Philippine exporters benefit from "green" trend in 2014

Manufacturers from the Philippines make significant gains as their emphasis turns to products made using eco-friendly products and processes.

This report provides an analysis of the performance of key export industries in the Philippines last year, and offers forecasts for this year. It is produced by the Hinrich Foundation, a development organization that aims to promote sustainable global trade by, among others, helping create jobs in emerging Asia.

Key export industries of the Philippines focused on developing new models made of sustainable materials in 2014. Various sectors, which include furniture, home decor, fashion accessories, and gifts and premiums, emphasized utilization of locally procured materials not only to meet growing demand for products made of environment-friendly components, but also to minimize the need for imported inputs that invariably raise prices.

As more overseas markets are becoming more selective in the type of materials used and production methods involved, suppliers in the Philippines have also started to adjust by adopting plant-derived components such as Manila hemp, bamboo and coconut shell. Recycled components, which include wood from old furniture, newsprint and scrap metal, are likewise employed to lessen waste.

Organic models were also a buzzword in the previous year as makers increasingly adopted "green" inputs that require minimal processing with chemicals. These include seashells and dried flowers and leaves for home decor and gifts and premiums.

Manufacturing processes have also begun to rely heavily on steps that have a negligible impact on the environment. Companies ensure that additives approved by the markets to which they export are utilized. Some have also begun employing the services third-party agencies for inspection and verification. For models made of lumber, certification from government agencies is typically observed to ascertain that the wood used comes from legitimate sources.

Product trends

Sustainable and environment-friendly materials are not only being increasingly adopted as a means to address growing demand. Enterprises are also using such inputs in order to differentiate their products from those made in other sourcing centers in Asia.

Indigenous components such as Manila hemp and bacbac and nito vines play an important role in the diversification of available designs in furniture and home decor. The same is true for capiz shells and raffia, buri, buntal and pineapple fibers, which are commonly applied on fashion accessories such as jewelry, bags, hats and belts, and gifts and premiums, including gift pouches and wine bags.

Exporters from the Philippines also still widely use conventional inputs such as wood, particularly mahogany and beech. Known for their versatility and durability, these types of timber are utilized in indoor and outdoor furniture, and gifts and novelties, such as figurines, miniature decor, trinket boxes and religious statuettes. To help in conserving forest resources, suppliers use recycled wood byproducts when possible. Examples of items made of these materials are repurposed wood pulp for stationery, posters and gift boxes.

Materials not only dictated emerging product trends in 2014 but styles as well. In terms of aesthetics, traditional and modern are usually combined to attract attention. In furniture, typical models are rattan sofas that feature fabric upholsteries decorated with embroidery and various patterns. Among fashion accessories, designs normally associated with summer and tropical beaches have been generating attention year-round. Necklaces, bracelets and bangles are mostly adorned with seashells or woven vines or strips of wood.

Exports

All four sectors enjoyed increases in export revenue last year. Gains were varied, with home decor registering a modest 8 percent jump. Meanwhile, fashion accessories, particularly the bags and wallets line, surged 177 percent.

Improving demand from traditional markets played an important role in this development. The US accounted for the largest share as it led all importing countries in the furniture, home decor, and gifts and premiums lines. The EU was the top foreign destination for the fashion accessories segment.

In addition, growing sales to the Middle East and the Asia-Pacific region represented a significant part of turnover. Within these areas, the leading destinations were the UAE, Japan, Australia, Hong Kong and mainland China.

Challenges

Suppliers in the Philippines faced several difficulties in 2014, with the most crucial being the rising cost of labor. The daily minimum wage was modified in January, inflating salaries in nonagricultural jobs in the National Capital Region to $10.48, which is an increase of $0.34. Although the change in basic pay appears comparatively small, it carries with it corresponding adjustments to workers' overtime and night shift differential pay, and other statutory benefits. Daily basic compensation was also changed in rural locations surrounding Metro Manila. In Regions 3 and 4A, it was increased to $7.85 and $8.15, respectively. Provinces in areas are home to a large number of manufacturers that export various types of handcrafted products.

Besides escalating expenditure for manpower production expenses were another issue that concerned makers significantly. Raw materials, both sourced domestically and from abroad, accounted for much of spending. The cost of Manila hemp and other plant-derived inputs surged by an average of 10 percent last year because of diminished supply resulting from the effects of typhoon Haiyan in 2013. Outlay for imported inputs rose as well. The most affected components were gemstones, leather and silk.

Aside from materials, other production- and distribution-related expenses made a significant dent on makers' income last year. These include high electricity rates, which threaten to remain elevated this year due to the lack of new power plants. The steep cost of inter-island shipping, especially among enterprises that need to source components from other provinces, also adversely affected profitability.

2015 Outlook

Suppliers in the Philippines have bright prospects this year because of the scheduled integration of ASEAN economies. Profitability is expected to improve greatly in the coming months as shipments to neighboring countries turn tariff-free. In addition, demand from the US and the EU is forecast to remain high as buyers from these areas benefit from improving business climates. The strong potential of the Philippines as an alternative sourcing destination in Asia-Pacific amid rising labor costs in China is likewise fueling the optimistic sentiment.

Exports to other markets are also projected to grow. Home decor growth is seen to be rapid in the Middle East, particularly Saudi Arabia, Kuwait and Qatar. Revenue from gifts and premiums sent to Australia, New Zealand and South America is forecast to make considerable gains.

Prices of handcrafted exports from the Philippines are generally expected to stay unchanged this year in order to preserve competitiveness amid strong competition. A minority, especially those in the fashion accessories and gifts and premiums segments, intend to raise quotes by small margins to offset swelling production costs.

The eco-friendly trend among products is expected to be carried over in 2015 as demand is not seen to wane. Combinations of modern and traditional styles are also expected to stay strong.

For more information about the Hinrich Foundation's industry-specific sourcing reports spanning seven different countries in Asia, including Philippines, visit Online Developing Country Sourcing.

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.