Major Shift in Asian Economy

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The ripple effect will be seen here in the U.S. and Canada within the next year.

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Japanese manufacturers move to Philippines
Rising yen, risk factors in other countries
By: Riza T. Olchondra - Philippine Daily Inquirer

Japanese manufacturers are making a beeline to the Philippines due to its young, English-speaking labor market following a rising yen at home and risk factors like floods and political changes in other hubs.

Electronics firm Furukawa Electric Co. Ltd. and adhesives maker Cemedine Co. Ltd. are the latest to invest with a combined 1.016 billion yen in initial capitalization alone. This brought new Philippine investments by major Japanese companies to at least 16.51 billion yen so far this year.

Furukawa Electric’s subsidiary, Furukawa Automotive Systems Inc. (FAS), established a wholly owned unit called Furukawa Automotive Systems Lima Philippines Inc. with a capitalization of 1 billion yen to make wire harnesses for Japan-made automobiles by March next year. FAS said in a report that increasing demand for its products made it put up a “first step” export hub in the Philippine for its Asian expansion.

Cemedine will establish Cemedine Philippines Corp. with a capitalization of 16 million yen to manufacture and sell adhesive, ceiling and related products by April 2013.

Also setting up new facilities by 2013 are Bandai, the toy maker of Power Rangers and Gundam fame (744 million yen); Fujifilm Corp., which will make optical lenses for digital cameras, projectors and surveillance cameras in Laguna (2.3 billion yen); and electronics components maker Murata Manufacturing Co. Ltd. (620 million yen).

Expanding their Philippine presence are Canon Inc. and Brother Industries Ltd., which are set to make printers with initial investments of 6 billion yen and 4.23 million yen, respectively.

These companies are targeting Asia, Latin America and Europe for exports, according to the Japanese Chamber of Commerce and Industry of the Philippines (JCCIP), which has 500 member-companies. As Japanese manufacturers locate in the Philippines, their suppliers will follow suit. This would create a supply chain that would attract a wider range of manufacturers and suppliers, JCCIP vice president Nobuo Fujii said.

Analysts said the Philippines has high-quality labor with lower cost and more stable growth compared with China or Vietnam. Transportation distance to Japan is also shorter from Manila and while Thailand has been a traditional choice for manufacturing expansion, the flooding that further hit supply chains that suffered from the triple tragedy in Japan in 2011 has made companies seek alternatives.

To nurture the Philippines’ supply chain, Trade and Industry Undersecretary Cristino Panlilio said in a phone interview that the Department of Trade and Industry (DTI) helped in marketing not only the major manufacturers but also their suppliers in a bid to nurture the Philippines’ supply chain. Exports zone locators also get incentives such as income tax holidays and exemption from duties on imported capital equipment.

Fujii also expressed hope that Japanese firms would soon be able to monetize billions of tax credits that were due way back in 2002 and 2003. He said the JCCPI was awaiting the schedule and rates to be provided by the Bureaus of Internal Revenue and of Customs. A tax credit is a rebate or refund of import taxes and duties paid to the government by a firm or manufacturer registered with the Board of Investments for raw materials, supplies and semi-manufactured products it has brought abroad to produce the goods it will export thereafter. To facilitate the refunds, the JCCPI has long been urging the Philippine government to implement a more flexible tax rebate system by allowing cash refunds, cross utilization and fast releases at par with those of other Asean economies.

The DTI and the Japanese Embassy have jointly reported that despite “difficult situations” the two countries faced, particularly in 2011, trade volume between the Philippines and Japan increased to P382.7 billion from P335.4 billion in 2010. Japan remains the biggest investor in the Philippines, with total investments of P77.4 billion last year, P19.1 billion more than P58.3 billion in 2010.

Asian Development Bank senior country economist Norio Usui has said in a presentation that manufacturing investments are good for the Philippines as these create more jobs than other sectors.

Nomura Research Institute’s Kengo Mizuno and Yoshihiko Iwadare have recommended that the Philippines target non-semiconductor electronic products (printers, multifunction peripheral, projectors, scanners, digital cameras, etc.) makers, shipbuilders, and their suppliers as potential investors.

Japan International Cooperation Agency economist Toru Yoshida said that although foreign direct investments across Asia plunged in 2009 during the global financial crisis, the Philippines lagged behind its neighbors in terms of attracting investors. However, the Philippines could take advantage of rapidly changing global conditions (labor issues in traditional manufacturing hubs, supply chain disruption due to Asian floods, hyper-appreciation of the yen that made firms look for new sites) to present itself as a new growth area.

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200 Japanese firms in China want to move to PH
Labor strikes, wage increase, and historical issues are reasons many Japanese manufacturers want to exit China and enter the Philippines
By Chrisee Dela Paz

Around 200 Japanese companies in China want to relocate their bases here in the Philippines, as declining economic growth and rising wages there are making it difficult for them to continue doing business.

This coincided with President Benigno Aquino III’s state visit to Japan, which concluded Friday, June 5. The Philippine president, during his 4-day visit, repeatedly invited Japanese investors to put their money in the country, citing improved business climate.

"As of now, there are about 1,700 Japanese companies in the Philippines. But we continue to receive inquiries from about 200 manufacturers in China, saying they want to relocate here," Japanese Chamber of Commerce and Industry of the Philippines Incorporated vice president Nobuo Fuji responded to Rappler via text message on Friday.

Japanese companies that have set up their bases here in the Philippines include:

• Cemedine Philippines Corporation, which manufactures and sells adhesive, ceiling, and related products
• Bandai, the toy maker of Power Rangers and Gundam fame
• Fujifilm Corporation, which makes optical lenses for digital cameras, projectors, and surveillance cameras
• Murata Manufacturing Company Limited, an electronics components maker
• Tokyo-listed bicycle parts maker Shimano Incorporated, which previously based in China, started building its first factory in the Philippines early this year.

Fuji said Japanese wristwatch maker Citizen and Mitsubishi Power Industries are some of the companies in China that are heading for the exits and move their manufacturing plants in the Philippines.

"In China, there are so many companies invested, but they face wage increase, historical problems, labor strikes, and so on. They want to relocate to other countries in ASEAN (Association of the Southeast Asian Nations), and the Philippines is attractive for them," Fuji said.

According to a Nikkei report, minimum wages in China have almost doubled over the past 5 years. Labor-management disputes over factory closure have also become common in China, according to Nikkei.

Labor disputes and rising wages are not the only reasons China is losing its competitive edge as a business destination for Japanese firms.

On Thursday, June 4, the Philippines and Japan blasted China for its reclamation work in the South China Sea.

In a joint statement, President Aquino and Japanese Prime Minister Shinzo Abe criticized Beijing for building 2,000 acres (800 hectares) of artificial islands in the disputed area, which is a busy shipping lane.

"Because of English-speaking workforce and tax benefits given to investors, many Japan companies from China are considering relocation here in the Philippines," JCCI's Fuji said.

Many of the about 200 Japanese manufacturers, according to Fuji, are eyeing to set up factories in "PEZA (Philippine Economic Zone Authority) areas like Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon)."

"Another reason why they are interested in the Philippines is because of EU (European Union) duty-free entry," Fuji added.

Last December 25, the Philippines was included in the EU’s Generalized Scheme of Preferences Plus (GSP+) tariff reduction program. That GSP+ status, which meant 6,274 Philippine products such as fruit, coconut oil, footwear, fish and textiles, will be charged zero duty.

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Firms leaving China seen skipping PH
By: Amy R. Remo - Philippine Daily Inquirer

The European Chamber of Commerce of the Philippines (ECCP) warned Thursday that the country risked losing potential investments to its neighbors in the Association of Southeast Asian Nations (Asean) if the government would not adjust the current taxation system that has been a drag to the competitiveness of the local business environment.

“We have to bring the Philippines forward. The government now has limited time to approve economic legislation and institute reforms. If we do not address the issue now, companies will be going to Vietnam and not here,” ECCP president Michael Raeuber said.

“The ECCP has been encouraging European businesses to invest in the Philippines. We are also working closely with Philippine exporters not just to Europe but to other countries. There is a need to see some action,” he added.

According to Raeuber, the Philippines must be competitive enough by offering the right set of incentives and tax system if it wanted to tap the companies that were planning to leave China and convince them to relocate to the Philippines. Many of these companies, however, were considering Vietnam as their preferred destination.

Marikina Rep. Romero Quimbo was earlier quoted as saying that it made good economic sense to completely overhaul the country’s corporate and individual income taxes in order to be competitive amid the impending establishment of the Asean Economic Community (AEC).

Such a move might especially prove to be critical in attracting more foreign investments in the agriculture and manufacturing sectors to achieve inclusive growth. Otherwise, the country might lose out to Thailand, Vietnam and Cambodia, he added.

According to Quimbo, the tax bracket rates have not been adjusted since 1997 with 86 percent of income taxes being shouldered by only 16 percent of the population.