Facing up to the Asean challenge

FILIPINO business leaders are on tenterhooks on how best to respond to the challenges, uncertainties and opportunities posed by the implementation this year of the integration of the Association of Southeast Asian Nations into a single economic community.

While equally apprehensive, our public sector planners at least have a program of action where all the major components are more-or-less in place. These policy directions were articulated at a recently held press conference by Socioeconomic Planning Secretary Arsenio M. Balisacan.

They include, inter alia, the following:

Improvement of public sector governance to streamline the bureaucracy and to facilitate a more efficient and effective delivery of public services

Development of infrastructure to improve public transportation, decongest roads, expand port and airport facilities, and upgrade information and communication technology

Reformulation of economic policies and regulations to promote competition and encourage direct foreign investment

Development of the energy sector

Investment in human capital

By contrast, Filipino business managers appear to be clueless on what strategic direction to take.

The prevailing sentiment among Filipino business leaders is one of unease and a morbid fear that the breaking down of the protective and regulatory walls that used to insulate them from their rivals elsewhere in the region will expose them to unrestricted competition which they are afraid they are ill-prepared to deal with.

How we stack up

There are good reasons for this concern. 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 that the Philippines is way below Singapore in terms of the Global Competitiveness Index, significantly lower than Malaysia, and somewhat behind Thailand and Indonesia.

The major reasons for the country’s low global competitiveness is the high cost of doing business, undeveloped infrastructure and dysfunctional public sector governance.

The dominant position among Filipino business leaders seems to be to aim for enhanced competitiveness and larger market shares in the region by building a large base of tangible assets and financial resources.

To be globally competitive, according to the SM group’s Teresity Sy-Coson, “… firms need the advantage of size and ample financial resources to gain market share…”

To buttress the argument that size is an important ingredient for success in the region, it has been pointed out that the several Philippine firms that made it in the global market (Jollibee, SMC, Ayala Metro Pacific, etc) have one thing in common— “…they are listed companies with large resources, revenues and market share.”

It must be noted, however, that the success of these Philippine firms in the region has not been due to their size or market prowess but to the fact that they had creative and innovative products and services to offer. They had, to use a hackneyed buzz word, a “value proposition.”

Philippine companies suffer in comparison with their counterparts in the region in terms of the traditional measures of competitiveness and business success.

Here are some relevant facts:

Not one of the top 10 Asean companies in banking and finance is a Philippine company.

Singtel, the largest telecommunications company serving the Asean region has a customer base of over 500 million, compared with Globe Telecoms’ 40 million.

The countries in the region with the largest number of companies in the Top 100 list are Malaysia with 27 companies, Singapore (21), Thailand (21), Indonesia (16), the Philippines (14) and Vietnam (1)

It would appear therefore that “fighting might with might” is a misplaced survival strategy in the emerging Asean economic region.

Traditional business models that stress competitive advantage have become anachronistic in today’s complex, volatile and unpredictable knowledge-driven business environment. Emerging strategy directions in today’s highly interconnected world and rapidly changing technologies and consumer preferences stress collaboration rather than competition and aim for value creation and not for market dominance.

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 production efficiency and cost-effectiveness.

In the New Economy, knowledge and other forms of intangible assets have assumed far greater importance than physical and financial resources.

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

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. They are more adept at adapting to change and in coming up with innovative and creative solutions than their counterparts in the Top 100 or 200 list.

They can save the day for the country in the heady days that lie ahead.

(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)