Freeriders International Corp. manufactures wooden keychains handpainted with acrylic or in natural finish.

Low-priced items from neighboring sourcing hubs undercut the local sector's strengths, which include widespread usage of eco-friendly and natural inputs.

The gifts and premiums industry is facing stiff price competition from neighboring sourcing hubs, compounded by increasing production costs.

The sector is officially categorized under the handicrafts segment, which is having difficulty keeping up with mass-produced items from mainland China, Vietnam, Thailand and Malaysia. This concern has led to fluctuations on export values, companies closing and factories downsizing.

The root of the problem lies in rising production expenses, particularly for raw materials, and disorganized supply chains that result in high logistics costs.

Since most suppliers promote environment-friendly models, certain components are utilized. This includes shell, wood trimmings, recycled aluminum, coconut husks, grass, dried flowers and leaves. Typhoons and other natural calamities, furthermore, destroy plantations, and damage roads and infrastructures. This forces enterprises to procure some raw inputs overseas. In general, imported materials push up prices by at least 10 percent.

Quotes for chemicals used for molding, bleaching and casting usually increase by 5 percent annually, which pose problems for manufacturers that try to keep export prices stable for at least two years.

High cost of shipping is also burdening makers because of quote fluctuations, which lowers the profit margin. A possible solution to this challenge according to the trade group Foreign Buyers Association of the Philippines is more free trade agreements with ASEAN countries to lower import duties and facilitate faster processing of goods.

Exports

This tabletop accessory from Manoarts Corp. has a bayong wood base and a recycled aluminum horse-drawn carriage.

Findings from the Ibisworld market research state that the world gifts and premium industry is a lucrative sector, accounting for $19 billion in sales from 2009 to 2014. Statistics from the International Trade Center show a total global value of about $909 million, with China as the main exporter, followed by the UK and the US.

According to the Philippines Statistics Authority, the local handicrafts industry registered $204 million of overseas sales in 2013. In general, the sector’s foreign revenue has been increasing by an average of 51 percent over the past five years, particularly in 2012 when the US and the EU markets have slowly recovered from their respective financial crises.

The major markets for gifts and premiums are the US, accounting for about three-fifths of exports. Other key destinations are Japan, Hong Kong, the Netherlands, the UK and Canada.

Local suppliers are urged to look into alternative markets in the Middle East and East Europe. They are likewise advised to be aware of the increasing preference for environment-friendly items, particularly among buyers from traditional destinations.

Competitive advantages

Abundant supply of natural materials, including bamboo, rattan, raffia fiber and Manila hemp, is the primary strength of the industry. These materials are procured from the regions of Bicol and Visayas. Suppliers usually stock up on these inputs during the dry season in preparation for the monsoon months.

A wide pool of skilled laborers is another benefit enjoyed by the sector. These workers are adept at embroidery, wood- and metalwork, and weaving. They are likewise trained to process indigenous fibers and natural inputs such as buri and mother-of-pearl, which make locally made products unique.

Another advantage of the industry is manufacturers’ flexibility in terms of clients’ customizations, particularly in design and materials used. Suppliers are also willing to adjust their MOQs, depending on style complexity and order volume.

This article is an excerpt from Philippines Sourcing: Gifts & Premiums, published by the Hinrich Foundation. For the full report with complete Industry Overview and 18 suppliers, click here.

This article and its contents are provided by the Hinrich Foundation, a partner of Global Sources in promoting trade across Asia. The products and the suppliers featured in this article are export assistance program beneficiaries of the Hinrich Foundation.