UP Study Warns Philippines Could Repeat Bataan Export Zone Mistakes in Pax Silica Semiconductor Push

 

The Philippines’ ambition to strengthen its semiconductor industry under the US-backed Pax Silica initiative will require far more than attracting foreign manufacturers, according to a recent study by the University of the Philippines.

Researchers warn that without a deliberate national strategy covering chip design, fabrication, research and development, and workforce development, the planned semiconductor hub in New Clark City could reproduce the shortcomings of the country’s earlier export processing zones.

The warning comes as the Philippines positions a planned 1,619-hectare economic security zone in New Clark City as a potential centerpiece of its semiconductor strategy. The site forms part of the broader Luzon Economic Corridor connecting Subic, Clark, Manila and Batangas.

A discussion paper by the UP Center for Integrative and Development Studies compared the semiconductor trajectories of the Philippines and Taiwan, tracing policy decisions made from the 1970s through the 1990s. Its authors, Lianne Angelico Depante of Japan’s National Graduate Institute for Policy Studies and Kirsten Lianne Mae Dedase of the UP National College of Public Administration and Governance, concluded that government policy played a decisive role in determining how far each country progressed.

Both economies entered the semiconductor business in the late 1960s, initially focusing on lower-cost assembly, testing and packaging operations. Taiwan subsequently developed capabilities across chip design, wafer fabrication and advanced packaging.

The Philippines did not make the same transition. It remains concentrated largely on back-end operations and has yet to establish a domestic wafer fabrication plant.

The Bataan Lesson

The researchers identify the Bataan Export Processing Zone, established in 1972, as an important historical comparison for the New Clark City project.

BEPZ successfully attracted multinational companies through infrastructure, tax and other incentives, foreign ownership provisions and government-backed financing. Major semiconductor companies, including Intel and Texas Instruments, established operations there, helping demonstrate the country's potential as a manufacturing destination.

But attracting multinational corporations did not automatically produce a deeper domestic semiconductor ecosystem.

The study argues that the Bataan model generated limited technology transfer and few opportunities for sustained knowledge spillovers. Its relative distance from major academic, commercial and industrial centers made collaboration between companies, universities and research institutions more difficult.

The experience highlights a fundamental distinction between an industrial zone and an industrial cluster. A zone can provide factories, roads, utilities and incentives. A cluster requires those physical assets to be connected to universities, laboratories, suppliers, skilled workers, entrepreneurs and institutions capable of generating new technology.

The researchers contend that subsequent economic zones increasingly operated as isolated enclaves, with limited integration into the broader Philippine economy.

That approach contrasts sharply with Taiwan’s strategy.

Taiwan Built an Ecosystem, Not Just an Export Zone

Taiwan’s semiconductor rise was supported by the deliberate integration of industry, government research and education.

A pivotal example was the Hsinchu Science Park, established in 1980 near National Tsing Hua University and National Chiao Tung University. It was also positioned close to government research institutions that became important sources of technology and eventually helped produce major semiconductor companies.

Rather than simply providing companies with a place to operate, Taiwan built an environment in which universities supplied talent, public laboratories developed technology, and private companies commercialized innovations.

The UP study argues that New Clark City could still pursue a similar model. The project is not inherently destined to fail, but its success will depend on whether policymakers build the institutional infrastructure needed to support technological advancement.

That means establishing shared facilities for semiconductor fabrication, design and testing; creating research partnerships among universities, government laboratories and companies; and providing financial support for technology spinoffs and university-based research.

Without those measures, the researchers caution that the project could become another logistics-focused investment hub rather than a platform for developing Philippine-owned semiconductor capabilities.

R&D Investment Remains a Major Weakness

The study also identifies government spending on science and technology as a major structural weakness.

For decades, the Department of Science and Technology has operated with less than 1% of total national government spending, according to the researchers. They argue that inadequate and inconsistent support for research and development has limited the country's ability to move into more technologically sophisticated semiconductor activities.

Taiwan took a markedly different approach.

Its government was willing to commit public resources to technologies that had not yet demonstrated commercial success. One notable example was the government's support for the initial capitalization of Taiwan Semiconductor Manufacturing Company, which received substantial state backing after being spun off from the Industrial Technology Research Institute.

Taiwan also enabled public research institutions to collaborate financially with private companies, allowing the state to absorb some of the risks associated with developing emerging technologies.

For the Philippines, the lesson is not simply to spend more. It is to deploy public funding strategically in areas where private investors may be unwilling to shoulder the initial cost and risk.

Talent Shortages Could Become Another Bottleneck

Infrastructure and capital are only part of the challenge. The Philippines also faces a longstanding shortage of specialized talent capable of supporting a more sophisticated semiconductor ecosystem.

The study points to major differences in the way Taiwan and the Philippines approached technical education.

Taiwan deliberately expanded technical and vocational education to meet the needs of its growing industrial economy. By 1980, the country's TVET enrollment had surpassed university enrollment by more than half, creating a large pool of technicians and engineers for its expanding electronics sector.

The Philippine education system followed a less coordinated path. Universities largely responded to perceived market demand, contributing to strong enrollment in fields such as law, business administration, education and the humanities while science and engineering remained comparatively less prominent.

The researchers also note that Philippine TVET has historically been heavily oriented toward the service sector. Social perceptions that technical and vocational careers carry less prestige have further complicated efforts to develop a manufacturing-focused workforce.

Brain Drain Undermines Industrial Ambitions

Even when the Philippines succeeds in producing scientists and engineers, retaining them remains a challenge.

Taiwan actively recruited engineers, scientists and executives working abroad and brought them into its emerging technology sector. The Philippines, meanwhile, has experienced persistent outward migration among highly skilled professionals seeking better opportunities overseas.

Attempts to reverse that trend have faced a fundamental problem: highly trained professionals are difficult to retain when the domestic economy cannot offer enough advanced research and engineering positions.

The government's Balik Scientist Program illustrates the difficulty. Although the initiative was modeled in part on Taiwan's approach, the study found that more than half of the 320 scientists who participated in the program during the early 2010s eventually returned overseas.

The issue, according to the researchers, is therefore larger than attracting Filipino scientists home. The country must first create an industrial base capable of giving them meaningful opportunities to conduct research, develop technology and build companies.

A Semiconductor Strategy Beyond Foreign Investment

The UP researchers ultimately recommend a stronger role for government in building the foundations of a domestic semiconductor industry.

Among their proposals is greater authority for public research institutions to pursue applied research, incubate technology spinoffs and experiment in areas such as chip design, advanced packaging and laboratory-scale wafer fabrication.

They also call for a greater tolerance for calculated failure. Developing new technologies inevitably involves unsuccessful experiments, and the researchers argue that public institutions should be structured to absorb those risks rather than avoid them entirely.

For the Philippines, one of the study's key proposals is a dedicated semiconductor development fund. Such a mechanism could provide equity investments, matching grants, concessional financing or research subsidies to domestic semiconductor companies and startups.

Government assistance, however, should be tied to measurable national benefits. These could include technology transfer, workforce development, domestic supplier expansion and the generation of patents.

The broader message is clear: foreign investment can provide the capital, markets and expertise needed to accelerate semiconductor development, but it cannot substitute for a domestic innovation system.

For New Clark City to become a genuine semiconductor hub, the Philippines will need to build more than an attractive location for multinational companies. It will need universities that produce the right talent, research institutions that create technology, domestic firms capable of absorbing knowledge, and government programs willing to finance the difficult stages of industrial development.

Otherwise, the country risks repeating a familiar pattern: becoming an efficient destination for foreign production without developing the technological capabilities needed to capture a larger share of the semiconductor industry's value.