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Building Philippine competitiveness

FORTUNE magazine recently called Harvard Business School (HBS) professor and competitiveness guru Michael E. Porter “the most famous and influential business professor who has ever lived.” Mr. Porter devised the “diamond model” of competitiveness, which companies all over the world rely on to develop competitive strategies. But his influence extends beyond corporate competitiveness. The Harvard icon has also written extensively on national competitiveness as well.

Mr. Porter and a number of his HBS colleagues are now deeply immersed in the HBS U.S. Competitiveness Project, an undertaking “unlike anything the school has attempted” with a specific goal: “making the U.S. more competitive.” Writing in FORTUNE with project co-leader Prof. Jan Rivkin, the two academics note that “America’s feeble economy reminds us every day that our global competitiveness is in trouble,” and they ask, “Whose fault is that?”

According to Messrs. Porter and Rivkin, everyone’s. They fault both government and the private sector for decisions that undermine U.S. competitiveness. Although the Philippine economy is growing and competitiveness is improving, it’s useful to examine the project’s recommendations and their relevance to the Philippines and the role of government and the private sector in building Philippine competitiveness.

(The day after my deadline, The World Bank and the IFC released a report ranking countries by ease of doing business, Doing Business 2013: Smarter Regulations for Small and Mid-Size Enterprises. The Philippines fell to 138 of 185 companies in the report, down from 136 of 183 companies in the previous report. Of the 10 categories, the Philippines scored more poorly in seven, Particularly notable was the number of procedures to start a business–16–up from 15 compared to Malaysia’s three. The Philippines fared much better in the World Economic Forum’s The Global Competitiveness Report 2012-2013, rising 10 places to 65 of 144 countries. In that report, the United States ranks 7th in competitiveness.)

Messrs. Porter and Rivkin and their colleagues say that at the heart of competitiveness are the communities—or commons—where companies operate and government’s role is to provide a conducive business environment. At the same time they note that “U.S. multinationals that expand faster abroad also tend to grow faster in America.” What do these things mean for the Philippines and Philippine companies?

Let’s take the commons first. Messrs. Porter and Rivkin fault U.S. firms for relying “passively on high schools, vocational-technical programs, community colleges, and universities to create a pool of skilled labor.” Internal training supplements skills learned in school, but companies are still having difficulty finding and hiring people with the skills they require despite record-high unemployment.

The project’s proponents argue that the private sector must become an active partner with the academic community to produce the kinds of skilled workers they require. The Philippines’ IT-BPO industry has been doing this for years, with collaborative efforts accelerating substantially during the administration of President Benigno S. Aquino III. Both industry and government have contributed resources to the joint effort.

According to executives of the Business Processing Association of the Philippines (BPAP), government has allocated approximately P800 million for a variety of educational initiatives that include training teachers; remedial instruction for individuals applying for IT-BPO jobs that involve voice services, software and game development, and creative services and animation; and, the introduction of new IT-BPO-focused university courses.

The private sector has contributed to developing the talent pool by designing curricula, seconding executives to educational institutions to teach students and prepare teachers to teach these courses themselves, and administering the programs with government. As a result of these collaborative efforts, almost 100,000 Filipinos will be impacted by the free training and education programs in 2012, and about 70% will be hired by the industry.

These efforts can be replicated in other industries, but companies in those industries must understand the value of high-performing, skilled employees. Too often, local firms prioritize cheap labor over employees capable of generating value and helping grow businesses. This is why retail employees don’t understand the products they sell, real estate agents typically add no advisory value, and firms that employ engineers complain that they don’t possess required skills.

Other ways to build the commons include upgrading support industries, supporting innovation and entrepreneurship, and bolstering regional strengths. “Beaten down to thin margins, suppliers often failed to invest in knowledge and innovation,” Messrs. Porter and Rivkin observe. They argue that successful companies offer ways to help suppliers improve their capabilities, finding “huge advantages” with excellent suppliers.

“Startups account for three percent of U.S. employment but 20% of job creation,” the HBS professors observe. Entrepreneurship is the Philippines’ Achilles’ heel in a society that is generally and profoundly risk averse, and government bureaucracy raises challenging roadblocks. Messrs. Porter and Rivkin cite the example of Intel in providing funding for research and collaboration in universities that fosters innovation, and its $10 billion invested in new ventures.

In the Philippines, PhilDev—an organization that seeks to foster technical entrepreneurship in the Philippines—is seeking on a much smaller but important scale to replicate Intel’s success.

Bolstering regional growth provides a multiplier effect on commons development, in which entire regions gain competitiveness in key growth industries, a theme Mr. Porter has been advancing for many years. The Information and Communications Technology Office collaborates with BPAP on somewhat similar initiatives, seeking to enhance competitiveness regionally.

Finally, Messrs. Porter and Rivkin note that reigning in self-interest is in organizations’ best interest. Special favors weaken, rather than enhance, companies’ competitive advantage. “Special permits, tax breaks, or regulatory exceptions distort competition,” they write. While I view investment incentives as a legitimate practice to attract investors, in general I agree that when companies get special treatment, competitiveness erodes.

And what of efforts to expand abroad by Philippine companies? For Messrs. Porter and Rivkin, that’s also a growth strategy at home.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on TwitterFacebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)