The Philippines as a global manufacturing hub



China has dominated the global manufacturing landscape for decades, establishing itself as the “factory of the world” for countless global brands. But cracks are beginning to appear in this dominance. Geopolitical tensions and a desire for diversification are prompting companies to look beyond China for their production needs. As a result, a new generation of manufacturing hubs is emerging in Southeast Asia, with Vietnam and Thailand getting an unfair share of the opportunities brought about by the shift. Is the Philippines well positioned today to compete with them?

Southeast Asia has emerged as a manufacturing powerhouse next to China, attracting global brands with its young workforce, cost-effectiveness, and strategic location. It offers a compelling alternative, mitigating potential risks associated with overdependence on China. Thailand and Vietnam have become clear leaders in luring these global giants. While the Philippines offers its own advantages, these countries currently have a stronger pull for large-scale manufacturing operations.

The rise of Southeast Asia as a manufacturing hub is no longer just about affordability. Governments invest heavily in education and skills development, creating a more skilled and efficient workforce. This bodes well for industries requiring a higher level of technical expertise. Tax breaks, streamlined regulations, and the development of special economic zones are just some measures to create a business-friendly environment for global brands.

Vietnam has become popular due to its business-friendly environment, competitive labor costs, and growing pool of skilled workers. It enjoys a relatively stable political environment, fostering investor confidence and long-term planning. This is crucial for large corporations seeking reliable and predictable operating conditions. The country has also prioritized infrastructure development and has streamlined its regulatory environment to reduce bureaucratic hurdles to attract more foreign investments. It even handholds big-ticket brands in setting up and operating a manufacturing facility.

Already a well-established manufacturing hub, Thailand boasts strong infrastructure and a focus on higher-value industries like automobiles and machinery. It has a well-established logistics network with efficient transportation options, ensuring reliable and cost-effective transportation of goods. It also enjoys a strong reputation as a reliable and efficient manufacturing hub. This positive brand image, built over decades, instills confidence in international brands considering setting up shop in Southeast Asia.

The Philippines also aspires to capture a significant share of these opportunities and hopefully ascend the industrialization ladder. It seeks to transform its economy from just service-oriented to one driven by robust manufacturing. Attracting large global brands to establish manufacturing bases in the country can catalyze this transformation.

In addition to providing job opportunities, global brands bring cutting-edge technologies and advanced manufacturing processes. This influx of knowledge necessitates training the local workforce in these new techniques, which can lead to a significant upgrade in the overall skillset of the Philippine labor force. Their adherence to rigorous quality standards can push local manufacturers to adopt them, improving the quality of Philippine-made products. This, in turn, would enhance the global competitiveness of Philippine exports.

Large corporations often invest heavily in research and development (R&D) to stay ahead of the curve as they have in other leading manufacturing destinations. When they set up shop in the Philippines, they can foster a culture of innovation, encouraging local businesses to invest in R&D as well. This collaborative environment can lead to the development of new products and technologies, propelling the Philippines toward a more knowledge-based industrial sector.

How can we make the Philippines bubble up and become more attractive to big global brands looking for a new manufacturing location? The Philippines is not without its potential. Recent efforts to improve infrastructure and streamline regulations, such as the passage of the Ease of Doing Business Act, could make it a more attractive destination for manufacturers. But we need to do a better job of marketing ourselves to potential investors.

We have observed that leading hubs in our region are applying targeted marketing. Through in-depth market intelligence, they can identify which big names are in the market for new locations. They then try to develop attractive investment proposals that they know would get the attention of potential investors. They try to show their best foot forward at all stages, fully backed up with appropriate funding. It is a whole-of-government undertaking. Once the decision is made in their favor, they take care of the new investor and nurture it like a growing child.

Attracting large global brands to the Philippines is not a silver bullet but can serve as a powerful springboard for industrialization. The Philippines can propel itself toward a more robust and globally competitive manufacturing sector by leveraging the knowledge transfer, job creation, and infrastructure development that come with these partnerships. But we need to do a better job of selling the country to investors and ensuring they are cared for when they are here. ([email protected])

(The author is an executive member of the National Innovation Council, lead convener of the Alliance for Technology Innovators for the Nation (ATIN), vice president of the Analytics and AI Association of the Philippines, and vice president of UP System Information Technology Foundation.)