Wednesday, August 29, 2012

Ecosystem: supply and value chain

PIDS, a state-run think tank, has noted that while we've had foreign direct investments (FDIs) for decades, we have missed the crucial ecosystem because of our failure to develop intermediate industries and thus have remained dependent on imports; and, consequently, are unable to attain the requisite productivity and much less develop higher valued-added products in the electronics and auto industries, for example. [Business Mirror, 24th Jul 2012]

Writes Ka Iking SeƱeres, Manila Times, 2nd Aug, 2012: “For so many decades now, we have heard the same mantra that we need irrigation, farm to market roads and financing in order to succeed in agricultural production. It is similar to another mantra that we need more classrooms, more teachers and more textbooks in order to succeed in public education . . . but still, there was no remarkable success in agricultural productivity . . .”

9/11 brought to the free world the challenge of 'connecting the dots,' which in reality is inherent in complex undertakings. And the Japanese had learned it as a tool in TQM or total quality management, which emphasized the techniques of process mapping – something the writer’s Eastern European friends struggled to internalize. (They’re artistic and creative and would fall in love with how they designed and created packs, for instance. But they had to learn the object of the exercise: to get a competitive product out to the market, specifically on the shelf of the retailer; and that the consumer would in fact buy it – which is the endpoint of the process. But it starts with developing a concept that would precisely deliver that outcome – i.e., it is imperative to define its inherent parameters beforehand, against which the product is to be developed.) In industrialization connecting the dots is akin to developing industry clusters or complementing and/or intermediate industries to support a major industry. The point being interdependence cannot be taken for granted if an industry, and the broader economy, is to attain optimal productivity and be competitive.

When we view agriculture as agribusiness the process would indeed be more extensive than what we may assume. For example, in Eastern Europe they realized that raising livestock (e.g., cow, sheep and goat) is merely a component of the process with the endpoint being to put products on the shelf of the retailer that the consumer would value (thus generate healthy margins) and want to buy. Beyond farm to market roads they also developed a trucking business – of refrigerated tankers – to take fresh milk from the farms. And to turn the milk into a feedstock for dairy products, they sought a German MNC to put up a processing facility, giving them the opportunity to produce downstream products like yogurt, snack food, and cheese. And they are now into developing (having tapped expertise from Denmark and Germany) a wide range of higher value-added products that they could market beyond their borders. (This example of a simplified process is meant to briefly describe the ecosystem covering the supply and value chain of an agribusiness industry; but it calls for foreign participation, not exclusion. And which is something we have yet to embrace?)

Why haven’t we developed the bias to connect the dots or to develop an industry and its requisite ecosystem? Unfortunately, on top of parochialism, we are from the old school of the cacique system and structure that was hierarchical- and capital-driven with very little dynamism called for, i.e., technology, innovation, and talent, product and market development. Instead, dominance and monopolistic tendencies – i.e., influence peddling and corruption – are what we developed. Competition is fair and square. The writer remembers as a young boy, perhaps from watching cowboy movies, kids would settle their spats by engaging in civilized fistfights – which in the vernacular was expressed: “square tayo.” And all it meant was, let’s see who wins – followed by a handshake.

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