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Electronics
beeps for gov’t action If the Philippine electronics industry were to survive outright the onslaught of external and internal threats to its competitiveness, immediate action by both government and the industry is needed to answer concerns about manufacturing costs including the high price of electricity, rising wages and incentive disparities. In my column, "Chipped future for electronics industry" (Philippine Star, 14th November 2003), I enumerated the concerns raised by some 800 local and multinational semiconductor chip manufacturing companies. Largely taking off from what other countries in the region are doing and the prospects of the world’s electronics industry, the Semiconductor and Electronics Industries in the Philippines, Inc. (SEIPI) is putting together a roadmap to ensure their survival and future growth. The overall objective of the roadmap is to grow the Philippine electronics industry from the expected $36 billion next year into a $100-billion export business by 2008. Let’s look at some specifics of the road map for survival and growth. Diversify Investments The current Philippine electronics industry is largely made up of semiconductor manufacturers, which growth has been slowing down. To meet the 2008 export target, it must diversify into electronic manufacturing services (EMS). EMS primarily is contract manufacturing for original equipment manufacturers like Compaq, Lucent, Alcatel, Ericsson, etc. As contrasted with the semiconductor sector, the EMS sector is more vibrant, growing globally by leaps and bounds, from $650 billion in 2001 to $1.3 trillion by 2006. Telecommunication equipment makes up the largest share of the EMS market, at 32 percent. To attract EMS investors, though, the country must immediately put together an attractive package that would encourage those expected to migrate from the USA and Europe looking for alternative sites in the region. Develop Local Allied Industries Another tack that SEIPI has tagged as critical to prevent multinational industry firms operating locally from thinking of transferring to another country is to develop local allied industries that will be able to supply raw materials or buy semiconductor products produced here. Without linkages to local allied industries, companies like Intel, Fujitsu, Texas Instruments, and Amkor that basically just regard the Philippines as stand-alone manufacturing operations, may easily be persuaded to locate to other countries where they can get cheaper power, lower labor rates or better tax incentives. Expand Value Chain Existing semiconductor multinationals in the country primarily perform back-end assembly and test operations. These are labor-intensive but are regarded as a small fraction of the semiconductor value chain. To improve robustness of the industry and reduce dependence on imported materials, the government should encourage and provide incentives to multinationals to form partnerships or "adopt" small and medium size enterprises that can provide materials and other support services locally. Thus, the value chain of the industry is expanded. According to the industry’s roadmap plan, a strong downstream industry would create employment for an additional 700,000 workers by 2008 while at the same time creating sales of as much as $9 billion by the new allied industry firms. To Act Or Not To Act, Now It is understandable that some medium term solutions or proposals of the industry may require more evaluation and planning. However, some segments of the industry are disheartened by the way the government is handling certain specific concerns and conflicts. An example is the dispute between Intel, the local government of Gen. Trias, Cavite, the Department of Trade (DTI), and the Philippine Economic Zone Authority (PEZA). The government units mentioned have conflicting positions about the real property tax assessment on Intel and have failed to act and resolve the issue until now. Cost of power is the other issue that the industry believes can and should be resolved by appropriate government agencies immediately. There is concern that the overall industry situation may not be addressed and that specific new requirements may be resolved but to the detriment of those who are already in place and have been subjected to outrageously uncompetitive power rates. Are there secret deals that have been agreed on? Action or inaction by concerned government officials will determine the future of an industry that the Philippines has managed so far to survive. Let’s not forget the hundreds of thousands of Filipino households dependent on the electronic industry. Whether you have political ambitions or not, they deserve your attention and action.
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