|
Governing
Through the Private Sector
By Michael Alan Hamlin
March 22, 1999
"Estrada runs the economy through
the private sector, which is a good policy," Philippine management
icon Washington SyCip says in the March 19 issue of Asiaweek magazine.
But the brouhaha over Administrative Order (AO) 58 begs the question,
"What private sector? The one that will keep the economy mired
in the past, or the one that can lead us into the future?
The private sector that is responsible
for these murky shenanigans — that would have required importers
of petrochemical and plastics products to obtain permits from their
domestic competition — is certainly distressed. But why? For
two reasons, one legitimate and one wholly illegitimate. Legitimately,
these sectors must contend, for example, with the second-most-expensive
power costs in Asia, and regional currency devaluation has made
it easier for more efficient manufacturers to undercut local producers.
The illegitimate reason has to do
with the inefficiency of the Philippine sector. AO 58 would have
removed market pressure to improve efficiency and productivity by
allowing local manufacturers represented in the Economic Mobilization
Group to disapprove applications to import product at lower costs
than those attainable locally on the grounds that foreign producers
were dumping output. This would be a classic case of the screwing
of the Filipino consumer.
There’s another reason why AO
58 is an incredibly dumb idea. There is another private sector that
has accepted the challenge of liberalization and globalization and
is responding effectively without government help. Fact is, well-run
companies don’t usually want anything to do with the government.
It’s easier to deal with market forces, as long as government
provides a level playing field. And they’re big boys that don’t
have to go crying to government cronies for protection.
What is the message that AO 58 sends
to these private sector performers? The message is that performance
doesn’t count. The message is that if you do screw up, government
will be around to protect you and sustain your uncompetitiveness.
The message is that government is not interested in developing world-class
industry.
Take, for example, Jollibee, the
fantastically successful Philippine fast food chain that has humiliated
McDonald’s not just once, but twice. Both Jollibee and Greenwich
Pizza outrank the multinational competitor in the local market.
Jollibee’s success has been widely reported not just locally,
but internationally, and consistently.
In response — and no doubt determined
to relieve its humiliation — a rejuvenated McDonald’s
has proclaimed war. McDonald’s will provide US$55 million to
its local franchisee, George T. Yang, to dramatically expand its
store network. And, McDonald’s will work with Mr. Yang to develop
new products that appeal to local tastes, which has been key in
Jollibee’s success.
Can you imagine Tony Tan lobbying
the government to protect him from big, bad McDonald’s on the
basis that he can’t compete with the funding a global multinational
firm can generate? No, of course not. Mr. Tan will respond to the
McDonald’s threat in a business way. Government won’t
hear a word from him.
Let’s take a more complicated
example, telecommunications. Although this sector has been deregulated
and liberalized, government continues to actively supervise compliance
with obligations evolving from the commitments of the sector’s
players to develop landline networks, the infamous local area network
service scheme. Phone companies can set prices, but government has
some say in the matter of metering, mostly for political reasons.
Smart Communications destroyed the
entrenched competition — PLDT’s severely distressed affiliate,
Piltel — almost overnight in enterprise terms by providing
low prices. There’s nothing particularly enlightened about
that, however. Anyone could have run stodgy Piltel into the ground.
The point is they were allowed to do so because government was determined
to nurture competition, not inhibit it. Smart’s real success
factor is not its marketing savvy or service standards, but its
financial controls. It carefully manages credit lines and monitors
payments. Failure to do that is what got Globe and Piltel into trouble
(Piltel’s landline-associated debt made the problem much worse.).
Next, consider consumer products
and food processing. RFM Group’s Selecta and Cosmos brands
have done well in extremely competitive, low-margin sectors dominated
by large domestic players and multinationals. Selecta is the number
one selling ice cream. Cosmos, although Pepsi disputes the claim,
is the number two soft drink beverage after Coke.
Did RFM achieve these successes by
whining to the government? Of course not (At least in the case of
Jose A. Concepcion III, president & chief executive officer.
That’s not always the situation with his well-meaning relatives,
of course.) In the case of Selecta, RFM retained its unique packaging,
further improved the product, and extended its distribution network.
With Cosmos, after initially trying to compete on supermarket shelves
with Coke, RFM turned to its traditional network, sari-sari stores,
to capitalize on the benefits of a cash-based value chain. Cosmos
does well in large part because there are no receivables and no
float.
In response to tougher market conditions,
the need to acquire new technology, and the thirst for financial
resources for expansion, the group has embraced the market by taking
on a new strategic partner, Unilever, to help consolidate and expand
the Selecta success story. Other strategic partnerships are likely.
Strategic partnerships are not the
only thing that Mr. Concepcion is doing to sustain and enhance competitiveness.
The group has always mostly avoided the temptation to grow by sucking
up unrelated businesses. RFM is highly focused on food, and I’m
told that this focus will further tighten over the next few years
as the group builds for the future.
The point is that the Philippines’
best managers don’t need government’s help, only its support.
That support should be in the form of a level playing field and
a commitment to competition in the interest of the consumer. Companies
and managers that can’t get with the program don’t deserve
protection that accomplishes nothing more than sustaining mediocrity
for personally selfish ends.
Copyright © 1999 The Events
& Awards Managers of Asia and
Hamlin-Iturralde Corporation. All rights reserved.
|
