News Analysis Trade

Edge ahead or edged out

Business Innovation, 2017-18 Global Competitiveness Index

Over the course of our Infographics’ series we’ve regularly referred to the entrepreneurial talent, the tech-savviness and the innovative spirit of the Filipino people. The problem is that too much of that remains latent – it’s never been given the oxygen to let it breathe and grow. In large part, the blame for this can be laid at the door of successive governments; though an intransigent private sector – one that’s traditionally feared and shunned competition – can also shoulder a good part of the blame.

The fact is that in today’s global world, free-market competition is everywhere. It’s unavoidable and the old protectionist practices won’t work anymore. That way lies the sure road to diminishing returns. Tariffs, trade barriers, import quotas, national patent laws like monopolies, duopolies and cartels, with their scope to price-fix and gouge, kill free markets. And, in time if left to their old devices, they’ll achieve for trade and commerce what the Maya people of Mesoamerica did by cutting down their trees. They’ll reap their own destruction.

And so both government and the private sector – if economic growth is to be achieved; if companies and corporations are to survive; indeed flourish – must appreciate the true and present nature of the business beast. It lives and falls by competition. In this fight, to put it crudely, contenders that aren’t up to it will spend most of their time on the canvas or getting patched up.

Some of this is explained in the 2017-18 Global Competitiveness Index, produced by the World Economic Forum – a comprehensive study that rates the relative competitiveness of 138 countries world wide. Here, we look at the final two pillars of this analysis – ‘Business Sophistication’ and ‘Innovation’.

We’ve extracted from the full report the results for the states of the Association of Southeast Asia Nations (Asean) to show where the Philippines ranks in the context of its peer group. Asean member, Myanmar, is not covered in this survey. Rankings shown are the global positions of these countries. So here are those results.

‘Business Sophistication’: Singapore, 18th; Malaysia, 20th; Indonesia, 32nd; Thailand, 42nd; Philippines, 58th; Laos, 89th; Brunei, 92nd; Vietnam, 100th; Cambodia, 106th.

‘Innovation’: Singapore, 9th; Malaysia, 22nd; Indonesia, 31st; Thailand, 50th; Philippines, 65th; Vietnam, 71st; Brunei, 80th; Laos, 81st; Cambodia, 110th.

We believe, in terms of Business Sophistication, that the Philippines should be further forward in this league. According to the analysis, however, its biggest problem is that its competitive advantage is weak; it places 94th for this indicator. What that actually means is that the Philippines lacks sufficient creative and innovative capabilities to get in better contention with the region’s leaders. Certainly, it shouldn’t be trailing its neighbour, Indonesia, by 34 places. But then when we look, we see that Indonesia’s competitive advantage gets a world ranking of 47th – that’s a 48-place lead.

Similarly, in terms of Innovation, the archipelago shouldn’t be such a distant fifth in the regional grouping. A large part of the reason for why it is, however, is the prolonged government failure to invest in the building blocks of innovation.

For example, the two criteria which drag the Philippines down are (a) government procurement of advanced technology products where it came 91st and (b) the quality of scientific-research institutions where it ended up 75th. Neighbour Indonesia posted rankings for (a) 40th, and (b) 12th. Frankly, that looks inexcusable.

The problem successive Philippine governments seem to have had is that they’ve attempted to build an infrastructure conducive to generating greater business sophistication and innovation out of thin air. Either that, or they’ve never grasped their importance as tools of competitiveness. In any event, historically, they’ve failed to invest in them.

The result of that foolhardiness had meant that the Philippines is now in a perpetual state of catch-up – when in fact, had proper investment been made available earlier, it would now be towards the forefront of the region in these areas.

Business today is complex – it’s not about selling flip-flops from a market stall; its about sophisticated manufacturing processes, goods-to-market logistics; innovative high-speed advanced technologies; and a whole matrix of algorithms for calculating efficiencies in all aspects of the production and vending chains. It’s about getting an edge and pressing the advantage. It is, then, a driven competitive world of winners and losers.

The battle for business is like any battle – you enter it to win. But in order to do that you need well-trained troops, adequate resources and batteries of support to secure the high ground. Let’s just return to the issue of competitive advantage for a moment. Innovation provides this; but in so doing it also automatically reduces the competitive advantage of competing countries and competing companies. Thus, with each advance there’s a corresponding retreat.

It’s not a victory, however, that can be won by political rhetoric. If it was, from the sheer volume of moving speeches delivered by the political class on the Philippines’ business prospects over the past decades, the Philippines would already be leading Asean.

It needs more than words; it needs taking very seriously by the political class; it needs their thorough commitment; it needs an unshakeable political will; it needs investment. And it needs the same from the private sector, too.

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