20 Japanese electronics firms were considering to transfer their hubs from China to the Philippines in 2016, due to China’s declining economic growth and rising wages.
In recent months, Japanese investors have prioritized the Philippines in their list of promising Asian manufacturing locations owing to the country’s positive economic outlook and steady growth. The Philippines is now ranked next to China, overtaking Thailand and Vietnam.
Who Are These Companies?
The 20 Japanese electronics firms eyeing to transfer their operations to the Philippines from China are still unidentified. These companies want to relocate to cities with strong infrastructure, a key aspect of overseas manufacturing.
The country’s manufacturing sectors include semiconductors/components and devices, medical and industrial, and automotive and consumer electronics. In 2012, Furukawa Electric Co., Ltd. and Cemedine Co. Ltd. invested in the Philippines with a combined initial capitalization of US $8.92M, bringing in an estimated US $14.5M investments by major Japanese firms that year. Fujifilm Corp., Murata Manufacturing Co., Canon Inc., and Brother Industries Ltd. also made up the list. Further, Shimano Incorporated built its first factory in 2015.
Mitsubishi Motors will invest around US $90.6M to manufacture Mirage model. Toyota Motors is also investing US $878K for the first two years of the CARS (Comprehensive Automotive Resurgence Strategy) Program.
China’s rising labor cost, increased regulations, economic slowdown and labor-related issues are some of the factors that are pushing companies to relocate their manufacturing. Japan was prompted to apply the “China Plus One” investment strategy, aimed at avoiding solely manufacturing in China, to the Philippines. The Philippine’s English-speaking workforce, manpower stability, and tax benefits given to investors, among others, were considered by Japanese firms when moving their hubs from China to the Philippines.
The Philippines’ economic growth is forecast to increase to at least 6 percent this year with the country’s revenues for the electronics industry growing 10 percent to around US $27.5B. Each of the 20 unidentified Japanese companies is expected to invest around US $20M to US $100M and anticipated to generate 2,500 new jobs next year.
Benefits and Drawbacks
The world’s third largest English-speaking country, the Philippines has a literacy rate of 94.6%. Located at the heart of Asia, the country is the gateway of international sea and air shipments suited for the European and American businesses. Its US $218 minimum wage is lower than China’s US $242. Corporate income tax has been reduced to 32%, while companies in the Special Economic Zones are entitled to 5% overall tax rate. Incentives including tax exemptions and tax and duty-free importation of specific equipment and materials are also offered to multinational companies seeking for regional headquarters.
But as the country grows, its infrastructure is suffering. Construction and increased urban populations have stretched roads and transport routes beyond what they can take. Analysts are worried the lack of investment in infrastructure will hurt the Philippines chances of becoming a manufacturing hub. Corruption is another primary concern. Despite the government’s anti-corruption attempts, the country is ranked 95th out of 167 in the 2015 global corruption survey, dropping 10 notches since 2014.
As China releases its grip on foreign manufacturing, companies will begin looking to relocate their operations elsewhere. Production in the Philippines is a promising alternative, especially for the electronics industry—whether or not the country will ease its growing pains will determine its future as a manufacturing hub.