Tuesday, January 24, 2012

Fundamental givens

Someone tells the writer that the blog seems to have a common thread. And the writer explains: Friends and relatives kept bugging me about ideas how to fix the economy having lived and worked both in and outside the country. I spent the first 20 years of my career in the Philippines and accepted our situation as a given. And my only beef every time I visit was the traffic and so my first letter to a newspaper was about the traffic. But people kept nagging and so I pulled my latest chart (‘nirvana’ is successful execution thus by design it’s simple) showing the economic profile of priority countries where my Eastern European friends should do business.

The one-page chart – that says a billion dollar in potential business for my friends – showed very little economic data: population, poverty rate, GDP per capita of these priority countries, plus the only information we controlled, the annual sales in the home country and a couple of export countries. This simple chart drives the development of our business plans (behind products with healthy margins to be able to compete regionally, and beyond) and carried the enterprise from one SBU (strategic business unit) to four. And one day the European Business Awards folks came and asked how we would explain the rapid growth of the company . . . and accordingly recognized it as one of the best in the EU in 2011 out of 15,000 they vetted, 9 years after the writer made his first visit.

But what I saw about the Philippines hit me in the gut. Our GDP per capita would not even match many of the dirt-poor ex-Soviet satellites! (Our poverty had apparently numbed me until this realization.) And looking further, I saw how meager our investment levels were. And that was how my blog got started. But having done business in many parts of the world over many years, I realized there are just a few fundamental givens that guide human endeavors. And with investment as the starting point, the first fundamental given then is the parable of the talents – which demands more than livelihood initiatives though it sounds “suplado.” Human undertakings must be committed to the optimal – and sustainable – use of our God-given resources.

But where does one begin? And so the next fundamental given is the Great Commandment – which is reflected in the econometric model (80-20 rule) of Pareto. In short, focus is fundamental to our faith. But what happens to those with little resources, thus the next fundamental given is “teaching people how to fish.” Unfortunately, we miss these fundamental givens and restrict ourselves to local resources – cutting us by the knees. And starved of investment power we are reduced to thinking inclusion, the euphemism for crab mentality, and feeling good doing livelihood initiatives, if not dole outs? In Manhattan there is a live monitor of the US deficit, in Manila we need a live monitor of our investment levels versus our neighbors?

By the time I’d done the math, John had made me realize that my sandwich shop was marking up its product more than his watch shop. I was the one who should be ashamed,” writes David Pogue, NY Times, 5th Jan. “I think of this transaction every time somebody does a “teardown analysis” of an iPhone, a Kindle Fire or some other hot new product. These companies buy a unit, take it apart, photograph the components and then calculate the price of each. Then they tally those component costs and try to make you outraged that you’ve paid so much markup.

These are fascinating studies, of course, just as my Chick-fil-A anecdote has its charms. But all of them ignore the elephant in the room: there’s a heck of a lot more expense to bringing a product to market than component costs . . . For example, they completely ignore the cost of developing the software. It doesn’t write itself, you know. What about the cost of the packaging? Would you like them to send your new iPhone in a Ziploc bag? What about the shipping from China? The royalties, licensing, taxes and insurance? What about the marketing and PR that let you know the product exists? The tech-support department? The factory workers? The sales and accounting teams? The graphic design? The prototypes, field testing and beta testing?” [Net, the whole is greater than the sum of its parts, i.e., synergy or gestalt?]

The Philippines won’t create a culture and an environment that would make us an innovative, competitive and an efficient functioning economy – and lift us economically – until we take to heart a few fundamental givens straight out of our faith . . . and seek and attain synergy? But Juan de la Cruz thrives in complexity?

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