People: Our sustainable competitive advantage

Co-Vice Chairman, Ayala Corporation
(Speech delivered during the first general membership meeting of the Philippine Marketing Association on Jan. 23, 2002)

This is traditionally the time when organizations and individuals take stock of their situation and make plans and decisions for the future. Yet at no time perhaps has this traditional practice been more necessary than now.

We’ve come through an extraordinary year of tumult and change in our country and in the world. From the outbreak of People Power II in January 2001 to the terrorist attacks in the US in September to the onset of global recession, we have been on a roller coaster ride from one stunning event to another.

With all the rude shocks that we had to absorb, it has certainly been difficult to make a coherent plan for the new year before us. Yet turmoil and change are nothing new to us in this country. And as we all know, fortune favors those who are undaunted by change and steer confidently forward.

No one knows this better than you in the marketing profession whose work is chiefly to master the vagaries of markets. For the past 48 years, the Philippine Marketing Association has been serving as a bellwether for major trends and developments so that business can better plan for the future.

Our specific tasks as business executives may differ, but at the end of the day we all share the same concern. We are all anxious for our country to ride out the difficulties. And we all wish that we could focus our energies on becoming more economically competitive in the world.

The good news is that despite the formidable difficulties and challenges we faced last year, we have entered the New Year with our economy in a fairly stable condition. In the last couple of weeks, global investment analysts have cited our government’s creditable work in controlling the fiscal deficit, the stronger than expected growth in the fourth quarter last year, the resiliency of our agricultural sector, the taming of inflation, and the gradual lowering of interest rates.

The bad news, however, is that some of our countrymen prefer to focus their time and attention on rumors, negative news and scandals. There is no question expectations were high when President Gloria Macagapal-Arroyo acceded to office last year, and like everyone else I too wished that our country’s outstanding problems could be resolved within her first year of office. But realistically, we know that many of these problems stem from many years of mismanagement and neglect, and they cannot be solved in one season of effort. What is important is that we are making progress and I do believe that we took many positive steps this past year – not least in saving our country from ruin and renewing our ties with the international community.

Today, we continue to face many challenges as a nation. As I see it, the greatest of these is external in nature – the rapidly changing international business environment. For our economy to not only sustain but accelerate its growth in the coming years, we must understand the realities of this new environment, find our country’s role in it, and pursue it with singular passion and focus. We can’t do this unless the country is united to meet the challenge.

I would like therefore to address myself here tonight to the realities of this new business environment and how our country can effectively compete in this new arena.

A new business environment

There is no question that we are living in times of great change. The war against terrorism, the Palestinian-Israeli conflict, the volatility of capital markets, the global recession, the political turmoil in neighboring countries – the list seems endless.

Yet shocking though all these happenings are, they do not signify what is really changing in the world economy today.

The truly fundamental and far-reaching changes have been unfolding before the terrorist attacks on Sept. 11.

One such change is globalization – which has been reshaping the world economy in ways never known in history. Whether we like it or not, we are part of the global economy – as exports, OFWs, foreign investments have all become the lifeblood of our economy. But with globalization, we are also feeling the lash of international economic competition. Our industries and companies no longer have walls behind which they can hide. Globalization is bringing all kinds of competitors to our shores – from giant global corporations to regional corporate leaders to global specialists.

Globalization is likewise changing trade as we have known it. Across the globe and within the Asian region, trade barriers are going down, creating very different patterns of global and regional competition. Over the next few years, we will see dramatic shifts in trade flows as China enters the WTO and as tariffs continue to be lowered in all our countries. We need to see this challenge very clearly. There are many workers in the huge population of China and India who will continue to work for little more than $1 per day. Industries in the Philippines that rely on labor cost as their chief source of competitive advantage face extreme competition and many will almost certainly have to close down.

Along with these challenges of trade and market competition, there is also the intense competition today for foreign investment. Where 10 years ago ASEAN was a favorite destination for foreign investment in high growth industries, today that same capital is being drawn to new competitors for capital. Global capital will go to countries that show stability, potential for growth, and transparency and fairness in their dealings. Increasingly, we have found difficulty holding our place in the world economic order, and with every new political problem it has become even more difficult to register on the radar screen of the global investing community.

To the problems wrought by globalization, we must add the challenges that new and rapidly changing technologies have created. A New Economy is emerging on the back of information and communication technology. The Internet is altering the way we do business and the way we live and work.

All these challenges signify the new business environment today. The preeminent question is not whether we Filipinos can compete in this new arena; we must!

People are the key

In marketing terminology, we must find a way of differentiating ourselves in the market and find a sustainable source of "competitive advantage."

When we survey the various factors of competitiveness – such as natural resources, capital, technology, government effectiveness, and human resources – we cannot but conclude that our people should constitute our main source of competitive advantage today. And the key to our competing effectively in the world is to shape our strategy around this tremendous resource.

Robert Reich, the renowned economist and former labor secretary of the Clinton administration, has underscored the surpassing importance of people as a resource in this way: "As every advanced economy becomes global, a nation’s most important competitive asset becomes the skills and cumulative learning of this work force…Globalization, almost by definition, makes this true. Every factor of production other than workforce skills can be duplicated anywhere in the world… capital, technology, raw materials, information – all, except for one thing, the most critical part, the one element that is unique about a nation: its work force."

As it happens, our work force has shown that it can be competitive internationally. We may be wanting in the other factors, but human resources we have in ample supply. And many of our workers are much prized in the world today.

This is made plain in the 2001 World Competitiveness Report. Although we rated low on criteria such as governance, infrastructure, government integrity, bureaucracy, and industrial productivity, we ranked at the top on the following criteria:

1. Availability of skilled labor – ranked first out of 49 countries surveyed

2. Availability of senior managers – third

3. Availability of qualified IT employees – fourth

4. Average working hours per year – sixth

5. Flexibility and adaptability of labor force – sixth

These findings have been echoed in varied ways by studies and surveys on Filipino workers and managers;

• Most multinational managers in the Asia-Pacific region rate their Filipino workers highly – both managerial and staff – in terms of skills, capabilities, and sheer creativity and resourcefulness.

• In the United States, Filipino-Americans have been rated as having the highest per capita income among all Asian-American groups. One major reason is that a good number of Filipino-Americans are highly educated professionals.

• Many of our own ventures with foreign companies have been cited for high levels of productivity and quality and in a couple of cases our joint venture partners have looked at the possibility of using Filipino managers for their regional expansion.

• Our country is very rapidly becoming a hub for the international call center business, as Filipino women among different nationalities have been rated the highest for their pleasant voice and disposition and their understandable English.

• Perhaps most revealing of all, the quality of our workforce has been proven by the six million Filipinos who are working overseas today. From professionals to skilled to semi-skilled workers, praise has been heaped by employers and host countries on their superior skills and adaptability to all kinds of tasks and work situations. Their estimated remittances of over $6 billion yearly serve as a major lifeline for our country during times of economic uncertainty and adversity, such as we are experiencing now.

• In the world shipping industry, we are the premier supplier of seafarers. Today, Filipinos account for 20 percent of total crewing requirements worldwide.

We can cite numerous other examples, but the point is clear: we are blessed in the so-called "people skills" that are much prized in the world today. This is not to say that we don’t have serious problems in this area. As I will discuss later, our tremendous human resources are hobbled by weaknesses in our educational system.

But there’s no question that our people – our human capital – are our main source of competitive advantage. So we are wise to nurture our human resources as the principal component of our competitive strategy in the world today.

A people-centered competitive strategy

To anchor our competitive strategy on our human capital will connote certain shifts in emphasis and priorities in our economic agenda.

First, it means that more Filipino companies must turn to this key resource to transform themselves for economic competition. The private sector must continue to invest heavily in upgrading the skills of their people.

Second, this strategy means that our economic planning should give emphasis to industries and businesses where people skills, creativity and knowledge count for more. Service industries are one example. Many regional companies and banks are already doing processing or "back of the house" work in the Philippines. Some have regional accounting work done here or call centers to cover their customer services. Many others do different types of design work ranging from software to architectural design and graphic design for some of their offices in other countries, which may not have either the creative talent in such large quantities or the same cost advantage.

Another area with tremendous potential for our country, given its dependence on human capital, is tourism – the biggest industry in the world today. We have all the skills necessary to succeed in this industry. All the hotel chains that we work with, within our group – whether it is the Marriott or the Intercontinental hotel or the Hyatt – have very large numbers of Filipinos working for them throughout the world. Luxury liners engaged in cruise tourism can’t do without a good number of Filipino crew on board.

But what prevents us from really making waves in travel and tourism is the peace and order climate. No industry perhaps depends more critically on peace and stability in our country. We must solve our problems in Mindanao.

In all these industries that I have mentioned, we can be globally competitive – whether as entrepreneurs or as partners to foreign investors – mainly because of our human resources. But this unique assets must be continually nurtured and enhanced. And the key institutional mechanism for this is education.

The importance of education

Research by the World Bank long ago revealed that the lack of education is a greater obstacle to industrialization than the lack of physical resources. By the same token the Brookings Institution credits education as the major engine of economic growth in the US over the last 50 years. Economists say that improved education accounted for two-thirds of America’s remarkable growth during the period.

And this is not all. Researchers have also discovered that the leadership based of a nation grows in proportion to the spread of education, especially quality education. In societies that invest heavily on education, leaders emerge who man the key sectors of national life, farm ore than in societies that make no such investments. And the contrasts are stark between traditional and modern societies, and between closed and open societies.

Sadly, however, education is an area where our record has been faltering in recent years. We see the signs of strains as our educational system continues to be overburdened by ever increasing enrollment, as government finances fall short of funding needed improvements and as the quality of instruction has deteriorated.

• In our public schools, one third of enrollees drop out before reaching grade 6. Fully another third will drop out before finishing high school.

• Tests show that there is barely any additional knowledge gained by public schoolers between grades 5 and 6.

Improving the quality of mass education is an economic imperative for us to be truly competitive in the world. What we are now seeing is the effect of over 20 years of under investment in the future of our youth. If we allow this to continue, even the competitive strengths that I noted earlier will surely dissipate.

There is no question that the present administration has put a high priority on education and Secretary Roco has certainly initiated dramatic reforms to remove many of the anomalies of the past. But I think that he himself will admit that he continues to face enormous challenges and one of the principal ones must be the difficulty of stretching the country’s limited resources to keep up with a population growth that is one of the highest in the world. The quality of Philippine education has been gradually deteriorating over time precisely because of this.

I do not want to stray beyond my topic here today, but let me just quickly say that a study of our global competitiveness would not be complete without a clear-eyed and frank assessment of population pressure on national capacity for development and modernization. I believe there is no way for us to raise the education and skills of our people and truly alleviate the plight of our poorest sectors unless we move into a clear, responsible and concerted effort for family planning in our country.

It is also very clear that government alone cannot carry the full burden of raising the standards of education in our country. The private sector must be involved, as in fact many Filipino companies are already.

Within the Ayala Group we can point to a couple of initiatives that we have been working on in the last few years in the areas of education and leadership building. Our contribution to education has been through a school program that we have called Centex – short for center for excellence. Centex is a fully funded elementary school for very gifted children and from the poorest families. Our first school was started in Tondo and is being built up to ultimately handle close to 500 students per year. We believe that the elementary phase is a critical formative period for a student. It is our hope that these gifted children will receive from this specially designed program, the necessary educational foundation to compete with the best students in the country. The children at each level of the school are already consistently reaping awards and have topped DECS-administered national exams. Our second school was opened last year in Batangas. It is our hope that other companies and individuals can help us expand this concept.

We have also tried to build leadership skills among older students. Each year, we ask major colleges around the country to send us the names of their top ten students. We ask for excellence not only in terms of academic qualities but also in terms of leadership skills. The list of over 600 top students gets reduced to about 70 after a rigorous process of evaluations and panel interviews. We then take these 70 students each year through an intensive program of lectures, outdoor challenges and group interaction. The lectures are handled by outstanding Filipinos based both here and abroad so that they can get real examples of Filipinos who have excelled in a whole range of different fields. These young leaders from different parts of the country leave the conference with a renewed and deeper sense of commitment of what they can do for their country. Their networking and interaction continue after the conference through their own web page and through other activities that we organize.

These are certainly modest contributions in relation to the needs of the country but we are confident that these programs will have a significant impact on the development of the young people that they reach. I am certain that all of you in the Philippine Marketing Association can understand why we assign so much importance to building centers of excellence in our country.

Today, there are many private initiatives along these lines in the country, but we need so many more. The overwhelming objective is the same: to spread hope among our countrymen through the liberating force of education, and to nurture this basic competitive advantage of our people in the world.

Conclusion

To sum up then, I believe that people are at the heart of the great issues today of national development and modernization, of productivity and product quality, and of competitiveness in the new global economy. We are very fortunate as a country to have a work force with creativity, resourcefulness, a passion for learning and a readiness to cross the oceans to support families back home.

Beyond the political debates that mark our national life today, beyond the premature speculations about who should be President in 2004, I believe we will do better by focusing on the question of how we can succeed as a nation in this new global marketplace. What can we do to upgrade the skills of our existing work force and what do we need to do to make sure that the next generation is better prepared for the challenges ahead. This is what will produce jobs and this is what will give our countrymen a chance for a better future.

In the marketing profession, we have seen Filipino professionals excel not only here in our country, but in the Asia Pacific region and in the world. It is testimony to Filipino leadership that your association’s national awards for marketing excellence – the Agora awards – have been enthusiastically adopted by other members of the Asia Pacific Marketing Federation. You all know what these new standards are all about.

Amidst all the trials then that our people and our country are experiencing today, amidst the uncertainties ferried to our shores by events abroad, there shines this ray of optimism that we Filipinos can prevail and will prevail – because we are a resourceful, intrepid and talented people.

Let me end with a striking and amusing tribute to the Filipino, written by the distinguished British novelist James Hamilton-Paterson and I quote: "No matter how accurately the blows of fate seem aimed at him, there is always something that remains unit… No matter what becomes of this planet, it would be no surprise if the last human being left alive on earth turned out to be a Filipino."