Inclusive Innovation Industrial Strategy (i3S) Propelling Jobs, Investments, and

Shared Prosperity for All

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

29 November 2017, Fairmont Hotel, Makati City

Presentation Outline

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

• Response to Japan’s Inputs to Philippine Industrial Vision

• 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

Part 1: Response to Japan’s inputsindustrial development vision of no one left poor • Focus on employment generation

• Large scale employment: foreign companies, spill-over to local companies, foreign SMEs, new industries, GVC participation

• High value added employment: promotion of entrepreneurship, startups, innovation, university incubation base

• Employment thru local industry development: agriculture, IT/BPO led by LGUs

• PH: sustainable & inclusive growth, more & better jobs, shared prosperity for all

Part 2: New Industrial StrategyGLOBAL & DOMESTIC ENVIRONMENT

• 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

-2.0

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200020012002200320042005200620072008200920102011201220132014

PH as Asia’s Emerging Economic Tiger

PH TH INO VN PRC MAL

Industry 4.0: driving force is technology,disrupting business models at an accelerated pace

• 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

Underlying Framework of PH industrial strategyw

COMPETITION- INNOVATION-PRODUCTIVITY

• Innovation is at the heart of the PH Industrial Strategy

- Innovation is an important ingredient for long-run growth

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

6

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

INDUSTRIALSECTOR

UNDERLYING FRAMEWOK

agriculture, fishing, forestry

mining construction manufacturing services

Inclusive Innovation Industrial Strategy i3Sw

Integrating PH industries, Closing value/supply chain gaps

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

INDUSTRIAL STRATEGY

INNOVATION-LED

SUSTAINABLE INCLUSIVE

• Global Value Chain-focused • INNOVATION &

ENTREPRENEURSHIP-centered • Industry cluster-based

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ipi3S Five Major Pillars

Inclusive Innovation Industrial Strategy Strategic Actionsw

AcademeGovernment

Industry

• Address supply/value chain gaps; Expand domestic market, attain economies of scale, export hubs; 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

Electrical & Electronics

Auto & Auto PartsAerospace

Parts

Chemicals ShipbuildingRORO

Furniture,Garments, Creative

Tool & DieIron & Steel Agri-business IT Business Process Management,

E-Commerce

Tourism

Transport & Logistics

Construction

• 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

Connecting IndustriesAUTO: The future prospects of the industry remains bright

• 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

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50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

Total

Industry Growth

Vehicle Sales

Electronics: PH largest source of exports

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1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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, telecommunications

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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

ELECTRONIC DATA PROCESSING

MEDICAL/INDUSTRIAL INSTRUMENTATION

OFFICE EQUIPMENT

TELECOMMUNICATION

IT-Business Process Management: Current State & Key trends

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 1071 1200 1345

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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

56

13

11

20

Revenue by Sector: 2016Animation &GameDevelopment

Contact Center &BPO

IT Services

HealthcareInformationManagement

Global In-HouseCenters

IT-BPM Roadmap: Priority Sectors

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 ServicesAnimation & Game Development• 3D Animation• Augmented & Virtual Reality

(AR/VR)• GamificationGlobal-in-House• Industry specific services for

telecom, healthcare, insurance, pharmaceutical

• PH IT-BPM’s growth will be driven by high-value services (IoT, ESO) in the next 6 years

• 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

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

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

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

Part 3: Current State of Innovation How does the Philippines fare in terms of innovation efforts?

ASEAN7. Singapore37. Malaysia47. Viet Nam51. Thailand73. Philippines

Top 5: Leaders in Innovation1. Switzerland 2. Sweden3. Netherlands4. US5. UK

PIDS Innovation Survey

o Remove barriers to innovationin regulatory frameworks

o Meaningful support toinnovators especially MSMEs

o Invest in required technology,research infrastructure, R&Dresearchers

o Reforms in education,investment climate & trade

o National InnovationFramework & Plan of Actionto facilitate innovationecosystem

PH innovation ranking has improved, gradually catching up

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; ICTservices exports

o WEAKNESSES: ease of starting a business; education (#113); expenditure on education(#106); government expenditure/pupil (#99); pupil-teacher ratio (#99); tertiary inboundmobility (#105) global R&D companies; science & technical articles (#120); newbusinesses/’000 population; creative goods & services (#115)

100

83

74 7371

5259

47

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40

60

80

100

120

2014 (143) 2015 (141)

2016 (128) 2017 (127)

PHILIPPINES

VIET NAM (achiever)

THAILAND

INDONESIA

INDIA (achiever)

Global Innovation Index 2017: more needs to be done

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20

40

60

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100

Institutions

Human capital& research

Infrastructure

Marketsophistication

Businesssophistication

Knowledge &technology

outputs

Creativeoutputs

Philippines Vietnam Thailand Indonesia

India Malaysia Singapore

PH obtained the lowest scores in

• Creative outputs: intangible assets (trademarks,industrial designs, ICT & business model),creative goods & services (cultural & creativeservices exports), online creativity (video uploadson YouTube)

• 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 capitaldeals)

More needs to be done in ICT infrastructure (access #89, ICT use #88) & Innovation linkages (#95)

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 Bodies

Service Providers

Accelerators/Incubators/

Innovation Hubs

Plug & Play

Launch Garage

QBO

Ayala TechnoHub

A Space

Spring Valley

BNEFIT

Acceler8

DOST-TBI Network

Endeavor Philippines

La French Tech PH

UP Innovation Hub

Startup PH

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

Support Organizations/Meetups

/ Communities

Techtonic

Startup Summit

Founder's Institute

Endeavor

US Stride

Microsoft

Bristish Embassy (Newton Fund)

GovernmentPrivate

Design Center of the

Phil

DTI

DICT

DOST

NegosyoCenter

Techtalks.ph MeetupsTech Planter Demo

Slingshot

1000 Angels

Google Philippines

Tech Transfer Day

Philippine Software Industry Association

Game Developers

Association of the Philippines

Philippine Web Designers Organization

SPARK Series at AIM (Monthly)

Smart Devnet

Digital Commerce Group

Ignite

GDAP

IPOPhil

Phackers-Slack Channel

User Experience Philippines

PhilVenCap Forum

Be Fast: Way to Silicon Valley Startup Open Challenge

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)

Voices from the Regions

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

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.