Mr. Hae Jin Lee, president of Nanos, manufacturer of Infrared Rays (IR) block filters for smartphones decided to set up a new corporation late last year in the Philippines after completing a feasibility study and seriously considering expanding the factory overseas. Because local labor expense in China is skyrocketing, it was difficult to expand operations in existing plants in Tianjin and Yantai, China. The company official said, “It is hard to expect any merits in China, therefore, they built a new factory and they are planning for mass production starting December 2012 in the Philippines. They will just maintain their existing operations in China, but additional Investments will, from hereon, be diverted into the Philippines.” Philippine is an attractive destination for Korean SME’s. According to Korea Export Import Bank, 69 Korean companies established a new corporation in 2009, 74 companies in 2010 and 82 companies in 2011. Last year, among the ASEAN countries, Philippines ranked third after Vietnam (197 companies) and Indonesia (156).

In the first quarter of this year, the number of new corporations in the Philippines increased to 22 from 19 over the same period last year. Among these are Nurian International (garments), Iam (Electronics), and Koren (Electronics). Last month, more than 20 Korean SME’s who have plant operations in China visited the Philippines together with a local conglomerate on an exploratory mission. The major reason for the growing number of Korean companies eyeing the Philippines is the continuing global recession. Average wage in the Philippine is about US$300 per month which is only half the wage in China. There are 6 working days a week and it is possible to work on weekends even without overtime. English is the most commonly used, and communication is not a problem. According to a delegation member, the cost of labor in the Philippines is better than China’s, and the country’s infrastructure such as power and roads are much better then Vietnam’s. These make the Philippines attractive as an alternative investment location. According to Mr. Chang of KCCIP (Korea Chamber of Commerce and Industry in the Philippines), there are increasing investment inquiries from Korean SME’s in the last few months. Most of these SME’s have plants in China. He believes that because of language, infrastructure, religion and cost competitiveness, China is fast losing its attractiveness to foreign investments. This trend is expected to continue. China’s wages are expected to go up rapidly in the medium to long-term. According to Exim Bank, the average minimum wage of China in 2011 has increased by 22%. This is expected to further increase by more than 13% by 2015. This analysis is based on the Korean companies’ experience in China. The number of Korean SME’s in China has decreased by 16% in the third quarter of this year from 634 last year to 533. This further supports the observation that China is fast losing its cost competitiveness. Mr. Oh, a researcher from Korea’s SME institute said that the labor intensive companies are no longer considering investing in China. They are looking to ASEAN countries such as the Philippines as possible alternative locations for their expansion. China is now considered as a market and no longer as production base.