Electronics no longer top export in 5 years?
Jessica Anne D. Hermosa
Wednesday, April 29, 2009 | MANILA, PHILIPPINES

ELECTRONICS may no longer be the Philippines’ top exported good and leading manufacturing industry by 2014, as foreign firms opt for cheaper labor elsewhere, University of Asia and the Pacific economist Bernardo M. Villegas told a business forum yesterday.

The industry, Mr. Villegas said, has not moved up the value chain to operations such as design and research in time to make up for its eroding edge in labor costs.

In its place, agriculture and processed food will likely become the country’s top exports in five to six years, alongside outsourced services, Mr. Villegas said.

But the Semiconductors and Electronic Industries in the Philippines, Inc. (SEIPI) countered that labor costs are not the primary factor that firms consider for continuing operations here and that there are efforts to upgrade workers’ skills and put up a research institute.

"Every industry like electronics goes through a product life cycle. Industries based on low-labor cost advantage have a life span of 30 years, unless we go upscale," Mr. Villegas told business leaders at the Management Association of the Philippines’ membership meeting yesterday, noting that the sector first began to grow in the 1970s.

"An industry based on labor cost advantage is not sustainable. You have to look at higher value products...like design, as what Taiwan is doing. We did not have that foresight. We thought our labor advantage would last forever. To compound to that is the problem of [high] electricity rates and [bad] roads," Mr. Villegas said.

"In five to six years...electronics will make up not even a third [of total merchandise exports.] It is irreversible because we have not defended our competitive advantage," he said.

Already, electronic exports in the first two months of 2009 made up 54% of the $5.01-billion total exports, versus making up nearly two-thirds of the 2008 total, data from the National Statistics Office show.

Agriculture, he said, would likely become the top export, especially as China’s demand for food rises with its projected economic and population growth.

Agro-based exports accounted for 6% of total exports in January and February, while processed food made up 1.4%, official data show.

Business process outsourcing, Mr. Villegas added, will be another growth driver as it is only beginning its cycle. The local industry has also started to move into more sophisticated operations, moving away from voice jobs into back office activities such as accounting and engineering.

Asked to comment, SEIPI Chairman Arthur J. Young, Jr. said that the local electronics industry will not decline in importance.

"I don’t see the electronics industry bowing out in six years...Firms are looking not at just the cost but also the skills of the Philippine worker," Mr. Young said in a telephone interview yesterday.

"Obviously, there are things the industry needs to do to remain competitive. That is the same in any industry — whether it is electronics or outsourcing. The industry is trying to move up the value chain. We are putting more effort in research and design and enhancing the skills of our work force," Mr. Young said.

Mr. Young noted the industry group’s plan with the Commission on Science and Technology to replicate a research institute in Taiwan. The local think tank, he said, will look into what key technologies the Philippines should go into, what improvements are needed from the academe, and will also train design engineers.

He also cited a recent P10-million grant from Technical Education and Skills Development Authority to upgrade electronics workers’ skills this year.

Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr., for his part, agreed that agriculture could outpace electronics as the country’s top export.

"It’s a big possibility. The country had limitation in the past [in terms of producing the right] quantity and qualityBut the government is building infrastructure such as the RORO [roll-on roll-off system] and irrigation in Luzon," Mr. Ortiz-Luis said in a separate phone interview.

Mr. Villegas went on to say that he expects the economy to grow by about 4% this year and remittances to match 2008 levels. — Jessica Anne D. Hermosa