Ecstatic about Arroyo's Arrival
By Bruce Einhorn
Now that Philippine President Joseph Estrada has fallen from power, Manila businessman Lawrence C. Qua can breath a little easier -- he may even start seeing more customers again. Qua is the president and chief executive officer of Ionics Inc., a manufacturer of computer components and the top Philippine electronics exporter. The uncertainty in the weeks leading up to Estrada's ouster in mid-January took its toll on the Philippine currency, the peso. That, in turn, was hard on Ionics. "It's very hard to do business if your currency fluctuates up and down," says Qua.
Many locally based customer representatives simply left the country, says Qua, afraid that the Philippines could erupt in violence. Shortly before Christmas, a series of bombings rocked Manila. "A lot of [the executives] left for Christmas and didn't come back," says Qua. "They were afraid." From overseas, Qua got "frantic e-mails" from customers "thinking that we could be going into a revolution." Within days of new President Gloria Arroyo Macapagal's inauguration, though, Qua could already see a change. "Now, they feel secure," he says. "They are coming back."
For all Qua's problems dealing with anxious customers, truth is, Ionics lucked out. Throughout the endless Estrada scandals, Ionics was one of the few local companies that managed to flourish. While 2000 was a dismal year for the Manila stock market, with the benchmark index down 30%, Ionics did just fine. Its stock price rose 12.5% for the year, making it the country's best-performing stock.
PUSHED TO MOVE.
One reason investors warmed to Ionics: The company signed an agreement with consumer-products giant Philips Electronics of the Netherlands to produce up to 10 million disk drives for rewritable compact disks, or CD-RWs. Other Ionics customers include Fujitsu, NEC, and IBM. Ionics also had a successful $56 million secondary listing on the Singapore stock exchange, where the company benefits from that market's bigger trading volumes and greater investor interest. In the Philippines, Ionics suffered from an Estrada discount. "The Philippine valuation was very low, almost very close to book value," he says. "Singapore offered a better valuation."
Qua has big plans for the new year. He's ramping up production at a new $50 million plant that will churn out the CD-RW drives for Philips. That should increase his workforce from the current 9,000 employees to 12,000 by yearend. Ionics, which has a small factory for printed-circuit-board (PCB) assembly in Silicon Valley that employs about 200 people, also has plans to expand into China. Qua says he expects to put up a PCB plant in the southern Chinese city of Dongguan, in Guangdong province close to Hong Kong. That could add 3,000 more workers to Ionics' workforce.
But Qua says he's expanding to China only because his customers insist on it -- not because he wants to. And there lies one of the biggest problems for Ionics and other Philippine electronics-sector companies. "We have no choice," he says. "Our clients would like us to produce in China. We would like to stay in the Philippines."
CRANKING THE ENGINE.
It's not just patriotism. Chinese labor is certainly cheaper, Qua notes, but Filipino middle managers are more competent. "In China, there are still a lot of hidden costs" associated with logistics such as transport of components in and finished products out.
Still, China is already the center of the low-end electronics assembly business in Asia, and the country is quickly moving up into more value-added areas. So even if Qua is not as comfortable doing business there as he is in the Philippines, he is following the market.
That's something President Arroyo and her advisers need to consider as they try to figure out a way to lift the Philippines out of its chronic economic malaise. About one-third of the country's people live in poverty, yet Philippine labor still can't match the low wages available in China. If the Philippines has any hope of building its information-technology industry into an engine for widespread economic growth, the government needs to focus on improving the country's fundamentals -- fix the rotten infrastructure, improve the substandard schools, and eliminate the rampant corruption.
Qua remains confident that the new government will be up to the task. "We have no way to go but up," he says hopefully. Of course, that's what people were saying after the Marcos era ended -- 15 years ago. Things have progressed in fits and starts since then, but the Philippines still lags far behind most of its Asian neighbors. So, for the long-suffering Filipino people, let's hope that this time Qua is right.
Einhorn covers technology from Hong Kong for Business Week. Follow his weekly Online Asia column, only on BW Online
Edited by Nancy Ferris