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Trade war fails to bring promise to manufacturing

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The Philippine furniture industry is at a tipping point, says Nick de Lange, president of Designs Ligna. Despite the opportunities that have opened up because of the US-China trade war, the Philippines has failed to present itself as an attractive option for foreign firms leaving China. “We’re missing out,” said Mr. de Lange, who said that Philippine factories must invest in new capital equipment.
WATCH: bit.ly/Nick_de_Lange

By Jenina P. Ibañez

DEEP in a furniture factory in Laguna, past the workers cutting and polishing desks and chairs into shape, a group of men are rolling out the last of the crates from a warehouse once filled with lumber.

Designs Ligna, Inc. is scaling down its furniture factory after a slump in exports, which is not new. The furniture industry has been in a bind since buyers abroad, spooked by the 2008 global financial crisis, cut imports from the Philippines.

Industry experts earlier predicted that manufacturers fleeing the US-China trade war would bring growth opportunities to the Philippines — but that is not happening.

“The US is traditionally our biggest market for furniture,” said Nicolaas K. de Lange, president of Designs Ligna.

“With the trade war going on, manufacturers from China are looking at relocating elsewhere in the region. Most of them are going to Vietnam, and some go to Indonesia.”




The country’s furniture production has been falling since January. In August, output declined by 43.4% compared with 23.4% growth a year earlier. The country’s overall factory output has declined for nine straight months through August, according to the Philippine Statistics Authority.

Meanwhile, furniture exports fell by 23.5% in August from a year earlier, while sales for January to August declined by 9.2%.

Mr. de Lange, a former chairman of the Chamber of Furniture Industries of the Philippines, said the country is not attracting investors because there is no local infrastructure to support companies’ manufacturing needs.

The country’s factory workers risk losing their jobs as export companies scale down or close shop.

But wages and labor protection are also cited as reasons the country is not attracting enough investors.

“There seems to be a general hesitation to grow in size because of the fear of labor,” Mr. de Lange said in an interview at his factory in Laguna province.

Security of tenure under the Labor Code makes it difficult for factories to downsize as soon as sales go down in a precarious industry, he said.

But Alan A. Tanjusay, spokesman of the Associated Labor Unions-Trade Union Congress of the Philippines, said workers should not suffer.

“They are looking at labor as a commodity instead of looking at workers as a partner in business,” Mr. Tanjusay said in Filipino.

“That will cause difficulties for the business because it does not promote productivity, harmony and wellness in the workplace.”

ELECTRONICS SLOWS
He added that declining industries take their toll on workers who face unemployment and underemployment

Businesses could shift to contractual arrangements and may put the health of workers at risk if employers abandon safety standards to cut costs.

Meanwhile, electronic manufacturers from China are moving to Vietnam — not to the Philippines — given lower operating and labor costs there, said Danilo C. Lachica, president of the Semiconductor and Electronics Industries of the Philippines, Inc.

Mr. Lachica is concerned that changes in the country’s tax incentive program could further discourage investors. The semiconductor industry accounts for more than half of Philippine exports.

The proposed Corporate Income Tax and Incentives Rationalization Act now being reviewed by the Senate will rationalize tax incentives and gradually lower corporate income tax.

“Our operating, power and logistics costs are higher so it helps to have incentives,” he said in an interview. He expects job losses if investors leave.

Merchandise export sales slipped 0.1% year-on-year to $52.556 billion in the 10 months to September, the Philippine Statistics Authority reported on Wednesday. Electronic products, which made up 56% of the total, grew 2.2% to $29.654 billion in the same comparative 10-month periods, while semiconductors — which made up 73% of electronics sales and 41% of total merchandise export sales — edged up a percent to $21.688 billion.

Trade Export Marketing Bureau Director Senen M. Perlada said alliances in the trade war are moving, with US companies blacklisting Chinese suppliers.

The government, he said, can’t do much for electronics because the sector relies on global demand.

“The electronics slowdown had been happening before the trade war, as global value chains adjust to the switch in demand from 4G to 5G technologies,” Mr. Perlada said in a telephone interview.

Beyond foreign investment, Mr. de Lange of Designs Ligna is concerned about local industries. “You see the government luring foreign companies to invest in the Philippines. But what about Philippine manufacturers? How do we survive?”

Exports at Designs Ligna used to make up more than 70% of their market. Now it stands at 45%, and domestic demand is not strong enough to make up for the loss in exports.

Mr. de Lange said there is a healthy domestic market for furniture, but Filipinos are not buying local products. “I suspect that the local market is dominated by imports,” he said.

At the Designs Ligna factory, near the now-emptied warehouse, factory worker Noel D. Belarmino cuts pieces of wood into smaller planks.

He has been with the company for 32 years, having seen its heyday and its recent dip.

“There are countries that won’t buy from us any more because our prices are higher than theirs,” he said in Filipino.

But he is not worried. “Products made by Filipinos have better quality.”

Mr. Belarmino is aware of possible job losses as exports decline. But he is confident that the quality of their work will attract more buyers.

“If we work hard at finding clients, we can do it.”

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