It’s not lack of resources . . .

. . . It’s the mind thing

Our tycoons, with the exception of a couple, did not have any resources – capital, technology or market access – to begin with. And precisely for that reason, we hold them in high esteem. But as a country we have had access to these resources for decades: What we did instead was erect barriers – clearly we needed to learn to walk after the Americans gave us independence, unfortunately we never wanted to let go our “trainer wheels”?

It is noteworthy that we have acknowledged the need to pursue technology acquisition from Filipinos overseas. No different from our acknowledgment that OFW remittances drive our economy?

Given that even in the best of times OFW remittances did not raise our GDP beyond a mere fraction of our neighbors’, our challenge is: How do we optimize or get a major boost from technology acquisition from Filipinos overseas? How do we optimize the use and benefit of a resource for that matter – for example, employ them to aggressively become globally competitive? What is the difference between the resources that had been available to us for decades against those available today through OFWs? Are we in fact narrowing our options, given, for example, that foreign-born Americans and visitors are producing more scientists than native-born? We ought not to be linear in thinking and tapping resources – because competition is about optimizing options, “make versus buy”, e.g., every fraction of margin is crucial while adding value. We tend to want to “make” and “own” and monopolize; and be a big fish in a small pond? Are we again falling into the trap of our inward-looking bias – which has held back the Japanese, for example?

Extraneous-resource factors are not our problem – they have always been there to tap. It is the internal factors that are our problem: the mind thing – everything starts in the mind!

Our neighbors and ex-communist countries were able to tap into these resources much later than when they were first available to us. For instance, Eastern European countries have lined up to solicit foreign investment; and get US bases into their countries while we took pride in getting rid of them. There is sovereignty and there is sovereignty – or the pragmatic use of resources. For example, these countries can negotiate with the US to develop defense-related industries within their countries to support and supply these bases, with equity ownership available to locals – everything is negotiable except when the mind is closed! The writer had early on talked about product-architecture modeling and that is a back-of-the-envelope example: these countries can move up the value chain – for instance, from the low value-added entertainment industry (e.g., night clubs outside these bases) to the higher valued-added defense-related industry with technology and investment principally provided by the US. (GE, for example, has established aircraft-related businesses in China.)

We seem to operate at a sub-optimized level, ceding ground to competition in the process: We ought to first and foremost recognize the need to change; and then decide and commit that we want to change? And then act on that change – and all the mental blocks and barriers that we have erected for decades would go away?

That is a painful effort to make because instinctively we believe in “business as usual – that: our culture, our ways, our tradition, our religion, our language and whatever else motivates us are sacrosanct, reminiscent of Christ’s encounters with the Pharisees? That our “quality of life” is to behold? That hierarchy offers the way of life we cherish? But what about the vast number who are lower in the totem pole? Nothing wrong with being human – but the key is to solve our problems as a nation, lest we together spiral down the abyss?

We can take grass to a horse but we can’t have the horse eat it – the NIH or the “not invented here” syndrome.

Failure is not an option

(The straightforward definition of competitiveness)

An old thought about failure and competitiveness came back as the writer and his wife were awaiting their flight out of Sofia (Bulgaria) airport – as similar scenes from other airports flashed back: New York airports are unlike Singapore or Amsterdam or Hong Kong or London Heathrow’s Terminal 5. And as they say, “only in New York” – do people take airport inefficiency as a given. But that is not the model to emulate if we want to elevate our competitive spirit and thus our competitiveness.

Not everything foreign is an ideal to be adopted: Japan’s inward-looking culture and Spain’s marginal entrepreneurs (i.e., their SMEs like ours ought to set their sights higher) to name just a couple have proved ineffective in economic development.

Sofia’s Terminal 2 was mired in corruption charges similar to the newest terminal in Manila. It was conceived much later than Manila’s yet despite the delays, it still opened ahead of Manila. As a people we had rationalized the delay as “business as usual”. “Failure is not an option” is not in our psyche? It is what competitiveness is all about. Of course even the best can be beaten, but that is not the mindset of winners.

It is difficult for us to dissect the implications of being the least competitive in the region because of our mindset of business as usual? Or is it because we’re instinctively fatalistic?

Have we unwittingly isolated ourselves given our comfort zone as defined by our hierarchical culture – that within our conflict-free zone we find peace and tranquility? Unfortunately, outside the confines of our culture, hierarchy is not respected – that is to say, we have to be geared to compete and leave our conflict-free zone in the first place.

It takes time and experience competing regionally or globally to develop the mindset – failure is not an option. For instance, Jollibee (not cowed by McDonald’s) has developed the confidence to compete outside the country and expects that they would generate greater business overseas than the Philippine market.

The writer still remembers the reaction of his then new Bulgarian friends whenever the imperative of global competitiveness was the topic: their jaw would drop – that was almost 7 years ago when he first came to represent USAID/IESC. Their products were not sexy or high-tech and were low-margin businesses. And so they had to learn two fundamentals: (a) product development is about expanding the mind, i.e., tapping the brain’s creative power, not worrying about do’s and don’ts because they narrow perspective – which sadly the writer reads a lot in our papers, and (b) healthy market shares and margins trump all else – when driven by marketing and market dynamics, not power or greed.

Today these ex-communist folks are so gung-ho competing with the best, the brightest and the biggest brands in the industry: they have gone from a local SME in their small country of 8 million to marketing (with ordinary day-to-day, but value-added, products) and doing business across the region of over 200 million (and counting) who had lived through socialism. And their mantra is: failure is not an option. Isn’t it amazing that old debates like socialism and debt default, for instance, are still around us? Are we in the 21st century yet – the age of global competition? Or are we still justifying our failings instead of learning from them? How can we learn to look forward if we keep looking backward?

Can we learn from an ex-communist state?

(Business community reacts to new prime minister)

In a recent dinner hosted by a businessman-friend, the conversation turned to the recent elections in Bulgaria: “I did not vote for him but it is amazing what he has done in just one month in office . . . If the elections were held today I would vote for him, absolutely”.

Bulgaria’s new prime minister took office July – the former Mayor of Sofia, the capital, was not a real favorite, but won after the then incumbent socialist prime minister made a couple of mistakes (hubristic statements that turned enough voters against him?) weeks prior to the elections. The country is in a recession; and what is surprising the business community is the swift action and positive direction he has taken. (Bulgaria is a poor country but since embracing free-market economy, its GDP per person has risen to 4X that of the Philippines. Their Act II will be more challenging – raise GDP another 4-fold – to attain developed country status.)

12 years ago they thought they elected the right prime minister but he populated his administration with politicians and corruption became commonplace. This time, the new prime minister put experienced businesspersons and trained professionals in key posts. And he purged agencies known to have been led by corrupt officials – and where imprisonment was called for, facilitated their incarceration.

The prime minster hit the ground running and focused on balancing the budget: The assessment was that government bureaucracy was only 15% to 25% efficient; and so he set a goal of raising efficiency to 55% as a first step. For instance, he ensured that excise taxes from liquor products were realized, 100% – mandating all producers to move from black or grey to white; the Customs bureau and all tax assessment points were tapped into one and the same database as the country’s internal revenue agency, where analysts were tasked to match tax assessments against collections; minutes of government meetings and deliberations were posted in dedicated websites within a couple of weeks, starting with his cabinet meetings.

He is likewise fast-tracking the construction of 3 major highways that will connect the country to their neighbors and western Europe as well as the plans for 2 more, all supported by the EU: the 3 will be completed within his 4-year term and the other 2 will be funded even though the project timelines extend beyond his term. His mantra, on top of demanding transparency and swift action is: “no more maybe(s) or probably(s), only absolutely(s)” – he does not hedge like a typical politician.

And so the type of cabinet officials he chose had proven track records, e.g., a top economist who was with the World Bank for 18 years, a general manager of a German energy company, the general manager of the country’s premier business park, among others.

The business community is so gung-ho that they maintain an ongoing dialogue with the administration; and the 3 priority items they said they would monitor to assess the performance of the government were: (1) eliminate organized crime, (2) eliminate corruption and (3) make Bulgaria among the top 10 business-friendly countries for foreign (and that is not a typo) and local investors.

Will they succeed – they have yet to learn the Protestant work ethic? Who knows, but they are focused, the country’s leadership is working with the people, and they are gearing up to be competitive globally – leveraging their membership in the EU.

A model for the Philippines

(How Fortune 500 firms do it)

The Economist on July 30th writing about Spain says: “. . . aversion to tough decisions risks prolonging the slump.” We’re not alone in using kid gloves: We share this with the Spaniards and other countries especially developing ones, and in both the public and private sector. In the private sector though the market is harsher – many of them had to pay the price and gone under. Countries don’t go away but they do create massive poverty. And once it sets in the country is left with fewer and fewer options as the trees appear bigger and mistaken for the forest. Unfortunately, it is a slippery slope – a race to the bottom, the country gets worse not better, and so the poor get poorer.

The government, the private sector and the church being the largest institutions need to come together to address the challenge – and turn our psyche away from politics to economic development; and yes, the church can play a critical role in moving the country forward. (See earlier article: http://phileconomy.blogspot.com/2009/07/fortune-500-model-for-development.html )

Using the Fortune 500 model, when these institutions come together, they have no preconceived biases – they are into a brain storming, problem-solving endeavor, i.e., we were just driven out of Eden. (Did the WB get a cold shoulder from a NEDA person re integrated planning – yes, we know it all?) The object is to: (a) drive revenues – say, raise GDP by $100 B to match Thailand (benchmark) and reduce poverty (goal) by half, order of magnitude, (b) commit to a balanced-budget – the government and the Church will be guided by the principles of the 10 Commandments and the Two Great Commandments, i.e., not rewrite the Bible, which in secular terms is the Pareto’s Principle or the 80/20 rule (and in marketing parlance, they are the product concept and positioning statement), and (c) seek efficiency – so that institutions optimize their operations (become effective/achieve their aims while raising revenue and reducing costs, e.g., the Archbishop of New York is a master at balancing the budget; see how a Filipino priest does it: http://phileconomy.blogspot.com/2009/05/economics-101-as-practiced-by-priest.html); with the private sector becoming competitive globally.

Before the session each institution does their homework – starting with every agency, industry and archdiocese; with the respective output synthesized as the process moves up, say, to a council level. They will be represented by the least number of people – part of their homework is to agree on their representatives. Limiting each institution to 4 representatives will be ideal – or a total of 12, modeled after the Apostles or corporate boards. (This is not the time for ego trips – this is what patriotism is about, not preserving turf/local interests . . . or hollow shouts of nationalism.)

They will come out with a zillion ideas and so they will reduce them to what equates to the country’s equivalent of: (a) the 10 Commandments and (b) the Two Great Commandments – to achieve the above revenue, budget and efficiency goals. (We have a huge shortfall in GDP; and the $17 B in OFW remittances and the local economy alone will not reduce poverty. Nor will protectionism, debt default or socialism – because they don’t address our fundamental issue: a humongous revenue/GDP shortfall . . . and incremental thinking will not lift us up.)

They will similarly create an ethics version of the above commandments and an implementing process that is simple. The key is to get corruption and bribery out of the system.

The guiding principles of all the above (and at execution time) will be: (a) simplicity, (b) clarity and (c) leadership. (A simple “how-to” guide would have been prepared to facilitate each step of the process, from the ground up, with facilitators trained to ensure efficiency . . . Of course Rome was not built in a day!)

That means brainstorming to generate the best ideas, translating them into simple terms, and sharpened for clarity – to facilitate execution; with leadership exercised effectively so that even while brainstorming (and during execution) there is efficiency. Leadership especially in a complex environment is a must – where barriers would appear insurmountable. But the exercise will sharpen execution – including focus on strategic investments, R&D, enabling legislations and shared leadership with a big dose coming from the Church, among other things.

Should the Philippines care about Hyundai?

(New York Times: “Hyundai outshines global rivals”)

American auto executives have a lot on their plate – beyond Germans and Japanese. And we do too – yet our mindset (i.e., hierarchical and local bias) can undermine our efforts, rob us of our competitive potential.

In Metro-Manila and the provinces we see Koreans engaged in small home industries. Some of them admit to the Philippines being a better option given the high costs of living and doing business in South Korea. If the Americans have to contend and compete with Koreans, sooner rather than later our businesses would similarly go through the experience.

The writer is not advocating kicking out the Koreans; he is posing a challenge. Competition ought to pump up our adrenalin, not drive us behind the mantel of protectionism – or the world will indeed leave us behind in competitiveness. Net, we want them around to train us to compete and win.

Driving recently around northern California and over mountainous terrains, the writer was all praise for the Hyundai Sonata he picked up at the San Francisco airport. He had driven GM, Ford and Chrysler rental cars before. And so when he checked out afterward the prices of Hyundais, he was amazed at how relatively low-priced they were: a classic value for money proposition. Ergo: “Hyundai outshines global rivals” – predictable and expected! See: http://www.nytimes.com/2009/07/24/business/global/24hyundai.html?_r=1&scp=1&sq=hyundai%20outshines%20global%20rivals&st=cse

In earlier articles the writer talked about value-added products being key to make us competitive in the export or global market. We are competing against the rest of the world, not just the largest economies. In short, we ought to respect the businessperson from Korea who has set up shop in our neighborhood. We have seen how the roster of top businesses in the Philippines has evolved over the years with the most recent composed mostly of our taipans – the phenomenon is not unique to the Philippines; migrants do take the extra mile.

The Koreans are doing business not just in our small country but in the biggest markets of the world, primarily. But what was a Hyundai compared to a Lincoln or a Corvette or a Cadillac? (They are not . . . but we have . . . allowed our mind to be cowed by anything big like multinationals and the US – and thus ceded so much ground. What we need is to learn Chinese checkers – create our own path to glory!)

It takes no respect for: (a) hierarchy or (b) local bias to be able to do a Hyundai. It is what small businesses (in fast emerging markets) live by as they compete with much bigger and established economies. And they have developed the confidence to take on big players even outside their home market.

In the Philippines, our tycoons are aggressively investing and that is good for the economy. But they are fighting for the same handful of high-profile local businesses. Changing ownership: (a) reinforces our inward-looking bias – as opposed to competing in the global market, (b) is a wash from a multiplier (effect of investment) standpoint, (c) perpetuates our monopolist attitudes and (d) feeds our hierarchical structure and culture. (But they do generate incremental benefit through internal synergies? We need quantum . . . beyond incremental! We have stark poverty staring us in the eye!)

It is understandable that we’re cheerleading and celebrating every investment effort. But as we know – even in the best of times – OFW remittances and our focus on the local economy put our GDP only at a fraction of our neighbors . . . making us the least competitive. Unwittingly, our structure has: (a) a monopolist orientation at one end and (b) protectionist and socialist proponents at the other. Predictably and unfortunately, we find ourselves between a rock and a hard place!

Señoritos are the exception . . .

. . . If we ever want to be a developed country

In the early 80’s when corporate America was going through its self-doubt courtesy of Japan Inc., programs labeled “Managing Change” and the like were in abundance. The writer, proud of his Philippine business and corporate experience, was nonchalant as he sat through the program sponsored by his employer. He thought it was superfluous given that everything in business was about change. But over the ensuing 25+ years he realized that managing change cannot be taken for granted – yet he has not mastered it. (The writer reads the articles of about 30 opinion makers and has sensed a similar pride as the writer had in the way we do business and things in general. The difference today is he had seen and touched both extremes – from greed in the West to poverty and death in Africa – and they feed the thoughts in his articles.)

No one is perfect . . . and so there are things we “tolerate” – like mistakes made by kids being part of growing up; though the writer’s daughter in a reversal of role now “tells him what to do”. But there are things we can prevent: the writer remembers the priest (while in a retreat last Holy Week in Tagaytay) whose cellphone rang that stopped him dead in his tracks – a young person was calling contemplating suicide.

The economy of the Philippines is akin to health care in America or uniting Europe under the EU. Neither is a cake walk. Managing change cannot be taken for granted . . .

Managing change risks ruffling feathers – we’re creatures of habit – but whenever there is a fork in the road, if we are our brother’s keeper, we can point the way to go. For example: the writer spent 8 years in an oil refinery where the first lesson taught every new employee was safety. Culture took a back seat – every violation was dealt with most severely. (A red light means stop, not maybe? Not optional?)

In another example, the writer many years ago was preparing to check out of a hotel room in Manhattan when the general manager called to offer assistance with his luggage, only to learn later that the staff was on strike. The writer’s employer was a major client and the general manager wanted to ensure he took care of business, if that meant carrying the luggage of guests. Rank took a back seat. (Hierarchy is so ingrained in us that we struggle undoing it, i.e., not wanting to risk disrespect, etc. Similarly, we sincerely believe sheltering our kids is what our faith and family is all about and consequently perpetuate hierarchy in our culture – breeding señoritas and señoritos in abundance. The writer’s daughter, while nurtured in and a product of Catholic schools (disclosure: she chose an Ivy for her college, worked in Wall Street and volunteered in an inner city school), would just shake her head seeing Filipino mothers (with the “yayas”) baby their daughters while visiting them in school in New York. And we’re surprised that when they become politicians they serve themselves instead of the people? It is predictable and to be expected – they grew up being served their every need, and then some? Remember Eden – the first and greatest lesson in character building?)

We are the economic basket case of the region – and so we rail against poverty. Our ways over several decades have not worked . . . and that’s reality . . . Houston, we have a problem! We can be proud of our culture and whatever else instinctively drives our motivation, but reality is reality. (Disclosure: the writer remembers his confessor-friend’s advice around the subject of reality – that felt like a never ending theme then. Was he playing moral theologian or simply being a friend or both?)

In computer lingo they have an unwritten rule: “garbage-in, garbage-out”. In Total Quality Management they define “insanity” in jest as: going through the same motion over and over again and expecting a different outcome.