Amid the prevailing gloom in Philippine industry, Stanford Microsystems Inc. is a glittering exception, the sort of enterprise, economists and Government officials say, that the country needs in greater numbers to overcome its economic troubles.
Elsewhere in the Philippines, layoffs and plant closings are the order of the day. But in his office outside Manila, Cristino Concepcion Jr., the 40-year-old chairman of Stanford Microsystems, the atmosphere is far different.
In the year ended last June, Mr. Concepcion’s business doubled. This year, the outlook is for another doubling, lifting revenues to $67 million at current exchange rates and profits to $5.6 million. ”Those estimates are conservative,” Mr. Concepcion emphasized.
Stanford Microsystems is the largest independent semiconductor subcontractor in the Philippines and one of the largest in the world. Its main business is assembling integrated circuits for foreign companies, including Motorola Inc., Fairchild Industries, Texas Instruments Inc. and the Harris Corporation in the United States, and several major electronics concerns in Europe. An All-Export Business
The foreign concerns ship chips and plastic housings to the Philippines, and Stanford’s 7,000 employees put them together, attach the wiring, and bond them in place – at the rate of more than two million a day.
The Philippine industrial structure is dominated by companies that are unable to compete in the international arena and sell only to the domestic market. The semiconductor industry, by contrast, produces 100 percent for export. While other industries have declined in recent years, the semiconductor business soared to $900 million last year, from $189 million in 1978.
This year, semiconductor shipments are expected to increase by about 50 percent, fueled by strong demand in the United States. ”This development is painless, since it requires no foreign exchange,” said Frederico V. Borromeo, a governor of the Board of Investment, an agency credited with freeing the semiconductor business from often burdensome Government regulations. ”It is the kind of industry that the Philippines needs more of.”
Some leftist economists here are critical of the semiconductor industry, saying it is dominated by foreign subsidiaries and local subcontractors beholden to Western companies. Moreover, they say, the industry’s value as a foreign exchange earner is limited because most of the components are sent on consignment from abroad. Thus the net foreign currency collected by the semiconductor business last year, or the value added in the Philippines, was about $200 million.
Jobs Role Is Crucial
”That criticism is irrelevant,” replies Bernardo M. Villegas, senior economist for the Center for Research and Communication, a private research group. ”The No. 1 problem in the Philippines today is the lack of jobs. Any foreign exchange earnings is simply the gravy.”
As a creator of jobs, the semiconductor industry’s performance has been impressive. Begun in the early 1970’s, the industry had a payroll of about 5,000 people by 1976. The count last June was 47,000 employees, with fewer than 100 of those foreigners.
Still, the foreign subsidiaries are the largest force in the industry, larger than the locally owned subcontractors. The biggest names in the American semiconductor industry have operations in the Philippines, including Fairchild, Texas Instruments, the National Semiconductor Corporation, Motorola and the Intel Corporation.
The advantage of the Philippines is its English-speaking, well educated labor force, which works for low wages. American companies say they pay factory workers $3 to $5 a day, compared with $5 to $6 an hour in the United States.
For their part, the local subcontractors have survived in a sink-or- swim, free-market environment. This contrasts markedly with companies in many other Philippine industries, which were shielded from foreign competition.
Charges of Cronyism
”The semiconductor business was a different case because Marcos’s cronies don’t live in the computer age,” said one foreign banker, who asked not to be identified.
Stanford Microsystems, founded by Mr. Concepcion and two other engineers educated at Stanford University, is a leading example of the young entrepreneurial companies, operating outside the system known among its critics as ”crony capitalism.” The company has succeeded despite occasional sharp reverses.
Until 1980, Stanford got half its business from Japan. But then the Japanese companies decided to make huge capital investments in automated assembly equipment at home and stop offshore subcontracting. Today, Stanford does no work for Japanese electronics companies.
There followed a setback that turned into a triumph. From early 1982 to the fall of 1983, Stanford went on a buying binge, purchasing $10 million in equipment anticipating a recovery in the semiconductor industry. But the pickup in demand did not materialize for Stanford until the winter of 1983. Consequently, in the year ended June 1983, the company lost $1 million.
In retrospect, however, the buying spree looks astute indeed, given the subsequent devaluations of the Philippine peso. The equipment from abroad was purchased when the exchange rate was less than 10 pesos to the dollar, compared with 18 pesos now.
”The mistake of yesterday became the shrewd investment of today,” said Mr. Concepcion, a graduate of the Harvard Business School. ”That’s not the sort of thing taught at business school.”
Author: Steve Lohr
Source: A Rare Success in Philippines
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