What does the continuing global financial crisis mean for Asian electronics manufacturing? To answer that question, Asia Time is looking at 10 countries along the continent’s electronics supply chain to see how the crisis is affecting business there. Today, we look at the Philippines.
When you follow the electronics supply chain through the Pacific Rim, you realize there are really two chains emerging, with the Philippines sitting between them.
At least until recently, the massive former American colony was showing signs of becoming a mini-China. A large market for electronics was emerging. Lower wages than most of the region's countries and a large population made the country a manufacturing center. It was also a curiously atypical market. A report last May by the firm Research and Markets found that more than 40 percent of the electronics sales in the Philippines were for high-dollar items like personal computers, bucking a global trend toward lower-price items like smartphones.
That was before this year, when the country's imports and exports started to contract. Rather than being a high-population, high-production link between north and southeast Asia, the Philippines started to fall behind neighbors (and competitors) like Indonesia. What was happening?
Part of the problem appears to be Europe. The unresolved EU crisis, hinging on Greece’s likely debt default, has reached all the way to Asia, kneecapping local currencies and depressing exports across the region. The Philippines is taking this particularly hard, both because it has several major European trading partners and because, with risk high everywhere, more established competitors in Thailand and even higher-wage China look like a safer bet. Right now there’s a flight from risk. For Manila, that means business is heading back to China.
In July, the Philippine government gritted its teeth and reported its first drop in electronics exports in 20 months.
Does that mean the Asian electronics supply chain will start skipping a link? That’s not what most opinion says. Among the region’s manufacturers and assemblers, Manila’s headaches are not coming from fundamentals in the country. The consensus seems to be that the recent downturn is a symptom of the ongoing global financial crisis, not of any particularly bad moves made by the country. Compared to a direct competitor like Vietnam, which is years behind in modifying many tax and investment laws, the Philippines is well positioned for a recovery, whenever it comes.
Most importantly, the incentives for the Philippines are enormous. A shocking 60 percent of the country’s export economy comes from electronics, according to SEIPI, the semiconductor and electronics industry association of the Philippines. That’s a massive number. If six out of 10 workers in an export-related industry need electronics to roar back after the crisis ebbs, the Philippines really has no choice but to become the major player it was on the brink of becoming before the world crashed.
With less tourism income than Thailand, less textile work than Indonesia, less infrastructure than China, and less money than Japan, the Philippines has basically two cards to play — wages and workers. It seems likely to push hard on both once the world is back on its feet.