How Open FDI Can Help Tatak Pinoy Bill Reach Its Objective for Better Filipino Businesses
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| Net25.COM |
When we came up with our Tatak Pinoy or Proudly Filipino advocacy in 2019, the overarching goal was to transform the Philippines into a progressive and vibrant economy, to help Filipino entrepreneurs and industries become more competitive, and to provide our people with more opportunities to make a good living without the need to go overseas. Our starting point and foundation was the Atlas of Economic Complexity developed by Drs. Ricardo Hausmann of Harvard University and Cesar Hidalgo, formerly of the Massachusetts Institute of Technology and now with the University of Toulouse in France. In evaluating economies, they found that countries that produce more diversified and sophisticated products grow faster and are able to sustain their growth over longer periods of time.On the surface, Tatak Pinoy may appear to be a purely export-oriented endeavor since a lot of what it espouses is the development of Philippine goods and services to become globally competitive. But it is also about looking outwards—learning what we can from the rest of the world and putting such knowledge to good use, for our benefit. We can learn a lot studying the best practices of other countries and then determining which elements can be applied here.During our committee hearings on the Tatak Pinoy bill, Director Francisco “Jun” Santiago of the Department of Migrant Workers shared his experiences as an OFW for 13 years, particularly on the impact being made by Filipinos working in multi-million dollar industries in various fields. Director Santiago aired his frustration at how Filipino professionals have made their marks in the countries where they are based but cannot do the same for the Philippines. He explained that there are barriers in the way of these OFW professionals to work in the country such as licensure and certification requirements. In the Middle East where he was based, he noted that most of the safety engineers stationed at construction sites were Filipinos. Their expertise is clearly recognized and sought after there but once they decide to come home and work here, they realize that the transition is not that easy.Director Santiago was on point in saying that these Filipino professionals working overseas are valuable assets that the Philippines can utilize. They hold knowledge and experience on best practices and technologies utilized by the world’s biggest companies and they can transfer this to us practically for free given the opportunity to do so. According to Santiago, we have to harness the full potential of Filipinos exposed overseas. We cannot continue to make other countries progress and fail to do the same for the Philippines.The Department of Trade and Industry’s Design Center of the Philippines recently announced its partnership with the Hasso Plattner Institute (HPI) School of Design Thinking for the establishment of the Design Thinking Academy + Policy Lab to help cultivate innovation-driven governance. We are now faced with a rapidly transforming landscape in business and as such, embracing innovation and learning to adapt quickly becomes critical to ensure continuous growth and escape obsolescence. The HPI School of Design Thinking is a European hub for design thinking education and its head, Professor Ulrich Weinberg, who was in the country for the ceremonial signing of a declaration of support with the Design Center of the Philippines, co-founded the Global Design Thinking Alliance. Learning from the brightest minds of the world will be for our benefit as we make our way towards becoming globally competitive and among the ranks of the most vibrant economies in the world.In line with these efforts to gain knowledge from outside, we filed Senate Bill 1614 or the proposed Pensionado Act to assist employed or self-employed, exceptionally-abled and highly motivated individuals to undertake advanced studies in a branch of science, technology or related fields of learning overseas through fellowships and scholarships. The idea is for the beneficiaries to contribute in the brain gain for national development.In recent weeks, we also saw the signing of an agreement between Atmo Inc., a leading artificial intelligence meteorology company and the Department of Science and Technology and a memorandum of agreement between U.S.-based Astranis Space Technologies and Philippine-based satellite firm Orbits Corporation. The first involves building a high-resolution weather forecasting system for the Philippines using AI. The latter involves the launch of two internet satellites to be called Agila in order to provide internet connectivity to 10 million users in 30,000 communities in the country.It is our hope that for every agreement such as these that come into the country, we would endeavor to actively learn from these investments and apply the knowledge we gain for our benefit. Technology transfer should become a habit, not just for businesses, but for our policymakers. This is what we mean by Tatak Pinoy being focused on expanding the productive capabilities of our economy. (sensonnyangara@yahoo.com| Facebook, Twitter & Instagram: @sonnyangara)
If the quest is really to improve Filipino products, the solution has never been more protectionism. Instead, we need to really look at some of the things worth pointing at. Sure, I'm glad to hear that someone in Harvard namely Hausmann is involved. It's pretty much like how the late Lee Kuan Yew hired the late Albert Winsemius. However, what still ticks me off is just thinking of Senate Bill 1614 which says, "to assist employed or self-employed, exceptionally-abled and highly motivated individuals to undertake advanced studies in a branch of science, technology or related fields of learning overseas through fellowships and scholarships"
We can take a look at Singapore again to help make "Tatak Pinoy" a productive program
Pages 57-58After several years of disheartening trial and error, we concluded that Singapore's best hope lay with the American multinational corporations (MNCs). When the Taiwanese and Hong Kong entrepreneurs came in the 1960s, they brought low technology such as textile and toy manufacturing, labor-intensive but not large-scale. American MNCs brought higher technology in large-scale operations, creating many jobs. They had weight and confidence. They believed that their government was going to stay in Southeast Asia and their businesses were safe from confiscation or war loss.I gradually crystallized my thoughts and settled on a two-pronged strategy to overcome our disadvantages. The first was to leapfrog the region, as the Israelis had done. This idea sprang from a discussion I had with a UNDP expert who visited Singapore in 1962. In 1964, while on a tour of Africa, I met him again in Malawi. He described to me how the Israelis, faced with a more hostile environment than ours, had found a way around their difficulties by leaping over their Arab neighbors who boycotted them, to trade with Europe and America. Since our neighbors were out to reduce their ties with us, we had to link up with the developed world-America, Europe, and Japan-and attract their manufacturers to produce in Singapore and export their products to the developed countries.The accepted wisdom of development economists at the time was that MNCs were exploiters of cheap land, labor, and raw materials. This "dependency school" of economists argued that MNCs continued the colonial pattern of exploitation that left the developing countries selling raw materials to and buying consumer goods from the advanced countries. MNCs controlled technology and consumer preferences and formed alliances with their host governments to exploit the people and keep them down. Third World leaders believed this theory of neocolonialist exploitation, but Keng Swee and I were not impressed. We had a real-life problem to solve and could not afford to be conscribed by any theory or dogma. Anyway, Singapore had no natural resources for MNCs to exploit. All it had were hard-working people, good basic infrastructure, and a government that was determined to be honest and competent. Our duty was to create a livelihood for 2 million Singaporeans. If MNCs could give our workers employment and teach them technical and engineering skills and management know-how, we should bring in the MNCs.
Page 66
Our job was to plan the broad economic objectives and the target periods within which to achieve them. We reviewed these plans regularly and adjusted them as new realities changed the outlook. Infrastructure and the training and education of workers to meet the needs of employers had to be planned years in advance. We did not have a group of readymade entrepreneurs such as Hong Kong gained in the Chinese industrialists and bankers who came fleeing from Shanghai, Canton, and other cities when the communists took over. Had we waited for our traders to learn to be industrialists we would have starved. It is absurd for critics to suggest in the 1990s that had we grown our own entrepreneurs, we would have been less at the mercy of the rootless MNCs. Even with the experienced talent Hong Kong received in Chinese refugees, its manufacturing technology level is not in the same class as that of the MNCs in Singapore.
Pages 68-69
If I have to choose one word to explain why Singapore succeeded, it is confidence. This was what made foreign investors site their factories and refineries here. Within days of the oil crisis in October 1973, I decided to give a clear signal to the oil companies that we did not claim any special privilege over the stocks of oil they held in their Singapore refineries. If we blocked export from those stocks, we would have enough oil for our own consumption for two years, but we would have shown ourselves to be completely undependable. I met the CEOs or managing directors of all the oil refineries-Shell, Mobil, Esso, Singapore Petroleum, and British Petroleum on 10 November 1973. I assured them publicly that Singapore would share in any cuts they imposed on the rest of their customers, on the principle of equal misery. Their customers were in countries as far apart as Alaska, Australia, Japan, and New Zealand, besides those in the region.
This decision increased international confidence in the Singapore government, that it knew its long-term interest depended on being a reliable place for oil and other business. As a result, the oil industry confidently expanded into petrochemicals in the late 1970s. By the 1990s, with a total refining capacity of 1.2 million barrels per day, Singapore had become the world's third largest oil-refining center after Houston and Rotterdam, the third largest oil trading center after New York and London, and the largest fuel oil bunker market in volume terms. Singapore is also a major petrochemical producer.
To overcome the natural doubts of investors from advanced countries over the quality of our workers, I had asked the Japanese, Germans, French, and Dutch to set up centers in Singapore with their own instructors to train technicians. Some centers were government-financed, others were jointly formed with such corporations as Philips, Rollei, and Tata. After 4 to 6 months of training, these workers, who were trained in a factory-like environment, became familiar with the work systems and cultures of the different nations and were desirable employees. These training institutes became useful points of reference for investors from these countries to check how our workers compared with theirs. They validated the standards of Singapore workers.
The Singapore academe would be a good help to help in the "Tatak Pinoy" program
With Singapore in mind, that's why I must ditch Atty. Hilario G. Davide Jr. about economics in favor of Kishore Mahbubani. Mahbubani doesn't just say things out of the blue. Mahbubani also backs them up. Mahbubani was the founding dean of the Lee Kuan Yew School of Public Policy (LKYSPP) at the National University of Singapore. Davide Jr. is often quoted by those against constitutional reform. However, I don't see other nations impressed by Davide Jr. and asking for his advice. Instead, people went to Singapore to learn. Mahbubani, as a policymaker and former UN diplomat, can clearly give better advice.
That's why I always insist that the 1987 Constitution of the Philippines' diehard apologists must try to prove the LKYSPP wrong (read here). We need to think that Mahbubani still exists as one of the biggest global thinkers. It's a shame that Davide Jr. was a former UN diplomat yet he believes that open FDI will turn the Philippines into a colony of businessmen. I could imagine how things would be if Davide Jr. had a debate with Mahbubani aired on live TV and said that? Maybe, both UN diplomats spoke to each other at one point. Maybe, Mahbubani walked away seeing Davide Jr. had been incorrigible about his stand.
I would recommend that the Philippine Senate should get the expertise of Mahbubani, not Davide Jr. I can't be sure about Davide Jr.'s health right now. What I can be sure of is that Davide Jr. has been wrong in many of his statements about the "sacred" 1987 Constitution of the Philippines. Sure, it's going to get a lot of rude racist jokes such as Mahbubani is that "Mabahong Bombay" or "Stinky Indian". However, none of the racist anti-Indian jokes are going to really help the Philippines rise up. Instead, Mahbubani would recommend what Davide Jr. may not recommend. That is, he might say, "For the Philippines to achieve better products, bring in the competition and Filipinos will either evolve or perish."
Some good old competition should help "Tatak Pinoy" Bill become more effective
For "Tatak Pinoy" to become a reality--it must be all about facing competition. It's also rooted in the idea that Filipinos must stop trying to do everything themselves and learn new things. Instead, one can think of Jollibee with how the limited FDI back then, kept Jollibee in check. Just think that "Tatak Pinoy" can learn from this experience with Jollibee:
In business, there’s nothing like a little healthy competition to keep you motivated.
Only, for brothers Tony Tan Caktiong and Ernesto Tanmantiong, that healthy competition came early on — in the sizable form of fast food icon McDonald’s.
It was then 1981 and the brothers were just setting out on the ambitious dream of creating a fast food empire in their native Philippines when McDonald’s arrived in town and threatened to consume the market with its vast appetite for international expansion.
Jollibee had already grown substantially from what started in 1975 as an ice cream parlor in Quezon City, just outside of the capital Manila. But, with just a couple dozen fast food outlets scattered across the fractured archipelago, it was a small fry next to McDonald’s thousands of branches in the U.S. and international markets.
That annoying overweight guy on Facebook dared to say that protectionism helped Jollibee. Well, he better try and tell it to the Tan brothers. Both Tan Caktiong and Tan Tanmantiong went all-out and faced McDonald's. They were once a little company. This reminds me of what the late John Gokongwei Jr. said. Gokongwei Jr. was told by his maternal grandfather that every big company was once small. Jollibee was once small when it faced off against McDonald's.
Rather than cower, the Tan brothers really knew that competition keeps businesses motivated. To establish "Tatak Pinoy", this is what the Tan brothers even went through:
Indeed, friends told the pair as much, and advised them to retreat from the challenge, Tanmantiong revealed in a recent episode of CNBC’s “Managing Asia.”
“When we learned that McDonald’s was coming into the country, friends were telling us to shy away from the competition — do (like) other businesses and to not try confronting the global giant,” Tanmantiong, Jollibee’s president and CEO, told CNBC’s Christine Tan.
But Tan Caktiong refused to hear it, Tanmantiong explained. Instead, the then-28-year-old founder called the business together to form a plan of attack.
“What we did was to have a strategic planning internally,” said Tanmantiong.
“We did a SWOT analysis on our strengths, our weaknesses and what the gaps were,” he continued, referring to a common analysis technique which aims to assess a business’ strengths, weaknesses, opportunities and threats.
While McDonald’s benefited from economies of scale and decades’ more experience, Tanmantiong said they identified one major area in which the U.S. giant could not compete: Taste. Filipinos tend to favor sweeter and spicier flavors, he said, and it would be difficult for McDonald’s to adapt to that without hurting the iconic American taste for which they had become famed.
Instead of whining, the Tan brothers knew what they had to do. They identified the weakness of McDonald's and went for a more Filipino taste. The rule of thumb is to innovate or perish. That's where the Tan brothers knew what they had to do. By creating the Filipino flavor, Jollibee managed to succeed in the Philippines. Eventually, Jollibee became a global franchise. No, Jollibee isn't conquering other nations but it's now bowing down to other nations. It's because the rule of thumb of international business is to follow the local laws where you do business. Investment isn't invasion and I wonder why some people still think they're synonyms?!
A study of world-class products will tell you how competition benefited them. I doubt that McDonald's would be the global chain it is if it wasn't for competition. The same goes for my other favorite imported brands like Chatime, Gong Cha (which now has its headquarters in London), Kentucky Fried Chicken, Tealive, and many more all endured competition in their country. Now, McDonald's must face Jollibee on a worldwide scale. Both Jollibee and McDonald's will continue to be competitive against each other. Some Filipino businesses have learned to be better thanks to some competition.
I think about a lot of imported stuff I have at home. I could think of how my electronic devices come in different names. There's Samsung vs. Sony. We can also name how Xiaomi and Huawei are Chinese electronics. Communist China has allowed foreign firms to directly compete with their local businesses. Those are the fierce results of the competition. I guess that's what the now-defunct Philippine Anti-Fascist League failed to get about Communist Vietnam. Could Vietnam ever get its products involved in the world market if it didn't practice Doi Moi? Vietnam became open to FDI and guess where it is now.
How FDI can help Philippine agriculture needs to be addressed
To have proudly Philippine exports, we can talk about how FDI has helped agriculture. It's a concern that Filipino economist Andrew J. Masigan wrote in the Philippine Star:
In agriculture, banning foreigners from participating in the farm sector deprived us of new technologies to increase production and improve our logistics chains. So many farmers could have been lifted out of poverty with foreign infusions.
I may have a different political view than Masigan but I love quoting the guy. The guy has presented several studies that Filipinos badly need to hear. Even Atty. Maria Leonor Gerona-Robredo has been vocal about amending the "sacred" 1987 Constitution of the Philippines, for the sake of investments.
Back to agriculture, I wrote about Vietnam's great leap forward in agricultural production. I still laugh at how the now-defunct PAFL still insists on Vietnam being protectionist. Can they really even prove their claims at the University of Economics-Ho Chi Minh City (UEH)? They might even get arrested and sent to the concentration camp if they did. The Vietnam Briefing gives this insight on how FDI helped Vietnamese agriculture:
Foreign investment in Vietnamese farms
As far as investment goes, plant-based agriculture does not carry any conditions for foreign investors. The establishment and registration of a foreign company wishing to invest in agriculture simply needs to comply with the standard investment, enterprise, and company laws.That said, the 2013 Land Law, does not permit foreign investors to acquire land to build farms in Vietnam. Therefore, in order to establish a farm in the country, foreign investors can only rent the land. To do this they must establish a foreign invested enterprise, either alone or with a local partner.Foreign investors and local partners may enter into an investment cooperation agreement in either the form of a joint-stock company or a limited liability company. They can also enter into a Business Cooperation Contract without having to establish a legal entity in Vietnam.
Foreign investors in Vietnam’s agricultural sector
A number of foreign investors are already making headway in Vietnam’s agricultural sector and many of them have been operating in the country for quite some time.
With the aforementioned limits on land ownership for foreign investors, international firms tend to be concentrated in either ancillary services or high-value goods, such as nuts, coffee, or fresh cut flowers.
Three firms that have been relatively successful in the Vietnamese market are Cargill, Olam, and the Louis Dreyfus Company.
A big difference is that Vietnam's FDI restrictions in certain sectors are way more tame than that the Philippines has (read here). Here are some important rules on certain sectors that disallow 100% FDI share ownership:
Article 8
Capital contribution of a foreign party or foreign parties to the legal capital of a joint venture enterprise shall be agreed by the parties and shall not be limited provided that the contribution is not less than thirty (30) per cent of the legal capital, except in cases stipulated by the Government.
In the case of a multi-party joint venture enterprise, the minimum capital contribution to be made by each Vietnamese party shall be determined by the Government.
With respect to important economic establishments as determined by the Government, the parties shall agree to increase gradually the proportion of the Vietnamese party's contribution to the legal capital of the joint venture enterprise.
Article 16
The legal capital of an enterprise with foreign owned capital must be at least thirty (30) per cent of its invested capital. In special cases and subject to approval of the body in charge of State management of foreign investment, this proportion may be lower than thirty (30) per cent.
During the course of its operation, an enterprise with foreign owned capital must not reduce its legal capital.
Instead of 60/40, they don't have that caps of up to 40% only. Instead, they require a minimum of 30% ownership which they can have at least 50% or even higher. Sure, these certain industries may not ultimately be 100% owned by the MNC, but it's still more flexible. It would require some partnership but it's a lot more flexible. I assume that most joint ventures in Vietnam are probably 50/50 when it comes to the Vietnamese partner and the MNC. Agriculture, hunting, and other forestry-related services don't allow 100% ownership. Still, it's more flexible to have a joint venture in Communist Vietnam in contrast to the democratic Philippines. That's what I think Kathy Yap Yang of ABS-CBN may need to take note of.
If the Philippines can learn new farming techniques, it can certainly do better. There are so many natural resources left untapped. Okay, I'm not in for wanton usage but we can learn efficient use of them from foreigners. After drinking Tealive, I really got curious to search for palm sugar. One of the greatest examples of FDI helping in agriculture is the Masarang Foundation from Indonesia (read here). Just imagine if Masarang Foundation opened in certain areas to help develop Mindanao. It would be helpful as well to the Bangsamoro Region. That's why I even advocated that Tealive needs to open at the Bangsamoro Region (read here).
This, in turn, can develop agricultural production for the Philippines to both supply and export of raw materials. Filipino businesses will have to import less raw materials, except those that are currently scarce or not available in the Philippines. The Philippines could use environmentally friendly imported technology to improve agricultural products. The only times importation will happen are during times of scarcity. Otherwise, any improvement in agriculture would really do marvels. It would help the Philippines once again be on top of agriculture.
Closing words
“You got on the one hand, the Open Free Market System in America, you have on the other hand, the exact opposite, the closed, controlled, command economy of the Soviet Union, Communist Russia…
The Chinese tried the Communist model, with their own modifications, and it failed! And they have admitted that it failed, and they’re trying to pick up the same competitive spirit between workers, between different enterprises, which they noticed in Hong Kong, so they have opened a new town on the border with Hong Kong called “Shamchun” (Shenzhen in Cantonese) and they’re inducing Hong Kong entrepreneurs to go… and create employment!Dr. Lee Siew-Choh and Mr. Jeyaratnam talk as if these things have never happened. They haven’t learned!Deng Xiaoping is a great man… He fought a great revolution. He saw the product of that revolution turn sour. He was fortunate to live long enough and he had the courage to say “NO! WE CHANGE COURSE! LET’S LEARN! Let’s stop trying to do everything by ourselves.”So they started importing and buying Boeing 707’s. So they bought Tridents instead of trying to manufacture their own aircraft. Eventually they will but it would take 2, maybe 3 generations.That’s how we succeeded because we have open minds, common sense. A lot of analysis, careful weighing of the odds, make a firm decision, monitor it, implement it, modify as it goes wrong. ABANDON IF IT IS NO GOOD!But often… And I say this more out of relief than out of pride… Often, 8 times out of 10 we have been right… We’ve made mistakes… We put money in New Port in Jurong… Second hand machinery… We were young then… We were new in the game…They sold us second hand machinery, we didn’t know… We lost money… We wrote it off. But we learned…Mr. Jeyaratnam says we are obsessed with profits. I said YES! That’s how Singapore survives!We have no profit, who pays for all this?
You make profit into a dirty word, and Singapore dies.”
The Philippines' choice is now or never. If it wants Tatak Pinoy to work, national industrialization will just lead to failure. Follow the path that Singapore gave. Follow the economic reforms of great thinkers like the late Deng Xiaoping and the late Nguyen Duy Cong aka Do Muoi. Enough of Filipino Pride because it will not help solve poverty. Instead, it's Filipino Pride, not FDI, that ruined the spirit of the Philippines!
