Business has a noble purpose . . .

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?

Our “materiales fuertes culture”

First we assume we are creating something that has longevity if not permanence; and then conclude it’s a “no-maintenance proposition”; and once we realize that fallacious assumption we turn and claim: “it’s good enough”? Materiales fuertes?

Good enough’s never good enough in today’s highly competitive global arena! For instance, our jeepneys are still around: they make us proud of our creativity and for creating a source of livelihood? But even great inventions become dated, e.g., the Model T lost its appeal when GM came out with sleek models?

The need to create employment is precisely why we need to step up development efforts – look and move forward. And so the writer is restating a thought: “An idea (or product) can always be topped – marketers leave their egos behind; keep the mind liberated; and constantly seek better ideas . . .” The writer challenged his young Eastern European protégés to top his own business model – that they shouldn’t be paralyzed that it has borne a competitive regional entity in less than 7 years. Innovation never sleeps! And gave iPods (icons of innovation) to the two with the best models; but challenged them still to integrate their ideas into a more formidable model – so they own it, be proud of it, win in the West and wherever else as well. And then let the “next generation” to top it likewise – because Narcissus is the poster boy of underdevelopment!

When should we be driven by tradition? When should we not? Tradition stops where the people’s well-being begins – a lesson the Pharisees had to learn? Even strongly tradition-oriented Europe who had fought one another has turned itself over; and taken on a gigantic challenge: to come together as one EU and be a bigger economy than the U.S. They’re a work in process but they are looking to the future not to the past, and don’t see it as unpatriotic!

Not to be outdone, the Russian president (he must have heard of Dutch disease?) on November 12th announced: "Instead of a primitive economy based on raw materials, we shall create a smart economy, producing unique knowledge, new goods and technologies, goods and technologies useful for people – e.g., information technology, telecommunications and space." We can replace “raw materials” with OFWs and it will be a good model for us?

Corporate America entertained self-doubt when it faced the emergence of Japan Inc. and their great products; but took a great lesson from the Japanese. And that is, “continuous improvement” – the quality of Japanese products evolved from being the laughing stock . . . to the envy of the world. And eventually Corporate America righted itself by driving competitiveness, essentially by stepping up productivity via the digital revolution – computing and communicating technology.

As the world now knows, Wall Street (taking advantage of pandering politicians, i.e., subprime loans) took the country down and the rest of the world with it. But given their problem-solving culture, the West is again pursuing course correction. Not surprisingly, those foreign to problem-solving cultures are betting against them, if they have not written their obituary yet. That is not meant to applaud the West: it is to give us pause – how can we be more prone to problem-solving? New initiatives silent on equivalent GDP impact are platitudes not problem-solving!

Today we know we are uncompetitive and could rightly be the laughing stock of the world? There are lessons we can take from the experiences of other nations: (a) look to the future; (b) continuous improvement and (c) problem-solving? But we must first learn to unfreeze and turn things on their head?

The writer had talked about unfreezing, lateral thinking and force field analysis – he did not learn them in the West, he learned and practiced them in the Philippines . . . and has brought them wherever he traveled. From the West he learned to simplify and execute – the test of the pudding is in the eating. We may want to dismiss the West but our economic model of individual entrepreneurship is more like Bush’s than FDR’s, i.e., when coherent planning is called for, capitalism is sufficiently flexible! Copy if we must but pragmatic we must be!

Who will do what . . .

. . . when, where and how?

If news articles must satisfy the above criteria, should we apply the same yardstick in quizzing our presidential wannabes?

Whether it is Noynoy or whoever: what will he do, and who specifically will do what, when, where and how? For instance, can any candidate provide shelter to 30 million marginalized Filipinos? Or is it la-la land-speak?

It’s time the media put these folks into some acid tests? Remember the simple question “when” from Ted Koppel – ever the journalist – that got Marcos flustered . . . and the snap election followed?

It’s time we focus on the vital few? The bigger the enterprise and the bigger the challenge – as the world’s largest and most successful entities have experienced – the more the 80-20 rule applies, i.e., clarity of purpose! The axiom: simple enables execution; complex engenders disaster!

Our task goes beyond growth, it is development. Do we blur the two and end up with initiatives that are at cross purposes, don’t deliver the goods or are too little too late? We have a humongous, monumental task and thus must respond with equal force.

For instance, country-side development is well and good. But we need to prioritize and keep the 80-20 rule in mind? A big chunk of our GDP comes from small enterprises – yet we need to ask: is it sustainable and will it deliver the bang for the buck? The object must be equal to the task – how much do we need to raise GDP to attain developed-nation status? Our mindset must move away from pursuing a zillion projects . . . to building a “21st century Philippines” – a coherently designed economic structure, where the object is proved equal to the task! JFK sounded like he was shooting for the moon?

The task is development: where do we get the bang for the buck? Without doing much, we know we will grow given OFW remittances – and thus are fixated? But we know as well, or are in denial, that they are insufficient to move us closer to development? That even growing at 7% a year will take us a generation to attain developed country status – on a theoretical basis thus reality is even more dismal?

$ 100 Billon – the intermediate object – is a scary number but our vision must be crystal clear, if we are to match Thailand, for example. And it is still way off the ultimate goal of being a developed country! We need that much more GDP if we are to break the bondage of poverty. We will not get there in 5 or 10 years but we must lay down the groundwork and the foundation to be able to build up to that vision – a “21st century Philippines”. And that means focusing on generating, from wherever, the critical building blocks of a developed country: capital, market, technology and expertise for industries that will give us competitive advantage. And it’s not rocket science, developed markets are such because they are able to pull together capital, market, technology and expertise to be globally competitive and thus generate first-world GDP per person. Unfortunately, developing countries, in many parts of the world, tend to bask in sophistication when pragmatism is what they sorely need – in competitive lingo it’s called blocking & tackling!

The question to the presidential wannabes then should be: who will do what, when, where and how?

About winning . . .

. . . Turning losers into winners

We need to hear from our development experts (e.g., from PMAP) to learn and understand more about “unfreezing”. They can likewise edify us on lateral thinking and force field analysis – to chart a new course?

Is it Filipino stubbornness (or “tigas ng ulo”) that has confined us to the cellar? How can we start to think like winners? First, we have to unfreeze – long-held, frozen beliefs won’t allow room for new ideas!

Individually we’re entrepreneurial enough to succeed in the market – but our real test as a nation is to compete successfully beyond our borders. Because winning globally is what lifts economies and nations. In fairness, thinking outside the box is unnatural because it does not provide an anchor for safety and stability. Can we just be parochial, socialists or in la-la land instead? Or has the world moved on – and we’re playing catch up?

The writer was fortunate to understand competitiveness from the fortified headquarters of a Fortune 500 company. And so to get into the competitive arena representing a poor and small ex-communist enterprise was a great challenge – that pumped the adrenalin!

Fast-forward 6+ years, this once backward entity-wannabe has already inflicted damage on two global behemoths – David is reality! But they had to get a fix on R&D, marketing, financing, infrastructure, logistics, border restrictions, tariffs, etc. – name it, and they had to hurdle them all! (We should hear more from Jollibee & Splash!)

We’ve already justified our failings for the nth time; it’s time to ask ourselves: How do we develop the heart and the gut of a winner? Beyond putting Pacquiao on a pedestal, we can learn from him!

To get his Eastern European friends to unfreeze, the writer asked them from the get-go to toss whatever “can’t-do” attitude they carried from their socialist past: we’re a poor country, our infrastructure is crumbling, our suppliers are unreliable – the cartons they supply for our packs are inferior, their printing is unprofessional, etc. (Filipino socialist-wannabes ought to be careful what they wish for? Western European socialists have the benefit of their first-world economies; third-world economies produce third-world socialists!)

That they had clarity of purpose – and were starting on the right foot – was why the writer took on the challenge: the owner wanted to win against the world’s largest entity in the industry. And so the writer said, “Terrific!” And added: “You must drive this business like crazy that not even a bullet can stop you!”

“So, we put in the hopper only items meant to win: only businesses where we have a competitive advantage; only equipment that gives us efficiency and healthy margins; only brands with the potential to deliver 50-gross margin points, and then some; only compelling products that travel across borders; only communication campaigns that are intrusive; only logistics that are cost-effective; only people that think like winners – we’ll relocate to the heart of the city so that banks and talents see us up close and personal. Question: What while we’re not there yet? We’ll work our butt off until we get there! Next question: What about the Ukrainian tariffs? That’s why we want 50-gross margin points, if that means buying a local company and then driving margins still! Next: But can we afford expensive equipment? That’s why only compelling products that travel across borders – banks line up to invest with winners! Next question – none?” Carry on – Philippines! (That’s an exercise in force field analysis.)

The writer covered Asia Pacific for a decade and saw firsthand why investors favored our neighbors over us. More excuses won’t help us; neither invoking emotions. Tangible problems demand tangible solutions: we should be aggressively soliciting capital, market, technology and expertise for industries that will give us competitive advantage – to focus infrastructure development and minimize white elephants like bridges to nowhere. Behave like one and an adolescent economy we shall endure! Behave like winners and winners we shall be!

We’re not clueless . . .

. . . Are we doing it by design then?

Pangilinan represents Indonesian money; ergo, we have to stop him? Didn’t Cojuangco champion the coco industry while invoking nationalism? So we can’t let Indonesian money own Meralco? Thus, Cojuangco/SMC taps SM? And the press and we, the people, are riveted by the excitement?

During Marcos’s time, a crony won a construction contract in the Middle East. And that became the genesis of our OFW-centric economy. We could get Filipinos working in the Middle East for better pay than working in the Philippines.

But it was short-sighted (and we had to strike out brain drain from our lexicon?) driven by a lack of confidence to be a developed country or a realization that being capital-challenged we would not have the chance? (But still we didn’t want an open economy – to protect our patrimony – thus unwittingly rewarding the few, and ensuring our decline?) Or was it crony-capitalism invoking patriotism? Or was it an insult to Filipino intelligence? But now many years later we still see it as a real positive – being an OFW-dependent economy, with the shadow of Marcos no longer lurking? And kids born post-Marcos haven’t heard of brain drain? Net, we’re the economic basket-case of Asia? How do we right our economic ship?

But first back to the Pangilinan-Cojuangco/SM fight for Meralco: It’s a replay of an old song – we don’t have the confidence to be a developed country and so we’ll just have local entrepreneurs (more precisely, the few) own our industry. Thus we miss the requisite value-adding question: are they geared to be regionally or globally competitive?

We may not need foreign capital in Meralco’s case. But the bigger issue is: how do we move towards development? Beyond local capital, we should gear up to be globally competitive – because our local capital and economy generate only third-world economic output and thus an alarming poverty rate. But we have yet to come to grips with this glaring economic reality? In the meantime we find ourselves clutching at straws!

International institutions have been encouraging us – that we need to develop our infrastructure. And source capital, market, technology and talent, wherever! No matter, for now we have a ringside view of titans fighting, and are applauding them like Americans applaud Donald Trump or Warren Buffet. But America generates first-world economic output with its multi-trillion $ economy. And we’re not American copycats – of the unbridled brand of capitalism?

Foreign or Indonesian money must be geared to make us regionally or globally competitive – which was how China designed their investment/economic model. Is Indonesian money thus geared or more to be a monopolist-conglomerate? Have they successfully marketed Philippine-produced products and services regionally or globally? How much of their Philippine operations’ income comes from overseas? That is the gut of a regionally or globally competitive economy: i.e., industry, whether local or foreign capital, is a successful regional or global player!

Simply changing ownership does not generate incremental economic value! We need to re-design our economic model – to serve the many not just the few? Re-design? Developing countries are fixated by cheap pricing. But the mind plays tricks. In the developed markets they “turn things on their head”. Instead of being paralyzed by cheap pricing, they think value. Value opens the mind – to optimize its dynamic with pricing, and much more!

Our local businesses are locally but not globally competitive because their premise is cheap pricing, not value. Cheap pricing doesn’t generate the means to do creative product development, R&D, regional/global marketing and logistics. Thus they need a two-track strategy in order to be competitive both ways and make a dent on GDP.

(The writer will be in Manila in the January to March timeframe and is offering his time to anyone who wants to discuss value-pricing and product development – and gear up for regional/global competitiveness.)

Are the WB and ADB ganging up on us?

(It’s not surprising if some of us think so!)

But it appears the WB is telling us that we can cut the 175 years the ADB said that it would take for us to attain developed-country status. Instead of 5-6 generations, we can do it in one generation if we’re able to sustain growth of 7% over the next 33 years. But that is assuming today’s prices, exchange rates and if the rest of the world stood still?

Then the WB is probably motivating us? The writer, an indifferent student, recalls that his high school senior class, in jest, voted him least likely to succeed. He can’t help but feel the same way reading the prognoses of these international institutions. The writer knows what it’s like to have a chip on his shoulder. Do we have a chip on our shoulder?

But then the writer remembers that he had to develop a competitive and can-do attitude. And he shares this learning experience with his protégés, including a couple of PhD candidates – because in business failure is not an option.

A bunch of kids, younger than the writer’s daughter, begged the writer to take a break while they were doing store checks in the center of Skopje in Macedonia. It was past noon, it was summer and hot and humid. And the one who was with the writer in Sofia, Bucharest and Kiev told the group that the writer’s age had been frozen at 17! And so he had to explain that at this level of competition – going head-to-head with global behemoths – they had to be two-steps ahead in every facet of the business. And thereafter they created what is now known within the organization as “The rule of 2”.

(Athletes know this and why the writer had talked about the competitive spirit of Ateneo and La Salle and thus their games are always SROs! We also read it often, Tatang Sy, wheelchair and all, with daughter Tessie, is still doing merchandising after hours.)

Here is a group of people whose perspective of life is unlike that in the West – because of their country’s history, words like future, much less, bright future or positive outcomes are taken as unreal. Their country is less confident than they themselves are, although their GDP per person is already 4 X ours. And the writer keeps talking to them about their bright future.

Comparing the world the writer saw despite his humble beginnings in an inner-city district in Manila, and the world these people grew up in, there is no doubt we have more to be thankful for. But surprisingly, as a nation, we have allowed ourselves to keep sliding down – because we have a chip on our shoulder? Competitiveness is a philosophy and comes from within, not from without like satisfying a global checklist!

More exotic countries are leaving us in the dust. And it has nothing to do with ideology or history like we always slip in when making our arguments – to justify our failings? Ideology is a cop-out – which this group of ex-socialists folks has learned. What they are creating instead is their own future – not blaming their 500+ years of Ottoman rule and 45+ years of Soviet domination. Why are we blaming everyone and his uncle? That’s not what we learned from the Sacrament of Penance?

We have to snap out of all the irrelevant clutter in our psyche? Whose image and likeliness do we have? Why do we keep underselling ourselves – invoking “Pinoy kasi”? Who are we – Christian or Filipino first? It is immoral and unpatriotic if those of us blessed with more than we need close our eyes to 30 million hungry Filipinos – perpetuating an economic model that serves us but not them, content with throwing crumbs? But the Titanic was a great equalizer!

A “nation-building” czar

The label we like to use – global nation – focuses us on the OFWs. What about nation-building instead?

We don’t dispute the following: (a) we’re sinking in the global competitiveness ranking and (b) likewise in the human development index, and (c) it will take 175 years for us to attain developed-country status?

Competitiveness needs to be driven by our major industries but their DNA does not spell c-o-m-p-e-t-i-t-i-v-e. But we create conglomerates and develop SMEs (small and medium-scale enterprises); and the latter, in fairness, support the larger companies. But the kind of ship we’ve built does not make us a global nation? Our ship, like it or not, is meant for a small pond?

The same logic applies to country-side development. Until the object is designed for competitiveness, the outcome will be uncompetitive and thus unsustainable. Ex-communists countries learned the lesson the hard way – that pricing couldn’t be set in la-la land; it’s dynamic with value was a given and must generate margins to make the venture sustainable. Bread was rationed and cheap in la-la land hence it disappeared from store shelves that people had to die fighting for crumbs. In our case, Magsaysay knew that the law of supply and demand couldn’t be repealed even by a compassionate, nationalistic and patriotic Congress!

But Japan and South Korea have zillions of SMEs supporting their larger companies! But these larger companies have their DNAs spell c-o-m-p-e-t-i-t-i-v-e – g-l-o-b-a-l-l-y. How do we pursue nation-building then?

Enter the SMEs; but not the current generation – they have to move closer and faster towards the latest, globally competitive generation of SMEs like they have in China.

Beyond a rehab czar, we need a czar to get us into our next generation of SMEs – a “nation-building” czar? (And Tommy Alcantara comes to mind – if only to start a short-list?)

And that means starting with a roadmap: Generate the requisite infrastructure – capital, market, technology and talent – but first identify strategic industries where we can develop global competitive advantage. The recently announced R&D and investment program is a good stepping stone to build on, e.g., higher value-added electronics beyond semi-conductors; agribusiness but all the way to branded products; BPOs, but including software development and higher value-added services, etc.

The next steps can play out as follows: (a) define the use of the capital (sourced globally, ergo, we better pay our debts – no defaulter will have a prayer sourcing capital); (b) that means to produce products (and product architecture modeling is a practical tool to employ) that have a compelling concept – a clarity of purpose, that will have a leg and a message to stand on, and travel the global market and ; (c) that we can tap the requisite technology (sourced globally, as well) to produce these products and (d) develop and tap the talents (not limited to ourselves!) to keep the technology updated and the capital coming . . . because the global market sings halleluiah!

Nation-building can be done in small steps but the object has to be equal to the task – not limited to stop-gap measures that have become our DNA?