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PIA Press Release
2009/06/19

Other forms of foreign investments pouring in in RP

Manila (19 June) -- There may be a slump in manufacturing investments in the country but foreign investors are looking at the Philippines as their research and development hub. This is on top of the business process outsourcing and IT-related projects, which are flocking into the country.

Artemio A. Del Rosario, chairman of the SEIPI (Semiconductor and Electronics Industries in the Philippines Inc.) committee on human resources, said that multinational corporations try to shy away from the high cost of maintaining R&D facilities in highly developed countries.

Del Rosario, who is human resource manager of automotive systems firm Temic Automotive (Philippines) Inc., a local unit of Continental AG of Germany, said the company has expanded in the past year to increase its production capacity.

This time around, Del Rosario said, the company is improving its R&D capability in the country.

Continental has two plants located in Taguig and Calamba, Laguna, all producing automotive electronics products.

Its R&D facility, which is located at its Taguig plant, is already undertaking body electronics, comfort body and security electronics. The improvement in its R&D facility in Taguig is intended to build its capability to handle more sophisticated product development.

"Companies are relocating their R&D into the country because of the high cost of doing this activity in highly developed economies," Del Rosario said.

Dr. Martin Wadewitz, general manager of Temic Automotive (Philippines) Inc., has confirmed a restructuring move of the German automotive electronics manufacturer.

Wadewitz said that with the global crisis, the company had to rationalize its local operations with the goal of lowering its cost base even as it jacked up its capacity with additional investments over the past year.

"Because of the crisis, we have rationalized our operations and lowered our cost base, making us more competitive for export to Europe and the United States," said Wadewitz.

Wadewitz said the group has been rationalizing its global operations, relocating its production from high-cost countries to low-cost countries for manufacturing over the long term.

He expressed optimism that the low cost base of its local operations would entice its principals to relocate more of the group's production lines overseas to the Philippines over the long term.

According to Wadewitz, the restructuring would enable them to become a very good cost base making them in a strong position to be competitive not only as an exporter but also as a manufacturing site competing with other sites for the group worldwide.

"We are confident the Philippines would be retained as one of its manufacturing sites, and, at the same time, be able to get a good share of the businesses that may be relocated due to our low cost restructure," said Wadewitz.

Temic Automotive's plant in Taguig is the Continental group's first facility in the Philippines. It has another facility in Calamba, Laguna, which is being operated by another unit, Temic Electronics (Phils.) Inc.

In the Philippines, Temic produces automotive electronics components, particularly the anti-lock brake system as well as sensor clusters that are exported to automotive manufacturers worldwide, including the likes of German brands BMW and Volkswagen and US-based Ford Motors and General Motors.

Wadewitz said while the US, one of its major markets, would take a longer time to recover from the global crisis, other markets like Asia are likely to recover faster.

Continental is one of the top 10 auto electronics suppliers globally. The Philippine plants are among the best of nine facilities worldwide devoted to auto electronics production.

Ryoichi Ito, executive director of JETRO (Japan External Trade Relations Office) Manila, which is in charge of promoting trade and investments of Japan in other countries, said Japanese investments in the manufacturing sector in the Philippines may continue to be soft even with the implementation of the Japan Philippines Economic Partnership Agreement (JPEPA) but the increased trade volume from the free trade deal and the influx of Japanese business process outsourcing (BPO) firms would make up for the slump in the manufacturing sector.

Ito made this assessment as Japanese foreign direct investments in the Philippines as registered by the Board of Investments and the Philippine Economic Zone have been declining over the years.

Ito offered an explanation to this.

According to Ito, the decreasing Japanese investments in the Philippines is largely due to the economic recession in Japan noting the softening of investments have started since 2005. This is compounded by the global financial crisis. The softening of the Japanese investments is not exclusive for the Philippines though.

Japan is the country's second major trading partner and one of the top sources of foreign investments.

"Japanese manufacturers invest for the exports market but with the global financial crisis there is the export market problem," Ito said.

"But JPEPA will open more trade for both countries and that will help make up for the decline in the investments in the manufacturing sector," he said.

Ito also noted that Japanese investments in the Philippines are shifting from manufacturing to the BPO sector, where the Philippines has a competitive edge globally.

"As you can see, while investments in the manufacturing have slowed down, but there is an increasing number of members in the Japanese Chamber of Commerce and Industry," Ito pointed out.

Ito noted that there are now over 540 corporate and individual members of JCCI but the enrollment of Japanese students attending the Manila Japan School has declined to 380 in April this school year from 400 in April 2008.

"This is largely due to the fact that there are few new manufacturing investments while existing Japanese manufacturers are consolidating their operations in one country in the region and closing other sites, but there is a growing number of Japanese BPO companies operating in the country and more are coming," Ito said.

Japanese investments in computer software engineering, visual and engineering designs and other IT projects will continue to flock here because this is where Japan is found to be wanting, he said.

According to Ito, a manufacturing project requires a number of Japanese experts to run the operation and train people unlike in the BPO sector where there is no need for more Japanese people to train Filipinos.

The Japanese experts in a manufacturing project also bring in their families and that explained the higher number of Japanese students enrolled in the Manila Japanese school before.

But as the manufacturing firms closed their units here, family members of these expatriates have also to go back to Japan and that explained the decline in the enrollment in the Japanese school here.

Investments, however, in the Japanese BPO sector are small versus the investments in the manufacturing sector because a BPO project does not really need huge capital unlike the manufacturing sector.

"But the business that will be generated through increased trade volume under the JPEPA and the influx of Japanese BPO firms here would more than make up for the loss in the manufacturing sector," Ito concluded.

Ito, however, said there is no data yet as to the number of Japanese BPO firms that have expanded or relocated into the country noting that these are mostly integrated with the manufacturing operations.

The manufacturing sector may be down but there are trade offs to all these. (PNA) [top]

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