RP electronics sector girds to face China

The Philippine electronics industry is scrambling to meet the challenge China is likely to offer upon joining the World Trade Organization, but it says high costs and poor infrastructure hobble its efforts.

Concern about the slow pace of government action on reform issues was clearly evident at an industry conference held in Manila last week.

One delegate put it succinctly: "Our infrastructure sucks, he said, as he bewailed the shoddy state of the Philippine road system and weakness of public institutions.

"For us the weakest link is government," he added.

Laughing off the slur, Trade and Industry Secretary Manuel Roxas II told delegates the government was making steady progress on resolving some of the industry’s gripes including road problems, customs clearance procedures for raw materials imports and repayment of value added tax.

At the same time the industry needed to realize the government was focused on fiscal discipline to rein in a budget deficit estimated to hit P145 billion this year.

The difficulties facing the industry were underscored last Friday when Japanese electronics giant NEC Corp. announced it would shut down its hard disk drive manufacturing operations in the Philippines in December as part of a major restructuring exercise.

With China set to join the WTO by the end of the year, fears are growing over how local electronics makers will fare, given the less-than-ideal infrastructure and electricity charges, that rank among the region’s highest.

Electronic exports are the lifeblood of Philippine trade, amounting to $27.17 billion or 71 percent of total exports last year.

In the seven months to July this year exports reached $14.69 billion, down 14 percent, and are seen falling 15 percent for the full year, reflecting the global electronics slump.

Despite the obstacles facing the sector, chief executives of 10 top companies at the conference spoke confidently of the industry’s future.

They acknowledged China’s cost and size advantages, but said the Philippines offered some advantages too.

It has well developed niche markets, high quality products, and technically capable staff with good English skills, they said.

China’s patchy record

Conversely China’s patchy record on protection of intellectual property rights, its myriad of competing bureaucracies and poor English were seen as major negatives.

"I would look at it as an opportunity for the Philippines and other ASEAN countries to rise to the occasion… for the government and the industry to accelerate well laid-out plans," said Intel Technology (Phils.) Inc. general manager Robin Martin.

But industry watchers say the low-value added, mass-produced end of the business will inevitably shift elsewhere.

"It’s not going to kill us permanently… but (with the industry) in its present form, I am very skeptical," said venture capitalist and electronics engineer Paco Sandejas.

Participants called for better-skilled, better-paid engineers to turn our specialist value-added products, especially for the United States.

Peter Wallace, head of the Economist Intelligence Unit (Phils.), agreed the low-value end of the industry would inevitably wither as cheaper cost centers like China emerged.

But Wallace is worried by constraints on the country’s ability to become a significant player in the information, communications and technology (IT) industry.

"In the broader aspect the Philippine education system has deteriorated alarmingly… and there’ll be a cap on the ability of the country to expand into the ICT market… if it doesn’t change its educational system from what it is today," he said.