True costs of electronics manufacturing

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Dan_Lachica
Dan Lachica, President of SEIPI

The semiconductor and electronics manufacturing, a driver of Philippine economic growth, faces manifold challenges in the Philippines. High electricity rates, poor infrastructure and hidden costs all pose as major barriers. However, the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) is working with the government, academe and private sectors to promote the interests of the industry. Inside Investor spoke with President Dan Lachica at SEIPI to find out more.

Q: The Philippines is the only ASEAN nation without energy subsidies. How is electronics manufacturing to be more competitive here under such a hindrance?

A: The industry has been challenged. Three years ago, the industry accounted for $31 billion in export revenue for the Philippines, and last year just $22.6 billion. The high costs of power have been a major challenge. We are the highest now even compared to Singapore or Japan for as far as power cost. This is a natural consequence of supply and demand. When the demand overtakes the supply, the price goes up. The existing capacity is clearly insufficient.

The Philippines needs to optimise operations of existing power plants and develop new power plants to match demand.  However, new power plants may take at least three years to commission. We could also utilise some renewable energy sources, but more work still has to be done. I’ve heard of new investments and expansions that could have come to the Philippines but did not ostensibly because of high power costs. On one hand, we can whine about it, but that’s not going to resolve the situation.  Open -access/retail competition was implemented last June 26, but I have not seen any significant movement that indicates a reduction in power costs.

Q: How does PEZA play a role in mitigating the cost of doing business?

The Philippine Economic Zone Authority (PEZA) has a potential role to play. They could aggregate the power requirements in a zone and then get a retail electricity supplier (RES) to provide the requirements in that zone, offering tax incentives to them in the process, thereby lowering the costs and passing on the savings to the companies in that zone. This is the model PEZA is pursuing because it could translate to a significant power cost reduction.

Both the government and private entities should explore power projects. But if you can’t substantially reduce the costs of power then there are other avenues to reduce the cost of doing business, such as training costs. For example, the Technical Education and Skills Development Authority (TESDA) has the mandate to promote inclusive growth in the Philippines by equipping workers with technical and/or vocational skills by training them to enter the industry. This was done widely with the BPO industry, but in semiconductor manufacturing, we are just starting to scratch the surface. This will help reduce costs because TESDA provides financial grants to train future industry employees.

SEIPI is working with TESDA to define trainings for operators and technicians and avail subsides. Now we have a pool of operators that the industry can hire, passing it on so the members can benefit.  The industry hired 85 per cent of the TESDA-trained operators in last quarter of 2012 up to May of 2013.

Q: Besides high electricity costs, what other challenges does manufacturing face in the Philippines that deter investment?

A: The top three challenges would be in the areas of power, infrastructure and hidden costs. Our government has done a commendable job at tackling corruption but there is still room for improvement. The latest effort to deal with “systematic corruption” in the Bureau of Customs (BOC) is a much welcome development.

Solving these issues is imperative. The 7.8 per cent GDP growth in Q1 may not be sustainable if we don’t have a manufacturing industry. With China wages going up, natural disaster risk mitigation among our neighboring countries, the AEC initiative gaining steam and the strengthening of the Philippine economy, electronics manufacturing could face a resurgence.

Q: Japan is a large player, but which Japanese company has the largest presence here in terms of assets and employment?

A: Mitsumi has over 7,000 employees and produces electronic storage products in Cebu. In terms of investment, Texas Instruments invested over a $1 billion in its Clark facility in 2009, in addition to its pre-existing Baguio operations. Most recently, three major Japanese companies – Canon, Murata and Brother – established manufacturing sites at the First Philippine Industrial Park (FPIP) after the 2012 earthquake and tsunami that hit Japan.

Q: What is the strategy for boosting investment into your industry?

A: We need to promote and advertise that the Philippines as a good alternative to mitigate country and/or disaster risks, such as the disasters that have hit Thailand  (flood) and Japan (tsunami) in recent years, and our economic zones can play a critical role in this.   The Philippine Economic Zone Authority (PEZA) helps facilitates such investments with its one-stop shop approach. As we strategise on how the industry can grow, the Philippines will need to move up to more valued-added services. We need to create an environment that would spawn more R&D activities, and that would require working with academe to strengthen the educational system and grow the scientist talent base.  We need to develop prototype capability for designed products and utilise the failure analysis lab funded by the government.

Q: Which companies that are not Japanese do you think have the largest presence?

The US and Germany are two other countries with large investments, followed by South Korea and Singapore. Recently, on July 18, KOIMA (Korea Importers Association) organized a big delegation from South Korea  to visit the Philippines for potential B2Bs.

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Reading Time: 4 minutes

Dan Lachica, President of SEIPI

The semiconductor and electronics manufacturing, a driver of Philippine economic growth, faces manifold challenges in the Philippines. High electricity rates, poor infrastructure and hidden costs all pose as major barriers. However, the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) is working with the government, academe and private sectors to promote the interests of the industry. Inside Investor spoke with President Dan Lachica at SEIPI to find out more.

Reading Time: 4 minutes

Dan_Lachica
Dan Lachica, President of SEIPI

The semiconductor and electronics manufacturing, a driver of Philippine economic growth, faces manifold challenges in the Philippines. High electricity rates, poor infrastructure and hidden costs all pose as major barriers. However, the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) is working with the government, academe and private sectors to promote the interests of the industry. Inside Investor spoke with President Dan Lachica at SEIPI to find out more.

Q: The Philippines is the only ASEAN nation without energy subsidies. How is electronics manufacturing to be more competitive here under such a hindrance?

A: The industry has been challenged. Three years ago, the industry accounted for $31 billion in export revenue for the Philippines, and last year just $22.6 billion. The high costs of power have been a major challenge. We are the highest now even compared to Singapore or Japan for as far as power cost. This is a natural consequence of supply and demand. When the demand overtakes the supply, the price goes up. The existing capacity is clearly insufficient.

The Philippines needs to optimise operations of existing power plants and develop new power plants to match demand.  However, new power plants may take at least three years to commission. We could also utilise some renewable energy sources, but more work still has to be done. I’ve heard of new investments and expansions that could have come to the Philippines but did not ostensibly because of high power costs. On one hand, we can whine about it, but that’s not going to resolve the situation.  Open -access/retail competition was implemented last June 26, but I have not seen any significant movement that indicates a reduction in power costs.

Q: How does PEZA play a role in mitigating the cost of doing business?

The Philippine Economic Zone Authority (PEZA) has a potential role to play. They could aggregate the power requirements in a zone and then get a retail electricity supplier (RES) to provide the requirements in that zone, offering tax incentives to them in the process, thereby lowering the costs and passing on the savings to the companies in that zone. This is the model PEZA is pursuing because it could translate to a significant power cost reduction.

Both the government and private entities should explore power projects. But if you can’t substantially reduce the costs of power then there are other avenues to reduce the cost of doing business, such as training costs. For example, the Technical Education and Skills Development Authority (TESDA) has the mandate to promote inclusive growth in the Philippines by equipping workers with technical and/or vocational skills by training them to enter the industry. This was done widely with the BPO industry, but in semiconductor manufacturing, we are just starting to scratch the surface. This will help reduce costs because TESDA provides financial grants to train future industry employees.

SEIPI is working with TESDA to define trainings for operators and technicians and avail subsides. Now we have a pool of operators that the industry can hire, passing it on so the members can benefit.  The industry hired 85 per cent of the TESDA-trained operators in last quarter of 2012 up to May of 2013.

Q: Besides high electricity costs, what other challenges does manufacturing face in the Philippines that deter investment?

A: The top three challenges would be in the areas of power, infrastructure and hidden costs. Our government has done a commendable job at tackling corruption but there is still room for improvement. The latest effort to deal with “systematic corruption” in the Bureau of Customs (BOC) is a much welcome development.

Solving these issues is imperative. The 7.8 per cent GDP growth in Q1 may not be sustainable if we don’t have a manufacturing industry. With China wages going up, natural disaster risk mitigation among our neighboring countries, the AEC initiative gaining steam and the strengthening of the Philippine economy, electronics manufacturing could face a resurgence.

Q: Japan is a large player, but which Japanese company has the largest presence here in terms of assets and employment?

A: Mitsumi has over 7,000 employees and produces electronic storage products in Cebu. In terms of investment, Texas Instruments invested over a $1 billion in its Clark facility in 2009, in addition to its pre-existing Baguio operations. Most recently, three major Japanese companies – Canon, Murata and Brother – established manufacturing sites at the First Philippine Industrial Park (FPIP) after the 2012 earthquake and tsunami that hit Japan.

Q: What is the strategy for boosting investment into your industry?

A: We need to promote and advertise that the Philippines as a good alternative to mitigate country and/or disaster risks, such as the disasters that have hit Thailand  (flood) and Japan (tsunami) in recent years, and our economic zones can play a critical role in this.   The Philippine Economic Zone Authority (PEZA) helps facilitates such investments with its one-stop shop approach. As we strategise on how the industry can grow, the Philippines will need to move up to more valued-added services. We need to create an environment that would spawn more R&D activities, and that would require working with academe to strengthen the educational system and grow the scientist talent base.  We need to develop prototype capability for designed products and utilise the failure analysis lab funded by the government.

Q: Which companies that are not Japanese do you think have the largest presence?

The US and Germany are two other countries with large investments, followed by South Korea and Singapore. Recently, on July 18, KOIMA (Korea Importers Association) organized a big delegation from South Korea  to visit the Philippines for potential B2Bs.

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