Monday, May 11, 2009

RP-Taiwan partnership: moving on the right track

Two news items about the Philippines and Taiwan were truly welcome news: RP, Taiwan sign 4 agreements at joint economic conference – including the grant of a host of incentives to Taiwanese high-technology firms that will locate in Subic and Clark; RP scientists get pointers from Taiwan. And so were a couple more about Del Monte shifting from domestic to export orientation and the WTO warning against protectionism.

In his blog (see the writer talked about the dynamic of: capital formation, investment, technology, market, productivity and efficiency as key to competitiveness. And that for a developing like we are it starts with partnering with the right global/regional players in order to optimize as opposed to sub-optimizing these elements.

On other hand, there is the school of thought that given the greater impact of the current global economic crisis on the Asian tigers that we should not rely on exports, foreign investment and remittances of OFWs. In his blog the writer raised the imperative that remittances from OFWs must simply be a stop-gap measure – they are in exchange for draining talent; what we need is an economic engine that provides a larger, more sustainable revenue-generating capacity.

While we are in the current global economic crisis both exports and foreign investments are expected to decelerate; yet they are two critical elements if we are to become competitive. And so we must gear up like businesses do via a multi-year plan. As importantly forward-looking businesses (e.g., Del Monte and San Miguel) view the current crisis as the time and the opportunity to step up investments.

We cannot talk about competitiveness in isolation given our limited resources. It is market forces that make exports ideal, specifically economies of scale. The bigger the market the greater the potential for higher margins . . . though the more competitive it is; and precisely why competitiveness is an imperative.

Marketers keep an eye on their product architecture in order to overcome the product-cycle phenomenon and as importantly open up new categories and segments that offer higher-value added products, the key to competitiveness. (See re Coca-Cola’s redrawing of their product architecture.)

The RP-Taiwan joint economic conference brings to mind the evolution experienced by economies over the years.

By the East River and the Hudson River bordering the east and west of Manhattan are relics of the once engine of New York’s economy, manufacturing – and hence the shift to a service economy. Germany has switched its emphasis from consumer goods manufacturing to industrial equipment and machinery given their high cost structure and thus leveraging instead their competitive advantage in higher-value added industrial products – because of their engineering and manufacturing prowess. Beyond the U.S. Taiwan has established manufacturing facilities in China to take advantage of lower costs. And with China experiencing an economic imbalance of its own, new manufacturing facilities are coming to India and Vietnam.

And it appears Taiwan now sees opportunities in establishing manufacturing facilities in our export processing zones. A businessman in Angeles was telling this writer over dinner the other night that in Clark a couple of new investments (by an American and a South Korean) are going live shortly, and it would be good for his business.

This seeming shift to the Philippines should be most welcome; and the right response from us would put us on the right track: to move beyond comparative advantage – to competitive advantage – we have to optimize capital formation and acquire state-of-the-art technology by seeking regional/global players like the Taiwanese, and the American and South Korean investors at Clark.

In the past countries were focused on comparative advantage especially low labor cost. But as we now know such advantage could be short-lived when labor cost alone is what drives comparative advantage.

On the other hand, competitive advantage leverages all the elements that drive competitiveness:
  • Capital formation – our tendency to go it alone is reflected in our higher external debt versus foreign direct investment – see; the Asian tigers mirror the strategy of progressive private enterprises, i.e., seek low-cost capital; competitiveness starts here – the lower the cost of capital the greater the ability to move towards competitive advantage
  • Investment – the more expansive the source of capital the greater the ability to elevate investment capacity – to pick and choose the most viable investments that will yield the best returns, including acquiring the critical input – from talent to technology to machinery and equipment to raw materials to infrastructure to market, etc.
  • Market – the bigger the investment capacity the greater the ability to target a bigger market and the greater the margin opportunity and the potential to sustain the undertaking, building from strength to strength; this requires a market-oriented mindset, constantly updating the product architecture and delivering higher-value added products – product development efforts must be part of an innovation culture: it is not purely R&D or purely marketing or purely engineering. (See re the Toyota model.)
  • Technology – our tendency to go it alone is reflected in our inability to partner with the right global/regional players that can provide state-of-the-art technology; our scientists working with their Taiwanese counterparts in the electronics industry is a step in the right direction
  • Productivity – the better the technology and the bigger the market equate to leveraging economies of scale, i.e., greater volume, revenues and margins
  • Efficiency – the ability to pull together all the above elements brings about efficiency in every aspect of the undertaking and sustains competitiveness
We should be focusing on developing competitive advantage so that the “ideological debates are left behind”? (See re the 7 pillars of Western wisdom.)

No comments:

Post a Comment