Thriving in an integrated Asean economy

The Asean Economic Community (AEC) was created for the purpose of improving the region’s competitive position vis-à-vis the rest of the world through coordinated and collective action among the 10 member countries.

This goal was to be achieved by establishing “… a seamless single competitive market and production base across Asean economies through the elimination of import duties and non-tariff barriers, as well as the strengthening of small and medium enterprises in the region” (https://www.asean.org/communities/asean-economic-community).

Great expectations

For all the great expectations, the impending full implementation of the economic integration among the member-countries of the Association of Southeast Asian Nations is causing a good deal of anxiety among Filipino business leaders and policymakers.

They are understandably concerned that under a new regime of free trade and economic liberalization, local businesses will find themselves at a grave disadvantage in competing with their rivals in many of the other Asean countries.

There are good reasons for this unease.

Standard management textbooks tell us that there are two ways of establishing an edge over one’s competitors.

Put simply, these are: produce unique products and services that nobody else can, or produce products at costs that nobody else can match.

Most local businesses can do neither.

Arguably, our main handicap is the relatively high costs of doing business in our country.

The underlying reasons are legion: high energy, labor and transport costs, dilapidated infrastructure, a lethargic and non-supportive bureaucracy, and lest we forget, dysfunctional corporate and public-sector governance (oh, yes, these do have significant cost implications!).

Our products and services in many sectors, notably in tourism, in the professional and technical services, and in so-called information goods, can hack it against the competition. However, there is nothing much to croak about in terms of most other products and services, which are mainly Old Economy holdovers.

Poor competitive stance

Our relatively poor competitive stance in the region is reflected in the most recent survey results published by the World Economic Forum (WEF) which shows the Philippines way below Singapore (#2 worldwide in terms of the Global Competitiveness Index), significantly lower than Malaysia, and somewhat behind Thailand and Indonesia.

Under these adverse circumstances, how, indeed, can we compete?

My answer? DON’T.

In today’s fast-paced, service-dominated, knowledge-driven economies, competitive strategies have become an anachronism.

The strategic objective for the New Economy is not to compete head on with our counterparts in other Asean countries for dominance in existing markets, but to collaborate with them in creating and developing new products and services that are intended for evolving markets, and using new information-based technologies.

Collaborative strategies are directed at value creation rather than on market share maximization.

They lay stress on investment in human capital rather than on financial and physical assets. They place greater reliance on creative and innovative business solutions, rather than on conventional “best practices.”

I believe that the Philippines has the upper hand in pursuing collaborative strategies for the reason that we have a relatively young, highly educated and tech savvy entrepreneurial class, and a highly capable professional and technical workforce.

In the knowledge-driven New Economy, Small and Medium-Sized Enterprises (SMEs), including startups, will carry the day for the Philippines rather than the long-established and more tradition-bound corporate giants that continue to dominate the local business scene.

They are more adaptable, more creative and innovative, and more entrepreneurial.

Aside from being more value-driven, they are also a major factor in generating employment in the country and therefore contribute significantly to the elusive goal of inclusive growth.

More encouragement

All they need is a little more encouragement from government, which in the past has tended to favor rent-seekers, and financial institutions, which historically have been partial to less risky—i.e., well-endowed—clients.

Another way in which collaboration is key to the region’s economic survival is in the preservation of our fast dwindling aquatic and forest resources.

Yet, ironically, even as we explore ways of applying so-called “…open-source scientific solutions to environmental problems,” we continue to extol the virtue of competition.

On the contrary, what are called for are collaborative strategies among the Asean members not only to preserve but to also enhance our renewable natural resource endowments, especially in the face of seemingly insatiable world demand for forest and fishery products.

2015 is the year that full Asean integration will be implemented. It is also a year for a major mindset shift.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is a Professorial Lecturer of Economics in the University of the Philippines. Feedback at <[email protected]> and <[email protected]>. For previous articles, please visit www.map.org.ph)