Christian Faith C.

Zebua
MBA MM – I
PUP – Manila

I. Introduction

The Pandemic has taken a critical toll to many countries, if not all, and its people. Especially to developing
countries such as the Philippines where the effects have been more extreme. Millions of jobs were loss and still
counting, businesses are garnering huge losses and worse had shut down, as a result many people are hungry
and are suffering from financial stress, thousands of lives have been cut due to the virus itself, and we can even
account the emotional and psychological stress many people are enduring caused by continuous lockdowns and
the uncertainties – these are just to name a few the major effects of this pandemic.

It’s been a year and five months since the onset of this chaos, but it feels like it’s been five years. And the sad
truth is it’s literally looking like it’s going to run up to five years and even more. It’s been like an endless loop.
The virus has been constantly evolving into being more contagious and more deadlier. And as a result, strict
lockdowns have been regular and it’s making people anxious because of false hope that it’s getting better. The
country’s remedy and fight, I would say, have been slow and ineffective. We’ve been accustomed to the ever
exciting and confusing letters like ECQ, MECQ, GCQ, MGCQ and its modifications, that have been dictating
our lives, but seems like little to no avail. Our vaccination program has been slow as turtle, with just a rate of 2
million shots per month against 100 million domestic Filipinos.

I don’t really blame the government for these. I think the government is doing its part and its best. How do you
manage a third world country with 100 million hard-headed Filipinos through a worldly pandemic? There’s
really no one to blame here. If there is, it could be the origin of the virus. But it’s pointless now.

More than the health effects of the Pandemic is the tremendous blow to economies. At the global scale, the
global GDP dropped by 4.5% or 3.94 trillion USD in 2020 from the estimated global GDP of 87.55 trillion USD
in 2019. (statista.com) In the Philippines, GDP plummeted to -9.6% in 2020 and is down to 4.2% as of the first
quarter of 2021 and jobs lost hit to 4.14 million and unemployment rate rose to 8.7% as of April 2021. The
country is still in recession.

Although the Philippine economy was expected to grow 6.5-7.5% in 2021 with authorities hopeful for a
sustained recovery as the economy re-opened, the resumption of lockdowns in April and in August have
derailed the economic recovery with the economy backtracking by 1.3% in the second quarter. We can expect
this trend to continue in the second half of 2021. Consumer sentiment remains negative, likely due to elevated
unemployment figures (7.7% in June) while bank lending has been negative for months now and counting.
(think.ing.com) Looking ahead, a projection by Asian Development Bank during the first quarter of 2021
indicates that the Philippine economy will grow by 5.5% in 2022 – but that maybe is overstated now due to the
strict lockdowns reimplemented in April and August brought by the surge of the Delta variant.

In a joint survey of the World Bank and the Philippine government conducted to 13,878 firms in the
Philippines, 21% voluntarily closed their businesses despite eased community quarantines and, worst, 7%
permanently closed their businesses. In conjunction, because of the limited operations and inability of
customers to come to establishments due to strict lockdowns, 67% of firms reported a reduction in sales
between July and November 2020 and 88% between April and July 2020. Conversely, as of August 2021,
despite businesses being optimistic about sales and employment to increase over the next three months, many
still expect their financial position to worsen.

Indeed, the business sector has been massively impaired by this crisis. The business sector plays an integral role
in our economy. The business sector fuel the economy – the billions of taxes that it contributes to sustain the
government, the millions of jobs it provides to people to sustain human life and it being the producer of outputs
for economic growth. With the business sector at its lowest peak since the Marcos era, the citizens are the ones
suffering the most at the end of the realm. However, there is still hope and light.

The industries that are at high risk in the COVID-19 crisis are wholesale and retail trade, repair of motor
vehicles and motorcycles, real estate, renting and business activities, accommodation and food services, hotel
and restaurants and other personal services, and manufacturing. But this study focuses on the latter – the
manufacturing industry.

The manufacturing industry is expected to lose PHP 82.1 to 855.2 billion due to the pandemic. Around 900,000
jobs, or more than 20% of total manufacturing employment are exposed to COVID-19-induced job disruption,
58% of which are composed of men. Thus, the specific manufacturing sectors likely to face high risk of job
disruption are the manufacture of consumer durables, machinery and equipment, textiles, leather products and
footwear, and petroleum products. These are value chain connectivity dependent-heavy sectors. The knock-on
effects of virus-related disruptions are described as “supply chain contagion” (CEPR). This resulted from the
closure of factories, undermanned workers, low working hours and grinding of global supply chains. Among the
countries most affected by the pandemic are also among the Philippines’ major trading partners: Japan, USA,
China, Hong Kong and Singapore. There is lesser demand for non-essential manufactured items such as
automobiles and textiles, clothing, leather and footwear. As of 10 March 2020, the Department of Trade and
Industry (DTI) reports that the following manufacturing sectors will be negatively affected: Aerospace,
Automotive and Auto Parts, Electronics, Footwear, Furniture, Iron and Steel, Pharmaceuticals, Plastics,
Shipbuilding, Textiles and Garments.

But nevertheless, there are a few of such at high risk manufacturing sectors that still are able to withstand and
endure the grinding effects of the pandemic. This study looks closely at two non-essential manufacturing
companies that have been resilient and successful during the crisis. The study uncovers the strategies,
techniques, strengths and philosophy used by these companies, and make generalizations and recommendations
to serve as benchmark and shed light for the various struggling companies of such manufacturing sector.

II. The Research Problem

Many people are hungry. The government is drowned with huge loans. The economy is down at a historical
level. These can all be attributed to the agonizing business sector. Overall, these chains of suffering are rooted
to the Pandemic. The virus was something that occurred naturally. It is something uncontrollable and seems like
will remain as it is for a very long time. Conversely, what can be worked out is healing the business sector. By
doing so, it will ease the chains of suffering. People will have jobs. The government will have sufficient funds
to defray social and economic programs. The economy will boost and will recover. And ultimately, the
pandemic response and people’s morale will improve – until one day COVID-19 will be beat.

In healing the business sector, it is important to pay attention to the most affected industries or the industries
that are at high risk. One of which is the manufacturing industry, specifically, the non-essential manufacturing
companies which is the focus of this study. At this time of pandemic, the term ‘essential’ has been ringing a
bell, like, ‘essential goods and services’ and ‘essential establishment and businesses’. The people and the
government are more inclined into purchasing, patronizing and opening essential products, services and
establishments due to the weaker purchasing power and the strict health measures. As a result, the non-essential
businesses have been left behind struggling and pushed to the side.

Non-essential manufacturing companies are the likes of aerospace, automotive and auto parts, electronics,
footwear, furniture, iron and steel, pharmaceuticals, plastics, shipbuilding, textiles and garments, to name a few.
A lot of these businesses have been suffering huge losses and worst, had permanently closed at this time of
pandemic. These businesses are value chain connectivity dependent-heavy sectors, where currently value chain
and logistics have been severely interrupted due to mobility and travel restrictions. Importation restrictions have
resulted to ceasing or interruption of operations due to unavailability of raw materials, WIP items or the
products to be sold. On the other hand, the exportation restrictions have resulted to overstocking, WIP items
unable to be moved and loss of sales. In addition, the weaking of the purchasing power of people has caused the
substantial decrease of the demand of these non-essential products. All these setbacks lead to financial losses.

III. The Research Questions

Main: How can non-essential manufacturing companies recover its huge losses during the pandemic?
Sub 1: What problems/challenges are faced by the non-essential manufacturing companies to sustain
during the pandemic?
Sub 2: What strategies are used by successful non-essential manufacturing companies to keep afloat
during the pandemic?
Sub 3: How can non-essential manufacturing companies adapt to change demanded by the pandemic?

The non-essential manufacturing companies suffer the most in this pandemic. These companies have
accumulated huge losses they couldn’t have ever imagined prepandemic. The disruption of the supply chain, the
decrease of the demand and sales, expensive materials and the interruption of operations, are just to name a few,
the culprits of the huge losses. Apparently, these companies have to exist, they need to exist, as their products
and services are also essential in many ways in people’s daily lives, for other companies and as a contributor to
the economy, even though they are deemed as non-essential in the pandemic language. The pandemic is still at
its peak, and this peak seems to stay up rising for many more years as the virus constantly evolves to be more
dangerous. But for these non-essential manufacturing companies, by all means, the time is now to recover.
There is no other time; not two years from now, not five years from now, not by the time the virus is gone
which seemingly not in the near future.

It is important to figure out the ways and strategies non-essential manufacturing companies can recover its huge
losses during the pandemic. In doing so, these companies can resume its smooth operations, provide jobs to
people, soar sales and demand, and ultimately have the sense of drive that they are back on track. It is easier
said than done though because at this point these companies are still discriminated and there are ruling
uncontrollable factors – government’s health protocols and the playful virus itself. On the flip side, there are
shimmering controllable factors that can be explored and be utilized for advantage.

There must be sleeping economic theories and business strategies on the books that may help, effective
leadership style and employee motivation, latest technology that can surpass pandemic limitations, and
innovation and continuous improvement that would cope to the new normal. This study would also look at two
successful and sustainable non-essential manufacturing companies during the pandemic, and discover their best
practices and strategies, and make as benchmark. The study would also explore the best ways on how these
companies can adapt, sustain and grow through the new normal business environment.

IV. Thesis Statement

The non-essential manufacturing companies accumulate huge losses during the pandemic due to the
disruption of the supply chain, the decrease of the demand and sales, increased costs, and the
interruption of operations. The time is now to redeem themselves through benchmarking successful
companies, applying effective business strategies, looking into economic theories, and coping to the new
normal and to change.

The supply chain is the framework being fulfilled from point A to point Z to produce goods and services. With
the supply chain disrupted in the pandemic due to strict lockdowns, it's been difficult for affected companies to
satisfy, communicate and transact with their suppliers, partners and clients. Companies in the Philippines rely so
much on imports and exports, thus making it more difficult because the country’s major partner such as China
and USA are virus-plagued locations. In addition, the country’s land mass structure which is archipelagic makes
supply chain more dysfunctional.

The loss of jobs which weakens the purchasing power and the limited operations of non-essential
establishments pave the way to the decrease of the demand and sales. As of August 2021, 4.5 million jobs have
been lost already and still counting. With this, a huge chunk of the purchasing power has been trimmed.
Furthermore, the sentiment of buying only essential goods and services and the idea of saving money at these
times of uncertainty tone down the buying behaviour of people.

The limited number of suppliers and their supplies against the overwhelming demand leads to the increase of
prices. Thus, costs of raw materials, subparts and equipment would have been higher during this pandemic. As a
result these companies cease or cut down their production, or increase prices of finished goods which a hit to
consumers.

The limited operations protocol which is unfavorable to non-essential manufacturing companies because their
freedom to acquire, produce and sell have been contained overwhelmingly. The drastic decrease of labor hours
and manpower results to low production which eventually decreases the sales and kills the GDP in the bigger
picture.

Although discriminated as non-essential, ironically, the non-essential manufacturing sector is an essential player
in the economy. They produce spare parts to other products, equipment, technology and construction materials,
to name a few. That is why it is vital to find ways to help these businesses regain its life and sustain at this time
of many changes and uncertainty.

V. Theoretical Framework

This study is supported by four the theories – Theory of Evolution, Deming’s 14 Points (1 & 5), Resource-
Based Theory, and Agency Theory. These theories help institutionalize the purpose of this study that is to help
non-essential manufacturing companies recover their huge losses during the pandemic. The Theory of Evolution
views businesses as like living organisms that need to adapt and develop in order to cope and survive in a
constantly changing environment. The concept of Natural Selection entails that individuals with more
advantageous traits suited to the environment survive and inherited to the next generations. This can be applied
also to businesses wherein they have to discover, develop and utilize their strengths and capabilities to stay
afloat in a tricky and hostile business environment. The first point of Dr. Deming that is ‘Create a constant
purpose toward improvement’ emphasizes on doing things better both for short term and long term. The fifth
point ‘Improve constantly and forever’ stresses on Continuous Improvement (Kaizen) on systems and
processes, training and education, reduction of waste, and to improve productivity, effectiveness, and safety.
The Resource-Based Theory asserts that businesses must perform strategic resources orchestration, that is,
increase of focus for resources onto long term plans than just short term. The long term plan is the New Normal
environment, therefore, resources must be dynamic, flexible and adaptable to remain efficient and competitive.
The Agency Theory suggests that non-owner stakeholders, such as customers, employees, and the community
should be valued more than the shareholders/owners at this time of pandemic. Non-owner stakeholders must
receive value before the shareholders, because the support of such stakeholders is necessary to create value in
the first place. Shareholders’ short-term returns may be less important than preserving the firm’s reputation and
integrity and taking actions that protect the firm’s potential to create value in the long term, especially in the
New Normal environment.
VI. Conceptual Framework

One of the pitholes caused by the worldly pandemic, is the huge losses to non-essential manufacturing
companies. With the pandemic, a drastic change to the business environment emerges which is what we call
now, the New Normal. In order to rescue and keep this sector afloat, this study will benchmark three
successful/stable companies from this sector, as the main methodology. Applicable economic and business
theories, and insights from economic and financial experts will compliment. The ways on how to recover huge
losses that will be arrived from this study will revolve around adaptation and innovation.
Review of Related Literature

Economy At Pandemic

Back in 2019, the Philippines was one of the fastest growing economies in the world. From being infamous as
the ‘’sick man of Asia”, the Philippines was highly regarded as the next “Asian tiger economy”, reaping over
6% average annual growth between 2010 and 2019. But as of now during the pandemic age, it’s very saddening
that those glory days may be put into vain.

The Philippine Gross Domestic Product (GDP) dipped by 4.2% in the first quarter of 2021 extending the
recession to five straight quarters as the pandemic drives the pace of the longest recession since the Marcos era.
The Philippines’ pandemic lockdown described as one of the longest has affected 75% of the economy. In 2020,
full-year GDP plummeted by 9.6%.

The reimposition of the strict community quarantine (ECQ) in the National Capital Region (NCR) and major
economic hubs in the second quarter of 2021 due to the spike in COVID-19 cases brought by newer virus
variants impacted on the economic recovery. The NCR accounts for 37.5% of GDP while the entire Luzon
region accounts for about 70% of the country’s GDP. Sectors from retail, real estate, to manufacturing
experienced serious challenges due to the enhanced community quarantine. (Flanders Trade)

As of 2nd quarter 2021, unemployment rate stands at 7.7% while underemployment is at 12.3%. Private
consumption, which makes up roughly 70% of the Philippine economy, has remained muted as public
transportation continues to operate on a limited capacity. Policy interventions to stabilize commodity prices
have begun to take effect as headline inflation decelerated in June 2021 with headline inflation rate slowed
down to 4.1 %. This is the lowest inflation rate recorded since December 2020. Food inflation remained at 4.9
% in June 2021 with the spike in pork prices resulting from the African Swine Fever (ASF) outbreak that
significantly reduced domestic pork production. These are some implications of hope.

According to a blog article by Ronald U. Mendoza (brookings.edu), the blame cannot be entirely placed to the
pandemic. There should be more to it. First, is the country’s economic model itself that is built around the
mobility of people, tourism, services and remittances-fed that makes it very vulnerable to a disease outbreak.
International and domestic flights being restricted and halted which in turn decline the tourism and services
sectors. Even the airline and shipping companies themselves are triggering for closure. Second, is the poor
handling of the pandemic problem. People have been suffocated from multitude of lockdown levels back and
forth for the longest time now, but it seems like the country is not able to achieve the purpose of the lockdowns.
And third, is the slow vaccination program. The Philippines is one of the slowest in the world, far-fetched in
immunizing its a hundred million population. The booming vaccine hesitancy makes it worse.

Business At Pandemic

Transmuting this crisis to the business word; according to a World Bank-government joint survey conducted to
13,878 firms in the Philippines, results are distressing. Twenty-one percent (21%) voluntarily closed their
businesses despite eased community quarantines. Worst, seven percent (7%) have closed permanently. These
resulted to 4.5 million jobs lost so far. The limited operations and inability of customers to come to
establishments due to strict lockdowns are the main culprits. With this, sixty-seven percent of firms reported a
reduction in sales between July and November 2020 and eighty-eight percent between April and July 2020. As
of August 2021, despite firms being optimistic about sales and employment to increase over the next three
months, many still expect their financial position to worsen. It won’t get better any time soon.
A recent global assessment of enterprises-at-risk conducted by the ILO revealed that around 436 million
enterprises worldwide are facing high risk of disruption due to the COVID-19 pandemic (ILO 2020d). The
wholesale and retail trade sector and the accommodation and food services sector are expected to be hit the
hardest based on global estimates. As of end-June 2020, about 93 per cent of workers worldwide reside in
countries which have put in place some workplace closure measure (ILO 2020e).

The impact of the pandemic on the Philippine labor market has already started manifesting through a spike in
the unemployment rate, a fall in labor force participation rate, a decrease in employment, and a large swell in
the fraction of workers who are currently employed but are absent from work. Sectoral analyses show steep
contractions in employment levels in many services and industry subsectors. Prior to COVID-19, the
Philippines’ economic growth path was buoyed by the strong growth of industry and services, so the temporary
closure of businesses in these two broad sectors poses a substantial challenge to the country’s macroeconomic
health and employment outlook.

On the overview of the macroeconomic situation, Q1 2020 witnessed substantial contractions of gross value-
added in mining and quarrying, transportation and storage, and accommodation and food service activities.
Other sectors either grew at a flat rate or decelerated. Generally, for all sectors, COVID-19 is expected to
reduce economic output, ultimately leading to staggered growth. However, while the decreasing productive
output of sectors could impact employment outcomes, it should be noted that some hard-hit sectors in terms of
economic activity may not experience substantial declines in employment. Mining and quarrying, for instance,
had a moderate reduction in employment as of the latest estimate, implying that the decline in its value-added
may not entirely or necessarily be explained by the COVID-19 crisis. Most large mining operations are also
notably in regions that were not put under strict restrictions, and social distancing can still be practiced in
mining and quarrying sites due to the nature of work in the industry. For this reason, the pandemic is expected
to have a low impact on jobs employed by the sector.

Sectors at High Risk

The sectors facing high risk of job disruption due to the COVID-19 crisis are manufacturing; transportation and
storage; accommodation and food service activities; arts, entertainment and recreation; and tourism. Aside from
the expected direct job losses from workplace closures, manufacturing is particularly vulnerable to indirect job
losses occurring via global supply chain connectivity. ILO (2020f) estimates that about 292 million jobs in
manufacturing worldwide are at high risk of disruption due to the drop in consumer demand. From the supply-
side perspective, input supply disruptions from the imports channel imperil the jobs of about 255 million
workers worldwide.

As the lockdown continues, many small firms are at risk of completely exiting the market. Firms incur
operational costs despite being out of operation, factory rents still need to be paid, and they are still encouraged
to pay their workers. This situation is not unique to manufacturing.

Services subsectors such as transportation and storage, accommodation and food service activities, and arts,
entertainment and recreation are also carrying the heavy burden of the lockdown arrangements. Not
surprisingly, restricted mobility has paralyzed the logistics and tourism industries. Although demand for
delivery services remains to be high and is likely to rebound quickly post-pandemic, COVID-19 has typically
jeopardized the safety of logistics frontline workers. Nevertheless, a quick revival of logistics is crucial in
ensuring that production cycles are met with the least amount of uncertainty. Tourism will be heavily impacted
due to the persistence of international travel restrictions, particularly among key tourist-drawing countries.
Moreover, on the demand side, the sector will be impacted to the extent that individuals and households hold on
to their cash as a response to the pandemic. This is likely to be the case for households experiencing reduced
cash flow prospects, leading to a fall in demand for leisure activities. With expected low demand for leisure
activities comes the distress that workers in this industry would either face shorter working hours or would have
to find other employment. This is also the case for workers in the arts, entertainment and recreation sector.
Looking At The Manufacturing Sector
About 900,000 jobs, or more than one fifth of total manufacturing employment, are exposed to COVID-19-
induced job disruption, 58 per cent of which is accounted for by men. Teasing out impacts by subsector, results
indicate that the manufacture of consumer durables, machinery and equipment, textiles, leather products and
footwear, and petroleum products are likely to face high risk of job disruption (figure 8). These subsectors
correspond to those that benefit from value chain connectivity. Thus, the protracted global value chain activity
could trigger indirect job losses to further aggravate said risk for these subsectors. The Philippines, for instance,
participates in the electrical and electronics global value chain (component stage), particularly in the
manufacture of integrated circuits and in assembly and test activities for analogue semiconductors (Frederick
and Gereffi 2016). Meanwhile, the manufacture of beverages, paper and paper products, and rubber and plastic
products are foreseen to face medium risk of job disruption. Conversely, the potential impact on jobs in food
products, wood and wood products, chemicals, pharmaceuticals and print and reproduction of recorded media
appear to be less pronounced.

The electrical and electronic equipment subsector dominates the total number of at-risk workers in the sector:
up to 270,000 workers in the manufacture of computer, electronics and optical products or 29 per cent of total
at-risk workers in manufacturing. Electrical equipment manufacturers are also vulnerable, with about 95,000
workers at risk of being disrupted. Manufacture of textiles and leather products and footwear account for some
140,000 at-risk workers. About the same number of workers in the manufacture of basic and fabricated metals
may be disrupted due to the COVID-19 crisis.

According to TESDA, the manufacturing sector is expected to lose PHP 82.1 to 855.2 billion due to the
pandemic. The Center for Economic Policy and Research (CEPR) based in Washington, D.C. describe the
knock-on effects of virus-related disruptions as “supply chain contagion,” due to closure of factories and
grinding of global supply chains. Among the countries most affected by the pandemic are also among the
Philippines’ major trading partners: Japan, USA, China, Hong Kong and Singapore. There will be lesser
demand for non-essential manufactured items such as automobiles and textiles, clothing, leather and footwear.
As of 10 March 2020, the Department of Trade and Industry (DTI) reports that the following manufacturing
sectors will be negatively affected: Aerospace, Automotive and Auto Parts, Electronics, Footwear, Furniture,
Iron and Steel, Pharmaceuticals, Plastics, Shipbuilding, Textiles and Garments. In addition, there will be no
negative impact on Chemicals, Copper, Leather, Natural Health Products. DTI Secretary Ramon Lopez made
pronouncements on the repurposing of manufacturing for critical and essential products, packaging and raw
materials. The Confederation of Wearable Exporters of the Philippines (Conwep) has ventured into the
production of Personal Protective Equipment (PPE). An electronics company has repurposed its manufacturing
for the production of medical-grade face masks, face shields and ventilators.

Food Manufacturers Thriving

In the first few weeks of the lockdown, sourcing of food supply was quite challenging as only one household
member was initially allowed to buy food and other essential household items. Despite uncertainties on how
long the quarantine will be, consumers also started buying food that will last longer.

One beneficiary of the essential food play was Po family-led Century Pacific Food Inc. (CNPF), which grew its
third-quarter net profit by 15 percent year-on-year to P1.06 billion as consumers kept their stock of shelf-stable
seafood, meat and milk products during the prolonged coronavirus pandemic. This brought CNPF’s net profit
for the nine-month period to P3.3 billion, up by 26 percent from the level seen in the same period last year.

CNPF’s business had expanded at a faster pace in the first semester as quarantined households mostly bought
goods to consume at home given their limited mobility during the period. But lockdown protocols have since
eased over the last few months. Nonetheless, CNPF continued its double-digit growth in business.

Gokongwei-led Universal Robina Corp. also grew its nine-month net profit by 7.2 percent year-on-year to P7.5
billion as households focused their spending on basic food and beverage items. For the third quarter alone,
URC’s attributable net profit rose by 5.35 percent year-on-year to P1.97 billion as lower input costs and tighter
spending made up for flat sales.

URC, a unit of conglomerate JG Summit Holdings, benefited from lower cost of raw and packaging materials
costs, manufacturing costs and direct labor costs while selling and distribution costs as well as general and
administrative expenses also declined in the third quarter and during the nine-month period compared to their
respective levels last year.

For the nine-month period, URC’s sales reached P99.8 billion, up by a modest 2 percent year-on-year. For the
third quarter alone, however, sales were flat at P32.36 billion compared to P32.74 billion year-on-year.