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”?