Be at the top of value chain

“Companies that don’t change get left behind. Since I became CEO [in 1995], 87 percent of the companies in the Fortune 500 are off the list. What that says is that companies that don’t reinvent themselves will be left behind. I also think that’s true of people. And I think it’s true of countries.” [Cisco's John Chambers speaking to Charlie Rose, 19th Apr 2012, Bloomberg Businessweek]

That is how tough the world has become; and the challenge to “reinvent” applies to countries too. There is no free lunch; we must seek to be at the top of the value chain. And it means our perspective and mindset must first switch to proactive – like our neighbors demonstrated. Unfortunately, the two key drivers of our economy – OFW remittances and BPOs – are reflective of a reactive character. And indeed Juan de la Cruz faces a big challenge especially as the other supposedly strong elements of the economy – our half a dozen dominant business entities – in fact demonstrate a narrow as opposed to a broad-based economy and thus haven't turned us into a competitive economy. Ergo: the Philippine brand of economics is clearly at odds with today's 21st century realities.

Recognizing the enormity of the challenge, many of us worry about: (a) poverty and (b) the soundness of the free-market system – especially because of Western greed that brought about the collapse of the world’s financial system and thus the Great Recession. But wait a minute haven’t our neighbors demonstrated the ability to rebound and rebound quick – simply because their economic fundamentals make them more competitive than we are?

And we also know that the Soviet Empire failed in the basic promise of socialism? China, in contrast, has aggressively pursued investment and technology – which are at the heart of what competitiveness is about and why China was able to move up the value chain. It is likewise seeking state-of-the-art arms technology from the West – clearly to elevate them to superpower status, and be a counterweight to the US. [Although China’s issue re lack of transparency will continue to dog them.] As they say in Washington, gridlock is good – no single party can lord it over. For example, the world has realized how bad unbridled Western initiatives, like financial engineering, cum greed could be – i.e., the world has to suffer for the vanity of Wall Street. And it appears the CEO of JPMorgan is yet to shed it. Except that it doesn’t change the reality for us. We must still raise ourselves up as an economy.

And if Deng Xiaoping boiled down the "vital few" imperatives of an economy into “investment and technology” – thinking like a capitalist – how come we seem to struggle? Is it because we’re blindsided by the fog of the "trivial many"? Not even socialism had a 100%, absolute solution. The key is to seek “the greater good for the greater number,” recognizing that the exception has to be addressed as such! 'Absolute' in a universe, as statistics will tell us, is a fallacy. And precisely why the principle of democracy is so defined? But does it explain why we are unable to execute especially major initiatives – because we don’t have the conviction that the outcome would be absolute and inclusive? But even among the twelve was Judas? Or are we socialists at heart? We can’t confuse the narrow benefits under a cacique environment to that a broad-based, value-creating and competitive economy – as country after country in the region has demonstrated!

If we are to move up the value chain, for starters, we need to get basic and strategic infrastructure projects done, and done fast. But it appears we are dragging our feet, reports Business Mirror, 2nd May 2012. The upgrading of airport facilities, a project targeted for completion February 2007 is now moved to June 2013! Why are we shooting ourselves again in the foot – and this time undermining tourism, which is supposedly a strategic industry?

We cannot wipe poverty overnight – it has no 100%, absolute solution! The reality is it will take over a generation (even at a constant 7% GDP annual growth rate) for the Philippines to be a developed nation. But we have to start somewhere – for the benefit of those following us or our generation would be synonymous to the Failed Generation. 

There is momentum that we must exploit

To accelerate progress we must keep adding fuel to the fire. President Aquino’s personal fight against corruption is beginning to pay dividends – with foreign investors manifesting keenness to bet on the Philippines. The other good news is that the administration seems to have gotten the PPP (Public-Private Partnership) initiative off the ground; and is poised to get more projects in the pipeline and keep the momentum going.

Indeed the administration deserves praise! But the key is for us to keep the fire burning; and that means we ought to stop: (a) what President Ramos calls “crab mentality” and (b) the “us versus them” game. The enemy is the hole that we’ve dug ourselves in such that we can’t lift our economy up to developed nation status, not in this generation – and which means the task is truly gigantic, bigger than all of our egos put together. In plainer English it’s “nation building.” And we owe it to future generations to hand over a robust economy, not one that will brand them “laggards” – and objects of charity. Isn’t trampling the nation’s pride for half a century long enough?

Our cacique system remains very much in place. And it is a reflection of how we’ve allowed the past to keep us hostage – and which is not what being true to our culture means? (This is the 21st century where the culture of innovation rules.) And unsurprisingly vested interests are behind every major infrastructure project and strategic industry that we must put on stream. And their loudspeakers keep the volume loud and even louder, so in the end their patrons win – the country be damned? The mindset is not easy to change. Until President Aquino showed steely resolve we assumed that corruption at the top is a given?

The administration for its part must get the energy game plan out in the open to ensure transparency – with only the common good as the yardstick. People around the world pay for higher prices, for example, but they must be convinced that the plan is workable. And that is probably a potential flash point – i.e., when was the last time Juan de la Cruz was convinced that a plan was workable? But it is the kind of heavy lifting that leadership must do. We have been unwittingly sidestepping our challenges and putting Juan de la Cruz at the mercy of fate – “que sera, sera.”

Then there are the strategic industries that we must erect and their supporting or intermediate industry clusters in order to create a viable ecosystem. And if we are to learn from Deng Xiaoping, the key elements are: (a) foreign investment and (b) technology – the dynamic of which we must be able to optimize if we are to become an innovation culture. Until we develop the bias for value-creation (e.g., product development), we would proudly indulge in influence peddling (i.e., political patronage) or third-party contracting (e.g., OFWs, garments, semi-conductors, call centers.) And they are reflective of an opportunistic or a reactive as opposed to a proactive and a competitive character. There is more to culture development than what we were born into and embraced – because the human spirit is boundless.

Influence peddlers will always surface as the nation pursues big-ticket infrastructure projects and strategic industries – because our cacique system is tailor-made for them, with the rest of us being the partners in crime. And it is precisely why transparency is an imperative – i.e., it’s time we move past rent-seeking and seek the common good. The administration must institutionalize – like they do in the private sector – the communication of plans and likewise the monitoring of progress. It is easier said than done, but if President Aquino can take corruption head-on, there is no reason why he can’t take transparency head-on as well.

Indeed we must exploit the momentum that the world is seeing! And that means we must not take our “way of life” for granted – “Pinoy kasi”! It is simply insulting – that as a people we cannot move forward and reach for the common good! It’s time we move beyond the rhetoric of patriotism!

“He is one of the big boys”

“Banking on the revived interest of investors, Philippine Ambassador to Japan Manuel M. Lopez is embarking on a new and lofty mission – to make great strides in attracting foreign capital that can help lift the country’s economic stature,” reports Manila Bulletin, 30th Apr 2012. “It is some sort of a ‘role-shift’ for him – considering that he is one of the ‘big boys’ in the Philippine business scene, and has always been a private sector player at that.”

“Mr. Lopez noted that ultimately, the goal would be to move the Philippines out of obscurity and into the fast lane . . . [He] emphasizes though that the prudent step is “to focus on our core competence” – which he believes are in the areas of electronics, SMEs and tourism . . . [The] country can still gain competitive advantage against other Asean countries – or at least, it can be on a head-to-head race with Vietnam and Indonesia . . . “[C]ompanies which have subsidiaries in the Philippines still find value in investing or expanding,” hinging more on the incentives being offered at the PEZA zones as well as the country’s highly-educated labor market. But the Japanese investors still complain of hurdles in the country’s “changing tax system” as well as the state of infrastructures which are relatively inferior to others. The market size (or the lack of purchasing power because of smaller middle class base) may also serve as deterring factor, especially for companies which are gearing up for bigger sales. Such that when car parts manufacturing firms had to relocate because of the Thai floods, they have chosen Indonesia over the Philippines because of the former’s “richer” middle class.”

Clearly no one will offer anything to us on a silver platter. The challenge to us Filipinos, indeed, is to stray out of comfort zone? For instance, given our parochial instincts, we’re still conflicted about the interconnectedness of the global economy – where global leadership is the norm? Writes Angel Cabrera, president of Thunderbird School of Global Management (Business Mirror, 29th Apr 2012): “My colleagues have conducted surveys of thousands of managers around the world and interviewed dozens of successful leaders. These efforts have helped us identify three critical skill sets for effective global leadership: global mindset, global entrepreneurship and global citizenship.”

But isn’t our culture supposed to be superior? There are “. . . cultural traits that are necessary for greater economic success,” John Mangun, Business Mirror, 30th Apr 2012, summarizing “The Role of Culture in Economic Development,” a paper published in 2009 by Jesuit priest Francis X. Hezel. On trust and morality, for example: It goes beyond family . . . “you cannot build a sound economy by just treating your family properly and cheating everyone else . . . Less successful economies tend to keep individual initiative and creativity as a low priority. “Follow the boss’s ideas; he knows best” . . . Persistent and consistent work product day after day and week after week is critical.”

We need to truly examine the value of trust and morality and how limited we define them – ‘charity begins at home but doesn’t end there’; recognize the issue of hierarchy and how it undermines innovation; and the imperatives of productivity. Is it about time we toss some of our assumptions – that have formed our comfort zone and our parochial view? We are not the world – but we can be part of it?

It is encouraging that a Lopez – coming from an old Philippine oligarchic family – is revamping a supposedly enduring assumption that has left us with pathetic levels of foreign investment. And given his own industry and business experience, he is preaching “focus,” for instance. And he has spelled out a few more pragmatic imperatives if only to stress that we can’t live in our own made-up-world? For example, investors are “prowling” the world, investing even in countries with less business and management sophistication than us, because of one factor: per capita GDP. Thus, as Ambassador Lopez says: “when [Japanese] . . . manufacturing firms had to relocate because of the Thai floods, they have chosen Indonesia over the Philippines because of the former’s “richer” middle class.”

Two sides of the same coin

We are an economic laggard for a reason? Just prior to this year's ADB meeting we geared up to impress the delegations that we have a few tricks up our sleeves that they would want to replicate. For example, our banking reforms are a model. (And in fairness, the international media picked up and highlighted positive developments like Philippine leadership in the call-center business.) But wait a minute wasn't the home of a banker recently attacked resulting in the death of those in his security detail? (And we're not the Wild West!) And just days ago the writer received an email from a relative who was devastated by a run in a Philippine bank! Then by chance he watched on CNN the CEO of the oldest Philippine conglomerate waxing poetic about how they have consistently worked in support of government agenda. But given that we are an economic laggard where is the economic mismanagement of the country coming from? (And also on CNN they had a presentation – “Real junk food in the Philippines” – explaining how restaurant trash is recycled into food in a shanty town.)

The reality is we are all contributing to this economic mismanagement when we ‘see no evil, hear no evil and speak no evil.’ Or when we wash our hands and claim it is the government or the leadership or some extraneous force that is responsible. What we instead want to do is do our part? For instance, it is encouraging that the DOTC and the DOT folks are working together to make tourist attractions accessible with proper infrastructure. And the DTI is working with industries to develop their respective road maps in order to raise our competitiveness. The challenge with road maps though is their execution. For example, the Agriculture department crafted a road map that would make our fishing industry a major international player. But where are we now given recent news reports that we may have largely depleted our aquatic resources? What about our energy game plan? It is not enough to produce a plan, not even an outstanding one, because it has zero value if it is not executed!

We are playing catch up in a world that is progressing at warp speed and given we are behind even with the fundamental building blocks of an economy, we better not take things sitting down? And that means aside from execution there must be constancy in problem-solving. Beneath the "cockiness" Europeans see in Americans is the intensity and constancy in problem-solving – with the exception, of course, of Washington. [The culture shock the writer experienced upon moving to the company headquarters in New York is the problem-solving culture that was pervasive; which he has passed on to his Eastern European friends and, of course, the bias for execution.] And the net effect is seen in how they differed in dealing with the Great Recession – i.e. while neither was perfect the outcomes reveal who has gained grounds.

Execution and problem-solving are the unseen qualities behind competitiveness. For example, Singapore's competitive strength is enviable with clarity and confidence in their undertakings feeding each other, producing a virtuous circle. Of course, our own half a dozen dominant enterprises can claim the same capability – but with one exception. They are truly ratcheting up their oligarchic control on the Philippine economy – absent the imperative to raise Philippine competitiveness. Singapore, in contrast, is raising the competitiveness of their industry and the nation as a whole. And so in October they are hosting a global conference (for an industry) and a major highlight is to showcase their R&D prowess. Yet this city-state, as a republic, started from scratch only a year before the ADB was established in Manila.

It is that distinction that will confine us to economic laggards for as long as we are unable to internalize what an interconnected and a highly competitive world is about – i.e., it is tapping and optimizing the dynamic of investment and technology thus creating a culture of innovation, nurtured by a commitment to talent, product and market development. Simply, the 21st century demands the right, wider and borderless participation in the economy – not the parochial, narrow, limited and exclusive character of our cacique culture where oligarchy and poverty are two sides of the same coin. The good news is “one of the big boys,” Ambassador Manuel M. Lopez, is on a mission: “to make great strides in attracting foreign capital that can help lift the country’s economic stature,” reports Manila Bulletin, 30th April 2012.

Boxed in a corner

Could it be that we’re simply stoics that we constantly find ourselves boxed in a corner? But because of Divine Providence we would one day lift ourselves up?

As an economy pragmatism demands that we balance development and concern for the environment, for instance. But when even the secretary of environment talks of the blanket use of privately-owned land, one wonders who is left to uphold basic principles like fairness, propriety or even good and bad? Defining land use in a civilized society is so fundamental that no wonder the medical community has raised the alarm bells about the degradation of Metro Manila. Sadly, the threat on the environment – and the devastating impact on people as we’ve witnessed in past disasters – is not confined to the metropolis. But balancing development and concern for the environment may be asking too much when we can’t even keep our homes and businesses lit? And so even our best thinkers find themselves expressing fatalism? But didn't we learn that we can work on the Sabbath – the operative word being work? [As the writer’s sister-nun would proudly clarify, “we have a separate contemplative group praying in the chapel 24/7; and I am in the other group, and in our case, we work with farmers so that they employ organic farming methods.” And in order to elevate the effectiveness of their overall mission work, they stay abreast with technology, including tapping Western business consultants.]

Unfortunately, given the wretchedness of our reality we instinctively rely on our ‘abilidad and creativity.’ And the risk is when doing so we take our eye away from the ball and succumb to ideology. Economic development trumps ideology as Deng Xiaoping demonstrated? He simply begged the Americans: we need your money and technology! On the other hand, Juan de la Cruz has to jump through hoops because he has been unable to crystallize his way forward? And absent the light at the end of the tunnel, he then switches to survival mode? Which, unfortunately, brings about the absence of the sense of community or the common good? It has fascinated the writer to observe a similar pattern in Eastern Europe. For example, given the lack of clarity of the way forward, the powerful like water would seek their own level, lord it over and effectively stake their claim as being the “establishment.” And so the game becomes “signing up” – including those who are supposed to uphold basic principles like fairness and propriety or even good and bad – with the establishment while remaining a limited, narrow and exclusive group, leaving a great many marginalized.

What complicates the challenge for us Filipinos is our tendency to look back. And as the Americans would explain such a tendency, people instinctively keep “fighting the last war.” And thus we struggle and fail to create a vision of the future that is refreshing. And as one Filipino scientist laments, we are reduced to building a “barong-barong” – a lean-to or shanty – as opposed to, say, properly engineering our efforts. Neither history nor culture ought to be a people’s destiny. The human spirit is meant to soar – e.g., Adam and Eve had to set a forward-looking course for mankind?

The writer talks often about his Eastern European friends because they simply and unequivocally wanted to leave their dark past behind. All they knew was they wanted something better even if they didn’t know exactly how to get there. They continue to encounter challenges that baffle them yet they remain steadfast in pursuing that something . . . that is better. In the meantime, they have been enjoying the fruits of their daring journey – making it all worthwhile – while continuing to learn from both good and bad experiences. And like athletes training for the Olympics, they have the aches and pains to show for their hard work yet they keep raising the bar!

In the Philippines, meanwhile, we’re struggling with something as basic as lighting our homes and businesses? And worse, we find ourselves navigating a treacherous terrain – with oligarchy on the one hand and ideologues on the other and poor governance thrown in? Ergo: we simply keep creating more hoops to jump and thus a no-win situation for Juan de la Cruz? And if to be “sabog” (be all over the place) is our comfort zone (or our definition of freedom of choice) how would we ever chart a way forward that has clarity? We have to will it if we don’t want to be a non-entity!

“Kuro-kuro,” parochialism and the “common good”

How much is the common good in fact in our consciousness? Could it be that "thinking with the end in view” is not prominent in our thought process? Are we more predisposed to linear thinking? People from developed economies, given their experience, have developed a more adaptable thought process. And the writer has observed the contrast over the last nine years – working and living with his friends – in Eastern Europe. (But they've realized this contrast and are embracing more and more an adaptable thought process especially as they’ve pushed their business to over 30 countries and counting.) The first time the writer heard the distinction was many years ago from a then young Brit who today is the CEO of a Fortune 500 company.

And two recent news articles may remind us that our default-thought process indeed is closer to linear thinking: (a) “Stakeholders in renewable energy raise other concerns” [Business World, 19th Apr 2012] and (b) “Lawmakers push bill to regulate large scale foreign investments on land “[Inquirer.net, 20th Apr 2012]. The intentions of the people behind these news reports must be sincere and credible. But if we are to “think with the end in view,” we would be stating our perspectives and positions differently. For example, as far as energy is concerned, the common good is adequate and sustainable supply at competitive costs. And with foreign investments the common good is to create a bigger economic pie and generate a larger and sustainable ecosystem. The failure of land reform is something to think about. While it addressed the ownership element it missed to recognize that its “endpoint” ought to be a sustainable economic undertaking – i.e., efficiency across the board: credit, production, logistics, marketing, financial management, etc. Similarly, we shall perpetuate our juvenile economy if the juvenile instinct to ‘have our cake and eat it too’ is our definition of patriotism in an interconnected world?

Reading the above news reports, it is understandable that everyone may have legitimate concerns. But what is “the endpoint” and where is the bias for the common good? And what is the order of priority? Even the Creator needed seven days, which means that to prioritize is inherent in creation, including secular undertakings?

If we are committed to the common good, then our discussions could turn to: How do we get there? What must we invest in time, talent and treasure to get us there? And how do we prioritize so that we optimize the efforts, be efficient and effective and get the biggest bang for the buck? Investments are a prerequisite of an undertaking – something we’ve finally realized and thus want to attract foreign investments? Or are we still conflicted about it? It is this lack of conviction that drives foreigners away – unwittingly reinforcing our cacique system!

The reason the private sector is more efficient in generating and sustaining economic output is precisely because it follows the thought process described above. For example they could simply state that the common good for a business is “sustainable profitable growth.” But does Juan de la Cruz have a problem with that or with the profit motive? It is not the profit motive per se that is bad; it is an economy that is skewed to oligarchy that is bad. When we say “inclusive,” we ought to mean a broad-based economy, not one under oligarchic control? A broad-based economy generates a larger economic pie and produces a larger ecosystem that can create jobs – as we have seen with our neighbors. Conversely, it is not about creating livelihood projects, which at best is condescending and is characteristic of a cacique environment! And the fact that it is ‘our normal’ reflects our economic infirmities!

International agencies have urged us to be pragmatic and model ourselves after our neighbors. It is not an insult to our “abilidad and creativity.” While we are thankful for OFWs and BPOs given their contributions to the economy, what we sorely need is a broad-base economy, one driven by the requisite elements of a robust enterprise: the fundamentals of power generation and infrastructure, strategic industries and competitiveness – i.e., investment, technology and innovation and talent, product and market development. And that means we need to: (a) channel our “kuro-kuro” to nation-building, (b) develop the instinct for the common good and (c) the bias to prioritize, and (d) recognize that our understanding of “inclusion” has been narrowed by the reality of our cacique system and structure, and our economic mismanagement.

National competitiveness and branding

The efforts to move beyond tourism and extend them to trade and investment branding and thus create a coherent national competitiveness campaign to promote the Philippines are indeed laudable [Business World, 16th Apr 2012]. “While people are assessing where they want to take their business and with whom they want to do business, we have to be able to project to them who we are... and we need to pitch something that’s credible.”

Indeed it is imperative to recognize that a campaign is not just a “slogan or a logo.” Azerbaijan, Croatia and Macedonia, to name just three, are aggressively airing their respective campaigns yet these countries are not getting the level of foreign investments they had hoped. At the end of the day, communication, which is what many people equate to marketing, starts with a product that is credible. And a credible product is effectively a concept where the campaign is anchored. And Apple (e.g., iPhone, iPad, etc.) is that kind of a credible product with a powerful concept where its campaign is anchored.

It appears the National Competitiveness Council is precisely carefully establishing how the Philippines could be defined as a credible product and thus a powerful concept where a campaign is to be anchored. The object of the exercise is the investor, but what does an investor seek? As Warren Buffett has said many times, I don’t invest in a business I don’t understand. Because investors want to ensure that their efforts will yield the optimum returns! And in an interconnected and highly competitive global economy, the only way they could optimize their returns is when they attain “competitive advantage.” Thus, the Philippine campaign must answer that challenge squarely: That investing in the Philippines is the way to the investor’s “nirvana” – of competitive advantage.

And to get there, investors want their ducks in a row. And that means beyond investment they are constantly raising their technology edge in order to attain the enviable position of creating truly innovative products and/or services. But they don’t come in a vacuum so they are constantly tapping and developing human resources, and developing target markets and, in sum, complete the “competitive-advantage loop.”

But the Philippines can’t be everything to everybody which is why the efforts to define our strategic industries must become a truly committed undertaking. Between concerned government agencies and the private sector like the JFC (Joint Foreign Chambers), for instance, there appears a growing list of strategic industries. This is where the exercise of academic rigor must be adhered to – we cannot allow crony capitalism to dictate this delicate process. Take energy and mining, for example. Are they strategic industries? What technologies must we then bring in to the country to pursue the undertaking? Which investors should we attract and invite?

A more targeted campaign is sharper and thus more effective than a shotgun campaign. For example, we must be able to spell out our strategic industries and the requisite support infrastructure and/or intermediate industries that we are developing in order to create a viable ecosystem.

Our history has been characterized by opportunism which is not representative of efforts to make an economy and a nation globally competitive. And the fiasco that is EPIRA and, more recently, mining are too real to ignore and be nonchalant about. Do we have the character and the spirit to pursue nation-building – which is what this branding initiative is supposed to be?

And so it appears we’re stuck at first base – struggling to attract investment and technology – in our nation-building efforts? How do we then move on to being recognized for innovation, for talent development, for product development and for market development? We want credibility and coherence . . . then we truly need to do our homework?