Japan supply holdups strain Philippine industry

by Ronron Calunsod

Kyodo

The March 11 earthquake and tsunami disaster in Japan triggered supply chain disruptions that are posing challenges to the Philippines’ electronics, semiconductor and car industries.

Carmakers continue to meet demand but based only on inventories on hand, with production currently running at 50 percent, industry President Elizabeth Lee said recently.

The Semiconductor and Electronics Industries of the Philippines reported almost the same situation, its president, Ernie Santiago, said in a separate interview.

Analytical instrument manufacturer Shimadzu Philippines, a subsidiary of Shimadzu Corp., said that while it has yet to feel the impact of the parts supply shortage, the company already contacted possible alternative sources should its suppliers of raw materials in Japan run out of stock.

“At the moment, there is no impact to us although we are projecting that any negative impact will only be felt two to three months from now. But the company is doing everything to prevent any problem,” the firm’s Jonathan Fortunado said.

The same measure is being undertaken by affected member companies of both the Chamber of Automotive Manufacturers of the Philippines and SEIPI. The former has formally been asking governments in the Association of Southeast Asian Nations to “accept vehicles whose parts are sourced from different suppliers that are equally compliant with required standards.”

“The Philippine government is open and willing to assist. In fact, at the onset, the Board of Investments has already urged assemblers to possibly source from local suppliers those parts which can be supplied to help alleviate current circumstances,” Lee said.

Unlike SEIPI, some members of CAMPI have already implemented adjustments to work schedules of employees to avoid layoffs.

Toyota Motor Philippines started adjusting its production operation on April 25 by implementing a three-day work week at 50 percent of normal production level, according to Rommel Gutierrez, the company’s vice president for corporate affairs. It will last until June 4.

“TMP will continue to monitor the overall supply situation in close coordination with TMC (Japan), Toyota Motor Asia Pacific (regional office), and local parts suppliers,” Gutierrez said.

Citing earlier projections of a smaller demand for electronics during the second quarter compared to the rest of the year, Santiago described the parts supply condition as just a “concern” for now among industry players.

Expecting the affected companies in Japan to recover soon, Santiago dismissed pessimistic projections, saying SEIPI is even maintaining its 8 to 12 percent growth forecast for the year from $31.1 billion in 2010.

What could only alter this, he said, are tensions in the Middle East that could raise oil prices if they worsen and the ongoing nuclear crisis in Japan.

National Economic and Development Authority Director General Cayetano Paderanga said the temporary suspension of plant operations of at least seven major companies near Fukushima Prefecture where the crippled Fukushima No. 1 nuclear power plant is located will likely affect demand for exports of semiconductors, electronic data processing units, machinery and transport equipment.

Electronics exports in March were up 11.1 percent from February, but down 7.4 percent from the same month last year, according to government data.

Paderanga said inventories for semiconductor can accommodate demand only until June this year, but he expressed confidence that Japan’s economy will bounce back quickly.

Aside from being a source of raw materials for Philippine-based companies, Japan is also the top destination of the country’s export products, including semiconductors, electronic equipment, wood manufactures and chemicals.

In March, Philippine exports to Japan accounted for 17.5 percent of the total share, amounting to $760.64 million.

Meanwhile, sale of vehicles in April 2011 were down by 14.2 percent from March, and by 4.5 percent from the same month last year, owing to the unavailability of stocks for some models, said Lee.

“Understandably, the effects of the tragedy are being felt as assembly parts scale down operations due to the lack of parts supply,” Lee explained.

But Lee noted that some plants in Japan have begun to resume operations, and that even Japan automakers are helping address the problem.

“We feel this is just temporary and recovery will not take long,” Toyota’s Gutierrez said.