Philippin^s - ILO

Globcilizcition cmd

Industricil I^^, lotions

in Ih^

Philippin^sSorosh Kuruvillci

Christoph@r Ericksonin ork rinn@r

MCIrci9tcis V. Rincint@cind

Incl Ortiz

I^^9ionnl Offic^ for I'Sin cmd Ih^ PCIcific

BCin9koku uupi^INTATIUN CENTERILU PIF^I\,, L. ,"

Copyright @ international Labour Organization 2000

First published 2000

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IsBN 92.2-1/2206-9

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As nations open their borders to the flow of goods, services, capital, and, indeed, Go to andideas, they promote the conditions for wealth creation and higher Iivin standards. At thetime, they expose their citizens to a more frequent need to adjust to chari es neither entirel oftheir own making nor completely under their control. Strong social institutions become inounportant as a consequence, and the institutions of industrial relations are foremost amon these.They allow adjustment to occur smoothly, efficiently, and at least social cost. Havin a voiceat the workplace and in shaping key economic and social policy choices beyond the workplaceis not only a fundamental human riglit: it is a vehicle for identifying infonned choices, forovercoming disagreement, and for making decisions that have the power to coriumt those hwill live by them.

Thanks to the generosity of the Govennnent of Japan, the ILO's Regional Office for Asia and thePacific was able to undertake a variety of research and training activities over timeen in thecontext of the ILO/Japan Asian Regional Prograrnnie on Industrial Relations. Dorm its I stthree years, the Programme focussed on "globalization and industrial relations" Tri adjteseminars discussing this theme were held in eleven countries of the re 'on, and Pro armri 't Ifcuirninated in the Asian Regional Tripartite Seminar on Globalization and hidu in I R I t' ,held in Bangkok in August 1999.

There is no substitute for original research in order for infonned discussion to occur. The tvolume is a good example. It is one of four national monogi'aphs supported by the Pro amino'sresearch activities in its final years, during which the changing patterns of industrial relations setagainst rising economic openness in India, the Philippines, China, and Malaysia viere studied.in each case, internationally recognized scholars in industrial relations combined on-sitinterviews of Goven^nent officials, company executives, trade union officials and Gin 10 eesthemselves with the authors' own analytical perspectives and backgi. ound knowled e. As withall work of this nature, the final product reflects the authors' own understandin , and d tnecessarily represent the views of the ILO orits constituents. We nonetheless believe that thereis much to learn from these volumes and from the original research on which the are bas d.

On behalf of the it, 0, I would like, once again, to thank the Government ofJa an for its dsupport for this Frograinme, and for the benefits deriving from it for the ILO's constituents in theAsian region.

Foreword

BangkokJune 2000

Mitsuko HOTiuchi

Regional DirectorAsia Pacific Region

Contents

I.

Foreword

Introduction .........,.........................................................................,............................ I

1.1 Methodology ...................................................................................,.................. 2

1.2 The effects of globalization on employment relations in the Philippines -a broad overview ............................................................................................... 3

The economy and globalization .... .. ...... ................ ..... .........,.... ... . ... ..... .....,. ..... ..... ..... 5

Overview ...........................................,..............,.,.............................................. 52.1

Trade policy ................................,..................................,................................... 6

Investment policy .............................................................................................. 6

Privatization .........................................,............................................................. 6

Tax and financial measures . . . . . . . .. . . .. . . . . .. . .. . . . . . . . . . . .. . . . . .. . . .. . . . . . . . . . . . . . . . . . . . .. . .. .. .. .. . . .. . . 7

MacroecOnomic Outcomes . . .. . . .. .. . . . . . . . . .,.. . ... . . . . . . . . . . . . .. ... . . . . . .. . . . . ... . . . . . . . . . . .. . .. .. . . . . . . . 8

2.6. I Econointc growth . . .. . . .. . , . . . . .. . . .. . .'. . . . . ... .. ... . . . ... ... . . . . .. .. . . . . . . . . . . .. . . .. . . . .. . . .. . . . . . . 8

2.6.2 Foreign direct investment (FD1) ..... .. .............. .. .. ..... ....... ... ...... ......... . .. 10

2 .6. 3 Trade .................................................................................................... I 5

2.6.4 Overseas workers . ,. . . . . . . . .. . . ... .. . . . . . . ... .. .. . . . . . . . . . . . . . . . . .. . . . . . . . . . . .. .. . ... .. ... .... . . .. 16

2.6.5 Employment and unemployment . .. ........ ........... ................................ . .. 18

2.6.6 Real wages and p overty .. .. .. . . . ... .. . ... .. . . . . . . . . . . . . ... .. . . . .. . . . . . . . . . .. . . . . . .. . . . . . . . . . . . I9

2 .7 Privatization ..................................................................................................... 2 I

Questions for econointc policy-making .... .. ... ..... .. ... .............. .... ... ................ ... 22

Labour market and employment relations policies and practices ....................... 23

3 .I Labour force structure. . .. . . .. . . . . .. . . . . .. . . .. .. . . . . . .. . . . .. . .. . . ... ... . . . . . . ... . . .. . . . .. .. .. .. . . ....... . .. 23

2.

2.2

2.3

2.4

2.5

Contents

2.6

3.

2.8

111

Globalization and Employment Relations in the Philippines

Wage policy .......................................,.............................................,............... 24

Skills development policies ............ ....... ... ............................ ....... . .... .. ............. 25

Workforce skills profile . . .. . .. . . . . . . . . .. . . . . . . .. . .. . . . . . . ..... .. . . . . . . . . ... .. . . .. . . . . . . . . . . . . . . . . . . ... . .. . 25

3.4. I The actors and collective bargaining ............. ................ ... ........ .. . ........ 28

3.4.2 Industrial relations issues and outcomes ............................................. 30

3.4.3 Strikes and lockouts: evidence of conflict ................;.......................... 32

3.4.4 Dispute settlement .. . . . . . . . . . . . . .. , . . . . . . . . .. .. ..... . . .. . . .. . ... . . .. . . . . . . . . . . , . . .. .. . . . . . . .. ... . 33

3.45 Enforcement of labour standards ................... . ..... . ..... .. . ..... . ...........,.. .., 34

3.4.6 Salient industrial relations issues ..... .................. ... ............... .....,....... ... 35

industrial relations: A need for refonn? .............................. 383.5

Globalization and employment relations at the industry and firm level ............. 39

Impact of globalization on employment relations: Prior research. .................. 394.1

4.1 .I Rightsizing the organization and the workforce and maintaininga core-periphery labour market ...... .. .... .......... ..,.... ............................... 46

4.1.2 Investing in 11^/^ innovations ..............,..,,............ ................... ...... ... 46

4.1.3 Strengthening control over the labour process ..........;......................... 47

impact of globalization on Philippine unions .................................................. 48

The consumer durables industry .......................... ....... ........................,.... ........ 49

4.3. I Philacor: the Philippine Appliance Corporation ...................,.............. 49

4. 3 .2 Sunnnary ..................,.............;............................................................. 52

The banking industry ......................,........................................,....................... 52

4.4. I Far East B ank (FEB) .. . . .. . . . . . .. . .. . .... . . . .. .. . .. . . .. . . . . .. . . . . . . . . . . . ... . . ...... . .... ... . ... 53

4.4.2 The Philippine National Bank (PI. IB) .................................................. 56

4.4.3 Citibank ,.......................................'....................................................... 5 8

3.2

3.3

3.4

4.

4.2

4.3

4.4

IV

The automobile industry . . . . . ... . . .. .... . .. . .. ... ... . . . . .. . . . . . . . . . . . .. .. . .. . ... .. .. . .. . .. . . . .. . . .. . . .. ... 59

4.5 .I Industry b ackground . .. . .. ... ... .. ... . ...... . . .. . . . . .. . .. . . . . . . . . .. . . . . . . .... . . . . . .. . . . . . .. . .... 59

4.5.2 Mitsubishi Motors Philippines Corporation (MMFC) ........................ 60

4. 5 . 3 Toyota .................................................................................................. 63

4.5.4 Francisco Motors .. .. . . . .. . . ... .... . .. .. . .. .. .. .. .. . . . .. . .. . ... . . . ... . .. ... . .. . . . . . .... . .... . . . . .. 66

The electronics industry . .. . .. . . . . . . . ., .. . . . .. . . . . . . . .. . .. . . .. . . . . .. ..... . . .. .. .. .. . . . . . . .. . .. .. .. ... . . . .. 68

4. 6 . I Background ................................,......................................................... 68

4.6.2 General HR issues in the electronics industry ..........................,.......... 71

4:6 . 3 Motorola .................................................................,.........................,.. 72

4.6.4 Intel Coin oration . . . . . .. . . . . . . . . . . .. .. . . . .. . . .. ..... .. .. . .. .. ... . . . .. ... .. . .... . . . . . . . . . . .. . ... .. . 74

4. 6. 5 Uniden ................................................................................................. 76

The oil industry: Petron . .. . . .. ... ..... . . ..... ... .... .. . . . . . ...... ... ... . ... .. . . .. . .. .. . .. ,.. ... .. . . .. ... .. 77

Agrolndustry: amcamera Don Pedro (ADP) .............,....................... .......... ... 81

4.8. I Labour-Management relations ......... .................................................... 82

Conclusion ................................................................................................................. 83

5.1 industries, finns, and globalization ................................................................. 83

5 .I . I The consumer appliances industry ......................... . ............................ 83

5.1.2 The banking industry ........................................................................... 83

5.1.3 The automobile industry ...................................................................... 83

5.1.4 The electronics industry ...........................................,........................... 84

5.1.5 The petroleum products industry ............................ . ............................ 84

5.1.6 The sugar industry .. .. ...... .. . .... ...,. .... .... .. ... . .. ... ...... . ... . . . ... ... .. .. . . . . .. .... .... . 84

General employment relations issues .................................. .......-..................... 85

4.5

4.6

4.7

4.8

Contents

5.

5.2

V

Globalization and Employment Relations in the Philippines

Globalization' s impact on the actors ... ........... . ... ..... . .. ................. .... . ...... ......... 865.3

Diffiision of JR. and ER practices ..... ........... . ... ..... ... . .. ... .... ... ............ .. . ... ......... 875.4

5.5 Evidenc e from this study . . .. . . . . . . . . . . . .. .. ., . .. . .. .. . . . . . . .. . .. . . . . .. .. . . . . . . . ... . . .. . . . . . ., . . . . .. . . . .. . 88

References ,..................................;............................................................ 9 I

in

,

^I

Abbreviations

AFTA

APEC

ASEAN

Asian Free Trade Association

Asia-Pacific Economic Cooperation

Association of South-East Asian Nations

build-own-transfer

collective bargaining agreement

Employers' Confederation of the Philippines

Congressional Education Coriumission

export-oriented industrialization

export processing zone

foreign direct investment

Federation of Free Workers

human resource development

Kimsuang Mayo Uno (the May I st Movement)

light coriumercialvehicle

newly industrialized country

National Union of Bank Employees

overseas contract workers

on the j ob

Technical Education and Skins Development Authority

Trade Union Confederation of the Philippines

technical and vocational education and training

World Trade Organization

BOT

CBA

ECOP

EDCOM

EOT

EPZ

FDl

FFW

rin. D

KMU

LCV

NIC

NIIBE

OCW

OJT

TBSDA

TUCP

TVET

WTO

,

-.^ - ....~--

I. Introduction

At the time of writing this report, the Philippines was reeling under the 'shock of theAsian financial crisis, as well as dealing with the new political adjninistration headed by PresidentJoseph Estrada. Unlike several other countries in the ILO-Japan Study (India, China, andMalaysia) the' Philippines has had a longer history of being open to international investment andmarkets, and is arguably one of the most open economies in ASEAN, and thus in Asia. Theirexperience of globalization began in the early 1970s with the adoption of an export-orientedindustrialization strategy under President Marcos - a strategy that continues to tints day, withvarying degrees of success or failure (depending on whether one examines foreign investmentor employment). Under import-substitution from 1945 to 1960, the Philippine economy averagedits highest growth figures of I I per cent armually. But the exposure of the Philippines to theinternational economic order in the 1970s coincided with the slowdown of the economy, increasedindebtedness, the steady erosion in the value of the peso, declining real incomes, and a detrimentalpolitical environment. In the 1990s, economic growth had increased to a high of 5 per cent in1995, when the financial crisis hit the Philippines.

The adoption of an export-oriented industtialization strategy in the 1970s was alsoaccompanied by several repressive policies in the industrial relations domain under the martiallaw period of President Marcos. Thus, globalization was associated with a decline in labourpower and voice, and an increase in employer power focusing on enhanced worl:place flexibilityin an era when the Philippines' competitive advantage was lower labour costs and an English~speaking workforce. The dual focus on export orientation and low labour costs forced an industrialrelations regime. that pursued lower costs and worlcplace flexibility. filthe Philippines context,this invariably translated into efforts tomcrease subcontracting, outsourcing, and union-avoidancepolicies under an authoritarian regime. Althouglithe regime changed in the 1980s with changesin labour legislation and labour vigilts, the fundamental character of both competitiveness aswell as labour relations has remained unchanged, and in fact has tended towards further increasesin employer efforts to generate more flexible practices.

This report will also show that the financial crisis in Asia has only served to furtheraccelerate this trend, and in several ways has created conditions for employers to more Gasilconvince workers and their representatives to push through radical workplace refbnns withoutsignificant union opposition: the financial crisis has weakened labour's bargairitng power andstrengthened and accelerated employers' flexibility drives. Thus, while this research was gearedto discovering the impact of globalization on employment relations, our fieldwork was donewhile the reaction to the crisis was dominant. While some may argue that our research conclusionsmay simply reflect the expediency of the crisis, we suggest that in fact the crisis has acceleratedexisting trends towards increased flexibility. That this flexibility brings with it some degree ofrinsery is also an important issue that needs addressing. 111e cases reported here amply demonstratethis point.

The remainder of this introduction explains the method used for this assessment as wellas some general conclusions about the effects of globalization on Philippine Ri'llE< (industrialrelations/11uman resources). Section 2 provides background on the Philippines' economic

Introduction

Globalization and Industrial Relations in the Philippines

pertbnnance and presents data on trade, invesiment, and growth. Section 3 examines major ERand 1/1< issues, and salient ER issues as background for the subsequent section. (This sectiondoes not describe the ER laws in the Philippines, but focuses on the most significant 11< problems. )Section 4then presents a description of what we kilow about globalization's impacts on Philippineemployment relations generally. This is an important section, in that substantial research hasbeen done on the ER/'11R effects of globalization which serves to validate and extend theconclusions of this study. Section 4 also reports on IR/}{R. field research conducted in severalindustries; it includes industry overviews and "vigilettes" of ER/111^ at the workplace and (whenappropriate) at the industry level. Section 5 discusses the diffusion of employment practices andthe role of multinationals in this process. Finally, section 6 attempts to do three things: a) offersome basic conclusions about the effects of globalization based on the field research; b) suggestareas in need of further research to better understand this relationship; and c) makereconmiendations to employers, trade unions, and the Government about how best to shapestrategies and policies in themcreasingIy globalized Philippine economy.

1.1 Methodology

The purpose of his research has been to assess the effects of globalization on worl:placeemployment relations. To do so, a three-tiered research strategy was followed. 1/1 the Philippinescontext "globalization" was identified primarily as the beginning of export orientation adoptedby the State since the 1960s designed to integrate the Philippines' economy into the emergingglobal economic regime. Consequently, we examined the economic refbnns undertaken by theGovennnent in relation to the Philippines' macroeconomic policy legacy. Data was collected tosuggest the effects of these policies on trade, investment, ownership (state vs. domestic privatevs. foreign), and other such factors likely to affect ITU}"t^., as suggested by Kuruvilla (1997) andFrenkel and Royal (1997).

However, it is rarely possible to draw a direct causal line from the elements constituting"globalization" to the workplace level; hence, the second tier of the research strategy - theindustry level. It is important to recognize the way industry-specific factors mediate the effectsof globalization, thereby giving different aspects of globalization different degrees of saltsncein diffiarent industries. Several industries were chosen for study including consumer durables(refrigerators), automobiles, banking, the oilindustry, and electronics. This fairly broad selectionenables more accurate generalizations about the effects of globalization while allowing moreidiosyncratic explanations of globalization's effects based on industry-specific factors (e. g. thepower balance between labour and management, Govennnent policy). In two of the industries(banking andpetr'o16urn) refi3miofiridustrialpolicyhas been substantial, making these especiallyinteresting windowsinto the effects of globalization. This macroeconomicpicture, coupled withsome industry descriptions where we could get them, contextualizes the research carried out atthe third tier - the finn (and often workplace) level, thereby providing insight into the multipleand varied causal forces at work at this lowest tier.

To conduct this tintd-tier research, lead halls (when possible) in each industry were chosen,the rationale being that these thus are the ones likely to be adapting best to the effects of globalizationand setting ER/^< standards for the industry as a whole. There^re, they provide an especially goodwindow into the worl:place practices that will emerge or remain to be modified in the globalzing

2

context. Where possible, both multinational and domestic films were studied. This methodology isthus consistent with the research strategy for this project outlined in Kuruvilla (1997).

Third-tier research consisted mainly of interviews with 111^ managers at various levelsof the organization and, where possible, trade union leaders. Company documents were alsocollected. The purpose of this data collection was to explore five dimensions of workplaceemployment relations with special emphasis on how they have changed over the past severalyears, possibly in response to globalization: a) work organization; b) compensation; c)employment flexibility; d) training and skills development; and e)labour-management relations.

1.2 The effects of globalization on employment relations in thePhilippines - a broad overview

The overall focus of employment adjustment to globalization includes two broad types:lid, ICtio"@! flexibility and numerical flexibility. industries using more advanced skills andtechnology emphasizeI'mctto"@I flexibility. These can be seen particularly in the electronics,auto, and appliance industries. There is also the gradual beginnings of a movement towardsfunctional flexibility in banking. However, in several other industries, the overwhehning focusis on numerical flexibility.

111 industries and finns where numerical flexibility is paramount, the primary modes ofadjustment are increased use of subcontracting, casual workers, apprentices, and the illegalpractice of labour-only contracting. Given that a relatively larger number of firms in the Philippinemanufacturing sector are heavily cost-focused, there is rapid movement towards a core-peripherymodel of industrial relations in these sectors.

Introduction

Efforts to promote collaborative labour relations have been increased. These efforts tendto be concentrated among those industries and firms that have - or are attempting to increase -functional flexibility. However, progress on developing collaborative industrial relationsis slow.

Collaboration between labour and management is encouraged largely trough creatinglabour-management councils. Although the number of councils in industry has increasedexponentialIy, there is very little evaluation of how they contribute to conaborative labour-management relations. This is a key area for more research in the Philippines. The rapid diffiisionin the Philippines could have implications for other nations as well, but more research is neededhere.

As part of the movement towards functional flexibility, there is a clear trend towardsmore flexible compensation, andincreasingly, compensation tied to skills acquisition. However,flexible compensation does not necessarily mean that compensation decreases i^ bad times.

The Asian financial crisis has proved to be an important vehicle for accelerating themovement towards restructuring for both functional glad numerical flexibility. The financialcrisis has often modified union positions in bargalixing and forced coinpronxise where coin ronxisehad not been forthcoming earlier.

3


The argument that globalization invariably weakens already weak union movements<1<uruvilla 1997) appears to hold true for the Philippines. The labour movement has been hit bya "double whatrmiy" in that while globalization and the Asian financial crisis have put themunder increased pressure and weakened their resource base considerably, the results of the lastelections have also devastated them politically.

The argument that globalization threatens traditional managerial styles can be seen in atleast two examples where traditionally managed farmly concerns have had to professionalizetheir managements.

In general, globalization and the financial crisis are putting pressure on human resourcemanagernent. This is causing human resource management to acquire a more strategic perspective,rather than remaining a staff fullction. 111 several cases, human resource management is beinggiven increased importance as a strategic filliction. However, the challenge is whether varioushuman resource departments can change their way of thinking and working.

There is ample evid^lice that multinational companies are ctitical in diffusing ER. and1/1^ practices. Illseveral industries, their entry results mint^jor changes in employment practices,which can be seen in recent times in the banking industry.

A1tiiouglimultinationalcompariies are important diffusers, thenmited evidencewe havesuggests that multinational companies often transplant home-country systems- directly into thePhilippines without much modification. Melding home-country Tm. practices andlocal cultureseems to be a low priority for some funs (e. g. in the electronics industry dolliniated by Americanfinns) and a high priority for others (e. g. in the automobile industry dormnated by Japanesefinns).

4

2. The economy and globalization

2.1

Compared to other recently liberalized econonxies such as india or China, the Philippineshas been a relatively open economy since the late 1970s, so the impact of globalization has beenongoing formany years' filths section, we provide someindication of the economy's globalmillgtendencies, followed by a brief review of economic perfonnance. We use his structure becauseour examination of econonxic development covers ground that has been covered extensivelybefore, given the Philippines' long experience with globalization. in the review of econoihicperfi>mmarice, we deal with various indicators of economic development over time.

We can understandftie globalization of the economyby exaniiiiing the series of structuraladjustrnent policies from 1980 to 1994 that have made the economy as open as it is. Structuraladjustrnent over the years included trade policy; investment policy; privatization; financial andtax measures; and deregulation in several industries such as agriculture, telecommuiiic-ations,shipping, and banking. We discuss each of these in tnni.

The way to understand the economy of the Philippines is to think of it as an export-oriented economy where the basic comparative advantage is stilllow costs. Oftene0 (1994) andKuruvilla (1996) have discussed the economy in these ternis more broadly. Slumnadzing fromtheir work, it would appear that the Philippines espoused an export-oriented industrialization(EOl) strategy during the 1970s. At that time, this strategy, which was heavily influenced byWorld Bank structural adjustrnent prograinmes, souglit to capitalize on the country's lowlabotir-cost advantage. However, his strategy was never fully implemented during the Marcos era (inpart due to the crony capitalism issue, where elites managed to secure various exceptions fromfully-fledged EOl). Thus, it was only after the Marcos era, under the tenure of presidents Aquiiioand Ramos, that a full-scale implementation of EOl was begun. Consequently, the most criticalimpact of globalization - via the Governnient's espousal of an export-oriented regime - beganto be felt only in the last decade.

Alt}longli a comparative 'examination of many ASEAN nations suggests that countriestend to move through different stages of EOl- especially from the stage where low labour costsare the major source of advantage to the stage where low costs become less relevant in theirstrategy (and this movement is heavily encouraged by the rise of other low-cost producers) - itis hard to find evidence that the Philippines has in fact made such a transition. The myriad studieson industrial relations and human resources in the Philippines underscore the fact that low costsare still a key source of comparative advantage. Although China and Viet Nam do have lowerproduction costs, the Philippines remains a location for labour-intensive investment given theother advantages' of the workforce - notchly its adaptability, education levels, facility with theEnglish language, and other features of the economy. Thus, unlike Malaysia which has made adefinite transition from export-oriented industrialization stage I to stage 2, the Philippines is stillat stage I . However, this me chadstic view of EOT covers a coin^Iex range of investinents andexportsinthePhilippines. Therearemanyiridustries andtinnsthathavedeepenedtheirinvestmentminanufacturing to produce more higher-quality, skill-intensive, value-added products (e. g. the

Overview

The economy and globalization

5


electronics industry is more skill-intensive now than previously) yet most finns continue tocapitalize on lower costs. Below, we note some of the initiatives under structural adjustment thathave been responsible for the gradually increasing exposure to the global economy.

2.2 Trade policy

The claim has been made that the Philippines was in some sense one of the most openeconomies in Asia. All examination of trade policy suggests support for this idea. The firstina!jor trade policy refonns focused on an attempted dismantling of the import-substitutionindustrialization prograrnme that existed untiltheinid-1960s. The period 1981-1985 withessedint!jor tariff refonn and a reduced average tariff protection rate for importables (from 229.6-229% to 18%-144%). On average, tariffs moved from 100 per cent to about 50 per cent. Theperiod 1986-1988 saw the reactivation of the import liberalization programne, and by 1990import restrictions for 1,400 items had been removed (leaving only 10% of total importsrestricted). Thenextphase of tariffreductionimplementedbytheAquino adniiiiistration towardsthe end of its regime in 1990 saw tariffs reduced to the 30 per cent range, while the tintd phaseof tariffreduction (currently underway 1996-2000) would narrow the tariffrange to between 3and 10 per cent. 111 1991, the list of restricted import items was liberalized even further, so thatonly 150 items remained on thenst. This is significant progress. Data from the tariffreductionprogramme as part of the ASEAN free trade areairidicate that the Philippines is one of the mostopen economies in the region.

2.3 Investment policy

Investment policy has largely focused on investrnent incentives, but the nature of theincentives has changed over time. The Investrnent Incentives Act of 1967 focused on incentivesto produce for the domestic market. Since then, the Export incentives Act of 1970 (BP 301)which focused on setting up more export processing zones with incentives for foreign investors(Executive Order 226,1987) and the 1992 Foreign lnvesiment Act have gradually provided avast array of investment incentives. (See MedalIa 1998 for a detailed description and evaluationof these policies. )

The Foreignlnvesiment Act of 1991 liberalized entry and equity requirements of foreigi, .direct invesiment (};'Dl) in that it outlined a small list where 100 per cent foreign equity was notallowed. While it-is still too early to judge the impact of these rules on foreign invesiment, it isclear that foreigninvestrnent has increased substantially since 1993. Yet, the volume offbreigiiinvestments compared to the Philippines' neighbours is rather small. A recent study suggeststhat the greatest factors affecting foreign investrnent are political stability and the effectiveprotection rate. In the past FDl was concentrated in the highly protected import~substitutionsectors, but this is eradually changing. However, the export propensity of foreign invesiment inthe Philippines is still smaller than that of the other Asian nations. We evaluate this below.

2.4 Privatization

The Philippines has had a long history of privatization. Privatization can be seen mainly

6

as an outcome of globalization, but precipitated by the debt crisis in the late 1970s and encoura edas part of the structural adjustment prograrrunes in the early 1980s. Each president since the1980s has contributed to continued privatization. President Marcos laid the legal framework forprivatization in 1982; President Aquino created two agencies to spearhead the rivatizationprograrrmie; and President Ramos expanded the scope of privatization.

There have been three waves of privatizations:

. The disposal of non-pertbnning assets (mostly selling back to fomier owners theassets taken over by the State when those foamer owners went barnerupt in theearly 1980s). TheseloanswereabsorbedbytheGovennnentafterthebarikfailures;

. The disposal of successful finns, such as Petron, the Manila Hotel, and FortBonitocio as well as private sector participation in infrastructure developmentthrough BOT (build-own-transfer) schemes;

. The upgrading of public utilities and services such as hospitals, universities,colleges, postal services, and pension funds.

This has been accompanied by a decline in budgetary support to govennnent-owned andcontrolled corporations, and a reduction in budgets from 5.6 per cent of GNP in 1986 to 1.1 ercent of GNPin 1990. The evidence shows that privatization has beenlucrative forthe Government,During the ten-yearperiod 1986-1996, a total of 445 companies were sold (of which 340 werenon-performing assets) resulting in gross revenues of 174 billion dollars. In the 1994 Petronprivatization alone, the Goverirrnent Gamed significant revenues - enough to transfer 2 billiondollars to the national treasury, creating the first fiscal surplus in 20 years'

2.5 Tax and financial measures

A unifonn 10 per cent value-added tax (VAT) on gross sales of goods was imposed in1988, and the expansion of the VAT to the service sector was planned, but notim 16mented. Asfor financial policy, the Philippines has seen several eXchange and interest rate ad'ustmentssince the 1980s as part of the overall structural adjustments. Most devaluations of the peso haveserved to increase the competitiveness of exports as part of an export-oriented strategy. However,in almost every case - although exports did increase - they were never higher than imports.Other major financial policies included rehabilitating the Philippine National Bank and theDevelopment Batik of the Philippines, and creating in 1993 the Bangko Sentrall\Ig Pil mas toreplace the heavily indebted central bank (which incurred an average armual loss of 18 billionpesos during the 1980s). Further, the banking system was deregulated, allowing foreign banksto enter. in addition, there was some foreign eXchange liberalization in 1992.

These ina^jor efforts were buttressed by an overallpolicy of openness, .export orientation,and deregulation, CUIminatirig in the Philippines joining the WTO, renewing its coriumiinient toAFTA (Asian Free Trade Association) and more recently becoming a member of APEC. Ofteneo(1995) argues that these efforts, coupled with the Phitippirie Development Plan (F'binppines2000) really result from the final consolidation of the structural adjustment prograrrnne sponsoredby the World Bank. What have the results of these policies been?


7


2.6

2.6. , Economic growth

Comparatively, the Philippine economy has not grown as dramatically as the rest ofASEAN or several other coinitries in Asia. Table 2.1 gives a comparative picture, while tables2.2 and 2.2a give a longitudinal picture for the Philippines.

Macroeconomic outcomes

Table 2.1. East Asian growth, 1965-, 995

Economy

Hong' Kong, ChinaSingaporeTaiwan, Province of China

Republic of KoreaMalaysiaThailand

Indonesia

China

PhilippinesPapua New GuineaLao PDR

Viet Nam

Mongolia

I PPP = purchasing power parity rates

Real GDP per capita(, 995 PPP' $)

1965 1995

4,843

2,678

2,324

1,528

2,271

1,5708.7

771

1,736

2,079n. a

n. a.

n. a

26,334

23,350

15,191

I3,269

9,458

6,723

3,346

2,749

2,475

2,2872171

1308

n. a.

Growth

rate

1965-, 980

Table 2.2. Macro indicators, 198, -, 987

Year

6.2

8.5

7.5

6.8

3.6

4.6

4.8

n. a

2.9

., 5

Growth

rate

1980-I 995

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

GDP

growthrate

Growth

rate

1990-1995

5.1

6.5

6.3

7.5

4.2

6.4

4.4

8.4

-0.4

1.0

2.2

4.7

1.2

GNP

growthrate

3.42

3.62

1.87

7.32

-7.31

3.42

4.31

6.75

6.21

3.04

4.9

7.4

-0.8

GNP percapita

(pesos; 1985 prices)

3.24

2.84

1.51

-8.83

-7.02

4.15

4.62

7.71

5.61

3.69

6.5

6.0

6.8

5.4

10.8

0.1

5.0

3.2

5.8

8.7

8

12,643

12,633

12,526

11,110

I0,086

I0,205

I0,476

10,971

I 1,385

I 1,554

LabourGNP growthper capita productivity

(, 985 prices) (pesos; I 985 prices)

-0.08

-0.85

41.30

-9.22

4.18

2.66

4.73

3.77

1.48

38,002

38,878

37,419

33,729

31,533

31,399

30,785

31,058

31,927

32,446

1991

1992

4993

1994

1995

1996

1997

-0.58

0.34

2.12

4.39

4.76

5.70

5.10

Table 2.2a. Macro indicators, 1981-, 997

0.41

1.29

2.76

5.25

4.96

6.90

5.80

Year

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

I 1,306

I I ,, 94

I I, 151

I 1,456

I I, 743

12,275

12,693

EXchangerate (Us$)


7.90

8.54

11.11

I6.70

18.61

20.39

20.57

21.10

21.74

24.31

27.48

25.51

27.12

26.45

25.70

26.21

29.47

EXchange Unemployment Inflationrate growth rate (%) rate (%)

-2.15

-0.99

-0.38

2.74

2.51

4.53

3.41

8.10

30.13

50.27

11.43

9.56

0.89

2.56

3.04

11.84

43.03

-7.15

6.30

-2.47

-2.84

1.98

42.44

31,270

30,340

30.1 11

30,616

31,269

31,209

32, , 68

These tables peruiit a few conclusions. First, gi'owlh has increased since 1991. Second,the unemployment rate has increased SIiglitly in the last few years, while real wages have declinedsince 1992. The GDP growth can be linked to economic policies that opened up the economyfurther. However, economic growth has slowed considerably during the period 1995-1997,following the effects of the Asian financial crisis.

A1ftiougli the trade r^Ibnns have had several effects - including increased competitivenessin several industries - overall industrial sector perfonnance has been very modest, especiallysince 1993. The average ^rowth rates for the industrial sector appear in table 2.3, which showsthat the industrial sector grew much slower than the overall GDP. fold the contribution ofmanufacturing to GDP seems to have decfined. This is important, given that manufacturingplays a large rolein exports. Manjufacimiiig share of export employment was 76 per cent, whilethe share of manufacturing in total exports exceeded 20 per cent. Note also that the eXchange

17.30

8.58

5.34

47.06

23.45

.0.45

3.03

8.93

12.20

14.17

18.66

8.95

7.61

7.06

8.10

8.50

5.10

T-Bill rates

(91 days)

9.55

9.13

9.53

10.50

9.82

9.27

9.48

9.52

8.58

8.70

12.55

13.78

14.26

28.24

25.87

15.63

41.51

14.67

18.64

26.67

21.11

16.02

12.45

12.71

11.76

12.34

12.89

Real wage(, 985=, 00)

102.4

1084

114.5

94.0

100.0

119.2

128.6

135.4

137.0

135.7

119.8

121.8

116.0

112.0

117.7

115.4

n. a.

9


rate has steadily worked in favourofexports 01as cheapened the cost of exports)but basincreasedthe cost of imports over this period.

Table 2.3. Sector growth rates

IndustryManufacturingGDP

Table 2.4. Production structure of the economy (as a percentage of GDP)

I975-, 980

Agriculture, forestry,fisheries

ManufacturingServices

7.45

5.07

5.99

I980,985

2.27

-1.77

-0.09

2.6.2 Foreign direct investment (FDl)

Clearly there was a dramatic increase in foreign direct investment during the 1990s,although the rate of growth has not been as big}I as for other countries. Table 2.5 reportscomparative foreign direct invesinient figures. But what is also critical is that domestic invesinienthas gradually overtaken foreign investment over the last three decades. - Thus, both types ofinvestments have increased. The increase in domestic investrnent is particularly noteworthy,since the early years of export orientation resulted in policies that actually reduced or provideda disincentive for domestic investment.

I985,990

1975

24.75

28.39

37.04

1.54

2.91

2.74

1990-1995

1980

2.29

2.17

2.34

23.55

27.65

36.05

Table 2.5. FDl flows in four ASEAN countries, I 973-, 993 (Us$ million)

1990-, 996

1985

Year

2.86

2.65

2.79

25.28

25.87

41.50

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1990

Philippines

22.19

25.39

42.02

1996

83

64

116

91

130

60

62

75

91

25

>

20.20

24.30

41.50

Indonesia

10

15

-49

474

343

235

219

226

179

133

226

Malaysia

47,

570

348

380

408

466

573

933

1,266

1,393

Thailand

77

188

86

79

106

51

50

186

291

190

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Average1973-1991

1973-, 977

1978-1982

1983-1987

1988-1993'

119

32

9

17

34

81

93

171

130

234

334

796

292

222

310

258

385

576

682

964

1,482

1,777

2,003


'For the Philippines, the average covers the period 1988-I994.Source: A1daba, 1994.

78

97

63

42

263

1,261797

695

489

423

719

1,668

2,332

3,998

4,469

4,079

Table 2.6 suggests that, although the United States and Japan continue to be the largestsources of EDI, an increasing share of EDIis accounted for by the Hong Kong SAR, Malaysia,and Taiwan Province of China. The shifts are interesting in that they reveal the continued relianceon low-cost, labour-intensive production as the source of the Philippine's comparative advantage.had although this source of comparative advantage is transitory (given China and Viet Nam) itis stillirnportant given other factors like a better-educated, English-speaking workforce.

377

204

197

293

1,247

348

400

162

264

182

1,081

1,727

2,402

1,866

2,047

1,285

Table 2.6. Percentage distribution of total investments, by source

Type/Source

Domestic

994

375

926

733

2,878

Foreign

Hong Kong, ChinaJapanMalaysiaTaiwan, Province of China

437

107

154

271

1,730

1970-, 975 1975-1980 1980-1985 1985-1990

Australia & Oceania

4.20

45.80

0.50

7.88

0.72

2.50

60.33

39.67

0.65

7.37

0.00

0.38

52.75

1.62

47.07

0.80

5.90

0.58

0.12

51.93

2.43

1990-1994

48.10

5.62

11.15

0.17

5.05

3.15

58.86

41.16

3.54

7.86

2.06

2.70

1.22 0.28

11


Canada

United States

Europe

Source: Board of Investments, Department of Trade and Industry, Government of the Philippines.

After the United States, Japan is the major investor in the Philippines, although theEast Asian nations are increasing their share. It is important to understand that Japaneseforeign direct investment is critical for the Philippines since most Japanese foreign directinvestment goes into the manufacturing and export sectors, whereas American foreign directinvestment is more diverse. Japan's average share of total foreign direct investment inmanufacturing increased from 10 per cent in the period 1981-1985 to 29 per cent in theperiod 1990-1994. Several factors have been responsible for Japanese manufacturinginvestment. First was the structural transfonnation brought about by the high yen in Japan,coupled with high tariffs in the Philippines before the 1990s, and the increasedcompetitiveness of Philippine manufacturing post-1993. Japanese manufacturing investmentis increasingly directed towards export industries.

Clearly, foreign investment is ctitical to the Philippines' economy: table 2.7 gives someindication of just how critical. Foreign-owned concerns account for 21 per cent of employmentand dominate manufacturing.

Table 2.7. Foreign presence in the Philippines

4.90

14.22

5.75

0.12

12.53

,

10.55

0.17

20.23

11.95

0.63

12.37

Establishments with foreign equity

Distribution of foreign equity establishments by sectorManufacturing:Trade:

Services:

6.72

0.58

6.48

7.96

Foreign equity share of employment (overall)

Foreign equity in sectorsManufacturing:Services:

Trade:

Finally, it is also clear that new investment is increasingly for export manufacturing astable 2.8 suggests, yet the Philippines export propensity is considerably less than that of itsAsian neighbours.

12

7.8%

35.7%

17.7%

25.0%

21.0%

65.0%

11.0%

7.0%

Table 2.8. Export propensity in Asia (%)

Country

PhilippinesThailand

MalaysiaIndonesia

Singapore

Tables 2.9 and 2.1 0 provide a more detailed view of the types and areas of foreiinvestment and suggest that there is a dramatic increase in foreign investment into the ex ortprocessing and special export zones.

Table 2.9. Project cost of BOl-approved projects by sector fornew & expansion projects, with incentives (millions of pesos)

4982

15.7

17.5

47.4

66.1

82.0


DOMESTIC

Manufacturing

Agriculture, forestry,fisheries

Mining

Energy-related projects

Tourism-oriented projectsPublicutilities

Others

1985

1990

693

25

1986 1988

22.3

31.8

38.5

43.8

69.7

EXPORT

Manufacturing

Agriculture, forestry.fisheries

Mining

Energy-related projects

Tourism^riented projectsPublicutillties

Others

622 12,346

I84 8,381

487

44

137

o

o

o

1990

423

o

16

o

o

o

73,963 63292

18,828 35,661

1,647

200

1,192

86

840

o

1991

768 537 988 1,496

7,193 1,843 4/1 93

23,420 20,140 14,341 27,011

12,852 3,004 481 492

3,477 966 685 1,319

7,425 1,141 635 549

2,049 1,569 16,366

2,023 I, 483 13,520

1992

TOTAL

31,088 52,308 387,730 279,335 368,156

13,547 21,348 148,879 131,580 24,521

4993

16

o

to

o

o

o

Note: Othersinclude service, agricultural farm services, infrastructure/individual service facilities, ex orttraders,commerce, and research and development activities.Source: Board of Investments.

1994

20

o

67

o

o

o

25,932 10,887

22,939 9,694

1,555

347

871

67

o

6

1995

2,742 2,192 28,712

386

2,607

o

o

o

o

2,353 1,255 4,591

1,936 805 5,895

118,037 13,164 13,855

8,580 3,428 13,707

85,811 122,522 36,163

22,134 6,580 269,424

1996

8,537 17,462

5,885 14,866

924

269

o

o

o

o

2,536

too

o

o

o

16

99,895 74,179 39,625 69769 451,355 299,280 382,464

63,625

58,837

681

1,915

o

o

o

o

I9,945

I7,941

1,206

3,582

o

o

o

o

14,308

11,175

1,078

926

o

o

o

o

292

2,842

o

o

o

o

13


Table 2.10. Status of economic zones, 1995-, 997'

INVESTMENTS (millions of pesos)Approved projects

New export enterprises,expansions, additional projectsof existing export enterprises,service enterprisesDevelopment costs of new ecozones

Facilities/Utilities

NUMBER OF FIRMS

ApprovedBataan EPZ83

Baguio EPZ, 5Mactan EPZ

Cavite EPZ 224

Subtotal:

. Regular zones

. Special zones

1995

52,242,980

Operating 424553Bataan EPZ71

BagUio EPZ 14Mactan EPZ

Cavite EPZ 162

Subtotal:

. Regular zones

. Special zones

49,337,680

2,462,100443,200

1996

65,342,266

1997'

20,512,688

42,631,365

2.1 98,213

104,121,079

EMPLOYMENT

Bataan EPZ

Baguio EPZMadan EPZ

Cavite EPZSubtotal

. Regular zones

. Special zones

577

89

15

106

256

44,294,918

59,492,781333.380

428

149

692

92

15

111

268

' January-, 8 August, 997 except for employment (January-June, 1997).Source: Philippine Economic Zone Authority.

643

69

12

84

206

745

471

221

331

93

1/8

14

66

13

100

299

121,823

20,405

3,498

28,259

40,442

493

252

387

166

92,604

29,219

152,250

22.118

3,718

32n I I

47,148

97

475

168

170,797

24,075

3,839

33,458

48,421

105,095

47,155

109,793

61,004

What do we make of the foreign investment data? Clearly, the amount of foreiinvestment after globalization has been increasing steadily. Yet the rate of increase has not beenas rapid as those observed in other Asian economies. Further, the investinent Iar 61 re res tinvestment by multinational companies in existing factories that have been in country for sometime (e. g. bitel) or represent investment in the export processing zones (a further example oflow-cost investoient). The openness of the economy has resulted in a significant foreign presencein manufacturing (compared to India or China). The key question is whether the quality ofinvesiment has undergone changes over time: in other words, is there more ca it al-intensiveinvestrnentrelati. ve to labour-intensive invesinient? The answer is that labour-intensive invesinientpredominates, which is not surprising given the low-cost focus of govennnent onc ;

2.6.3 Trade

Several conclusions can be made when examining the Philippines' trade erfonnance.One coriumon measure of globalization is imports and exports as a percentage of GDP. For thePhilippines, both these figures compare well with those of other countries. Ex orts as a ercentof GNP were 29 per cent in 1997, while imports as a percentage of GNP were 42 er c t.Clearly, the Philippines is a highly globalized nation compared to india, for example (where thecorres ondin fi resin1995 5% d2% ' ' ampG(W ere ecorresponding figures in 1995 were 5% and 2%).

Second, it is important to highlight that there is a widening trade deficit. Clearl , theliberalization of imports and eXchange rates, along with tariffreductions, has resulted in steadilincreasing imports. Despite the Goverirrnent's focus on export orientation, the trade deficit hasincreased from 4.5 billion pesos in 1992 to 8 billion pesos in 1994.

Table 2.1. Imports and exports (dollars)


ImportsExports

The major issue is that the Philippines is becoming increasingly d endent on one ina'oexport (electrical manufactures) and this is the only export sector to show above-average growtlirates, as table 2.12 indicates.

Table 2. ,2. Export values by major commodity group(FOB value, Us$ million)

1970

1,286

1,057

1980

8,295

5,752

1990

I5,464

9,726

Traditional exportsCoconut productsSugar and sugar productsForest products

1993

18,773

I 1,375

1994

21,333

13,483

1995

26,391

I7,447

1970

1996

31,885

20,543

932

209

196

278

1980

1997

36,355

25,228

2,922811

657

425

1990

4,752496

133

94

1994

2,481639

77

26

1997

2,708835

99

45

15


Mineral productsFruits and vegetables

Non-traditional exports:Manufactured goods

Electrical equipmentGarments

Textiles

Footwear

Wood manufactures

Furniture & fixtures

Processed food & beverages

217

32

Total exports

Source: National Statistics Office: Census of Manufacturing Establishment (various years).

918

1/1

27

o

o.6

It

8

2.6.4 Overseas workers

One very important factor in the increased foreign eXchange earnings, despite the tradedeficit, is -remittances from Filipino workers overseas. Their numbers are significant and theirremittances amount to a significant share of GDP; one in two Filipino faintlies have a relativeworking abroad. Tables 2.13,2.14, and 2.15 document the increases in the number of workersas well as their remittances.

1,518671

502

74

67

35

77

92

361

162

4,424

1,964

1,77693

78

117

489

207

1,062

780

429

Table 2.13. Processed and deployed overseas Filipino workers and remittances,I995-December I 997

I0,615

4,984

2,375173

176

129

240

335

Indicator: Overseas employment facilitation

5,788

764

459

Processed overseas contract workers

Land-based

Sea-based

Deployed overseas contract workersLand-based

Sea-based

Remittances from overseas Filipino workers (Us $000)Land-based

Sea-based

8,186

21,488

13,052

2,349299

194

134

322

346

13,483

Sources: Philippine Overseas Employment Administration (POEA), Bangko Sentralng Pilipinas (BSP).

25,228

16

1995

Total

667,669

475,337

192,332

660,122

484,653

175,469

4,243,641

3,992,397

251,244

1996

Total

755,350

552,440

202,910

747,696

559,227

488,469

5,741,835

5,484,223

257,612

Table 2.14. Land-based Filipino workers leaving through authorized channels, ,993,997'

ContinenVCountry

Asia

Hong Kong, China

Indonesia

Japan

4993

Republic of Korea

168,20530.5%

62,58377.4%

812

o. 7%

43,5427.9%

703

o. 7%

I2,4092.3%

I 1,5682.7%

23,0254.2%

278

o. 7%

I3,4232.4%

I2,2282.2%

2,4250.4%

302,97555.0%

51,6169.4%

550,872

Malaysia

Singapore

1994

I94,12034.3%

62,16477.0%

922

0.2%

54,8799.7%

5,0549.7%

I 1,6742. I%

I 1,3242.0%

34,3876. I%

442

o. 1%

I I, 5132.0%

12,6032.2%

3,2550.6%

286,38750.7%

57,34870. I%

565,226

Taiwan, Province of China


Thailand

1995

Europe

166,77434. I%

51,70170.6%

1,2250.3%

25,0325. I%

4,3950.9%

I 1,6222.4%

I0,7362.2%

50,53810.3%

748

0.2%

10,2792.7%

I3,4692.8%

3,6150.7%

243,31049.8%

51.1 7470.5%

488,621

Americas

Africa

1996

Middle East

174,30836.0%

43,8619.0%

1,497o. 3%

20,1834.2%

2,9680.6%

12,3402.5%

15,0873.7%

65,46413.5%

916

0.2%

I I, 4092.4%

8,3877.7%

2,4940.5%

22 1,22445.6%

66,84073.8%

484,653

Other

19972

Total

202,22442. I%

72,29915.7%

1,6260.3%

26.1 525.4%

3,2420.7%

12.1 832.5%

13,3742.8%

60,60112.6%

1,0670.2%

11,2912.4%

5,8011.2%

2,4890.5%

191,73839.9%

66,61872.9%

480,161

Italic figures - per cent of total.2 January-October 1997.

Source: Philippine Overseas Employment Administration.

Table 2. ,5. Remittances from overseas Filipino workers by country of originj1995-December re97 Un Us $000)

Country of Origin Total

1995

3,868,378

1996

4,243,641

1997

5,741,835

17


United States

Hong Kong, ChinaSaudiArabia

SingaporeJapanUnited Kingdom'GermanyOthers2

I Includes Northern Island and Belfast.

' Total amount of remittances of overseas Filipino workers from countries riot elsewhere classified.Source of data: Bangko Sentral rig Pilipinas, Foreign EXchange Department.

2,747,790

I71 1046

I0,727

I06,149

152,369

73.210

76,577

530,510

The export of manpower is a significant source of income for the Philippines. Althoughthe Govenrrnent has enacted policies that address some of these employees' problems whenthey retorii to the Philippines, there seems to be a great need to address their employment~related problems while they are overseas. 111 particular, employment conditions of the largestgi'oup (employed as domestic servants in the MCS) are such that some protection is required.Finally, remittances of foreign workers (like a trade surplus) have assisted in stabilizing thePhilippine cumency' s value.

2.6.5 Employment and unemployment

One key fact is that although the Philippines experienced relatively steady economicgrowth during the 1990s, this growth was not accompanied by an increase in employment (tables2.16 and 2.17).

Table 2.16. Unemployment and underemployment rates, 1990-, 994

2,501,467

221,009

14,515

129,654

114,609

278,142

130,892

853,353

4,109,430

189,230

5,723

93,329

131,375

205,940

I21,258

885,550

UnemploymentUnderemployment

Further, the employment level mindustry - the major source of Philippine exports - hasremained constant over 20 years'

Table 2.17. Proportion of employed persons by major industry, 1970-, 994

1990

9.4%

22.4%

Major industry group

1991

10.5%

22.5%

Agriculture, fisheries.

and forestry

1992

18

Census August1970 1975

9.8%

20.5%

1993

53.80

9.3%

21.5%

Q3 Q3

1980 1985

53.51

1994

9.4%

21.4%

51.44

October October October October October October

1990 ,991 1992 1993 1994 1995

48.98

1995

9.5%

22.1%

45.20 45.27 45.44 45.80 44.70 44.50

Industry

Services

What accounts for the increased foreign investment on the one hand, and the increasedmanufacturing-sector unemployment on the other hand (or the lack of growth in the manufacturingsector)?

One view is that a significant amount of the increased foreign investoient went intospeculation or trading activities rather than creating employment. Also, most jobs. created wentinto the infonnal sector, rather than the fomial sector. infonnal sector employment is considerable,as table 2.18 indicates. Whatis problematicis that the largepercentage of informal sectorworkersin manufacturing suggest a trend towards increased casualization and subcontracting (a topicthat will be dealt with in greater detail in the next section, and a finding that was evident in thevarious case studies conducted). The table suggests that 51 per cent of employed workers are inthemfonnalsector, and although as expected a clearme!ionty of them are mmalpoor, the serviceand manufacturing sectors have very high levels of informal workers as well. A recent analysisof tinsphenomenon (Oftene0 1995) suggests that subcontracting, casualization, andtheiricreaseduse of various types of contracting arrangements are responsible for the litgli rate of informalsector employment in manufacturing, and has grown considerably since the 1980s.

Table 2. ,8.1nformal sector employment, ,991

20.80

23.67

18.59

27.63

20.00

28.53

18.88

32.12

20.07


34.66

21.01

33.68

21.06

33.40

21.07

Agriculture, fisheries, forestsIndustryMiningManufacturingConstruction

Utilities

Services

33.08

21.35

33.92

20.98

34.45

Total

2.6.6 Real wages and poverty

mother indicator that provides a negative picture of growthinthe 1990sis the movementsin real wages. Table 2.19 only shows the figtires for the National Capital Region (the. mostadvanced region) but the picture is sinitlar for various other regions as well.

Sector Workers

7,667790

52

617

113

8

3,251

I 1,708

Percentage in informal sector

73.7

21.5

34.7

25.7

10.9

8.7

36.8

51.1

19


Table 2.19. Nominal and real wages in agriculture and nori-agricultural sectors - National CapitalRegion (in pesos)

Nominal wage rates (effective 6 February 1998)

Non-agriculturalAgricultural

Plantation

Nori-plantation

Real Wage Rates (March I 998; at 1998 prices)

Nori-agriculturalAgricultural

Plantation

Non-plantation

These figures are for March 1998. Clearly, the financial crisis is responsible for some ofthe declinein realwages, yetit camotbe responsible for the total decline since 1988. Table 2.20below provides a comparison of the compensation index computed by the Departtnent of Labourand Employment.

Table 2.20. Compensation index, 1990-1993 (at constant 1978 prices)

Sector

ManufacturingConstruction

RetailTrade

Transport/CommunicationsPrivate services

198.00

186.00

179.50

Source: Yearbook of Labourstatistics.

71.38

Clearly, as this table suggests, there have been declines in average compensation in severalsectors. It is difficult to reconcile this with the Goverinnent's figures on poverty reduction. Thesefigures are reported below, and suggest that poverty was reduced significantly during the 1990s.

Table 2.21. Incidence of poverty, , 988-, 994

1990

67.05

64.71

I24.22

128.92

96.30

I87.11

I35.21

1991

I03.35

I 19.52

89.72

183.1,

142.13

1992

Poor families

I0 1.92

I 16.48

91.32

196.59

I42.95

1993

20

95.00

I 18.57

95.28

I92.66

144.39

1995

81.28

1988

4,230,484

I04.24

216.42

221.35

1996

74.56

94.91

21 I. 39

252.77

1991

4,780,865

1994

4,531, , 70

Poverty incidence

Sources: National Statistics Office: Family Income and Expenditures Survey 0988,1991 and 1994).National Statistical Coordination Board, Technical Working Group on Income Statistics.

A more independent assessment of poverty provides quite a different picture. Theindependent Social Weather Station using a self-rated method shows a market deepening ofpoverty in several areas, but most particularly in Metro Manila. These results are shorni intable 22.

Table 2.22. Self-rated poverty, 1992, ,994

40.2

Not poorBorderline

Poor


While there is clearly considerable response bias in self-rated questions (and thus wemust be careful in drawing conclusions about poverty levels) these are still reliable instrumentsfor evaluating trends. had the trend clearly suggests a deepening of poverty, most particularlyin Metro Manila. Oftene0 (1995) notes that an obvious cause for the poverty increase in MetroManila is the decline of "sunset" industries like garments and shoes due to trade liberalization.Ofteneo notes that all the "sunrise" industries are growing outside Metro Manila in industrialparks such as Cavite, Lagtuia, and Tarlac.

2.7 Privatization

39.9

Overall Philippines4992 1994

19%

16%

65%

35.5

One of the key outcomes of structural adjustment has been the need to make non-performing assets in the public sector profitable. Privatization has been the vehicle for tinsadjustment, and as noted, has been economicalIy successful in transferring surpluses to theGoverrmient. However, there has been no systematic study of the privatized corporations andhow they have perfonned after privatization. One critical issue here is that the privatization ofpublic services must provide a reasonable degree of public service after privatization - reducedeconomic costs should not result in increased social costs. Although we have lintted data onthis, the evidence is natxed. While Petron and the Philippines National Bank are positive examplesof the virtues of privatization, there are negatives as well, and it is extremely important to considereachindividually.

For example, privatization of the management (through a management contract) of theMetropolitan Waterworks and Sewage Services is the first large-scale water privatization inAsia. The managing agents promised to deliver 100 per cent water coverage, without raisingwater rates for ten years, and to filml a large number of obligations. However; water rates will

9%

24%

67%

1992

Metro Manila

42%

21%

64%

1994

22%

28%

78%

21


increase before the ten years is up under various clauses that allow an increase in water rates;sanitation and sewage fees will be changed after five years and will be increased by 225 percent. These are social costs. In economic tenns, recruitment will cost the authority about 12billion pesos, with the lay-offS of 5,500 employees over time. There are other effects, too,including the impact on farmers as they compete for water with the cities. '

There are other criticisms of privatization as well (e. g. the energy regulatory board):There is no follow-up monitoring of the impact of privatization on what were fomierly publicservices. ' Other criticisms have also been made of privatization in the Philippines. These focuson the apparent lack of logic in the Goverrrrnent's privatization plan, aside from cost reduction.The Govenrrnent's traditional role in providing public services appears uriackiiowledged. Also,since the public sector is the largest provider of jobs for women, rationalization of that sectorhas a disparate impact on female employment.

2.8 Questions for economic policy-making

Clearly, there has been an overall improvement in the macroeconomic picture since thelate 1980s, andbefore the financial crisis. Impressive increases in both foreign directirivesimentand trade (crucial measures of globalization) have been registered. Proponents of globalizationsee this as an outcome of globalization and view the evidence as consistent with the predictionsthat globalization will result in econorntc growth. And it is true that this macroeconomic evidencesupports this view.

However, this positive picture is marred by several negatives. Not all the macroeconointcindicators support this positive picture. Growth has come about without significant increases inemployment, and at the expense of regular employment as more and more jobs have moved intothe infonnal sector, particularly into inariufb. cating. The export-oriented policy that has beenthe cornerstone of the Goverrunent's approach to dealing with globalization has not produced apositive trade balance, as imports continue to outpace exports. Real wages have largely declinedduthig the period of the greatest econonxic growth since 1991, and poverty has deepened. Thekey implication is that globalization has increased inequalities as the rich benefit from growth atthe expense of the poor. The economic record raises several fundamental questions forGovernment policy-makers to rethink:

. Should the export industry be promoted at the expense of domestic industry?

. What is the appropriate national economic strategy for areas that have notexperienced economic growth?

. What changes ought to be made to agricultural policy to enable growtli in Taralareas?

. What is the relationship between foreign and local investment and how can wefind ways to increase local investment?

. Have we liberalized trade too fast, compared to our ASEAN neighbours?

. While it is clear that economic development has occurred, why has it not beenaccompanied by increases in employment?

' Luis Corral: Interview, Trade Union Confederation of the Philippines.

22

3. Labour market and employment relations policiesand practices

This section considers national and State policies relating to industrial relations and humanresource management, with an emphasis on the national level. The discussion considers nationalwage, skills development, and industrial relations issues. Rather than discussing legislation,salient policies, issues, and outcomes are discussed here including trade union power, industrialconflict, and collective bargaining decentralization. (I;'or adetailedlist of legislation onindustrialrelations, see Oftene0 1996. ) The section concludes with a discussion of ER refbnn issues andhow our research might infonn this debate.

3.1 Labour force structure

Labour market and industrial relations policies and practices

Table 3.1 shows the basic structure of the Philippine labour force. It suggests that muchof the workforce is engaged in agriculture and in services. Yet the entire economic developmentstrategy is predicated on attracting foreign direct invesiment in manufactoring for exports.However, the share of manufacturing employment has not increased appreciably, and in factdeclined SIiglitly daring his period. Of course, this decline must be seen in the context of extensivecasualization of employment (see later discussion on this). The private sector continues to bethe largest employer, while public sector employment is quite small in comparison.

Table 3. ,. Percentage of employed persons

Sector/Major industry group

Total employment (000s)

Agriculture, forestry, fisheries

IndustryMiningManufacturingElectricity, gas, water

Services

Wholesale & retail trade

Transport, communicationFinance, insurance, real estateCommunity, social, & personal services

1996

27,186

Employment by genderMale

Female

42.80

16.20

.04

9.91

.04

1997

27.715

40.80

14.70

5.90

2.00

17.80

42.10

16.70

.04

9.80

04

1998

27,691

63.10

36.90

39.70

42.12

14.90

6.20

2.40

18.70

16.40

.04

9.70

.04

43.69

15.31

6.50

2.40

19.30

63.00

37.00

62.90

37.30

23


Private/Public employmentPrivate

Public

What table 3.1 does notprovideis an indication of the extent of themfom!alworkfbrce- the unorganized sector, which is the largest inmost countries. Note that some of the people inthe inforrnal sector are included here, since people who work in their own businesses too arecounted in the total workforce figures, but one questions the accuracy of the statistics.

3.2 Wage policy

The original minimum wagelaw was enacted in 1951. Ahotly contested issue, the actualminimum wages set were 20 per cent lower than what was proposed, lower than what wasexpected by the unions, and lower than what the BellMission recoinmende'd for the Philippines.However, the argonient about the inititmum wage faded as the economy registered its greatestperiod of growth until 1960. in 1955, for example, the real wage was considerably biglier thanthe minimum wage. Daring the martial law period, though, with real wages making a nosedive,(declining by 38% in the period 1970-1979) there was additional pressure for increases in theTrimmum wage. Although the minimum wage is supposed to set theno07 for wages, daring themartial law period and thereafter the minimum wage has been the w@ge leader. However, thehigh inflation of the 1970s and early 1980s ensured that the minimum wage in the 1980s waslower than the real minimum wage in the 1950s (see Oftene0 1995).

The process of wage-setting is that the Goverrrrnent reconmiends upward adjustoients inthe nominal minimum wage, and in practice the fixing of regional minimum wages is done bytripartite comintttees. Since the minimum wage has become close to the average wage for blue-collar workers, revisions in the minimum wage also results in increased wages for white-collarworkers' Unions are clearly obsessed with improvements in the minimum wage. All analysis ofthe difference between the Thinimurn wage and average wages in collective bargatixing agi'Gementsfound little or no difference between the two. Thus, in effect, the minimum wage becomes theaverage wage for blue-collar workers in the industrial sector.

The close correspondence between mirinium wages and the wages in industry has beennoted by others' in a 1993 study of various electronics companies (ICUruvilla 1996b) noted that inthe electronics firms surveyed, at least 40 per cant of workers earned below the minimum wage forMetro Manila, Table 3.2 shows the current state of rimiimum wages in the National Capital Region.

38.80

7.60

40.80

7.70

40.70

7.70

Table 3.2. Nominal and real minimum wage rates - National Capital Region (in pesos/day)

Nominal Wage Rates (Effective February 6, , 998)

Non-AgriculturalAgricultural

Plantation

24

198.00

186.00

Nori-Plantation

Real Wage Rates (March 1998)(1988 Prices)

Nori-AgriculturalAgricultural

Plantation

Non-Plantation


3.3 Skills development policies

All examination of national policies for skill fomiation must consider the larger pictureon unemployment and industrial development. While unemployment rates will be high in asurplus labour market, what is troubling in the Philippines is that much of the unemployment isconcentrated in the younger age groups (18-30). Average unemployment rates from 1990 to1994 were about 9 per cent, while unemployment rates in 1997 averaged 13 per cent, withunderemployment rates hovering around 30 per cent.

While economic growtli will clearly decrease unemployment rates, it is the employabilityof the younger age group that is - and should be - the focus of skills development and skillsfonnation. Employment growth is mainly to be found in the services sector. Another group thatis - and should be - the target of skills 16nnation is women, whose labour force participationrate is only 43.7 per cent versus 81.6 per cent for men. Much of the economic growth in theperiod 1990--1996 wasjob-less growni. Thus, any attempt at skillfbrrnationmustnot onlyiricludeprogrammes to increase skills, but must be accompanied by progr. armnes to increase new businessdevelopment.

3.4 Workforce skills profile

The labour force in 1998 was 30 million (50% females, 48% males). Only 10.9 per centwere skilled. The skilled workforce is predominantly male (70%) and acquired their skills tlirougliexperience and apprenticeships (only a fifth acquired these skills frouglischoolirig). However,most of the skined female workers acquired their skills trough schooling. The skilled workforceis mostly engaged in agriculture, fisheries, service, and clerical work (20%), machinery operation(15%), garments and textiles (14%), and metal machines and plant operation (12%). And theskilled workforce is distributed unevenly geographicalIy, with the highest proportion in MetroManila.

179.50

71.38

67.05

64.71

The decliritng quality of skills fomiation and education in general was a major reasonfor the refonns in skills training daring the 1990s. The congressional education coriumssion(EDCOM) reported in 1992 that tertiary education (colleges and vocational schools) have notproduced the manpower needed for the economy. In particular, the EDCOM report concludedthat there were two pinchpal reasons behind the decline in skills fonnation: the country is not

25


investing enoughin education, and the educational establishment is poorly managed. in abroad-ranging discussion of the problems, Ofteneo, Amante, and Ortiz (1998) note these problemswith existing structures and institutions:

. On the education level, not only is there not enougli investment in education, butthe educational establishment is badly managed, with no infonnation about theeducational system's quality and quantity of output.

. The types of skills that workplaces needed were not provided through theeducational system, and there is no system that provides the educationalestablishment with infonnation on the types and quality of skills needed.

. Educational and- skills progranrrnes initiated by Govennnent agencies weredelivered in unitbnn packages that did not necessarily address specific needs incertain occupational categories. The National Manpower and Youth Councildeveloped a standard training package for the seven generic skills trades(electrical, automotive, refrigeration, electronics, welding, construction, andmachine tools) that were relevant only to the industries in the export-processingmitts, but not elsewhere.

. In the regions where industrial development is lighter, the lack of skills trainingreinforces traditional gender roles.

. Apprenticeship andjob training progr'arumes under the 19741abourcodeprovidedfor apprenticeship without compensation, and these laws have diluted the conceptof apprenticeships for learning and skill fomiation. Rather, as the Employers'Confederation of the Philippines (ECOP) notes, this abuse of apprenticeshipswas a means of providing investors with low-cost manpower.

. Poor governance, policy coordination, and administration. It is not clear whichagency has the authority to prescribe guidelines on standards, tests, types of skillsneeded, curricula, and wages for apprentices. Also, there is clearly a lack ofcoordination between Govenrrnent departments, such as the Bureau of LocalEmployment (in the Department of Labor and Employment) and the Bureau ofTechnical and Vocational Education (under the Department of Education andCulture). Not only was there duplication of functions between these two bureaus,but neither bureau had any sense of the skills required by the industry.

. Finances. Although Government allocations for skills training has been constant,it has declined in real ternis, and there is the question of whether the Governmentshould put its scarce resources into basic (general) education. The private sectormust be persuaded to bear training costs, although it is not clear that they arewilling or interested.

Until the 1994 reforms, three Govennnent agencies were engaged in skill training - theBureau of Local Employment (under the Department of Labor and Employment); the Bureauof Technical and Vocational Education (under the Department of Education, Culture and Sports);and the National Manpower and Youth Commission, which was responsible for platrriingtechnical and vocational education and training (TVET). There was duplication of the functionsbetween NMYC and BTVE and with no sense for the needs of the industry, the problems citedarose.

26

The reform agenda in 1994 was institutional in focus. The response was the creation ofthe Technical Education and Skills Development Authority (TESDA) in 1994, and the DualTraining System Act of 1994. TESDA is a coordinating agency, cobbled together from variousexisting offices and departments, taking over some functions from the labour departinent. Therewere several problems in making TBSDA an admitxistrative unit (bringing together various peopleand merging aimiinistrative departments) and there has as yet been no systematic evaluation ofits perfomiance.

The Dual Training System Act of 1994 created an integrated system of technical andvocational education and training that combines in-plant and in~school training, and is modelledon the experience of several European countries. Thus, the vocational and technical traininginstitute andttie enterprisejointlycreatethe tramiing. The onlyrequirementis that bothiristitutionsmust be accredited. The theory here is that companies participating in the training will haveaccess to skilled and trained manpower, while the traititng institution would handle the theoreticaleducation.


Progress has been slow. By 1998, there were only 273 graduates from accreditedinstitutions. The low numbers are due to lack of institutional funds as well as lack of livingallowances for the trainees. Further, TESDA and the dual training system are not integrated.However, TESDA has fomiulated a skills development plan for the period 1997-2000 that ispremised heavily on the success of the dual training system.

The TESDA board is a tripartite body. TESDA has 1,918 employees, and there havebeen several efforts to increase the quality ofTESDA staffthrough training. As of March 1997,TESDA assumed supervision of over 218 technical and vocational schools, and organized I 05technical education and skills development coloniittees througliout the country. 111 1996, TBSDAtook over the National Training Centre for Technical Education and Skills Development. TESDA'straining network is made up of 14 regional skills training centres, 45 provincial centres, 14satellite training centres, and 218 technical schools. fill995,27,000 people benefited from theseprogr^10s and in 1997,28,887 people received training.

Under the dual training system, 2,437 trainees graduated in 1996; 162 companies haveparticipated in ' the programme. TESDA also has the responsibility for skills testing andcertification, undertaken through the National Skills Standards, Testing, and CertificationProgram; a total of 90,500 people have been tested under this prograinme.

The skills development agenda for the period 1997-2000 focused heavily on policy-oriented, sector-focused, area-based, labour-market driven (PSALM) initiatives. Under theprogramme implementation plan, TESDA's primary responsibility and task is to ensure that thedual training system becomes the preferred mode of skills development in the country, bypromoting gr'eater private sectorparticipation and drawing on the strengths of existing institutionsand stakeholders.

The initial gains from these ittitiatives are impressive. There have been improvementsin the apprenticeship prograrrrrnes, and the number of tramees under all prograintnes has clearly

27


increased. There has been all increase in skills certification, with more and more trade testingcentres being accredited. There have also been substantial efforts over the last three years torationalize, and to bring all training under TBSDA's mandate, althougli it is not yet clear thatTESDA has managed to coordinate all the progi. animes. The biggest gain has been that all tradiiiigis coordinated by a single Goverrmient agency with a clear mandate. This agency has gone along way towards updating, changing, and organizing itselfto deliver its services more efficiently.

Four problems have hindered TESDA's work:

. It has taken more than four years for TBSDA to function effectiveIy;

. There is still a tendency for the private sector to hesitate to take a lead role underthe dual trading system;

. There has been little increase in TESDA's budget;

. Coordination between TESDA and the Department of Education, Culture, andSociety of technical and vocational training is poor.

kitheir critique, Ofteneo, funante, and Oniz (1998) offer several recoilrrnendations forimproving the skills development system. These include the ability to respond well to retrainingneeds for Tetrenched workers, increasing tripartism beyond simple representation on the board,developing a fomiula for cost-efficient financing, strengtliening the TESDA technical staff, andseveral other specific recoilrrnendations.

In our view, even with these recommendations, and even if TBSDA meets all its goals,the system will not deliver what is expected of it. For a skills development system to be viable,there must be these preconditions (ICUruvilla and Chua 2000): a concerted national effort; anefficient mechanism for ensoriiig that the relevance of training is constantly maintalried; a strongpartiiership with private industry; and - most of all - the integration of econonxic developmentwith skills tradiing. The current system in the Philippines does not exhibit all these characteristics,and althougli it is a little early to begin evaluating its effectiveness, there is much to be done.

3.4. I The actors and collective bargaining

We focus here primarily on providing a picture of Philippine trade unions. Union densityin the Philippines is low, at about I I per cent. What is even more significant is that the intoneare alitghly fragmented lot. As on 997, there were 8,822 (8,149inthe private sector; 499in thepublic sector) divided into 174 federations, who are then affiliated to competing labour centres.However, the number of dues-paying members is rather small, as table 3.3 suggests.

More significantly perhaps, is that the collective bargaining coverage afforded by theseunionsis evenlowerthanuiiiondensity. fill997, roughly 524,000workerswerecoveredby3,003collective bargairitng agreements. Three conclusions can be drawn from his. First, the labourmovement is small, and therefore weak in collective bargaiixing. Second, the fragmentation ofunions is extreme, and competition among unions continues to make the labour movement weak.The absence of jarisdictional rules suggests that there is a lot of union-raiding, and thus unionsspend their energy raiding each other's existing members rather than organizing new members.Third, absent the ability to expand collective bargaining beyond these small numbers, the ability

28

,

of unions to significantly voice the concerns of labour in the economic development process isseriously compromised. The inability of unions to resolve jurisdictional problems or to cometogetherto cooperate alsoimpliesariottieroutcome:themability to focusondevelopingcollaboration.Besides, other than the public sector unions, most private sector unions are very small.

The employers are pmiadly represented by ECOP, but there are tree organizations: theChamber of Coriumerceofftie Philippines; the Philippine Chamber of industries; and the PersonnelManagement Association of the Philippines. These organizations have been successful ininfluencing the direction of labour policies in the past, but they are not involved in collectivenegotiations.

Table 3.3. Unions and collective bargaining coverage


INDICATOR

LABOURORGANIZATIONS

Unions registered/restored

Federations/Labour centres

Private sector unions

Public sector unions

1996

Membership of newly registered

unions




Unions/Federations cancelled

Tobi

410

4

371

35 a

on

1997

02

342

2

305

35

Existing unions




95

32,738 28,671 9,960

aa

28,802 24,835 8,624

3,936 3,836 1,336

22 3

Q3

83

12

84

76

7

Existing membership of

active unions (000)

Private sector I

Public sector

Q4

99

Total

8,248

172

7,610

466

89

10

19982

Jan Feb

6,806

a

6,123

683

COLLECTIVE BARGAINING

AGREEMENTS (CBAs)

CBAs newly filed

Workers covered by new

CBAs

64

57

6

8,822 8,359

174 172

8,149 7,711

499 476

1/1

6715

86

25

5,104

1,611

3,611

3,468

143

Mar

41

5,190 13,342

a

4,984

06

3

8,442

173

7,786

483

33

B

25

3,635 3,622

3,489 3,478

146 144

8,570

173

7,904

493

18

7

.

45

7,514

5,828

4,893 3,221 5,228

8,822

174

8,149

499

35

10

3,632

3,488

144

3,176 2,022 2,346

1,717 1,199 2,912

818

131,446 92,149 37,001 20,064

9,041

174

8,339

528

3,644

3,498

146

532

8,954 8,990 9,041

174 174 174

8,269 8,298 8,339

511 518 528

197

3,635

3,489

146

128

3,670

3.517

153

124

3,661 3,665 3,670

3,5123 3,515 3,517

I49 150 153

20,123 14,961

83 99

16,093

25

3,621 4,364 8,108

33 41

29


Expired CBAs

Existing CBAs

Workers covered by existing

CBAs (000)

a Membership of newly registered federations were already included in the membership of private sector unions.(Includes membership of affiliated unions. It however excludes federation members of 2.8 million farm workers')

I Details may not add up to totals due to rounding.

Preliminary.

Revised due to inventory.

Notes: Starting I 995, data on CBAs are sourced from the Statistics and Performance Reporting System, Departmentof Labor and Employment.

Starting 1998, data include the Canga region.

Existing unions and memberships include those registered with the Bureau of Labor Relations, Departmentof Labor and Employment.

2

3

634

3,398

135517 159

2,9873 3,4373 3,0033

4/1 426

Table 3.4. Estimates of dues-paying members at major labour CGontinuing entres

426

107

3,020

Trace Union Congress of the PhilippinesKi!sang Mayo UnoFederation of Free Workers

WFTU affiliates

Lakas Manggagawa Labor CenterIndependent localsTotal

524 a

116

2,987

524

73

3,038

525

2524

3.016 3,027

540

3.4.2' Industrial relations issues and outcomes

The defining characteristic of Philippineindustrial relations is the adversadalnature oflabour-management relations. This adversadal nature is rooted in an exceptionally legalisticapproach that penneates every institution in the industrial relations system, particularly disputesettlement. The tendency to rely on litigation and third-party dispute resolution is dollimarit,with relatively fewer examples of bilateral problem-solving. The existing institutional frameworkfurther deeply entr'enches the adversadal nature of industrial relations with its focus on American-style legislation for union fbnnation and dispute-settlement laws that focus heavily on proceduralissues rather than substance.

The key question of why legalsin exists needs to be answered before any atlampt at policyrefbnn. Historically, compulsory arbitration has been the cornerstone of the ER systan since 1936.Since the industrial relations court was given comprehensive powers to handle all industrial relationscases on behalfofftie State in 1936 - with compulsory settlements -industrial relations'resolutionwas handled like any other court case. This policy thus required lawyers, which is the first andprirnary cause of legalsin in the system. After the 1953 industrial Peace Act (based on the American

537

24

3,038

539 540

150,000

150,000

80,000

55,000

50,000

650,000

I, 135,000

30

,

,

Wagner Act of 1935) lawyers, who were entreriched in labour relations, took the lead role in thebargaiixing process, reducing bargalrting to a question of law rather than a question of negotiation.This legalistic tendency since then has become reinforced as the actors' opposition to each other hasbecome more errtr. enched. The evidence of legalism can best be seen in the case studies intriis report- that is, every labour relations manager we interviewed in every company was an attorney. Overthe years, the Court of industrial Relations gradually evolved into the National Labour RelationsConnnission 0.11, RC) but the character of the institution has not changed with the change in fi, rin.

It is perhaps too easy to lay the blame for legalism on the number of lawyers active inindustrial relations. Legalism stems first and foremost from the attitude the parties have towardseach other, which has become Gritrenched over time, and has been reinforced by the legalisticmethod of dispute settlement.

Efforts to change the degree of legalism in industrial relations in the 1980s by creatingthe National Conciliation and Mediation Board (1.1CMB) and by encouraging private voluntaryarbitration was an important signal that the GovenXEnent had tired of the legalis tic nature ofindustrial relations. In 1993, a comprehensive review of the labour code was undertaken aimedat changing industrial relationslegis}attonto promote collaborative labour-management relations,yet no positive outcomes are apparent. The NCMB is powerless to compel stubborn parties toaccept voluntary modes of dispute settlement, and there is a perception that voluntary arbitrationdecisions are not as binding as 11LRC decisions. Besides, the various recommendations madeby the labour code coriumttee have not been acted upon by the Govenrrnent,

Legalism has two major outcomes. The first is that many cases are tiled, instead ofbeing resolved bilateralIy, resulting in delays. The second is that, given the long delays, developingcollaborative industrial relations isn't possible as the parties' positions tend to become moreentrenched and often bitter as they wait for third-party dispute resolution.


. Strengthenbipartite dispute-settlement mechanisms (by promoting collaborativelabour relations)

. Encourage policies that might help in developing collaboration (such asinfonnation-sharing, joint problem-solving, win-win bargaining, confidence-building measures, and some fonn of joint consultation)

. Promote alternative dispute-resolution techniques

. Reduce delays in the current system of dispute settlement.

But these things are easier said than done. (At the end of this paper, specific suggestionsare made for promoting collaborative industrial relations. )

The oneirxitiative that shows some progress is the gradually increasing adoption of labour-management councils in the industry. Although it has become fashionable to have such councils(and all the companies we studied have one in force) there is still no systematic evaluation ofwhether they are effective in promoting collaboration. in most cases, the councils focus on

The tasks for the future are clear. There is a need to:

\

31


matters of shared, non-confrontational concerns (matters that the CBAs are silent on) ratherthan on "bargainable" issues (such as worker welfare) which tend to be more divisive. What iscriticalIy needed is an evaluation of these councils in the Philippines.

3.4.3 Strikes and lockouts: Evidence of conflict

Having made the case that there is very little labour-management collaboration in thePhilippines, there has still been a clear decline in industrial conflicts as measured by stokes, astable 3.5 suggests.

Table 3.5. Strikes

1986

1988

1990

1991

1992

1993

1994

1995

1996

,997

Several factors are responsible for tints declinein the number of stokes' First, the large numberof strikes in 1986-1987 forced President Aquino to revive the strict rules on strikes promulgated byPresident Marcos. Second, labour mintarice is not sustainable in a depressed economy with aconsiderable labour surplus and a low-cost export orientation. nitrd, employer opposition to Intoneand tollgli stands agaltist strikes have sent a clear message to unions regarding their futility. Fourth,the decline of labour Thintanc6 over the years can also be attributed to the decline of the socialistmovements in the Philippines following the dissolution of the Soviet system. However, the dec^nein nthtance can in no way be construed as an increase in labour relations collaboration.

Further, there has been a change in the major causes of strikes. While the primary causesof earlier strikes were bargaining deadlocks or unfair labour practices, more recent strikes areinvariably about downsizing, retrenchment, casualization, and contracting out, which were themain source of contention between labour and management in the 1990s.

581

267

183

182

136

122

93

94

89

93

Table 3.6. Strike notices on retrenchment and contracting out

(as a percentage of total strike notices)

1988

1989

1990

1991

1992

32~L,

6%

8%

9%

11%

12%

,

These figures understate the real situation since they do not reflect wildcat strikes andcollective bargaining issues that focus on adjustment concerns.

3.4.4 Dispute settlement

Dispute settlement in the Philippines distinguishes betweendisputes of rights andinterests.Riglits disputes concern legal provisions (such as unfair labour practices) whereas interest disputesconcern bargaining deadlocks. However, this simple classification is accompanied by a complexsystem of institutions designed to dealwith disputes, often with overlapping jurisdictions. Fivetypes of organizations deal with various kinds of disputes:

Labor Arbiter

. Secretary of Labor and Employment

. Philippine Overseas Employment AimimstrationBureau of Labor Relations

Mediator/Arbitrator.

institutions with appellatejurisdictionsincludethelqTationalLaborRelations Coriumission,voluntary arbitrators, and the Secretary of Labor and Employment. Fortliemiore, someiristitutionshave special powers over labour disputes, such as the 1.1CMB, I^^11, RC, the Secretary of Labor,and the President of the Philippines.

The division of work among these different institutions is complex. Labour arbiters haveexclusive jurisdiction concerning rights and violations of the labour code. The Secretary ofLabor and Employment has enforcement power to force institutions to follow the provisions ofthe labour code. Representatives of the Secretary (such as regional directors) have the power todecide in labour disputes on the recovery of wages, money claims, and benefits.

The Bureau of Labor Relations focuses on resolving interest disputes - either on its ownititianve, oronftierequestofftiepady-aswellasondisputes concerrxingtniionfonnatioii, recognition,or dissolution. The mediator-arbitratorjurisdiction extends to intra- andiriter-union conflicts.

Apart from the jurisdictional differences, there have also been policy changes over theyears' Thenewmajorpolicy changeisRepublic ActN0.6715, which strengthened the voluntaryarbitration system and encouraged the use of voluntary arbitration in most interest disputes. 111addition, the Act forces all companies to establish grievance machinery as one step in reducingthe litigious nature of Philippine dispute settlement.

What is more problernatic itself is the outcomes of dispute resolution. in one of the onlysurveys that has looked at the perceptions of the actors regarding dispute resolution in the Philippines(the 1.1LRC, arbitrators, regional director, NClvfB, and others) there were these foldings:

. Roughly 54 per cent of respondents complained that dispute settlement wasdelayed;

. 39.7 per cent of respondents believed that dispute resolution was not fair orimpartial;


.

.

.

\

33


. At least 20 per cent felt that dispute-resolution officials were corrupt.

Dissatisf;lotion was particularly high with the labour department: typically more than 30per cent indicated low levels of satisfaction, and only I O per cent professed themselves satisfiedwith the department's services for dispute resolution. Most important, roughly half of therespondents felt that dispute settlement was too legalis tic. had in comparing different dispute-resolution agencies and their officials, the actors appear to think the labour arbiters (the NLRC)were far more corrupt than voluntary arbitrators, med-arbiters, or the I\ICMB.

Are there delays? The evidence suggests that there is. For example, in 1996 there were67,3671abour relations cases pending with various agencies:

36,81218,679

898

7,013435

100

290

1,56891

1,481 .

On average, 20,000 to '25,000 cases are filed amually. The average amual dispositionrate (the percentage of cases disposed of in agivenyear)by National LaborRelations Commitssionregional branches has been declining steadily since 1980:

Labour arbiters

Regional directorsMediators/ArbitratorsNational Labor Relations Cornmission

Voluntary arbitratorsSecretary of LaborMed-Arbiters (BLR)1.1ClvlB

Supreme CourtOther boards

Delays appear to be a function of several factors, including inefficient or incompetentofficials and arbiters; lack of staffto handle the large number of cases; red tape; corruption; andthe complete absence of a system of rewards and punishments for arbiters and coriumissioners.For all these reasons, there is a major trend towards voluntary arbitration!

1980

77.1%

3.4.5 Enforcement of labour standards

As pointed out, thereis a well-developed body of laws, rules, andjurisprudence on labourstandards. Yet, despite this, violations of labour standards are rampant. Statistics from the labourdepartnient indicate that 51 per cent of the establishments (31,773) inspected in 1992 violatedgeneral labour standards;in 1993, the percentage was up to 60 per cent. ' Axlearlier study showedthat one of every three establishments inspected by the labour department violated the wage

1985

60.7%

1990

55%

I Bureau of Labor Statistics: CurrentL@borSt@tistics 0.1arch 1994)

34

1995

56%

1996

43%.

laws. ' Non-compliance with the wage and other labour standard laws are biglier outside MetroMania and in non-unionized establishments.

These reported violations are really on the conservative side because the labour departmenthas limited resources to back up the deployment of labour inspectors in various parts of thecountry. Labourinspectors' reports themselves are notnecessarilyreliable either. The Governmenthas often had to suspend labour inspections because of reports of corruption.

It is also almost impossible to monitor labour standard compliance in establishmentswith relatively infonnalor semi-fbnnalemployer-employee relations, such as forjob contractingarrangements where work is seasonal or "invisib^' to Goverrnnent agencies. For domesticservices and child labour, there is hardly any Eonnal monitoring - much less policing - beingdone.


What accounts for the big}I rates of non-compliance? There are at least two major reasons.First, the proliferation and the numerous revisions of the laws and rules on labour standardshave caused confusion in interpreting and enforcing labour standards. For example, one sourceof confusion - and even bitter industrial strife - in many companies is the issue of "w'agedistortions". A wage distortion occurs where an increase in prescribed wage rates results in theelimination or severe contraction of intentional quantitative differences in wages or salaries.Wage distortions arise when implementing every new round of minimum wage adjustrnents,which is usually done every other year.

Second, the general weakness of the economy and the related SIacl^less of the labourmarket (as expressed in the double-digit rates of unemployment and underemployment)contributes to non-compliance with labour standards. Economic weakness as reflected in thelabour market creates conditions where workers are willing to work under sub-standard conditionsand below the rimiimum statutory compensation rates.

The reality of non-compliance with Philippine labour laws presents a classic dilernmafor policy-makers - whether to sacrifice labour standards in periods of weak economic growth.In real life, however, this dileinma is not easily resolved, because the policy choices are notsimple. The dilemma of labour standards law in a slack economy is best-illustrated in thePhilippine experience with the most controversial labour standard law in the country, the minimumwagelaw.

3.4.6 Salientindustrial relations issues

Union avoidance

The case studies in this report, along with accumulated evidence from various otherpapers, show a pattern of pervasive union avoidance in the most globalized sector of thePhilippines - the electronics industry. This is true in both rt3gular industrial zones as well as

' N. Conferor: The Administr@lion of Minimum \@ge Laws andPo!totes in the Philippines. ' A C@se SI"dy (1989).

\

35


export processing zones. The anti-union strategies include firing union activists, refusing tobargain, tireatening employees with dire consequences iftheyjoin aunton, forcing decertitication,but also including positive methods such as better human resource practices. For instance, westudied the electronics industry and found that two multinational companies did not have unions,and actively discouraged unionization. Further, allhuman resources directors of large. electronicscompanies met regularly to benchmark on union-avoidance techniques.

in the export processing zones, there is a de facto informal "no-runon policy" enforcedby regional governors and zone aimiinistrators, since having a union-free workforce is seen as amajor draw in attracting foreign investment. There are about 35 export processing zones in thePhilippines. Some are administered by the state-owned Philippine economic zone authority,while others are special zones managed privately. The contribution of these zones to exports islarge, and growing - from 4.6 per cent in 1984 to 25 per cent in 1996. A case study of theLaguna Technopark special zone found that the prevalent method of avoiding unionization wasthrough selective hiring. All workers were recruited througli the good offices of the mayor ofSanta Rosa, or through local churches. In the event of a union orgartizing drive, the companyrelied on the mayor or the church to intervene with the workers not to vote for unionization - anonnally successful tactic, since the workers usually had some sort of obligation to the mayoror the church. In the Baguio city zone, various studies indicate blatant anti-union policies. inCavite, an infonnal but comprehensive anti-union policy was introduced by the governor in1988 where every official in the provincial Governnient, municipal Government, and baronages(local Goveriunent) implemented a no-runon policy. The Govemnient would refuse to listen tocomplaints about anti-union activities in these areas, and nurtured a cooperative system throughGovennnent agencies and nuns. They tightened secutity, created a private army to intimidateunions, and adopted a screening system for employment in the export processing zone: thewhole network functioned to restrict unionization. in Mactan, similarly, the anti-union policy ofthe aiministration included security measures to enter the zone (union leaders were kept out),prohibiting group gatherings at the village level, and monitoring union activity by variousdepartments. Clearly, whatmotivates thesepoliciesis thejustification of econonitc development.ind most often, zone administrators view unions as significant deterrents to attracting foreigninvestors. interviews with investors support this conclusion, as they noted that with unionizationthere was an incremental increase in labour costs.

Increases in casualization, subcontracting, and labour-only contracting

It is clear that the imperatives of the global marketplace have forced Philippine finns torestnictore extensively during the 1990s. It is his restructuring that explains the overall GDPgrowni - particularly in manufacturing - despite decreasing employment in manufacturing. Thisphenomena clearly suggests that Philippine employers have become obsessed with increasingflexibility. Casualization, increased subcontracting, and labour-only contracting have becomethe nonn. These movements suggest that numerical flexibility is of utmost concern for mostPhilippine companies. Although flexibility strategies include dynamic flexibility (functional)with its emphasis on training, it is cost flexibility (and cost-cutting measures) that predominatesin the Philippines. The labour code recognizes three ways companies can gain flexibility:subcontracting; probationary employment (including employment Of casual workers andtemporary workers); and labour contracting.

36

Labour-only contracting is defined in the law as follows: when a subcontractor does nothave substantial capital or investment in the fonn of machinery or equipment, but recruits workersand places them in another business to do work that is directly related to the pmcipal businessor operations of the employer in which workers are habitually employed. The law states thatthese workers are in off;act the employer's workers and must be treated as such. However, inpractice, they are treated as being the contractor's employees' 1/1 the simplest example of such aservice, consider a company that needs an accounting clerk. instead of directly recruiting anaccounting clerk, the company uses a manpower agency to supply one' The company engagesthe services of the clerk but througli the manpower agency which remains the clerk's employer.The manpower agency may or may not pay the clerk well. More significantly, this clerk (andother clerks like him) will not be able to fonn a union on the employer's premises since"toolmically" they are not employed by the employer, but by the contractor. The increase inlabour-only contracting is problematic for several reasons. The employer is able to violate severallabour laws and reduce costs significantly. The dramatic increase in labour-only contractingdaring the 1990s has made this a pressing subject o13d a key source of tension between labourand management throughout the economy.

The Govennnent is silent on these issues as the problem is quite complex, and there aremany different institutions (including service agencies and manpower agencies) that are in thisgame. Drawing a line between labour-only contracting and the legitimate facilitation role theseagencies play (such as providing skills to finns) in a free labour market is difficult. It is criticalthat there be legislation to guarantee that workers who work for such contractors have sufficientprotection, unionization rights, and decent wages. These latter areas is where the focus of reforrnand legislation ought to be.

The overall atmosphere of a lack of trust between labour and management

Although we have discussed this before, a recent analysis by the undersecretary for labourhas suggested some central causes of the lack of trust and collaboration in industrial relations.From the employer's side, it is the basic belief that unions should be controlled, that militantunions must be decertified, and that strikes should be stopped using labourinjunctions and courtorders. There is a basic unwillingness to confront and deal with gi'ievances and managementactions that cause labour problems. Further, given the potential for multiple union membership,managementsppearstopitoneuriionagainstanother, particularly mullionrepresentationelections.Family-owned companies in particular refuse to recognize that workers and unions have basicrights, preferring to pursue apatemalistic fbrrn of management. Undersecretary Ofteneo notes inparticular that althoughit is top management who is most capable of changing the system, on aday-to-day basis it is the labour relations manager (invariably an attorney) who is responding tolabour's concerns. Oftenseniormanagementbecomes awareoftheproblemonlywhenitbecomescritical , and then they are fitced with trying to reaffinn middle-management decision-making.Thus, the biggest failure of Filipino management is their unwillingness (in general) to make aneffort to create long-terni collaborative industrial relations. That said, the Asian financial crisishas changed several managers' views, as we shall discuss later.

From labour's perspective too, there are several issues to consider. First, labour unionsbecome too dependent on their federations and outside labour lawyers, who may have their own


\

37


agendas. Second, some labour groups refuse to understand the economics of business and thatcompany survival requires some difficult adjustrnentmeasures. Third, thereis competition amonglabour groups. Kuruvilla (1996b) reports that in one company aimost ten unions compete in therepresentation election, resulting in no union winners' The absence of collaboration within thelabour movement is a major factor in labour's inability to have its voice heard.

3.5 Industrial relations: A need for reform?

There is clearly a need for industrial relations TOEDnn in the Philippines. However, severalefforts at refbnn have proved unsuccessful. The key task ought to be industrial relations refonnso that it facilitates employment flexibility, which should take into account employers' costconcerns and be founded on improved conditions for workers (e. g. access to training). This hasnot yet happened. Several steps can be taken (Kuruvilla, 1997) regarding legislative andinstitutional refonn to promote collaborative labour-management relations provided there is apolitical will to enact the necessary legislation. (Some basic recoinniendations can be found in alater paper as part of the overall project. )

38

4. Globalization and employment relations at theindustry and firm level

Unlike the other countries in which his ILO-Japan projectis investigating the relationshipbetween globalization and employment relations, there is no dearth of research on this subjectin the Philippines. The research findings summarized below are criticalIy important inunderstanding globalization's impact onindustrial relations because they have been done before1997 (andbefore this research) andhence are likely to give amore realistic picture. Ally researchon globalization's impact on industrial relations done after 1997 rims the risk being influencedtoo heavily by the financial crisis.

Our choice of industries and funs was dictated largely by ease of entry as well as focusingon comparisons with the other countries in this project. In particular, we focused heavily on theelectronics sector as it was central to Philippine exports, We also included the oil industry andthe agro-industry (sugar) because the fomier was a good example of a state-owned industry thatwas privatized, while the latter was deemed necessary given that it was the only agro (sugar)industry we could access, as well as being one of the country's major industries. It was notalways possible to find local lead finns, as several industries (other than banking) were dominatedby foreign finns. We sununadze below prior research into the impact of globalization tocontextualize our own research.

4.1 Impact of globalization on employment relations: Prior research

Aganon (1995) found five major employment relations changes consequent toglobalization:

Globalization and industrial relations at the industry and firm level

. Adoption of non-traditional work organizations as part of a movement to leanproduction systems that integrate the supply chain with the production system(JIT), and the introduction of Japanese concepts such as focize, ,. The basic itmustis towards increased flexibility of all kinds - numerical, external, and fluictional;

. Organizational re-engineering and job redesign. This includes the horizontalintegr. ation of various processes and reduced control span, with more autonomousworker decision-making in teams;

. Conscious efforts to get workers to identify with corporate goals;

. Changes in reward systems that promote competition between workers;

. Changes in labour relations strategy from adversadal labour relations to morecollaboration.

111 a sinitlar study by the Personnel Management Association of the Philippines (P'MAP1995), these changes in human resource practices were noted in a survey of the top companiesin the Philippines:

. A renewed focus on productivity and quality through changes in productionsystems, work organization, benchmarking, rightsizing, gain-sharing, andlabour-management collaboration;

\

39


. Connnunications programnes to make employees aware of global competition;

. Changes in human resource practices to focus on work-family and welfare issues,particularly helping workers who are registered;

. increased focus on training and development, particularly both technical andbehavioural training.

Both these studies are based on the best companies in the Philippines. Thus, taken together,they present a positive picture of organizations who are moving to higher-quality, biglier value-added production to compete in the global marketplace. However, other research (Bananco-Feinand0 1996) focuses on the total pictore and finds that the most coriumon reaction toglobalization has been the drive for employment flexibility, and that this flexibility is mostlycharacterized by ""inertc@I flexibility. The primary methods by which flexibility is attained arethrough layoffs, subcontracting, and labour-only contracting.

Table 4.1 provides a picture of layoffs for 1989 and 1990. This picture of job losses wasonly the tip of the iceberg. Closures and retrenchments since the financial crisis hit the Philippineshave increased considerably, as table 4.2 suggests.

Table 4. ,. Terminations by reason and major industry group (000)

Year/

Reason

1989

Employee-initiatedEmployer-initiated

1990

Employee-initiated

Total

Table 4.2. Establishments resorting to closurelretrenchmentfor economic reasons and workersaffected, 1996-, 998 (I Jan. -31 May 1998)

Manufactures

127.0

113.7

Year

70.0

53.2

61.6

1996

First quarter

Second quarter

Third quarter

Fourth quarter

Wholesaler

Retail

Total

31.4

Establishments reportingClosures Retrenchment Rotation, Total

etc.

SOCiaM

Personal

I8.6

15.6

I, 077'336

276

347

252

1997

First quarter

TransportlCommunication

35. '

75

72

120

94

10.2

40

23.8

8.5

1.1 03'

309

736'

279

223

234

173

8.7

320'

106

18.6

4.1

39'

12

19

19

5

Workers affected

Permanent Temporary

layofflayoff

790'

235

80,701

20,708

I9.615

23,904

16,474

2.9

47,008

14,020

8,611

15,629

8,748

46'

14

59,861

, 5,848

29,847

5,248

I0,667

6,661

6,911

Rotation,

etc.

37,914

I2,201

4,206

1,440

337

1,614

815

18,501

2,596

3,446

1,051

Second quarter

Third quarter

Fourth quarter

1998

First Quarter 1,055

I Jan. -31 May 1,324

I Data from establishments employing ten or more workers,

Source: Department of Labor and Employment.

271

289

337


78

63

84

Table 4.3. Establishments resorting to closurelretrenchmentfor economic reasons and workersaffected by industry, , Jan. -30 Apr. ,998 (Actual closure/retrenchment) (preliminary)

201

255

268

200

Industry

12

9

14

784

I7,265

I I, 740

15,008

All industries

71

Agriculture, fisheries, & forestry

Industry

Mining and quarrying

Manufacturing

Electricity, gas, and waterConstruction

9,260

7,168

9,285

43.7,2

62,302

7,177

3,802

4,926

Establishments

Number %

18,566

29,838

Services

Wholesale and retail trade

Transportation, storage, andcommunication

Finance, insurance, real estate.and business services

828

770

797

1,126

20,824

22,462

100.0

31

Number

4,322

10,002

513

22

423

5

63

2.8

Workers affected

% Permanent Temporary Rotation,etc.

54,514

1,234

42,051

1,042

35,400

44

5,565

I 1,229

4,247

Community, social, and personalservices

45.6

2.0

37.6

0.4

5.6


100.0

582

221

24,321

1,022

45,919

992

12,913

42

1,972

2.3

51.7

19.6

85

77.1

1.9

64.9

0.1

10.2

170

21,345

7.5

15.1

212

\

106

8,848

I8,668

43

I6,163

2

2,460

2,465

955

2,056

20.6

7.8

94

2,804

7,380

2,607

1,765

7,4647

6,324

1.33

1,384685

3.8

2,122

5.1 1,573

3.9

217

1,435

778

74

515

453

172

41


Table 4.4. Establishments resorting to closure/retrenchment, , Jan. -31 May 1998

Region

Total country

National Capital Region

Establishments

Cordillera Autonomous RegionRegion I - 110cosRegion 11 - Cagayan ValleyRegion 111 - Central LuzonRegion IV - Southern TagalogRegion V - BicolRegion Vl - Western VisayasRegion Vll - Central VisayasRegion Vlll - Eastern VisayasRegion IX - Western MindanaoRegion X - Northern MindanaoRegion XI - Southern MindanaoRegion XII - Central MindanaoCarega

1,324

Permanent

815

Actual workers

29,838

Temporary Rotation, etc.

14

12

2

62

119

8

97

64

19

18

33

38

6

17

15,11747.9%

22,462

348

55

3

3,195

5,455650

1,427821

110

277

753

603

125

899


I0,44836.1%

I0,002

Total

workers

While these tables show clearly that the rate of retrenchment has been increasing, table4.5 details the methods used by business to deal with the effects of the financial crisis.

7,74816.1%

29

2,118

2,9023

24

3.1919

1,684985

661

Table 4.5. Business survey on the economic crisis (results as of 4 February I 998)

%

62,302

Measures

118

13

33,313

100.0

363

1,135

Hiring freeze for all positionsHiring freeze for some positionsHiring freeze for most positionsSmaller salary increasesSuspension of some benefits

(with employees' consent)Reduced work daysReduced work hours

Budget cuts on training activities

466

68

32

5,676

9,492653

1,941

4,104119

1,961

1,760

1.28125

1,307

53.5

490

92

0.7

0.1

0.1

9.1

I5.2

1.0

3.1

6.6

0.2

3.1

2.8

2.1

0.2

2.1408

22

21

42

Implemented%n

9

25

7

8

14

38

11

14

Planning to implement%n

5

5

17

3

8

6

14

8

8

2

26

5

12

9

21

6

5

3

6

9

8

5

9

Contracting out some servicesRetrenchment/Downsizing

Source: Personnel Management of the Philippines.


Total number of respondents adversely affected by the economic crisis: 66

As Bananco-Feinand0 (1996) have noted, two of the most pervasive fbnns offIexibilityare subcontracting (also known as job subcontracting) and labour-only contracting (servicecontracting). For one thing, it is difficult to detennine the magnitude of subcontracting work inthe Philippines. One me!jor constraint is the invisibility of these arrangements since these arecarried outside the establishments and involve multiple layers of contractor-subcontractorrelationships. The only available data are those of major subcontractors listed with theSUBCONEX of the Department of Trade and Industry, but this applies only to the garmentindustry.

43

17

Trade unions have been particularly concerned over the increasing trend towardssubcontracting. in the garment industry, for instance, workers noted that while finns have beenlaying off workers, some of the job orders or production processes - including high-speedmachines - are being taken to the provinces and subcontracted to families and coriumuntties.Often, skills training is provided at the barong@y (coriumunity) level. On the other hand, workers'resistance in the factory is effectiveIy stymied since they serve as subcontracting agents of thefinn. ' Other subcontracting arrangements include spinntng off non-direct production activitieslikepackaging, labelling, marketing; components manufacture; and contract-growing, livestock-raising, and cash crops (in agi'iculture), to name a few.

Some of the factors behind subcontracting are industry'specific. Also, large enterprisesare likely to engage in flexibility by decentralizing or diffusing production to many mitts toprotect themselves from the adverse impact of rapid changes in the new global environment.However, there are also cases where subcontracting was resorted to to evade the law.

However, a recent study on subcontracting appears to indicate that the trend insubcontracting is more complex than it seems. in this study, it was revealed that some of thoselabour-intensive industries (e. g. the garment industry) have reduced their subcontractingarrangements as part of theirresponseto globalization. ' SincePhilippirie garments Garniot competewith low-priced products from China, Indonesia, and Viet Nam, some finns focus instead onimproving quality and consistency. Experience had shown that, while subcontracting allows thefirms to cut overhead and other labour costs, some of the products suffer in quality and delays indelivery owing mainly to 'the lack of supervision among homeworkers. Hence, some garmentfinns brought jobs back to the factory to ensure consistency in quality and delivery of their

20

26

7

7

11

11

V. Aguilar: Subcontracting, Employment@"dJ"dustrt@JRe!@tto"sin Selected PhilippineExportM@",!f@ct"ringBSt@bitshme"ts (1990)

R. Ofteneo and N. Fernand0: 7%grind"strial@"dL@607 Ch@!!coge 91st, beontreating (1994),2

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43


products. However, this has not necessarily been translated into more employment opportunitiessince, given access to new technology, employers have acquired bigli-technology and labour-saving devices. For instance, embroidery jobs need not always be subcontracted since manyfinns are now using computer-aided design (CAD). Although it is difficult to get any estimatefor subcontracting, it is pervasive in the economy, as table 4.6 suggests.

Table 4.6. ' The extent of subcontracting

I Establishments with subcontractors

1994:

1995:

2 Distribution of subcontractors

Companies:Individuals:

3 Jobs contracted

Security services:Maintenance/Janitorial

Production process:

4 Subcontracting by industryManufacturing:Trade:

Services:

5 Average number of subcontractors/establishmentManufacturing:

6 Subcontracting by type of firmExport-oriented firms:Nori-export-oriented firms:

21.0%

24.1%

7 Subcontracting by ownershipForeign:Domestic:

82.0%

15.0%

Apart from subcontracting, another increasingly popular fbnn of flexibility adopted bymany industries is the use of casual, temporary, emergency, and contract labour (also called"service subcontracting"). Under this arrangement, workers are hired on fixed-tenn contracts,often for less than six months (presumably to evade the statutory conversion to regularemployment, which under the Labour Code, entitles the employee to secutity of tenure after sixmonth's probation).' It is not unicornmon that, after termination of the contract, these workerswill be relxired by the same employer under the same ternis and conditions.

34.4%

22.6%

32.2%

35.3%

13.3%

13.0%

44

3 per firm

40.7%

21.0%

43.0%

21.0%

As with subcontracting, it is difficult to capture a realistic picture of the magnitude ofcasual employment in the Philippines. Nthougli there are available statistics from the Departmentof Labor and Employment, these are understandably underestimated. Another survey conductedby the Bureau of Labour and Employment Statistics in 1992' estimated the number of casualand contractual workers in establishments often workers or more at roughly 10 per cent of theworkforce (or 250,000). The National Capital Region accounts for 176,000 contractual workers'The only data that was available was for 1990 and appears in table 4.7.


Table 4.7. Percentage of establishments hiring temporary/casual labour for specific purposes(by employment size, 1990)

Employmentsize

1-20

21-50

51-100

101-250

251-500

501 -, 000

1001 and above

TOTAL

Limited-Duration

projects

67.7%

70.3%

76.9%

80.9%

84.9%

78.6%

90.3%

77.6%

All extensive study was done on the flexibilization of the Philippine workforce by Windelland Standing (1991) of the ILO which provides much greater detail on subcontracting, the useof casual labour, and other means of attaining greater labour flexibility. This table provides isestimate, with the figures in the third colornn indicating that temporary labour is used as analternative to regular labour to a considerable extent, Numerous other sindies (Am ante, 1995for instance) also point to the extensive use of casual and temporary labour.

The most recent study was done by Ofteneo and Ortiz (1998). Andin many ways, tins isthe most extensive study on the Philippines. They examined these industries:

. Export industries (garments, wood furniture, agribusiness)

. Domestic manufacturing (car assembly, cosmetics, electrical appliances, drugs,battery manufacturers)

' Supportive industries (telecommunications, sales, retailing).

The cases suggest a close correlation between globalization and milll^ adjustments.Globalization, facilitated by trade liberalization measures, creates a more competitive market

Stopgap labour

63.1%

52.5%

69.2%

63.8%

71.2%

57.1%

80.6%

63.8%

Alternative to

regular workers

24.6%

34.7%

35.9%

38.3%

39.7%

42.9%

35.5%

36.0%

3 Labor Code, Article 281

R. Ofteneo and N. Fernando: Job Search andEmployment/Unemployment Flows among young Workers (1993)4

45


and forces industry to reduce costs and increase efficiency and productivity to meet competition.Such cost reductions and efficiency-productivity enhancements are translated into IR/HRadjustrnents. However, ERi'^< adjustments vary from firm to finn and from industry to industry.Finns do not necessarily adopt a unitonn set of adjustment measures, although certain practicestend to be emulated depending on the specific requirements of finns as perceived by topmanagement. Some IR/HR adjustment trends are discussed below.

4.1. , Rightsizing the organization and the workforce and maintaining a core-periphery labour market

With increased cost consciousness, many frills are into rightsizing, which broadly meansreorganizing the company into a lean, mean machine and having the right number of workersfor the job. Not surprisingIy, many rightsizing exercises lead to a reduction in employees anddelayering of the organization. This is why many labour groups complain that "tightsizingreally means "downsizing" and casualization of the workforce.

As for casualization, a growing number of nullR managers are now aware that they caneasily divide the workforce into two - the skilled, technical, managerial and professional staffwhose loyalty the company wants to develop and who are the object of various training andother Han company investments; and the semi-skilled and unskilled workforce whose tenurecan be kept casual and whose perfonnance can be controlled by further segment ating the workprocess. In short, some kind of a core-periphery arrangement in the workforce is beinginstitutionalized. 'Casualization, however, takes several fbnns: hiring workers througliagencies,direct hiring of casuals, and maintaining the workforce as probationaries or temporades for aslong as possible. Some companies also subcontract work that is traditionally done inside thecompany.

However, some companies are also careful not to unduly subvert the base of the unionsby maintaining the non-regular temporary workers as a small percentage of the workforce andas reinforcements for seasonal or urgent requirements. But there are also finns that do re-engineering and rightsizing programmes without anyjob displacements.

4.1.2 Investing in IR/HR innovations

Management has become increasingly aware of the need to invest time and resources onreducing ER tension, promoting better labour-management cooperation, and developing theworkforce. Moreover, there is increasing participation by the top management people or theowners of capital themselves in these ERIHRinitiatives, whichindicates that innlR. managementis now considered part of the corporate strategy for competitiveness. In contrast, many bigcorporations tend to delegate all labour problems and issues to their HR/ER personnel managersand to labour lawyers. This increased awareness and importance of 11^/ER management takesfive fomis.

Upgrading IruHR departments and managers

Companies are now upgrading and beefing up theirlR/ER departments. One 11< managerwas chosen by a big car assembler because of his kilowledge of trade unionism and his experiencein managing conflicts in a large corporation. another Lt^1'ER manager, Who started as a consultant,

46

was chosen by a drug company because of her discipline in psychology and extensive experiencein job evaluation, which are critical in creating a new environment different from the reviousculture of paternalism, mequity, envy, and low morale.

Getting labour cooperation

Some companies have not been content with the mere stability of labour-managementrelations in their respective finns; they are actively seeking the full cooperation of the unionsand the workers' One major reason for this is that in a competitive market, it is difficult tointroduce innovative market responses without the support and cooperation of the workers' Thus,in one company, the labour-management council was even used to involve labour in corporateplainting and corporate strategizing.

Reducing tension in bargaining

One trend in collective bargaining in companies with working labour-managementcouncils and proactive management is the speed with which agreements are concluded. Thisreflects not only the growing maturity of the parties but also management's ability to shareactual and oredible infonnation on the company's financial status, whichis crucial in developingtrust and confidence between the parties.

Putting a premium on daily, informal, immediate, continuous multilevel, multilinear,multimedia communication


Many companies have allotted a substantial budget and company time to encourage andenable management and non-management employees to communicate ideas, sentiments,preferences, and perceptions to try to promote intra-team and intra-finn cooperation andunderstanding. In this way, small conflicts are never given the opportunity to multiply and erodethe organizational fobric. Thus, unnecessary, lengthy, costly, and divisive disputes and grievancesare avoided. 111 some companies, the absence of unionism is not the result of management union-avoidance strategies; it is instead the result of smooth cornrriunication between and among groupsof employees and the use of such conrrnunication in solving coriumon problems, thus deprivingunion organizers of any cause c61^bre formass organizing. Of course, coriumuriicationis effectiveonly if management is ready to listen to issues raised on the shop floor and show readiness to acton any problems in ajust and transparent mariner.

Launching and maintaining "soft" and "hard" skill development programmes

AimoSt all big finns are into 11/1<D prograrnme development for their workers' Asidefrom traditional "hard" training programmes focused on specific skill requirements for specificjobs, there are also "soft" skill training programmes (human relations, value forrnation, etc. ).

4.1.3 Strengthening control over the labour process

Control over the labour process ref;ars to how work is divided and managed and is relatedto rightsizing and the core-periphery labour market. 111 some companies, this is done by further

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47


simplifying and fragmenting the job. This means that it is easier to measure the productivity ofthe individual worker and it is easier to develop skills. in other companies, labour control isexercised through greater management attention to hours of work, employee discipline, etc.

Thus, the effects of globalization on employment relations in the Philippines can beseen in two distinct trends. In a few cases (the best employers) there is a clear movement towards1:4"ctio"@! flexibility (which includes one of many "higli-cornmitrnent" 111^ practices) whilemost Philippine employers are still focused on re"inertc@I and external flexibility (reducingheadcount through layoffs, retrenchments, subcontracting, labour-only contracting, andcasualization).

4.2 Impact of globalization on Philippine unions

With fewer workers in the organized sector because of layoffs, subcontracting, andcasualization, union membership is shrinking. This makes organization even more difficult, andconsiderably reduces the bargaining power of trade unions. The only silver lining for tradeunions in tins cloud of gloom is that that competitiveness does not depend solely on the abilityof the corporation to have a flexible workforce or the ability of the organization to rightsize; italso depends on the degree of cooperation and support given by a motivated workforce tocompetitive and productivity progr^nes being initiated by the corporations. This also providesthe unions with a major bargaining chip, specifically in having a say in rightsizing progr. animes,modernization prograinmes, benefit-sharing, etc. But to exploit such an opportunity, the unionsmust by necessity also upgrade themselves.

Second, with the decline in union membership, collective bargaining coverage hasdecreased over time. For example, collective bargaining coverage (which has never been highin the Philippines) dropped from 621,000 to 583,000 from 1993 to 1994.

Third, unions have increasingly taken the more pragmatic position that subcontractingand rightsizing is a necessity, and have altered bargaining strategy to push for increased training,better separation benefits, andincreased cooperation with management. filthe better companies,labour unions have shown some gains, having a say in decision-making. 1/1 the wake of thefinancial crisis, they have increased their participation at the national level as well, with theintroduction of a tripartite social pact. What is absent is a grand strategy on the part of tradeunions, and this is absent largely because the labour movement continues to be divided. A1ftiouglithere is little talk of union mergers, there is some talk about coordination between differentlabour groups, but often on one issue at a time.

Fourth, union fragmentation criticalIy affects their political power. The rot!jot labourcentres do not see eye to eye on most issues, but most criticalIy, unions were unable to cometogether during the last election to sponsor candidates friendly to their movement. Thus, labourlost aimost every labour-friendly congi'essman and senator. Globalization, coupled withintemalunion fissures, have significantly eroded union influence at both the national and Wornplacelevels.

48

A new effort at collaboration across unions has recently been underway. Called SULOG,it is a loose coalition of several non-KMU unions (althouglinot the TITCP or FFW) and representsworkers in several different industries. This gi'oup has developed a colornon bargairxing procedureto be used in the face of retrenchment and closure of industries in the fi>mm of a checklist forlocal unions. At the national level, it is attempting to lobby for the protection of local industriestlirougli loweting of interest rates. It is not at all clear that these activities are having any significantimpact, but the trend it is worth noting.

4.3 The consumer durables industry

This industry was chosen because: a) similar studies have been done in the other countries;and b) in countries with relatively large internal markets, multinationals enter the consumerdurables sector and generally do extremely well, either by taking over local producers or bymerging with local producers. Thus, consumer durables accurately reflects globalization'simpacton employment relations.

4.3. I Philacor: the Philippine Appliance Corporation

This is the prenxier refrigerator and freezer manufacturer in the Philippines. The companystarted in 1963, marketing General Electric and Westinghouse refrigerators and freezers. GE isa partner and owns 38 per cent of the stock, while the Santos family is the single largestPhilippines-based stocldiolder and is in control.

During the 1996-1997 fiscal year, Philacor sold 356,265 refrigerators and freezers thatit had produced, as well as 6,801 refrigerators that it had outsourced. The company accounts for56 per cent of the total market for refrigerators in the Philippines. Its primiary manufacturingunit is located at SUGat in Paranaque, Metro Manila, but the installed capacity of that plant wasonly 18,000 units amonth. By 1997 there was an66d to expand manufacturing, and they recentlyopened a new plant in Calamba.

The market for refrigerators in the Philippines, while growing steadily, is concentratedin mass-market refrigerators (low end). The other best-selling brand names include National,Sanyo, and Conception, which sells Kelvinator refrigerators. in the last few years, there hasbeen increased competition in the upper Grid of the refrigerator market, and that end has seennew entrants such as Sannsung and Electrolux. Philacor only has a small20 per cent of thatmarket. The company is also making a start in selling washing machines, but is hampered by itsagi'Gement with GE, since GE supplies all the technology that Philacor needs. But GE technologyin washing machines is geared to larger machines that do not sell in the Philippines. So, thecompany is still pursuing technology to suit the Philippine market.

The financial crisis hit Philacor hard and came at an inopportune time, given that thenew manufacturing plant had just gone on line; the decreased demand has meant high idle timefor the machinery. For example, the 1996--1997 fiscal year saw steady growth. However, theperiod July 1997-December 1997 saw a 30 per cent reduction in demand, and the forecasts for


\

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49


the period 1997-1998 shows demand having been recouped but not expanded. As a result, nomarket growth was foreseen in 1998 or 1999. Thus, the new plant, with its increasedmanufactiiring capacity, will rim only one shift for at least two years! The plant is capable ofproducing 5,000 refrigerators per shift, but to meet current demand the factory need operateonly one shift with 200 workers'

Pressures to build newer and more efficient plants have been operating since the early1990s. These pressures have come from three different sources. First, product pricing andcompetition. For instance, Thai labour costs are 30 per cent higher than those of the Philippines,yet their refrigerators are 30 per cent cheaper. This gap is explained by several factors. Thaifactories are better integrated, using better technology and automation, with more worksubcontracted, whereas in the Philippines downstream costs are very high and cost of imports ismuch higher given the declining value of the peso. had, given the relations between labour andmanagement, downsizing and creating more flexible manufacturing strategies to reduce labourcosts isn't possible. Thus, from this perspective, the need to modernize plants and equipment aswell as to obtain increased flexibility has been paramount since the early 1990s.

Second, technological changes in the industry were also a driving factor in the quest fornewer plant and equipment. The Montreal Protocol Agreement in the early 1990s bamied theuse of CFCsirithe manufacture of refrigerators and freezers, and thus required changes in plantand machinery. Under the Philippines' implementation of the Montreal Protocol, production ofCFC-based refrigerators had to end by December 1998 (althoug}I sales of existing stocks couldcontiriiie tlirough June 1999). Finally, the push for ISO certification and the Bps (Bureau ofProduct Standards) are additional catalysts forthe required modernization of plant and equipment.Thus, the need to build newer and more efficient factories was clear as early as 1992, and decisionshad to be taken by 1994.

The strategic response to these globalization pressures has not only been modernizationof plant and equipment, but also active policies to seek new markets along with vendordevelopment so that more production can be subcontracted. Most of the refrigerator parts arebeing manufactured locally except the compressors, which are imported from Malaysia. Thesecond strategic direction is workforce reduction and increased flexibility in operations. Bothof these presented challenges given the unionized labour force and the poor labour-managementclimate. fold note that the collective bargaining agr'eements on work rules were created in thecontext of the existing manufacturing facilities (which are rather Tayloristicin orientation) withall the problems that such organization brings (narrow job classifications, etc. ). And tinther,increased flexibility demanded the contracting out of various operations, which the union hadbeen objecting to.

To appreciate these problems, a short history of Philacor'slabour-management relationsis necessary. The constantly expanding market since the 1960s (which has been growing at therate of 209.6--30% a year) has also meant the expansion of existing manufactoring facilities, andof course, employment. At its height in the middle of the 1980s the company employed 2,000workers' They have had a generally turbulent labour-relations history since a union was Ibnnedin the 1970s. had the union has been militant. In the Sucat area, the Philacor unionis the flagship

50

,

industrial union and the Philacor union president is also the regional union president for theSUGat area. Although the union was militant, the company and union developed a collectivebargaining relationship characterized by extensive work rules. The 1985-1987 worldwiderecession resulted in a small drop in demand, and the management attempted to lay off 500workers, which resulted in a long strike. This dispute was ultimately resolved after the companyagreed to rehire all except 25 employees' However, by 1992, it became clear that the companywas carrying untiecessary labour and they Tetrenched 500 workers again, which was successful,but again with a long strike. Since then the union has been fighting any effort by the company torestructure and reduce employment.

The second major conflict was in 1994, when the company began subcontracting itstrucking and delivery services. After a 32-day strike, and mass protests, they were successful insubcontracting, but they retained all the workers, Although a labour-management consultationcouncil was in existence, the council never met since the union refused to participate given itsperception that the council was a management device to fight unions.

The subcontracting effort was part of the company's plan to reduce its workforce inresponse to the pressures of globalization. The task was to reduce the workforce from 1,500 to400 employees' However, through the period 1994-1996 this plan couldn't be implementedgiven labour's views about further retrenchment. It was also made clear to management thatany effort to reduce the workforce would be met with both strikes and violence.


However, the union position changed after inid-1997 as the pressures of the financialcrisis began to be felt throughout the Philippines. The extent of the crisis and its impact ondemand for allkinds of products helped to change the unton's position on workforce reductionsand on work rule changes that the company sought. in 1997, the company and union enteredinto an agreement that created severance pay for 378 workers to be laid off, and by early 1998had also reached a second agreement laying off 325 more workers. in addition, an agreementwas reached that 200 of the most senior workers from the SUGat plant would be immediatelytransferred to the new Calamba plant, where they would be trained in the new operations, andwithout the old work rules. All additional 200 workers would go on temporary unpaid vacationfor four to six months until demand picked up in 1999.

interviews with union leaders indicated that the reality of the financial crisis not onlyinfluenced their views about the company's position and need to reduce workers, but also gavethem an increased opportunity to participate in negotiating severance pay. Their view was thatsince this was happening throughout the economy, there was no further justification for them totake a hard line on workforce reductions.

This collaborative phase in the wake of the crisis has also set the stage for further union-management collaboration through active participation in the labour-management council.Management decided to be far more transparent in sharing financial infonnation with the unions,and the council has become a forum in which anything can be discussed. However, until today,most of the issues raised at the council are the noncontroversial ones, such as worker and familywelfare, and some issues connected with working conditions.

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51


Thus, in net tenns, the company has obtained workforce reduction, but has also beenable to introduce new work systems at its Greenfield site. There are vast differences in worl:placesystems between the Sucat and Calamba plants:

. In the Sricat plant, much of the training was on the job. in the Calamba plant,apart from on-the, ob training, workers are sent outside for training in technicalskills, and the company has started several training progrannnes in valuefomiation, teamwork culture, and business thinking.

. With compensation, the finn's strategy has been to be competitive within themanufacturing industry in Metro Manila: their collective bargaining agreementsare based on the average for the Metro Manila region. The current average pay is543 pesos a day (14,000 pesos a month) which is the Metro Manila average.

. The greatest difference between the two plants concerns flexibility. The Sucatplant has narrow job classifications, no job rotation or multi-skilling, and noovertime. The Calambaplanthas frequentjob rotations, with every worker needingto be multi-skilled, and overtime is coniriion. in addition, while the Sucat planthad almost no subcontractors, the Calamba plant's design itself has been heavilyinfluenced by extensive use of subcontractors.

The Calamba plant is state of the art. It compares well with the world's best plants anduses the Montreal Protocol-mandated process in manufacturing refrigerators. They use 134-Afor their insulation and refrigeration systems which are 100 per cent CFC- and HCFC-free,unlike the 141-B system (used in the United States) which is not HCFC-free.

4.3.2 Summary

What is clear is that globalization has exerted pressures to cut workers and- introducemore flexible employment practices. While efforts in these directions were resisted heavily byworkers, the financial crisis created the conditions for management to push through workplacerefonns. filthis case, the opening of the new Greenfield plant (staffed by the old workers) addedto management's ability to introduce a more flexible employment system, while also helpingmanagement Tetrench more than 60 per cent of its workforce from the older plants. Thus, alftiougliglobalization pressures required the company to introduce these systems as early as 1995, it wasonly by 1997 that these could be introduced successfully. In this way, the financial crisis servedas a vehicle to accelerate industrial relations restructuring begun earlier.

Philacor's example also supports the finding that there are two dimensions toglobalization's impact. On the one hand is the move towardsjit"ctio"al flexibility through inthis case a Greenfield operation, while the focus on numerical flexibility continues.

4.4 The banking industry

The banking industry is an appropriate industry to study in the context of globalizationandliberalization. The banking sector was deregulatedin 1994, allowing foreign banks to operateand allowing banks to operate as mmbanks, providing all types of banking services. The entry offoreign batiks and deregulation have clearly increased the competitive pressures in an otherwise

52

I

stable industry. Banks are only beginning to articulate a response to this change in theenvironment. The two banks we examine here are vastly different. The Far East Bank is a preniterbank, privately owned, with an outstanding reputation. In contrast, the Philippines NationalBank, a giant among batiks, was only recently privatized. As the vigilettes suggest, the bankingsector in general does not show the dramatic movements towards flexibilization evidenced bythe manufacturing sector, but even here, the need for more flexible practices has become critical,particularly in the wake of the financial crisis.

4.4. , Far East Bank (FEB)

Established in 1961, FEB considersitselfone of the five premier Universal CoinniercialBanks in the Philippines. Although the Philippine National Bank is by far the largest, it is state-owned. Thus, FEB compares itself with the large privately owned banks such as Metrobank (arelative newcomer, Chinese-ounied), the Philippine CoriumercialandlndustrialBank, the UnitedCoconutPlaritersBank, andtheBarikofttiePhilippiries. FEBisthefburtli-largest bankinresourcesand income, and perhaps the third-largest in employees' The Balk employs 6,500 people, ofwhich 2,000 are in the management ranks, thus making it very top-heavy. It began pmnadly asacorporatebarik, but has diversified into various other banking business, andhasmade abigpushinto the coriumercial sector, where it vies for deposits from individuals with the other banks.

The current financial crisis has brouglit most of the balk's expansionist strategies to astandstill. Whereas expansion into international areas in particular countries where there arelarge numbers of Filipino overseas contract workers was a key strategy for most banks in the1980s and 1990s, the pace of these activities has slowed considerably andunlikeits competitorswho have focused on opening foreign branches, Far East has resincted itself to opening remittancecounters in those countries. The bank remains competitive, in this area by providing fasttransrntttal services. However, there is no significant difference between the banks in the productsthey offer, although not much is kilouni about Metrobank, whose meteoric rise has more to dowith its ability to attract the deposits and banking needs of the Chinese conitnuiiity which doesbusiness in a completely different way. Metrobank has attempted to attract Chinese customers(partly by also employing Chinese tellers and officers) but the need for detailed records onpaper affects its ability to be a full-service bank for the Chinese cornmuntty where businesstransactions are often not based on paper or witten contracts and agreements.

Before the financial crisis hit this region, Far East Bank was expanding at the rate of 30branches a year; its Gunent total is about 265 branches. Compared with its competitors, the bankis characterized by fewer branches, but with a higher volume of business at each branch, whichexplatris why the bank's branches seem relatively overstaffed. It is not clear, at least to thismanager, what the bank's unique selling proposition is with customers or what distinguishes itsservices from the others'

The bank's overallownershipis widely distributed amongpromineiit Filipinoitidustr. ianstsand the Mitsiuo group, which holds 20 per cent of the shares. The wide distribution is attributedto the philosophy of the founder who wanted the bank to appeal to a wide variety of corporatecustomers, rather than be identified as a bank that serves only a few corporate houses.


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53


The bank enjoys a reputation in the industry as one of the best trainers, and consequentlyhas the bigliest bank turnover rate. The armual willover rate was about 12 per cent a year innounal years, but declined to about 8.5 per cent in the recession years, Much of the mmriover isamong the younger recruits, who are drawn largely from middle-income farmlies and are upwardlymobile, and thus somewhat transient by definition.

A unique aspect of this bank is that it is non-union. Efforts to unionize in the 1970s werethwarted rather heavily, but since the inid-1980s the bank has stayed union-free through variousstrategies. One such strategy is agreeing to pay the same wages as the other banks based on themost recent collective bargaining agreement (CBA), and this bank positions itself right in themiddle (50th percentile) of its competitors.

In its orientation progr^ne, new employees are told quite plainly that the companywould prefer that they did not fbnn a union. The balk, however, has to off;ar alternatives tounionism, which it accomplishes through a process of communication that has becomeinstitiitionalized. Once aquarter, 16 representatives of employeeofficer gi. adesinvadous divisionsmeet with the senior management council (the bank president and his five vice-presidents).Similarly, 24 representatives of jusitor salaried employees also meet with the council. Thesemeetings are designed to provide a formn for raising any issue, and although the human resourcesdepartment has tried to screen these issues (to suggest that some can be dealt with itITougliregular established grievance procedures and charmels) this was viewed with some suspicion,so these forums are now not censored or screened. However, these representatives do meet withthe human resources people to tell them what issues will be raised, and the deparinient makes itits biisiriess to get a sense of what is likely to happen ( a sort or pre-emptive strike). The minutesof these meetings are forwarded to the department for action and follow-up.

In addition, each department and branch holds monthly meetings designed for both top-down and bottom-up cornmunication, There is also a corporate newspaper that is part of thecommunication effort.

These efforts are buttressed by two other institutions - a supervisors' audit and a securitycornmittee. The supervisors' audit requires managers to list (using a form designed by ER)their areas of responsibility, actions taken, and their perception of their achievements andeffectiveness. These fomis are given to the human resources manager. Similar fomis go theemployees who work under this manager, for their perceptions on the same subjects. The humanresources department then examines the data and provides feedback to the manager and theemployees (either jointly or separately depending o11 the issue). Often these issues also includeGateer development, work environment, work procedures, and job evaluation. The data iscompiled and used as an instrument for control and monitoring. The process stipulates thatthese audits will cover roughly half of all the employees every year. Note also that this is afbnn of perfonnance appraisal, as the discussions with each individual also identify problemsconnected withindividualissues, notjust those of the superior. However, salary increases aren'tbased on this system.

Thesecuritycoinmitteefocusesonestabhs}lingandprovidirig dueprocessintheenterprise.The aggrieved or accused employee here is allowed to be represented at these conmiittee bearings

54

by anybody (lawyer, friends, or family). However, this is dormnated by the human resourcesdepartment, with the associate vice-president for Operations having the filial say.

How does tins company respond to problems and issues facing it? One concrete problemit does face is the turnover rate. The litgli tornover rate is an issue given its impact on bigliertraining costs, but there doesn't seem to be any ittitiative to address this. Rather, there is a senseof pride that the bank has a good reputation as a tramer,

In the wake of the financial crisis, several actions have been taken. They have attemptedto control overtime, reduce most expenditures on overseas training (although domestic traininghas not been cut), drastically cut all executives perks (like golf and Chistmas parties), eliminateconferences, and cut various allowances. However, there is no attempt to lay off employees'Rather, they have managed to redeploy employees from departments where business has beenslow to other offices and branches within travelling distance. and the bigli toriiover rate hasbeen a blessing in disguise here, in that the redeployments have filled vacancies that had beenunfilled for years'

This redeployment was made possible by the bank's policy on traitxing as well, and wasperhaps also influenced somewhat by the bank's refusal to lay employees off (a violation of animplicit contract that could have resulted in significant costs - such as a drive for unionization).The other unionized banks have resorted to voluntary retirement as the best method for flexibilityin these times, in addition to cost-cutting by reducing benefits (although it is not clear that theycan reduce benefits all that much given the CBA).

The bank's policy on training and work organization are interrelated. in the 1980s thebank overhauled its work organization to enrich and expand the job of the teller. The job of theteller was distinct from those of the bookkeeper and the supervisor; bookkeeping wascomputerized, the supervisory duties were eliminated (given computer data), and the teller isnow responsible for additional tasks. In any typical branch, there are four distinct operations -teller, loan officer, trader, and bookkeeper/accounts clerk, other than supervisor or manager. Allemployees are cross-trained. Thus a teller after working for six months can be trained for theboonlce^perposition (level2) andoveraperiodoffiveyears, can be traded in allbrarichoperations.This provides great flexibility and facilitates movement between branches to fill tompormyopenings and cover for absences. There is substantial borrowing of employees witliin a givencost centre (a regional cluster of branches). in this respect, this bank is arguably different from itscompetitors, who don't appearto have this degree offIexibility. (Tripart also, these systems werecopied from the foreign batiks who introduced such systems on their entry into the Philippines).

This system of cross-training also facilitates the policy of promotion from wit}jin, apolicy that has been in existence since the bank's founding. Four out of five associate vice-presidents have risen from the ranks of teller, and its only in areas where new skills are neededthat they recruit from outside - for example, in infonnation technology or new financial productssuch as derivatives.


The key challenge for tins bank is enhancing service quality - a challenge for all banks.This is done nitougli a quality service programme that includes orientation prograrinnes, mystery

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55


shoppers, and a branch audit, coupled with rewards to employees for good service. in additionto facilitating the development of ethics (the number of small embezzlements and other white-collar crime has been increasing steadily) there is open discussion on ethical issues monthly.This is viewed as very successful, and it is hoped will develop a higher degree of integrity andhonesty - as well as transparency - in each branch.

HUInan Resources is not an independent department, but is under the controller, so it isclosely aligned with the bank's business strategy. However, our discussions with the humanresources manager did not provide any clues as to just what this bank's business strategy reallyis. This manager views the manor challenges as developing leadership skills, creating a vision,and irispiting his people - suggesting that the leadership is solid but not imaginative. The difficultyin extracting infonnation about batik strategy from this manager suggests that this is true.

The bank is clearly not outward-looking nor are there any concrete efforts to constantlyupdate its system of work. 110 peruianent benchmarking arrangements appear to exist. The processof work restructuring and generating new ideas come not throug}I knowledge developed within,nor from benchmarking, but from consultants. The entire system of work organization andmanagement has been based on recoin^endations from Arthur hadersen.

Except for the financial crisis, it doesn't seem that globalization is causing any pressuresfor this bank - or in the banking industry generally. It' s also not clear that employment practicesare changing as a result of globalization - other than in response to the financial crisis. To theextent that cross-training and flexible deployment is possible, this bank has probably madegreater strides than others' It is not clear that the increasing competition in the banking sectorposes any particular problem for this balk, although there is some consensus that there are toomany banks in the country. Similar to findings in other nations, Philippine domestic banks arenot hard pressed by the competitive environment.

4.4.2 The Philippine National Bank (PNB)

In 1996, the Philippine National Bank (PNB) was the country's largest publicly ownedbank, Now 55 per cent of its assets are privately owned. By the year 2000, the bank anticipatesbeing totally in private hands. In addition to competing for deposits and loans, the bank findsitself competing to keep its best employees, Foreign banks have been offering significantlybetter compensation packages to certain PNB employees to entice them to leave. The combinedeffects of these factors have forced the PI, IB to streamline operations and upgrade its systems toachieve greater efficiency. The major challenges of liberalization and privatization include:

. Re-engineering banking transactions to increase efficiency

. Computerizing banking systems

. integrating different financial and infonnation systems

. Reducing employees by 20 per cent overall since human resources is the batik'sbiggest cost component.

All these activities are underway, although none has been completed.

56

The PNB remains the number-one bank in the country based on total deposits, now at170.4 billion pesos. It is, however, behind Metrobank in loans and assets (table 4.8). Certainforeign~owned banks, such as Citibaiik, are rapidly increasing their presence in the country. Forexample, while Citibarik is ranked number nine in deposits, its deposits have more than doubledsince 1997 - from 32,165 to 64,923 billion pesos.

Table 4.8. Top' banks - deposits, loans, and assets (billions of pesos)


I PNB

2 Metrobank

3 BPl

4 Landbank

5 Febtc

Source: The Philippine National Bank.

Deposits

The PNB presently has 318 branch offices and 7,309 employees, with 5,608 rank~and-file employees and 1,701 officers, With the goal of a 20 per cent reduction in the numberemployees, the bank has begun downsizing. The primary vehicle to effect downsizing is anearly retirement progi'aimne to be implemented over the next two years' At its first armouncementsince January 1998,4/6 applications were received, and approximately 200 employees haveleft. The average age of bank employees is 38. The early retirement scheme is being offered toanyone with over ten years' experience.

When the bank was publicly owned, the compensation scheme was based on the SalaryStandardization Law. Now every job category has three pay levels: a minimum, a mid-range,and a maximum. Moving from one level to the next depends on merit rather than seniority.Competitive pressures have motivated the bank to implement this merit-based pay scheme. Thebank also provides employees with life and health insurance, a car plan, and preferential accessto loans. in general, the bank considers the compensation package it offers to rank-and-fileemployees to be the best in the industry. Wages for officers, however, are lower than average.Therefore, foreign banks are easily able to attract PI\!B officers' The problem of executive toriiovervanished with the onset of the financial crisis.

170.4

169.3

129.2

126.3

94.4

Loans

129.2

140.4

77.6

914

74.9

Assets

234.6

242.0

171.1

168.5

141.9

The PI. IB provides both in-house and outside training progr^nes. External traininprogi'anrules (those offered by other institutions) are provided to employees only if there are noavailable in-house modules, usuaUy because of lack of resource people. Since the bank cannot at1'0rdto send large numbers of employees to these trailting progr'animes, it insists that participants acquirecopies of anti. animgmaterials received during external progi'animies. Upon completing aprograrnme,participants must then conduct "echo sessions" where they share what they have learned with otheramployees. The bank's in-house progr'alume includes managetial development, skill development,and atomdinal courses. 111 general, the PNB is conservative when it comes to training ex enses. For

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57

Globalization and Industrial Relations in the Philippine.

example, the hairiirig prog'allmie has only two rooms at its disposal, and tramers are sometimesforced to convert one of the conference rooms into a training site. Presently, much of the training isfocused on re-engineering in that it is designed to prepare employees for many of the anticipatedchanges both in new technologies and work organization. For example, only now is the bank fullycomputerizing its operations, and thus its employees are not yet fully prepared to use the newequipment. 1/1 the future, the bank anticipates doing more multi-skill traditng.

The approach to training and the administration of training is rather bureaucratic, as thisdiscussion suggests. For the executive staff and officers, the bank rims an ^^IBA programme atthe Philippine School of Business Administration. The prograinme is not new, butts aprogr'armnedevised under the requirements of the Civil Service rules under which the bank operated beforeprivatization.

The PNB is unionized. Before the bank's privatization, the union was subject to theCivil Service Code which stipulated that unions in the public sector could bargain collectivelybut they could not strike. With the bank's privatization, the union now enjoys the riglit to strike,adding a new dynainic to collective contract negotiations. 1/1 fact, at the time of writing theunion and the bank were in such negotiations. According to bank officials, the union appears tobe making numerous unreasonable demands, such as increasing union official leave time from100 days a year to 300, having a closed-shop agreement, and being involved in promoting andtransferring employees' Nonetheless, there are no impending threats to strike and the companybelieves that they will successfully conclude negotiations.

Labour-management relations, however, remain somewhat tense. The union belongs tothe National Union of Bank Employees (NUBE), which in torn is affiliated to the TUCP. Duringan earlier phase of the negotiations, the union brought in two outside lawyers and a representativeof NIIBE. The IbioBE representative seemed particularly intransigent, and the bank insistedthat he be removed from the negotiations. Since he had a legal right to be there, the uniondecided to sinke to protest his removal. The bank was forced to back do un, and negotiationshave continued with his participation. Most banks in the Philippines are unionized, yet there isno industry-wide bargairting. Banks and unions, however, closely follow what is being negotiatedelsewhere, and thus there is some degree of pattern bargaining. There is no labour-managementcouncil at the PNB, but one might be implemented in the future.

The int!jor force driving these changes in the bank has been privatization, which hasforced the bank to seriously examine several of its business and human resource practices.However, its sheer donitnation of the domestic banking sector, and the relative isolation of banks(foreign competition is still too small to be a threat) still provide this bank with the luxury ofbeing complacent and taking change slowly. It is only now that there is an urgency to therestrucimiiig activities. The objective of the balk's reorganization effortsis to regainits number-one ranking in the industry. To provide some comparison with a foreign bank (a trendsetter inhuman resource practices) abriefvigiiette of Citibankis given below.

4.4.3 Citibank

Citibaiik is the largest bank in the foreign eXchange sector, and employs 1,000 people.

58

They have positioned themselves as the only bank in the Philippines with a global Teach.Therefore, Citibank sells itself as an outward-looking bank. Hence its business strategy - andconsequently its human resource strategies - are dependent on what happens internationallyrather than locally.

Consistentwithits worldwidehui!Ianresource practices, Citibankhas multi-skilling andjob rotation for all employees' Training is largely on-thenob, with some external coursework.Movement up the levels of job grades is based on acquiring new skills. While the bank adopts amarket-follower compensation strategy (at the bottom of the foreign baiiks and at 75 per cent ofthe local banks) its range of non-cash benefits are among the best' in the industry. Thecompensation system is tied substantially to acquiring new skills, where a maximum of 10 to 25per cent of the salary increases are for skill development. The Test of the compensation packageis relatively fixed, but includes bonuses for attendance and good pertonnance. While the increasesin salary levels are bargained with the union, the job scales for each grade are not kilown to the


muon.

1/1worl:place flexibility, Citibarilc follows an aggressive policy of subcontracting. As foras possible, all indirect jobs are contracted out, including such jobs as security, messengers,janitors, and computer processing. Currently, contracting out is stillviewed as essential to keepingpayroll costs low: most credit card operations, including processing of applications, referencechecks, and liquidity checks are now contracted out. Chibaiilc's employees have an in-houseunion affiliated to the National Association of Bank Unions. The relationship, which wasadversadal in the early 1980s, has become more cooperative recently, partly because of aninstitutionalized eXchange of infonnation once amonth, but largely because a festering disputeabout the use of contract labour for computer progi'alumers, drivers, and seoulty employeeswas decided in favour of the unionbythelabour courts. The unionismvolvedinftiejob evaluationcoriumittee, but their role is restricted to that of monitoring rather than direct participation.

4.5 The automobile industry

4.5. , Industry background

The automobile industry in the Philippines has seen a large turnover in manufacturers.Chrysler was the first foreign company to set up a plant in the Philippines in 1963. 1/1 the late1960s and early 1970s, Ford, Volkswagen, General Motors, and Toyota also began to sell cars inthe Philippines, but the overall market was rather small. For example, in 1972, the total numberof cars sold was 12,000; during the first halfofthe 1970s, the market for autos gr'ew by about 25per cent armually. However, the effects of the oil shock was felt by 1976, and the marketexperienced a decline well after the second oil shock and continued trough the Philippineforeign eXchange crisis right until 1988. For example, in 1986 only 3,600 cars were sold in thePhilippines - rouglily 25 per cent of 1972 sales. Since 1988, however, themarket has reboundedand amual growni rates increased by 25 per cent until 1996, when the financial crisis hit thecountry. 111 1996,88,847 passenger cars were sold, about six times 1972 sales. The financialcrisis has hit the market hard, as sales have fallen to less than halfttie 19961evels. Most important,all forecasts for auto sales appear bleak. For example, it is only in the year 2003 'that auto salesare expected to reach and surpass 1996 sales figures. Theseprojections thus signify that the auto

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59


industry has been (more than most other consumer goods industries) pretty deeply hit by thefinancial crisis.

The market for light conunercial vehicles, trucks, and buses does not show such achequered history, as the sales figures show steadily increasing trends except for declines daringthe forex crisis in the period 1984/986 and now with the financial crisis. It is against thisbackground that we study the automobile companies. We chose three: Mitsubishi (the oldest);Toyota (one of the newest and most successful); and Francisco Motors (a domestic privatelyowned concern with a tiny market share).

4.5.2 Mitsubishi Motors Philippines Corporation (MMPC)

By 1982, all existing manufacturers had closed operations in the Philippines, leavingMitsubishi the only continuous producer in the country - and the oldest. in 1987, after theforeign eXchange crisis and sparred on by the Philippine Govennnent's small-car projects, Nissan,Mazda, Honda, and Toyota re-entered the Philippine market and coriumenced production, thouglimostly as part of their Asian region production plan where they were producing for Asia-widedemand, rather than only for the Philippines.

In the current period, the relative market shares look like this: Mitsubishi, 25.3 per cent;Toyota, 20.8 per cent; Honda, 14.7 per cent; and Nissan, 6.9 per cent. In addition there isColombian Motors - a multi-brand company that assembles and sells Kia, Mazda, and Mercedesmodels (accounting for 13.8 per cent of themarket) -andFrancisco Motors which also assemblescars of other manufacturers. The 19.8 per cent residual share is accounted for by imports.

Founded in 1963 as a division of Chrysler, Mitsubishi was bought in 1985 by a localcorporation (C. I. Yulo and Sons) with Mitsubishi and Nissai Iwai as minority stooldiolders. Thelargest shareholders are Mitsubishi Motors-Japan and the Nissho Iwai Corporation. The companyhas 1,680 regular employees of which 1,200 are production workers, while 478 are white-collarand supervisory staff. In addition, the company has 57 managers, 127 supervisors, and 147confidential and technical employees' In terms of the direct and indirect dichotomy, 1,200 areseen as direct workers, while 578 are the indirects. The average age of the employees is 35,while the average tenure is 8. This would make these employees the most senior in the autoindustry.

The Mitsubishi product line is diverse, with 18 models of cars, jiglit coriumercial vehicles,and recreational vehicles. Total production in 1996 was 42,000 units; while the target for 1997was 56,000 units, actual sales were only 18,200 units. However, in the passenger-car segmentToyota - rather than Mitsubishi - is the leader. (These figures are based on passengers cars andLCVs. )

The primary effect of this reduced sales volume and market growth projections on theMitsubishiworkforce has been the need to reduce headcount. Thus, from December 1997 tlirougliJuly 1998, the workforce was reduced from 2,292 employees to its current strength of 1,678.Most important, the company also made extensive use of 300 temporary workers (designatedtrainees) who were also tenninated. How were these reductions achieved?

60

Managers took a voluntary 5 per cent reduction in pay and benefits. Overtime work waseliminated. Then through negotiations with the union, the workforce was reduced. A thirteen-daystrike occurred partly because of workforcereductions, andpartlybecause of new union officialswinning the elections. To appreciate the negotiations, a little labour relations history is essential.

Under Chrysler, labour relations was adversadal. The union was a Communist labourunion and despite the small size of the workforce (only 300 employees in the 1970s) it wasadversarial. During the period 1985-1990 employee strength grewbutwithout anyimprovementin labourrelations. The basicissueherewas the attitudeofmanagement, which souglittointroducechanges and collaborative prograrnines using a top-down approach that was characteristic ofAmerican management. This was also true of Japanese management, who sought to introduceJapanesepractices, but withoutsigiiificantunionpreparation andconsultation. fill992, the humanresources director tried to mend relations with the union. He initiated a labour relations trainingprograrinne for managers and supervisors with the goal of making every supervisor a labourrelations specialist. In addition, he ensured that union leaders were exposed to new ideas bysending them to sentinars, other plants, and to Japan and hidonesia. He was helped by a splitinside the union as a more collaborative leadership team developed. Alongside these efforts,several"motivational" progi. arumeswereintroduced, such as suggestion schemes, absenteeism-reduction schemes, and "best employee" competitions with rewards that workers really liked(such as apaidvacations to AustraliaorJapan). The testament to the development of collaborativelabour relations is the reduction in the time taken to negotiate long-tenn agreements. Before1992, agreements took five months to negotiate, but after 1992 two long-tenn agreements (eachfor three years) took only one month to negotiate. There were two strikes daring this period - aone'day strike and another that ran for 14 days. Both strikes have happened since the financialcrisis hit, and both are linked to the change in union leadership. According to the management,the new union leaders are relatively inexperienced in unionism and labour relations, and it is theirinexperience that has led to the problems. The new union leadership is more affiliated to theKMU, with a leadership connnittee comprised of nine new members and four fonner members.


The I 997 strike

The company decided to rationalize operations. The strategy was to introduce a high-volume model and remove several other operations such as the Pi\jero assembly and chassis-bending. The company argued that no one would lose theirjobs (in 1997). During this process,the plant manager wanted to redeploy people from one line to the new line, but the new unionleaders argued that this was not possible. Earlier, it was possible to redeploy temporarily as longas the union was infonned. Although this could have been negotiated with the union, the newchief executive - who tended to go by the book - decided that the company should imposeappropriate punishment (suspension of the workers who refused to transfer). This resulted in astrike that was mediated by the labour department and workers were forced back to work. (Therewas also a thineen-day strike because of workforce reductions in 1998. )

Labour-Management councils

The period from 1992 to 1995 witnessed the establishment of a labour-managementcouncil. The council has a steering coriumittee comprised of the three Filipino vice-presidents,

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61

Globalization and ^'Idu. trial Relations in the Philippines

union leaders, and representatives of office and supervisory staff, with over 12 workingcommittees, each responsible for several issues. During the period 1993-1996 the council wasworking well, and Mitsubishi has received several awards. The subjects discussed at councilmeetings also included several items that were pt'eviously included in collective bargaining(unifbnns, etc. ). Productivity is also discussed at council meetings. Although the council wasdiscontinued with the election of new union leaders, the union has requested that it be reinstatedfollowing downsizing and more recent collaboration. ATgiiably, the level of trust that the councilneeds to operate is only now beginntng to return.

Work organization, recruitment, and training

This is a traditional assembly line operation - except that it is an assembly linecharacterized by extremely low volumes, so the efficiencies of high-volume production ondedicated lines aren't possible. The measures of efficiency in the line indicate that this factory isnot very competitive, but the comparison doesn't take into account that the other Mitsubishifootories produce only two or three models, while the product mix here is more wide-rangingwith 14 models. The time per station (the time each vehicle is at particular station on the line) is16 minutes. However, the comparative time in Japan is 55 seconds! Of course, there are hugedifferences here, notably in the technology employed and the product mix, but this is the measurethat is used to gauge progress in operating efficiency. Thus, in comparison to other Mitsubishifactories, the work organization and production system is more Tayloristic.

The production workers invariably have two years of college or two years of technicaltraining, which represents an increase in the previous entry-level qualifications of a high schooleducation. The training is mostly OJT, and the job classifications are classical and Tayloritsic,with little multi-skilling. Although there is nonnally no problem in moving workers acrossdep^lents (except in the instance cited) the management in now attempting to introduce multi-skilling and ajob rotation system. The purpose isn't clear, but we gather it is the nominal needto introduce best practices rather than the imperative need' for increased efficiency. The rubric,"we want to be number one" appears to be the major factor driving these changes, but the ad-hoc nature with which these practices are introduced suggests that it is not part of a well-definedstrategy for improving efficiency. However, the need for ISO 9000 certification is beginntng toforce the company to examine production systems and workforce training more seriously.

Compensation

The workers receive the highest pay in the industry only because they have been thelongest employed. Their average salary is 12,000 pesos, but the starting salary and rates fordifferent jobs are sinxilar across the industry. There is some benchmarking as the personnelmanagers of the four Japanese car plants eXchange inforrnation montlily, in addition, this companyoffers more benefits than any of the others, notably interest-free company loans to buy a carafter seven years of service. (These cars are sold at factory price. )

There is also a grievance procedure. It is a standard stepwise procedure, except that thegrievance system handles both grievances and disciplinary action. This allows a grievance to be

62

initiated by either the company or the union. At the end of 1998, there were only four genuinegrievances in the pipeline, but there were a total of 56 disciplinary cases in 1998.

By April of 1998, there was some evidence that the market was slowly rebounding. in1998, more than 30,200 units were sold, and the market was expected to rebound to its normallevels by the end of 1999.

Globalization and Industrial relations at the industry and finn level

Summary

The major impact of globalization on Mitsubishi has been the increasingly competitiveenvironment since 1987, and the consequent need to increase production efficiency as thecompany tries to meet the standards that are required to compete effectiveIy - notchly the ISO9000 application. Yet, there have been other impacts too. For one, the approach used by Japanesemanagers in the last strike showed just how distant from shop floor concerns the Japanesemanagers are regarding industrial relations issues and unions in this factory. The case alsodemonstrates that workforce reduction is not easy (the union struck over this issue) but theoverall climate of the financial crisis has enabled the company to actually move atead withworkforce reduction plans. In effect, the financial crisis has weakened the unions considerably.The case perhaps demonstrates that collaborative labour-management relations can improvegr'eatly once you have a human resources manager who believes in developing collaboration.

4.5.3 Toyota

Given the relatively small size of the automobile market in the Philippines, Toyota has beanfocusing rather heavily on the LCV segment, especially pick-ups. had given that many of Toyota'sproducts full into the luxury category in the Philippines, there is reason chougli to focus on smallcars and pick-ups, while importing the luxury models from other ASEAN countries. 0116 other ^ctorthat mints the business strategy is the absence of unitfonn elmssion standards ftirougliout the ASEANregion. Once emission standards are harmonized, this will facilitate the brand-to-brandcoinplerneiitaiity scheme that Toyota has in the region, where each country becomes a centre for themajor assembly of each bumd, and also acts as a supplier for other production centres in Asia.

Toyota has three sites: a factory producing LCVs; a parts depot; and a passenger carassembly plant at Santa Rosa. The passenger cars produced are the Corona, Corolla, and Crown;the LVCs include the Light Ace and the Tarnaraw. Other Toyota models are imported as well.Local production content is 40 per cent for cars, 45 per cent for the Corolla, and 55 per cent forthe Taniaraw. The luxury models are imported. Given Toyota's regional production platfi. rinsystem, engines are made in Japan and Indonesia, with stamping mufflers and chassis framesdone in the Philippines. Transmissions are made in the auto parts plant; but are alsg exportedback to Japan, Africa, and other South-East Asian countries. The ATCO (ASEAN' industrialCooperation Agreement) has been instrumental in setting up this eXchange and is the likelyvehicle for enhancing the brand-to-brand complementarity strategy.

1/1 1996, Toyota sold 40,000 wits' Their current capacity is around 60,000 wits' By theend of 1997, they had sold only 18,000 wits and the 1998 demand was projected at the same

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63


level. The reduction in demand for cars did not catch Toyota entirely unprepared, since theyhad met their need for flexibility in the past by keeping the workforce small but using largeamounts of overtime. For example, until 1996, they ran only one shift at one plant, and averagedtwo hours of overtime per worker daily. in 1997, they had two plants (with the Santa Rosa plantopening in late 1997) nunxing two shifts. In 1998, both plants were reduced to one shift each.The workers are paid half their salaries, as they work one week on, one week off: They havemade numerous changes in tins system. Initially, workers received full pay for not working forup to amanimum offbermonths. Through the end of 1998, there was no work, and less pay (75per cent); on average, each worker put in about nine to ten days a month for this 75 per centshare. in addition, workers had used up all their vacation days. The company's approach todealing with the financial crisis was to retain people whenever possible, as they expected themarkets to recover quickly. This decision was based largely on the significant investtnent thathas gone into training Filipino workers in the Toyota production system. However, as the crisisdeepened, the company implemented a voluntary retirement plan as well.

For the voluntary retirement scheme, the company wanted to attract a cross-section ofworkers' They offered eight months' pay, plus accrued separation benefits (equal to 7.5 months'pay), plus three sacks of rice. There were 526 applications, of which 472 were approved. Inaddition, 74 blue-collar workers who were apprentices were tenninated. Most of these workershave started their own businesses or mm taxis (there is a car purchase scheme as well). Thecriteria used in the selection of workers to retire included perfonnance, company need, and "lastin-first out".

Work organization

While teamwork is the basis for production work organization, Toyota applies the conceptof teamwork as an operating philosophy. But one can see that uns plant is not really up toToyota's international standards of efficiency. It takes roughly 8.5 minutes of "tack time" (thetime that a car spends at each station on the assembly line) per car compared to 65 seconds inJapan. Toyota has introduced other aspects of the lean production system in the Philippines.Thus, they have brought in and developed their own supplier network through joint ventures,and have introduced the 5-S progranmie, kitzeiz, just-in-time production, a quality focus, highlydetailed job procedures, and systematic training.

The automotive and machine shops hire vocational graduates. Line workers are schoolgraduates between 18 and 21 years of age, while staffhave to be graduates (25 years of age).The pintiary orientation method is to focus on the philosophical issues, such as koize", JIT, and1'3, dokg. Much of the training is on the job. However, there is extensive training in soft skillsQinown as work values) such as team-building. This is done in hornogenous groups (workersfrom the same section). The typical trainee is trained in a number of operations. For exariiple, inthe trim line, there are 9 to 12 workstations, and it takes a trades about two years to master allthe jobs on thenne. After reaching this status, there is a slower job rotation to different parts ofthe plant and to different operations. The foreman is responsible for imparting training, ratingthe team members (pertbnnance), and how well they learn their jobs. (A chart is used for thispurpose. ) Perfonnance appraisal is based on a force ranking system, where I O per cent receive

64

the bigliest rating, 20 per cent receive the next highest rating, while most workers receive thethird rating - which is nonnal.

The plant is not unionized. In 1992, the technicians attempted to organize a union, butover a period most of them were promoted into supervisory ranks and the desire for untonizationdeclined. in 1997, there was another unionization drive among the blue-collar workers, but theunion had its registration cancelled when someone complained that they were using unfair labourpractices to show support for the union. in both cases the union involved was KMU-affiliated.Toyota has been very clear that it opposes unionization, and uses the team concept effectiveIy tofunction as a substitute for unions. In addition, their wages and benefits are among the highest inthe industry, which is another inducement not to form unions. Besides, the company has alwayshad an effective response in the f;*CG of unionization drives. The 111^ department focuses ratherheavily on what they call "team relations". And this fonns an alternate communication charmel.Typically, the average human resources person will spend 15 nullutes intrie safety circle, airswetingquestions and making amouncements, then spend an hour observing the safety measures, then 8to 9 minutes of administrative work connected with the safety circle. Most important, the humanresources officer goes around monitoring those who are being trained, and facilitates supervisionof the team members. Team relations is an invention of Toyota's international 111^ division,and is applied here like all other production organization and administration concepts. Motivationand labour relations are the only areas in which a clean Japanese transplantation is not carriedout. One of the key tasks of HR here is building a unique Filipino work culttire, which is aToyota subculture with a distinctiveIy Filipino f^Ice. Although the human resources managerstalk about this concept, in practice most systems and ideas regarding employees are codifiedthrough the concept of team relations, which is a Japanese transplant. The area where the Filipinoside is emerging is in the specific issues discussed in team relations.

Labour-Management cooperation


Despite the absence of a union, a labour-management council is in operation: this isanother way the company tries to keep communication lines open (other than through teamrelations). Each group of 25 workers elects one council representative. There is a labour-management council board of I I members, chaired by a worker representative, with theconunittee organized into four subcommittees: productivity; conrrnunication; welfare benefits;and recreation and social activities. Each representative chooses a coinimttee. The term of officeis two years' These connnittees are extremely active, but they tend to discuss more non-controversial issues.

Compensation and promotion

111 tenns of wages alone, Toyota is number two in the industry, and in the 75th percentileon benefits, although they have some benefits that are unique and calmot be monetized, yet arevalued highly. There are eiglit pay levels, and on average each employee increases one levelevery two years' As they reach higher levels within the production hierarchy, they spend longerat those levels. Typically promotions are to section or team leader, then gradually to ' groupleader, and then to line leader. Every five years, if not promoted, the employee receives an

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65


automatic pfomotion; on average so far, employees at this plant have received promotions everythree years' Turnover rates in Toyota have been low. Before the crisis, blue-collar turnover was2 per cent, while turnover in highly skilled operations was much higher.

The company is still managed mainly by the Japanese. Right now 15 top managementpeople are Japanese. The only Filipino is the human resources manager. In t^, o to three years,they would like to reduce the numberof Japanese managers to eight, with most of them in thetechnical field.

Summary

Since the Toyota production system is well established, and geared to compete globalIy,the challenge for management is to recreate the Toyota system in the Philippines. Whileglobalization and increased competition has also affected Toyota in the Philippines, this is not aserious concern, as they have managed quite well in the marketplace - largely because of theirreputation for high quality. Besides, since they have a regional production plan and brand-to-brand complementarity schemes, low demand in the Philippines is not a serious problem aslong as there is adequate demand elsewhere. The Asian financial crisis has, of course, reduceddemand throughout Asia, and the challenge for Toyota is how to continue to retain its highlytrained workers without incurring significant costs. There is some evidence that Toyota sets thestandards for automobile production in the Philippines, but also increasingly the standard forhuman resources and teamwork ideas. For example, its training on teamwork is well reputed inthe industry and is used as a model for others, while its voluntary retirement scheme is theindustry trendsetter.

4.5.4 Francisco Motors

This is an indigenous Filipino automobile manufacturer who now assembles cars forseveral international companies. This company started as a paint shop founded by AliastacioFrancisco in 1947. Over the years, it began its forey into the automobile industry by reconditioningjeepneys, then gradually began to assemble the jeepneys. Currently, the company's product lineincludes assembly of Mazda vans, pick-up trucks, and the complete range of Hyimdai vehicles(Sonata, Elantra, and Excel). They also continue to make the jeep called Allfta, and design andassemble fleets for local govennnent, the military, and the police. In addition, the company isnow introducing a prototype electrtc vehicle and is also producing taxicabs.

The company has two manjufactoring facilities - one at Las Pinas, whichmakes the jeep,and the other at Parnplona, which assembles all other vehicles. It has only one service centre (inMaicatj).

The company has a capacity for producing or assembling only 30 units a day, It doeshave an export market, particularly in Africa (Nigeria) and other Asian countries. The companydoes not make its own engines, however. These are imported from Japan and more recently nowfrom Korea. Its market share in the Philippines is minimal, although it's one of the largest

66

L

*

producers of jeeps. Three other local companies- Sarao, Malagiiena, and Legaspi- also producejeepneys, but those are cornmercial vehicles.

The Asian financial crisis has hit the company hard in many dirtierGrit ways. On the onehand, given the devaluation of the peso, the price of engines has gone up, all goverirrnent andnitlitary orders have been withdrawn, and uns has also affected their ability to upgr. ade technologyand buy newer-generation equipment. Because they don't have the money for engines theycamot complete the assembly of many vehicles. Therefore, production is down 50 per cent, andthe company had to shut down operationsin June and Julyof1998, and was PIaiming to continueremaining closed in August.


The workforce comprises 1,200 people. Dealing with the financial crisis has been adifficult process. First, in September 1997, management temporarily laid off workers untilDecember. The employees and the management signed a peace accord with the union and recalledthe laid-off workers, One outcome of the peace accord was a work-sharing pmiciple that wasagreed upon, with the work week cut from six to three days. Every bit of accrued leave wasearned, but after that the principle of "no-work, no-pay" took hold.

Several employees who had better options resigned (184 in all) and were given 15 days'pay for every year of service. All the sales offices in the other metropolitan areas were closeddown, and all expenditure on training was eliminated. Consequently, the number of trainingstaff was cut from six to two, and the Personnel staff who handled recniitrnent were also askedto leave. Thus, administration was reduced by 25 per cent.

Throughout this process labour-management relations have been cordial. The initon isaffiliated to the TUCP, but in the early 1980s it was affiliated to the KMU and during that periodlabourrelations were rather adversadal. Currently, there is good corninunicationbetweenlabourand management, with meetings three times a week to update the employees about the financialsituation. Somewhere in the process of cornmuntcation is the realization that even after thecrisis the long-tenn financial future of Francisco will not be rosy.

Several factors are responsible. First, cost-cutting efforts by the Goverrmient itself andthe military will criticalIy aff^ct future sales, and Governnient orders have been dwindling. Thepolice which had been a steady customer, has begun to buy from competitors, given lower costsand more attractive vehicles. The domestic market is becoming more saturated as well ascompetitive, as several new players have entered the market over the last three or four years'Francisco is also not doing too well in export markets (notchly Nigeria, given the civil warthere). The entry of Ford, in particular, is viewed as a major threat since Ford plans to introducemodels that compete with Francisco's products. It is clear that the company can survive only ifthey enter into a joint venture, since survival means thinking globalIy, and requires majorinvestments in new technology and ISO certification - which are beyond the ability of thisfallitly. Besides, entering into ajoint venture means loss of control for the Francisco family. Thiswould mean that there would be a fundamentally differentway of doing business forthis family-style company. in particular, the Francisco clan see the business as a way to ensure that all

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67


members of the family prosper and are provided with jobs in the organization, and a jointventure would threaten that system.

HR practices

Production operators are recruited from the technical schools in Cavite, and from TBSDA.Office hiring is from trade schools. There have been no new hires over the last three years inany case. Training is completely on the job, but training is provided in other areas such asvalues, team-building, and techntcalhaining. External trailxingprogi'armnes for skills developmentare made available, and the company has sent some trainees abroad. Compensation is largelybased on seniority and is coinparable to the market, although a small portion of increases aregranted for merit based on perfbnnance appraisals. 111 recent years, Francisco has started a dualtraining prograriirne (apprenticeship) where trainees spend four years getting a diploma at theCarite College of Arts and Trade, of which aimost two years is spent in the company. Thesetrainees are ultimately absorbed into the company.

In suin, this is a family-rim organization, run on traditional lines, using a very Tayloristicapproach, and clearly in doubt about its future (a company with no strategy or will to deal withthe globalized marketplace). Globalization's impact here is critical. On the one hand, the greatercompetitive pressure associated with globalization putsin question the viabinty of the principlesof family-owned and managed organizations in a highly competitive field. It suggests that wherefarmlies run companies with the objective of elmching and providing employment for the gi. owingfamily, this objective may clash with the needs of more professional management in a competitiveenvironment. Clearly, globalization has created a critical dilenmia for this company's flinte:whether to merge with another company to gain access to capital, technology, and markets - orclose. The fomier choice implies a shift to a more professional orientation, where paternalisticemployment relations will have to be discarded.

4.6 The electronics industry

We chose to study the electronics industry because it is a global one which is criticalIydependent on external markets, and thus extremely volatile. Given the relatively rapid movernontsbetween surplus and shortage in scottconductors and the glowing but litglilyunstable nature of damaridincreases, his industry must be at a constant state of readiness to meet the challenge of globalization.Thus it is in this industry that we would expect to see the most dyiiainic amployineiit practices.

However, we also made allowances for the Philippine electronics industry because it isnot as sophisticated as the industry in Malaysia, and because there are several low-endmanufacturers and assemblers in the Philippines. Thus, we would expect to see some mix ofstrategies to meet globalization focusing on both functional as well as numerical flexibility.

4.6. , Background

Since the 1970s, there has been continuous gr'owth in the Philippine semiconductorelectronics industry despite the econointc downwills in the inid-1980s and early 1990s. Themost cornmon products include:

68

Consumer electronic equipment (colour TVs, radios, cassette players, videogames, car stereos) ' ' '

. Telecoimnutiications equipment (telephones, pagers, UnF' radios, cellularphones,scanners, and satellite receivers)

. Computers and related equipment (F'C hard disks, disk drives, ZIP drives, CD-ROMs, and motherboards)

. Components and devices (semiconductor chips, flash memory chips, transistors,lead frames, PCB/FPC, TF/lvn^. heads, and asics.

The Philippines boasts several advantages that make it an ideal production platfonnfor semiconductor and electronics lines, including a well-educated, highly skilled workforce.Instantaneous linkages with the rest of the world is assured through an extensive network ofradio, cable, fax, e-mail, IDD telephone, and satellite communications. The industry isgenerally export-oriented, is dominated by multinational companies (e. g. Intel, Motorola,Hitachi, Philips, Uniden), has developed a growing base of component suppliers, and isfocused on high quality.

Thougliit posted a modest 2.5 per cent share of the world market in 1991, the Philippines'senxiconductor industry has served notice that it is a force to be reckoned with. Domestically, it hasposted an armua1 17 per cent gr'ownirateiri amployment, with export sales gr'owlh averaging 20 percent since 1986. The Philippines is now considered one of the largest assemblers of senticonductorsin the world. Of course, Malaysia is a far bigger producer of electrical and sentconductor products.The Philippines boasts about 425 electronics companies, 17 per cent of than Filipino-owned, 29per cant Japanese-owned, 8 per cant American-owned, 10 per cant Korean-owned, 2 per cant German-owned, 2 per cent Dutch-owned, and 4 per cent Taiwanese-owned. The total number of employeesintrie industry has risen from 38,000 in 1985 to 200,000-plus in 1997.

The dynamism of the industry is reflected in its expansion - from basic assemblyoperations to back-end wafer fabrications; the integration of IC and other test facilities inoperations; the venture into printed circuit boards and other subassemblies and finished OEMproducts. The assembly work itself has undergone tremendous change, from primitive tableswith simple microscopes to semi-automated assembly work. As a measure of the industry'sgrowing capabilities, several semiconductor facilities in the Philippines have been gr. antedlSO9000 approval. Others have been consistently receiving awards for operations excellence andquality production from theiriritemational customer-parttiers. Statistical process control (SPC),just-in-time (JIT) principles, and other progr^lies designed to speed up production withoutsacrificing quality are now a daily routine for the industry.

Electronics represent the country's most important export. in 1992, electronics exportstotalled 2.97 billion dollars, and accounted for 28 per cent of all exports. B 1997, electronicsexports were worth 14.98 billion dollars and represented 58 per cent of all exports (table 4.9).Most notably, due to strong extra-regional demand, the sectorhas notbeenbadly affected by theAsian financial crisis. Indeed, industry specialists were predicting continued growth in the valueof electronics exports in 1998. Investment in the sector more than tripled in the period 1993-1999, reaching 1.47 billion dollarsiri1997. Meanwhile, employment in the Phili me electronicsindustry mushroomed from 42,000in 1988 to 200,000in 1997.

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Table 4.9. Philippine electronics export performance

Year

1992

1993

1994

1995

1996

4997

I998 (Jan-May)

Exports(Us$ billions)

Source: Semiconductor Electronics Industry Foundation Inc. (SEIFl).

2.97

3.78

4.89

7.55

10.61

14.98

7.50

The Philippine electronics industry is divided into consumer electronics equipment,teleconmiuiiications equipment, computers and related equipment, and semiconductors. Of these,semiconductors is clearly the most important, accounting for 80 per cent of all electronics exports.The industry is dominated by multinational companies such as Intel, Texas Instruments, Philips,Hitachi, Motorola, and Urnden. The United States and Japan reinalii the single largest importersof Philippine electronics exports (table 4.10).

The domestic content of electronic products is approximately 40 per cent. The move tointegrated circuit design and manjufactoring represents a step up from the labour-intensiveassembly and packaging work that had previously dominated the sector. Companies areincreasingly taking advantage of the fiscal benefits offered by special economic zones andindustrial parks. Yet, as one observer notes, "the traditional advantage of cheap labour and English-speaking workforce that the Philippines has been relying on to attract investment in electronicswill no longer be sufficient in the years to come. "' in a sense, competitive pressures have brouglitabout an expansion and a shift toward higher value-added electronics production in thePhilippines. As multinational coinpames look to reduce costs while also regionalizing activities,the Philippines has become an increasingly attractive* option. As a result, upstream stages ofproduction that were previously confined to more advanced countries have expanded to thePhilippines. Yet, the country has so far been unable to offer the human capital necessary forservice capacity in design architecture and itinovation.

Table 4.10. Major importers of Philippine electronics (as a percentage of total electronics exports,1997)

Growth rate

20%

27%

28%

55%

40%

41%

33%

Percent of

total exports

28%

33%

36%

43%

52%

58%

65%

I United States

2 Japan

' Gonzalo Bongolan: "Electronics Industry", in F@cmg Up to the Glob@! Challenge, 7heImpact ofGlob@! Competition onL@60r (Philippine Center for Policy Studies, 3 May 1996)

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33%

16%

I

3 ASEAN

4 Europe5 Others

Source: SEIFl.


Production and HR systems conrrnon to electronics multinational companies operatingin the country Gritailstatisticalprocess control (SPC), just-in-timeinventory control(JIT), qualityassurance policies, teams, and productivity improvement circles. The largest producers remainnon-union. indeed, they actively discourage union organizing. Management believes that theneed to meet production deadlines and the highly competitive nature of the industry wouldmake any disruption in the production process - which would presumably be caused byunionization - intolerable. Nonetheless, some of the small producers are unionized.

4.6.2 General HR issues in the electronics industry

In general, five ER issues in the electronics industry are significant. First, there is theexcessive hiting of trainees, especially in electronics finns at the lower end of the value chain.Survey results suggest that the number of trainees employed is much higher than the manpowerrequirements of firms, and most of these trainees are not registered under the ApprenticeshipAct which provides guidetines on their use. The trainees are used to do regular jobs in theindustry but are paid only 75 per cent of the minimum wage. In a survey of over 20 electronicsfinns, only one finn had its trainees registered under the Apprenticeship Act. Clearly, therefore,companies are using trainees because of the low wage costs.

A second problem is the degree of skill mismatches, especially outside Metro Mania.For instance, various provinces have produced attractive incentives for electronics companiesto locate in their areas. fold these have been successful. For example, five multinationals havelocated their factories in the Calabarzon area. One significant drawback is finding appropriateskills in this area, despite very high unemployment rates.

The shortage of skills results in a third problem that the industry faces - human resourcepiracy. It is well known that in this industry, all 11/1^. practices are benchmarked against eachother, and are therefore very similar. Marginal differences in compensation and benefits caninduce semi-skilled and skilled workers to move from one company to another. Turnover ratesare very high - exceeding 15 per cent a year.

A flirther problem is that for skilled Filipino workers, the labour market is quiteinternational. Given the large presence of overseas Filipino workers, and given their contacts,sent-skilled and skilled workers can always find employment in other South-East Asian countries.Therefore, the electronics industry in the Philippines will train workers, but soon after they aretrained they may go to work in electronics factories in Malaysia.

From the workers' point of view, perhaps the most significant problem is the oppositionto untoriization that transcends this industry. Not only have unions failed to gain a significant

18%

18%

14%

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foothold tilthe industry, the anti-union practices of the employer are often blatantly illegal. In arecent paper done as part of this project, Lainez, Lenna, and Ofteneo document the nature ofunion-avoidance schemes.

4.6.3 Motorola

Motorola Philippines Inc. began operations in 1979 at its Paranque focility. In October1996, it opened its second facility, Cannona. All Motorola production will soon be consolidatedinto this new, more modem, larger facility. Motorola is a subsidiary of Motorola inc. , one of theworld's largest providers of wireless communication, semiconductors, and advanced electronicsystems. Presently, Motorola is in the process of shifting from coloniodity production to embeddedlogic circuits. In 1997,70 per cent of its production was incoinmodities, and 30 per cent was inembedded logic circuits. By the year 2000, it anticipates that allits production will be in embeddedlogic circuits. The trend is for greater consolidation and integr. ation in product lines.

Among other components, ^^IPI produces plastic dual in-line packages GR'DlIP), plasticleadless chip carriers (PLCC), and small outtine integrated circuits (SolC). Currently, all outputsare exported, but a recent change in the law regulating free-trade zones in the Philippines willallow Motorola to sell25 per cent of its production on the domestic market.

Motorola has been recognized as a leader in ER practices. According to ER managers,the company is used as a benchmark for "best practices" in the industry. For management, thisis a result of its system of open coriumunication and employee involvement. For example,Motorola has developed what it calls a "People inforrnation Environment" (F'IE). It also useswhat it refers to as its "Kiosk System", through which management provides employees with"infonnation on demand'. Motorola has also been benchmarked on its teamng culture and ontraining thresholds.

OperationalIy, the top ERmanager of Motorola-Philippines reports and consults directlywith Motorola's regional ER manager in Hong Kong. Through a matrix structure, the PhilippineER manager also reports to his superior within the local company structure.

Motorola's workforce has never been unionized. Motorola is actively opposed tounionization and acknowledges participating in monthly meetings with other companies in theindustry to discuss union activities to better avoid their fomiation. Motorola believes that unionsare incompatiblewittitheiridustrybecause the production and distribution process camottolerateany work interruptions. The consequences, for example, of missing a shipment would be great.This is mainly due to the low inventory held under the just-in-time system.

There are presently 1,500 operators working at Motorola-Philippines. Because of thecompany's consolidation, the size of the workforce has been reduced by 400in 1998 alone. Thiswas achieved trough a voluntary dismissal prograrnme where workers were offered two monthspay for every year worked. Motorola PIamed to reduce its workforce by another 400 employees,at which time the total number of operators should remain stable at 1,100. Before downsizing,the turnover rate was 5 per cent, with an absentee rate of 2 per cent.

72

The human resources departnient is also being consolidated. At the end of 1998 therewere 46 staff members in the department, down from 54 in January 1998. The staff was to befurther reduced to 32. Security services, which technicalIy Ibnn part of the deparinient, arelikely to be contracted out.

Work organization currently reflects Motorola' s worldwide system, with fully automatedproduction systems. The work allocation of an operatorincludes moultoting automated productionlines, mostly via computer terniinals. All operatives are trained in autonomous malltenance andtrouble-shooting, and autonomous maintenance has resulted in reducing machine down time by60 per cent since it was introduced in 1991.


Motorola has .organized both sir"cmred and interactive teams. Structured teams areorganized based on production line functions. Interactive teams bring together employees fromdifferent levels and disciplines to solve specific problems. Structured teams include straight-line teams that are part of one production line and one department, as well as interactive teamsthat are comprised of different people to solve different kinds of problems. For example, straight-line teams in the wire bonding department are comprised of both horizontal teams (workers indifferent shifts) as well as vertical teams (workers in differentjob hierarchies) beginntiig withthe supervisor and ending with a materials handler. The team becomes interdisciplinary whenengineers and technicians in quality assurance and inspectors are added. Each team meets forone hour a week on production time, but also meets outside the production time on overtimepay. More recently, 1,167 autonomous teams have been introduced in some departments, withthe team taking full responsibility for recruitment, training, production management, andperfonnarice appraisal. The team has been successful in winntng many international Motorolacompetitions organized in the United States and received prizes for two consecutive years.Employee involvement is further enhanced by a suggestion scheme which includes small rewards(200 pesos) for accepted suggestions, and larger rewards after the suggestion is implemented.

Compensation is strongly linked to perfonnance. Each employee is gr'aded on a scale of100 points, with productivity and product quality worth 30 points each, attendance worth 15points, teamwork worth 12 points, skill development worth 7 points, and good behaviour worth6 points. 111 addition to regular salary, workers are given some variable bonuses based on short-tenn goals, but the amount of these bonuses remains low. in compensation strategy, Motorolapositions itself at the top of the market in wages and salaries, and their pay rates (and moreimportant, benefits) are on average 20 per cent higher than market rates, with equal pay formales and females.

Motorola has a traditional American-style grievance procedure. When employees haveproblems, these are raised with the nuniediate supervisor. If the problem is not settled, it goes tothe section manager. If it is still not settled, it goes to the dep^lent manager, and then to theemployee relations section manager. Finally, it goes to the human resources department manager.Thirty per cent of all cases are solved by the line supervisor.

Motorola places alot of emphasis on multi-skill training to facilitate internal flexibility.Training is comprehensive, with employees exposed to skill training, production, quality,

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GlobalIzatlon and Industrial Relations in the Philippines

maintenance and parts management, trouble-shooting, as well as coriumuntcation and personalityskills. Motorola's corporate policy ensures that every employee receives a inititmum of 40 hoursof training a year to facilitate meeting the company's policy of multi, skilling. Under the multi-skillfulg policy, each operative must know at least threejobs at the same hierarchy and onejob ata biglier level. At any given time, each worker trainer (the highest job in the worker hierarchy)will be traitxing at least ten workers, working on a schedule that covers the entire workforce.Employees can expect to learn one new skill every six months until two years have elapsed,when they are promoted to the next level. Most of the training is done in-house. Often, Motorolawill bring in outside consultants to train trainers.

Motorola has completely globalized human resource practices which are rimfonn acrossall Motorola factories in the region. Thus, human resource strategy and practice is handed downfrom global headquarters, or at least from regional headquarters. Given that all its products areexported, Motorola's business environment is completely dependent on the demand for Motorolaproducts worldwide. Given that it is constantly updating its practices based on its benchmarkingwithn the Motorola system, it is hard to distinguish globalization's influence: for a completelyglobalized company, there are no additional impacts. The Asian financial crisis has also notaff;acted Motorola's sales dramatically.

However, Motorola's practices on teamwork, training, and compensation linked topertbnnance are important in that they are a source of the diffusion of such practices in theelectronics industry. Most companies look to Motorola's ER practices as a source of itinovation.

4.6.4 Intel Corporation

bitel has been operating in the Philippines for 24 years' It has tree factories, one ofwhich is established as kitel Philippines; the other two come under the jurisdiction of bitelTechnology. Both hitelPhilippines andhitelTechnology are subsidiaries of the hatelCorporation.Together they comprise one of the largest Intel assembly sites in the world, producing flashmemory chips, microprocessors, microcontrollers, and Pentium chips. These products are partof a very dynamic industry. For example, the average life cycle of a product is now 18 months.Several years ago, the average life cycle of a typical product was 72 months.

Despite the Asian economic crisis, hatel has not dismissed any of its employees' At thesame time, it has stopped hiring. There were 2,800 new hires in 1997 to meet the needs of theirnew site. By the end of 1998, Intel had a total of 6,323 employees' Some 65 per cent of theworkforce are production workers, The remaining 35 per cent are support people, includingengineers. Between 70 and 80 per cent of the workforceis fomale. While most production workersare young (the average age is 26) Intel will not hire anyone under 18. Approximately 70 per centof new hires have at least alitgh school education.

As for the engineers, infonnation technology professionals are in high demand.Consequently, thereis alot of employee raiding among the large electronics producers. Moreover,American-based companies try to find the best computer technicians in the Philippines, andinvite them to the United States. Overall, hatel has a 6 per cent tornover rate, but the rate is only

74

-- .

3 per cent for production operators. There are three shifts a day. Overtime is never more than25 per cent on top of regular time; the average overtime load is 10 per cent.

Intel practices what it refers to as "virtual 111^" in that it uses similarllE^. practices acrossthe world. For example, while hatel produces in the Philippines, China, Costa Rica, and Ireland,it tries to insist upon the same HR system everywhere. It uses the same process in all its factories,along with the same traititng procedures and the same "people system"

Intel has largely imported the ER system from the United States. indeed, many Americanpolicies have been implemented in the Philippines. Often, this sets a litglier standard. For example,while in the Philippines it is legal to advertise for young fomale workers, in the United States itis not. Thus, hatel in the Philippines follows kinetican law on this. The are a few ke exce tions,one of which regards drug testing. flitel in the United States wanted Intel-Philip mes to be indrug testing all its employees, But privacy rights in the Philippines prevent the coinpan fromdoing this. Thus, this Intel policy could not be implemented. The other key difference re ardsdismissal policies. Unlike the American system, Philippine coinpades must have a good reasonfor firing workers' indeed, even ifworkers make nitstakes or if their productivity is low, Philippinelaw states that the company must give workers a chance to improve.

According to management, ER practices must support the dynamic nature of the industry.Among other things, this implies the need for a flexible workforce. intel is lookin for e0 16who are not afraid of change. During orientation, 111< personnel stress the need to be pre ared toadapt to new situations.

Intel uses a standard American grievance procedure system. Employees with a roblemor a concern must first go to their supervisor and then, if necessary, work their way up thestructure untilthe problemis resolved. hatelliiredits first In^ attorneyin April 1998. This Ia ernotes that since he began, only two or three cases have reached his office: the vast majority ofcases are resolved at the lower levels of the company structure.

The average production worker receives the minimum wage while in traitxin whichlasts for one month. Workers' wages increase above the minimum wage after trainin . The totalcompensation package includes wages, a meal allowance, a rice subsidy, life. insurance, andmedical insurance. There is also a bonus pay programne that is linked to pertbnnarice. Thesebonuses are awarded to individuals rather than to teams. Employees also have a small stockoption. The higher up in the corporate structiire, the less pay is based on a straiglit salary. Yet forthe average production worker, a regular wage still accounts for a large proportion of income.According to management, wages are competitive for the industry, and benefits are vecompetitive as well.

hatel places a lot of emphasis on recruiting and training engineers. They send theirengineers to the United States for three months to a year to learn how new products are made.When Intel employees in other Asian countries need training in bitel operations, the o to thePhilippines. For example, when bitel began making flash memory in China, 40 to 60 bitelemployees from China were sent by Intel to the Philippines to learn how this product wasproduced.


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75


Employee relations

There are no labour-management councils at Intel. among other reasons, managementnotes that it does 'not like to use the term "labour" which is explicitly part of the name andconcept of labour-management committees. For inter, accepting the tenn 'labour implies thatemployees should be divided between "labour" and "management", and that there are conflictinginterests between the two.

Instead of labour-management councils or teams, Intel has several ad hoc committees.Through these committees, hatel shares infonnation with its employees using a process they call"the right to know". The main ad hoc collnnittees consist of the productivity and costs coriumitteeand the management review coriumittee.

Here again is a situation where globalization's impact is hard to distinguish as this is anAmenc@?I company, run on strictly American lines, producing exclusively for the rimertc@"market.

However, both the cases cited represent the best in the industry. The industry is a variedone and, in addition to many well-managed finns, includes those in which management practicesare less advanced and where competitive strategy is based disproportionately on low costs. Forthe sake of variety, it is useful to take a closer look at one such firm.

4.6.5 Uniden

Uniden makes CB radios, web pagers, web scanners, satellite receivers, and otherelectronic accessories in its Philippine operations for export to North America and Australia.This case study is of one of their two plants, employing 4,300 workers and making printedcircuit boards for use in various electronic products.

Urnden is known as a supplier of inexpensive electronic products, positioned at the lowerend of the market. Their competitive strategy has focused on low costs, and their products suchas CB radios and answering machines are the most inexpensive in the American market. Risinglabour costs in their factories in the Republic of South Korea and Taiwan, Province of Chinaforced them to move operations in 1987 to lower-cost areas such as southern China and thePhilippines. ConsistentwithJapanese pan-Asianproduction strategies commoniriottierindustries(Kuruvilla and Fagiiucc0 1994) design and product development of electronic products are donein Japan, while marketing is done in individual countries by local workforces.

Uniden's human resource strategies tend to mirror the low-cost business strategy of t!16company. Plant employees are primarily young women operatives between the ages of 18 and22 who are paid 60 per cent of the wages of male workers in the industry (Pined a-Ofteneo1995). Material handling jobs are also pertbnned mostly by women, although few women canbe seen in line leader or supervisory positions. Work organization is based on a Tayloristicassembly line principle. Each operator looks after several machines in a production line, andline leaders and assistant line leaders are responsible for material supply and inspection. Workers

76

,

are not trained on or allowed to attend to machine breakdowns, which are left to engineethigstaff. The training is job-specific, and is done on the job.

Urnden's compensation matches its low-cost business strategy. A comparison with otherinternational' electronics finns indicates a compensation strategy suggestive of the marketfollower. Operators with at least two years' experience are paid about 200 pesos for eight hours,which is only 7 per cent above the daily minimum wage for Metro Manila, in contrast to theindustry leader Motorola, whose average wages are 25 to 40 per cent higher than the minimumwage in Metro Manila. In addition, the wage system is rigid, based on a fixed scale, withguaranteed armualincrements, no production incentives, and no merit-related increases.

The company is non-union, and has resisted union organizing drives in 1987 and 1991 .fold interviews with workers indicate that the company pursues active union suppressionstrategies. The primary method of increasing employment flexibility is througlitheuse of contractand casual labour in its indirect operations. At the time of this study, there were about 500contract workers in thenIant, working jobs such as staffcanteen, security, and materials handling.Contract workers are paid at the minimum wage. The relatively short tenure rates (average 2years) and the high rates of labour turnover (30%) appear to be a consequence of Uniden's low-cost employment practices, according to several workers'

4.7 The oil industry: Patron

We chose to study Petron solely because this was an industry heavily affected byglobalization. Just as the banking industry was recently deregulated, this company was alsorecently privatized. However, we were unable to gain access to Petron's two major competitors,Caltex and Shell. This industry has been criticalIy aff^cted by both globalization and the financialcrisis, making it important for this study.

Petron is an interesting case study since it is the only company in our sample that hasbeen privatized. Petron has a rather long history as a multinational, having started out as StandardVacuum Oil, then being bought by Esso (a subsidiary of Exxon). Esso pulled outin 1973, whenthe Philippine Govennnent bought the company, renamed it Petro Phil, and ran it as a subsidiaryof the Philippine National OilCompany. In 1994, Petron was privatized. It's current ownershipstructure is dominated by ATamc0 (40% of equity) and the Philippine Goverrrrnent (40% ofequity) with the balance (20%) held publicly. One important outcome of the merger is that thisis a Filipino company with Filipino values. Although the company appears to be "international"or "Western" in its strict compliance with established policy, at the same time it tries to be"Filipino" in the consideration and accon^nodation given to its employees, despite the dictatesof a given policy. This, as we shall see, is a hard balancing act to manage.

During the Marcos era, the oil industry in the Philippines was heavily regulated. TheGovenmient pegged the price of oil, and if the price of crude increased, the oil price stabilizationfund provided oil companies money from the fund. Ifthe price of crude went below the peggedprice, the difference between the market and pegged prices served as inflows into the fund. Theoil crisis of the 1970s broke the Goverinnent's back in this regard, and resulted in the pulling


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out of several international oil companies. After the shakeout, only Petron, Caltex, and Shellremained in the retail trade.

Currently, Petron is the biggest supplier of conrrnercial gasoline for the domestic market,with a market share of 42 per cent and about 1,052 outlets. Shellhas a 36 per cent market share,while Caltex has about 17 per cent. However, retail gasoline is not Petron s only product. Itproduces LFG for both industrial and residential purposes, and is the market leader in thatsegment, had, it produces a number of fuel products for industrial uses. In the industrial sector,there is tremendous competition, with about 56 new entrants.

The market for Petron's products has been very stable. Its biggest customers are theNational Power Corporation; the San Miguel Group (one of the largest industrial houses in thePhilippines, a market leader in almost every facet of its multifaceted business operations, and agroup that has experienced consistent growth over the last two decades); the military; andPhilippine Airlines. Thus, by virtue of its Government ownership, Petron had a stable market inbeing the only supplier to other Goven^nent concerns - notably the airlines, the military, andthe National Power Corporation.

Yet, by 1994, it was clear that the stability of Petron's markets would not last long. Forone, its biggest customer (the National Power Corporation) is to be privatized. Second, the newentrants in the industrial fuels segment promise to give Potion a mm for its money. Further, theeconomic crisis in the last few years has hit Petron hard. Although they recorded a profit of 4.7billion pesos in 1996, they reported aloss of 830 million pesos in 1997; by the third quarter of1998, the loss had grown to 2.7 billion pesos. Several factors have contributed to the loss. Thefirst was the ceiling on the price of gasoline, even though the price of crude had increased.Second, with the financial crisis, the peso-dollar eXchange rate hit Petron hard, as the value ofthe peso dropped from 26 to the dollar to 42 to the dollar, resulting in almost a doubling ofimport costs. Third, deregulation brought a 4 per cent differential tariff between crude oil andproduct imports, thus allowing the new players (with product imports) an. unfair advantage.Nthougli cases have been filed against his discriminatory provision, a decision has not yetbeen reached. In any case, in February 1998 a new deregulation law was passed (following thederegulation period beginning October 1997) when the Government pegged the price of oilagain.

Petron's response to the financial crisis has been different from that of its competitors.Some competitors have tried to reduce prices, with support from their parent companies. Othershave tried to streamline operations by cutting times of sale (squeezing out more sales in a morelimited time-frame, thus saving on aimiinistrative costs). For Petron, neither of these strategiesis an option. However, given privatization and increased competition, Petron was already in themiddle of restructuring when the financial crisis hit. Since 1994, it has changed its businessthrusts to: ensure aregillar supply of crude oilatpref;arentialprices (given Aramco's ownership);stabilize the existing network of depots and retail outlets while trying to franchise more outletsin the Philippines; and attempt to modernize its refining operations. in particular, a project toeliminate refinery bottlenecks will yield an additional capacity of 1,5000 barrels a day, and anasphalt export loading facility at the refinery as well as newer LFG facilities at the Mabimtenninal are both scheduled for completion. Further, by 1999, the continuous catalytic refining

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project will be completed, which will allow Petron to produce more unleaded gasoline and low-sulfur diesel. Restructiimig and new investinent began long before the financial crisis, but aimostnuniediately after privatization.

As a continuing process - but clearly accelerated by the financial crisis - there havebeen major nunovations in organizational structure, bunian resource practices, and informationtechnology. It is here that the transition from a staid goverirrnent-owned enterprise to a moredynamic profit-oriented concern is apparent. The fundamental focus is increased managerialcontrol and efficiency. To this end, Petron has introduced a new infonnation technology project(POLARIS) that enhances both efficiency and control, with the ability to increase assetoptimization, transactional excellence, and integrated infonnation systems essential for goodmanagerial control.

But as part of uns structure there is the need to introduce more dynamic 1/1^ practices. Itis important to understand that Petron's practices for many years reflected the stability of thebusiness coupled with the security of elite govenrrnent employment, whether at the managerialor blue-collar level. Recruitment at the bigli school level, most promotion from within, fulldedication to training and development rather than external hintig, in-company training, veryfocused on-the-job training that is highly specialized and narrow, with little focus on cross-training or flexibility: all these things characterize the HR policy of the company. Thecompensation policy was to ensure that Petron paid above market rates, with an average blue-collar salary of 18,000 pesos a month - higher than the Metro Manila average of 13,000 pesos.

Perhaps the most significant change in human resource management has been the effortto link pay to perfonnance, As a first step, Petron has created a more result-oriented perfoiniariceappraisal system. A new system emphasizing performance for all functional areas has beenintroduced. The total salary increase pool is decided based on the key performance targetsachieved, and staff departments are paid based on the average perfonnance of the line functionssuch as refilling, marketing, and supplies.

Overstaffing, especially in the executive ranks, is a major problem. The corporate humanresource department had17 people (of a the total Petronworkforce of only1,700). Clearly, asboth internal and external consulting evaluations suggest, they are heavily over staffed and couldbe reduced to eiglit people. Average turnover in Petron (at roughly 0.2% a year) has been verylow, given the excellent pay and benefits. Of a total of 1,700 employees mumediately after thefinancial crisis, Petron reduced staff to 1,300. Roughly half of this reduction consisted ofprofessionals, while the number of managers was reduced by 20 per cent, and blue-collar workersby 30 per cent. However, as the human resource managers aimit, the company is still top-heavy.


On the labour relations front, the 600 blue-collar workers are unionized into tiree companyunions. The Petron staffemployees association representing the clericals are affiliated to anationalcentre 0.1ATU). Labour-management relations have been amicable, with a history of only twostrikes- oneiri 1987, and awildcat strike in 1992. Thereis alabour-management councilwhichhas been in existence since the early 1990s, but it doesn't seem to be working as structured inthat the infonnal methods of settling problems through discussions with the union still appear to

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be more important than operating through the fomial structure of the council. Over the last fewyears, Petron management has tried to create a more open and transparent aimosphere with acornmiiment to discuss their plans with the union before making major changes. However, thisconnnitment has only manifested itself in providing the union infonnation before releasing it tothe public.

The challenges facing Petron on the business front are fonnidable, as it needs to investheavily in refining technology and benchmark itselfwith the best in the oil business. One corollaryof this challenge - and a critical one - is to make Petron management more efficient. The chiefexecutive and the vice president for corporate plainitng are representatives of ATamco, and thes'etwo people have brought a more professional orientation to the company. But the key need is forthe human resource management function to change. There is a clear need to recast the ERmandate from mere prograinme administrators to that of change agents, since the entiremanagement culture needs changing. imparticular, 111< needs to pave the way for several changes,such as dec^;ntralizing managerial decision-making, helping people adapt to new technologyand culture changes, and helping to implement Continuing employee reductions. Consequently,HR is now involved in institiitional plaining and budgeting for all departments, and is graduallybecoming more like a strategic partner in the business. Yet, HR managers themselves need furthertraining to understand the business they are in.

Onenew strategic direction is enhanced flexibilitythrouglisubcontracting. increasingly,maintenance is done on contract, as are special projects. Petron has also made extensive use oftop management consultants like Arthur Andersen during the last two years to changeorganizational structure and functions.

Overall, the experience of Petron suggests that privatization and globalization have forcedfundamental changes in employment relations (as part of a fluidamental change in the characterof the organization) as it struggles to move from the relative security of govennnent ownershipand stable markets to a private finn competing on global tenns. Employment relations arebeginntng to take on a more dynamic orientation but, as we suggest, this will take some time.

It is interesting to compare Petron with its closest competitor, Shell Philippines. A1ftiougliwe did not manage to complete a case study of Shell, we did have infonnal discussions withmanagement and the unionleadership. What is important and distinctive about Shell's approachis its market-based 111^. management system. Formstance, there are nopromotions. Every vacancyis advertised within the company and anyone can apply for the position. Only biglily skilljobsare "owned"by Shell: every sent-skilledjobinttie companyhas been contracted out. Formstance,all distribution and maintenance has been contracted out, with Shell supervisors in each of theseareas responsible for seeing that the contractors meet Shell standards. All Shell employees areprovided with three days of jungle survival training in the Subic Bay Forest area, to ensure thateach employee understands what it means to survive in a highly competitive market. The companyhas invested heavily in training for multi-skilling; pay is based on perfonnance; and extensiveuse is made of overtime. Although the gross monthly pay of a Shell rank-and-file worker in therefinery is about 27,000 pesos, the regular use of overtime boosted earning to 40,000-50,000pesos a month over five or six years' Thus, by limiting overtime during the financial crisis,Shell employees were earning only 50 to 60 per cent of regular take-home pay. Labour-

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management relations at Shellhave been cordial, not least because of the focus on keeping onlyhighly skilled people as company employees' There is a labour-management council, but theunion has ensured that only union representatives are elected, thus they control the council.

While Petroli is attempting to slowly become more efficient, Shell seems to have evolvedinto a very "lean and mean" organization with highly flexible ER and HR practices.

4.8 Agrolndustry: Azucarrera Don Pedro (ADP)

Considering the significance of agriculturein the Philippines (the largest employer) andthe need to exariiine an industry focusing strictly on the domestic market, we chose to examinethe sugar industry, using this one finn as a vehicle to examine the broader employment relationspatterns in the industry.

This company is one of the largest sugar refiners in the Philippines. The Philippine sugarindustry is characterized by low yields, with an average of 57 tons per hectare, compared withthat of Colombia at 122 tonsper hectare. Productivity is low on Philippine farms, andtheholdirigsare rather small: 7,476 growers have '28,500 hectares under sugar cultivation (4 hectares pergrower) so mechanization and intensive cultivation is often not possible. There are inter-regionaldifferences. Luzon, for example, has lower land holdings (I-3 hectares), while in Negroes thefigure is biglier. But harvesting costs in Luzon and in Manila are 130 pesos a ton, versus 65pesos a ton in Negroes.

The major crisis to hit the sugar industry has been EI Nifio. The effect of EINiiio was toessentially dry up the land, resulting in even lower yields. Thus, sugar supply was criticalIyaffected, resulting in an increase in the sugar price from 650 pesos a bag to 700--800 pesos abag. The cost of imported sugaris 800 pesos a bag with tariffs; but without tariffs, it is as low as400 to 500 pesos a bag This comparison gives a sense of just how higli sugar production costs inthe Philippines are. Clearly, themdustry is surviving because of tariffprotection. Without tariffprotection, the lower costs of foreign sugar (imported from Australia, Brazil, and Thailand)would drive Filipino growers completely out of business. Here is a concrete instance whereglobalization poses antajor threat. In response to the shortage, the Govenmient has allowed theimport of sugar up to 2 billion pesos. However, refiners have been given only 25 per cent of theimported sugar to refine.

The total Philippine market for refined sugar is about 2 million tons . The Philippinesproduces 1.6 million tons of refined sugar, but 150,000 tons go to the United States as part of atrade agreement. This means a shortfall of about 500,000 tons, of which about 200,000 tons ismet by imports. The balance has to be met by increased productivity in the Philippines. Thereare about 41 sugar mills and 18 refineries in the country.

ADP is not a grower of sugar. It only offers refilling facilities, but does sell on its ownaccount 35 per cent of the sugar that it is given by sugar growers. The market for ADP's outputis quite stable. Coca-Cola is its largest customer taking 60 to 65 per cent of its output. Coca-Cola's own market projections suggest that the volume of Coke consumed in the Philippineswill double within five years, thus ADP is assured of some degree of stability in its markets.


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Nestle is another big Grid-user. In the last two years, Coca-Cola and Nestle averaged about 20per cent of total sugar consumption in the Philippines. ADP's average mark-up is about 11 percent; labour costs account for about 15 to 18 per cent of sugar production.

The key effect of EI Nino in lowering production was to force sugar refineries to cutlabour. ADP offered a voluntary retirement scheme, with two months for every year of service.They wanted to attract about 80 workers, but 250 applied. Given the lower volumes in 1995,they did not r^ject any application, since they also re-engineered production and instituted asignificant amount of cost-cutting. One example is the subcontracting of hauling sugar from thegrowers to the refinery. The cost of hauling is 37 per cent of the manufactiiring costs, but theycontracted this out, resulting in 170 excess drivers and handlers.

4.8. , Labour-Management relations

All independent union in this refinery consists of about 600 workers, The collectivebargairitng agreement had been negotiated without any lawyers present. Through a labour-management councilthey have been able to implement reduced job classifications. The councilmeets once a month and its purpose is largely to provide infonnation to workers'

Labour-management relations is cordial, but had never been so in the past. in 1983 and1984 it was adversadal, largely because of management style. in 1988 a new manager tookover, and his personal style was more inclusive. Over the last ten years he has been involvingthe union leader in most decisions, and has built up the council. It took only 45 days to negotiatetheir last agreement. The agreement is for five years but economic tenns will be Tenegotiatedevery two years' The council discusses issues in the collective bargaining agyeement, but otherissues as well. They havejointly developed a code of industrial harmony.

in tenns of HR management, over the last five to eight years this Tethery has had torationalize its production methods, Since the cost of sugar is tied heavily to the size of holdingsandfannproductivity, and giventhehighercosts of localsugaroverimportedsugar, refiners havehad to constantly make improvements to maintain their margins. Thus, they have introducedmulti-skilling, tied wages to more training, and tried to introduce behavioural progr. arumes toensurequalityconsciousness amongworkers. Labourtumoverinthis depressed economyiszero.

This industry is a good example of what a powerful influence globalization can be.Eliminating tariffs on sugar imports would kill off the industry completely, given the size ofland holdings, the inability to gain economies of scale from large. scale operations, and thebiglier production costs from various indirect costs. Already the cost of Philippine sugar is higherthan that of Thai sugar. Tariffs are going to be eliminated under AFTA (given the Philippines'membership in ASEAN). Thus, it is critical that growers and refiners reduce the costs of gow^Igand refining sugar. ADP is a very good example of companies that have made a serious effort torestructure production, invest in new technologies, and seek cooperation with labour union leadersover the years' These are impressive steps, since traditionally sugar refiners have typically beenfamily-run concerns, operated in a more feudal style, Globalization is the major force that ismoving these companies to professionalize themselves. ADP itself; for example, acquired amore profiessional managerial staff only about five years ago.

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5. Conclusion

The basic purposes here are to summarize globalization's effects on employment relationsin the Philippines and to raise questions regarding employment relations policy-making in thePhilippines.

5.1 Industries, firms, and globalization

Sinitlar to the results in india, there is considerable variation in the way industries havereacted to globalization.

5.1. , The consumer appliances industry

This industry has been extremely hard hit by globalization, largely throug}I the influenceof the Montreal Protocol on global warming which forces countries to desist from using fi'eon inrefrigerators. Globalization has also resulted in cost pressures for this industry, as refrigeratorsmade in neiglibouring countries are much cheaper. The Asian financial crisis has only acceleratedthe moves made by Philacor to restructure its operations. The focus of restructuring is attainingfunctional flexibility, largely however, througligreenfieldoperations. As such, Philacorhas beenable to introduce a host of human resource itinovations consistent with attaining functionalflexibility, including benchmarking their ER prograinmes with the best in the world. The financialcrisis has only helped Philacor to restructure operations through increased union acceptance ofmarket realities. There is little evidence that the company is begin^g to pursue collaborativelabour-management relations, however.

5.1.2 The banking industry

The impact of globalization on the banking industry is a little more diffuse, andis relatedmore to the liberalization of the industry following deregulation in 1993-1994, which alloweduniversal banks to enter all aspects of the financial business, particularly myal credit. The pressureshere have been mostly competitive pressures from within - particularly with the entry of foreignbanks. However, the pace of reform in the batiks that we have studied was extremely slow. 1/1particular, the PI. IB (the bank that was privatized) as well as FEB are only beginning to attemptto reform ER practices. 111 both cases, they are using the foreign banks' ER practices as abenchmark. In no way can it be said that competitive 111^ practices have been introduced in thisindustry. However, the reform efforts have only recently begun. in many ways, the refbnn inthis sector is shrillar to that of the banking sector in both india and Malaysia.

5.1.3 The automobile industry

The automobile industry has been significantly affected by globalization in the Asiancontext, given that the industry is Japanese-dominated. The impact of globalization, therefore,isthldlf ' ' 'is seen in the regional production plans of Japanese companies. 11< and ER systems meet regionalJapanese standards and follow Japanese methods of production organization and workforcemanagement. However, there are someimportant differences across companies. Whereas Toyota

Conclusion

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has managed to put in place the Toyota system without trade unions, Mitsubishi has a tradeunion, with which relations have not always been good. Although labour-management relationshave improved in recent years, the financial crisis has strained relations further. Both companieshaveintroduced state-of-the-artllR. practices (state-of-the-artin South-East Asia) but at Toyotathis has amounted to a complete transplantation of the Toyota system, while Mitsubishi hasjustintroduced or is beginntng to introduce competitive practices. The impact of globalization onlocal producers has been devastating. Francisco Motors, hitbyiricreasedintemationalcompetitionas a result of globalization, has seen its markets erode and is on the verge of closure. Further, itspaternalistic management style is seriously threatened.

The Asian financial crisis has severely hit the automobile industry by reducing demand,and all companies have had to accept workforce reductions. Toyota' has been more reluctant tolay off people- than has Mitsubishi. Toyota's practices during this period of the financial crisishave set the standard that the industry aims to reach, but not all companies have invested inhuman resource development the way Toyota has so, logically, Toyota stands to lose more bylay-offs than its competitors.

5.1.4 The electronics industry

This industry has been globalized since its inception, as it is aimost completely export-oriented. And the industry is heavily dependent on the demand for semiconductors. Thus,slowdowns in worldwide demand for semiconductors have affected this industry since 1994-1995. The human resource systems in this industry are benchmarked to the best practices acrossthe worldwide electronics industry, and thus a Motorola factory in the Philippines has much thesame ER and ER principles and practices as a Motorola factory anywhere else in the world. Oneunique characteristic of this industry is the focus on non-union operations, and all three finnssurveyed here have followed vigorous anti-union policies. The case studies also highlight thedifferences between bigli-cost andlow-costproducers, with low-costproducers tending to followmore numerical flexibility strategies (e. g. Uniden), whileltigh-cost producers tend to focus moreon functional flexibility.

5.1.5 The petroleum products industry

Globalization per se has not had much of an impact on this industry other than in changingoil prices. However, deregulation (in the price of gasoline) has been the major impetus towardseconomic restructuring. We were able to study the market leader here - Petron. All addedcomplication was that Petron was privatized in 1994. Thus, the major efforts at restructuringindustrial relations and human resources at Petron has more to do with privatization than anyttiingelse. had, as our case suggests, this process has only recently begim.

5.1.6 The sugar industry

Studying the sugar industry has provided an interesting dimension to globalization impactsin that we are 'for the first time in this project looking at an agro-based industry. While weprimarily examined the sugar-refining part of the industry, it is clear that the competitiveness of

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this industry internationally has less to do with the refining process than with sugar cultivation,Thus, this industry is one example where globalization must inevitably lead to some sort of landrefbnn such that the size of holdings can be increased to enable more efficient farming to raiseyields. The Philippine yield per hectare is lower than any major sugar grower in the world. Andsugar supply is controlled by the Goverinnent, in that the Government restricts the amount ofsugar imported. Both globalization and regionalization will affect the Government's ability tocontinue to control supply; hence this is a serious issue for further study and action. In 111^practices the sugar refining industry is only recently being modernized.

5.2 General employment relations issues

In general, a couple of broad trends can be seen in workplace employment relationsissues. The first trend is a clear movement to creating a core and periphery divide in the workforce.The core workers are those who have pennanent employment, are the recipients of training andother investments in human resource development, and who are being upskilled continuously.The periphery is increasing, however, accelerated by the financial crisis, and this group of casual,temporary workers is bearing the brimt of the adjustment effort. While increasing casualizationand subcontracting, there have been many instances of labour law violations. Most important,the absence of legislative support for this growing pool of workers is a significant issue.

mother trend is the movement towards functional flexibility and the introduction ofnew and modem types of human resource practices, such as teamwork, multi-skilling, flexiblecompensation, and better labour-management relations. This movement has had positiveconsequences for the human resource function. In many companies, this function has gainedmore importance. in some, human resource people have become strategic partners rather thanplaying their previous staff role, with an emphasis on professionalizing the function. Methodsto improve labour-management relations - and in non-union companies, employee relationsthrough better cornmuntcation and labour-management coriumittees - are the nomi in his gr'oupof companies and industries. Reports suggest that bargaining agreements are concluded faster,and that there has been a significant improvement in the quality of labour-management relations.The role of labour-management committees in unionized companies in promoting labour-management relations is still unclear. More research is necessary here to establish its usefiilviess.

It is important to note that another aspect of this is the policy of union avoidance, ascompanies are employing the old-fashioned strategy of using progressive human resourcepractices to keep union organizers at bay. It is hard to make the claim that any one approachdominates. In general, the nature of the industry and the competitive strategy of the fun makethe biggest difference.

These two broad trends thus support the Kuruvilla (1997) and Frenkeland Royal(1997)hypothesis about the effects of globalization on employment relations - that globalization onthe one hand forces companies and finns to adopt strategies to emphasize their competitiveness,and that these strategies may be "high-road" strategies (such as the movement to fluictionalflexibility) or "low-road" strategies (such as an emphasis on casualization, subcontracting, andother methods of attaining numerical flexibility).

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5.3 Globalization's impact on the actors

The impact on untons has been jinxed, but mostly negative. For one, under increasingcompetitive pressures employers have significantly cut their workforce, resulting in unionmembership declines. This by itself is highly significant in the Philippines, given that unionmembership figures suggest 3.5 Thinion members, althougli only 650,000 of them receive theactual benefits of unionization in the fomi of collective bargaining agi. Gements. Thus, an alreadyweak union movement is being further weakened by employer responses to globalization.Second, the financial crisis has acted as an important lever in reducing the mintancy of unionsor the ability of unions to push through changes favourable to them: the crisis has created aclimate where unions see the movement to cut costs as inevitable. There have been two typesof effects here. On the one hand, it has driven unions to be more reasonable in their approachto workforce reduction. This seeming reasonableness has also coincided with employerittitiatives in some sectors and funs to develop more collaborative labour-management relations,through labour-management cornrriittees. On the other hand, it has made many unions andworkers bitter about the company, resulting in a loss of union control and a small increase inwildcat actions.

Third, the effects of globalization, compounded by the financial crisis, has come at atime of political change where unions have lost their political influence. Arguably, extremelyweak in numerical ternis, Philippine unions have had considerable political influence. However,with the loss of most labour-friendly congr. essmen and senators in the last election, the ability ofunions to push through refonns favouring their position (like the abolition of labour-onlycontracting) is seriously affected.

Labour is also not responding effectiveIy to strengthen themselves. The fractured natureof the labour movement and the inability to merge is a critical problem. Although mergers wouldbe one way of presenting a united front, personality and ideological differences apparently standin the way. There has been some efforts at more infonnal coordination on selected issues, butthis rarely takes place.

Globalization has forced the employers to focus more on human resource efficiency.Thus, the refbnns in ER practices are all employer-driven. This is good news for IR and ERdepartments as they strive to take a more strategic role in companies, and their importance isclearly increasing. 1/1 particular, in some companies management. is also realizing the benefitsof investing efforts at promoting labour-management cooperation. However, the financial crisishas provided a unique opportunity and climate for managements to carry on extensiverestructuring agendas that may not have been possible in less turbulent times.

It is the Goverrunent whose response to the employment relations efforts of globalizationhas been the slowest and most unsure. On the one hand, the Govennnent has promoted the skillsdevelopmentsystem t}rough extensive reorganization of existing skins development institutions.One govemnient agency, the Depamnent of Trade and Industry coTl-CLARA) has attempted tofoster the growth of labour-management collaboration by encouraging labour-managementcon^nittees. Yet the weakness in the Govenrrnent's response is in the protection of union andworker rights, in enforcement of the law, and in ensuring that contract, casual, and temporary

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workers' interests are properly protected. There is urgent need for some refonn in industrialrelations in these areas.

With the financial crisis, the Govenmient has managed to orchestrate a tripartite 16nmito discuss adjusting to it. A social accord on industrial harmony and stability was signed betweenthe Philippines employers' confederation and two major trade union federations that sought toencourage mutual restraint on layoffs andindustrial disputes in February 1998, but it is unclearwhether this has helped any. The labour department has organized conferences that have resultedin regional social accords. However, absent more formal govenrrnent intervention, it is unlikelythat these accords will have teeth.

5.4 Diffusion of IR and HR practices

There is a tendency to assume that multinational companies are important diffusers ofemployment practices. This assumption is based on the notion that much of globalization's impacton the workplace is through foreign direct investment. While there have been several studiesthat have shown examples of unique national employment practices, the evidence for thePhilippines clearly suggests that multinational companies are perfonning an important role indiffusing competitive employment practices. fold in the Philippines there is a longer history ofthese influences. It is well known that the primary patterns of 11< and HR in the Philippines wereAmerican in nature, largely because Philippine industrial relations law is modelled on Americanlaw, and as kiriante (1995) notes, from the 1950s American multinational companies establishedthe main ER-HR patterns.

In the 1990s, amidst intensive structural adjustment, employment practices began tofocus on rightsizing and increased flexibility. In numerous places, Filipino finns have adoptedthe practices of multinationals through benchmarking. For example, the domestic banks hadnever used casual or contract employees, but in the last five years have introduced this practice,which had previously been found only in the foreign banks that came in after the bankingderegulation. mother piece of evidence is provided by hanante (1995) who suggests thatincreasingly managers are attempting to reorient employee work values, in particular adoptingJapanese management techniques, and hence the proliferation of 5-S's, kgizen, kamio, TQM,zero-defects, etc. In a wide-ranging survey on diffusion of best practices, Amante (1995)concludes that there is an amalgamation of Japanese, American, and local practices that couldbe ternied "best practices". A re-analysis of the same cases suggests that the local practicesmight deal with how Japanese and American industrial relations practices can be introduced to aFilipino workforce. It is hard to sort out these diffisrences, however. For example, taking decisionsby consensus and consultation - particularly through labour-management councils - is consistentwith the Filipino mindset, but it is also consistent with the Japanese way of taking decisions.However, from funante's case sindies it is not at all clear whether there is a unique pattern ofHR management that is truly Filipino and distinct from Japanese or American practices.

In a study of Japanese companies alone, kiriante investigates the extent to which 111<management practices are localized. Localization invariably meant the following: Filipinomanagers headed the human resources function; wage levels were consistent with local wagelevels; safety standards were consistent with local laws.

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Yet, there is considerable evidence that Japanese-style management practices spill overinto non-Japanese-owned companies in the Philippines. In an investigation of eight manorPhilippine companies (including several owned or o0-0wned by Western finns) various aspectsof "Japanese" style management were in vogue, such as quality circles. However, we must alsothink aboutjust how Japanese - rather than universal - such innovations are.

Yet the introduction of the Japanese internal labour market system in the Philippines -particularly in Japanese companies - is not without problems. For one, labour market mobilityis higher in the Philippines than in Japan, and average turnover in Metro Manila is 7 per centamually, which is very high relative to Japan. More important, high labour market mobility isfor skilled workers who have access to employment abroad - particularly in the Middle East.Second, Japanese managers have found problems with introducing flexible job design, giventhat the Filipinos are more used to defined job descriptions. in hiring, the Japanese companieshave eschewed their practice of hiring directly from schools (building skills inside) to hintigfrom outside, but they tend to use the referral system, nonnally from employees who are alreadyworking with the enterprise. According to funante, this is the best way of linking the internaland external labour markets.

5.5

The evidence from these cases shows two trends. On the one hand is the model where

111^. practices from multinational companies are transplanted directly and completely into thelocal finns. The American companies in the electronics industry are good examples of this, asboth Motorola and Intel have managed to introduce completely American-style ER practices.However, the electronics industry throughout Asia has had a strong history of benchmarkingwith leading finns and as such, their HR practices tend to be rather similar (as long as thetechnology used is sinnlar). The other example is a more "global" strategy where there is a mixof foreign and domestic practices. We can see this in the Japanese-owned automobile industry,in particular. For instance, while Toyota has also introduced its HR practices in the Philippines,Mitsubishihas developed morelocalizedlR-ER practices.

However, there is also pressure to shift from traditional paternalism to more professionalmanagement, as we have seen in the case of ADP and Francisco Motors, where benchmarking isnot just with multinational companies but with ally professional management.

in general, globalization has continued to have a strong impact on evolving workplacepractices in the Philippines. There appears to be a core sector that is gradually upgrading skillsto compete effectiveIy in the international marketplace, and this sector is largely comprised ofelectronics producers who are generally multinational companies. The large majority ofcompanies, however, are competing in the low-cost, labour-intensive sectors, and as such havewitnessed large employment losses as a result of casualization and contracting out over the lastdecade. The financial crisis has speeded up the movement towards fun-level restrucimjtig tlirougliweaknesses in trade union bargaining power, and has increased the trend towards employmentin the infonnal manufb. ct!ring sector. The continued wealaiess and fragmentation of the labourmovement doesn't bode well for employment security in the Philippines. Labour-managementcooperation continues to be a critical problem area , and the tendency of new finris and sectors

Evidence from this study

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to be non-union is increasing. The labour law refonn idea launched by President Ramos hasbeen on the backbumer of the Gunent administration.

Reconciling economic gi. owlh andloss of employment in the fonnal sector (accompaniedby increases in employment in the infonnal sector and export processing zones) raises questionsabout the Govenunent's overallmanpower and economic development policy. These questions,along with our recornmendations, will be discussed in a later report.

Overall, globalization's impact on employment relations in the Philippines is largely feltthrough the efforts of multinational companies who have driven the process of innovation andthe spread of best practices. The best practices, however, are not necessarily labour-:friendly andappear to be based on the absence - rather than the presence - of unionization.

From the perspectives of second-stage research, the automobile industry and theelectronics industry are clearly part of global Goumiodity chains that bear further investigation.Thereis evidence from the Philippines that the Gereffi(1995) argument regarding the impact ofglobal con^nodity chains on development in the Philippines has been important.

Conclusion

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Refe re n ces

Agarion, Marie E. 1995. "HumanResources Management: A Comparative Analysis of Japanese,Chinese, and Western Models in the Philippines", in funante, Maragtas (ed. ): HumanReso"rees lippro@ekes in the Philjj?pines: A study 91'1qp@"ese, Filipino-Chinese gridWestern owned/irms (Quezon City, SOLAR, University of the Philippines), pp. 18-52.

A1daba, L. 1994. "Foreign Direct investment in the Philippines: A Reassessment" in ProsResearchPaper Series No. 94-10 onakati, Philippine institute for Development Stiidies).

fullante, M. 1995. "Labor Relations and Enterprises Competitiveness in the Philippines" inPhilippine Journal ofl"dustytoJRelations, Vol. XVl, pp. 642-655.

Banarico-Feinando, Netitta. 1996. "Globalization anditsimpact on the Philippine LaborMarkst"in PhilippineJo"rindlqfL@bor@"dJ, Idt, strialRe!@tio"s, V01.16,1.10s. I & 2, pp. 69-98.

Frenkel, S. ; Royal, C. 1996. Globalization and Employment Relations, Paper prepared for thelLO Conference on Globalization and Employment Relations GBa!Igkok, ILO, 1997).

Gereffi, Gay. 1996. "Connnodity Chains and Regional Divisions of Laborin Asia" in Jot, matof Asian Business, V01.12, No. I, pp. 75-1/1.

Gonealo, I. ; Sanchez, M. T. C. 1998. Philippine Employment grid 1/2d"strial Retorto"s Policies. .1/13 Itssessme"t (Philippine institute fot Development Sindies).

Kuruvilla, Sarosh. 1996. "The Relationship Between Econoimc Development Strategies andIndustrial Relations: india, Malaysia, Singapore and the Philippines" mmdt, stria! cladLabor Relations Revz'on, V01.49, No. 4, pp. 635-657.

. 1996b. "National Industrialization Strategies and their Influence on Worl:place HRPractices: Case Studies in Malaysia and the Philippines" in Human Resot, reeManagement Journal, V01.6, No. 3, pp. 22^1.1.

. 1997. Globalization and Employment Relations. . A Frameworkjbr Rese@reh (Bangkok,n, 01EASMAT).

; Fagiiucco, Adam. 1994. "}^I'AFTA, AFTA, and industrial Relations in ASEAN" in Katz,Harry C; Cook, Maria (eds. ): NIIF7>I and North limen^@" Indz, stria! Relations (NewYork, ComellUniversity, Institute for Collective Bargaining).

; Chua, Rodney. 2000. "How Do Nations Develop Skills? Lessons from the SkillDevelopment Experiences of Singapore", in Global Business Review, Vol. I, No. I.

Lainez, A. M. ; Lenna, I. C. 1994, HRD Dilemmas in the Electronics Industry, University of thePhilippines Working Paper (Quezon City).

References

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Globalization and Industrial Relations in t^a Philippines

MedalIa, E. M. 1998. Trade and Industrial Policy Beyond 2000, Philippine Institute forDevelopment Studies Paper 98-05.

Ofteneo, R. 1994. Labor and the Philippine ECo"Qiny, Unpublished manuscript (Quezon City,University of the Philippines, SchoolofLabor and industrial Relations).

. 1995. Globalization and the Filipino Working Masses (Quozon City, Foundation forNationalist Studies).

; Ortiz, I. 1998. Emerging in Responses to Globalization. . Imp!fogtio"s to Unionism, Studyreport (Quezon City, University of the Philippines).

; . 1998a. G!ob@11^@tto" gildEmployme"tRel"tio"sin the Philippines, Working Paper(Quezon City, SchoolofLabor and industrial Relations, University of the Philippines).

" ; omante M. ; Ortiz, 'I. 1998. SkillsDevelqpme"tin the Philipp^"es, Working Paper (QuezonCity, UpsOLAIR, University of the Philippines).

PersonnelManagement Association of the Philippines (F'MAP). 1995. Hz, inari yeso!, reepr@cticesin the Phz7;ppt, ,es, Research report.

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