Will a new president help us?

None of our leaders was able to deliver on our promise as a high potential (developing) country.

Economic development is about “growing up” – manifesting what it is to be economically developed? For example, embracing investment, competitiveness, revenue, profit or productivity? Or are they some western ideology that is being imposed upon us? How come communists China and Vietnam have espoused the exact, same ideology in pursuit of economic development? Can a new president help us? Or only God can?

Now that Aquino won . . . does corruption go away? Does patronage politics go away? Will there be less people working/allowed at the airport/harbor – or is it why we can’t run a world-class airport or harbor? An airport or harbor teeming with employees and/or entry-pass holders is (a) a security-risk, and (b) unproductive? Productivity is a key building-block of competitiveness that drives revenue and profit – and must characterize our economic life . . . because it also undercuts corruption? For example, a border facility swarming with personnel is a breeding ground for corruption? Should we ask these same questions to every agency, bureau or department, and even private enterprise?

It’s not a surprise our employers want lower wages – if a recent earnings report from a major enterprise is representative of the profitability of our industry. In that sector the global standard is double-digit profits, not less than 5%! What is surprising (and is our key challenge) is why our industry does not raise their sights to meet global competitive, productivity and profitability standards – so that we become world-class and attain developed-country status? It is not in their DNA? And so we better aggressively attract foreign investors with the right DNA? Or does that rub our patriotism the wrong way? It does not the Chinese, the Vietnamese, the Asian tigers?

The writer’s Eastern European friends recently hired an R&D manager, not from a local company but from a western enterprise – an expatriate notwithstanding the availability of local chemists with their PhDs. Because they want someone who has done product development and more importantly commercializing ideas . . . fast . . . many times over! (The local chemists recognize that they still need to learn the ropes; that their chances will come as their employer continues to expand overseas operations, e.g., the home market will come down to less than 10% of revenues.) They want rapid growth, with revenues expanding exponentially, and they want the latest ideas . . . the latest technology, and the most productive workforce (like the managers they hired from western global behemoths that used to ignore them, but have now realized why they were beaten in their own game – manufacturing and marketing) and are not petitioning government for lower wages; but in fact are paying up to attract the talents they need across the region!

This is a bunch of ex-socialists committed to revenue, profit and productivity – founded on aggressive investment and competitiveness! Seven years ago it was a rickety-cottage industry salvaged from an ex-communist facility. Yet amazingly, they are currently working on an acquisition, their 4^th strategic business unit – with another smaller project under review, i.e., they’re growing both organically and via acquisition, and constantly elevating their knowledge base and competitive advantage. They want to be global competitors, not local oligarchs?

We were supposed to lead the rest of Asia as a market economy; but today they’re all showing us the way instead, i.e., they tap outside markets and leverage outside resources while we remain parochial – an albatross around our neck – and paying a heavy price for it?

Revenue, profit and productivity

It’s encouraging that the JFC (Joint Foreign Chambers) are continuing to share the meat of their proposal or the so-called seven big winners – being specific about the level of foreign direct investment ($75 billion) and the 10 million jobs they will generate over 10 years. It would help if they continue to share more details for the edification of the various sectors of society. (But shouldn’t we be plucking a low-hanging fruit, as a knee-jerk?)

If we are to start on solid footing in pursuit of the JFC initiative, we need to be of one mind – that as a nation we value and welcome foreign investment? Because if we don’t, once the ‘rubber hits the road’ we would find ourselves conflicted and in a dilemma? We can’t afford to be of two minds or two hearts in this endeavor – which we’ve manifested over many decades, i.e., on the one hand we welcome foreign investment on the other we unwittingly manifest our unease (that even Filipino entrepreneurs in Vietnam find that country more attractive to investors than the Philippines)? As Pacquiao would most likely say, a punch couldn’t be lacking in conviction? And global competition as an economic endeavor is much bigger than Pacquiao – because the lives of millions of Filipinos are on the line?

For instance, take infrastructure: our tycoons have tossed their hats into this arena – even if they don’t have the expertise other than invoking love of country (Rockefeller loved his country too, but he wasn’t allowed to own it)? Yet, of late, our airport and harbor have been in the news for all the wrong reasons – we have yet to raise them to world-class standards! Infrastructure is always controversy-prone as we saw in the World Bank investigation of our WB-funded road projects. To attract foreign investment in infrastructure, we can’t afford to be less than above-board. What if foreigners are the ones cozying with influence peddlers, then that is not the foreign investor that we need. What we need are those that will raise our competitiveness and thus elevate our economic output or GDP?

In short, crony capitalism must not stand in the way of any major effort to bring in $75 billion worth of foreign direct investment. It is easier said than done given our brand of nationalism and patriotism – i.e., we rail against oligarchy yet we condone it? But international rating agencies can be more critical – or why they downgraded San Miguel following its Petron investment, i.e., what is San Miguel up to? To simply say they want greater returns on their portfolio doesn’t say much – everybody does! The key is: what value-added are they bringing to Petron? Flexing one’s muscle may look good in a small country but in the global arena strategic intent must translate to and yield competitive advantage – i.e., to generate greater returns, but we don’t have a Gorbachev to say so?

We can’t reinvent the road to development: revenue, profit and productivity drive a competitive, sustainable economy – founded on enormous investment and competitiveness? We can’t squeeze blood from stone – with a GDP per person of $3,300 there is no way Filipino “abilidad” can squeeze 10X more from our economic model, and be a developed economy? We can’t generate sufficient investment at levels comparable to the Asian tigers even if we pool all our resources together in the name of patriotism, or despite crony capitalism – Filipino wealth invested overseas is less than $6B, i.e., we have no muscle to flex?

We can’t be tied down to the ‘benefit of the few’ – we have to be tied to ‘the common good’. Our hierarchical culture (i.e., lopsided economic structure) is not dedicated to the common good? Almsgiving does not equate to addressing poverty?

Economic development comes from rising economic output – i.e., revenue, profit and productivity. And they occur when there is enormous investment that elevates a nation’s competitiveness to world-class levels?

Filipino “abilidad”

Countries have their respective versions of Filipino “abilidad” – and national pride makes everyone claiming trait-ownership. In developing countries people grow up “making-do” and thus are able to create things; nonexistent otherwise save for their creativity and resourcefulness – from homemade alcoholic drinks to the “jeepney” or “tuk-tuk”.

The key though is to recognize when an idea or a product is to reach its point of diminishing returns. That’s why competitive strength is assessed by the richness of one’s new-product pipeline, beyond the existing. Marketers grapple with this challenge all the time; and hence have developed a proactive mindset. (Unfortunately, Wall Street did something similar except – disastrously – they missed the requisite tangible-economic value in their creation: they shepherded investors into the “casino”, including supposedly conservative European bankers who did not want to be left out. Greed blinds everyone – no wonder it’s among the 7 deadly sins?)

When an idea or a product reaches its point of diminishing returns, its value goes on a decline; and in much of the developing world, this is not readily accounted for – like efficiency, for example. Because labor is relatively cheap, the imperative of “optimum return on resources” is missed. Thus, instead of pushing economic activity to be productive and generate greater output, it is being sub-optimized – to the detriment of the common good? And this drag on productivity is magnified as the rest of the world steps up innovation and competitiveness – thus explains our rising poverty and continuing slide, i.e., we’re now compared to cellar-dwelling countries?

It needs a lot of maturity to recognize that even the brightest idea can go stale: parents learn that they are the ones maturing when they meet their ‘aha’ moment – and let go – because the daughter is of age? Or it takes a lot of maturity to recognize that sitting on one’s laurels is foolhardy? We have to keep fighting the instinct of “materiales fuertes” – it can set us up for failure – and move up the value chain especially in key exports?

On the other hand, there are fundamental givens; and it is likewise foolhardy to reinvent them – i.e., “don’t reinvent the wheel”? For example, we don’t have to reinvent the characteristics of a developed economy or what we ought to pursue – i.e., “ramp up investment and boost our competitiveness”?

The jeepney was a great idea for its time . . . but with the arrival of diesel fuel that feeds its inefficient engine it has polluted Baguio (and messed up the pine trees), once the cleanest city in the country. Of course, population explosion did not help Baguio either! (Sadly, it can also be said of Davao, Cebu, Iloilo, etc.)

The bigger challenge still is invoking Filipino “abilidad” when unwittingly we are simply unprepared to take the hard decisions – because we may be stepping on toes? And so it boils down to: can we step on toes? For example: it’s 2010 not 1946, where are we on running a world-class airport or harbor? The PCCI invoking retaliation (re EU ban) is misplaced pride? In a community whether local or international or the church, we have to abide by accepted rules and conventions? “Paki” is no magic word in global competition?

At the end of the day we may have already unwittingly made the choice – that we prefer a tropics-like (or a 365-day paradise) quality-of-life because we cherish spontaneity? Are we apt for a more proactive way of life? For example: we wouldn’t tolerate power outages if we had a temperate climate and couldn’t afford to be without heat in the winter?

The bottom line: we are among the happiest people on earth; while a third of us are hungry, and a few are kingmakers – thus perpetuating a lopsided economic structure? And it’s a matter of choice? So long as we make it with our eyes wide open? Like, what are we passing on to the next generation?

Winning against the odds

“We will raise prices to lift revenue-volume and attain critical mass; we will spend money to make money!” Tell that to a bunch of ex-socialists as a competitive imperative and they give a blank stare?

Of course to raise prices if the product is uncompetitive is a formula for disaster! In much of the developing world the imperative of innovation is not yet compelling: how do they develop a dynamic, inquisitive and forward-looking outlook? Until they do, developing competitive products is not on their radar screen? In fairness, to the handful of tycoons, it is instinctive – and thus explains their ever growing success.

Spending more money to make money? Or investing – or why developing countries need to internalize the dynamic of investment (including foreign, because the bigger the better) and competitiveness and the resulting elevated output/economic activity or GDP?

But should we distinguish between the ‘common good’ and the ‘benefit of the few’? We are an underdeveloped economy going by the acid test of development – i.e., GDP per person. On the other hand, given the size of our population, local-premier businesses are thriving. But that’s more a function of access to capital in a developing country where there’s a crying need for products and services not obtaining in the developed world – i.e., there’s an inherent room for growth (and thus JPMorgan says it’s bullish on the country, over the short-term). Yet outside the country they don’t have a competitive edge and thus have not raised our competiveness?

The legislative agenda offered by the UP (OU) to the new administration is a great template. Yet – if the Business Mirror editorial said it all – is it a classic output of linear thinking? Breakthrough ideas don’t come from linear and incremental thinking? They come from turning the challenge on its head – by starting with the end in view. How do Apple and innovative companies do it?

“We must be out quick with a product that is becoming – it must be user-friendly, accessible and relevant.” Is that what the iPhone (or the iPod, the iPad or the MacBook) is all about? We can pose a similar challenge about our economy: “We need our GDP per person up to $30,000, to attain developed-country status – that is a long ways away from our current $3,300. Because developed economies are high in investment and competitiveness and low in poverty? How do they do it, e.g., the Asian tigers – they attract enormous foreign investment and thus elevate their competitiveness that drive export and raise GDP, and reduce poverty?”

The legislative agenda from the UP (OU) exercise talks of bridging our budget shortfall (sounds like Clinton?) by rationalizing taxation and administration; and pursuing infrastructure development, among other things. That is well and good. But we’re dealing with decades-old challenges: we need breakthrough ideas? The biggest revenues come from greater output of products and services – we’re not a multi-trillion dollar economy like the US where balancing the budget creates a big bang? The Business Mirror editorial stopped short of ignoring the ideas from international agencies – because we want something suitable to our needs! For example: we need “to ramp up investment and boost our competiveness”?

What are the drivers of a competitive, sustainable economic activity – revenue (and loads of it), profit and productivity? For example: (1) developing our strategic industries that will attract foreign investors, and drive and expand our economic pie – the point made by the foreign chambers, (2) prioritizing and upgrading our basic infrastructure (of water, food and power) plus those that will support said strategic industries and (3) pursuing the enablers/arresting the barriers of progress: competitiveness, corruption and economic freedom?

It’s time to turn our economic challenge on its head – we’ve beaten it black and blue? The pie is too small?

Focus like a laser

The writer has had a continuing interaction with academia (and think-tanks). And thus while it takes time (to read voluminous research notes and materials) he has enthusiastically mentored a couple of PhD candidates. Where he’d focus them is in the construct of their hypotheses. Surely they could teach the writer loads about the requisite stochastic or algorithmic exercises to test these hypotheses – especially in Eastern Europe where they have an abundance of quants or quantitative analysts.

“Why does the US beat Europe in innovation, especially in commercializing more and bigger ideas (a Belgian friend asked the writer many years ago)? Granted they spend more on R&D – but beyond that, they bring a different perspective in idea generation”. That is the typical starting point when the writer is focusing a PhD candidate in developing a hypothesis! (We ought to seriously ask ourselves the same question because we don’t have a product-development heritage? But more to the point, decades after the world adjudged us a high-potential country, how come we’re still underdeveloped – we can’t keep running round in circles?)

“They ‘start with the end in view’ – instead of filling their thoughts with immovable barriers they expect to encounter along the way” (the “knee-jerk” the writer observes in developing countries – as opposed to a “can-do” attitude)! While algorithmic exercises are inherently linear, constructing a hypothesis should not be – because the object when describing the end goal is clarity!

When clarity is established at the get-go, the way forward is much clearer. Perceived obstacles are put in perspective as opposed to turning them into insurmountable barriers. Net, energy and enthusiasm must not be compromised and undermined by negative thoughts!

Do we wish to internalize what the World Bank, the ADB and Moody’s (and the foreign chambers) are telling us about our economy – that our goal is to be a developed economy; and such an economy is characterized by high investment levels and high competitiveness and low poverty? They are “starting with the end in view”! (But our comfort zone is in linear and incremental thinking?) Do we wish to apply academic rigor to their hypothesis?

Do we find their hypothesis too simplistic – thus too good to be true? Or do we foresee loads of obstacles – thus unrealistic?

As Bill Gates says in awe, simple is the genius of Warren Buffett. But of course there are barriers – i.e., corruption and crony capitalism! But they are man- or Filipino-made? We should take personal responsibility in slaying them: “give to Caesar the things that are Caesar’s and to God which are God’s”? We can’t keep passing responsibility to our “muchacho” . . . and then asking for “awa ng Diyos”: (1) we have to learn to focus like a laser – so that these perceived barriers turn into an obstacle course that can be navigated, (2) given a mindset that is dynamic, inquisitive and forward-looking, and (3) as importantly, defeatism has no place in development work – or in winning or success, for that matter.

The writer has talked about our culture of compassion and inclusion – does it make it difficult for us to focus like a laser? Because to focus is to be “suplado” – i.e., we will be forced to prioritize and make choices, “for or against”? Yet we can be “suplado” given our “señorito-muchacho” culture? So we can be “suplado” in the positive sense – with the view to expanding our economic pie and bring prosperity to Filipinos?

And let’s get off that carousel?

Race horses don’t wear blinders

Obama took his out when he decided he wouldn’t be a victim; and not surprising he won the biggest job in the world. Have we long ago decided that we’re victims – of foreign domination, politics and oligarchy? And thus not surprising, as Business World reports: “the Philippines will not outperform its neighbors, the World Bank said . . . While East Asia’s developing economies will recover from the global downturn this year . . . The Philippines needs to ramp up investment and boost its competitiveness”.

But that is old news and should not be a surprise? Or did we think that we were on the right economic track (OFW remittances>robust foreign exchange reserves>stable to strong peso . . . yet: underdeveloped>rising poverty>patronizing leadership>oligarchy?) when staring us in the face were neighbors with far greater investments!

How did we miss that – because we’re not like race horses? For instance, poorer Vietnam’s gross investment is at 42.5 % of their GDP against our 14.3% – not surprising given that they have attracted $47.37B in foreign direct investments, more than twice our $22.9B. And thus are more competitive, with exports at $57B v. our $37B. Their poverty rate is already lower at 12.3% to our 32.9%. Ergo: to address poverty, we must be single-mindedly focused on raising investment in order to lift our competitiveness . . . and hence enlarge our economic pie! We can’t afford to be less than laser-like in pursuing such a gigantic task!

We’re a poor country and need foreign investment. But we choose to see otherwise – and unwittingly, are creating an oligarchy? In the history of nations, when the few control an economy, oligarchy is the natural outcome. And so Gorbachev is railing against his country’s blinders – they remain an oligarchy, not a modern, developed economy?

Competitiveness comes from greater and greater investments – i.e., economies of scale, technology, innovation, market leadership. And given that we’ve starved if not cut ourselves from foreign investments we are akin to a disabled ship in the sea of global competition? Thus, the efforts of the foreign chambers to identify 7 key industries that will drive and elevate our economy must be taken seriously by our economic managers and national leadership. Crony capitalism will turn off foreign investors.

What we sorely need is to inject competitiveness in our (economic development) psyche and demonstrate that to foreign investors. For example, we want creative investors – not simply investors who throw money around and play footsies with influence peddlers – and will partner with them because they have a higher propensity to succeed. They have access to cheaper capital because of their track record. That means they are pursuing truly globally competitive businesses; and can demonstrate that their product architecture is designed to deliver higher valued-added products or services – they have a differentiating, competitive edge and thus capture and sustain their target markets. For example: in manufacturing, how will they move up the value chain from semi-conductors? In BPOs, how will they move up from call centers? Etc.

Did the writer just missed it or are our major newspapers aiding and abetting our wearing of blinders? Did their news reports cherry-pick the assessments of the World Bank and the international rating agency about the state of our economy? In fairness, the business periodicals and columnists did not. We don’t want to spread bad news? In the old Eastern Europe, they called that propaganda – or why they still seethe in anger every time they talk about how the old regime added insult to their injury!

It’s high time we be like race horses – and focus on winning the race of our lives, economic prosperity for Filipinos?

Compelling products

Inherited businesses can last beyond 2 generations

In an interconnected world East and West are learning from each other – creativity, dynamism, inquisitiveness, a forward-looking mindset, among others – and the world is the better for it!

Those who were behind the Iron Curtain would concede that their creativity was a function of the scarcity of basic daily needs, and then some – i.e., necessity is the mother of invention! Theirs was no Eden. What would have happened if Adam and Eve were not driven out of Eden? The world would have had billions of Juan Tamads?

Inherited businesses, as conventional wisdom goes in both East and the West, don’t last beyond two generations – because the heirs are not schooled in product development? The products of the inherited business may have been relevant at the time of its founding, but relevance is not perpetual – i.e., the ever changing want of man?

Dried mangoes are representative of our tropical climate, and even our tradition? But products must remain user-friendly, accessible, relevant and becoming – especially food because of our fickle taste buds (or electronic gizmos as Steve Jobs must be preaching his team all the time)? If ice cream requires constant flavor change or mixing and matching of flavors, dried mangoes likewise do? But if mangoes are not as flexible then we need to develop something beyond basic dried mangoes to be relevant. For example: nuts come as basic shelled nuts, as cocktail nuts, or packaged nuts, mixed and matched, etc.; and they have become standard snacks in bars and . . . even mini bars in hotel rooms. In short, we can move up the value chain and elevate dried mangoes from a commodity to a branded product – i.e., a simple product can be driven by innovation if we invest (?) in market and consumer insights, R&D, global distribution and marketing. Innovation is not the monopoly of rocket science!

An economy is driven by the products and services the country produces. What products and services have we developed post WW II that are relevant and compelling? The jeepney, shrimps, garments, ‘bangus’, semi-conductors, call centers . . . etc.? How relevant are they to the 21st century? The services that our OFWs produce are not necessarily generating the requisite incremental goods and services to raise the value and competitiveness of our industry – they are input to foreign industry, and they benefit from the value-creation of these efforts. OFW remittances per se don’t generate as much multiplier effect (on our economic output or GDP) as manufacturing and agri-business, for example – because of the latter’s inherent greater input: talent, machinery & equipment, materials, investment, technology and requisite systems and infrastructure.

Product development is not like prospecting for oil where the well could run dry. Product development is prospecting for the “well of spring water” that is perpetual. And it requires a dynamic, inquisitive and forward-looking outlook! Is that what education is about – or “the training of the mind to think”, as Einstein says?

Our marketers can share with industry – and our economic managers – the mechanics of product architecture modeling. Establishing our strategic industries has been an exercise in macroeconomics . . . that must be drilled down to the core of innovation and product development – i.e., it must be teed up to challenge the creative juices of industry; not be a platform for crony capitalism. The efforts of the foreign chambers to identify 7 key industries are a great first step. Can they get everyone focused on how the $75B incremental investment goal will occur!

Entrepreneurs, given their successes, may view product development as more art and thus miss the discipline (science) bit. And investors must recognize that the true test of competitiveness is winning in the regional if not global market. It is Economics 101: economies of scale generate efficiency and productivity, and raise/create the propensity/condition for innovation – the heart of product development . . . that drives a nation’s economy.