Firefighting has become our normal

. . . Because we can’t seem to stay above water?

After Ondoy we now have another fire to fight: rehabilitation. And overarching them is Noynoy and the other presidential wannabes. And of course, given our state of affairs, the next president will tell us that he or she would have to fight another fire.

Staying above water reminds the writer of “Smokey Mountain”. What could he and his company do to help these people stay above water? A priest came with a practical idea: “How about appointing a group (e.g., a cooperative) to distribute your products in the community?” And the venture got started – a livelihood project.

Today many “Smokey Mountain”-like communities have mushroomed – but the model remains. It’s a stop-gap measure . . . that is not equal to the task! Who then is equal to the task among the presidential wannabes? Four years from now who can say “we’re better off today than 4 years ago”?

We have teed-up the initiative to rehabilitate post Ondoy, which is great. But we have a far larger destruction to address: we need to come to terms with how far down the economic abyss we are. By any contemporary global yardsticks we are doing poorly or why close to 30 million Filipinos are hungry.

If we’re content with stop-gap measures, it’s conceivable that our economy would come unglued. Why? We don’t have the infrastructure (capital, market, technology, talent) to create a robust, sustainable and developed economy – we’re already witnessing our downward spiral? Infrastructure starts in the mind, goes beyond the physical . . . and just like in computing, the software is as important. (But this seems too far removed from our consciousness – because we have been busy fire-fighting over the last 60-odd years and have become so jaded? “Pinoy kasi” won’t cut it!)

To push the computing analogy, Windows/Office and integrated, enterprise-wide systems have become the lifeblood of IT. Our effort to rehabilitate following Ondoy is akin to downloading “Excel” but not the rest of Office. We should be rehabilitating our economic infrastructure in the first place.

We’ve become an OFW-centric economy and thus developed a penchant for thinking small – or what they call Dutch Disease in the West. Now that we’ve realized the economy’s inadequacies, we’ve resorted to slicing the salami, e.g., that this initiative or that industry would keep us above water? But benchmarking ideas must be against best practice, e.g., when has Argentina been best practice in generating capital, something we sorely need? Will their model or one bright industry cut the 175 years to achieve developed-country status? We have been reduced to clutching at straws? A structural challenge demands more than spinning wheels and ideology – or why the world has left us behind! Unfortunately, countries and governments are averse to restructuring – and so deeper into the abyss we sink?

In an earlier article the writer talked about clarity of purpose – it’s not an American invention, but some would explain as inherent in their Protestant work ethic. The Americans are a Bible-reading lot. And just like us they read that Christ has set the example via His Two Great Commandments. KISS – was what He wanted to say? In any case, He chided the Pharisees not to focus on the form, i.e., the 300 tenets they had to live by, but on the substance of their faith.

Are we likewise, beyond our “kuro-kuro”, bogged down by so much irrelevance given our focus on personality-politics, and form-religion? Our focus should be on the people’s well-being – the 27 or 30 million hungry Filipinos? How do we “lift all boats”, our economy?

“Don’t expect logic from us . . .

. . . We’re Italians!”

Italians thrive in pulling the wool over another’s eyes: “Why did you block my car?” “Of course, I’m Italian!” The next line is left unsaid: “Don’t expect logic from me!” – and the world simply loves them!

Why did the Nobel Prize Committee give Obama the Nobel Peace Prize? “Of course, we’re Europeans!” And unsaid is: “We’re kinder and gentler!” – a not so subtle rebuke to the predecessor?

What do the following have in common: (a) “The pursuit of life, liberty and happiness”, (b) “It’s the economy, stupid” and (c) “Just do it”? Europeans find Americans too forthright and candid – because their mindset tends to be confident, focused and precise? On the other hand, the Brits struggle to define themselves vis-a-vis the EU, for instance?

When the writer first came to Eastern Europe he immediately sensed their tentativeness. Instead of saying “yes” they say “maybe”. They are not very different from Filipinos. And when asked “how they are”, the typical response is “so-so”.

Americans instinctively express clarity of purpose while Easterners and even Europeans formulate more dimensions? And in the case of the Filipinos, is it because compassion and inclusion are imbedded in our subconscious?

We imported the latest Western “widgets” and so managers from neighboring countries trained in our institutions to learn problem-solving and decision-making. We know that fundamental to problem-solving is problem-definition. But is it instinctive to us? For example: What do we need to be a developed country? Infrastructure: capital, market, technology, talent – to make strategic industries competitive globally? Why are we exporting talents then? (None of the presidential wannabes has a compelling vision but more of the same? We have ourselves to blame because we don’t go to the gut of our problem and quiz them?)

Is it because our mindset is so inclusive that we end up with no clear problem-definition and thus fail to attain clarity of purpose? That we are so scared to omit anyone from our “guest list”?

With the Eastern Europeans the writer incessantly talked principles (e.g., 80-20 was JC’s before Pareto’s) and related them to the real world; but still it took them time to internalize what clarity of purpose meant.

The first exercise (competitive advantage) the writer did was to have them define who they were: What business they’re in and conversely what business they ought not to be in. (Filipinos argue against this given monopolist tendencies and parochial blinders – that limit market to the Philippines and cement our uncompetitiveness?) He had to walk them through the dynamic of pricing and value thus margins. With their communist past and poverty, their instinct was a hostage – to cheap pricing. And so because of inertia (or sentimentalism?) they did not have the heart to kill a business until they realized the red ink could drown them.

They had “to be schooled” to unlearn their practice re product development – that competitiveness demands more than artful and cheap products. That it’s about clarity of purpose: that every product must have a compelling concept – a message to stand on to travel beyond local boundaries, which was their wish. Now they’re well on their way and confident!

We have so much to unlearn if we’re going to break loose from our parochial shackles . . . and solve our problems? But we’re too proud or sentimental? Quezon should’ve been careful what he’d wished for?

It’s not growth . . .

. . . It’s re-building that is our challenge!

We will always grow so long as we have OFW remittances, e.g., $18 billion – it’s not rocket science; it’s all gravy! But we have not disputed the ADB’s prognosis that it would take 175 years for us to attain developed country status!

Then it would be sad if we sat on our laurels growing between 4% and 5% or even 7% to 9%. They are a drop in the bucket given the mountain we have to scale, if not irrelevant – and so ADB said it rather coyly?

For many years on his 7:09 AM commuter train from Stamford to Grand Central in Manhattan the writer would read that inflation was trailing the 3% US GDP growth – that there was real growth in the multi-trillion $ economy. That would be a good yardstick for their US business, substantial by itself. But then he would scan foreign currency exchange rates because the business overseas was even bigger. A strong US dollar was good for the US business but bad for the overseas business because the consolidated numbers were in US dollars. But in the finally analysis: (a) in the developed markets growth was key, (b) in the developing and emerging markets expansion was the driver given their greater growth rates, but (c) if a market was uncompetitive, it was imperative to redefine and focus the business to achieve competitive advantage and to rapidly upgrade and/or create the requisite infrastructure . . . and Execute, with a capital E – no “paki” or “puede na ‘yan”. (It’s not one size fits all!)

A global business is on its toes intervening in markets as demanded by their respective challenges, i.e., (a) fortify systemic and industrial infrastructure to leverage developed markets’ growth; (b) build up infrastructure in developing and emerging markets to exploit potential to the hilt and (c) restructure uncompetitive businesses. No punch is pulled!

Countries can be asleep at the wheels – they don’t disappear in a sea of red ink like badly managed businesses. But they yield massive poverty. And (bad) country management doesn’t explain to the poor . . . before they’re fired! (No role for Donald Trump here?)

The question we should be asking ourselves is: how do we re-build our economy? We need to upgrade or create the requisite systemic and industrial infrastructure and get strategic industries globally competitive in order to raise GDP significantly. To keep our OFWs as the foundation of that infrastructure while industry goes on their merry ways – uncompetitive regionally or globally – is a disaster waiting to happen, if it has not happened yet! It’s the modern-day version of Juan Tamad – elsewhere it’s a Dutch disease?

The 21st century world while interconnected is tough and unforgiving that we must draw strength from “our image and likeness” – which was why Adam and Eve were driven out of paradise? To tell the succeeding generations what the real world would be like; and what we must be like – tough, nothing less?

We want to be socialists instead? Even kinder and gentler Europe didn’t elect socialists in recent elections! And the writer’s 25-year old Bulgarian assistant would have a fit! As his sister, parents and the organization the writer consults with. They started in the middle of nowhere 100 kilometers from the Black Sea trying to be marketers in a country of 8 million. But 6 years later has the infrastructure marketing to 220 million in 17 ex-socialist states, and making beachhead in a couple of Western markets.

We’re sophisticated and educated but we can’t have the world – big and small countries – wait for us; if the train has not left us yet? (Competitiveness is still at our “kuro-kuro” level; others are at their “Windows 7”!)

“No country, however rich, can afford . . .

. . . the waste of its human resources”

That is a quote, as most of us know, from FDR during the Great Depression.

He demonstrated strong leadership and was able to turn the tide against both extremes: those who had declared the demise of capitalism and the privileged few who wittingly or unwittingly were perpetuating an economy of haves and have-nots. Because of our failed economy, we are seeing similar extremes in the Philippines? (We have a structural challenge that has overwhelmed our psyche – so we keep thinking small?)

But the core of FDR’s philosophy was rather simple: problem-solving, not ideology – he rejected wealth redistribution. Born to privilege, he knew how those with access to wealth could create a financial bubble and undermine the economy especially the well-being of the less-privileged. And so he took unto himself the task of re-charting the course of the nation: imposed limits on the influence of wealth; prioritized industries accordingly – to receive government support or stimulus – and forged partnerships between them and labor and consumers. Not surprisingly, he was a traitor to his class and labeled a socialist especially because of his “make-work” schemes and social security. But he was able to preserve capitalism and leverage its strong points – although Bernanke, a student of the era, concluded that a more aggressive stimulus could have ended the Great Depression sooner, and why he is not hurrying to raise interest rates in today’s America.

What can we learn? “No country, however rich, can afford the waste of its human resources.” And it goes without saying that neither can a country afford the waste of its capital. Unfortunately, that is precisely what we have done and continued to do. And not surprisingly, we are the most uncompetitive in the region and close to 30 million hungry Filipinos are paying the price. (The ideal president is one who can say and deliver as follows: “I have a concrete plan to raise our GDP by $ 100 billion – that is the only way out of our poverty!)

We have wasted so much human resources with the millions of OFWs – who should have been provided the opportunity to produce higher value-added products and services instead. And have wasted so much wealth by applauding our industry while sub-optimizing capital via our monopolist heritage and isolation. If we could peer beyond our parochial boundaries we would be red-faced and do something – and enough of the excuses? But we could not even build a new airport terminal on schedule – a microcosm of what ails us?

How did FDR do it? He cobbled together, not a flawless, but an integrated plan and led its execution with passion. He kept media informed right from the Oval Office, and the public too with his fireside chats. When the World Bank challenged NEDA to pursue integrated planning, did they get a cold shoulder instead?

Recent news reports say that we are currently preparing an R&D and investment program. It does not have to be flawless, but how integrated is it? For instance: Have we identified the industries that will give us true competitive advantage that should be the raison d’être of this initiative and raise GDP by $ 100 billon? Is partnership with industry incorporated? What about global players – e.g., if we’re talking drug manufacturing, is a global player like Pfizer invited? If we see agribusiness as one of those industries, who locally and globally from the industry are invited? Same question with BPOs if that is another industry we believe we should pursue? Who will lead execution efforts with passion? How will media and the public be kept in the loop?

That is how we should quiz presidential wannabes not incessantly focusing on personalities. We should be focused like a laser on our socio-economic cancer cells – above and beyond injecting our “kuro-kuro”?

When one can’t figure it out . . .

. . . It doesn’t mean the others are wrong

That is what we can learn from the Bush-Cheney debacle? Media described the Bush-Cheney team’s view of the world as “bunker-mentality”. And not surprisingly they fell into a leadership trap that is best described as: “when all you have is a hammer, everything looks like a nail”.

More precisely, leadership to them meant flexing muscles as opposed to flexing the mind. That is why teachers live by the mantra: if the student hasn’t learned the teacher hasn’t taught. Likewise, every teacher will say that they learn from students all the time. The same is true of leadership: if the enterprise hasn’t executed the leader hasn’t led. And every leader will say that they learn from their team all the time.

When Bush-Cheney could not get the American public to follow their lead they resorted to twisting the truth and sowed fear. And to add insult to injury they simply flexed the US’s muscles. Ergo: they went down in flames. They could not generate new ideas because of their bunker mentality – and so they concluded that everyone else was wrong and they were right.

If we continue down the road we’re in, we would find ourselves digging deeper and deeper into a sinking hole? Yet we seem to see the speck in others’ eyes – and have become experts in dissecting their flaws but not emulating their successes? We have become like the goat in class giving teachers excuses for our performance or under-performance? Failure is complex; success is simple – it speaks for itself?

We have to emerge from our own bunker and get some fresh air – a fresh view of the world?

The first time the writer came to Eastern Europe – still relatively new to the free market system – he talked to his clients about the requisite mindset to succeed in a competitive environment. They had a couple of beliefs that had to be nipped in the bud: (a) driving turnover is exhilarating; (b) low prices get their brands accepted; and (c) keeping the factory low-tech makes for low overhead.

“Driving turnover if you can go to the bank at the end of the day to dump money is exhilarating, but I don’t see how you can with your margin numbers, you have to kill a couple of brands – you cannot fall in love with a dated idea. Low prices are not a competitive advantage in the absence of healthy margins. You want to be a marketer of brands – and in control of your destiny, not a hostage to commodity pricing and a victim. And low-tech manufacturing will not allow you to expand at an accelerated pace to reduce overhead.”

Filipino business people would laugh at these scenes – or do they in fact espouse the same uncompetitive beliefs? But fast-forward 6 years, these same people are: (a) driving turnover while optimizing its dynamic with margins; (b) pricing based on value of product promise while optimizing its dynamic with volume and (c) operating 3 different state-of-the-art manufacturing facilities while continuing to drive overhead down.

(That’s the gut of competitiveness – not to get passing marks against the global competitiveness checklist?)

The bottom line: Their mindset is totally changed and the people are indeed exhilarated. And the writer has learned quite a bit from folks who knew next to nothing about capitalism; and ready to leave them alone because they are now equipped to take on all-comers including giant MNCs, and making beachhead in the West. They sought liberation . . . and are in hot pursuit – making global competitiveness indeed an imperative for us?

Our “señorito-muchacho culture”

. . . We think one BIG . . . and the other small?

OFWs labor long and hard in foreign lands while away from family – and so we could not thank them enough. On the other hand, we applaud monopolists. Both are fundamental givens in our life and the lifeblood of our economy – but we pigeon-hole them accordingly, BIG and small?

And so we take it for granted that OFWs are not happy campers? Who cares if millions of OFWs are the ones toiling to keep our economy afloat – and our system in some sense (or senseless?) of equilibrium that benefits industry and the rest of us? (It does not bother us if our maids work 24/7 or close to that? “Of course we give them time-offs!” It’s always interesting to listen to our señoras make “tsismis” about their favorite “mayordoma” and driver.)

We need industry to become global competitors to expand our economy and lift ourselves up – especially the 27-30 million hungry Filipinos. But global competition is risky and isolation becomes the prudent option – which unfortunately is anathema to economic expansion and development because it does not develop our competitiveness as a nation. (And its fury can be greater than “Ondoy’s”?)

But since we’re signatories to international agreements we had to allow foreigners to participate in our economy. Unfortunately, we don’t seem to think through how we could turn their presence to our advantage? For instance, China, from the first day they allowed foreign investors in, made it clear that any investment initiatives in their country must be geared to make them a global player, not simply a market for the investor’s products or services.

From the very beginning, we did not think big because we always thought we were small and that foreigners were big? We believe that global competition is risky because we are small? And we did not believe we could think BIG? (The MAP should be applauded for its efforts on corporate social responsibility. But if the writer could offer his two-cents, he would encourage MAP to think even bigger by looking beyond the Philippines and challenge their respective business models – so their income stream is not largely OFW-dependent. The biggest help to alleviate poverty will come from efforts to step up economic development: Think as a global player. Invest in product development, R&D and marketing. And generate far greater economic benefit. The Philippines is still a low-cost location like Eastern Europe, where his client is based. They developed a simple day-to-day product, sharply differentiated versus competition, which retails for 40 euro cents in the East but 90 cents in the West. The price differential generates incremental margin, funding bigger R&D, marketing and logistics and, of course, profit.)

The biblical lesson of David does not seem to have traction in our psyche? We have to start to be like David and more fundamentally, start to think BIG?

But we have to start at home and not pigeon-hole anyone as either BIG or small – or we carry that bias beyond, at our peril? And more directly, we have to stop thinking OFWs as small and expect them to toil for us? And the more we do the more we ourselves think small when confronted by forces extraneous to us, like foreign or global competition?

That’s the long and the short of: (a) our hierarchical culture; (b) what one educator calls our split-level Christianity and (c) the gut of our economic malaise?

Rethinking RP economic development

How to turnaround a failed economy

Where we are

We are in a crisis – for decades; but we’re still in denial?

We need to move from incremental to radical/crisis-mode thinking

Recognize pragmatic parameters – the playing field we are in

Developed countries’ GDP per person is over $30,000 against our $3,300, i.e., 27-30 million hungry Filipinos

As a starting point, to match a neighbor, Thailand, we need to raise our GDP per person by 2.5 X; and to get to developed country status we need to do 9.5 X

We have been driving cottage industries for decades, stuck in survival mode – see below China’s SME model as reported by The Economist, Sept 12th 2009

We thought OFWs would be our savior – competing for lower valued-added labor ignores emphasis on/requisite higher valued-added products and services

The Chinese are driving exports via small entrepreneurs but they account for 66% of patent applications, more than 80% of new products and a whopping 60% of GDP

Higher value-added products is a requisite that we must satisfy – but even our biggest industries don’t have a healthy, competitive patent portfolio

Our biggest industries have been richly rewarded by keeping their noses to our borders

They have not developed competence to compete overseas, e.g., San Miguel and Ayala

Where we want to be

Capital and labor are the pillars of an economy

They are critical resources that must be optimized, not marginalized

Industry must thus develop competence to compete beyond our shores – to optimize resources

Until we get our mindset right & committed to the above keystone, we won’t have the resolve to pursue these requisite building blocks, i.e.

Government must provide the environment to encourage industry to compete overseas – via incentives and enabling laws and regulations (for us to become globally competitive)

Government and industry must open the country for foreign investors to partner via capital & technology and provide access to bigger markets (for us to fill competitive gaps in these areas)

And given the Church has moral suasion, it should be a party to the partnership – to be able to buy-in and support economic development and address poverty, beyond the pulpit

How do we get there?

“Keep it simple” must be the guiding principle

The key to success is execution: complex cannot be executed – the world’s largest enterprises stay with fundamentals but are hard-nosed executors

We have to unlearn hierarchy – monopolists don’t develop competitiveness

The structure we fought against (& be free from) is what we precisely created with a nation of haves and have-nots – we applaud and celebrate monopoly

We have to learn to be competitive

Our culture of compassion and inclusion inhibits competitive spirits?

An idea or product can always be topped – marketers leave their egos behind; keep the mind liberated; and constantly seek better ideas; it is fundamental to product-architecture modeling or why Steve Jobs and MediaTek of Taiwan are successful – electronics can be thriving but it requires constant idea generation, as with other industries

We have to develop a problem-solving culture (beyond spinning wheels)

It distinguishes a developed from a developing country’s “kuro-kuro” culture

But it is again a cultural issue – problem-solving can mean stepping on toes

The barriers we face

We don’t have the experience to drive and sustain economic growth

We don’t have the experience to compete globally

We don’t have a track record in problem-solving

Those in leadership and industry grew up in a hierarchical culture; staying with it maintains the status quo that suits them – talk about humanness!

In the meantime we keep stepping up borrowings and accumulating debt; yet our infrastructure remains woeful – a classic double whammy!

The bottom line . . .

We are in a downward spiral unless we as a people change . . .

Do we have a saving-grace?

We are one of the least developed countries but with a long history in democracy & trade plus a steady foreign exchange source, i.e., OFW remittances

We will attract: (a) incremental (not massive) global investment, e.g., extraction, energy-related industries; (b) liquid assets that can be transient c/o financial services firms, e.g., CalPERS and © foreign companies who want to partake of the OFW bonanza (we need to ensure they make us a regional player not simply a market for them)

Unfortunately we would still yield sub-optimized outcomes (poverty remains daunting) until we change our fundamental thinking and structure – to be globally competitive

Footnotes

Optimizing resources like capital and human resources goes beyond Finance or Economics 101 – especially when creating higher value-added products

It is what is behind the success of global brands like Coke – it is valued at $69 billion; the world’s top 10 brands have an estimated value of $423 billion

But developing countries don’t appreciate this phenomenon

Turkey has developed its manufacturing sector but has not achieved what Taiwan has

Both countries benefited from Western support to establish a manufacturing base which Taiwan leveraged via the creation of brands that are now global

Optimizing capital and human resources is why global brands are able to price ordinary, but higher value-added, day-to-day products competitively

And generate healthy margins to support brand-building

Other than Taiwan, e.g., HTC & Acer, South Korea has also learned the lesson & are getting enormous economic benefit, e.g., LG and Samsung

Until Philippine industry moves away from monopolist/isolationist to global competitor, we will miss out on this economic phenomenon