Aggressively pursuing the profit motive is the way?
The writer did a back of the envelope comparison of two local companies in the consumer-goods business based on their respective press reports.
One has estimated sales for 2009 of $ 160+ million; the other of $ 65+ million, with profits at less than 5% and less than 10%, respectively. The conclusion is these businesses need to be more competitive if they are to succeed as regional or global players – i.e., raise profitability to industry levels, to double digits. Thus the second one is moving in the right direction; and the first is probably not gearing up to be a regional player? Applauding growing sales and profits is encouraging but the acid test is the competitiveness of profit levels – if we’re to attract the Warren Buffets of the world, i.e., simplicity and clarity best describe their investment philosophy.
Double digit profitability (derived from healthy margins) means that the business is sustainable – the company can invest in R&D and market compelling products, among others, and can pay a living wage. A major reason why growth doesn’t always lift the poor is because narrow margins and low profitability don’t allow companies to: (a) invest in R&D, (b) market compelling products and (c) pay a living wage – critical elements to optimize the multiplier effect of investment.
Even in the US sweatshops hire illegal immigrants because their business model is not geared to be competitive. Or they’ve lost competitive advantage because they’d failed to move up the value-chain; and thus have to compete with emerging countries with their lower cost structure. Japan is experiencing another form of competition. Despite their technology advances they are losing to South Korea and Taiwan – because in the 21st century knowledge is accessible to everyone including us (we don’t have to be a standalone R&D center, i.e., partner with world-class universities and entrepreneurial labs to override learning curve). And in the case of pharmaceutical companies once their patents (i.e., they spend a ton of money on R&D which they recoup via healthy margins during life of patent) expire they have to compete with generic producers. The moral of the story: businesses cannot afford to standstill; and must continue to invest in R&D and product development.
Quoting financial performance of local industry in dollar terms is one way to instinctively look beyond our borders; and facilitate benchmarking against best-practice entities. Until the global business currency is changed (e.g., oil is quoted and traded in dollars) we have to do the same.
The bottom line: it is not enough to encourage entrepreneurship. It is imperative that we gear industry to be sustainable and competitive – and that means designing businesses to meet global investment standards in R&D, product development, marketing and supply chain . . . in order to generate healthy margins and profits and thus pay a living wage; and attract foreign investments as well! We can think cheap pricing locally, but to succeed globally we need a good handle on market dynamics: i.e., it’s not one-dimensional as pricing per se.
This is especially true for our major industries – if they design their businesses to be sustainable and competitive, smaller businesses that support them can fortify themselves as well. What is the converse? Aiming for quick profits that are good to investors over the short-term but with no clear long-term perspective to ensure sustainability and competitiveness – i.e., stock market investors can pull out their investment anytime.
For the Philippine economy to be competitive we need industry to be competitive – there’s no two ways about it! And for that to happen, we, as a people, have to grow beyond our parochial instincts – it is our perspective as a people that is shared by industry and by our leaders, fortunately or unfortunately.
If we stay parochial we’ll live out our image as isolated Pacific Islanders, not world-beaters . . . and in decline?
No comments:
Post a Comment