Ayala leads revival of Philippine manufacturing industry

MANILA, Philippines – Ayala Corp., the country’s oldest conglomerate, is making a huge bet on the resurgence of the manufacturing sector, saying the Philippines must seize a unique but fleeting window which can make it a major hub in high-value manufacturing in Southeast Asia.

“We either take advantage of this shift or it goes to another country,” Ayala Corp. chairman and chief executiive officer Jaime Augusto Zobel de Ayala said in a media briefing yesterday.

He said the country, for instance, could be the next Thailand and become an automotive manufacturing hub in the region but on a broader scale this time to produce the next generation of vehicles or the so-called “PCs with wheels.”

At the Philippine Manufacturing Summit 2016 earlier in the day, Zobel said emerging trends in global manufacturing operations present a unique window for the Philippines to establish itself as a pioneer in high-value functions in the Southeast Asian region.

Some of these global emerging trends are technological breakthroughs that enable extreme connectivity and extreme automation around trends such as artificial intelligence, robotics, the Internet of Things and autonomous vehicles.

These trends, Zobel said, are disrupting business models at an accelerated pace but provide an opportunity for the Philippines to revive its manufacturing industry.

“Let me begin by giving an overview of the environment today and why we think it is ripe for investments in manufacturing. First, we have an economy that has been able to sustain its growth momentum against global economic and geopolitical headwinds and natural disasters. Sound fiscal management, structural reforms, and good governance implemented by past leaderships have created an enabling environment for enterprises to participate in sizeable investment opportunities,” Zobel said.

Elaborating on the disruptive global trends in manufacturing, Zobel noted that in the automotive sector, autonomous driving and electrification are redefining the global industry.

“With a growing global vehicle production, the rise of hybrids and electric cars, as well as constant innovation in automotive systems, the current 40 percent share of electronics over the total cost of a car is estimated to increase to over 50 percent by 2025,” Zobel said.

Another trend is the emerging shift in supply chain strategy, where manufacturers are increasingly finding it more sensible to produce their goods closer to their core markets.

“The rising cost of manufacturing in China, concerns on intellectual capital protection as well as on customer responsiveness and turnaround time of the supply chain have made outsourcing less compelling in recent years,” Zobel said.

Ayala’s electronics manufacturing arm, Integrated Micro-Electronics Inc, has done just that. It has built an automotive electronics segment in Bulgaria for proximity to the original equipment manufacturers based in Europe who are the end-users of its products.

“Reflecting on these emerging trends, I believe the Philippines can position itself as a viable destination for manufacturing investments,” Zobel said.

He cited the unprecedented growth the automotive industry has achieved in recent years since reacting the motorization point of $2,500 in gross domestic product (GDP) per capita in 2012 had vehicle sales growing at an average rate of 18 percent annually.

“However, out of the 320,000 units in vehicle sales recorded last year, only 30 percent is locally manufactured. I believe this presents a compelling opportunity to take on a ‘build where you consume’ strategy for the Philippine automotive industry,” Zobel said.

At the same time, Zobel said a sustainable revival of the manufacturing industry will require collaborative efforts between the government and the private sector.

“With an environment that is ripe for transformation, I believe that the Philippines can position itself as a viable destination for automotive manufacturing investments if we can work together in addressing some of the key challenges. I believe it is imperative that we develop an integrated country strategy for the manufacturing sector under a single and unified roadmap across the entire spectrum of the supply chain,” he said.

Furthermore, Zobel said the country strategy should cover a wide range of areas like policies, incentives, as well as mechanisms to empower the micro, small, and medium enterprises, who are important participants in the manufacturing supply chain.

The government also needs to accelerate investments in infrastructure development, particularly in transport.

“Finally, the government and the private sector can collaborate in retooling and reskilling our existing workforce. While we have a qualified workforce that can be readily deployed to take on varying levels of manufacturing roles, the accelerated pace of technological disruptions can present potential skills gap,” Zobel said.