Sourcing from the Philippines: Industries and manufacturing centers

This article is an excerpt from Sourcing From: the Philippines, a series of reports that provides buyers sourcing information from alternative manufacturing hubs in Asia. To read the entire articles, click here and here.

The Sourcing From series 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. It also produces industry-specific sourcing reports through Online Developing Country Sourcing.

The Philippines is ranked as the 40th-largest economy in the world, according to the 2012 International Monetary Fund Statistics. With the second best-performing stock market in Asia, the country has the 32nd-highest estimated GDP in the world at approximately $454.3 billion. The country also boasts the 16th-largest labor force in the world with 41.3 million workers, according to the CIA Factbook.

Although the Philippine economy has been growing steadily over the past decades, its growth is considered behind many of its Asian neighbors, known as the Asian Tigers or the Group of 20 nations. Therefore, the Philippines falls into the next tier of emerging markets, sometimes called the Next Eleven or the Tiger Cub Economies. Other Tiger Cub Economies include Indonesia, Malaysia and Thailand.

Total external trade in goods reached $114.2 billion in 2012. This was a 5 percent increase from 2012 and shows the positive growth in total imports and total exports for the year. The top 10 exports accounted for 64 percent of all total export receipts for the year.

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Industries

Furniture remains a fairly strong line in the Philippines but a far second to electronic exports, bringing in 4.5 percent of total exports. Overseas sales in 2012 reached $2.3 billion, up by 27.1 percent from 2011.

The furniture sector uses a wide variety of materials including wood, rattan, metal, bamboo, plastic, buri and stone. The three major furniture production areas in the Philippines are Metro Manila, Pampanga and Cebu. Furniture made in Metro Manila is typically made of wood mixed with other materials. Pampanga, located in the Central Luzon region, is associated with handcarved furniture. Cebu, dubbed "the furniture capital of the Philippines", is known for pieces made of rattan, fossilized stone and wood.

Metal components ranked as the third-largest export category with 3.8 percent of total exports in 2012. It also posted the highest increase among the top 10 exports, jumping from $785 million to $2 billion that year.

Ranking fourth with export receipts of $2 billion, articles of apparel and clothing accessories make up 3 percent of total exports. The industry has been decreasing in value, losing $1.9 billion and 17.5 percent of its value from 2011.

Of the Philippines’ top trading partners, the United States spent the most on articles of apparel and clothing accessories in 2012. With a receipt of $1.012 billion, this category was the second largest export from the Philippines to the U.S. behind electronic products. Polo, Liz Claiborne, Nautica, Ann Taylor, Victoria’s Secret, Nike, and Adidas are some of the popular global brands sourced in the Philippines.

Of the top manufacturing industries in 2010, electronic components employed the most number of workers with 117,227 employees or 13.4 percent of the total workforce. Wearing apparel ranked second at 9.8 percent and food products followed at 6.2 percent of total workers.

Manufacturing centers

Metro Manila Officially called National Capital Region, it is one of the 17 component regions in the country. Composed of 16 cities and one municipality, Metro Manila is the financial, commercial and industrial center of the Philippines as it accounts for roughly one-third of total GDP. It is an industrial hub for the manufacture and distribution of various products such as textiles, clothing, food and beverage, chemicals, and electronics.

Metro Manila benefits from a well-developed transportation and shipping infrastructure. Although burdened by worsening traffic in recent years due to a rapidly growing car-owning population, most highways and streets in the metropolis can be relied on to effectively move raw materials and finished products. The Port of Manila is the primary seaport in the country. One of the busiest in the world, it is used not just by manufacturers in Metro Manila but by those located in the provinces as well.

Cebu City The second most populous metropolitan area in the Philippines, Cebu City is a thriving manufacturing center for export products. These include fashion accessories, furniture, housewares, gift items, packaging, and fresh and processed fruits. The city’s seaport is the largest in the Philippines in terms of domestic passenger and cargo traffic.

In addition to the metropolitan area, Cebu province as a whole is home to a variety of industries and hubs that provide raw materials for suppliers of finished products throughout the country. Some of these are plant-based inputs such as rattan, bamboo, Manila hemp, raffia and wood. Materials derived from marine life, including shells and pearls are also widely available.

Rizal, Quezon, Laguna and Pampanga These provinces are the Philippines’ major sourcing zones for wooden furniture. The first three are immediately adjacent to Metro Manila, and all four are roughly just one hour away by car from the metropolis. Each province has its distinctive style of wood processing. For example, Rizal is notable for pieces that feature intricate carving.

Bicol region Located on the southeast portion of the main island of Luzon, Bicol region is a major manufacturing center for wicker products such as baskets and furniture. It consists of six provinces although three are heavily involved in wicker goods: Camarines Norte, Camarines Sur and Albay. Raw materials are readily available within the region, which makes wicker manufacturing highly viable.

Special Economic Zones There are 308 Special Economic Zones (SEZ) located throughout the country as of July 2014. These SEZs are mostly privately owned but are overseen by the Philippine Economic Zone Authority, a governing agency under the Department of Trade and Industry. Locators in SEZs are granted the following fiscal and nonfiscal incentives: Edit For export and free-trade enterprises

Export Processing Zones There are currently 13 Export Processing Zones (EPZ) in the Philippines. Four are operated by the government through PEZA, and the rest by other government agencies and entities particularly created by law to administer them. EPZs are established to enhance export promotion, attract foreign direct investments and ensure opportunities for employment for the domestic labor force.