© Provided by Nikkei Asian Review l YUTA TSUNASHIMA, Nikkei staff writer
Tsuneishi Heavy Industries (THI), a subsidiary of Tsuneishi Holdings in Fukuyama, Hiroshima Prefecture, is one of foreign firms building ships in the Philippines. It currently operates a large dockyard with huge cranes on the west coast of Cebu Island, about a two-hour drive from the east coast where the airport and many resort hotels are.
The shipyard is huge at 1.47 million sq. meters, about 200% larger than Tsuneishi Group's shipbuilding yard in Fukuyama. Roughly 13,000 workers, including subcontractors, work at the establishment, which boasts a 450-meter dock for building vessels.
Tsuneishi Holdings has invested roughly 60 billion yen ($551 million) so far in the yard, which was built in 1994 and celebrated its 20th anniversary late last month.
Many of its employees hail from elsewhere, suggesting that Tsuneishi is well-established as a leading employer in the Philippine manufacturing industry.
Currently, around 70 Japanese employees work there. The company has sent a total of 1,400 local employees to Japan, not only for training but also for transferring technology and knowhow.
The Philippines-based operation has become one of the major production bases of the Tsuneishi Group. This year, THI expects to build a total of 20 ships, mainly bulk carriers for iron ore. This means that THI makes nearly 40% of the ships built at Tsuneishi Group production bases, including those in Japan and in Zhoushan, Zhejiang Province, China. THI President Hitoshi Kono said the unit hopes to grow further, and targets building 30 ships per year by 2018.
THI's ambition is to become a "mother factory," responsible for product design and for standardizing production specifications and conditions in Southeast Asia. The company is also looking to build more shipyards in Asia.
According to U.S. research firm IHS, in 2013 Filipino shipbuilders built a total of about 1.33 million tons of ships, 50.8% of which was built by THI. The figure covered only ships whose gross tonnage was 100 tons or more.
Global pressure
However, the Japanese shipbuilders are facing a tough business environment. Pressured by rivals from China and South Korea that are superior in both size and competitiveness, Japan's shipbuilders's share of the market has been hovering below 30% since 2008. They once boasted a global share of more than a half of the market.
Following the advice of the Ministry of Transportation that Japan's shipbuilders should pursue strategic expansion into overseas markets to win more shipbuilding orders, Tsuneishi is accelerating its shift of production bases to other Asian nations. It plans to sell its factory in Tadotsu, Kagawa Prefecture, to Imabari Shipbuilding at the end of this year.
Meanwhile, Hanjing Heavy Industries, a midsize South Korea-based builder of mainly container ships, made 48.9% of the ships built in the Philippines in 2013. This means that most ocean-going vessels built in the Philippines were made by the two foreign players. The South Korean company started building ships in Subic Shipyard on the Philippine island of Luzon on a roughly 2.3 million sq. meter site, much larger than that of THI.
The drive of overseas shipbuilders to expand operations in the Philippines is also in line with a strategy projected by Manila -- to be a major shipbuilding nation, as part of a larger plan to develop a domestic manufacturing industry.
Logistics operations in the Philippines, which has as many as roughly 7,100 islands, are largely dependent on maritime transportation. However, most coastal vessels used by the country's carriers are old second-hand ships purchased from overseas companies. Demand for smaller vessels for domestic maritime shipping is expected to grow there. Unfortunately, however, many of the around 100 shipbuilding yards operated by Filipino companies are too small to build new ships from scratch. All they can do now is to repair or remodel vessels.
Accordingly, the government offers a variety of incentives to attract foreign shipbuilders to the country, such as tax exemptions for a limited time. Manila also forgoes a corporate income tax for export-driven businesses that have established bases in special zones designed by the Philippine Economic Zone Authority.
The English proficiency of Filipino employees also attracts shipbuilders from English-speaking countries. Australia-based Austal, a global manufacturer of aluminum commercial ships including passenger vessels, and Singapore-based Keppel, which mainly repairs, converts and upgrades a diverse range of vessels. They both operate large dockyards in the Philippines.
Although the country's 2013 shipbuilding share was only about 2% of the global market, of which 90% was occupied by the three biggest shipbuilding nations -- China, South Korea and Japan -- the country can be confident of its future. The volume of cargo shipped through Southeast Asia's so-called "maritime corridor" is likely to surge, as Asean Economic Community is slated to launch in late 2015.
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