Inclusive Innovation Industrial Strategy (i3S) Propelling Jobs, Investments, Exports and Shared Prosperity for All

DR. RAFAELITA M. ALDABAASSISTANT SECRETARY, Department of Trade and Industry (DTI)

4 December 2017

Presentation Outline

AIM: PH strategy for industrial development to create more & better jobs, relationship with exports and trade, innovation challenges to industry growth & government academe industry linkages

• New Industrial Strategy: inclusive, innovation industrial strategy (i3s)

- Framework: competition innovation productivity

- Top 12 Industries

- Five Pillars and Strategic Actions

• Innovation at the front and center of PH industrial strategy (i3s)

- Current state of innovation

- Inclusive Innovation & Entrepreneurship Journey: Regional FGDs

• Philippines as Asia’s emerging economic tiger, manufacturing resurgence, Industry 4.0, GVCs, global slowdown, creeping protectionism, Brexit, Make in India, Made in China, Thailand 4.0, US TPP pull out, bring back jobs to America, RCEP

-4.0

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PH as Asia’s Emerging Economic Tiger

PH TH INO VN PRC MAL

Part 1: New Industrial StrategyGLOBAL DOMESTIC ENVIRONMENT

• Impact on PH industries

• Opportunities &

challenges

• Future skills needed:

human capital

development critical

Science, Technology,

Engineering

Mathematics

• Innovation-led

technologies to improve

productivity, transform

PH economy

Industry 4.0: Driving Force is TechnologyDISRUPTING BUSINESS MODELS AT AN ACCELERATED PACE

• Globalization, ASEAN integration, Industry 4.0 competition increases, role of innovation is crucial

• Innovation is at the heart of the PH Industrial Strategy, an important ingredient for long-run growth

5

GOVERNMENT POLICIES &PROGRAMS, INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY,

RULE OF LAW,PEACE & ORDER, POLITICAL CLIMATE

GLOBALIZATION, INDUSTRY 4.0, FREE TRADE ARRANGEMENTS, GLOBAL VALUE CHAINS,

REGIONAL PRODUCTION NETWORKS

COMPETITIONINNOVATION

EntrepreneurshipPRODUCTIVITY

EXTERNAL

FACTORS

INTERNAL

FACTORS

INDUSTRIAL

SECTOR

UNDERLYING

FRAMEWOK

agriculture, fishing,

forestrymining construction manufacturing services

Underlying Framework of PH Industrial StrategyCOMPETITION-INNOVATION-PRODUCTIVITY

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120.0

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1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Trade Openness Indicator, 2000-2016

Total Trade (current prices, in million PhP) Total (% of GDP)

Average Growth 2001-2005 2006-2010 2011-2016

Exports 7.5 4.2 4.5

Imports 9.0 2.9 8.5

ARE WE BECOMING LESS OPEN?

Brunei Darussalam

Indonesia

Lao PDR

Myanmar

Malaysia

Philippines

Singapore

Thailand

Vietnam

0.0

50.0

100.0

150.0

200.0

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300.0

350.0

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500.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Trade Openness: ASEAN Countries(IN CURRENT US$)

Overall Goal: globally competitive & innovative industries

• Growth oriented action to upgrade industries

• Remove obstacles to growth attract investments

• Build inclusive innovation ecosystem

• Strengthen domestic supply chains

• Deepen participation in global value chains

Role of Government: Enabler & facilitator

• Address coordination & market failures -- the most binding constraints preventing industries from growing

• Create proper environment for private sector development• Global Value Chain-focused

• INNOVATION & ENTREPRENEURSHIP-

centered

• Industry cluster-based

Inclusive Innovation Industrial Strategy i3SINTEGRATING PH INDUSTRIES, CLOSING VALUE / SUPPLY CHAIN GAPS

Inclusive Innovation Industrial Strategy Strategic Actions

• Address supply/value chain gaps; Expand domestic market, attain economies of scale, export hubs; trade& investment promotion; incentives; domestic ecozones

Building new industries, clusters agglomeration

• HRD, training programs to improve skills; tie-ups with universities & training institutionsCapacity building, HRD

• Link government, academe, & industry; strengthen collaboration towards market oriented research; R&D incentives; shared facilities

Innovation, Entrepreneurship

• 7Ms: mindset, mastery, mentoring, money, machine, market, models; SSFs; access to finance & technology; linking with large enterprises

MSME Growth & Development

• Address corruption, smuggling, bureaucratic practices, streamlining, automation, single mechanism for coordinating registration, permits

Ease of doing business, investment environment

Five Major Pillars and Strategic Actions

Opportunities

Challenges

S K I L L S T R A I N I N G , H R D , I N N O V A T I O N & R & D , G R E E N

G R O W T H ,

M S M E D E V E L O P M E N T

• New high level

growth trajectory

• Growing market,

middle class

• Political stability

• Young, English

speaking workforce

• Stable business

confidence

• AEC & FTAs

• Complex

regulations

• High cost of power

• Lack of ports,

airports, roads

• SME access to

finance

• Supply chain gaps

N E W I N D U S T R I A L P O L I C Y , B O L D E R T R A D E P O L I C Y

I N C R E A S E I N F R A S T R U C T U R E S P E N D I N G , I N T E N S E

I N V E S T M E N T P R O M O T I O N

PH Inclusive Innovation-led Industrial Strategy: Top 12 Priorities

100 Million Consumer Market

• Sales reached 400K units in 2016 (4x the sales a decade ago) and grew by 24%

• 3rd wave of motorization already taking place

- PH: high population with low vehicle ownership, motorization rate in PH: 35; VN:20;

INDO:73; THA:200; MAL: 395

- Significant market potential as the share of households who can afford to buy vehicles

increased from 26% to 36%

• Rising trend is expected to continue as PH high growth trajectory is sustained: 1 M by 2027

-50-40-30-20-1001020304050

0

100000

200000

300000

400000

500000

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

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09

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10

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13

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14

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15

20

16

20

17

F

Total

Industry Growth

Vehicle Sales

Connecting IndustriesAUTO: THE FUTURE PROSPECTS OF THE INDUSTRY REMAINS BRIGHT

0

10

20

30

40

50

60

70

80

19911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016

Electronics Exports vs. Total Exports 1991-2016 • Electronics: 51% of total exports in 2016 ($29B)

• 50% of total exports in the first half of 2017 ($15B)

• Average growth in the 2000s: 2%; 1990s: 37%

• Semiconductor components/devices comprise the bulk of electronics exports

o 2015-2016: 72% share

o Jan-June 2017: 71.53 growth

• Auto electronics, consumer electronics, medical, telecommunications0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

STRUCTURE OF ELECTRONIC COMPONENTS: % Share

AUTOMOTIVE ELECTRONICS

COMMUNICATION RADAR

COMPONENTS/DEVICES (SEMICONDUCTORS)

CONSUMER ELECTRONICS

CONTROL & INSTRUMENTATION

Electronics: PH Largest Source of Goods Exports

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Revenue (US$B) 3.4 4.5 6.1 7.1 8.9 11 13.2 16.1 18.9 20.5 22.9

Employment('000) 236 298 371 424 527 640 777 917 107112001345

0

5

10

15

20

25

0200400600800

1000120014001600

Emp

loym

en

t

Revenue & Employment Performance

• In the past 10 years, PH has become a strong participant in the IT-BPM GVC

• In voice BPM, PH is #1 destination for voice related services

• PH is rapidly growing its capability for non-voice IT-BPM services

• Industry revenue forecast for 2022: annual growth of 9.2% & US$38.9B in 2022

• Employment: from 1.15M in ‘16 to 1.8M in ‘22 (more technology-enabled high value jobs)

• Slower growth: maturing sector & anticipated impact of technology

0

5613

11

20

Revenue by Sector: 2016Animation & Game DevelopmentContact Center & BPO

IT Services

Healthcare Information ManagementGlobal In-House Centers

IT-Business Process Management:MAJOR SERVICES EXPORT

Contact Center & Business

Process Outsourcing

• Engineering Services

Outsourcing (ESO)

• Data Analytics

• Performance Management

• Legal Process Outsourcing

(LPO)

IT Services

• Application Development

Management (ADM)

• System Integration

• Automation Enablement

• IoT-enablement Languages

(Python programming)

Health Information Management

• Preventive Health

• Remote Healthcare Management

• Provider Services

Animation & Game Development

• 3D Animation

• Augmented & Virtual Reality

(AR/VR)

• Gamification

Global-in-House

• Industry specific services for

telecom, healthcare, insurance,

pharmaceutical

• Analytics & optimization engines

• Automation enablement• Clinical data analytics• Remote health management• VR/AR enabled animation• Supply chain optimization

• Medical transcription• Simple contact center services• Basic 2D animation services• Parts of IT technical support• Transactional mid & back-office

transactions

IMPACT OF AUTOMATION

IT-BPM Roadmap: Priority SectorsPH IT-BPM’s GROWTH WILL BE DRIVEN BY HIGH-VALUE SERVICES (loT, ESO) IN THE NEXT 6 YEARS

ESO

• Denso PH: meter cluster, air-con, compressor, smart

key, sonar sensor

• Denso Techno: software development for auto

products like instrument clusters

• PH is one of design centers of Denso providing

global engineering capacity

• 2 companies cooperate in designing electronics

products

ADAS & Electric Powertrains

• PH auto/electronics/IT capabilities

• systems/components related to ADAS & electric motor

powertrains like battery for E-vehicles, E-jeepneys, E-

buses, E-trikes

• Filipino multinational IMI is manufacturing complex safety

& control systems (auto camera modules) for ADAS

applications

As we enter the 4th Industrial Revolution, PH Industries being positioned by connecting auto electronics, IT-BPM

ASEAN

7. Singapore

37. Malaysia

47. Viet Nam

51. Thailand

73. Philippines

Top 5: Leaders in

Innovation

1. Switzerland

2. Sweden

3. Netherlands

4. US

5. UK

PIDS Innovation Survey

o Remove barriers to innovation in

regulatory frameworks

o Meaningful support to innovators

especially MSMEs

o Invest in required technology, research

infrastructure, R&D researchers

o Reforms in education, investment

climate & trade

o National Innovation Framework & Plan

of Action to facilitate innovation

ecosystem

Part 2: Current State of InnovationHOW DOES THE PHILIPPINES FARE IN TERMS OF INNOVATION EFFORTS

o STRENGTHS: graduates in science & engineering; market capitalization; trade, competition & market

scale; firms offering formal training; knowledge absorption; research talent; knowledge impact, high &

medium high-tech manufactures; knowledge diffusion; ICT services exports

o WEAKNESSES: ease of starting a business; education (#113); expenditure on education (#106);

government expenditure/pupil (#99); pupil-teacher ratio (#99); tertiary inbound mobility (#105) global

R&D companies; science & technical articles (#120); new businesses/’000 population; creative goods

& services (#115)

100

8374 7371

5259

47

0

20

40

60

80

100

120

2014 (143) 2015 (141) 2016 (128) 2017 (127)

PHILIPPINES

VIET NAM (achiever)

THAILAND

INDONESIA

INDIA (achiever)

PH Innovation ranking has improved, gradually catching up

0

20

40

60

80

100

Institutions

Human capital & research

Infrastructure

Market sophistication

Business sophistication

Knowledge & technology

outputs

Creative outputs

Philippines Vietnam Thailand Indonesia

India Malaysia SingaporePH obtained the lowest scores in

• Creative outputs: intangible assets (trademarks,industrial designs, ICT & business model), creativegoods & services (cultural & creative servicesexports), online creativity (video uploads onYouTube)

• Human capital: education, tertiary education(enrolment), R&D expenditure, global R&D)

• Market sophistication: credit (ease of gettingcredit, microfinance loans), investment (ease ofprotecting minority investors, venture capital deals)

More needs to be done in ICT infrastructure (access #89,

ICT use #88) & Innovation linkages (#95)

Global Innovation Index 2017: More needs to be done

Tech In Asia

Mashable Asia

Techcrunch

The Bobbery

E27

Science.ph

Startups.ph

Media

Nix Nolleda

Enrique Gonzales

Benjamin Joffe

Yobie Benjamin

Chris EvdemonRavi Agarwal

Paul Rivera

Angel Investors

CorporatePacific Global

One

Globe PPCI

Microsoft

Voyager Innovation

PLDT

Real EstatePWC

Consultants

IP Lawyers/Agents

Accountants

Banks

CROs (for clinical trial)

Recruiters

NXTLVL AcademyMarketing

DTI and other Regulatory

BodiesService

Providers

Development/Design

SymphMashupGarage

Events

FFC- Web Design/Development Conference

Geeks on a BeachWebgeek

Conference

AngelHack

Startup Weekend

Hackathon

PyCon

DevCon

RubyCon

SoftCon

Echelon Philippines/e27-Pitch Competition

Philippine Startup ChallengeON3 Pitching Contest

UXPH Conference

Startup Grind

Tech Talks

Open TBI

VC’s

WaveMaker Labs

IMJ Investment Partners

Y Combinator ICCP Venture Partners

Ayala TBI

Network

Omidyar Network

Golden Gate Ventures

Blumberg Capital

Learn Capital

Kickstart Ventures

Ideaspace Foundation

UP Enterprise Center500

Startups

Accel Partners

Lumia Capital Ayala TBI

Network

Narra Venture Capitals

ENTREPRENEUR

A Space Manila

47 East

O2 Space Solutions

Acceler8

Builtable

vOffice

Penbrothers

A Clean and Well-Lighted Space for Work

Ignition Venture

Bitspace

FIRST Escolta

Arch Offices

ImpactHub

InnoVantage

MAPA Lab

13DTI Fablabs

Brain Sparks

Board Room PH

Racket Room

Collective

Co-working Spaces

@Lab

Co.labxchange

Honeycomb Manila

Cuago FoxHole

KMC Solutions

Launchpad

Mozilla Community Space

Palet Express Regus

The Common

Space

Virtual

Office

Pondr The Office

Project

Warehouse 8Workplays

Social Space

FUNDERS

GovernmentDTI EMB

SETUP Seed.ph

Venture Financing

Technicom

Startup Research

Grants/Loans

DOST

DOLE

DENR

PCAARRDDA

CHED

Kickstart Ventures

Angel Investors

MFT Group of Companies

1000 AngelsPrivate Individuals

PH Venture Capitals Investment Group (PhilVencap)

Brummer and Partners

IMJ Ventures

VCs

Kickstart Ventures

ICCP Ventures

Narra Ventures

Original Pitch

Private

JP Morgan

PhilDev

Engages Park

Plug &Play

Mabuhay Capital

Manila Angels

Kaizen

UPLB CTTE

UP EnterprisenAIM Dado Banatao

GTBI (WVSU)

Universities

UP Cebu INIT

Animo LabsCDO Bytes (MUST)

Ideya (MSU-IIT)

Batangas State U

DOST iTech(Caraga State U)

PITBI (PSU)

Integration of innovation and entrepreneurship in education curriculum

• Develop education modules to strengthen STEAM programs and align it with Industry 4.0

• Intensify faculty training on innovation and entrepreneurship; Provide government subsidy

Legislation and policies to strengthen R&D based on local industry needs

R&D collaboration and partnership between industry and the academe

• Establish research hubs / R&D collaboration centers at select HEIs by geographic location

• Test technologies and innovations developed by partner sector

Improved quality and utilization of government’s shared infra i.e., SSFs, FabLabs, FICs, etc.

• Strengthen S&T and innovation skills of personnel running shared infrastructure facilities

• Conduct MSME training on the use of the shared infrastructure facilities; access to SSFs

• Support passage of Philippine Innovation Act and the crafting of National Innovation Roadmap

• Craft policies enabling regional and cluster innovation, including increased R&D funds for LGUs

Voices from the regions

Guided by the i3s vision to transform the economy & uplift the lives of Filipinos, the Philippines is focused on creating globally competitive & innovative industries

With innovation at the core of its new industrial policy, Philippine industries will be in a better position to leapfrog to Industry 4.0

This would enable our industries to deepen our participation and play a more important roles in global value chains and regional/global production networks