This is part 1 of a 3-part series on how we can grow Philippine design exports.
For the past three years, our company, AVA Online Group, has traversed two worlds: design and technology. I say ‘worlds’ because the people living in them rarely interact with those on the other side.
This is, of course, perfectly normal. People default to their comfort zones. But unfortunately, we can no longer be perfectly normal nor confine ourselves to the familiar.
What if merging both worlds holds the key to bringing Philippine design to the world? And what if commerce can bring a revenue model for local tech startups?
What if design and technology spoke to each other?
We’ll get to this later. By now, you probably have a clue where I’m going: the humble thesis that technology holds the key to exporting Philippine design.
Let’s look at the size of the problem. Any well-informed entrepreneur will observe three things when it comes to our exports.
The first is how small our exports are. This is a crucial point to make because although our domestic economy is growing, no Asian economy has industrialized without a strong export base.
The second is how small our design exports are. This includes categories like apparel, accessories, jewelry, home decor, and furniture. For instance, Philippine exports of apparel and fabric-related are a fraction of those of Vietnam and Indonesia.
The third is that garments are a major export next to electrical components and semi-conductors. Yet, Philippine garment exports have declined by 25%: from $2 billion in 2006 down to $1.5 billion in 2011, driven by smaller orders from big brands and retailers reeling from the global financial crisis (which by the way also fueled the flash sales boom heralded by Gilt and Fab.com).
The good news is that design exports are growing, with furniture (35% vs year ago), fashion accessories (29% VYA) and garments (9% VYA) all making impressive gains in 2013.
So in short, this is a big problem, one that represents an enormous economic opportunity of national importance, and we some momentum on our side.
The Two Towers
So what’s currently being done? To answer this question, one needs to understand two things that drive the business of local exporters: the trade show and contract manufacturing.
When it comes to trade shows, the first thing that comes to mind is Manila FAME. Twice a year, Philippine design converges at the SMX Convention center for a week-long event to showcase local talent.
The organizers led by CITEM executive director Rosvi Gaetos have done a fantastic job in bringing together designers and manufacturers from all over the country. But admittedly, we’re still a long way from reclaiming the glory years. “Spot sales used to reach as much as $150 million per show until China entered the scene as a major player in the world market,” said an Inquirer report based on remarks from the CITEM director. Last October’s FAME only generated $20m in spot sales.
For decades, Philippine design products have relied on trade shows here and abroad to attract international buyers. The formula is simple. Rent a huge space. Attract exhibitors to set up shop. Ask exhibitors to invest a lot in visual merchandising, sampling and marketing collateral. Hope for the best.
For manufacturers lucky enough to have built a following among international buyers over the decades, getting traction is expected. But unfortunately for most mid-sized and newer companies, local trade show traffic still pales in comparison to those in Singapore, Hong Kong, Paris and Last Vegas. The trade show is a 20th century solution in a 21st century world.
Meanwhile, a vast majority of our garments exports are unbranded. An American brand or retailer comes to the Philippines to source for merchandise several months in advance. The buyer and manufacturer agree on FOB pricing, quantity and delivery terms. The manufacturer produces the goods, ships them out and gets paid, less any defects.
Contract manufacturing is a tough business. You need scale. Scale requires fixed costs, yet orders are not guaranteed every year. You’re dependent on fluctuating material costs. And you’re competing against China, Vietnam, and Indonesia, markets that enjoy some level of government subsidy. Worse, the bulk of the margin accrues to the brand or the retailer. Contract manufacturing is clearly not viable as a long term solution.
But if you go to Manila FAME, you’ll see that there is no reason why our design products can’t compete on the global stage. Philippine design is unique, and we’ve obviously had plenty examples of magazines, celebrities, and TV shows picking up local designers. Yes, it’s still a challenge to manufacture at scale, especially if you’re an independent designer or new label, but by-and-large, the product side is okay.
The problem is the demand-side. Trade shows obviously fail to reach broader American and European audiences. And if they do, contract manufacturers leave out the Philippine story and our products are marketed as a handbag from Kate Spade or Coach, not Aranaz.
Hence the question is, “How do we generate demand for Philippine design?”
To significantly grow exports, we can’t rely on business-as-usual. And I’m quite sure fashion designers will need to start working closely with computer engineers. And content marketers. And logistics specialists. And channel development managers. In short, design, technology and business must work together.