Monday, June 29, 2009

“Houston, we have a problem . . . “

(Or why culture matters in problem-solving and execution)

Our OFWs continue to remit at levels that have been the primary driver of our domestic economy; local businesses are thriving and banks are lending and making money. Our foreign exchange reserves make the Central Bank Governor proud and he is doing a good job keeping prices stable. But of course, there is a debate whether we are in a recession yet. And that structurally we ought to be in for a fix especially given our deficits – if we were a publicly listed enterprise we would be restructuring . . .

That we should care that our exports are less than a third of Thailand’s – and their GDP per person is over 2.5 X more. The true test of performance is to benchmark against peers. Thailand is a good benchmark – their population size approximates ours. And measured against Thailand’s output (i.e., exports, GDP, and our alarming poverty rate) we are lagging behind; and in input as well – we are lagging in investments, both gross and foreign direct: “Houston, we have a problem!” (http://www.phrases.org.uk/meanings/188425.html)

Do we have a problem-solving culture, i.e., are we aggressively driving exports and aggressively attracting foreign direct investment? By either regional or western standards we are passive on both counts, i.e., uncompetitive? (Or why the foreign chambers and the World Bank are on our case – we can leverage their perspective instead of being defensive; and move the country forward in economic development?)

Economists have been figuring out where culture does/does not apply in economic development, e.g., Japan’s lost decade – which a Japanese central banker now describes as the outcome of a passive response to a crisis. Global businesses, on the other hand, have long experienced the impact of culture on problem-solving and execution. Says the new CEO of Proctor & Gamble: "My job is to be a globally effective leader, not just be an effective leader in my own country, in my own culture". (And see: http://www.nytimes.com/2009/06/11/business/11auto.html?ref=global-home re the insular culture at General Motors.)

Our inward-looking culture – that makes us less wired to global competitiveness – is reflected in many ways, e.g., imposing barriers against foreign ownership in schools, restricting professionals to practice in the country, continuing to seek protection in trade as spelled out in our foreign investment negative list, our dependence on OFW remittances, etc. (We surely can rationalize each one, but the test of the pudding is in the eating – benchmarking.)

If we’re outward- and forward-looking, on the other hand, we would be more dialed on product trends – beyond product obsolescence, for example. Product trends may not all materialize, but they spur creative product development – after retro and recycling, the new trend, for example, is upcycling. And it simply means, among other things, that denim may be fashionable again but in an upcycled presentation and so is the color white or the camouflage fatigue used by the military. And that the influence of our surroundings, i.e., nature – wood, rain even storm, etc. – will be strong on product ideas.

Specific to the 3 export areas we are looking at: electronics, agribusiness and BPOs – the mantra (transformation, not mere rhetoric) ought to be “higher value-added” given the contraction of the world economy and the imperative to be truly competitive. And that means: we need to move up from semi-conductors towards smart-phones, for instance; from farm produce to branded (beyond generic) snack food, for example; from supplying labor in our BPOs towards software development. But we can’t go it alone; we need global players to partner with. But above all, we need to problem-solve and execute.

(See: http://www.economist.com/businessfinance/displayStory.cfm?story_id=13832338 re development in smart-phones; see http://www.snackex.com/presentations_jun091.asp re the branded snack food & nuts industry)

Thursday, June 25, 2009

Ideas that travel

(Or how to compete with global behemoths)

“Necessity is the mother of invention” is a tired and old adage. But the writer has a better than ringside view of a Bulgarian present-day version that illustrates what globalization is in pretty simple terms – or why we ought to be outward-looking.

The writer’s first introduction to the country, courtesy of the USAID/IESC, was that the country had 8 million people but 10% had chosen to become migrants. Then he met a couple of university students on (summer) work and travel visas peddling ice cream at the Statue of Liberty grounds. He was with visiting Bulgarian friends and showing them around. So they had an animated chat in their native tongue – the translation reminded the writer of Filipino students working at McDonald’s and also of our OFWs. But that’s another story altogether.

Bulgaria, to be sure, is not a mirror image of the Asian tigers where the writer also had a better than ringside view as they conquered the world – and years later was tapped by USAID/IESC (post career – in a global company) to help a couple of very young Bulgarian private companies, i.e., to equip them with sufficient competitive skills (not to wrap them with the mantel of protectionism) to go head-to-head with global companies, as the country prepared for EU membership.

It would be a classic David versus Goliath battle and so the writer opted to stick around – to nurture the one with the better fighting chance. He was encouraged by the owner’s first words, and the writer is paraphrasing: “I am learning this business the hard way: from scratch – I learned some tricks but have also messed up a few times; how do I move up to the next level? I am competing with a handful of the world’s industry leaders”.

How could an old communist facility that looked rundown and inefficient even have a chance against global behemoths? How could one invest in manufacturing, R&D, marketing, sales and logistics in a market of 8 million people? The obvious answer was to expand the market. It’s not rocket science. And Western bankers agreed.

Going into the 7th year since the writer was introduced to the company; it is now marketing (as opposed to simply exporting) to over 200 million people in 17 ex-communist states. And exporting to a couple more . . . and counting. They are still focused on key sub-regions but are geared to keep expanding their market – and they are not imperialists, not by a long shot; they are simply being pragmatic.

What about the current global financial crisis? The irony is year-to-date 2009 is the best ever for this small (by Fortune 500 standards) Eastern European company that has been doubling its size every 2 – 3 years because it is moving from strong to dominant in its home market – coupled with an elevated emphasis on balance-sheet discipline; and making its ideas travel, i.e., overseas revenues are tracking accordingly.

How? Plainly it was not inward-looking to begin with. And so it had to create ideas that could travel. The concept of focusing on ideas versus products is by design – it makes for a more productive brain-storming and feeds on the brain’s creativity – for which many years ago if not currently, we had adjudged global marketers’ efforts as ideologically- or conspiracy-driven, i.e., economic imperialism?

98 million Filipinos are a big market; but 200 million or 400 million would be even bigger? What about 200 countries? That’s what globalization is all about – not some esoteric ideological slant – and the basis of Paul Krugman’s, an economist, recommendations to the Philippines. And a small Bulgarian company barely out of the clutches of the Soviet Empire (Russia still plays games with their gas supply) is demonstrating how to go mano-a-mano in today’s interconnected world.

Monday, June 22, 2009

KISS

(Keep it simple . . . . .)

Keeping it simple is counter-intuitive . . . like a golf swing is. And hence it was not surprising why the disciples were in a state of shock when Christ said, in response to their query, that all they had to bear in mind were the Two Great Commandments.

In the secular world keeping it simple is more palatable in the West than the East. But it does not mean that Westerners don’t struggle with something that is counter-intuitive, notwithstanding Pareto’s Principle.

Reagan and Clinton (“It’s the economy, stupid”) are two examples of leaders who were able to keep it simple. Obama, on the other hand, may soon find out that he has not kept to the mantra, i.e., he risks execution and would scale down his priorities – or under-deliver on an over-promise? (He is fortunate still because of demographics, the day of the white male vote as the minority has arrived save in the south, i.e., he has political cover.)

In private business, both in the East and the West, prominent business leaders and tycoons are guided by simplicity and clarity, akin to (the positioning of) dominant global brands – Warren Buffett does back-of-the-envelope calculations to make billion-dollar decisions. On the other hand, not even supposedly savvy bankers on both sides of the Atlantic understood the quality (and risks) of the tranches of securitized subprime mortgage loans or the mathematical formula developed by two geniuses and their investment-banker friends that was to be the fail-safe money-machine model – that sank the global financial system and Long-Term Capital Management, respectively.

Jack Welch, the former CEO of GE, after he had restructured GE down to about a dozen businesses, and mandating the respective CEOs to focus on being number one at worst number two – no ifs and buts – in their industry, focused on developing leaders. And a handful of Fortune 500 CEOs today grew out of this Jack Welch mantra.

How did he do it? Very simply, he literally spent half of his time (his calendar confirmed it) doing leadership development – traveling the world to be face-to-face with GE people so that he became comfortable with the thinking, attitude and style of the individuals tapped and nurtured into the GE succession planning process. He understood that GE had to become a top-notch global company, beyond a successful US enterprise – echoes another CEO, "My job is to be a globally effective leader, not just be an effective leader in my own country, in my own culture". (Our GDP is not that much more than GE’s market cap; and if one adds those of the other companies whose CEOs are former GE managers, the group’s contribution to the global economy would equate to the GDPs of a few countries, i.e., more than being local patriots they are COWs – citizens of the world – doing a good deed far beyond their shores.)

In the East we are about kinship beyond blood and marriage; our instinct and social structure are complex to begin with. This is not only true of the Far East but in most places starting from America’s heartland, the Midwest, and then jumping east across the Atlantic, it is discernible.

Reading Jack Welch’s calendar when he was CEO of GE and reading the typical manager’s calendar would most likely prove the point, i.e., no manager would spend half of their working time on one and the same thing.

While GE is a progressively managed conglomerate, it is in fact an exception; its European counterpart, Siemens, is learning that focusing on one’s core business is key to long-term success, i.e., Siemens had to do a major restructuring last year to narrow its focus. Even GE may be facing a similar prospect with growth decelerating in some of their businesses – a dozen businesses is still a lot, i.e., even the exception must prove itself?

The bottom line: clarity and focus facilitate execution and win hands down whether in the public or private sector. That is how we should proceed to deal with our economic challenges? Kudos to our business leaders for presenting policy recommendations (distilled down to 12) to Congress! (See: http://www.mb.com.ph/articles/207236/business-leaders-present-priority-bills-congress)

Wednesday, June 17, 2009

Our C-squared

(Competitiveness and Corruption)

Should these two scourges be core subjects in our schools? If it would take nearly two centuries (according to the ADB) for us to attain the living standards of industrialized countries, should we then give the youth the opportunity to be part of their future – and “raise the eager mind to higher station”?

Whether we agree or not, we should at least put the question to the young people themselves? What we can do is for our educators to do the requisite research work; not to tell the youth what to do but to make them aware and inquisitive about these scourges? And make the subject expository as opposed to directive, offering examples from around the world?

Young people are more predisposed to be “citizens of the world” (COWs) given their affinity for the cyberworld. And they are more aware than their elders were at their age (like the writer, to be sure) about the bigger world, that it is in fact a small world. And so they are receptive to materials that are multinational and multicultural in nature – that diversity is enriching. And that ideas can travel or they cannot . . . so that later in life they would develop products and markets globally – that their ideas can overcome challenges, wherever they may come from? We ought not to be an island unto ourselves and on the path to being marginalized, with the haves sharing the Maker’s gifts and an alarming number merely subsisting?

For example, they could be introduced to Fortune 500 and Global 2000 top executives who were athletes in their younger days. That these folks would point to and be proud of their experience in athletic competition, i.e., it had taught them a great deal about discipline, focus, teamwork, camaraderie, fairness, empathy among others and prepared them in more ways than one for responsible leadership. They understood what healthy competition was; and that competiveness was an invaluable asset. It goes without saying that competitiveness renders corruption moot. The ability to focus to them is likewise vital, i.e., to successfully do business globally they must be able to sift through the chaff. And they sharpened their ability to focus from those split second (play) executions inherent in competitive sports.

One of them is a friend of the Philippines, who, by a stroke of fate, had taken some course work at UP; and briefly played commercial basketball at the Rizal Memorial Stadium, representing a local team. He traveled to Asia, which had fascinated him, right after graduating from an Ivy League college. And with no prior plans found himself in Manila, at the invitation of new found Filipinos friends that he had met in Hong Kong.

He is now retired but until his retirement would visit the Philippines as often as he could and vacationed with his family and mother to Palawan, one of the many places in the country that he loves. He also would visit with his Filipino friends in Manila. And did the same in San Francisco, whenever he was in the area; he calls the Bay Area “little Manila”. And calls the Philippines Shangri-la.

Talking to these individuals would give one a sense of how their experience had formed them. They are extremely, super competitive like school kids and equally as na├»ve about things outside fair play – it is not simply winning, it is how one plays the game . . . winning fair and square. That said it would dawn on us, for instance, that the converse of their experience is not surprising, i.e., we are the least competitive country in the region and are among the most corrupt.

Tuesday, June 9, 2009

Becoming more competitive

(This article asks the question: can we be barking at the wrong tree?)

“It is not all the fault of governments. The region's unwieldy conglomerates could do more to help themselves achieve global scale by concentrating on fewer businesses. Some are doing so, but others still seem unable to resist poking their fingers into another pie . . . San Miguel of the Philippines, a big beer-to-food conglomerate, recently talked of trying its hand at generating electricity. . . This dilettantism was once summed up damningly by Michael Porter, of Harvard Business School: “These companies don't have strategies, they do deals.” Gerry Ambrose in the Kuala Lumpur office of Aberdeen Asset Management laments that it is indeed hard to find Malaysian companies with “a business plan that will last ten years”. Many firms have improved their profitability since the 1997-98 crisis but that may not guarantee their long-term survival. Because even the best-run firms often have boards and shareholder lists dominated by the founding family and their friends, it is hard to believe that their thinking will change.” That shortened quotation is from: The Economist; Business in South East Asia; February 28, 2008. But see how Taiwan is progressing: http://www.nytimes.com/2009/06/04/technology/companies/04compute.html?hpw

In the meantime, are we instinctively looking backward – to Garcia, Macapagal or Marcos – to seek answers to our frustrations? Or is the ideology of a few getting in the way of pragmatism? How many more decades do we want to invoke our handicap to drum up protectionism, a self-fulfilling prophecy? There is nothing wrong with “Buy Filipino”, but we have to disabuse our mind that we should keep to a 4-cylinder engine when the race rules allow 6 cylinders and bigger. Do we risk being marginalized in the age of global competition in an interconnected world?

Are we barking at the wrong tree? Should we channel and expend our efforts to more forward-looking, positive endeavors?

We’ve made mistakes . . . but that’s past. What is staring us in the eye now is: we are the least competitive in the region. It is imperative that we become competitive to drive our GDP. Our local economy as it stands is larger than that of Malaysia or Thailand; our shortfall and opportunity is in exports. Thailand is a good benchmark with a population closer to ours than Malaysia; Thailand’s exports are more than 3X ours.

That is our problem-definition, not that capitalism is in its death throes, e.g., Russia still has 23 billionaires down from 53, but who is counting – they would have more if they expand their industry beyond oil? Or is nationalism threatened by the free-market? The Japanese owned the Rockefeller Plaza and Pebble Beach Resorts/Golf Links for a period of time. And Germans owned Chrysler for a brief time as well. These are American icons. And so they bought them back! Again, it is not ideology, it is pragmatic economics. But what may be true is that the global financial crisis may not turnaround robustly or until the system finds the right balance between prudence/regulation and dynamism, i.e., in the meantime capital flows will decelerate, and that means we better get our act together as we may be facing an even bigger challenge.

(If we want a constructive debate, should we then debate why we are among the most corrupt countries – it is a big drag on the economy, has torn our moral fiber and it needs mending – and then deal with it? For instance, can newspapers, radio and TV stations devote dedicated space/time for people to submit answers to questions like: Where does a corrupt act begin? Can we trace its path? How do we stop it? Who will stop it? When? And periodically the host can boil the answers down into some coherent actionable initiative for the people to act on them?)

But to move forward, we better figure out how to cover the gap in our GDP – exports – by being competitive?

Wednesday, June 3, 2009

A “Pearl Harbor moment”?

(This article highlights why it is difficult to reinvent ourselves yet there are ways)

“Paradigm shift” is something that the writer has mostly heard in the Philippines and talking to training and development professionals in the West.

Indeed we are well-informed as well as acutely aware of the challenge inherent in change . . . having in fact experienced such struggles.

Every country has its own share of difficulty re change. With the global financial crisis as a backdrop, Japan’s “Lost Decade” has been in the news of late, for instance. But Japan had early on demonstrated its ability to change when they embraced W. Edwards Deming’s (an American) total quality movement. While Detroit paled in comparison; and the consequence today is stark, i.e., the US auto industry is on the road to bankruptcy if they’re not there yet.

It will not be easy for us to make a paradigm shift in our industry. The success of our local businesses has been achieved by catering to and focusing on the local market. And being a developing country we have lots of room to grow given our infrastructure (and complementing businesses) is still inadequate, for instance. That means local businesses have such room to fill and will continue to succeed especially given the magnitude of OFW remittances, a major source of domestic consumption and key driver of our economy. (Unfortunately, this model even in the best of times has not arrested our alarming poverty rate. And today we are the least competitive economic performer in the region; not a surprise given our lack of experience in global competition and its requisite elements. GM was in a similar uncompetitive position – with declining market share – which they rationalized for decades, e.g., big cars and SUVs generated healthier margins. And so they were blind-sided and did not recognize that their “Pearl Harbor moment” had come and gone until they were deep in a downward spiral.)

And as our local businesses grew, some have realized that their market could be saturated or become mature and hence to keep their growth momentum expanded to other businesses, i.e., they became conglomerates. In short, success keeps us more inward-looking, not less. (On the other hand given our frustrations many of us are looking at other systems of government? But if we look at China or Russian, for instance, they have not changed. They are still autocratic systems. What is new is their economic system. Despite the global financial crisis Russia still has 23 billionaires, down from 53; and this is following their shift to capitalism – and with the clear majority preferring the free-market system.)

In developed countries where by definition there has been little room for domestic growth, their option was to go overseas and in the process learned to compete globally. And having seen how the West did it, the Asian tigers went overseas even before they attained developed country status, i.e., they did not have any ideological (or imperialistic?) agenda, only pragmatic economics – the bigger the market the bigger the opportunity; and they partnered with global players to get themselves started.

Conglomerates in a developing country will find it difficult to become competitive in the global market given that they did not have to invest in multiple-market development and compete overseas. On the other hand, global players most likely are highly focused on their core business, heavily invested in their critical drivers and hence have a competitive advantage.

For instance, Proctor & Gamble has such competitive advantage in detergents and diapers to name just a couple. It would take another behemoth (or a “David’) to compete with them regionally or globally. Similarly, Colgate has such competitive advantage in toothpaste and it would take a behemoth (or another “David”) to compete with them in the regional or global arena. (Note that these are not sexy or high tech products yet they are multi-billion dollar businesses. Marketers are focused on what drives (and it’s not ideology) the free market and thus develop products accordingly, i.e., value-adding not necessarily high-tech innovation, healthy market share and margins driven by consumer acceptance and economies of scale. And they are the key to their sustained success, over many generations.)

We have talked about electronics, agribusiness and BPOs as potential global industries for the Philippines. But we don’t have local behemoths to elevate us to competitive global player?

But we may have some Davids within these industries; and their option is to partner with the right global players. The partnership can be based on equity ownership or technology or R&D or market or infrastructure, i.e., whatever is the most critical competitive element they have missing.

But they must likewise be able to answer the questions global marketers answer all the time: can we develop products that are value-adding, not necessarily high tech innovation, which will have consumer acceptance at such volume that will bring healthy market share and margins? For instance, with their potential partners they could explore the product architecture around smart phones (electronics) or branded snack food (agribusiness) or software (BPO) – to give them the full perspective of either pursuing incremental value addition or discontinuity or creative destruction.

To be able to make a paradigm shift we need to revisit our assumptions: from inward to outward-looking; seeking and aiming at the bigger, global market and what it requires – pragmatism as opposed to ideology? Otherwise we would also miss our “Pearl Harbor moment”?