I recently got an invitation from the Board of Investments (BOI) to attend a workshop with the theme “Integrating SMEs into the Automotive Global Value Chains.” The Philippines will be hosting the 22nd Apec Automotive Dialogue (AD) from April 22 to 24, which is the forum for industry and the government to discuss a broad range of topics that affect the automotive trade in the Asia-Pacific region.
Being in the automotive industry myself, I immediately accepted the invitation from the BOI to attend the workshop. It also got me thinking about our auto industry compared to Thailand, which has been called the Detroit of Asia due to its extremely successful auto industry. Imagine Thailand, with a population of 67 million, in 2014 produced 1.88 million vehicles of which 1.15 million were sold in their domestic market and the rest were exported to other countries like the Philippines. In comparison, the Philippines, with a population of more than 100 million, only sold 269,841 vehicles domestically in 2014. This is less than 24 percent the demand in Thailand in spite of having a population that is almost 50 percent larger than Thailand!
Is there hope for the Philippine auto industry? I would like to think that there is, but we have to play our cards right. First of all, looking at the success story of Thailand, the automotive industry has become so much a part of the Thai economy that they currently have 709 Tier 1 auto parts suppliers and 1,700 Tier 2 and 3 suppliers. The initial thought is to probably try to convince those Japanese, Korean and American car companies with significant manufacturing facilities in Thailand to relocate or, at the very least, put auxiliary manufacturing facilities in the Philippines.
Well, that is wishful thinking, since with the Asean integration there are no more customs duties and taxes moving goods within the Asean. These manufacturing facilities in Thailand would rather focus on economies of scale and just export to their free-trade markets. This is exactly what has happened in the case of Thailand. In spite of the recent political unrest and natural calamities in Thailand, these companies stayed put and plan to increase their production capacity to 3 million vehicles in 2015. The Philippines, on the other hand, has a declining percentage of locally assembled vehicles sold in the domestic market. Clearly a case where the Asean integration has not worked in favor of the Philippines.
What we need to do is to attract large auto companies who still have no manufacturing base in the Asean. This is probably easier said than done since the larger ones have already put up their production facilities in Thailand. That leaves us with only one viable option, China! The world’s largest auto market with 24 million units sold in 2014 alone. The Philippines should aspire to be the Chinese base, like what Thailand is to the Japanese, Koreans and Americans.
The tricky part is overcoming the Sinophobic attitude of some Filipinos, particularly with the ongoing territorial disputes. The government should take the lead in separating politics with economics.
Diplomacy can be achieved without giving up our rights so that we can take advantage of the economic benefits of being the Chinese auto base that exports to the rest of the Asean. The Philippine auto industry missed the boat the last time, let’s do the right thing and not miss the last boat.
(Comments may be sent to georgechuaph@yahoo.com)