The Philippines in the Automotive Global Value Chain May 2016 the Philippines in the Automotive Global Value Chain
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THE PHILIPPINES IN THE AuTOMOTIVE GLOBAL VALUE CHAIN MAY 2016 The Philippines in the Automotive Global Value Chain This research was prepared by the Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC) on behalf of the USAID/Philippines, through the Science, Technology, Research and Innovation for Development (STRIDE) Program as part of the Philippines Department of Trade and Industry (DTI) Board of Investment (BOI) Roadmap Initiative for the development of the manufacturing industry in the Philippines. The report is based on both primary and secondary information sources. In addition to interviews with firms operating in the sector and supporting institutions, the report draws on secondary research and information sources. The project report is available at www.cggc.duke.edu. Acknowledgements Duke CGGC would like to thank all of the interviewees, who gave generously of their time and expertise, as well as Richard Umali of the USAID Advancing Philippine Competitiveness (COMPETE) Project for his extensive support and feedback on earlier drafts. The Duke University Center on Globalization, Governance & Competitiveness (Duke CGGC) undertakes client-sponsored research that addresses economic and social development issues for governments, foundations and international organizations. We do this principally by utilizing the Global Value Chains (GVC) framework, created by Founding Director Gary Gereffi, and supplemented by other analytical tools. As a university-based research center, we address clients’ real-world questions with transparency and rigor. www.cggc.duke.edu Center on Globalization, Governance & Competitiveness, Duke University © May 2016 The Philippines in the Automotive Global Value Chain FINAL DRAFT FOR REVIEW May 2016 Prepared by Timothy Sturgeon, Jack Daly, Stacey Frederick, Penny Bamber and Gary Gereffi Center on Globalization, Governance & Competitiveness, Duke University Prepared for USAID/Philippines This study is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of Duke University Center on Globalization, Governance and Competitiveness and do not necessarily reflect the views of USAID or the United States Government. The Philippines in the Automotive Global Value Chain Table of Contents Executive Summary .......................................................................................................................................... iv 1. Introduction ............................................................................................................................................... 1 2. The Global Automotive Industry .......................................................................................................... 2 2.1. Mapping the Automotive Global Value Chain ................................................................................... 4 2.2. Global Supply and Demand in the Automotive GVC ...................................................................... 7 2.3. Firms and Governance Structures in the Automotive GVC .......................................................... 9 2.4. Upgrading in the Automotive GVC .................................................................................................. 12 3. Lessons for Upgrading from Vietnam and Thailand ....................................................................... 16 3.1. Vietnam ............................................................................................................................................. 17 3.2. Thailand ............................................................................................................................................. 18 4. The Philippines and the Automotive Global Value Chain ............................................................ 23 4.1. The Development of the Auto Industry in the Philippines .......................................................... 24 4.1.1. Investment Regimes ..................................................................................................................... 25 4.1.2. Key Firms ....................................................................................................................................... 26 4.2. Current Participation in the Automotive GVCs ............................................................................ 28 4.3. Evidence of Industry Upgrading ......................................................................................................... 32 4.4. The Philippine Automotive Workforce ........................................................................................... 36 4.5.1. Advantages ..................................................................................................................................... 38 4.5.2. Challenges ...................................................................................................................................... 39 4.6. Potential Upgrading Trajectories ....................................................................................................... 41 5. References ............................................................................................................................................... 44 6. Appendix .................................................................................................................................................. 48 Tables Table E-1. Possible Upgrading Trajectories in Automotive GVC ....................................................... viii Table 1. Global Automotive Exports by Value Chain Stage and Subsector ....................................... 8 Table 2. Global Leaders in Motor Vehicle Production, 2013-2014 ...................................................... 9 Table 3. Motor Vehicle Companies that Eclipsed 1 Million Unit Threshold, 2014 ......................... 10 Table 4. Top 15 Global Suppliers in 2014 by Sales ................................................................................. 11 Table 5. Possible Industrial Policy Strategies for Upgrading in the Automotive GVC ................... 13 Table 6. Top 10 World Exporters of Wire Harnesses in 2014, 2007-2014 .................................... 15 Table 7. Philippine Automotive Exports by Value Chain Segment, 2007-2014 ............................... 23 Table 8. Investment Regimes for the Philippines Automotive Industry, 1916-2015 ....................... 25 Table 9. Major Auto Parts Companies in the Philippines ..................................................................... 28 Table 10. Philippine Top 10 Automotive Exports in 2014 by Value, 2007-2014 ............................ 30 Table 11. Wire Harness Companies in the Philippines by Year Established .................................... 31 Table 12. PEZA Investments by Firms Serving Automotive Value Chain, 1978-2015 ................... 34 Table 13. Functional Upgrades into Automotive R&D in the Philippines ......................................... 35 Table 14. The Philippines in the Automotive GVC 'SWOT' Analysis ................................................ 37 Table 15. Sales of Motor Vehicles in ASEAN Countries by Year, 2011-2015 ................................. 40 Table 16. Public and Private R&D Spending as Percentage of GDP, 2004-2013 ............................. 41 Table 17. Top 10 Imports, by Value, of Philippines Wire Harness Exporters, 2014 ...................... 42 Table A-1. CKD vs. CBU Sales in the Philippines, 1990-2011 ............................................................. 48 Table A-2. Auto Companies Located in PEZAs by Segment, Date of Investment .......................... 48 i The Philippines in the Automotive Global Value Chain Table A-3. Philippine Top 10 Export Destinations for Wire Harnesses by Value .......................... 48 Table A-4. Upgrading in Laguna Technopark ........................................................................................... 49 Table A-5. Supporting Automotive-Specific Stakeholders by Focus Area ........................................ 49 Table A-6. Motor Vehicle HS Codes ......................................................................................................... 50 Table A-7. Top 10 Exporters of Wire Harnesses (HS Code 854430) in 2014 ............................... 52 Figures Figure E-1. Philippine Participation in the Automotive GVC ................................................................. vi Figure 1. The Automotive Global Value Chain ......................................................................................... 4 Figure 2. Philippine Participation in the Automotive GVC ................................................................... 29 Boxes Box 1. E-Vehicles Could Lead to Transformative Change .................................................................. 14 Box 2. Wire Harnesses, an Evolving Niche for Developing Countries ............................................. 15 Box 3. Upgrading within the Automotive GVC in Laguna Technopark ............................................ 36 ii The Philippines in the Automotive Global Value Chain Acronyms ADB Asian Development Bank ASEAN Association of Southeast Asian Nations BOI Board of Investments BPO Business Process Outsourcing CAMPI Chamber of Automotive Manufacturers of the Philippines Inc. CARS Comprehensive Automotive Resurgence Strategy CBU Completely Built Up CDP Car Development Program CESDR Center