The Philippine Economy (Part II) - Foreign investments from Japan, South Korea, and other neighbors

The flow of foreign capital to the Philippines in recent decades has been relatively modest compared to that which has gone to a number of neighboring countries in ASEAN. More recent developments (discussed in last week’s essays on Crossroads) point to an emerging advantage for the Philippine economy.

The rise of manufacturing costs in China is further aggravated by the continuing crisis of Japan’s industrial economy. There is pressure for South Korean, Taiwanese, and other foreign capital now located in China to find alternative industrial sites where costs of production could be lowered.

The new foreign investments that could come from this new wave of industrial capital migration could prove to be the beachhead for the future reinvigoration of Philippine industry as part of the world’s production workplace.

“Philippine economic advantage.” The Philippine advantage today can be summarized by the presence of a large labor pool that is currently under-employed and unemployed. The profile of unemployment is largest for the population of young working age groups.

The existence of a large labor pool is matched by the presence of manpower quality that is yet to be fully discovered for foreign capital. Testimonials coming from the Philippine workplace by foreign investors give proof to a high level of skills that is very literate in the English language, the lingua franca of major industrial processes. Further, Filipino workers when they become OFWs in other countries are self-evident examples of hardworking industrial hands.

“Government attention to reform of policies and regulations still needed.” Government policy makers cannot take the Philippine advantage as an automatic lever by which to attract new investments. To maximize the gains, they have to be pro-active.

They need to reform those labor market regulations and policies to promote productivity. They need to show this by attention toward the key labor market issues that still remain as problems to many investors.

There is a further need to remove restrictive features of foreign investment policies, a topic so well elaborated already in my previous discussion of this problem. So far, the Aquino government has been timid in undertaking the important changes that need attention and reform.

There is also a strong need for public investments to continue taking place and to raise resources so that public infrastructure investment continues to be given high priority.

“Early signs of Japan wanting to spread its industrial risks.” A recent survey conducted by the Japan External Trade Organization (JETRO), a government organization in October 2011 involving Japanese affiliated firms in Asia and Oceania finds that Japanese companies are encountering major labor issues operating in China and also Vietnam.

In these two countries, labor disputes and strikes have become troublesome for Japanese companies. Labor costs have risen as a result. A more serious problem that has arisen is related to the problem of hiring of managers and workers at reasonable cost.

Aside from these factors, the hyper-appreciation of the Japanese yen has further been aggravated by the tsunami and nuclear disaster of last year. That has disrupted power supply in Japan, creating a productive squeeze on Japanese industries. The floods in Bangkok have caused stoppage of operations and work for a substantial period of more than 400 Japanese foreign investments in Bangkok.

“Resurgence of strong Japanese interest.” The Nomura Research Institute of Japan analyzed the implications of these developments on Philippine investment opportunities. Japanese investors seek a stable and safer haven for their manufacturing operations to protect them from such risks. They find the Philippines as an attractive option within ASEAN. But it is not the only option. They also see Indonesia as an alternative where Japanese investors can go in large numbers.

In fact, new Japanese investments in 2011 have committed to set up manufacturing plants in the Philippines. These are indications of the new mood of Japanese investors. Perhaps, this is the beginning of the next great wave of new investments from Japan which will echo the moves of Japanese companies that came to the country during the 1990s in the electronics industry.

Three new investments in the Philippines provide new industrial tidings in the Calabarzon area. Brother has a $54 million new printer plant; Canon a larger investment of $220 million; and Murata a $40-million ceramic condenser plant. On the other hand, Epson has decided to expand further its printer capacity with a $110 million additional investment. All these companies are located in Batangas province.

On the other hand, Yokohama Tires is now undertaking a major expansion of its tire factory in Clark at a cost of $625 million. Yokohama Tires is one of the major locators in Clark which has succeeded over the years in its manufacturing activity.

Japanese investments are a significant part of the foreign investments in Philippine industry. Most of the firms have found abundant and inexpensive labor, developed land sites in the PEZA zones where most of them are located. But during the last decade, most of them had flocked toward Philippine neighbors and not to our shores.

“The Koreans are coming….” The South Koreans have discovered the Philippines. This has come beyond the form of inflows of industrial and commercial investments from that country. Koreans have discovered the country as a resource in training its young people in learning English language skills. So, they have sent their young in special schools for the purpose in collaboration with Philippine educational groups. Such English learning institutions are spread across Philippine cities.

The Koreans have also come for tourism. Today, they comprise one large vibrant tourist group visiting the country. Some of the small tourist establishments in Boracay are even owned by Koreans. Golf tourism has been a favorite destination, following the Japanese who in earlier times have come to the Philippines for golf.

As a result of this influx, many Koreans have even joined the country’s informal sector, setting up small enterprises that cater to Korean needs. Many small Korean towns have found their niches in various places of the country where Korean tourists, students and investors go.

For instance, there is a small place near the entrance toward Clark industrial zone where a booming Korean cornertown has been rising. Tourists, workers, students from that country frequent the place and buy their goods from this town. Such phenomenon is repeated in various places in Baguio, Cebu and other provinces in the Visayas.

Korean companies account for 10 percent of PEZA investment locators. (Japanese companies are by far the largest, accounting for 25 percent among locators). Some big companies from Korea have discovered the country. They are becoming magnets for other Korean companies in the future.

The Phoenix Semiconductor Company (PSPC) is one of the big Korean investors that recently established in Clark. It is a major semiconductor plant that is only on its phase I project but it already employs almost close to the 1,500 workers for that phase.

By the time its phase II is completed, 3,000 workers will have been employed, similar to the level of Texas Instruments, which is an American company located a few hundred meters in the same zone compound. PSPC is owned by STS, a firm owned by one of Korea’s industrial conglomerates. Samsung, the giant Korean electronic firm, is a major investor in STS.

The biggest Korean investment in the Philippines so far is the Hanjin Subic Shipyard. This is a major shipbuilding facility was constructed a few years ago. It manufactures large ocean going vessels, including large container ships and tankers. At its full capacity, it will employ as many as 17,000 workers, most of whom are welders and skilled Filipino workmen.

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