The Philippines’ economic growth will slow significantly this year before a strong rebound in 2021, with expansionary fiscal and monetary policies partly offsetting slower domestic demand and disruptions in tourism, trade, and manufacturing, according to a new Asian Development Bank (ADB) report released today.
In its annual flagship economic publication, Asian Development Outlook (ADO) 2020, ADB projects the Philippines’ gross domestic product (GDP) to grow at two percent in 2020 following an “enhanced community quarantine” imposed by the government in March to stop the spread of the novel coronavirus disease (COVID-19) in the country. But ADB expects a strong recovery to 6.5 percent GDP growth in 2021, assuming that COVID-19 infections in the country are curbed by June this year.
“This unprecedented and extraordinary public health emergency brought about by the COVID-19 pandemic will substantially slow down economic growth this year, with most of the contraction in the economy occurring in the second quarter. We are anticipating a bounce back starting in the second half of this year, supported by the government’s stimulus spending and easier monetary policies,” said ADB Country Director for the Philippines Kelly Bird.
Mr. Bird added: “ADB has been working closely with the Philippine government in its fight to ease the impact of the COVID-19 pandemic on Filipinos. We have provided two grants totalling $8 million to assist the government and we are now in advanced stages of preparing a larger and comprehensive assistance to help alleviate the impacts of the pandemic on communities’ well-being and support fiscal stimulus.”
On 14 March, ADB approved a $3 million grant to help the government deliver much-needed emergency medical supplies and equipment, including a new laboratory to enhance the country’s capacity to conduct more COVID-19 tests. This week, ADB launched a $5 million project to provide critical food supplies for poor families in Metro Manila.
Sustained public investment—especially in priority projects under the government’s “Build, Build, Build” (BBB) infrastructure development program—and a rebound in private consumption will drive economic growth in 2021, the report says. The economy will also benefit from the government’s large-scale fiscal spending to boost the delivery of relief measures to vulnerable sectors affected by the pandemic.
Honda Cars Philippines (HCPI), Incorporated which produces passenger cars, BR-V, City has announced that it will stop production operations in its plant in Sta. Rosa, Laguna, effective March, 2020. The automaker has struggled to shore up global automobile operations.
According to Reuters, the automaker has seen a decline in profitability by more than half in the past two years, led by quality-related issues. However, automobile sales and after-sales service operations in Philippines will continue through Honda’s Asia and Oceania regional network.
To meet its customer needs in Philippines for reasonably priced and good quality products, the company has considered efficient allocation and distribution of resources. As such, Honda will focus and optimise efforts in production operations in the Asia and Oceania region.
Franklin Vargas of Halcyon Technology (Philippines) Inc. talks about the opportunities, manufacturing challenges, and markets driving the growth of the metalworking industries in the Philippines. Article by Stephen Las Marias.
Franklin Vargas
Halcyon Technology (Philippines) Inc. is a partnership company between a Filipino firm—Philippines First Diamond Metal, led by Hamilcar Azarias—and Thailand-based Halcyon Technology Public Co. Ltd. The company opened its manufacturing facility in the Philippines on January 1, 2011, but the inauguration was on November 11, 2011—that was when full operations started. Located at Laguna Technopark, Halcyon’s Philippine plant was the second manufacturing facility for Thai-based Halcyon Technology.
Initially, the company focused on hard-disk drives (HDD)—almost 98 percent of its products were delivered to the Nidec Group—Nidec Subic, Nidec Philippines, and Nidec Precision. Moving forward, there was a need to address demand from other industries, so the company expanded its customer base to automotive, aerospace, electronics, general machining, and industrial machineries. At present, about 60 percent of the company’s output goes to the HDD industries, while the rest is being distributed to other industries.
Halcyon main product is polycrystalline diamond (PCD) tools, including PCD drills, reamers, endmills, forms, and inserts. Other products include carbide cutting tools. It also offers custom-made solid carbide. The company was given a pioneer status for PCD manufacturing by the Philippine Economic Zone Authority (PEZA). Our machines range from lathe and milling machines (CNC), cylindrical grinder, surface grinder, CNC grinder, 5-axis and 6-axis machines, EDM wire-cut machine, sand blast, and bandsaw machines.
Franklin Vargas is the general manager of Halcyon Technology. He is also the president of the Metro Manila Chapter of the Metalworking Industries Association of the Philippines (MIAP). In an interview with Asia Pacific Metalworking Equipment News (APMEN), Vargas talks about the opportunities, manufacturing challenges, and markets driving the growth of the metalworking industries in the Philippines. He also discusses the initiatives and programmes of the Metro Manila Chapter of MIAP.
WHAT OPPORTUNITIES ARE YOU SEEING IN THE PHILIPPINES?
Franklin Vargas (FV): Over the past three to four years, there were a lot of companies that opened their facilities here in the country, including Shimano and Zama. So, last year was a really good year. Our main target is the manufacturers because of our customized solutions.
But this year, there was a decline; it is really a tough year. Our biggest customer, which produces spindle motor for HDD, reduced their orders. But it’s because of technology. Before, every member of the family can have a laptop, and one laptop equals one HDD. Now, there’s only one laptop for whole the family, but there are more smartphones or tablets. So, the culprit is technology. Interestingly, some of the latest smartphones have a camera that slides up and down. These are driven by precision motors—and these products are being produced by one of our customers.
Even though the culprit for the slowdown is technology, I think it is also the one that will help the industry go through this difficult year.
WHAT ARE THE BIGGEST CHALLENGES IN THE PHILIPPINES?
FV: The biggest challenge here is having the relationship with your customers. For us, it is the local companies and manufacturers. We have been battling with big, foreign brands to really prove ourselves, since we are a local company. You know, there’s always this mentality that foreign brands are better. That’s why we have to prove ourselves.
From a manufacturing perspective, the challenge is manpower. For the Filipinos, the mentality is to go overseas for better pay. Sourcing of manpower, for example for CNC machines, we can go anywhere and get a CNC machinist, because almost everybody has CNC machines. But for our products, the problem is finding a skilled person. We have to spend a considerable time for training. That’s our dilemma—coping up with the training period.
WHAT ABOUT YOUR CUSTOMERS?
FV: It is costing and delivery time. They want to have cheaper products at a faster delivery time. And that is actually an opportunity for us. That is mostly the reason why they shift from other suppliers to us, because our manufacturing is here, and we can provide them their needs immediately. Since we are the manufacturer, there are no middlemen involved, therefore, our costing can be flexible for them.
WHAT MARKETS ARE DRIVING GROWTH FOR METALWORKING INDUSTRY IN THE COUNTRY?
FV: One of the biggest industries here is HDD. Another thing is automotive, which is steadily growing. Meanwhile, one of the things we are discussing at MIAP is how to help our farmers. One really good industry here is agriculture. But the problem is that farmers do not have the support they need, the mechanization they need. That is actually one of the purposes of MIAP—to help farmers cope up with the international industry. Right now, we are using carabaos (water buffaloes) in farming. In countries such as Vietnam and Thailand, they have a lot of machines.
I think we really need to help the agriculture industry. We have a lot of plans; the only challenge is government support.
WHAT CAN YOU SAY ABOUT THE LEVEL OF MATURITY OF METALWORKING MANUFACTURING IN THE PHILIPPINES?
FV: I can say that for the small and medium enterprises (SMEs), they are still using the conventional systems and tools. I think the problem is the cost of the machine—which can range from around PhP3 million to PhP5 million (US$60,000 to US$100,000). I think that’s one of the main issues.
But we need to level up, and there are some organizations that are helping these SMEs by providing them loans. So far, some of the local companies, our customers, are now using 4-axis, 6-axis machines.
WHAT TRENDS ARE YOU SEEING THE PHILIPPINE METALWORKING INDUSTRY?
FV: The construction industry is booming, with the government’s ‘Build, Build, Build’ programme. Metal fabrication will be the one benefitting from this trend. In the manufacturing side, it will be almost the same as this year. Last year, Japan announced they will get out of China because of the US-China trade war.
Based on the feedback of our mother company, the Philippines is one of the countries being considered for manufacturing because our salaries are still lower compared to Thailand. Therefore, it is promising.
TELL US A BIT ABOUT THE METRO MANILA CHAPTER OF MIAP.
FV: MIAP aims to help members to cope up with the trends and developments in the metalworking industry. Right now, the Metro Manila Chapter has more than 70 members—composed of SMEs, traders, and manufacturers. In Manila, our aim is to help the jobbers, backyard machining. In other chapters, for instance in General Santos, Cebu, or Iloilo, their primary goal is the mechanization of the agriculture sector.
BEING THE NEWLY ELECTED PRESIDENT OF THE MANILA CHAPTER, WHAT ARE YOUR GOALS FOR THE ASSOCIATION?
FV: My goal is to strengthen the collaboration between members. That is why I am promoting more communication, to be able to better help the members with their current needs.
Through our collaboration with MIRDC (Metal Industry Research and Development Centre), we also have seminars and workshops for the improvement of the workforce. Another contribution from MIAP is to the Technical Education and Skills Development Authority (TESDA). Since TESDA is the one doing certification, for example in CNC machining and programming, we help them with the structure, how to analyse and grade the different levels of skills for CNC machinists; for instance, NC1, NC2, etc. We contribute to that structure.
Taveesak Srisuntisuk of Hexagon Manufacturing Intelligence speaks about the metalworking trends and opportunities for growth in the Philippines. Article by Stephen Las Marias.
Hexagon Manufacturing Intelligence, part of Hexagon AB, helps industrial manufacturers develop the disruptive technologies of today and the life-changing products of tomorrow. A leading provider of metrology and manufacturing solutions, Hexagon’s expertise in sensing, thinking and acting—the collection, analysis and active use of measurement data—gives its customers the confidence to increase production speed and accelerate productivity while enhancing product quality.
At the recent PDMEX 2019 event, Taveesak Srisuntisuk, General Manager of the AEC and Pacific Region for Hexagon Manufacturing Intelligence, speaks about the metalworking trends and opportunities for growth in the Philippines.
Tell us about your activities in the Philippines.
Taveesak Srisuntisuk (TS): We are a provider of 3D measuring machines—all kinds of three-dimension measuring machines, not only the traditional CMM that uses tactile probes. We also have vision measuring machine, multisensor measuring machine, portable measuring arms with laser tracker, white light scanner systems, and so on.
We are in the quality control business, but we are more and more getting involved into manufacturing because we also have hardware for the machine tools, software for design, CAD/CAM, and so on. We can see that quality control still has a very good opportunity for improvement here. In other countries, we are already well known when it comes to quality. Quality also can increase productivity—and here, we can see the same direction.
Which industries here are you seeing strong growth?
TS: We have been in the Philippine market for many years. In fact, I have been taking care of the Philippine market since 2010. And yes, we see the market growing, but maybe not as much as its peers in Southeast Asia. There are a variety of industries here—mould and die, electronics, aerospace, and automotive. While we don’t see any specific industry that is growing rapidly at the moment, we can see growth especially in the mould and die, and electronics markets.
With the trade war happening between China and the United States, we are seeing some comments that the Philippines is also getting opportunities from Chinese investments here.
Are you seeing smart factory adoption in the Philippine metalworking industry?
TS: Not a lot of customers are mentioning these things. In Southeast Asia, the countries that talk more about smart manufacturing or Industry 4.0 are Singapore and Malaysia. But we definitely need to speak to the customers, we need to show them that Hexagon is one of the companies that are involved in this trend. All our devices support the smart factory trend.
How do you help customers move toward smarter manufacturing?
TS: We offer our customers smart solutions so that if they decided to do something tomorrow, their processes will be smarter. We always ensure that our software, hardware and products will help customers in transforming their production processes.
Tell us some of the products being highlighted here.
TS: Our devices can be integrated into a smart factory environment. We are showcasing our traditional CMMs, we have two CMMs here: one is with the scanning, and the other is with the traditional tactile probe. We have the portable measuring arm, a vision machine, as well as a new product, which we are showcasing here first time—the laser tracker with scanner.
How do you encourage small- and medium-sized job shops to adopt high-end solutions?
TS: Even if they are job shops, they are providing a service to somebody. And they have to ensure that their manufactured parts are good. The trend now is towards digitalization. Even the job shops, they can reduce a lot of work by investing not in high-end systems yet, but in entry level solutions.
However, in this market, you also have multinational companies such as Nidec Philippines, Hyundai Philippines, and so on. These are the companies that we are supporting in many countries as well. So, both customer sides—multinational companies and job shops—we are all supporting here in the Philippines.
What advice would you give customers when it comes to selecting measurement solutions?
TS: For the measuring machine, the most important is the accuracy they need. If they need more than 20 microns, they can use portable arm scanners. If they have a lot of work related to geometry, then maybe a CMM can help them. If there’s a lot of 3D, or CAD/CAM design and so on, a scanner solution would be the best.
We need to know their requirements—only then can we offer the right solutions for them. We have many kinds of 3D measuring machines to offer, but we have to know their applications, what they need, before we can ascertain the correct solutions.
Finally, what is your outlook for the metalworking industry next year?
TS: It’s very difficult to forecast because now, in Southeast Asia, even if we are becoming one community—AEC or ASEAN Economic Community—but we are still competing against each other. The governments are trying to showcase their benefits and bringing the foreign investments in their countries.
I can say that the Philippines is one of the markets we are seeing growth, especially now that the government is becoming more stable, leading to the market becoming more attractive for investments. We just hope that the country will really sustain its good growth.
According to a joint report by the Chamber of Automotive Manufacturers of the Philippines, Inc. (Campi) and Truck Manufacturers Association (TMA), Philippines Automobile Sales experienced a 3.5 percent growth in 2019, selling nearly 370,000 units. Campi and TMA member-companies sold 369,941 units in 2019, an increase from 357.410 units in 2018.
The sale of commercial vehicles increased by five percent from 248,390 units in 2018 to 260,744 units in 2019, accounting for 70.5 percent of total sales. While sale of passenger cars grew 0.2 percent from 109,020 units in 2018 to 109,197 units in 2019.
Auto sales in December gave the final push, as data showed that 33,715 units were sold in the last month of 2019, up by 5.5 percent from the 31,945 units sold in the same month in 2018.
The report also showed that Toyota Motor Philippines Corp. (43.79 percent share) remained the market leader last year, followed by Mitsubishi Motors Philippines Corp. (17.32 percent share), and Nissan Philippines Inc. (11.54 percent share).
According to Campi President Rommel Gutierrez, the growth was a “welcome relief” for the industry. “The year 2019 has been challenging for the industry due to various internal and external factors. Thankfully the industry’s collective efforts, supported by sustained economic growth, have paid off,” Gutierrez said.
“We will not rest on our laurels as we aim for further growth in the coming months, and hopefully for the whole of 2020,” he added.
In an interview with Asia Pacific Metalworking Equipment News, Steve Bell of Renishaw Singapore provides his insights into and outlook for the Vietnam and Philippine metalworking industry.
Steve Bell is the general manager for ASEAN at Renishaw (Singapore) Pte Ltd. In this interview with Asia Pacific Metalworking Equipment News (APMEN), we talk about Renishaw’s activities, and his outlook on the metalworking industry markets of Vietnam and the Philippines.
FOR THOSE WHO ARE NEW TO THIS INDUSTRY, GIVE US A BRIEF BACKGROUND ON RENISHAW.
Steve Bell (SB): Renishaw is a long-established UK company. Our core activities primarily involve inspection and manufacturing process control. We have many solutions and technologies which help to apply high levels of automation and connectivity to fit any manufacturing process. This in turn boosts the efficiency and quality of manufacturing. These include probes used to set up and inspect parts on machine tools, tool setters and advanced 5 axis probing systems designed to check dimensions of components on CMMs.
Our machine tool systems centre on methodologies to implement in-process control with the aim of increasing throughput and improving quality. We branch into other essential areas like calibration—we have many products connected with machine setup, because unless the machines are set up properly, no matter what you do, you will never make the products right. Our calibration products include the XK10 alignment laser used during machine build, the XL80 calibration laser system and the popular QC20W ball-bar employed to do regular health checks on machine performance.
Moving on, we have the Equator automated measuring gauge, which has been designed for use in a production environment. It is used for immediate checking of parts coming off a machine tool as an alternative to manual or custom gauging. Intelligent Process Control (IPC) allows Equator to inspect a part, gather data from the inspection and use that data to update the tool offsets on the machine tool controller to ensure that future parts stay in tolerance. That’s a very efficient way to manufacture, where you are not waiting for the end of the process to find out that something’s wrong; you are making sure parts stay correct all the way through the process.
WHAT ARE SOME OF THE TRENDS YOU ARE SEEING?
SB: Basically, everyone wants to make the best products as quickly as possible and as cost effectively as possible. That’s what’s driving the trends in the first place. And one of the significant trends that we are seeing is the drive towards automation. And the reason for automation, from a Renishaw point of view, is its main benefit—consistency of manufacturing.
Deploying automation, systems are programmed in advance, meaning intervention and the possibility of human error is minimised or eliminated.
So, for us, automation is about increasing throughput, but also getting that consistency, which in turn, leads to quality.
WHAT ARE THE OPPORTUNITIES AND CHALLENGES IN THE VIETNAM MARKET?
SB: The biggest challenge for the moment for us is that the market, after many years of being very buoyant, is now a little bit flat. A lot of this, I think, comes from international trade tensions; hopefully that is a relatively short-term problem, and things will get back on track.
But I think the longer-term prognosis is very good. We are going to see substantial growth here, particularly with a lot of manufacturing not necessarily moving out of China, but expanding beyond China, to Southeast Asian countries such as Vietnam, Indonesia, and Thailand.
WHAT ABOUT THE PHILIPPINES?
SB: We’ve been active in the Philippines for many years. In particularly, we’ve worked with MESCO, our distributor, for 20-plus years. Frankly speaking, in terms of Southeast Asia, the Philippine market for manufacturing and automation is starting from a fairly low base point compared to, let’s say, Thailand, or some other Southeast Asian countries. But having said that, it is also the fastest growing market in the region from that low base. So, for us, it is an important market to be involved with now, and to start to work with in the future as well.
In the Philippines, what we see are manufacturers of consumer goods arriving—a couple of big brands are already active here in the Philippines—we also see a growing market for automotive subcontractors; so those kinds of companies are interested to streamline their manufacturing, improve quality—the kind of things that we bring through our gauging and in-process products.
Regarding challenges, there have been quite a few over the years in the Philippines where the market has been very flat. But as I said, at this point in time, it is definitely a growing market. We can see a big potential for growth. There are manufacturing investments coming in from Europe, the United States, other parts of Asia, and very often, when these companies are investing and setting up new plants, they are starting from a greenfield site—they are not inheriting previous manufacturing systems. So, because of that, when they do come in, they start at the current level of technology—moving straight into the best practices of manufacturing today, utilising automation, making use of all the latest technologies that are available to them. For us, that’s very exciting.
HOW IS THE MARKET FOR 3D PRINTING OR ADDITIVE MANUFACTURING?
SB: That’s also a growing market from small beginnings in ASEAN. Singapore is definitely the leader in this technology for now.
Metal AM is very much a niche market at the moment in the Philippines. We hope to see some growth in the longer term.
The real growth in additive manufacturing will come when users start to think about using the technology for real production—not just design prototypes or research but manufacturing parts on a 24/7 basis—and we’re already seeing that now with some customers in Singapore. That trend is likely to spread out across Asia. In Singapore in particular, we are seeing opportunities in the oil and gas and aerospace sectors.
WHAT IS YOUR OUTLOOK FOR THE INDUSTRY? ARE YOU SEEING A BREAKTHROUGH APPLICATION OR TREND THAT WILL DRIVE THE METALWORKING INDUSTRY FURTHER?
SB: Everyone is driving for the same kind of goals, and I think the key thing that is changing is the push towards automation. Automation means, of course, manufacturing process automation but it also encompasses the associated innovations in collecting and managing actionable data about equipment and devices, processes and parts… all of these contribute towards the smart factory/smart manufacturing concept.
That’s probably the number one trend—automation making possible a drive towards advances in consistency, throughput, product quality and cost-effective manufacturing.
Lufthansa Technik Philippines, the country’s largest aircraft maintenance, repair and overhaul (MRO) service provider are at risk of closing its operations if the government passes the proposed Corporate Income Tax Incentives Reform Act (Citra) bill in its current form.
The company has invested $270 million in infrastructure and personnel training in Philippines since 2000 and currently employs 3,000 workers. Furthermore, Lufthansa has announced plans to invest $40 million to expand its operations in the country, which would generate 300 jobs in the workforce. However, with the added custom duty and value-added tax (VAT) on imported spare parts, the company fears of struggling with unbearably high costs, hampering its future plans.
“In its current form, the MRO industry is not properly represented in the bill. The new Citira has no representation for MRO companies, so we consider that as a technicality; [and] if you don’t solve that, then we cannot survive,” said Elmar Lutter, Lufthansa Technik Philippines President and Chief Executive Officer.
The company might have to close all four facilities in Philippines and look for an alternative location for its Asia hub such as Vietnam.
Nicola Minelli, Branch Manager of Marposs Singapore, speaks to Asia Pacific Metalworking Equipment News (APMEN) about the challenges and opportunities in the Philippine market, and provides his outlook on the country’s metalworking industry.
Nicola Minelli
Since its establishment in 1952 in Bologna, Italy, Marposs S.p.A. has been producing standard and custom made systems for industrial applications to measure and control dimensions, geometries and surface quality of mechanical components, as well as leak test or visual inspection and for control and monitoring of the machining process on every type of machine tool.
The Group now has around 80 offices in 25 countries, with a total of 3,700 direct employees. It caters to machine tool makers as well as provides solutions for the automotive, aerospace, energy, biomedical, and technology industries.
In Southeast Asia in particular, Marposs is present in Singapore (for covering the markets of Philippines, Johor, Batam, Indonesia), Kuala Lumpur in Malaysia, and Bangkok in Thailand, which is also the main office in the region.
During the recent PDMEX 2019 exhibition in Manila, Philippines, Nicola Minelli, Branch Manager of Marposs Singapore, speaks to Asia Pacific Metalworking Equipment News (APMEN) about the challenges and opportunities in the Philippine market, and provides his outlook on the country’s metalworking industry.
WHAT OPPORTUNITIES ARE YOU SEEING IN THE PHILIPPINE MARKET?
Nicola Minelli (NM): It is definitely an important market — it may be even more important in the future for two main reasons: one, the Philippines is moving towards high-end production—it is no longer a place where you can mass produce cheap products. So, manufacturers need to invest in high-end systems to create better products and more efficiently. And second, in my opinion, even though we are happy with our overall market here, there are still a lot of companies here that we do not know yet and that represent new business opportunities for us.
WHAT ABOUT THE CHALLENGES?
NM: Yes, competition is always around. Marposs is the only company who can offer a full range of gauging and inspection solutions for mechanical manufacturing. We have actually quite a lot of specific competitors, for particular product ranges, but overall, we are proposing to our customers a wide range of portfolio that, if you don’t get to sell one thing, maybe there is opportunity for something else.
FROM YOUR PERSPECTIVE, WHAT INDUSTRIES HERE STAND OUT IN TERMS OF GROWTH?
NM: Our core business is the automotive industry. We have long lasting business relations with all main automotive players in the area, based on similar strong connections with their headquarters abroad. The automotive sector worldwide is going through a huge process of transition to the electro-mobility and this will come surely in this area, too. Marposs is able to provide new solutions also for this new challenge, with the target to remain a first-class supplier of the whole automotive supply chain.
I also see aerospace growing. For the time being, for us, those two industries—automotive and aerospace—are what’s growing here.
WHAT ARE THE MAIN CHALLENGES OF YOUR CUSTOMERS, AND HOW DO YOU HELP THEM ADDRESS THOSE?
NM: Technically, they are not so much of a challenge for us. The biggest effort is often to convince Customers to choose higher value solutions compared with some basic ones. Because somehow, you have to justify the investment. If you offer any solution at a higher cost, you have to justify it. We have different situations where you have to understand what the customer might need. Just an example, they may be using bore gauges for checking parts. You can offer some system that is faster and more accurate—but more expensive. So, you have to justify why they need to adopt the faster, more accurate system. And I would say, almost 90% of the time, the customers’ main concern is the price/value ratio.
WHAT TRENDS ARE YOU SEEING IN THE SOUTHEAST ASIA MARKET?
NM: The trend now is that everybody is pushing for Industry 4.0. Everybody wants data collection or statistical analysis, or the possibility of the transfer of data directly from the gauge to a server and so on. I think this one is the main trends now.
WHAT IS YOUR STRATEGY TOWARDS THIS TREND?
NM: For a long time, we have been offering these possibilities, these features. In the past, very few companies—especially American companies—actually made use of statistical analysis. Now, this request is more widespread, and more customers are looking at it. But, to have in place automatic systems for data collection needs further studies; you need to understand which data you need to collect. Because you can collect everything—you can have information on everything. But, eventually, what do you really need?
Maybe for the time being, this trend is not so much present yet in the Philippines, but it definitely is a strong trend in Singapore.
WHAT IS YOUR OUTLOOK FOR METALWORKING INDUSTRY IN THE PHILIPPINES?
NM: It will be better. I have been coming to the Philippines for a very long time, and compared to the past, the industry has become much more interesting. I am expecting this trend to continue in the future as well. I have also been participating since long time to this exhibition; in the beginning, it was just a small show, with just few distributors. Now, you can see a lot of manufacturers coming here. I am very optimistic about the future of the industry here in the Philippines.
Celebrating its 63rd year in business, MESCO Inc. has been leading and aiding the growth of the Philippine metalworking industry. Allen L. Lee, president, tells us more about the company and his outlook for the country. Article by Stephen Las Marias.
Allen L. Lee
Manufacturers’ Equipment and Supply Co. (MESCO) was founded in 1956 by Peter N. Lee. Together with his wife, Mercy, they started out of a small apartment in Manila, Philippines, at the time that the country had begun to rebuild after the Second World War.
MESCO was the first to introduce several significant machining technologies into the Philippines. In fact, the company introduced the first CNC machine tool in the Philippines in 1973. It was also during this time that MESCO was incorporated to MESCO Inc.
The company successfully brought more machining technologies in the country, such as a CNC milling machine, a CMM, a vertical machining centre, and a CNC lathe machine, among many others. (The very same QuickTurn 10 CNC lathe machine that Peter brought in 1981 is now on display in the lobby of the MESCO building as a tribute to his visionary force.)
At the recent PDMEX 2019 tradeshow in the Philippines, Allen L. Lee, president of MESCO Inc., speaks with Asia Pacific Metalworking Equipment News (APMEN) about how the company has been leading and aiding the growth of the country’s metalworking industry.
HOW WOULD YOU DESCRIBE THE EVOLUTION OF THE METALWORKING INDUSTRY IN THE PHILIPPINES?
Allen L. Lee (AL): MESCO is now 63 years old. It was founded by my parents in 1956. My father passed away in 2004, so since then, I have been running the business together with my siblings and my two sons. If I go back 20 years ago, most of the buyers were the big corporations. The past 20 years have seen a big change wherein the big names—the Toyotas and Toshibas, for example—had among their policies to outsource production, which is good because it led to the creation of several hundred new companies over the past two decades—job shops starting out as husband-and-wife, father-and-son, with five- to 10-people operations with one CNC machine, for example, and have now grown to 30-, 40-, 50-people operations with over a dozen CNC machines.
In that sense, it is good because the technology has spread all around. While it has provided employment, more importantly, it made the Philippines a potential manufacturing base for other overseas companies.
DO YOU ALSO MANUFACTURE METAL PARTS?
AL: Yes. We have our own manufacturing arm with about 80 people, wherein we produce parts not for the Philippines, but for export. We don’t sell those products in the Philippines because we will just be competing with our own customers. So, we export basically to our suppliers, including Mazak in Japan and in Kentucky, USA; we supply to a high-pressure pumps company in Australia; and, starting about two years ago, we are supplying medical components to San Francisco in the United States and in China.
The QuickTurn 10 CNC lathe machine that Peter N. Lee Brought in 1981 is now on display in the lobby of the MESCO building as a tribute to his visionary force.
FROM A METALWORKING STANDPOINT, WHAT ARE THE OPPORTUNITIES IN THE PHILIPPINES?
AL: Let’s take it from two perspectives: domestic and export. Domestic market is very strong because of the construction boom. What you will see is that local companies are investing in higher technology sheet metal systems; they are talking about automation, lasers, and so on and so forth.
The prospect for the export companies is a bit trickier. There is a very big potential, except for one issue: the Philippine government’s Trabaho (Tax Reform for Attracting Better and High-quality Opportunities) bill. If that new bill pushes through, it may cause some concerns to some foreign companies, because Trabaho bill will increase the tax rate, from five percent gross to 18% corporate income tax.
I have been talking to some auditors, and what they are telling me is that for an American company, or a Japanese company, there is a thing called worldwide taxation, which means, in the Philippines, for a PEZA company, if we increase the tax rate, they pay more in the Philippines, but they will pay less in the United States or Japan. At the end of the day, it’s just the same.
The impact of the Trabaho bill to the investors is not the tax rate per se, but the uncertainty. It is difficult for investors to consider investing in a country if the business environment is uncertain. Other investors are telling me this: if the Philippines must make the rules, it must stick to the rules. If you change the rules, it’s going to be difficult. Most likely, Trabaho bill will pass by December. But, why wait until December? Make a decision now, so that the investors will know what to do.
WHAT OTHER MARKETS DO YOU SEE DRIVING THE METALWORKING INDUSTRY GROWTH HERE?
AL: Worldwide, aerospace is the one with the biggest potential, wherein over the next 20 years, you will need tens of thousands of aeroplanes. The Philippines has a good potential for the aerospace industry; however, we do not have the infrastructure. We do not have special processes such as anodising and heat treatment. The supply chain for materials and for special processes—these are the challenges. Once we have the supply chain, I would think that the potential for growth in the aerospace industry will be exponential.
Regarding skills, there is no problem. Yes, it is not easy, but it can be developed. You must have certifications, all these things, it is a matter of spending some time, but it is not that difficult.
WHAT ABOUT THE AUTOMOTIVE INDUSTRY?
AL: Sure, but consider the traffic! A lot of people can afford cars, interest rates are getting low, and financing gets easier. But where will you park your car? Where will you drive?
HOW WOULD YOU DESCRIBE THE COUNTRY’S STATE OF METALWORKING TECHNOLOGY?
AL: As far as automation is concerned, we are way behind all the other countries. In this exhibition, we are showing two robots in two Mazak machines. To the best of my knowledge, in all the previous shows, this is the first time an exhibitor has shown a robot in a machine tool. What I gathered in MTA Vietnam—based from one of my principals—they were exhibiting perhaps 70 to 80 machines with robots. in Thai Metalex last year, there were about a hundred robots. In the Philippines, for the first time, two machines!
So, why automation in machine tools is weak in the Philippines? It is because the biggest market here are job shops. And in general, job shops’ production sizes are not really high volume. Twenty units, after two hours, they change the setup. So, it is a matter for the machining model to change. When will it come? I don’t know. But I would like to think that if it comes, it will be in waves.
WHAT TRENDS ARE YOU SEEING?
AL: What we do think is that the job shop market now is focused on a standard three-axis machining centre, and two-axis to three-axis CNC lathes. I would like to think that there are many other parts that are being done but are imported because they are too difficult to make.
But we are sensing the market trend will go up, go into multitasking machines for job shops. It is just a matter of them developing the confidence to approach the big companies and say, ‘This part that looks so difficult to manufacture, which you are importing, give me a chance to do it for you.’
In that sense, the technological level of the Philippines will go up. Once a job shop has this, the next job shop follows. It multiplies. When will it happen? The sooner the better.
WHAT IS YOUR OUTLOOK FOR THE PHILIPPINE METALWORKING INDUSTRY OVER THE NEXT YEAR?
AL: It depends upon the reaction of the foreign investors to the Trabaho bill. But whatever happens in three years after its implementation, you cannot slow down. Meanwhile, regardless of whether the business is up or down, MESCO will continue to invest not just in capital goods but in training—by sending people to Japan, Singapore, Europe, the United States, and so on and so forth.
Do you remember the Lehman Brothers’ collapse in 2008? Our sales plunged 50 percent. But 2009 was the year we had the greatest number of trips of people going abroad for training. The previous years, business was good, we have no time to send them for training. In 2009, there was no business, so, perfect timing. Around that time, some of our competitors laid off their staff, cut down in investments. For us, the policy was that, it is bad now, but it cannot be bad forever. It will pick up; so, in 2009, there’s time to train. In 2010, when the business picked up, we were ready.
Besides, we are here. We are a local company. Foreign companies, during the good times, are here. In bad times, they pull out. For us, we are stuck here, we can’t go anywhere. So, giving jobs, training and upgrading the skills of our workers, the benefits is for everyone.
SteelAsia Manufacturing Corp. has signed a memorandum of understanding (MOU) with China’s HBIS Group Ltd for their first integrated iron and steel facility in Lemery, Batangas province, in the Philippines.
The two steel companies inked their deal during the Philippine-China Business Forum, a side event of President Rodrigo Duterte’s visit to China.
Under the MOU, SteelAsia, the Philippines’ largest steelmaker, and HBIS will invest around US$1 billion for phase one of the Lemery plant.
“As DTI pursue a number of strategic projects, an important investment priority is the establishment of the first-ever modern, environment-friendly integrated steel mill project in the Philippines,” Department of Trade and Industry (DTI) Secretary Ramon Lopez said. “This is pursuant to the vision of President Duterte to establish the first integrated iron and steel plant during his term, which will allow the country to produce basic iron and steel products, including flat products. These are currently not being produced in the Philippines.”
He added this partnership of Filipino and Chinese companies will support the country’s bid to be a major producer of high quality and safe steel products by 2030. He also noted that another Chinese firm, Panhua Group, is interested to invest in integrated steel making in the Philippines.
“Our bilateral relations with China is at a high level and is opening many business opportunities between our two nations,” Lopez said.
He added since Duterte and Chinese President Xi Jinping have exchanged visits starting 2016, China has been pushing for more investments into the Philippines with their Belt and Road Initiative. According to Lopez, China is the country’s fourth largest source of foreign direct investments (FDI) in 2018, with total investments amounting to US$198.7 million.
HOW WOULD YOU DESCRIBE THE COUNTRY’S STATE OF METALWORKING TECHNOLOGY?
