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68 J OURNAL OF PHI LIPPINE DE VELOPMENT

In addition the textile industr y s output satisfiesa basichumanneed, the fulfillment of which i s a desirablegoal both sociallyaswellas politically .

Governments in developing countries, therefore, have lookedupon the textile industry with kind eyes, and, in recognition of itsimportan ce, have conferred it with variousincentivesto encourageitsexpansion.

This study is a co mp arison o f the performance of the textileindustry in the Philippines and Thailand, two ASEAN countriesatsimilar levelsof econo mic development whose industrial structuresreflect the prominent pla ce which the textile industry occupies intheir industrialization efforts. In the Phili ppines, the industry isfifth in terms of share in total manufacturing value added; in Thai-land it ranks secondto the food industry. The textile industry is amajor employ e r, cont ributing close to 15 per ce nt of total manufac-turing employment in the Philippinesand 25 per ce nt in Thailand.

The Philippines pioneered in textile production in the ASE ANregion. Large-scaletextile manufa cturing beganas early a s 1 906 andby the 1950s and early 196Os, the Philippineshad attained a spind-

leage equivalent to that of the Far East in the 1960 s . Thailandwas a latecom e r; its moderntextile factory startedoperationsonly inthe 1950s but a heavy buildup of productive capa city occurred inthe late 1960s. A com parisonbetween the Philippinesand Thailand,therefore, brings into focus the cont rast between a pioneer and ala tecom er in text ile ma nufactu ring.

The study i s divided a s follows . Section 1 define s the textileindu st ry s cover a ge. Section 2 looks at integration and concentr a tionin th e textile industry. Section 3 examine s the indu s try s perform-ance in terms of output, export and pr oductivity with focu s on thelatter. A productivity compari s ion is undertaken b e tween th e Philip-pines and Thailand, and an att empt i s made to explain the produc-tivity differences between them , Greater s tress i s laid on total factorprodu c tivity (TFP) mea s ure s a s a gain s t partial produc tivities tocompare the two countrie s productivit y perform ance .

TEXTILE INDUSTRY COVERAGE

The who le ra ngeo f te xti le act ivitiescove rs(1) fibe r prod uct ion,both natural and man-made;and (2) yarn fabric, garmentand made-up textile manufacture. As usually defined, the textile industrycompris e s ( 1) the primary processingsector -spinning, twisting,weaving knitting dye ing and finish ing; and (2) the secondaryproc e ssingsector - garmentand made-up textile goodsmanufactu-


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SANCHEZ : TEXTILE INDUSTRY 69

ring. The e xclusion o f nat ural and man-m ade fiber pr oduct ion isborne out by the consideration of the former as an agriculturalac tivity and of the latter as part of the basic industrial chemicalsindustry. In this study, the textile industry i s defined to includethose establishmentsengaged in the manufactureof man-madefiber,yarn and fabrics. Man-made fiber production ha s been includedbe ca useof the specialrelationshipbetweenthis and the text ile indus-try s primar y processingse ctor, while garment production hasbeenexcluded since it deservesseparatetreatment. The P h ilippines indus-trial classifi ca tion system considersgarment manufacturing a s anindustry seperatefrom textile production while Tha iland treats it asa pa rt of the t e xtile industry. To achievedata com pa rability adjust-mentswere madeto Thailand s textile statist ics.

INTEGRATION AND CONCENTRATION IN THE TEXTILEINDUSTRY

Integration

Ba s ic to textile production are the s tageso f spinning, weaving

knitting and fini s hing . Spinning involve s the conver s ion of naturaland man-m a de fibres into yarn s and threads. The weaving proce ssturn s out woven fabri cs; the knitting proce s s, knitted fabrics. Th ef_nis hing s ta ge improv es the appearance, texture and quality offabrics through bleaching, dyeing, printing and treatment.

Firm s in the textile industry can be cla ss ified broad ly into twoma in ca te gorie s depending on the number of proce s sing s tage s theyundert a ke. Th e re are the integr a ted firm s which perform all threes ta ge s of te xtile manufacture and the nonin tegrated firm s which

pe rform one o r two of the ba s icsta ge s .In the Philippines the t extile industry i s dominated by integ-

rated firms which acc ount for ov e r 30 percent of total textile em-ploymen t ab out 48 percent of tex tile value added and 37 percentof to tal book v a lue of fixed a ss et sheld by the industry . They havethe highes t s pindl e and loom capaci ties with shares of 5 8 percentand 82 p e rcent ( avera ge for 1967 to 1984) in the total number ofsp indle s and looms, r e spectiv e ly. The prominence of inte g rated firm sha s been the outcome of the interplay of government policies andde c is ions made b y private inve s tors . Government fi s cal incentive s andfinancial a ss is tanceto the industry in the 1950s encoura ged verticalintegrati on, on the one hand; on the other textile producers s howeda pref e rence for vertical integrat ion becau s e o f the greater control ita fforded them over their oper a tions . Vertical in tegration practicedin the Philippine s rather than conferring advantages by way of co s t


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70 JOURNAL OF PHI LIPPINE DEVELOPMENT

reductions, has led to overcapacity and inefficiencies. A World Bankstudy, f or instance, has reported a p e r-spindleproductivity o f integ-rat e d spinners that is lower than that o f nonintegrat e dones. And,while the share of integrated firms in total book valu e of and totalexp e nditure in fixed assets is the highest in the industry, theircapital productivity isone of the lowest.

In Thailand, the vertically-integratedfirms are mostly those injoint venture with foreign ca pital. Verti ca l integration holdsa specialattraction for foreign partn e rs be ca use of the needed flexibility tocompete internationally that it provides.In addition, verti ca l integra-

tion lessensthe de pe nd e nce on the internal distribution systemwhich be ca use of dif ferences in languageand business pra ct ices,tends to hinder rather than enhanceefficient produ ction.

Verti ca l int e gration has been more prevalent in the syntheticrather tha n p ure cotton se ctor of Thailand s textile industry. This isbe causeof the lack of development in the weavingse ctor for synthe-tic fiber and the more developedweavingsectorfor purecotton.

In 19 77 , 63.6 per ce nt of s pinning in Thailand wa s verti ca llyintegrated. Most l a rge integrated firms were joint ventures with

Ja panese investment. Syntehtic production, in particular, is heavilydominated by the Japanese. S tudies (those by I keda ( 1982)andBuddhi karant (19 73) in pa rticular) show that Ja pa nesecompaniesare moreefficient in generatingvalue added than Thai firms.

Concentration

Compet ition is a spur to productivity inasmuch a s in a competi-tive environment, firms must produce e fficiently in order tos urvive. Inefficiency spells dea th. The extent of competition withinan indu st ry is indicated by the level of concentration .

The textile industry in the Philippines is highly concentrated,with 61 percent of asset s , 49 percent of sale s and 44 percent ofemployme n t controlled by the large s t four est a blis hment s . Concen-tration, measured in terms of the sh a re of the large s t three andlarge s t five establishment s in total spindle capa c ity, s how s a declinefrom 26.1 and 39.5 percent in 1975 to 16.7 and 25.1 percent in1984 re s pectively.

In Thailand, the spinning and fiber production sector s of theindu s try are marked by high con ce ntra tion lev e ls . But the highlyconcentr a ted market structure is slowly being eroded by greatercomp e tition pr es ented by new entrant s . Tha ila nd s synthetic fiberprodu c tion began as the monopoly of two Japane s e companies,The ir s ha re in total fiber production wa s 100 percent in 1970 andfell to 5 3 percent in 1 978. The tr end tow a rds reduced concentrat ion


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SANCHEZ: TEXTILE INDUSTRY 71

is evident also in sp inni ng. In 1975 the ten largest spinning firmsaccounted for 62.7 percent of total spinning capacity; this drop pedto 51 .4 percent in 1978.

TEXTILE INDUSTRY PERFORMANCE

Output Performance

Thailand s textile industry outdistan ce s its counter pa rt inthe Phili ppines in output performan ce . Over the 197 5-84 p e riod textile output grew at an average rate of 9.8 p e rcent in Thailand

compared to 0.6 pe rcent in the P hilippines (see Table 1 ). Thailand srapid output growth, however, slacken ed from an average 14 pe rce ntgrowth between 1975 and 1979 to 5 pe rce nt between 1980 and1984. A similar pattern occurred in the P hilippines- textile outputgro wth slowed down from 3.8 pe rcent in 1975-79 to -2.7 pe rcentin 198 0-84. The downturn has been at a rate faster than Thailand s.

Export Performance

Based on the product cycle model, the development stag e swhich an industry is likely to follow are: (1 )the preproduction stagewhen all of domestic demand is met b y imports; (2) the imports ubs titution stage when local p roduction be gins an d impo rts decre a sebut are not totally eliminated since local production would still beinsufficient to meet domestic demand; (3) the export starting stage

Table 1

PHILIPPI NESAND THAI LA ND: TEXTI LE OUTPUT GROWTH RATES PERIOD AVERAGES, 1975 - 84(In perc e nt)

P e riod Philippines Thailand

1975 - 8 4 0.56 9.78

1975- 79 3.85 14.241980- 84 -2 .73 5.33

Sources of basic data: Statistical Bulletin Central Ra nk of the P h ilippines; TextileMills Association of . the Phili pp ines; Res earch Division The Thai Textiles Ma nu facturingAssociation.


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72 J OURNAL OF PH I LIPP INE DEVELOPME NT

when local produc tion e xce eds impo rts and produc ts be gin to beexported; (4) the export expansion stagewhen ex po rts rise rapidly;(5) the _maturingstage when exports hit a maximum and importsreappeargradually;and (6) the re-import stagewhen production stag -nates and imports once again Sur pa ssexports. The Philipp inesandThailand s textile industrieshavedeve lope d accordingto this pattern.

Import substitution asa development strategyin the Philippinesbegan in 1949 when import and foreign exchange controls wereimposedto remedy the crisisin foreign exchangetrigg e redby a hugetrade deficit and a decl ine in the flow of dollarsfor war damageandrehabilitation. The textile industry, one of the leadingsectors identi -fied for p romotion, was given access to dollar allocatio ns formachinery and raw material imports as well as easy accessto loansfrom government f inancial institutions for ca pacity buildup andex pa nsion. Helped by a protective wall erected by import controlsand government incentivesto new and pioneer industri e s,the t e xtileindustry in the Ph ilippines grew rapidly during the initial stagesofimport substitution. But by the mid-1960s, ex pa nsion of the indus-try pe tered out as over ca pacitydevelop e d.

A few years following the de facto devaluation of the pes o inFebruary 19 70, the P hilip pine government switched from an inwardlooking to an outward looking development strategy. Exportswhichbefore were pe nalizedb y po liciesdi rected towards promoting importsubstituting industriesbe cam e the focus of governmentattention. Tostimulate industrial ex ports, the government introduced variousexport incentives- the Export incentives Act of 1978; the credit onduties pa id on imported materialsand supplies;double deduct ion ofshipping costsand promot ional expensesfor ex po rts; and establish-

me nt of an export processingzone , which together with the 197 0 defacto devaluation,mad e ex po rting a profitable activity .

Under this favorable export e nvironment, texti le ex po rts gr e wfrom an ave rage rate of 6.4 percent in 1963-69 to 30.9 percent in1970- 78. Textile fiber, yarn and fabric exports, in real terms, gene-rated foreign exchange earnings that jumped from an average ofUS 25.9 million in 19 71 -197 7 to U853 7 .2 million in 1978-84. Theindustr y s ex port growth kept in closestep with the growth of totalexports. Between 1971 and 1984, textile fiber, yarn and fabricexports registeredan annual growth rate of 6 p e rc e nt, just slightlylower than the 6.3 per ce ntannual .growthrate of total exports.

Thailand s import substitutionstageextendsfrom 1959 to early1970 s . To encourage the textil e , industry s expans ion, the Thaigovernment accorded it tariff protection, imposing tariff rates of22 -35 pe rcent on textile fabric imports and 20-25 pe rce nt on cotton


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and synthetic yarn imports; in addition it conferred it with non-tariff promotional m e asur e ssuch asa fiv e -yea r exemption from co r-porate income tax unrestrict e d importation of machin e ry andequipment, and a two-year ex e mption from raw material duties.

A rapid expansionof the industry occurredduringthe periodofimport substitution. Ex pa nsion was in three phases - 1950-62 wasthe first expan s ion phase; 1963-66 the secondexpansionphase;and1967-72 the third ex pansion phase.The first ex pa nsion phasewascharacterized b y the concentration of production in cotton*basedprodu cts ( co tton yarn and fabrics) and b y inves tme ntsb y local e ntre-preneurs in highly mechanized textile mills with mainly Europ e antechnology. Expansion in the second phasewas the result of Ja pa-nese invest me nt in local companies in particular, in synth e ticspinningand w e aving. S ynthetic fiber productionstarted in the thirdex pa nsion phase.

Thailand s exp e rience was an example of successfulimportsubstitution in textile produ ction. Thailand obtained an overallself =s ufficiencyratio of 1o00 in 1975 and 1.09 in 1980. It was thisexc e ss supply of textile productsthat was o ne of the driving for ce s

behind Thailand s movetowards ex po rts.In the late 1960 s , Thailand switched from an import substitu-tion to an export promotion strategy. In 19 72, the government offi-cially promoted textile ex po rts, givingfirmswith promotional statusince ntives which included among others the exemption of raw mate-rials from import duties and businesstaxes; and the reduction,on the basisof export salesincrease,of assessablenco me for pur-pos e sof taxation. Firms gain e d promotional status by ex portingno lessthan 65 per ce nt of their output.

The response of textile ex po rt s to the shi ft in strat e gy wasfavorable as se e nfrom the rapid growth of textile ex po rts - 28 per-cent bet we en 19 75 and 1984 - and the rise in the proportion ofex ports to imports from 0.64 in 1974-79 to 0.8 1 in 1980-84.

Thailand s export performance hasbeen more remarkable thanthat of the Philippines. The fact that in 1977 Thailand had alreadyreached the ex po rt expansion stage in co tton and ma n-made yarna nd fabric pr od uction while the P hilippines,su pposedlythe pioneer wa s still in th e ex po rt starting stage attests to this, The more ad-vanc e d stag e of develop me nt of the Thai textile industry may bedis ce rned from Tables 2 and 3 wheretextile ex port-import ratios forthe P hilippinesand Thailand for the years 1974 to 1984 are shown.

Textile exports a s a proportion of imports are higher in Thai-land than in the P hilippines- 1.35 for Thailand between 1974 and1984 as against 0.3 2 for the Philippines ( s ee Tables 2 and 3). Not


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Table 2PHI LIPPINES: EXPORT-IMPORT RATIO, BY TEXTI LE PRODUCT

PERIOD AVERAGES, 1974 -84

Pe riod All Man- Other Text Cotton Other Tulle, Specmade man -made yarn fabric fabric lace textfiber fiber etc.

1974_4 .2 7 .00 .01 .19 2. 79 .79 1 .22 1.1 2

1974- 79 .30 .00 .01 .2 2 3.11 .69 1.0 7 1.14

1980-84 .31 .03 . 02 .77 .02 .41 .37 1 .25

Sourceof basicdat a : Foreign TradeStatistics , Nationa lCensusa nd Statisti csO ffice .

Table 3

THAILAND: EXPORT-IMPORT RATIO BY TEXTILE PRODUCT,PERIOD AVERAGES, 1974-84

Period All Man-mad e Co tton Man-made Co tton Man-made Knittedfiber yarn yarn fabric fabric fabric

19 74-84 1.35 0.20 8.18 1 .50 2 .70 1.69 0.01

1974-79 1 .37 0.23 13.98 1 .39 2 .99 1.67 0.01

1980 _4 1.32 0.18 2.37 1.62 2 .36 1.72 0 .00

Sourceof basicdata: Research Division,The Thai TextilesManuf acturingAssociation.

only has the e xpo rt-impo rt ra tio b ee n highe r fo r Thai lan d_ its rat e ofincreasehas also been faster. Between 1974 and 1984 Thailand sex po rt- import ratio increasedat an averagerate of 1 8 percentwhilethat of the Phili ppinesincreasedb y a mere0. 2 percentove r the sameperiod (see Table 4). The he ightenedex po rts relative to imports ofman-made yarn and fabrics explain much of the observed rise inThailand s export-import ratio. In these commodities, Tha iland hasbecome a n e t exporter just as it hasbecom e a net exporter in cottonyarn and fabrics; in man -madef iber and knitted fabric, however, itrema ins a net importer. The P hilippines,whether in fiber or fab ric


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SANCHEZ; TEXTILE INDUSTRY 75

Table 4PHILIPPINES AND THAI LA ND: GROWTH RATE OF

EXPORT-IMPORT RATIO,PERIOD AVERAGES 1975-84

(In percent)mr 1

Period Philippines Thailand

1975_4 8 18

1975-79 20 44

1980-84 -5 -8

Source sof basic .data:Sameasfor Table s 2 and3.

has been a net importer. Imports of fiber and fabrics far exceed theirexports as the low export-im port ratio indicates.

To assessthe international competiti veness of Philip pine andThai textile products an international competingpower index (ICPI)givenby

ICP I = (Xi -- Mi)/(Xi + Mi)where

Xi = export value s of product i

M_-= import valu es of product i

ha s been compu ted the re s ults of which are s hown in T a ble 5. Apo s itive figure indicate s a trade s urplu s and implies a strong interna-tiona l competit ivene ss of a country s expor ts while a negative figuresu gg e s tsei ther tha t the coun try has no expor ts of the product orthat it s product la cks in te rna tiona l competitivenes s .

The index for Thail a nd s hows incre as ing competitivenes s - itsICPI improv ed from 0.08 in 1974-79 to 0 .13 in 1980-84, attributablemainly to the improved compet itivene ss of ma n -made ya rn and

fabric export s . The Philippine ICPI averaged--0.60 over the 1974 to1984 period. Between the s ubperiod s 1974-7 9 and 1980-84, the ICPIdeclined from -0,50 in 1974 -79 to -0.54 in 1980-84.

The Thai textile indu s try s great e r export orientation relative totha t of the Philippine s can be attributed, in part to the nature ofowne rshi p o f textile e nter p rises.


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Table 5PHI LIPPI NES AND THAI LAND: I NTERNATIO NAL COMPETING POWER

INDEX (ICPI)* PERIODAVERAGES,197 5-84(In perc e nt)


1975-84 - 0.58 0.08

197 5-79 - 0.55 0. 131980 -84 - 0.54 0.10

*Computedfrom IC P I = (X - M) / (X + M) wh e re X and M a re textile export andimpo rtvalu e s.Sources of basic data: Foreign Trade Statistics , National Censusand Statistic Offic e ;ResearchDivision,TheThai Textiles ManufacturingAssociation.

In the P hi lipp ines, fo reign ownerships of texti le firms ha s n otbeen prevalent. Control haslargely been in the handsof the F ilipino-Chinesewho first sta rted out as importers and lat e r moved into pro-duction in responseto import controls that, by restrictingthe entryof textile imports, threatened their livelihood. Out of a total of 34firms that Yoshihara sam pled in his 1985 Philippine indus-trialization study, 17 were owned by Filipino Chinese, 12 b y Filipi-nosand only 5 by foreigners.

The Philippineshas reli e d very little on Japaneseinvestmenttodevelop its textile industry. Ja pa neseinvestment played no role i ncotton t e xtile manufacture but was confined larg e ly to synthe ticfiber production. This cont rastssharplywith the Thailand casewheretextil e industry ex pa nsion has been linked closelyto direct Japenseinvestment. Japanesei nvestment, mainly in joint venture with loca linvestment, was responsiblefor the ex pa nsion of Thailand s cottontextile industry in the early 1960s and of synthetic fiber productionin the 1970s. Although Japaneseinvestorsheld lessthan a 50 percentequity share in most joint ventures control of manage me nt waslargely in teir hands.

Not only has Japan been Thailand s major suppl ier of ca pital,technology and entrepreneurship;it ha s also beena major market forThailand s textile ex po rts. Japanesetexti le enterprises,although in i-tially s e t up to ca ter to domestic demands, have turned to exportmarkets as outlets for their text ile products. Exports of Japanesetextile companiesas a proportion of total exports of Thai industrial


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S ANCHEZ; TEXTILE INDUSTRY 77

products have risen sharply and their s uccesscan be tra ce d, in part,to the advantagewhich Japanesejoint venturesenjoy i n exports byway of Ja pa nesetrading companiesand their international marketingand infor ma tion network.

Textile co mpanies in the Philippines, in contrast, are orientedtowards supplying the domestic mar ket. A large proportion of theiroutput is sold do mestically and only a small proportion is exported.The lack of an international ma rketing and information network hasbeen a deterrent, but the real reason has been the low quality oftextil e output that r enders loca lly produc ed textile productsinter-nati onally uncompetitive.

Productivity Perforamnce

Productivity denotes a relationship betwen output and input;it indicates the efficiency with which resources(inputs) are com-bined to produ ce output. A rise in productivity occurs if outputincreas e sproportionately more than the increas ein inputs .

A rise in productivi ty is beneficial to society, fo r, givenlimitedresources it enablesoutput to ex pa nd without undue strain onavail-

able input sup plies, thereby allowing society to enjoy higher livingstandardsfree of inflation.The pr od uctivity estimat e susedto comparethe produtivity per -

formance of the Ph ilipp ines and Thailand are total factor producti-vity (TFP) measureswhich relate output to all fa ctor inputs co m-bined. The choice o f TFP over partial productivity measuress borneout by the sup e riority of the former a s an indicator of overall pro-ductive efficiency - pa rtial measuresare s ensitive to chang e s ininput composition while with total factor measur e sfactor substitu-

tion effects ca nceleachoth e r out.

Methodology

The methodology employed to measureTFP in P hilippine andThai textile industrias is based on that employed by Christensen,Cummingsand Jorgenson(CCJ) in their international comparisiono fthe pa tterns of economic growth of eight industrialized and oneindustrializing econo mics. This approach has been employed bySanchez( 1983) in the estimation o f TFP gro wth rates in the Philip-pines in the postwar period. Underlying the approach is a multipleinput and multipl e output translogprodu ct ion model which is a lessrestri ct ive formulation compared to the conventional two -input single-output production model which expressesTF P growth a s thedifferenc e between the simple growth ratesof aggregat ereal output


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and agg rega te facto r inpu ts. The transl og p roduction mode l spec ifiesaggregate output as a trans log function of aggregate inputs which iss pecif ied in turn as a translog function of their components.

Estimation Results

The estimation results based on the CCJ approach are shown inTable 6. Based on these results, TFP in the P hilipp ines grew by 1.7pe rcent between 1975 and 1984, while that in Th a iland increased by3 pe rce nt over the same period. In relative terms, Thailand s TFPgrowth rate exceeded that of the P hil ippines by 42 percent. This

higher growth was accompanied by higher growth rates of all inputs- labor, capital and inte rmediate.

Why has Thailand s TFP performance been better than theP hilippines despite the latter s long experience in textile manufactu-ring? The following discuss ions give an ins ight into some of thepossible answers.

Table 6PHILIPPINE S AND THAILAND: GROWTH RATES OF TOTAL FACTORPRODU CTIVITY, OUTPUT, CAPITAL LABOR AND

INTERMEDIATE INPUTS, 1975 -84(in percent)

Philippines Thailand

Total factor productivity 1.70 2.93

Output 0.56 9.7 8

C_pital input 1 .49 5.65

Labourinput 1.8 7 3.26

Intermediat einput - 2.63 9.10ii

Sourc e s of basic data: Factbook on Labour , Employment , Sala ries and Wages 1985 ,National Econo m ic and Social D eve lop ment Board; Foreign Trade Statistics of the Phili p-pines Na tional C ensusan d S ta tistics Offic e 1971-85; Res e arch Division , The T hai TextilesManufacturing Ass ocia tion; S tatistical Bulletin Central Bank of the Phi lippines variousissues;T e xtile Mills Associa tion of the Philippin e s; and Yearb ook of Industrial St atistics ,United Nations 197 7 and 1984 .


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SANCHEZ : TEXTILE INDUSTRY 79

EXPLAINING THE DIFFERENTIAL

Capital InputThe estimates show a 94 perc e nt differen ce in textile out put

growth rates betweenthe P hilippinesand Thailand. Thisdifference isin largepart due to differences in the g rowth ratesof ca pital inputs.

Observanceof the movement of partial productivities under-scoresthe importance of capital (and it s p roductivity) in explainingproductivity differen ce sb e tween the Philippinesand Thailand.

The interrelationship between c a pital and partial labor produc-

tivities i s givenby

where

Q/L = rate of gro wth of output ( Q) per unit of labor(L) or labor productivity gro wth rate

Q/K = rate of gro wth of output ( Q) per unit of capi-tal ( K) or ca pital p rodu ctivity growth rate

I_/L = rate of growth of th e c apital-labor ratio .

Changesin labor produ ctivity, a cc ording to the equation, are the sumof changesin ca pital productivity and the capital -labor ratio.

Table 7 showsthe rates of growth of labor and cap ital produ c-tivities and of the ca pital -labor ratio of the Philippines a nd Thailandfor the years 1975 to 1984

Labor productivity in Thailand s textile industry rose by 6.8pe rcent between 1975 and 1984. Decompositionshowsthe riseto beattributable largely to the in crease in capit a l produ ctivity. Capitalpr od uctivity grew by 4 .1 per cent as ag a in sta 2 .7 pe rcent increaseinthe ca pital-labor ratio. In the Philippines, labor produ ctivity in thetextile industry declined by 1 .3 per ce nt between 1975 and 1984 .The decline was ac counted for mainly b y the fa ll in c a p ita l produc-tivity by 0.9 pe reent- the ca pital-labor ratio fell by only 0.4 per centover this period.

The subperiod movement of labor pr oductivity in Thailand andthe Philippinesshoweddissimilartrends. Between 1975-79 and 1980-84, labor produ ctivity in Thailand de clined while that in the Philip -pines rose . The fall in Thailand s labor produ ctivity was the resultof the drop in capital productivity while the rise in the Phili ppineslabor produ ctivity wasdue to the increasein the capital-labor ratio.


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Table 7PHI LIPPINES AND THAI LA ND: DECOMPOSITIO N OF

TEXTI LE INDUSTRYLABOUR P RODUCTIVITY, PERIOD AVERAGES, 1975-84

(In percent)

Growth rates of

Labor capital Capital - laborproductivity productivity ratio

Philippines

1975 -84 - 1.31 - 0.93 - 0 .38

1975 -79 - 6 .66 3.73 - 10.39

1980 -84 4.04 - 5.59 9 .63

Thailand

1975-84 6. 81 4 .13 2 .68

1975-79 10 .03 7.86 2. 171980 -84 3 .60 0 .42 3. 18

Sourcesof basicdate: Sameasfor Table 1.

The P hilippine s e xpe rien ce d the most rap id gr owth in tex tileproductive capacity in the 1950s and early 1960s during the he yda yof i mport substitution. Between 1957 and 1962 its spindles and

looms registered average growth rates of 48 and 38 percent, res -pectively, the highest ever recorded for the entire period from 1957to 1984. After the 1960s the growth of product ive ca pacity sloweddown - average growth in the number of spindles dropped to 3 per-cent in 1963 -74 and to 2 per ce nt in 1975-84, _vhile the growth ofloo ms declined to 3 and 0 percent in the same periods.

The large buildup in productive capacity in the 1950 s and thesubsequent slowdown in the 1960s af fected the age distribution ofP hilippine textile machinery; they led to an ageing of the machinepopulation. The 1980 age structure of spindles and looms shown inTable 8 suggests this to be so. Sixty-five pe rcent of spindles and 74

per ce nt of looms were over 20 years of age, and a large proportion ofthem were of 1960 and p re-1960 vintage.

The data for Thailand reveal a rapid growth of productive capa-

city between 1963 and 1975 but a slowdown between 1975 and


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Table 8AGE DISTRIBUTIO N OF SPI NNING AND WEAVING EQUIPMENT

(In percent)

Spindles Looms

Pre-1945 11 =

Pre-1950 - 4

1946 -55 6 -

1951-60 - 58

1956 40 28 -

1961-65 20 121966-70 12 7197 1G 0 23 19

TotaI 100 100

Sourc e s: PhilippineTextile S e ctor;R e connais anceMission,Int e rnationalBank forReconstructionand D evelopment.

1984. Growth in the number of spindlesand loomsaveraged20 and19 p e rcent respectively,between 1963 and 197 5; this averagefell to9 and 5 p e rce nt,re s pectively,between 19 75 and 1984 ( seeTable 9).

While the P hilippinesand Thailand sharedsimilar trends in thegrowth of productivecapacity the levelsof growth havebeen widely

dissimilar. Com pa re d to the Philippines, Thailand registereda highergro wth of productive ca pa city in the 1963-84 pe riod, with growth inthe number of spindlesand looms averaging15 and 13 pe rcent, res-pe ctive ly, compar ed to the Philippines low gro wth of 3 and 2 per-ce nt, res pe ctively.

Thailand s more rapid producti ve capa city growthsuggestshatits machinery was of a younger vintage relativeto that of the Philip-pines.What bearingdoesthis haveon produ ctivity performan ce ?

There ha s been a s urge in technological improvements in thepostwar period. This has had major influen ce son the textile indus-try. Among th e te chnologi ca l advancesaffecting textile productionhave been: ( 1) the advances in synthetic fiber technology; (2) theincreasesin the s pe ed of textile machines; (3) the elimination ofste ps /co mbination of steps in the produ ction pro ce ss;and (4) theautomation of variousstag e sof production.


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82 J OURNAL OF PHI LIPP INE DEVELOPMENT

Table9PHILIPPINESAN D THAILAND: GROWTHRATEOF

NUMBEROFSPINDLESAND LOOMSPERIODAVERAGES 1963 -84(In percent)


Spindles Loom S pindles Loom

1963 -84 3 2 15 13

1963 -75 3 3 20 19

1976-84 2 - 1 9 5

Sourcesof basicdata:Textil e Mills Assoc iation of th e Philippin e s;Rese ar chDivision The Thai Te xt iles Manufacturing Asso cia tion.

The increa ses in machine speedsh a ve b e en imp ressive. Loomspeedshave increased sharply from 190 pick s per minute in the1940s to 220 in the 1950s and, with the introduction of the shuttle-less loom, to 440 picks pe r minute in the 1980s. Speed of warpingma chines have risen f rom 500 metres pe r minute in 1950 to 65 0-900 metres per minute in 1965; currently, it exceeds 1,000 metersper minute. Rotors, used in open _nd spinningin pla ce of spindles,have s peeds ranging from 23 000 to 100,000 rp m , o r three to six

times *.hespeedof ring spinning.The introduction of open-end spinningas an alt e rnative to ringspinning be sidesallowing for increasesin machine spe e d haselimi _nated certain basic steps in yarn processing- roving and winding.The use of synthetic fibers that come in continuousfilament read yfor the loom has made cleaning, ginning and combing, processeswhich natural fibers undergo before they are spun into yarn, un-necessary.

The technological advancese mbodied in machineshave raised

ma chine productivity. A comparison of 1950 a nd 1966 modelsofspinningmachinesrevealsthat, in all six stagesof spinning(blowing carding /combing drawing, roving, ri ng spinning and winding), the1966 model yields a high e r ou tput /unit time relativ e to th e 1 950model -- 1.5 times more in s pinningoutput and eleventimes more indrawing output (seeTable 10).


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S ANCHEZ: TEXTILE INDUSTRY 83

Table 1 0OPERATING SPEEDS OF SPI NNING MACHINES

Te chnical operation 1950 1966

Lapforming (kg /hr) 15 0 - 180 180 - 22 0Carding ( kg /hr) 4 - 8 15-32Drawing (m /ra in) 28 - 36 250 - 45 0

Combing (kg /hr) 6 -8 25 - 55Roving (rev /min) 500 -850 1200- 1800Spinning (rev /m in) 8000 =1 2000 12000 - 18000

Source: Mingsar nKaosa-e rd(1984), Tabl e 2.

An ind ex of the te chnolog ical ad vances in sp inning from 1813

to 1970 is s hown in Table 11, The index, in terms of pounds pers pindle hour, shows a tremendous leap in machine productivitybetween 1965 and 1970 - a near doubling (97 percent increase) ofoutput per spindle hour between 1965 and 1970 compared to a 27perce nt inc rease be tween 1960 a nd 1 965 an d a 13 per ce nt incre as ebetween 1950 and 1960 .

The leap in machine product ivity brought about by technolo-gical discoveries implies a greater built-in efficienc y in newe r asoppposedto older vintagemachines.

In addition to the greaterefficiency of newer models,mod e rnmachines save on space beca use they tend to be less bulky a ndreduce ex pe nsesfor air conditioning wh ich constitutesan ex pe nsivecost item. In the caseof o pe n-end spinn lng machines, for instance the reduction in spa ce requirements may be ashigh as40 pe rcent.

The greater eff iciency built -in in newer as com pa red to olderma chin e s and the young e r age s tructure of Thailand s textilema chinery imply quality differences in the capital inputs of th ePhili ppines and Thailand in favor of the latter. It is therefore not

surprisingto find the Thai textile industry excelling the Ph ilippinesin productivity p e rfor ma nc e .

Technical and Organizational Knowledge

The above observation, however, does not suggestthat mereintroduction of newer v intage machines will ensure productivit y


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84 JOURNAL OF PHILIPPINE DEVELOPMENT

Table 11TECH NOLOGICAL AD VANCES IN SPI NNING 1900-70

Year Poundsperspindlehour Index

1900 0.017 10 0

1920 0.0 18 106

1940 0 .019 11 2

1950 0 .023 1351960 0.026 1531965 0.033 1941970 0 .065 382

Sourc e o f bas icdat a : Ajanan t (1986 )_

impr oveme nt . The prod uc tivity embod ied in n e we r textile m achineryis a potential, realizable only if accompanying factors - labor and,more importantly, technical and organizational knowledge -do notposeobsta cles to its attainment .

The importance of technical and organizational knowledge inexplaining interf irm aswell as intercountry produ ct ivity differentialshas been stressedby Pack (1987). In the comparison of Kenyan andPhil ippine textile firms using s imilar vintage spinning and weavingequipment, Pack found h igher total factor productiv ity in bothspinn ing and weaving, in the Kenyan firms. He attributes the Kenyansuc cess to the presence of international managers of high qualitywho have been able to implant the procedures followed by some ofthe better firms of India, Japan and Western Europe. The Philip-pines as he points out, has not benefited from a similar infus ion ofinternational expertise. Although a few firms have emplo yed two orthree expatriate managers (on fixed-term contracts) from othercountries on an ad hoc basis, most plants have relied on domst icmanagers whose training has rarely included sustained exposure tointernational be s t pract ice (Pack 1987).

The Thai experience has prov ided a contrast in that textileproduction, particularly in foreign-affiliated companies, has beeninfluenced by the international best practice of intern a tionalmanagers who have been exposed t o the standard s in Japan (whichhas for a long time been at the forefront of textile production)whose textile producers, bec a us e of industrial restructuring at home,


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were fo rce d to relocat e e lsewher e in So uthea st As ia, pa rticular lyThailand where wageswere lower comparedat home.

Japaneseinvestment in the Thai textile indust ry hasb e encon s -picuous . Synthetic fiber production wa s a virtual monopoly o f theJa pa nesewhen this activity first started in 1970. Japanesepresencein cotton and polyester co tton spinn ing,aswell as in po lyesterra yonspinningand weav ing, has been dominant . Out of the 23 compani esperform ing cotton and polyest e r cotton spinning i n 1 975, 13 wereJa pa neseaffiliated; and of the to tal nine pol yester rayon spinningcompanies and eight polyester rayon weaving companies, 10 w e reJa pa ne se. As a consequenceof the high rate of Japaneseinvestmentin t e xtile production (56 per ce nt in 1971 and 50 pe rce nt in 1977 ),Thailand has r e achedabout the same levelof essentialtechnology ashasJa pa n (Ikeda 1982). Where Japaneseinvestmenthasbeen act ive,Ja pa nesemanagersand Ja pa nesetechnical support havenot been farbehind (in 19 78 there were 134 Ja pa neseexecutives in the 2 7Ja pa nese -affiliatedtextile co mpanies). The infu s ion of organizationaland technical knowledge by Ja pa ne se exp e atriates has benefitedThailand so much so that Thailand has been able to achievehighproduct quality standards and to penet rate the export market .(Among So utheast Asian countries Thailand has been t he biggesttextile exporter to Japan.) In productivit y te rms,Ja pa nese-affiliatedtextile companies have been found to be better performers thanThai companiesa s reflected in the h igher ratesof return of Ja pa neseaffiliated relativeto Thai companies(Ikeda 1982).

Aggregate Demand

It is not difficult to envision a relationship between aggregate

demand and TFP growth given that technology is embodied inmachines and that investors behave as profit maximizers. Profitma ximizing investors will invest in new machiner y if the rate ofreturn would ex ce ed the costof investing. The rate of return from aninvest me nt (say, a product) is a function of demand in a positivewa y i.e., the rate of return would very likely be high e r if the demandfor suchproduct rises.Exportsare a component of aggregatede mand,and, together with domestic demand it constitutesa force spurringinvestmentand, in turn, productivit y.

The eviden ce for Thailand suggestsa closeassociat ionbetweenexport growth and TFP performance. A rank correlation analys isofTFP and export growth rates yields a highly signif ica nt rank correla-tion coefficient. This result hasnot beentrue for the Philippines.Itsrank correlation coeffi oeint i s significantly lower. I n other words,ex po rt gro wth bears little associationwith the growth of TF P in the


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86 JO URNAL OF PHILIPP INE DEVE LOPME NT

ca s e of the Philippines. Furthermore domestic demand for textileproducts in the Philippines has been weak brought about primarilyby he poor quality and high price of textile output which ha s led tothe poor linkage between the textile industry and garment manu-facturing (which rely on imported fabrics for their inputs) and to theindustry s failure to profit from the boom in garment exports.

CONCLUDING RE MARKS

This study has been a comparison of textile industry perform_ance in the Philippines and Thailand. The comparison has been interms of output, export and TFP growth. The focus of discussion hasbeen on the latter in view of the importance of TFP asa componentof growth. TFP is indicative of how much more output c a n growbeyond the mere a ddition of inputs.

By far Thailand s textile industry has performed better than itscounterpart in the Philippines in terms of output, of export and TFPgrowth. It is the technological differences that are a contributoryfactor to the differential in productivity performance between the

two countries . The Philippines was the early bird in textile pro-duction in Southeast Asia and the bulk of its textile machinery wasaccumulated in the 1950s and early 1960s. The problem of absoletemachines h a s led observers to point to the need to scrap abouthalf of industry machinery if efficiency is to be improved and thequality of local fabrics is to be upgraded. In contrast, Thailand sprodu ctive capacity w a s built up at a later period and consists ofrelatively younger vintage textile m a chinery.

But more important than technology has been the technical

knowledge which Thailand was able to acquire through joint ventureswith foreign investors who engaged a ctively in textile production intheir own countries. The Philippine textile industry, on the otherhard, benefited little from the infusion of international expertise.

The evidence for Thailand suggestsa close association betweenthe growth of TFP and the growth of exports. Successful exportingrequires high standards of Performance to be able to compete inter-nationally and Thailand was able to meet this with the assistanceofoutsiders who possessedthe technical knowledge capital and net-

work to get the activity going profitably.A policy of protection on infant industry grounds gains little

support from the evidence presented. The Philippine textile industrythat has been under heavy protection for many years remains to thisday an infant. A newcomer, Thailand, has learned to do better thanan old hand in the field.


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S ANCHEZ: TEXTI LE INDUSTRY 87

REFERE NCES

Akira, S uehero. Comparative Advantage of Textile Industry in Asian Coun-tries. In Co mparative Advantage of Manufacturing ind ustrie s in AsianCountries. Tokyo: IDE, 1982.

Ajanant, Juanjai . Trade, Protectionism and Industrial Adjustment: The CaseofThai Garment Industry. Paper presented in a worksho p sponsored by theInstitute of Southea s t Asian Studies 1986.

Buddhikarant, Ruchada. A Case Study of the Economic Contribution ofPrivate Foreign Investment in the Textil e Industry . Master s thes is, Facultyof Economics, Tha mmasat University, 1973.

Ikeda, Katsuhiko. Trade and Industrial Policies of As ian Countries . Tokyo: IDE,1982.

The International Bank for Reconstruction and Development. Philippines ;Indust rial Develop ment Strategy and Policies . Washington D.C.: The W orldBank, 1980 .

Kasai, Nobuyuki . /nternational Co mpetitiveness and th e Price Factor s of theKorean Textile Industr y: A Comparative Analysi s . Tokyo: InternationalDevelopment Center of Ja pan, 1984 .

Kaosa-ard, Mingsarn. The Impact of Technological Change on Production andEmployment: A Case Study of the Textile Industry Human Resource

Institute, Thammasat University, 1984.Pack, Howard. Productivity Technology and Industrial Development: A CaseStudy in Textiles. Was hington D C.: Th e World B ank, 1987 .

Priv a te Developm ent Corpor a tion of the Philippine s . The Tex tile Indu s try.Indu s try Digest Vol . 6, No . 2 (March-April 1982) .

S anch ez, Aurora . Capital Me asurement and Tot a l Factor Productivity Analy sis .Ph .D. diss ert a tion Un ive rs ity of the Philippine s 1 98 3.

Tambunl e rtch a i, Som s ak and Ipp e i Yamaz awa. Manufactured Exports andForei gn Dire ct Investm ent: A Ca s e Study of the T extile Indu s try in Thai-land. Faculty of Economic s , Th a mmasat Univer s ity, 1978.

Ter a vaninthorn, Supee . Indu s trial Development and For e ign Trade : A Ca s eStudy of Th a i Textile Indu s try. Ma s te r s thes is , Thamm a sat Univer s ity 1978.

de Vries 8arend A. and Willem Brakel . Restructuring of Manufacturing indus -try: The Experience of the Textile Industry in Pakistan Philippines P ortugal ,and Turkey. Wa s hing ton D.C .: The World B a nk 1983.

Statistical Sources

Factbook of Labour Employment Salarie s and Wages . Ba ngkok: Natio nalEconomic and Social D evelopment Bo a rd, v a rious iss ue s .

Foreign Trade Satistic s of the Philippines Manila: National Censu s and Stati s ticsOffice va rious iss ues.

Re se arch Division, The Th a i Textile s Manufacturin g Ass oc iation .Sta tistical Bulletin. Manila: Central Ba nk of the Philippine s, various i ss ues .Textile Mills A ss ocia tion of th e P hilippines.Yearbook of Indu s trial Statistics. New York : United N a tions 1977 and 1984 .

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