT * * Product exports, excluding services27/06/2016 © Duke CGGC
  14. 14. 43 THE PHILIPPINES IN THE AUTOMOTIVE GVC Interior System:! Seat, interior trim, cockpit module! Body System:! Skin, finish, trim, doors! Systems:! Modules! Vehicle Design & Development! Vehicle ! development! Electrical & Electronics System: Ignition, chassis electronics, interior electronics! System design! Parts & Components! Marketing & Sales! Final Products! Buses! Automobiles! Trucks! Systems ! Integration & ! Final Assembly! Market Segments! Passenger! Commercial! Industrial! Replacement Parts & Recycling! Technical training, and customer support! Maintenance & Repair! Motorcycles! ElectricVehicles! Trailers! Chassis System: Drive train, rolling chassis, front and rear end modules! Buses! Motorcycles! Recycling! Number of Exporting Firms Zero 0<x<2 3<x<10 10<x<30 Composite components! Mechanical components! Electronic components! Software! Wiring! Aluminum components! Rubber components! 27/06/2016 © Duke CGGC
  15. 15. 44 OPPORTUNITIES FOR UPGRADING •  Increase wire harness exports via product and process improvements: Backward linkages with electrical switches, etc. •  Move into R&D for wire harnesses (functional upgrading) •  Move into aerospace electrical systems (chain upgrading) •  Focus on automotive electronics: Smaller, lighter products that require technical knowledge to assemble (Product & functional upgrading) •  Batteries for e-vehicles: ADB program, government incentives may provide impetus for development of lithium ion supply chain. Short to Medium Term Medium to Long Term 27/06/2016 © Duke CGGC
  16. 16. 45 THE PHILIPPINES IN THE AEROSPACE GVC 27/06/2016 © Duke CGGC
  17. 17. •  Multi-billion dollar, high tech industry – +US$400 B in trade in 2014 •  Strong growth in the industry, especially civilian sector – Asia Pacific is key driver; 1/3 of global demand •  Less globalized than many other industries – Developed countries dominate top 5 account for 70%. 46 AEROSPACE GVC: KEY TRENDS INDUSTRY IS EXTREMELY DIFFICULT TO BREAK INTO – BUT HIGH PAYOFFS: HIGHVALUE, SKILLED EMPLOYMENT,TECHNOLOGY TRANSFER 27/06/2016 © Duke CGGC
  18. 18. 47 THE PHILIPPINES IN THE AEROSPACE GVC SEMI- & SKILLED JOBS 0 50 100 150 200 250 Others  Electrical, electronic equipment Aircraft, spacecraft, and parts thereof Nuclear reactors, boilers, machinery, etc Millions Source: PSA, Firm-Level Exports, 10D, Note: Leading aerospace exporters identified based total exports in registered in HS2D 88 or 84 product categories Philippines Aerospace Exports, 2014 (US$M) 0.15% GLOBAL MARKET #1 Flight Controls #2 Interiors #3 Electronics US$604 Million Exports 40-50% ENGINEERS SYSTEMS 6,000 27/06/2016 © Duke CGGC
  19. 19. AEROSPACE GLOBALVALUE CHAIN 10 firms with over US$500,000 in exports in 2014 Parts & Components! Composite components! Mechanical components! Electronic components! Software! Wiring! Fuselage! Wings! Landing gear! Sub-Systems! Marketing & Sales! Resin! Metals, Composites! Chemicals! Textiles! Final Products! General Aviation! Large commercial! Regional! Systems Integration! Market Segments! Passenger ! (Civilian)! Cargo! (Civilian) ! Defense (Govt)! Space ! (Civilian & Govt)! Post-Sales ! Services! Technical training, manuals and customer support! Maintenance , Repair & Overhaul (MRO)! R&D ! & Design! Airframe ! & sub- assembly design! Space vehicles! Military Aircraft & Missiles! Electrical power supply! Interior systems! Engine! Hydraulics! Avionics devices! Aluminum components! End-of-Life! Storage!! Decommissio ning! Valorization! Recycling/ Disposal! Inputs! Number of Exporting Firms Zero 0<x<5 5<x<10 48 27/06/2016 © Duke CGGC
  20. 20. 49 OPPORTUNITIES FOR UPGRADING •  Process upgrading: NADCAP •  Product upgrading: Interiors & Flight controls •  Product upgrading: Entry into E&E systems •  Functional upgrading: MRO services •  Market upgrading: Tier 2 & 3 suppliers •  Market upgrading: Aftermarket supply chains Short to Medium Term Medium to Long Term 27/06/2016 © Duke CGGC
  21. 21. 50 THE PHILIPPINES IN THE CHEMICAL GVC 27/06/2016 © Duke CGGC
  22. 22. •  Capital intensity, technology development & regulatory challenges create important barriers to entry •  Upstream chemicals have become highly commoditized & are at risk of over-capacity •  Lead firms are focusing on specialty chemicals – including more environmental products - margins are higher & require more product development 51 CHEMICAL GVC: KEY TRENDS 27/06/2016 © Duke CGGC
  23. 23. 52 THE PHILIPPINES IN THE CHEMICAL GVC, 2014 Basic ! Chemicals! Specialty Chemicals! Commodity Chemicals! Intermediate Chemicals! 69%! ! 15%! 14%! US$2.2 Billion Exports TOPTEN CHEMICALS 73% 0 0.2 0.4 0.6 0.8 1 1.2 1.4 Philippines Inter-Asian World Chemical Export Growth Rate, 2007-2014 Key Product Exports #1 Glycerine #2 Nickel Cobalt Sulphide #3 Aromatic Petrochemicals #4 Fatty Alcohols #5 Surfactants Oleochemicals & Petrochemicals 0.2%! GLOBAL MARKET! 27/06/2016 © Duke CGGC
  24. 24. 53 PHILIPPINES IN THE CHEMICAL GVC R&D and Engineering in Technology Processes ! Minerals! Feedstock! Basic ! Chemicals! Specialty Chemicals! Marketing, Sales & Distribution! Naphtha & Natural Gas (Ethane, Propane)! Bio-based ! Air! Brine & Rock Salt! Organic! Inorganic! Commodity Chemicals! Industrial Gases! Chlorine! Caustic Soda! Titanium oxides! Aromatics! Olefins! Inorganic! Organic/ Petrochemicals! Organic/! Oleochemicals! Surfactants! Key End Markets! Plastic Resins & Synthetic Rubber! Fine Chemicals! Other Additives! Paints, coating & surface treatments ! Advanced polymer, adhesives & sealants! Sulfur! Intermediate Chemicals! Activated Charcoal! Organic/ Petrochemicals! Pigments & Dyes! Oils! Select Products! Starches & Glues! Explosives! Branding! Surfactants! Fatty Alcohols, Methyl Ester ! Sulfur Derivatives! Agriculture! Consumer Products ! Construction! Manufacturing! Automotive! Pulp & Paper! Electronics! Pharmaceutical! Water Treatment! Textile & Apparel! Packaging! No of Exporting Firms Zero 0<x<5 5<x<10 10<x<15 Formulation! 27/06/2016 © Duke CGGC
  25. 25. 54 OPPORTUNITIES FOR UPGRADING •  Process upgrading: Coconut Production •  Product & process upgrading: Niche markets •  Market upgrading (Geographic): Green products •  Process upgrading: Alternative feedstocks for oleochemicals •  Product & process upgrading: Activated carbon •  Functional & Product upgrading: New intermediate & specialty products (petrochems) •  Product diversification: Basic chemicals Short to Medium Term Medium to Long Term 27/06/2016 © Duke CGGC
  26. 26. 55 THE PHILIPPINES IN THE PAPER GVC 27/06/2016 © Duke CGGC
  27. 27. •  Industry is worth US$300-350B, although significant changes in recent years – IT replacing paper as dominant communication medium – Factory Asia driving regional demand for packaging – Improved living standards boosting demand for health & hygiene products •  These factors have reshaped geography of industry – Worldwide trade in key inputs -- woodchips and pulp has increased, creating upgrading opportunities – While upstream segments of chain have evolved, traditional markets remain entrenched in highest value segments of chain 56 PAPER GVC: KEY TRENDS 27/06/2016 © Duke CGGC
  28. 28. 57 THE PHILIPPINES IN THE PAPER GVC Inputs! Milling! Conversion! Distribution! Waste Collection! Diapers, pads! toilet paper ! Bulk packaging ! Individual packaging! Newsprint, magazine, office paper ! Sawmills ! Pulp Mills! Paper Mills! Lumber! Container" board ! (Corrugating Medium & Linerboard)! Boxboard! (Solid Bleached Sulfate, Coated Unbleached Kraft, Recycled)! Coated! Uncoated! Newsprint! Woodchips/" Wood Fiber! Recycled Paper and Paperboard! Energy Recovery! Wastepaper! Softwood! Chemicals! Hardwood! Paperboard! Energy! Plant material! Recycled ! Supply! Virgin Timber! Chemical Pulp! Sulfate/" Kraft ! Semi- Chemical Pulp! Mechanical Pulp! Recovered Fiber Pulp! Other Fiber Pulp! Industrial! Printing Paper! Consumer! Health & ! Hygiene! Retailers! Wholesale! Institutional Use! ! ! ! Producers! Media Companies! Others! Food & Beverage! Hospitals! Direct Use! Indirect Use! Brand! Owners! Chemical Pulp! Activity Low or Moderate Activity Some Export Activity Paperboard! Paper! 27/06/2016 © Duke CGGC
  29. 29. 58 THE PHILIPPINES IN THE PAPER GVC, 2014 ABACA PULP! 56%! US$127 Million Exports 2010-2014 NEWSPRINT EXPORTS !75% DOMESTIC ECONOMY RECYCLING FOCUS EMPLOYMENT 6,000 DIRECT JOBS 1MILLION UNSKILLED & SEMI- SKILLED INDIRECT JOBS 0.002%!NATIONAL EXPORT SHARE! NICHE PARTICIPATION ONLY ABACA PULP MILL IN THE WORLD ENTERED CONVERSION INSUFFICIENT SUPPLY FOR PACKAGING 27/06/2016 © Duke CGGC
  30. 30. 59 OPPORTUNITIES FOR UPGRADING •  Process upgrading: Increase abaca production •  Product upgrading: Improve quality of paper and paperboard to improve competitiveness of domestic producers and potentially to serve as input for important export sectors –  Process upgrading in recycling chain a way to accomplish this trajectory •  Functional upgrading: Expansion of conversion capabilities to increase number of suppliers to important export industries (food & beverage, electronics, possibly oleochemicals) –  While there are 59 conversion companies registered in EPZs, exporters report difficulty in finding local suppliers Short to Medium Term Medium to Long Term 27/06/2016 © Duke CGGC
  31. 31. •  As a whole, these industries are very important to the Philippines •  Potential competitiveness varies by industry and value chain segment •  A number of key high value niches exist in which Philippines can carve out a role in global & regional markets 60 IN BRIEF 27/06/2016 © Duke CGGC
  32. 32. http://www.cggc.duke.edu Penny Bamber Senior Research Analyst penny.bamber@duke.edu 27/06/2016 © Duke CGGC

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