Celebrating its 63rd year in business, MESCO Inc. has been leading and aiding the growth of the Philippine metalworking industry. Allen L. Lee, president, tells us more about the company and his outlook for the country. Article by Stephen Las Marias.
Manufacturers’ Equipment and Supply Co. (MESCO) was founded in 1956 by Peter N. Lee. Together with his wife, Mercy, they started out of a small apartment in Manila, Philippines, at the time that the country had begun to rebuild after the Second World War.
MESCO was the first to introduce several significant machining technologies into the Philippines. In fact, the company introduced the first CNC machine tool in the Philippines in 1973. It was also during this time that MESCO was incorporated to MESCO Inc.
The company successfully brought more machining technologies in the country, such as a CNC milling machine, a CMM, a vertical machining centre, and a CNC lathe machine, among many others. (The very same QuickTurn 10 CNC lathe machine that Peter brought in 1981 is now on display in the lobby of the MESCO building as a tribute to his visionary force.)
At the recent PDMEX 2019 tradeshow in the Philippines, Allen L. Lee, president of MESCO Inc., speaks with Asia Pacific Metalworking Equipment News (APMEN) about how the company has been leading and aiding the growth of the country’s metalworking industry.
HOW WOULD YOU DESCRIBE THE EVOLUTION OF THE METALWORKING INDUSTRY IN THE PHILIPPINES?
Allen L. Lee (AL): MESCO is now 63 years old. It was founded by my parents in 1956. My father passed away in 2004, so since then, I have been running the business together with my siblings and my two sons. If I go back 20 years ago, most of the buyers were the big corporations. The past 20 years have seen a big change wherein the big names—the Toyotas and Toshibas, for example—had among their policies to outsource production, which is good because it led to the creation of several hundred new companies over the past two decades—job shops starting out as husband-and-wife, father-and-son, with five- to 10-people operations with one CNC machine, for example, and have now grown to 30-, 40-, 50-people operations with over a dozen CNC machines.
In that sense, it is good because the technology has spread all around. While it has provided employment, more importantly, it made the Philippines a potential manufacturing base for other overseas companies.
DO YOU ALSO MANUFACTURE METAL PARTS?
AL: Yes. We have our own manufacturing arm with about 80 people, wherein we produce parts not for the Philippines, but for export. We don’t sell those products in the Philippines because we will just be competing with our own customers. So, we export basically to our suppliers, including Mazak in Japan and in Kentucky, USA; we supply to a high-pressure pumps company in Australia; and, starting about two years ago, we are supplying medical components to San Francisco in the United States and in China.
FROM A METALWORKING STANDPOINT, WHAT ARE THE OPPORTUNITIES IN THE PHILIPPINES?
AL: Let’s take it from two perspectives: domestic and export. Domestic market is very strong because of the construction boom. What you will see is that local companies are investing in higher technology sheet metal systems; they are talking about automation, lasers, and so on and so forth.
The prospect for the export companies is a bit trickier. There is a very big potential, except for one issue: the Philippine government’s Trabaho (Tax Reform for Attracting Better and High-quality Opportunities) bill. If that new bill pushes through, it may cause some concerns to some foreign companies, because Trabaho bill will increase the tax rate, from five percent gross to 18% corporate income tax.
I have been talking to some auditors, and what they are telling me is that for an American company, or a Japanese company, there is a thing called worldwide taxation, which means, in the Philippines, for a PEZA company, if we increase the tax rate, they pay more in the Philippines, but they will pay less in the United States or Japan. At the end of the day, it’s just the same.
The impact of the Trabaho bill to the investors is not the tax rate per se, but the uncertainty. It is difficult for investors to consider investing in a country if the business environment is uncertain. Other investors are telling me this: if the Philippines must make the rules, it must stick to the rules. If you change the rules, it’s going to be difficult. Most likely, Trabaho bill will pass by December. But, why wait until December? Make a decision now, so that the investors will know what to do.
WHAT OTHER MARKETS DO YOU SEE DRIVING THE METALWORKING INDUSTRY GROWTH HERE?
AL: Worldwide, aerospace is the one with the biggest potential, wherein over the next 20 years, you will need tens of thousands of aeroplanes. The Philippines has a good potential for the aerospace industry; however, we do not have the infrastructure. We do not have special processes such as anodising and heat treatment. The supply chain for materials and for special processes—these are the challenges. Once we have the supply chain, I would think that the potential for growth in the aerospace industry will be exponential.
Regarding skills, there is no problem. Yes, it is not easy, but it can be developed. You must have certifications, all these things, it is a matter of spending some time, but it is not that difficult.
WHAT ABOUT THE AUTOMOTIVE INDUSTRY?
AL: Sure, but consider the traffic! A lot of people can afford cars, interest rates are getting low, and financing gets easier. But where will you park your car? Where will you drive?
HOW WOULD YOU DESCRIBE THE COUNTRY’S STATE OF METALWORKING TECHNOLOGY?
AL: As far as automation is concerned, we are way behind all the other countries. In this exhibition, we are showing two robots in two Mazak machines. To the best of my knowledge, in all the previous shows, this is the first time an exhibitor has shown a robot in a machine tool. What I gathered in MTA Vietnam—based from one of my principals—they were exhibiting perhaps 70 to 80 machines with robots. in Thai Metalex last year, there were about a hundred robots. In the Philippines, for the first time, two machines!
So, why automation in machine tools is weak in the Philippines? It is because the biggest market here are job shops. And in general, job shops’ production sizes are not really high volume. Twenty units, after two hours, they change the setup. So, it is a matter for the machining model to change. When will it come? I don’t know. But I would like to think that if it comes, it will be in waves.
WHAT TRENDS ARE YOU SEEING?
AL: What we do think is that the job shop market now is focused on a standard three-axis machining centre, and two-axis to three-axis CNC lathes. I would like to think that there are many other parts that are being done but are imported because they are too difficult to make.
But we are sensing the market trend will go up, go into multitasking machines for job shops. It is just a matter of them developing the confidence to approach the big companies and say, ‘This part that looks so difficult to manufacture, which you are importing, give me a chance to do it for you.’
In that sense, the technological level of the Philippines will go up. Once a job shop has this, the next job shop follows. It multiplies. When will it happen? The sooner the better.
WHAT IS YOUR OUTLOOK FOR THE PHILIPPINE METALWORKING INDUSTRY OVER THE NEXT YEAR?
AL: It depends upon the reaction of the foreign investors to the Trabaho bill. But whatever happens in three years after its implementation, you cannot slow down. Meanwhile, regardless of whether the business is up or down, MESCO will continue to invest not just in capital goods but in training—by sending people to Japan, Singapore, Europe, the United States, and so on and so forth.
Do you remember the Lehman Brothers’ collapse in 2008? Our sales plunged 50 percent. But 2009 was the year we had the greatest number of trips of people going abroad for training. The previous years, business was good, we have no time to send them for training. In 2009, there was no business, so, perfect timing. Around that time, some of our competitors laid off their staff, cut down in investments. For us, the policy was that, it is bad now, but it cannot be bad forever. It will pick up; so, in 2009, there’s time to train. In 2010, when the business picked up, we were ready.
Besides, we are here. We are a local company. Foreign companies, during the good times, are here. In bad times, they pull out. For us, we are stuck here, we can’t go anywhere. So, giving jobs, training and upgrading the skills of our workers, the benefits is for everyone.
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