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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
• 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.
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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
• 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)
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METHODOLOGY
27/06/2016 © Duke CGGC
• 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
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MANUFACTURING TRENDS FOR SELECTED GVCs
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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
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FINDINGS AT A GLANCE
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THE PHILIPPINES IN THE ELECTRONICS & ELECTRICAL GVC
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• Rapid increase in # of products with electronic content
– “3Cs” - largest share, others (auto & industrial) are fastest growing
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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
$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
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THE PHILIPPINES IN THE ELECTRONICS & ELECTRICAL GVC
US$28.8B
13% electrical
87% electronics
47% ALL PRODUCT
EXPORTS
TOP TEN INTEGRATED
CIRCUITS
2.8% GLOBAL EXPORTS
Philippines E&E Exports, 2007-2014 (US$ billions)
345K WORKERS
FDI DRVEN
1970s 2016
1/3 manufacturing
workforce
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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!
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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
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THE PHILIPPINES IN THE AUTOMOTIVE GVC
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• 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
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AUTOMOTIVE GVC: KEY TRENDS
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THE PHILIPPINES IN THE AUTOMOTIVE GVC
6.4% ALL EXPORTS
EXPORTS !33% PAST DECADE
US$4 Billion Exports
70-80% HIGH SCHOOL GRADUATES
6/10 TOP 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
#4 GLOBAL EXPOTER
+ HALF AUTO EMPLOYMENT
*
* Product exports, excluding services 27/06/2016 © Duke CGGC
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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!
Electric Vehicles!
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!
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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
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THE PHILIPPINES IN THE AEROSPACE GVC
27/06/2016 © Duke CGGC
• Multi-billion dollar, high tech industry – +US$400 B in trade in 2014
• Strong growth in the industry, especially civilian sector
– Asia Pacific is key driver; 1/3 of global demand
• Less globalized than many other industries
– Developed countries dominate top 5 account for 70%.
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AEROSPACE GVC: KEY TRENDS
INDUSTRY IS EXTREMELY DIFFICULT TO BREAK INTO – BUT HIGH PAYOFFS: HIGH VALUE, SKILLED EMPLOYMENT, TECHNOLOGY TRANSFER
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THE PHILIPPINES IN THE AEROSPACE GVC
SEMI- & SKILLED JOBS
0 50 100 150 200 250
Others
Electrical, electronic equipment
Aircraft, spacecraft, and parts thereof
Nuclear reactors, boilers, machinery, etc
Millions Source: PSA, Firm-Level Exports, 10D, Note: Leading aerospace exporters identified based total exports in registered in HS2D 88 or 84 product categories
Philippines Aerospace Exports, 2014 (US$M)
0.15% GLOBAL MARKET
#1 Flight Controls #2 Interiors #3 Electronics
US$604 Million Exports
40-50% ENGINEERS
SYST
EM
S
6,000 27/06/2016 © Duke CGGC
AEROSPACE GLOBAL VALUE 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!!
Decommissioning!
Valorization!
Recycling/Disposal!
Inputs!
Number of Exporting Firms
Zero
0<x<5
5<x<10
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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
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THE PHILIPPINES IN THE CHEMICAL GVC
27/06/2016 © Duke CGGC
• 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
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CHEMICAL GVC: KEY TRENDS
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THE PHILIPPINES IN THE CHEMICAL GVC, 2014
Basic !Chemicals! Specialty Chemicals!Commodity
Chemicals!Intermediate
Chemicals!
69%!!
15%! 14%!
US$2.2 Billion Exports
TOP TEN 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!
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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!
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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
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THE PHILIPPINES IN THE PAPER GVC
27/06/2016 © Duke CGGC
• 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
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PAPER GVC: KEY TRENDS
27/06/2016 © Duke CGGC
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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!
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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
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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
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• 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
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IN BRIEF
27/06/2016 © Duke CGGC
http://www.cggc.duke.edu
Penny Bamber Senior Research Analyst
27/06/2016 © Duke CGGC
