Duke CGGC reports key findings for the Philippines in Manufacturing Global Value Chains project at a public forum at the Makati Diamond Residential Suites in Manila on June 2, 2016. The presentation highlighted the position of the Philippines in each of the five industries (aerospace, automotive, electronics & electrical, chemicals and paper) and focused on potential upgrading trajectories for each. The project was supported by USAID, RTI, and DTI and BOI in the Philippines.

1. 30
PHILIPPINES PARTICIPATION IN GVCS
ANALYSIS AND FINDINGS
Penny Bamber
June 2, 2016
“Enhancing Philippine Participation in GVCs”
BOI-DTI, USAID, RTI, Manila,The Philippines
27/06/2016 © Duke CGGC

2. • DTI-BOI Industry Development Program & Manufacturing
Resurgence Program
• Used the DUKE CGGC global value chain framework to study 5
industries:
– Automotive, Aerospace, Electronics & Electrical, Chemicals and
Paper sector
– Sectors selected for a variety of reasons including potential for
export earnings, employment creation, technology transfer and
value addition to raw materials.
31
PHILIPPINES IN MANUFACTURING GVCS
Study Objective:
How can the Philippines add value and be more
competitive in these five respective GVCs?
27/06/2016 © Duke CGGC

3. • Global analysis
– Review of academic & grey literature
– Interviews with industry experts
– Analysis of global trade & production data
• Philippines analysis
– Extensive use of relevant Industry Roadmaps, firm press releases
– Past academic & technical studies
– Interviews with close to 70 stakeholders
– 3 Firm-level datasets:
• PSA Customs data – imports & exports (dummy variables) 2007-2014
• DTI-BOI firm registration 1974-2015
• PEZA firm and activity registration 1974-2015 (Sept)
32
METHODOLOGY
27/06/2016 © Duke CGGC

4. • Demand and supply have shifted from
traditional markets to emerging regions, especially
Asia-Pacific
• Supply chain rationalization and growing
power of global suppliers
• Innovation opening doors for new entrants
33
MANUFACTURING TRENDS FOR SELECTED
GVCs
27/06/2016 © Duke CGGC

5. AEROSPACE AUTOMOTIVE ELECTRONICS
& ELECTRICAL
CHEMICALS PAPER
Exports in 2014 US$604 million US$3.98 billion US$28.8 billion US$2.2 billion US$127 million
Share of global
market
0.15% 0.28% 1% 0.2% 0%
Share of
exports
1% 6.4% 47% 3.5% 0.002%
No of Jobs 6,000 57,000 345,000 50,000 6,000
Recent growth
in sector
Solid growth in
exports past five
years; increased
FDI
Steady growth,
overall CAGR of
5% 2007 -2014.
Steady growth in
both exports and
investments;
2007 global dip &
2009 Intel
departure
Rapid growth in
exports since
2007, double
regional exports
Exports have
declined since
2010 peak
following mill
closure.
Main GVC
Activities
Components &
Sub-Assembly
Components &
Assembly (wiring/
chassis systems)
Assembly &
Testing
(Semiconductors)
Commodities;
Small participation
in final goods
Recycled Paper
Milling/
Conversion
34
FINDINGS AT A GLANCE
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6. 35
THE PHILIPPINES IN THE
ELECTRONICS &
ELECTRICAL GVC
27/06/2016 © Duke CGGC

7. • Rapid increase in # of products with
electronic content
– “3Cs” - largest share, others (auto & industrial)
are fastest growing
36
ELECTRONIC & ELECTRICAL GVC: KEY TRENDS
Relative size of electronics markets, 2014
3Cs –
Computers,
Consumer
Electronics,
Communications
69%
Automotive
10%
Medical
8%
Industrial
6%
A&D
7%
27/06/2016 © Duke CGGC

8. $0 $5 $10 $15 $20 $25 $30 $35
2007
2010
2012
2014
Electronic Components Final Electronic Products and Specific Parts
Electrical Equipment Final Electrical Products and Specific Parts
37
THE PHILIPPINES IN THE ELECTRONICS &
ELECTRICAL GVC
US$28.8B
13%
electrical
87%
electronics
47%ALL PRODUCT
EXPORTS
TOPTEN
INTEGRATED
CIRCUITS
2.8%GLOBAL EXPORTS
Philippines E&E Exports, 2007-2014 (US$ billions)
345KWORKERS
FDI
DRVEN
1970s 2016
1/3
manufacturing
workforce
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9. 38
THE PHILIPPINES IN THE E&E GVC
Electrical!
R&D and Design!
Electronic!
Plastic &!
Glass!
Silicon!
Packaging!
Metal!
Chemicals!
ICs!
$12B, 51 firms!Semiconductor!
Wafers, 0 firms!
Active Discrete!
$3B, 38 firms!
Medical!
$0.1B, 7 firms!
Industrial Equipment !
$1B, 31 firms!
$0.4B, 21 firms!
Computers/Storage/Office!
$7B, 55 firms!
Bare PCB!
$0.5B, 21 firms!
Wire & Cables!
$0.1B, 13 firms!
Switchgear !
$1.0B, 23 firms!
Motors/Batteries!
$0.2B, 8 firms!
IC Design!
< 5 firms!
Panel Boards!
$0.02B, 5 firms!
Number of Exporting Firms!
Zero!
1 < X 10!
11 < X 29 !
Over 30!
Passives!
$0.5B, 6 firms!
Transformers!
$1.6B, 19 firms!
Other!
$0.5B, 4 firms!
$0.6B, 40 firms!
Consumer/Communications!
$1B, 48 firms!
$2.1B, 47 firms! $4.7B, 17 firms!
$0.3B, 16 firms! $0.7B, 20 firms!
Consumer Appliances!
$0.2B, 28 firms!
Electrical Industrial Equipment!
$0.2B, 9 firms!
$0.1B, 14 firms! $0.1B, 15 firms!
Inputs!
Final Products & !
Product-Specific Parts!
Components!
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10. 39
OPPORTUNITIES FOR UPGRADING
• Strengthen and expand
automotive E&E (EMS,
batteries, motors, etc.)
• Backward linkages in
common electro-mechanical
products (e.g. passive
components, circuit boards,
electrical equipment)
• Entry into electrical
equipment final products:
networking & infrastructure
improvements & industrial end
market
• Functional upgrading in
analog and power ICs for
automotive applications
Short to Medium Term Medium to Long Term
27/06/2016 © Duke CGGC

11. 40
THE PHILIPPINES IN THE
AUTOMOTIVE GVC
27/06/2016 © Duke CGGC

12. • Large, global industry: US$1.4 trillion in exports
(2014); organization is complex and in midst of
significant transition
– Bulky and model-specific parts-production close to final
assembly plants – regional production systems
– Lighter, higher value, and/or parts are produced at a
distance to take advantage of scale economies and low labor
costs
– Increasing amount of electronic & electrical components in
cars with e-vehicle and self-driving vehicles
41
AUTOMOTIVE GVC: KEY TRENDS
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13. 42
THE PHILIPPINES IN THE AUTOMOTIVE GVC
6.4%ALL EXPORTS
EXPORTS
!33%PAST DECADE
US$4 Billion Exports
70-80%
HIGH SCHOOL
GRADUATES
6/10TOP AUTO
EXPORTERS
51%AUTO EXPORTS
CAGR 07-14:13% 4.2% (07) 6.3% (14)
Wire Harnesses
SHARE OF
GLOBAL
EXPORTS
!
#1 Electronics & Electrical
#2 Chassis System
#3 Body Systems
#4GLOBAL
EXPOTER
+ HALF AUTO
EMPLOYMENT
*
* Product exports, excluding services27/06/2016 © Duke CGGC

14. 43
THE PHILIPPINES IN THE AUTOMOTIVE GVC
Interior System:!
Seat, interior trim,
cockpit module!
Body System:!
Skin, finish, trim,
doors!
Systems:!
Modules!
Vehicle Design &
Development!
Vehicle !
development!
Electrical &
Electronics System:
Ignition, chassis
electronics, interior
electronics!
System design!
Parts &
Components!
Marketing & Sales!
Final Products!
Buses!
Automobiles!
Trucks!
Systems !
Integration & !
Final Assembly!
Market Segments!
Passenger!
Commercial!
Industrial!
Replacement Parts
& Recycling!
Technical training,
and customer
support!
Maintenance &
Repair!
Motorcycles!
ElectricVehicles!
Trailers!
Chassis System:
Drive train, rolling
chassis, front and
rear end modules!
Buses!
Motorcycles!
Recycling!
Number of Exporting Firms
Zero
0<x<2
3<x<10
10<x<30
Composite
components!
Mechanical
components!
Electronic
components!
Software!
Wiring!
Aluminum
components!
Rubber components!
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15. 44
OPPORTUNITIES FOR UPGRADING
• Increase wire harness exports
via product and process
improvements: Backward linkages
with electrical switches, etc.
• Move into R&D for wire harnesses
(functional upgrading)
• Move into aerospace electrical
systems (chain upgrading)
• Focus on automotive
electronics: Smaller, lighter products
that require technical knowledge to
assemble (Product & functional
upgrading)
• Batteries for e-vehicles: ADB
program, government incentives may
provide impetus for development of
lithium ion supply chain.
Short to Medium Term Medium to Long Term
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16. 45
THE PHILIPPINES IN THE
AEROSPACE GVC
27/06/2016 © Duke CGGC

17. • Multi-billion dollar, high tech industry – +US$400
B in trade in 2014
• Strong growth in the industry, especially civilian
sector
– Asia Pacific is key driver; 1/3 of global demand
• Less globalized than many other industries
– Developed countries dominate top 5 account for
70%.
46
AEROSPACE GVC: KEY TRENDS
INDUSTRY IS EXTREMELY DIFFICULT TO BREAK INTO – BUT HIGH PAYOFFS:
HIGHVALUE, SKILLED EMPLOYMENT,TECHNOLOGY TRANSFER
27/06/2016 © Duke CGGC

18. 47
THE PHILIPPINES IN THE AEROSPACE GVC
SEMI- & SKILLED JOBS
0 50 100 150 200 250
Others
Electrical, electronic equipment
Aircraft, spacecraft, and parts thereof
Nuclear reactors, boilers, machinery, etc
Millions
Source: PSA, Firm-Level Exports, 10D,
Note: Leading aerospace exporters identified based total exports in registered in HS2D 88 or 84 product categories
Philippines Aerospace Exports, 2014 (US$M)
0.15%
GLOBAL
MARKET
#1 Flight Controls
#2 Interiors
#3 Electronics
US$604 Million Exports
40-50% ENGINEERS
SYSTEMS
6,000
27/06/2016 © Duke CGGC

19. AEROSPACE GLOBALVALUE CHAIN
10 firms with over US$500,000 in exports in 2014
Parts &
Components!
Composite
components!
Mechanical
components!
Electronic
components!
Software!
Wiring!
Fuselage!
Wings!
Landing gear!
Sub-Systems!
Marketing &
Sales!
Resin!
Metals,
Composites!
Chemicals! Textiles!
Final Products!
General
Aviation!
Large
commercial!
Regional!
Systems
Integration!
Market Segments!
Passenger !
(Civilian)!
Cargo!
(Civilian) !
Defense
(Govt)!
Space !
(Civilian &
Govt)!
Post-Sales !
Services!
Technical
training,
manuals and
customer
support!
Maintenance
, Repair &
Overhaul
(MRO)!
R&D !
& Design!
Airframe !
& sub-
assembly
design!
Space
vehicles!
Military
Aircraft &
Missiles!
Electrical
power supply!
Interior
systems!
Engine!
Hydraulics!
Avionics
devices!
Aluminum
components!
End-of-Life!
Storage!!
Decommissio
ning!
Valorization!
Recycling/
Disposal!
Inputs!
Number of Exporting Firms
Zero
0<x<5
5<x<10
48
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20. 49
OPPORTUNITIES FOR UPGRADING
• Process upgrading: NADCAP
• Product upgrading: Interiors &
Flight controls
• Product upgrading:
Entry into E&E systems
• Functional upgrading:
MRO services
• Market upgrading:
Tier 2 & 3 suppliers
• Market upgrading:
Aftermarket supply chains
Short to Medium Term Medium to Long Term
27/06/2016 © Duke CGGC

21. 50
THE PHILIPPINES IN THE
CHEMICAL GVC
27/06/2016 © Duke CGGC

22. • Capital intensity, technology development &
regulatory challenges create important barriers
to entry
• Upstream chemicals have become highly
commoditized & are at risk of over-capacity
• Lead firms are focusing on specialty chemicals
– including more environmental products -
margins are higher & require more product
development
51
CHEMICAL GVC: KEY TRENDS
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23. 52
THE PHILIPPINES IN THE CHEMICAL GVC, 2014
Basic !
Chemicals!
Specialty Chemicals!
Commodity
Chemicals!
Intermediate
Chemicals!
69%!
!
15%! 14%!
US$2.2 Billion Exports
TOPTEN
CHEMICALS
73%
0 0.2 0.4 0.6 0.8 1 1.2 1.4
Philippines
Inter-Asian
World
Chemical Export Growth Rate, 2007-2014
Key Product Exports
#1 Glycerine
#2 Nickel Cobalt Sulphide
#3 Aromatic Petrochemicals
#4 Fatty Alcohols
#5 Surfactants
Oleochemicals &
Petrochemicals
0.2%!
GLOBAL
MARKET!
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24. 53
PHILIPPINES IN THE CHEMICAL GVC
R&D and Engineering in Technology Processes !
Minerals!
Feedstock!
Basic !
Chemicals!
Specialty
Chemicals!
Marketing, Sales
& Distribution!
Naphtha &
Natural Gas
(Ethane,
Propane)!
Bio-based !
Air!
Brine & Rock Salt!
Organic!
Inorganic!
Commodity
Chemicals!
Industrial Gases!
Chlorine!
Caustic Soda!
Titanium oxides!
Aromatics!
Olefins!
Inorganic!
Organic/
Petrochemicals!
Organic/!
Oleochemicals! Surfactants!
Key End Markets!
Plastic Resins &
Synthetic Rubber!
Fine Chemicals!
Other Additives!
Paints, coating &
surface
treatments !
Advanced
polymer,
adhesives &
sealants!
Sulfur!
Intermediate
Chemicals!
Activated
Charcoal!
Organic/
Petrochemicals!
Pigments & Dyes!
Oils!
Select Products!
Starches & Glues!
Explosives!
Branding!
Surfactants!
Fatty Alcohols,
Methyl Ester !
Sulfur Derivatives!
Agriculture!
Consumer
Products !
Construction!
Manufacturing!
Automotive!
Pulp & Paper!
Electronics!
Pharmaceutical!
Water Treatment!
Textile & Apparel!
Packaging!
No of Exporting Firms
Zero
0<x<5
5<x<10
10<x<15
Formulation!
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25. 54
OPPORTUNITIES FOR UPGRADING
• Process upgrading:
Coconut Production
• Product & process upgrading:
Niche markets
• Market upgrading
(Geographic): Green products
• Process upgrading: Alternative
feedstocks for oleochemicals
• Product & process upgrading:
Activated carbon
• Functional & Product
upgrading: New intermediate &
specialty products (petrochems)
• Product diversification:
Basic chemicals
Short to Medium Term Medium to Long Term
27/06/2016 © Duke CGGC

26. 55
THE PHILIPPINES IN THE
PAPER GVC
27/06/2016 © Duke CGGC

27. • Industry is worth US$300-350B, although significant changes
in recent years
– IT replacing paper as dominant communication medium
– Factory Asia driving regional demand for packaging
– Improved living standards boosting demand for health &
hygiene products
• These factors have reshaped geography of industry
– Worldwide trade in key inputs -- woodchips and pulp has
increased, creating upgrading opportunities
– While upstream segments of chain have evolved, traditional
markets remain entrenched in highest value segments of
chain
56
PAPER GVC: KEY TRENDS
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28. 57
THE PHILIPPINES IN THE PAPER GVC
Inputs! Milling! Conversion! Distribution!
Waste
Collection!
Diapers, pads!
toilet paper !
Bulk packaging !
Individual
packaging!
Newsprint,
magazine, office
paper !
Sawmills ! Pulp Mills! Paper Mills!
Lumber!
Container"
board !
(Corrugating
Medium &
Linerboard)!
Boxboard!
(Solid Bleached
Sulfate, Coated
Unbleached Kraft,
Recycled)!
Coated!
Uncoated!
Newsprint!
Woodchips/"
Wood Fiber!
Recycled Paper and
Paperboard!
Energy Recovery!
Wastepaper!
Softwood!
Chemicals!
Hardwood!
Paperboard!
Energy!
Plant material!
Recycled !
Supply!
Virgin Timber!
Chemical
Pulp!
Sulfate/"
Kraft !
Semi-
Chemical
Pulp!
Mechanical
Pulp!
Recovered
Fiber Pulp!
Other Fiber
Pulp!
Industrial!
Printing Paper!
Consumer!
Health & !
Hygiene!
Retailers!
Wholesale!
Institutional Use!
!
!
!
Producers!
Media
Companies!
Others!
Food &
Beverage!
Hospitals!
Direct Use!
Indirect Use!
Brand!
Owners!
Chemical Pulp!
Activity
Low or Moderate Activity
Some Export Activity
Paperboard!
Paper!
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29. 58
THE PHILIPPINES IN THE PAPER GVC, 2014
ABACA PULP!
56%!
US$127 Million Exports
2010-2014
NEWSPRINT
EXPORTS
!75%
DOMESTIC
ECONOMY
RECYCLING
FOCUS
EMPLOYMENT
6,000
DIRECT JOBS
1MILLION
UNSKILLED & SEMI-
SKILLED INDIRECT JOBS
0.002%!NATIONAL
EXPORT SHARE!
NICHE PARTICIPATION
ONLY ABACA
PULP MILL IN
THE WORLD
ENTERED
CONVERSION
INSUFFICIENT
SUPPLY FOR
PACKAGING
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30. 59
OPPORTUNITIES FOR UPGRADING
• Process upgrading:
Increase abaca production
• Product upgrading:
Improve quality of paper and
paperboard to improve
competitiveness of domestic
producers and potentially to
serve as input for important
export sectors
– Process upgrading in
recycling chain a way to
accomplish this trajectory
• Functional upgrading:
Expansion of conversion
capabilities to increase number
of suppliers to important export
industries (food & beverage,
electronics, possibly
oleochemicals)
– While there are 59 conversion
companies registered in EPZs,
exporters report difficulty in
finding local suppliers
Short to Medium Term Medium to Long Term
27/06/2016 © Duke CGGC

31. • As a whole, these industries are very important
to the Philippines
• Potential competitiveness varies by industry
and value chain segment
• A number of key high value niches exist in
which Philippines can carve out a role in global &
regional markets
60
IN BRIEF
27/06/2016 © Duke CGGC

32. http://www.cggc.duke.edu
Penny Bamber
Senior Research Analyst
penny.bamber@duke.edu
27/06/2016 © Duke CGGC