Monday, August 17, 2015

Size and global competitiveness

The conventional wisdom is size matters. Except of course if one looks at the Fortune 500 top 10 companies in 1980 and 2014. Conventional wisdom would assume that IBM then at no. 8 would not be displaced from the top 10 and overtaken by Apple at no. 5. “[T]he scale of tangible assets is critical to doing business in the international markets.” [How companies can become global players, Francis Ed LimPoint of LawPhilippine Daily Inquirer, 6th Aug 2015]
“[S]everal Philippine companies that have done remarkably well in the international markets, including ICTSI, Jollibee, San Miguel, JG Summit, Ayala, Metro Pacific and Alliance Global . . . . [T]hey all have one thing in common—they are listed companies with large resources, revenues and market share.

“[There is] need for companies ‘to adopt international ideas’ and ‘incorporate best international practices’ to make them globally competitive . . . [G]ood corporate governance must not only be treated as a ‘new requirement’ but also an ‘inherent part’ of business . . . good governance is good economics.

“On June 24, 2015, the Shareholders’ Association of the Philippines (SharePHIL) held its second summit . . . We thought the theme “Transforming Philippine Companies to Become Global Players” was fitting given the onset of the Asean economic integration.”

And the website of SharePHIL reads in part: Its mission is to become a major catalyst in promoting the development of the capital market by advocating education in order to enlighten investors and shareholders of their rights, duties and responsibilities and to promote shareholder activism in a positive way. SharePHIL completes the institutional governance infrastructure required to promote capital market development and ensures the creation of a level field among shareholders, consistent with best practice in other developed economies.”

It appears the organization is a local effort to promote capital market development and ensure the creation of a level playing field.

In the bigger scheme of things, NEDA’s concerns are more expansive. “NEDA stresses continuing market reforms to boost competitiveness,”Edu Lopez, Manila Bulletin, 8th Aug 2015. “Another critical area of policy reform concerns economic regulation, including restrictive ownership rules. Investors generally look for credible, stable law and regulation surrounding investment.”

“[Economic Planning Secretary Arsenio] Balisacan noted that in some cases, however, the legislation is weak or not even in place to protect investors. As a result, investors face high transaction costs, petty corruption and red tape, and substandard regulatory practices . . . Balisacan pointed out that strict restrictions on foreign ownership could also hamper the growth of foreign direct investments in the country.”

While broader in scope, the concerns of NEDA are relevant to the challenge of good governance, capital market development and the creation of a level playing field. For instance, good governance is the antithesis of political patronage. And capital market development to be expansive presupposes a competitive as opposed to a restrictive economy, and which is why we are unable to attract FDI to the level of those of our neighbors.

And how do we encourage MSMEs into the mainstream of Philippine industry? By preaching global competitiveness to both major companies and MSMEs. And that goes back to our hierarchical system and structure. In other words, we have to move beyond the conventional wisdom that size matters in global competitiveness.

And that is where “learning and innovation” as postulated by William Pollard must become the motivation of global competitiveness.“Learning and innovation go hand in hand. The arrogance of success is to think that what you did yesterday will be sufficient for tomorrow.”[William Pollard, 1911-1989, a physicist and Episcopalian priest and a colleague of Einstein in the Manhattan Project.]

It applies to enterprises big and small. And since there is no guarantee that big enterprises won’t succumb to arrogance of success, MSMEs must think big. That means we must overcome “learned helplessness.” Why did we think import substitution and “Filipino First” virtuous? Or our ambivalence if not hatred of MNCs and foreign direct investment? Until we woke up one day and realized we're underdeveloped because we can't attract investment and technology? Still, we sincerely believed poverty is the root of our problem.

They are all manifestations of learned helplessness that stemmed from our inward-looking, parochial instincts! To add insult to injury, we embraced oligarchy because we see them as our savior given our humongous deficits in investment. And so we go around in circles – a vicious circle – of hierarchy, political patronage and oligarchy. And we wonder why we're the regional laggard?

Is Binay or Roxas or Poe or Marcos the answer? Is anyone a visionary and a strategic thinker that can lift us from learned helplessness? And since transparency and government don’t come in the same sentence in the land of Juan de la Cruz, we can only go by their demonstration of the commitment to community and the common good. If we give President Aquino the benefit of the doubt, would it explain the selective prosecution that critics have charged, otherwise we won't have a quorum for a functioning legislature or even a public sector? Is ours a banana republic?

The Philippines may not have the Anglo-Saxon temperament or the rugged individualism of the Americans. And precisely why we cannot take a hierarchical system and structure for granted. For example, should the church take the lead in the pursuit of an egalitarian ethos – so that tsarist power doesn’t become the pursuit of national leadership? And what about the education community? We must seriously critique ourselves if in the West they recognized the shortcomings of higher education.

In progressive global companies, rugged American individualism is subordinated to a high-commitment team culture, for instance. And in this writer’s work with his Eastern European friends, he makes it his mission that teamwork is nurtured across the many countries – including in the West – they do business.

And as this blog has pointed out time and again, global competitiveness presupposes a commitment to investment, technology, innovation as well as people, product, supply chain and market development. It has never talked about size as a barrier.

When he first arrived in Eastern Europe as a development worker to assist a micro-scale enterprise, he had to open their eyes to Apple as the benchmark in their foray into the free market. (Because as most everyone would know, Apple was a micro-scale enterprise started by a college dropout, who wanted to change the world, and his friends in a garage.)

And 8 years later they were recognized as among the best companies in the European Union, from the 15,000 vetted for the honor. That was 4 years ago when obviously they were less competitive than they are today. And yes, they’ve graduated from a cottage industry to an MNC, similar to the ones the writer demonstrated against in his student days. And as some would recall, they inspired this blog.

Conventional wisdom says size matters. But in the 21st century, conventional wisdom is not failsafe or assured wisdom. 

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