Reaping the Benefits of Industry 4.0 Through Skills Development in the Philippines

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• Publisher: Asian Development Bank
• Year: 2021
• ISBN:
  9789292624644
• Topic: Business
• Subtopic: Industria informatica
• Index: Business

This report explores the implications of the Fourth Industrial Revolution (4IR) on the future of the job market in the Philippines. It assesses how jobs, tasks, and skills are being transformed in the information technology-business process outsourcing industry and electronics manufacturing industry. These two industries have high relevance to 4IR technologies and are important to the country's employment, growth, and international competitiveness. They are likely to benefit from the transformational effect of 4IR, if there is adequate investment on jobs, skills, and training. The report is part of series developed from an Asian Development Bank study on trends in skills demand in Cambodia, Indonesia, the Philippines, and Viet Nam.

CHAPTER 1

The Industry 4.0 Skills Challenge

This chapter investigates the demand and supply of skills driven by Industry 4.0 (4IR) technology adoption for both the information technology and business process outsourcing (IT-BPO) and electronics manufacturing industries in the Philippines. The analysis utilized a range of data, including employer surveys and interviews, online job board data, and national labor market statistics.

In both industries, the impact of 4IR will be transformative for jobs and skills. The analysis shows that despite widespread concerns of significant automation and loss of jobs associated with 4IR, the net impact on jobs for both industries to 2030 is likely to be positive, with more jobs being created than lost. However, there are no guarantees that displaced workers can seamlessly move into these new jobs, as they will likely lack the relevant skills. In both industries, 24% of the current workforce could potentially be displaced by technologies related to 4IR. While the overall patterns of impact in the two industries are similar, there are some important differences. For example, automation of jobs will be potentially higher for men in the IT-BPO industry, whereas in the electronics manufacturing industry, automation will have a greater impact on women.

In terms of skills, evaluation, judgment, and decision-making and numeracy will become more important by 2030 in both industries, but the electronics manufacturing industry will also require significant increases in technical skills. There will also be a greater need for advanced technical skills in electronics manufacturing vs. in IT-BPO.

Both sectors will demand additional person trainings by 2030, 14.2 million from the IT-BPO industry and 7.5 million from electronics manufacuring.¹ In both industries, on-the-job training will be the critical form of skills development.

Industry 4.0 and the Relevance for the Philippines

4IR is a widely used but often misunderstood term that refers to a range of new technologies impacting the workplace. The term was first conceptualized to describe data exchange technologies used in manufacturing. However, it has now acquired a broader meaning (and is sometimes referred to as the “Fourth Industrial Revolution”), where it refers to technologies applied across all sectors that combine the physical, digital and biological worlds.² These technologies include (among others) cyber–physical systems, the Internet of Things (IoT), artificial intelligence (AI), cloud computing, and cognitive computing.

4IR is a very different concept from previous industrial revolutions, both in terms of scope and technologies (Figure 1). The first industrial revolution in the 18th century was marked by a transition from hand production methods to machines through the use of steam power and water power. The second industrial revolution occurred in the 19th century and involved the use of extensive railroad networks and the telegraph to allow the faster transfer of people and ideas, combined with factory electrification and the creation of mass production assembly line approaches. The third industrial revolution occurred in the late 20th century and is often referred to as the digital revolution, involving the use of computers, the internet, robots and automation, and electronics manufacturing. 4IR builds on these past industrial revolutions but includes a far broader array of technologies with applicability across all industries. In this regard, it is fundamentally different from the past industrial revolutions in its potential implications for economies and the workforce.

Figure 1: What is Industry 4.0?

Source: Asian Development Bank and AlphaBeta.

What could 4IR mean for the Philippines? According to an International Labour Organization (ILO) study in 2017, Philippine enterprises perceived the advance of technology as the second biggest economic opportunity in the period to 2025, just after a rise in domestic demand.³ However, adoption rates of 4IR leave much to be desired. The same study found that only 27% of Philippine enterprises are currently actively upgrading their technology. Costs seem to be a major reason, as over 30% of firms cited high fixed-capital costs as the main barrier to upgrading their technology and another 15% cited high licensing costs. 4IR also holds a large opportunity for the country due to its current underuse of technologies, and hence, large potential room for improvement. For example, the Philippines ranked 54th in the Global Innovation Index 2019. While this is a significant improvement from the previous year’s ranking of 73rd, the Philippines is still behind fellow Association of Southeast Asian Nations (ASEAN) member states such as Malaysia (ranked 35th), Viet Nam (42nd), and Thailand (43rd).⁴

With the large potential impact of 4IR technology adoption, there are concerns about the impact on employment. Most concerns revolve around fears that 4IR could lead to mass unemployment as (i) workers are replaced by machines or (ii) workers do not have the right skills to effectively work alongside 4IR technologies or transition into new emerging jobs. According to the ILO, 49% of employment in the Philippines is at high risk of automation (footnote 3). There are also potential gender equity concerns. The probability of occupying a high risk, automatable job is approximately 2.4 times higher for women than for men.

Understanding how the skills landscape is likely to change under 4IR is becoming harder in the face of the rapid pace at which technology is developing and being adopted. This means traditional approaches to assessing skills gaps, often relying on time-intensive processes to collect data that quickly become outdated, may no longer be suitable. This study explores a new approach to understanding the labor market implications of 4IR that tries to address gaps in previous studies. Some of the key design aspects in the methodology include:

(i)Use of local data. This study uses a variety of local data sources, including the Philippines’ National Labor Force Survey (LFS), the World Bank’s Skills Measurement Program (STEP) survey for the Philippines, as well as surveys of Philippine businesses in the IT-BPO and electronics manufacturing industries.

(ii)Use of current market information. Given the rapid change in the labor market, existing labor market surveys can quickly become obsolete. To address this concern, this report uses information on skills profiles for current occupations advertised in online job portals in the Philippines.

(iii)Focus on supply, not just demand. Much of the past research has examined only changes in occupations and skills related to 4IR.⁵ This study aims to go further by examining the supply landscape, including understanding the volume and types of training required (e.g., on-the-job training, short professional courses, etc.) and conducting a survey of current training institutions in the Philippines to understand the degree to which they currently address the shifts in demand for skills being seen in this analysis.

Industry Selection

Two industries were chosen to conduct this analysis of 4IR implications for the demand and supply of skills. A two-step methodology was used to select the industries:

(i)Shortlisting industries prioritized by the Government of the Philippines for future growth or for 4IR application. This included reviewing the Philippine Innovative Inclusive Industrial Strategy (I³S), the Philippine Development Plan 2017–2022 and the National Technical Education and Skills Development Plan (NTESDP) 2018–2022.

(ii)Scoring and ranking shortlisted industries according to a set of criteria:

(a) How significant is the industry’s contribution to the country’s employment?

(b) Does it figure strong recent employment growth?

(c) Are its exports internationally competitive?

(d) Is 4IR of relevance to the industry?

(e) Is the relevant data available for the industry analysis?

The industries were then tested with various stakeholders during a country consultation conducted in July 2019. Based on this process, the IT-BPO and electronics manufacturing industries were selected for the analysis:

(i)Information technology and business process outsourcing. The IT-BPO industry in the Philippines has grown rapidly since the early 2000s. The industry’s annual average growth rates have been estimated at 17%–18%; between 2000 and 2015, BPO’s contribution to total gross domestic product increased from less than 1% to 6% (footnote 5). The industry’s rapid development has been driven by a large pool of service-minded and English-speaking workforce, supportive government policies, and business associations (footnote 5). According to the IT & Business Process Association of the Philippines (IBPAP), the industry contributed 2.7% to total employment in the Philippines in 2016 and accounted for 10%–15% of global IT-BPO market share. The information and communications technology (ICT) services industry, much of which falls under IT-BPO in the Philippines, is also the most desired industry for students to work in, for both men and women: 25.7% of male and 18.5% of female Philippine students surveyed by the ILO in 2017 expressed a desire to work in this industry, almost double the share of the second most desirable industry (hotels or restaurants). The industry is also facing large potential disruption by 4IR as 89% of Filipino BPO workers are at high risk of automation (footnote 5).

(ii)Electronics manufacturing. According to the latest available national statistics, the electronics manufacturing industry contributed 2% to total employment in 2015. According to the United Nations Conference on Trade and Development statistics database, electronics manufacturing made up 10.5% of the Philippines’ exports in 2018, being the fifth largest exporter of electronics manufacturing in Southeast Asia and 19th worldwide. The country also has a comparative advantage in both these product groups. The electronics manufacturing industry has been highlighted as a key industry even among the industries prioritized by the government for 4IR technology adoption. From country consultations, it emerged that there is a push by both government and industry to shift industry activities further up the value chain—from parts manufacturing toward fully fledged assembly and production centers. There are also early collaborations between industry, government, and educational institutions in place, but stakeholders voiced a need to understand skilling impacts and priorities.

Information Technology–Business Process Outsourcing Industry

IT-BPO could be transformed by 4IR. Digital technologies have created the market opportunity for IT-BPO and further 4IR technologies (such as chatbots and the use of big data) to greatly improve productivity. However, the labor market disruption could be significant given the advancements in AI-related technologies that can increasingly automate some of these services. This research estimates that 4IR technologies could displace 24% of today’s employment in the industry, which represents more than 286,000 workers. This is based on insights from the current...

Table of contents

• Front Cover
• Title Page
• Copyright Page
• Contents
• Tables, Figures, and Boxes
• Foreword
• Preface and Acknowledgments
• Abbreviations
• Executive Summary
• Chapter 1: The Industry 4.0 Skills Challenge
• Chapter 2: Overview of the Training Landscape
• Chapter 3: National Policy Responses
• Chapter 4: The Way Forward
• Appendix: List of Participants Engaged During National Consultations
• Bibliography
• Footnotes
• Back Cover