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The Myth of "Filipinos Can't Compete in a Global Market"

July 7, 2010

Behind the game of soccer lies a complex web of interactions that deliver value from customer wants to product designers to manufacturing distribution and services. We can damn these interactions as exploitation and imperialism. Or we can understand how the game is played and see for ourselves whether it is indeed imperialism that’s killing us – or our lack of understanding 😳  of our business model and the global market and how it affects the local market  😯  – in 10 slides. You be the judge.

Behind the game of soccer lies a complex web of interactions that deliver value from customer wants to product designers to manufacturing distribution and services.

The soccer ball was designed in the US, most likely in California. The specs were sent through the Internet – an infrastructure owned probably by Sprint or Verizon. This went into a hub that then passed the data packets to an office in Shanghai. The data is fed to an Computer Aided Machine using American software ported to the local Chinese language. The customer service is most likely being handled by a call center based in Baguio City, Philippines. The Corporate HQ is in Silicon Valley.

The socks were probably made with cotton grown in South America, sent to Mexico for processing, shipped from Mexico, on a Danish ocean vessel, to a port in South Africa.

Take the Hanes Brand of hosiery for example:

While capital spending could vary significantly from year to year, we anticipate that our capital spending over the next
three years could be as high as $500 million as we execute our supply chain consolidation and globalization strategy and complete the integration and consolidation of our technology systems. Capital spending in any given year over the next three years could be as high as $100 million in excess of our annual depreciation and amortization expense until the completion of actions related to our globalization strategy at which time we would expect our annual capital spending to be relatively comparable to our annual depreciation and amortization expense. The majority of our capital spending will be focused on growing our supply chain operations in Central America, the Caribbean Basin, and Asia. These locations will enable us to expand and leverage our large production scale as we balance our supply chain across hemispheres. In 2007, we acquired our second offshore textile plant, the 1,300-employee textile manufacturing operations of Industrias Duraflex, S.A. de C.V., in San Juan Opico, El Salvador. This acquisition provides a textile base in Central America from which to expand and leverage our large scale as well as supply our sewing network throughout Central America. Also, we announced plans in 2007 to build a textile production plant in Nanjing, China, which will be our first company-owned textile production facility in Asia. The Nanjing textile facility will enable us to expand and leverage our production scale in Asia as we balance our supply chain across hemispheres.

In December 2007, we acquired the 900-employee sheer hosiery facility in Las Lourdes, El Salvador of Inversiones Bonaventure, S.A. de C.V. For the past 12 years, these operations had been a primary contract sewing operation for Hanes and L’eggs hosiery products. The acquisition streamlines a critical part of our overall hosiery supply chain and is part of our strategy to operate larger, company-owned production facilities.

http://www.wikinvest.com/stock/Hanesbrands_(HBI)/Filing/10-K/2008/Complete_submission_text_file/D200698

The shoes were probably designed in Germany, material designed in USA, sent to Vietnam for production, then sent to a port in South Africa.

Indeed there is more to soccer than meets the eye – there’s more to outsourcing than meets the eye.

There’s something better than whining about imperialism and how victimized we are.  It’s a thing called “knowledge” – it allows us to step up to the plate, understand the “rules of engagement” – and not only survive, but even thrive!  It doesn’t matter if you are a rebel returnee, a fireman, policeman, sari-sari store owner, teacher, professor, doctor – businessman – the model will work for you.

Don’t worry if you were decimated before – the only time you really lose is when you stop trying and learning the lesson from these challenges.  Allow me to keep it short and simple. I draw upon material publicly available on the Internet. The illustrations are of course, AP originals.

The Fundamentals – The Value Chain

It all begins with the Value Chain – a paradigm shift in the way we do business – globally and locally.

The value chain, also known as value chain analysis, is a concept from business management that was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance

http://en.wikipedia.org/wiki/Value_chain

The Value Chain was popularized by Mike Porter

The Six business functions of the Value Chain are:

  • Research and Development
  • Design of Products, Services, or Processes
  • Production
  • Marketing & Sales
  • Distribution
  • Customer Service

Primary Activities.

Inbound Logistics.
Here goods are received from a company’s suppliers. They are stored until they are needed on the production/assembly line. Goods are moved around the organisation.
Operations.
This is where goods are manufactured or assembled. Individual operations could include room service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a new car’s engine.
Outbound Logistics.
The goods are now finished, and they need to be sent along the supply chain to wholesalers, retailers or the final consumer.
Marketing and Sales.
In true customer orientated fashion, at this stage the organisation prepares the offering to meet the needs of targeted customers. This area focuses strongly upon marketing communications and the promotions mix.
Service.
This includes all areas of service such as installation, after-sales service, complaints handling, training and so on.

Support Activities.

Procurement.

This function is responsible for all purchasing of goods, services and materials. The aim is to secure the lowest possible price for purchases of the highest possible quality. They will be responsible for outsourcing (components or operations that would normally be done in-house are done by other organisations), and ePurchasing (using IT and web-based technologies to achieve procurement aims).

Technology Development.

Technology is an important source of competitive advantage. Companies need to innovate to reduce costs and to protect and sustain competitive advantage. This could include production technology, Internet marketing activities, lean manufacturing, Customer Relationship Management (CRM), and many other technological developments.

Human Resource Management (HRM).

Employees are an expensive and vital resource. An organisation would manage recruitment and s election, training and development, and rewards and remuneration. The mission and objectives of the organisation would be driving force behind the HRM strategy.

Firm Infrastructure.

This activity includes and is driven by corporate or strategic planning. It includes the Management Information System (MIS), and other mechanisms for planning and control such as the accounting department.

http://www.marketingteacher.com/lesson-store/lesson-value-chain.html

An Extended Enterprise is a loosely coupled, self-organizing network of firms that combine their economic output to provide products and services offerings to the market. Firms in the extended enterprise may operate independently, for example, through market mechanisms, or cooperatively through agreements and contracts.

Alternatively referred to as a “supply chain” or a “value chain”, the extended enterprise describes the community of participants involved with provisioning a set of service offerings. The extended enterprise associated with “McDonald’s”, for example, includes not only McDonald’s Corporation, but also franchisees and joint venture partners of McDonald’s Corporation, the 3PL’s that provide food and materials to McDonald’s restaurants, the advertising agencies that produce and distribute McDonald’s advertising, the suppliers of McDonald’s food ingredients, kitchen equipment, building services, utilities, and other goods and services, the designers of Happy Meal toys, and others.

Extended Enterprise is a more descriptive term than supply chain, in that it permits the notion of different types and degrees and permanence of connectivity. Connections may be by contract, as in partnerships or alliances or trade agreements, or by open market exchange or participation in public tariffs.[1]

How the Extended Enterprise is organized and structured and its policies and mechanisms for the exchange of information, goods, services and money is described by the Enterprise Architecture.[2]

A value chain is a chain of activities for a firm operating in a specific industry.

The business unit is the appropriate level for construction of a value chain, not the divisional level or corporate level.

Products pass through all activities of the chain in order, and at each activity the product gains some value.

The chain of activities gives the products more added value than the sum of added values of all activities. It is important not to mix the concept of the value chain with the costs occurring throughout the activities.

A diamond cutter can be used as an example of the difference. The cutting activity may have a low cost, but the activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond. Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process routines are at the core of the quality certification of the business, e.g. ISO 9001.

Activities

The value chain categorizes the generic value-adding activities of an organization. The “primary activities” include: inbound logistics, operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The “support activities” include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs and value drivers are identified for each value activity.

http://en.wikipedia.org/wiki/Value_chain.

The notion of the Extended Enterprise has taken on more importance as firms have become more specialized and inter-connected, trade has become more global, processes have become more standardized and information has become ubiquitous. The standardization of business processes has permitted companies to purchase as services many of the activities that previously had been provided directly by the firm. By outsourcing certain business functions that had been previously self-provided, such as transportation, warehousing, procurement, public relations, information technology, firms have been able to concentrate their resources on those investments and activities that provide them the greatest rate of return. The remaining “core competencies” determine the firm’s unique value proposition.[3]

The Philippine BPO industry is tapping a relatively small segment of the market.  The economies which are able to gain competitive advantages in other activities will be able to balance their handicaps in other activities – that evens up in the market. That’s where the proverbial rubber meets the road. Where brand name collides with functionality or not necessarily so.

The bottom line really is understanding the value chain model and applying it across industries, at various scales of industry – small, medium large. It can be used if you are an exporter or an importer. Whether you are a cooperative, a proprietorship, corporation, non-profit, government – it does not matter. You will spot your competitive advantage in the value chain – and you can spot the activities where you don’t have an advantage.

In activities where you have an advantage you can pursue different growth strategies = the specifics of course will depend on the actual situation on the ground. You need to have the right data and information so you can make the best informed decision.

Then you can assess how do you want to grow your company globally or locally.

Do you invest in a core area? Do you upgrade equipment? Do you right-size? Do you introduce new advantages? Before you cry exploitation of imperialism – please reconsider your business model honestly.

This goes beyond your profit and loss statement – rather it breathes life into the numbers.

Know thy enemy and know thyself, and thou shalt win a thousand battles. - Sun Tzu, The Art of War

We are loosing a lot. We can do more considering that given our handicap we were able to come up as a far third from China and India. Both countries have more diverse portfolios than we do. In contrast the Philippines tends to put its eggs in one basket. One lechon manok, and everyone goes lechon manok; one dude goes shawarma, everonye goes shawarma- its the herd mentality at work – politics or business.

ECONOMIC TIMES OF INDIA July 10, 2009, 9:31AM EST
India Remains World’s Top Outsourcing Destination
Despite a backlash against outsourcing, India’s low costs, skilled workforce and business environment make it No. 1, says AT Kearney

By N Shivapriya

India continues to be the most preferred destination for companies looking to offshore their IT and back-office functions, despite the backlash against outsourcing to the country. It also retains its low-cost advantage and is among the most financially attractive locations when viewed in combination with the business environment it offers and the availability of skilled people, according to global management consultancy AT Kearney.

India has retained its numero uno position even as some other well-established outsourcing hubs dropped in their attractiveness to be replaced by new emerging destinations in AT Kearney’s latest ranking of the top outsourcing destinations across the globe. “The top three countries in the 2009 Global Services Location Index (GSLI) remain the same—India, China and Malaysia—but the world’s volatile economic environment is reflected in the rest of the rankings,” the consultancy pointed out. The study evaluates 50 top countries.

The economic meltdown and appreciation of the local currency against the dollar has taken its toll on Central and Eastern Europe, which were emerging as important offshoring hubs for Western Europe. Overall, nine countries dropped nine or more rankings in the attractiveness index. While the one-time rising stars such as Poland, Czech Republic and Hungary lost out, others in the Southeast Asia and Middle East scored. Egypt, Jordan and Vietnam made it to the top 10 rankings for the first time. UAE, Tunisia and Morocco have also improved their standing, with the noteworthy trend being the Middle East and North Africa emerging as key offshoring regions given their large and educated population and proximity to Europe.

India and Philippines together account for 50% of the world’s BPO market, but Philippines, often spoken of as threat to India, is only a ‘distant’ second, according to the study. “Philippines is more call-centre oriented and we don’t necessarily see it growing at the same pace as China and some other South Asian countries. Some of the reasons that has made India number one continue and they will help it tide over the economic downturn faster than any other in the world,” said AT Kearney senior partner Saurine Doshi.

Significantly, India is also no longer being viewed only as a competitor but also as an enabler to industry growth in other regions. “Indian companies are some of the gorillas and they are increasing their global footprint as clients look for multi-region support,” added Mr. Doshi.

Smaller, tier 2 cities in the US, such as San Antonio, have also emerged as important destinations because of the falling dollar. A combination of rising unemployment and political pressure to create jobs is increasing interest in onshoring possibilities among smaller inland locations, according to AT Kearney. “Similar trends are evident in UK, France and Germany,” the consultancy said.

http://www.businessweek.com/globalbiz/content/jul2009/gb20090710_974200.htm

We need to think of more options and be more open to new relationships with the world. It’s a big small world and it depends on which glasses you are looking at.

You say keep globalization out. I say embrace globalization.

You say protect. I say liberalize.

You say country first. I say humanity first – more economic freedom not less, more economic options not less, more economic opportunities not less, more job opportunities not less.

There’s enough for everyone – but you gotta work hard at finding your niche, it will not be given to you on a silver platter.  For those who care enough to learn it, they will earn it.

Risk and sacrifice and action guided by knowledge brings sustainable rewards – gifts that keep on giving.

The world is moving forward with or without the Philippines. We can keep on complaining about how shortchanged we were. Or we can get creative.

We can release the full potential of the Philippines – a strong FOIA, a constitution without the protectionist clauses that stunt growth, within a politically stable governance framework.

Offhand, these are the things that I recommend for consideration and implementation.

Please feel free to add to the list.

And that completes the ten slides.

Under the right circumstances, Filipinos CAN compete in a global market. The Koreans, Taiwanese, Malaysians, Singaporeans, Vietnamese, Chinese, and Indians have done it – and are moving forward.

Can the Philippines afford not to compete? We can compete – but first, let’s level the playing field – innovation not protection.

From → Economy, Solutions

31 Comments
  1. The myth is Filipino can’t compete in a global market; the truth is Filipinos don’t want to compete in a global market.

    Hey, can you come up with an article detailing how being a closed economy (no foreign investment at all) will kill the country?

  2. crab permalink

    Its is the spirit of AP that – to set an UNPATRIOTIC example and lower the bar of public debate❓

  3. famous wolf permalink

    What exactly is unpatriotic about debunking the idea that the Filipinos can’t compete in the global market?

  4. crab permalink

    Not only this blog but most of blog posted on this site.😉

    But let me state the moronic of recommendation of BongV which is sounds more idiotic than patriotic.:mrgreen:

    *Remove the protectionism provisions of the 1987 constitution.
    * Allow foreigners to invest in schools, media, public utilities in higher percentage than current allowed in the constitution.
    *Alow foreigners to own/operate schools, hospitals, parks 100%.
    and
    *allow foreigners to own residential, industrial and comercial real estate 100%.

  5. crab permalink

    PS

    * Increase proficiency in English.🙂

  6. Jon Abaca permalink

    Hmmm…

    Giving statements without proving HOW or WHY lowers the bar of public debate.

  7. Hey guys, by now you probably understand what THAT guy is up to.😆

  8. Hmm, just had a thought… China pirated a lot of products… so then the companies moved operations to China… so now China is the prime manufacturing hub of the world. Maybe China did piracy just to force them foreigners to invest. Do we do the same?😆

  9. famous wolf permalink

    [quote]*Remove the protectionism provisions of the 1987 constitution.[/quote]

    There’s a problem there, how are we going to attract a lot of foreign investments if the process of local settlement in infrastructure and development are too arduous for investors to take notice, when globalization is the new trend in economics?

    [quote]*Allow foreigners to invest in schools, media, public utilities in higher percentage than current allowed in the constitution.[/quote]

    This is to promote competition, I don’t see the problem of promoting competition provided that the local people step up to the plate, as do all economic policies should to circulate money. Competence is created when there is an equal or much stronger opponent involved, thus increasing the value of products.

    [quote]*Alow foreigners to own/operate schools, hospitals, parks 100%.[/quote]

    Refer to the argument above.

    [quote]*allow foreigners to own residential, industrial and commercial real estate 100%.[/quote]

    Same as to my second argument.

    [quote]* Increase proficiency in English. [/quote]

    On a globally competitive scale, to attract investors who can understand English, one must first state their causes why they should invest there. What are the pros, cons and the likes. Benefits vs Consequences. To have an example, let’s look at the much simpler choices like those in Video Games since competition there is quite rabid.

    Or someone more renowned as say, Steve Jobs and Apple:

    It can’t get anymore competitive than that.

  10. palebluedot permalink

    …so crab, what’s your non-moronic non-idiotic patriotic solutions then to provide jobs to the many licensed professionals in our country who are either under-employed or unemployed? what should we do to change the paradigm that the way to success is working abroad? it pains me to think that i have been refused by 3 possible small-medium investors (2 italians & 1 greek) because their main reason is they cannot own the company they are going to build in this country. that would have resulted to jobs for nurses and teachers and some skilled workers in my city, which simply translates to food for their family.

    i am not fluent with all these economic and political goobledygook. all i know is i need to help create jobs for the many nurses and teachers who are being abused by the catholic church as volunteers w/o pay (just a promise that they will go to heaven wtf!!!)…

    if you have better solutions than BongV, please tell. please help me understand crab😕

  11. NFA rice permalink

    @famous wolf

    About infrastructure, what the country needs to do first is invite investors to compete against Meralco, generate more electricity, and drive the costs down.

  12. Jon Abaca permalink

    If they can produce fake goods for chump change, they can produce real goods for dirt cheap. Real goods will sell for way more, and there doesn’t seem to be a shortage of people willing to part with their money for authentic luxury items.

  13. Competing is key. Problem is our society is so used to chaos, selfishness, un level playing fields, short cuts, being closed minded, unwilling to learn etc. With traits like that, how are we ever supposed to compete with the world? We are lagards of Asia when it comes to infrastructure.

    Our countrymen are so full of themselves. The slogan that is thought but hardly ever uttered is “basta pinoy galing!”. Adam Corolla hit the nail right on the head. When you have that sense of entitlement, are you going to bother working hard? Nope, you will just feel its’ your birthright as a pinoy to be World Class. For whatever good your illusions will do you.

    http://cornholiogogs.multiply.com/journal/item/1004/The_Filipino_Cry_For_Attention

    http://cornholiogogs.multiply.com/journal/item/266/The_Mentality_that_leads_to_Zero_Medals_for_the_Philippines_

  14. Hyden Toro permalink

    I don’t believe we have the capability to compete with Global Market. For the primary reason that :our Brains/Educated Technical People are almost all OFWs, or had migrated to foreign countries.

    China is the good source of outsourced labor because:

    (1) During the time of Primier Deng Ziao Peng. China sent Chinese students in the U.S. and other advanced countries to study in their universities. These graduated students went back to China; and are now: executives, factory managers; research and development personnel.

    (2) Our people are more prone to seek for political offices. Rather than delve and study in Science and Technology. Our Politicians are placed on pedestals and worshiped as demi-gods. You don’t have to be knowledgeable and highly educated to be a politician. All you need is : a popular name; handsome or pretty face and a good “get rich quick” agendas for your followers.

    (3) We don’t have vital industries to transcend our being an agricultural country to being an industrialized country. We cannot even feed ourselves.

    (4) We are a CENTURY behind in Science and Technology; compared to industrialized countries. We are wallowing in politics; while our Technolgy is stagnant. Anyway, we can just buy imported goods.

  15. Hyden Toro permalink

    We have no capabilitry to compete. Our Brains/Educated Technical people are almost all working in foreign countries. The remaining ones are planning to leave . Turn the Politicians into Technical people. This is a good solution. Since, they pretend themselves to be “know it all.”

  16. Hyden Toro permalink

    Foreigners will not come to a country that is politically unstable. The Philippines is fighting a two fronts insurgengy war: the New People’s Army and the Al Queda supported insurgency. I will not invest my money, where the risk factor is too high.

    Amending laws is not the solution. Deal first, with the insurgencies; kidnap for ransom gangs.

  17. Island-thinking or the feeling of isolation is very strong in the Filipino mentality. Perhaps this is the reason why Filipinos will not compete in the global market. Perhaps, we should organize a daily trip for Filipinos who do not have the chance to travel abroad and see the difference of quality life and living between a foreign land and the Philippines, so as to have them understand the pace of economic changes.

    Lucky are those who had and have the chance to go abroad. With the experience comes the knowledge thus the experience. It is very difficult to convince a Filipino that life and living can be different abroad because they cannot see and observe it himself.

    I remember when I took care of a Filipino delegation to the 2005 World Youth Day, the Filipinos who were first-timers abroad were awed of the progressiveness and beauty of Cologne, Germany. Somebody uttered:
    “…kaya pala tayo tinawag na Third World Country….”

  18. Seems that this island-thinking is another manifestation of Da Pinoy’s misplaced pride. It’s like the Philippines was shouting to the world, “we don’t need you! We can do well enough on our own!” Then later on, Filipinos flock to other countries looking for jobs, because we never did well enough on our own.

    Haha, those Filipinos you guided during World Youth Day really got a rude awakening.

  19. Mike H permalink

    Food-self-sufficiency is a Noynoy campaign promise!!!!

    Oh, wait. That was FPJ’s, while Mar Roxas said “…no more rice importation during Noynoy-Roxas admin.”

  20. Hyden Toro permalink

    Do you believe in Political Promises? How many times our Politicians have not delivered what they had promised? And, you still believe in them?

    Noynoy Aquino and Mar Roxas are both Hacienderos. If they Land Reform their Haciendas within a month; I will give them the benefit of the doubt.

  21. Hyden Toro permalink

    China has the innate ability to produce Entrepreneurs. Remember, in the old days: they call themselves, the Middle Kingdom. They monopolized the SILK TRADE. Silk was exported to Europe and Middle East thru the Silk Route. The ruins of the Old Silk Route are still there. Their commercial ships plied the Pacific Ocean carrying ceramic products and others. They even traded with ancient Filipinos.

    Commerce and business are in their culture. They are just awakening to the awareness of who they are. After many years of Communism.

  22. Hyden Toro permalink

    We cannot eat slogans. Nor, can we solve our problems by slogans. We are a very sick nation. The only way, we can heal ourselves: is to accept the REALITY of ourselves.

  23. Hyden Toro permalink

    This is the reason, I’m sharing my views with you, on this Blogsite. I am exposed to the cultures and ways of lives of other countries in the world. I’ve observed the differences. Not only in North America, South America, Asia, Europe and Middle East. But, thruout the world.

  24. Hyden Toro permalink

    The BARBARIANS are shouting at the Gate. “Open the Gates?”, is your good command?

  25. Joe America permalink

    mel,

    Interesting perspective. It takes getting hit with a brick in the head sometimes to get the old noggin cranked up. I agree that we don’t know what we don’t know, and most Filipinos are completely oblivious as to why foreigners sometimes seem so cranky about what they have to deal with here.

  26. Kuliglig permalink

    Filipinos are actually very marketable internationally, at least as employees. Anyways, why do our govt and everybody here keep on focusing on service oriented economy? It’s a remedy and not a sustainable solution.
    We don’t need foreign investors making monkeys out of us on BPOs. We don’t need a foreigner investing in a spaghetti restos just so he can hire us as waiters in our own land. What we need to do is to invest in ourselves, make things for ourselves.

  27. @Kuliglig

    I think we need both. We can go to other countries and open our Filipino restaurants, too, employing their locals also. In that way, there will be mutual relationships.

    For a Filipino to invest, he needs capital and that is the main problem. We need foreign help but it does not mean that we have to lower ourselves to them but we have to respect the win-win relationship. We cannot always take and not give.

  28. Monk permalink

    Will no longer matter:

    “US military warns oil output may dip causing massive shortages by 2015”

    http://www.guardian.co.uk/business/2010/apr/11/peak-oil-production-supply

  29. Next frontier is renewables – first economy to come up with viable cost-effective green technologies will lead the pack – based on current attitude – instead of investing in people who can develop and spread the technology in the Philippines – pinoys will be contented with buying it from a company allied either with Tan, Lopez, Cojuangoc – for a hefty prize – then complain about western domination. here’s the point – people who don’t take control of their lives will be controlled by someone else. compete and thrive.

  30. Hyden Toro permalink

    Renewables in the form of: solar energy, wind turbines, garbage burned to produce energy, etc…are just some of the good energy alternative sources. There is an energy source being researched, that will be better. It is clean, safe and available in abundance. It will come sooner, rather than later…Remember energy sources came from : Wind in the form of windmills; flowing water in the form of hydro; coal in the form of steam engine; oil in the form of diesel and internal combustion power; then finally : nuclear energy from the power of the atom. We will find another source…this will make our survival as species secured. It is on the way…

  31. Dragoon permalink

    Collapse is imminent if the Philippines doesn’t starting competing at the global level.

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