Eurada News nº390 - July 2019

More than Mangoes: Collaborative Opportunities in the Philippines

With a young workforce and growing economy, the Philippines offers several appealing fields for collaboration. This varies from industry and trade to agriculture, social enterprises for community development, and foreign linkages for innovation activity of firms.

Last month’s EURADA news introduced the Philippines and its development agencies in an article that is part of a “more than mangoes” series. This month, the series is ending by informing you and your organization about opportunities for cooperation in the Philippines. In its latest annual report, the Philippine Institute for Developmental Studies (PIDS) released its research findings on several categories for the timeframe 2015-2019 (2017). Of interest for our field are the results for the following categories: the Philippine industrial strategy and trade, modernization of agriculture, social enterprises and community development, and the impact of foreign linkages on innovation activity of manufacturing firms in the CALABARZON region.  This article will shortly discuss the first three categories and focus on the impact of foreign linkages on manufacturing firms. This article, part of the study published the month before, lists all other opportunities in detail.

The Philippines is considered as one of the fastest growing economies in Asia and after a long time of lagging behind neighbouring countries, it is now considered an Asian “tiger cub” along with other Southeast Asian countries like Indonesia, Malaysia, Thailand, and Vietnam. Its industry sector contributes 30.45% of GDP and employs 17.84% of the population. Industrial food processing is one of the Philippines’ main manufacturing activities. The big industries are dominated by production of cement, glass, chemical products and fertilisers, iron, steel, and refined oil products (Nordea, 2019). The country has adopted a strategy of building globally competitive industries and strong domestic and global linkages. This increases its attractivity for Foreign Direct Investments (FDIs). Additionally, the government has increased opportunities for foreign investors to participate in Public-Private Partnerships (PPP). Projects on the transportation sector such as new highways, subway systems, and development of airports are examples of the government’s ambition to collaborate with the private sector.  

On the agricultural side, the country has a land area of 30 million hectares, 47% of which is agricultural land. The total area devoted to agricultural crops is 13 million hectares. Food crops like rice and corn take majority of the land at 52%. The agricultural sector employs 25.31% of the labour force but unfortunately contributes only 9.66% of GDP due to low productivity, weak economies of scale and inadequate infrastructure (Nordea, 2019). The PIDS recommends an increase in farm productivity and support through capacity building activities along with access to legal advice to modernize the agricultural sector. An important government program to support this is the “One Town, One Product (OTOP)” program originating from Japan’s One Village, One Product. As the name suggests, each region has a product they highlight or promote to tourists and investors. Main products covered in the program include food, home, fashion, and agri-based items. This is an opportunity to establish cooperation and exchange of ideas between specific EU and Philippine regions as each Philippine region has products in these categories that they aim to sell and promote. This program also aims to drive inclusive local economic growth through empowering and highlighting Micro and Small and Medium-Scale Enterprises (MSMEs).

Social entrepreneurship is a promising concept which the Philippines’ social and cultural environment is a conducive framework for precisely due to the essence of what a social enterprise is. Unfortunately, the challenge lies with the current policy environment as it still views social enterprises as traditional MSMEs—simply a business. This perception contributes to the unresponsive growth of social enterprises in the country but the opportunity to change the situation is still open.

Another study conducted by the PIDS was on whether foreign linkages are beneficial to induce knowledge transfer and innovation. Foreign linkage is understood to be a firm that either engages in export activity, has a Multinational Corporation (MNC) or a Joint Venture (JV) customer in a foreign country that is a very important or somewhat important source of information and technology, or has an MNC or JV supplier in a foreign country that is a very important or somewhat important source of information and technology (Quimba & Calizo, 2017).  The study was carried out in the CALABARZON region because of its size of manufacturing compared to other regions. There is a large concentration of industrial activity in its provinces as well as a proliferation of industrial estates accredited by the Philippine Economic Zone Authority (PEZA). Results of the study showed that having foreign linkages and participating in the global value chain impact both process and product innovations positively. This is because a firm is likely to undertake product innovation including new product development if they use new technology that the firm has never used before. It is, however, interesting to note that firms owned completely by Filipinos are likely to engage in process innovation but not as much with product innovation. Nevertheless, these results demonstrate the inclination of firms to new knowledge and technology.

These areas of opportunity come with their own strengths and weaknesses but can be a good start to establish connections and cooperation in the Philippines. Additionally, the areas presented here are just a few examples of possible fields for collaboration chosen specifically because of the variable and more specific options within them.

For more information, visit:

COFACE for Trade. (2019, February). Economic Studies and Country Risks- Philippines. Retrieved from COFACE: https://www.coface.com/Economic-Studies-and-Country-Risks/Philippines

Nordea. (2019, June). The economic context of the Philippines. Retrieved from Nordea: https://www.nordeatrade.com/fi/explore-new-market/philippines/economical-context

Philippine Institute for Development Studies. (2017). Strengthening decentralization for Regional Development. Quezon City: Philippine Institute for Development Studies.

Quimba, F. A. & Calizo, S. C. (2017). Impact of Foreign Linkages on Innovation Activity of

Manufacturing Firms. Quezon City: Philippine Institute for Development Studies.

 

Written by Ivana Rae Almora, Stagiares at EURADA
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