PHILIPPINE L STITUTE FOR DEVELOPMENT STUDIES Working Paper 83-01 .

- xii - Tabl eNo u. Descri t2 9 ' Major Reasons Givenfor Type of Market Outlet 11.33 Least Preferred II.34 Modes of Transport/Delivery 11.35 Months With dents Ii.36 Pricing iI.37 . P ,e No . to Market Peak Sales9 As Cited 11-64 Outlets by R pon, 11-67 ' " II-69 Practic&S Distribdtion Percentage II-66 of Respondents According of Credit Sales to Total II-71 l!1.38 Credit 11.39 Application of Receivables, Purchase Orders and/or Postdated Checks to Supplier's 1 Credit or Other Financing 11-73 11.40 Distribution of Respondents According Usual Downpayment on Sales 11-75 11.41 Growth in Philippine Exports of Wood-Based Furniture and Fixtures in Comparison with Growth of Total Philippine Exports ! 11-76 11.42 Major Countries of Destination of Philippine Exports of Wood-Based Furniture and Fixtures (1976-1980, in FOB Values) 11-78 I ITM jor llCOl tries of .Destirmtionilof Philippine Exports of Wood-Based Furniture and Fixtur s, Including Builderl's woodwork (19761980 in FOB Values) 11-79 11.43 Terms on Sales Sly Buyer to Sales ' 11-72 Type to ".[ I!.44 Distribution of Respondents Export Sales (1976-1980) According 11.45 General CharacteriStics of Exporter-Respondents Compared go Entire Sample 11-87 II.46 ' Extent of Owner's Responsibility Managerial-Functions II-94 11.47 Number of Piersons Primarily Responsible Major Managerial Functions 11.48 Extent of Preparation 11.49 Reasons of Business for Preparation to 11-85 in Major for Reports of Business Reports ii-94 11-97 11-97

- xiii - Table No. Descri with Pa e No. Iio50 Registration C vernment 11.51 Average Total II.52 Sources of Financing 11.53 Supplier's Credit as a Percentage Total Borrowings 11.54 Major Problems II.55 Collateral Requirements Source of Financing 11.56 Imputed 11.57 Major Borrowings I!-i00 in 1980 11-102 11-103 of 11-104 in Firmncing Interest Problems Agencies II-108 According to Rates on Supplier's 11-109 Credit Cited by Respondents 11-115 III.I. Regional Distribution turers, 1977 111.2 Gross Value II!. 3 Location 111.4 Distribution Operations 111.5 Types of Business 111.6 Distribution of Responden s Labor Force by Size of 111-9 III. 7 Distribution Capacity by Output III-9 111.8 Number of Respondeuts Engaged in Manufacture, Subcontractin - and Resale of Footwear I I-12 111.9 Output Share of Respondents Force 111-1.3 III.10 Machinery/Equipment lll.ll A e Distribution of Principal 111.12 Age Distribution of All Machinery 111.13 Use of Household Labor Added of Footwear 11-112 Manufac- of the Foo mOlrlndustry 111-3 111-5 of Respondents 1-11-7 of Respondents by Years of 111'7 Organization of Respondents 111-9 By Size of Labor of Footwear Firms IIl-15 Machinery 111-17 by Size of Labor 111-19 Force 111-21

xiv - Table No. Description Pa e No. 111.14 Compensation of Household of La @Z Force 111.15 Distribution Workshift of Respondents III.16 Distribution Days of Firms by Number of Working Iii.17 Ave;age Capacity Utilization by Size of Labor Force III.18 Sources III.19 Types of Market Outlets III-32 III.20 Distribution of Firms by Percentage of Sales, by Type of Market Outlet Used 111-32 III.21 Seasonality turers III-35 III. 22 Pricin III.23 Modes of Transport/Delivery Outlet III.24 Exports and Imports Footwear industry III.25 Composition III.26 Top Ten Countries of Destination for Philippine Footwear Exports 1976-.1980 III-49 111.27 Number of People Primarily Responsible Major Managerial Functions 111-52 III,28 Extent of Owner Responsibilit? l na erial Functions 111.29 Extent 11!.30 Reasons for Preparation III. 31 Sources of Financing III. 32 Size Distribution III.33 Maturity of Information of Sales Labor by Size 111-21 by Length of of Respondents on Technology of Footwear 111-24 III-25 II1-26 III-29 Manufac- Practices 111-39 of of Footwear of Preparation to Market III-39 the Philippine III-41 Exportsj III-43 for in Major of Business Reports of usiness Reports 111-52 III-53 III-53 III-55 of Borrowings of Suppliers' 1979 Credit III-55 III-57

- XV - Table No. Dgscription III. 34 Problems 111.35 Use of Collateral 111o36 Interest Rates on Borrowings of Financing Pa e No. in Borrowing III-61 by Source of Financing 111-62 by Source 111-63 IV.1 Gross Value Added Leather Product in the Leather and Industry, 1970-1981 IV.2 Values of Philippine Exportation and Leather Products IV.3 Philippine Goods IV.4 Selected Characteristics of Leather and Leather Products Establishments with Five or More Workers, 1956-1978 IV-7 IV.5 Selected Ratios for Leather Product Industries IV-12 Impcrts of Leather IV-3 ef Leather and Leather and Leather V.l Number of Respondents and Sub Contracting Product Type Engaged in Manufacturin8 of Leather Products, by V.2 Distribution Op era tion V. 3 Location V.4 Distribution of Respondemts Labor Force v.5 Employment Process V.6 Distribution Sales V. 7 Types of Market V. 8 Pricing V. 9 Distribution of Firms by Percentage Credit Sales to Total Sales of Respondents by Years of of Respondents IV-4 IV-5 V-3 v-4 V-5 by Size of of .Household Member of Firms by Level V-7 in Production V-8 of 1980 Gross V-9 Outlet V-13 Practices V-16 of V-17

- xvi - Table No. D s criptipn V.10 Extent of Owner Participation Managerial Functions V. II Sources of Information Technology on Design and @ . V-21 V.12 Extent of Preparation of Business Reports V-22 V.13 Reasons V.14 Problems V.15 Sources for Preparation in Securing of Financing in Major of Business Financing Reports V-19 V-23 V-25 ?-26

I-i I. INTRODUCTION These studies and footwear undertaken manufacturing meat Studies. grant In addition, the leather A. Objectives 1.0 financial To conduct an analysis for Develop- industry was the leather The studies products were com- from the SGV Found- Corporation. of each industry's particularly and general management and technological structures and prospects, and socio-economic To provide policy rationalization among financial market performance, costs. planning for each industry, as institutional operations development, benefits and status in the areas management, inputs to government formulation such areas 1.4 (UPBRF), of the Studies of organization 1.3 tanning were Inc. Institute assistance and future prosp cts 1.2 the, Philippines upon Financing products, and Scope of the Studies Objectives ioi bears industries. ation, Inc. and the Premiere leather Research Foundation, industry and footwear manufacturing additional of from the Philippine as this latter pleted with furniture, industries by the U.P. Business under a research studied, on the wood-based including development, and technological and industry development, others, To provide the private prehensive review of each industry. To generate useful the conduct of industry sector with experiences a fairly com- and insights studies. in TM

I-2 2.0 Scope of the Studies These industry covered as defined population Manila, studies the major in the next for each industry Bulacan, Rizal section. was drawn and Laguna, furniture included as well. ' he studies covered of each The sample from Metro wi h of that for the wood-based Cebu and Pampanga sectors the exception industry, the following primary which aspects of each industry: 2.1 Organization managerial and general management, practices and capabilities including of firms in the: industry; 2.2 Production as well facilities systems as technological and capabilities, development trends in the industry 2.3 Market factors and marketing pects particularly demand, 2.4 market Financial prafitmbility, and pros- in the areas of supply and structures, growth problems and pricing nnd perfor - nce in terms of investm ' ntand financing problems and trends 2.5 Input factors 2.6 Socio-economic and related impact foreign exchange environmental issues; and in terms of employment generation, implications as well as other and

I-3 (All references to operations firm in the survey were based unless otherwise Findings on calendar year 1980, specified.) were the industry, and status of each used to evaluate and, wherever future possible, prospects make policy of re- co--halations. 3.0 Limitations of the Studies The restriction Metro Manila, of the coverage Bulacan, Rizal of each study and Laguna and Cebu in the case of the wood-based industry) was necessitated sources. The PIDS indicated, for future extension such expansion results of coverage obtained would areas above-mentioned, secondary to a data allows nationwide however, principally apply only except where for extension the to the of of such findings firmncial information or even preventing, limiting, analysis initially team realizes analysis of the data derived to be relatively by way spotty, much of the contemplated. that, resources generated findings permitting, in the survey by the team is desirable, to further significant ations. While availability thereby firms conducted a possibility is not yet attainable, have proven further re- coverage. of a field survey The study budgetary scope/magnitudeo In general, financial (and Pampanga furniture by limited to a nationwide to of and may lead and/or policy redommend-

I-4 B. Metho d 1,0 Definition i.i of Tenns 94ood-Based Furniture Industry" the six sub-classifications Standard Industry (Manufacture except 3321(0) I/- Classification Manufacture 3323(0) (PSIC) code # 332 These and fixtures, are: and repair Of wood including - Manufacture fur- upholstery and repair of rattan furniture (feed wicker including uphostery - Manufacture to five of Philippine furniture, of metal). niture, 3322(0) under and repair of primarily refers and cane), of box beds and mattresses 3323(0) - Manufacture lockers, of partitions, and office shelves, and store fix- tures 3329(0) - Manufacture and repair and fixtures metal, 1.2 "Leather Products sub-classifications ture of leader substitutes except not elsewhere Industry" refers under PSIC and products of furniture primarily of classified. to the following code #323 of leather, and fur, e.xcept footwear (Manufacleather and wearing apparel) : -- A P 1C code presented in the form xxxx(O) is used to denote a four-digit classifications whose only five-digit sub-classification is itself.

I-5 32321 - Manufacture of luggage, handbags and of products of leather wallets 32329 - Manufacture leather substitutes, and not elsewhere classified. This study, however, those leather genuine has been products leather manufacturers as raw material some of their products. tanning ' covers and leather 1.3 "Footwear only use for at least "leather - Tanneries finishings. Industry" rubber, refers to all classifications #324 (Manufacture plastic or wood sub-classification 355 (Manufacture ture of plastic under except of footwear, footwear) products of wood and wood - Manufacture of leather 32491 - Manufacture of slippers 32492 - Manufacture of other plastic classified), and cork shoes and sandals footwear, or wood except footwear, classified 3552(0) - Manufacture of rubber 35602 - Manufacture of plastic 33193 - Manufacture of wooden accessories (Manufac- as follows; 3241(0) alsewhere 356 not elsewhere furniture), rubber, and one each of PSIC code numbers of rubber products), and 331 (Manufacture products, input #3231(0) to which In addition, PSIC code under PSIC code except restricted footwear foot, ear footwear and not

I-6 1.4 "Establishments" or "firms" within refer to those actually of the products engaged as defined turing is a minimum well and/or While requirement, purchase as any other in the manufacture above. or firms may, in addition, tracting the industries manufac- the establishments be engaged in subcon- for sale and/or activity resale, (e.g., repair), as apart from manufacturing. 1.5 "Employees" cluding refers to personnel household members or not the latter compensation 1.6 '"Labor force" hold members of the firm, ex- and/or are pald helpers, salaries for work undertaken refers to employees and/or helpers in the production process whether and/or other for the firm. and those directly participating (i e., directly involved at some or all stages of the transformation or semi-finished i. 7 'YBorrowings" includes supplier's understood to the ave .e to refer throughout "Types of market buyers transacting from endusers include credit, of and is aggregate includes directly to retailers, manufacturers products). amount Cf 1980. outlet" In the case of leather of raw all forms of indebtedness the firm, including outstanding 1.8 goods into finished house- with all types of the firm, wholesalers ran? in and others. tanning, this would of leather products. also

1-7 1.9 "Wholesaler", as used in this study, refers buyer who buys a firm's resale, whileas primarily product "retailer '" refers for sale to endusers. buyer of leather from a tannery to manufacturers of leather a wholesaler, leather without actually Accordingly, primarily sold depart For instance, who sells a primarily is treated to the quantity as of to these manufacturers. "wholesaler" in this study for to one who buys products regard to a and "retailer", from their as used common volume- based usage. 2.0 Sampling 2.1 Procedures Sampling Fra The sample population was arrived supp.rposition of thre listings, 2.1.1 1978 Preliminary at by a as follows List of Large 2/ Establish- merits--- This is a publication of the National Office Census containing and Statistics a list of establishments ing in the case of industrial ments, i0 or more people industry, employ- establish- It contains region and address (NCSO) the of each firm. /The use of the term "large '" in this publication (i0 or more employees) is inconsistent with the standard definition of 20 employees or more.

I-8 2.1.2 NAC!DA List of Registered compilation of all firms tries which registered with the National lopment 1979. registry in the three indus- as cottage (NACIDA) enerated Of firms, which upon 2.1.3 address Deve- from 1963 until from NACIDA's contains firmWs year of registration, prietor, industries Cottage Industries Authority This was Firms - This is a and number each name of proof employees registration NCSO Computer Printout - This list prepared in 1977, based is a census on a 1975 census of establishments, It contains among others, coded of employment and revenue of each List excludes 2.1.1, apart from being only establishm. Its with O the other hand firms which tO other data relative have become locations, or changed list preliminary, less than 10 employees. 2.1.2 includes non-existent NACIDA a number as NACIDA inasmuch transferred registration for five (5) years believed that many NACIDA-registered and non-renewable. the ownership, person of force, does not update registry, the name of another firm. gro, n in size of labor proprietors. ever, transfer to size is valid It is firms, how- and registration (usually its a member in of

I-9 the family or a friend) re-registered (under another tinue to avail of privileges NACIDA-registered firms. not been updated end relative the firm to be proprietor) usually Finally, for the years Since each of lists inherent to enable 2.1.1 accorded ].976 through through serve of the studies tion process, 2.1.3 weaP %esses, it was of the three lists the overlaps 1979. has decided would best with some of traced and eliminated. as expected to list 2.1.3 has that a combination the purposes and con- /The elimina- was not quite thorouEh: that some firms were double-counted lisK was established in the course of the survey. Nonetheless, rently such cases of double-counting due to the above-cited tions with NACIDA of final sample In order size of labor proved to attain force, for purposes small registra- to be manageable consistency the definition (4.2? in treatment (i0 employees were used or more) or more), employees unknown). 3 / was Thus, for size of labor (less than i0 employees), employees of in list 2.1.1 of classification. three classifications force: multiple appa- size).Z of "large ' establishment adopted in the composite and unclassified large (i0 (number of 3/The standard classifizations, unorganized (less than 5 employees) small (5 to 19 e p loyees) and large (20 employees or more), were used in the analysis of survey data however

I-i0 The sample populations classified were, accordingly by area and by size. /Refer to Tables 1.2, 1.3, 1.4 and 1.5 for summaries populations tanning, ments, of the wood-based leather respectively, and size. sample were Table then drawn for every 2.2 Sample of establish- according a summary to area of all four samples out o each of the four points being drawn at random (each stratum being a size versus the establishments). size per stratum total adjustments of certain strata 1.9 and I.lO, sample in certain owing down by area. sizes tanning, by pro- cases where to the small Tables hand, leather products respectively, per 1.7, 1.8, summarize for the wood-based sizes /--Table size, as determined, on the other establishments was determined in tl sample population. the sample i %dustry, broken leather except were necessary 1.6 presents deter- furniture, and footwear each broken down by and by size./ Final smaller ating leather Size portion'to area classified separately stratum Sample mined and footwear hy area / Stratified sample listing furniture, 1.1 presents populations populations, area products of the sample sample sizes, than the derived constraints. however, sample were sizes In particular, in general due to oper- a very large

I-ii TABLE I.l SUI, ARY OF S PLE POPULATIONS OF MANUFACTURING (BY INDUSTRY AND BY AREA) ESTABLISHMENTS Indus.try Wood-Based e a Ar Furniture FO o tWe Leather Leather Products Total Metro Manila !I/ ist District i185 25 50 0 260 2nd District 300 788 198. 0 1,286 3rd District 162 18 50 4 234 4th District 185 32 24 0 Laguna 55 423 4 0 482 Bulacan 86 24 37 25 172 Rizal 57 43 6 0 106 Cebu/2/ Pampan a- Total 21 (by industry) 1/First Dis rict: Second District 265 - - - 265 236 - - - 236 i 353 369" Quezon City, San Juan, Mandaluyong, Caloocan Fourth Pasay City, l akati, Las PiCas, Taguig, Pateros 2/Only for wood-based 29 3,28 2 City of Manila Third Districts District 241 City, Malabon, furniture indust '. Navotas, Pasig Marikina Valenzuela Para aque, Muntinlupa,

1-12 TABLE 1.2 DIStrIBUTION OF SAMPLE POPULATION WOOD-BASED FURNITURE MANUFACTURING ESTABLISI 4ENTS (BY AREA AND BY SIZE) Size of Labor Force, To tal Small Large Unclassified (by area) Metro Manila ist District 142 41 2 185 2nd District 153 116 31 300 3rd District 107 54 1 162 4th District 72 106 7 185 Cebu 168 87 i0 265 Pampanga 146 8 6 236 Bulacan 51 34 ! 86 Laguna 35 4 55 Rizal Total 16 ,.32 (by size) 906 ,J 2 5 563 O 6 22 57

1-13 TABLE 1.3 DISTRIBUTION OF SAMPLE POPULATION, LEATHER TANNING ESTABLISHMENTS (BY AREA AND BY SIZE) Size of Labor Force Total Area Small Bulacan Unclassified (by.area) 9 16 0 25 ist District 0 0 0 0 2n4 Bis trict 0 0 0 0 3 d District 0 2 2 4 4th District 0 0 0 0 Laguna 0 0 0 0 Rizal 0 0 0 0 18 2 29 Metro Manila Total (by size) 9

1-14 TABLE 1.4 DISTRIBUTION FACTU ING OF SAMPLE POPULATIONp LEATHER PRODUCTS ESTABLISHMENTS BY AREA AND BY SIZE) Size of Labor Force Total Area Small Large Unclassified (by area) Metro Manila ist District 39 6 5 50 2nd District 150 43 5 198 3rd Distric

Product (Manufacturing), Wood-Based Furniture and Fixtures (1970-1980, at Constant 1972 Prices) 11.2 Philippine Exports of Wood-Based Furniture II-5 and Fixtures as a Percentage of Total Philippine Exports (1976-1980, in FOB Values ) II.3 Percentage Distribution of Philippine Exports II-6 of Wood-Based Furniture and Fixtures Accor-