 ALIAZ ( TOPIC INTRO) With soaring wages and operating costs in China, many

manufacturers are looking for alternative production bases in Southeast Asia to relocate or
diversify their production. Unlike Vietnam and Myanmar, the alternative production bases in
Southeast Asia that can boast cheap labour, the Philippines’ comparative advantages and
opportunities lie in its burgeoning local sales market, English speaking skilled labour and
management efficacy. This article examines the manufacturing opportunities in the Philippines,
following HKTDC Research’s recent field trip to the country

1ST SLIDE

The Philippines: The Prospect for Manufacturing Relocation

(Stronger emphasis on infrastructure improves the appeal as a manufacturing base)

GROUP 3

2ND

 RYA

Economic Optimism Sustained Under the Duterte Government

The Philippines has experienced strong economic growth, driven by robust BPO
services, investment and consumption, buttressed by overseas remittances. This
has transformed the archipelago state into a modern consumer market.
President Rodrigo Duterte has been in office for almost a year and is promoting foreign direct
investment (FDI). He is also working to reduce red tape and streamline the bureaucracy to
improve the ease of doing business. Businesses are optimistic about the future development of
the Philippines, with Filipino-Chinese business communities particularly enthusiastic about
potential Chinese investment. Fast income growth and a surge in purchasing power have
transformed the archipelago state into a modern consumer market.

3RD
Manufacturing Development in the Philippines

Manufacturing is a major contributor to Philippine GDP, with semiconductors, electronic

components, refined petroleum products, computers, peripheral equipment and accessories,
and processed food being important sectors.

4TH
5TH

Manufacturing is also an FDI magnet in the Philippines, compared to most other

sectors. The Department of Trade and Industry (DTI), along with related investment
promotion agencies, devises the policies for attracting manufacturing investment.
Priorities are given to export manufacturing and low-pollution light industries that can
generate local employment, such as semiconductors and consumer electronics.

6TH

As seen from the figure above, almost half of the approved FDI went to the manufacturing
sector, which is also an import-export revenue
raiser for the Philippines. Among all
manufacturing products, electronics products
are the country’s most important export
sector, accounting for about 50% of total
exports.

7TH

Hong Kong plays an important role in bridging trade

between the Philippines and China, with 70% of
Philippine exports to Hong Kong being re-exported to
the Chinese mainland.
  CACERES
8TH
GSP Features Heavily in Manufacturing Relocation Decisions
Electronics is the industry sector with the best potential for manufacturing relocation due to
economic growth and domestic consumption. Urban development is a major demand driver in
Metro Manila and other provincial areas.
The Philippines has a strong supply chain and skilled workers, making it suitable for producing
higher value-added goods.

9TH

Applicable GSP Benefits a Factor to Consider

The US is a major trading partner and investor in the Philippines, benefiting from the GSP
system.

The Philippines was once a big supplier of ready-made garments (RMG) and apparel to US
brands including Ralph Lauren and Coach. However this sector has been heavily hit by the
exclusion of textiles, apparel and footwear (TCF) from the GSP list since 2015. The
Philippines has since become a less attractive option for RMG and apparel manufacturing,
after losing the competitive GSP advantage. This has narrowed the choices over the
relocation of labour-intensive manufacturing industries to the country.

 ALIAZ

10TH

English-Speaking Skilled Labour

Available

The Philippines has higher labour

costs than other ASEAN countries,
similar to Malaysia and Indonesia.

11TH
The manufacturing minimum wage in the NCR is US$9 per day, with a monthly worker
compensation of US$200-300.
The Philippines is ranked 13th in the EF English Proficiency Index, making it easier for foreign
business owners to train Filipino workers.
The Philippines has a higher education level than many ASEAN countries, with 21% of the
labour force being educated to tertiary level and 57% having secondary education.

12TH
Luenthai Philippines, a subsidiary of Luen Thai Holdings, has a strong
production line in the Philippines due to its product development,
design and advanced value added features in wash and print
capability. Vietnamese and Cambodian production lines have yet to
acquire these skills.

 RYA

13TH

Good Infrastructure and Connectivity in

Freeport Zones

The Philippines is close to China, with direct flights

from Hong Kong to Manila and shipping from the
Philippines to Hong Kong and Kaohsiung within one
day.

 ALIAZ

14TH
The Duterte administration has launched the "Build Build Build" initiative to increase
infrastructure spending to 7% of GDP by 2018-2019 through increasing government spending
and PPP schemes. The initiative will benefit the manufacturing sector, as well as other
economic zones in the peripheral areas.

 CACERES
15TH
Luzon-based Manufacturing
Central and Southern Luzon is the most developed part of the Philippines, with
the best infrastructure and external connectivity. Freeport zones converted from
former military bases possess comprehensive infrastructure for manufacturing,
with room for expansion. Freeport zones provide a good living environment for
expat workers, with comprehensive community facilities and investment
incentives.

 RYA
16TH
Summary

The Philippines contrasts well with other relocation hotspots in Southeast Asia in
terms of human resources. With wages near the high end of the ASEAN
manufacturing pay scale, however, it may not appear to be the best location for
labour-intensive production, particularly RMG and apparel manufacturing. Yet the
skilled and highly trainable English-speaking workforce may prove attractive to
those foreign investors who want to avoid the managerial challenges and training
impediments typically found in many alternative production bases in Southeast
Asia. Infrastructure provision in the Philippines, while poor generally, is showing
some encouraging signs of improvement in areas within and near Metro Manila.

17TH
NACO, SOPHIA

ALIAZ, JOHN REX

CACERES, ANDREA SOPHIA

MANZANARES, RENZO

CONDOLOR, RYA ALLEN

PILAR, MA.ANDREI

ALVARAN, SABRINA

TOMADO, KEVIN

VILLANUEVA, ANNE

MADRINIAN, JAMAICA

BRITANIA, MARIALYN

GONZAGA, MARIE

FEGASON, NICOLE