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Electronics exporters fear China

"All is not lost but if we don't do something about it, we are heading down a disastrous slope."

Arthury Young, chairman of PSI Technologies Inc

Fear of growing competition from China has unnerved the Philippines' electronics exports sector, which is already struggling with a downturn in recent months, industry leaders say.

In addition, many of the electronics businesses in the Philippines complain that the government is not doing enough to address their concerns even though the industry has been the keystone of the country's economy for years.

Complaints

Their main complaints are the high cost of power, the poor infrastructure and the shaky security situation that has sent potential foreign electronics investors looking elsewhere.

The industry association, the Semiconductors and Electronics Industries in the Philippines Inc. (SEIPI), complained to the government this month that unknown gunmen had been "hijacking" trucks that bring electronics products to ports or airports for shipment abroad.

"All is not lost but if we don't do something about it, we are heading down a disastrous slope," warned Arthury Young, chairman of PSI Technologies Inc, in a recent industry forum.

"Not all of us are surviving here. Many companies have shut down and moved to China," said Dan Lachica, president of First Sumiden Circuits.

Electronic exports have been one of the few success stories for the beleaguered Philippine economy.

Semiconductors, components and other electronic items now make up more than 60 percent of the country's exports, easily displacing such traditional commodities like coconut products and metallic ores.

From January to August this year, total Philippine exports hit US$23 billion, of which 65 percent consisted of electronics products.

But exports have also been falling for much of the past year, due partly to the weakening demand for electronic products overseas.

In a report to SEIPI, Norberto Viera, president of Texas Industries Philippines Inc, conceded that the industry had a weak opening this year due to fears over the SARS outbreak and the impending war in Iraq.

Optimism

But he expressed optimism that exports would improve in the balance of the year, but added that he was "expecting a below average growth [this] year with an improving outlook for 2004."

He cited statistics showing that the economies in the developed countries that buy electronics goods were starting to pick up, boosting local demand.

What worries the local industry is that low labor costs and improved technology and infrastructure in China could eventually lure companies away from the Philippines.

Young said the government must be "more flexible" to react to changes in the market in order to attract investors.

It should also act swiftly to keep the local industry competitive by trying to bring down power rates, said Mike Petrucci, president of Amkor Technology Philippines Inc.

Local threat

"I don't look at China as the threat. The threat is in the Philippines itself," he said during a SEIPI dialogue last week.

Socioeconomic Planning Secretary Romulo Neri said the government was addressing the problems but said it could do little, for example, in the short-term to bring down power rates.

"You'll have to live with it," he said at the dialogue, remarking that government could only "whittle down" the obstacles.

Most of the electronics companies operating in the Philippines affirm that their productive, well-trained, English-speaking work forces are more than a match for the low-wage workers in China.

"Bluntly speaking [Filipino] labor is excellent," said Ippei Futaki, president of Toshiba Information Equipment Philippines.

"Efficiency and quality is the key," he said.

Manufacturing haven

"China will always be a manufacturing haven but it can't be everything," said Art Tan, president of Integrated Microelectronics Inc, advising that the Philippines can find its own niches in other electronics.

Steve Leece, managing director of Moog Controls Corp, maker of airline components, said that his company has found success selling higher-value products.

"We're not interested in competing with China in plastic Christmas trees," he said.

Citing his own high-end airline components, Leece said "we're selling to China, not buying from them."
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