JAIME AUGUSTO ZOBEL DE AYALA Philippine Manufacturing ...industry.gov.ph/wp-content/uploads/2016/12/... · Keynote Speech Manufacturing Summit November 29, 2016 Second, we have an

JAIME AUGUSTO ZOBEL DE AYALA 1 | P a g e Keynote Speech Manufacturing Summit November 29, 2016

JAIME AUGUSTO ZOBEL DE AYALA Philippine Manufacturing Summit November 29, 2016 | Makati Shangri-la Hotel KEYNOTE ADDRESS

Good morning to everyone. Thank you to Secretary Ramon Lopez and the DTI for inviting me

today. I am especially delighted that we are gathered here to discuss the potential of

manufacturing, which is a timely and exciting opportunity for the Philippines.


Today, I would like to touch on why we believe the Philippines is well-positioned to

capture the opportunities in manufacturing. I hope that the video we just showed gave

you a sense of why we believe we can leverage the country’s unique proposition as a

viable destination in this space.

Let me begin by giving an overview of the environment today and why we think it is ripe

for investments in this field.


First, we have an economy that has been able to sustain its growth momentum against

global economic and geopolitical headwinds and natural disasters. Sound fiscal

management, structural reforms, and good governance implemented by past leadership

teams have created an enabling environment for enterprises to participate in sizeable

investment opportunities.


Second, we have an abundance of qualified workers that can support a resurgence in

manufacturing. We have a highly adaptable human capital base of professional, skilled, and

unskilled workers that can be readily employed to take on manufacturing roles. In addition, we

are entering a demographic window that will result in a highly productive workforce over the

next decade. Last year, there were 37 million Filipinos between the ages of 24 and 55. By

2050, this is expected to rise to over 60 million within that age group.


Lastly, the emerging trends in global manufacturing operations present a unique

window for the Philippines to establish itself as a pioneer in high-value operations in

the Southeast Asian region.

Technological breakthroughs that enable extreme connectivity and extreme automation

around trends such as artificial intelligence, robotics, the Internet of Things, and autonomous

vehicles are disrupting business models in an accelerated pace.

While it is difficult to predict how this technological transformation will unfold in the long run,

the magnitude of these changes are starting to reshape economies, industries, and societies.


In particular, disruptive technology-driven trends such as autonomous driving and

electrification are redefining the global automotive sector. With growing global vehicle

production, the rise of hybrids and electric cars, as well as constant innovation in automotive

systems, the current 40% share of electronics in the total cost of a car is estimated to increase

to over 50% by 2025.


Moreover, there is an emerging shift in supply chain strategy, where manufacturers are

increasingly finding it more sensible to produce their goods closer to their core

markets. This is also known as “nearshoring” or “build where you consume”. The rising

cost of manufacturing in China, concerns on intellectual capital protection as well as on

customer responsiveness and turnaround time of the supply chain have made distance

outsourcing less compelling in recent years.

There are increasing examples of manufacturers who have shifted to “nearshoring”. Let me

cite a few. Three years ago, Lenovo set up a production line for personal computers in North

Carolina to better serve its US-based customers. Spanish-owned Inditex, which owns the Zara

retail chain, keeps more than half of its apparel manufacturing within Spain, Portugal, and

other nearby countries to allow its brand to respond better to fast-moving fashion trends.


Our group has also made a similar move. IMI, our electronics manufacturing company,

strategically established its automotive electronics division in Bulgaria for proximity to the

original equipment manufacturers based in Europe who are the end-users of its products.

Reflecting on these emerging trends, I believe the Philippines can position itself as a

viable destination for manufacturing investments.


We all know the unprecedented growth that our automotive industry has achieved in recent

years. Since we reached the motorization point of 2,500 dollars in GDP per capita in 2012,

vehicle sales have been growing at an average rate of 18% annually. However, out of the

320,000 units in vehicle sales recorded last year, only 30% are locally manufactured. I believe

this presents a compelling opportunity to take on a “build where you consume” strategy for the

Philippine automotive industry.


Traditionally, our manufacturing industry has been focused on the lower end of the value

chain. For many years, the semiconductors and electronics segments have been the most

dominant contributor to the industry. We are one of the top producers of electronic products

and traditional automotive components globally.


While this is not a bad thing, the disruptive trends that are taking place in the global automotive

space have opened up a host of untapped opportunities that the country can leverage to move

up the value chain. I view this as a unique but fleeting window for the Philippines to pioneer in

an emerging ecosystem and carve out a niche in higher-value areas of automotive

manufacturing. Allow me to elaborate on this by citing our own experience in the Ayala

group and the transformation story of IMI.


As you saw in the video, IMI in recent years has evolved to become a global provider of

electronics manufacturing services for the automotive, industrial, medical, and

telecommunications industries.


It has established a diversified geographic footprint and today, it now counts China, Eastern

Europe, and Mexico as its largest markets outside the Philippines, employing 14,000

individuals.


IMI was founded by the Carlos family of the Resins group 36 years ago. Shortly after, Ayala

partnered with the family. IMI then was a computing assembly operation targeting the

Japanese market.


Over a decade ago, IMI made a deliberate move to reinvent itself in response to the challenges

and volatility of the global economy. It diversified into fast-growing and high-margin segments

to create differentiated solutions that enable its customers to redefine their industries. These

segments continue to drive IMI’s growth amidst challenges in the global manufacturing sector.

Today, IMI is the 21st largest EMS provider and the 6th largest automotive EMS supplier in the

world.


IMI has found a niche in manufacturing extremely complex safety and control systems for

automobiles. Its automotive camera modules are a component that goes into the advanced

driver assistance system or ADAS applications. ADAS is a safety system developed to avoid

collisions and accidents using “sensing cameras” that IMI supplies to some of the leading

global tier 1 manufacturers. ADAS is the fastest growing market in automotive, estimated to

grow at an annual compounded rate of 15% by 2020.


We are seeing great potential in automotive camera modules as the industry increasingly

moves towards self-driving cars. A study by the World Economic Forum shows that 78% of

business leaders believe that driverless cars will equal 10% of all cars on US roads by 2025.


IMI continues to expand its technology and product portfolio. Last August, it acquired a 76%

stake in German company VIA Optronics, a leading optical bonding and display solutions

provider. VIA’s proprietary technology strengthens IMI’s position in offering complementary

automotive camera and display monitor solutions for ADAS.


Further, our group partnered with KTM, the largest motorcycle manufacturer in Europe, to

distribute and manufacture motorcycle models in the Philippines under the KTM brand. Initial

plans for the manufacturing facility is to have an annual production of 20,000 units, primarily

for export to China and subsequently, to other Southeast Asian countries. This manufacturing

facility will be located in IMI’s complex in Laguna.


Early this year, we also formed a new unit called AC Industrials, to take advantage of

opportunities in emerging trends in the global automotive manufacturing space. We are

currently assembling a portfolio of investments in industrial technologies to be housed under

AC Industrials, including IMI and our automotive dealership unit AC Automotive. Through IMI

and AC Automotive, we are leveraging our group’s experience and expertise to deepen our

presence across a wider spectrum of the automotive value chain—from manufacturing, to

distributorship and dealership, to assembly, and to tier 1 technologies.


IMI is only one of the many examples of how an organization’s ability to innovate, quickly adapt

to evolving landscapes, and take a certain level of risk can successfully transform itself,

compete globally, and maintain its relevance in a changing economic environment.


The final point I want to make revolves around public-private partnerships. Achieving

a sustainable revival of the manufacturing industry will require collaborative efforts

between the government and the private sector.

With an environment that is ripe for transformation, I believe that the Philippines can position

itself as a viable destination for automotive manufacturing investments if we can work together

in addressing some of the key challenges. It is for this reason that I welcome this gathering

today.


First, I believe it is imperative that we develop an integrated country strategy for the

manufacturing sector under a single and unified roadmap across the entire spectrum of the

supply chain. The country strategy should cover a wide range of areas like policies, incentives,

as well as mechanisms to empower the micro-, small-, and medium enterprises, who are

important participants in the manufacturing supply chain. In addition, this entails collaboration

across different government agencies such as the DTI and the DOST.


Second, we need to accelerate investments in infrastructure development, particularly in

transport. The current administration is already addressing this gap with a target to raise

infrastructure spending by at least 5% of GDP in 2017.


Finally, the government and the private sector can collaborate in retooling and building new

skills in our existing workforce. While we have a qualified workforce that can be readily

deployed to take on varying levels of manufacturing roles, the accelerated pace of

technological disruptions can result in a potential skills gap. We need to develop a workforce

who are agile and can be highly flexible to changes.


We are putting our money where our mouth is. Our group has embarked on a related endeavor

through AC Education. We partnered with UK-based Pearson Education to set up APEC

Schools, a high school designed to train its students with the skills and values relevant to

employers and help them achieve the best possible career tracks out of high school. APEC

Schools uses a blended learning model—combining digital content with traditional methods—

which integrates practical and soft skills into the curriculum. To date, APEC Schools have over

10,000 students enrolled in 27 sites in Metro Manila and nearby provinces.


In conclusion, I believe that the disruptive trends taking place in the global automotive

space have opened up a host of untapped opportunities that the country can leverage

to move up the manufacturing value chain. I view this as a unique window for the

Philippines to pioneer in an emerging ecosystem and carve out a niche in higher-value

automotive manufacturing.


I am a strong supporter of a sustainable resurgence of the Philippine manufacturing industry,

both as a way for our country to remain globally relevant and as a way to create employment

with greater scale. With its enormous and inclusive job generating ability and large multiplier

effect, a robust manufacturing industry can truly stimulate economic prosperity for a broader

segment of Filipinos.

We are all ready to do our part, and I believe that with stronger collaboration, we will be able

to take this engagement to the next level and bring this aspiration to fruition.

Thank you.

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JAIME AUGUSTO ZOBEL DE AYALA Philippine Manufacturing ...industry.gov.ph/wp-content/uploads/2016/12/... · Keynote Speech Manufacturing Summit November 29, 2016 Second, we have an