The Role of Technology in the Growth of the Philippine Textile Industry

By: Janina Mae Almirez

Industrial Analysis

International Master of Business Administration

Chung Yuan Christian University

November 15, 2012

ABSTRACT

The rise of globalization has shifted the manufacturers of textile and apparel to many different parts of the world in search for cheaper labor and maximization of profits. Trade liberalization also means that the world can be your market, and that everyone can be your competitor. We examine the current state of the Philippine textile industry in this context, and the role that technology plays in an industry that is struggling to survive in the face of stifling competition. The Philippines textile industry has suffered steady decline in the past several decades despite starting out strong in its early stages. This study aims to explore the potential for growth of the Philippine's textile industry given a boost in more advanced technology and innovation. The author focuses on technology because this is the one thing that other countries have already adopted, and with which the Philippines has still yet to fully embrace, partly due to lack of funding and government support. This study will look at the Philippine textile industry's production output from the year 2000-2010, and aims to establish a relationship between the production volume and the number of patents awarded to innovators within the Philippines, which will be used as a measure of the country's technological advancement. This research used regression analysis and utilized the Auto Correlation and Ordinary Least Squares Method. The findings show that the patents data may not be a reliable measure of technological advancement, as the results did not support the theoretical framework that production is positively correlated to technological input. The lack of statistical evidence supporting the expected positive relationship between these variables may also be due to the prevalence of other more significant factors including trade policies, government support or lack thereof, and market forces both from within the country and the global market. If this dying industry is to be resuscitated, it is important to still consider boosting technology through research and development, and importation of machineries and technological expertise which will lead to higher production capabilities.

KEYWORDS: Philippines, textile industry, garments, apparel, technology, innovation, synthetic fiber, patents, fabric technology

INTRODUCTION

The textile industry is an age-old industry which makes up an integral part of any economy, whether it is being produced locally or being imported, not only because of its economic relevance, but also because of its social significance in providing one of the basic needs of society, that is, clothing. This is as important to our society as providing food and shelter. The textile industry also plays a vital role in most country's journey towards industrialization. It is widely known that the Industrial Revolution in Europe, North America, and Japan was made possible by the rise of several key industries, the first of which is the textile industry. Other less developed countries wanting to follow in the footsteps of these industrialized nations know that giving importance to essential industries such as this could become a launching pad for their own economic growth. Due to its labor-intensive nature, textile and apparel firms from developed countries like Europe and North America has transferred its operations to less-developed countries in Southeast Asia in pursuit of cheaper labor markets. Southeast Asian countries have already begun to benefit from the globalization of the world's textile and garments industry, making them the recipient of outsourced job opportunities encouraged by their cheap wages. One would come to expect that the Philippines has a very strategic position in the advent of globalization as it is in the heart of Southeast Asia, has rich natural resources and has a young and educated labor force. However, for the past several decades, the Philippine textile industry found itself struggling to survive and remain relevant, facing tough competition from its neighboring countries which are able to offer much cheaper wages and are better equipped with advanced technology. There is no question that the Philippines cannot lower wages in order to compete because it will put further strain on the labor force who is already struggling to begin with. If the country cannot compete on this front, then it should explore other areas on which it could gain a competitive advantage.

LITERATURE REVIEW

Scope of Textile Industry Defined:

"The whole range of textile activities covers (1) fiber production, both natural and man-made; and (2) yarn, fabric, garment and made up textile manufacture. As usually defined, the textile industry comprises (1) the primary processing sector -spinning, twisting, weaving, knitting, dyeing and finishing; and (2) the secondary processing sector - garment and made-up textile goods manufacturing."

Growth defined:

Sanchez (1990) measured the growth of the textile industry in Thailand and the Philippines by calculating the growth rate of export-import ratio, also called the International Competing Power Index or ICPI, because the industry is considered healthy and thriving if export volume exceed its imports. The said paper also emphasized Total Factor Productivity as a measure of growth.

Total-factor productivity is defined as "the ratio of net output to the sum of associated labor and capital (factor) inputs. By 'net output' we mean total output minus intermediate goods and services purchased. Notice that the denominator of this ration is made up of only the labor and capital input factors."

This study differs in that growth of the textile industry is measured by production output by volume, because Sanchez (1990) has already shown that exports in the Philippines is predictably lower than the imports due lack of competing power and its focus on meeting domestic demand. Also the time period covered by Sanchez (1990) is from 1975-1984, while this study will cover the time period 2000-2010.

Sanchez (1990) considers the garments/apparel industry separate from textile industry in the Philippine setting because, as

...