News Analysis Trade

Innovate or disintegrate

Entrepreneurship Innovation _ 2017 Global Entrepreneurship Index

On 2 May this year, the Philippine Senate approved the Philippine Innovation Act – a piece of legislation aimed at putting some muscle behind the country’s entrepreneurs and innovators. It will, according to its author, Senator Win Gatchalian, address the need for the country to “develop and maintain an innovative, strategic, and adaptive economy that is fully capable of sustaining inclusive growth over the next couple of decades”.

The corollary of that is that if innovation and its close cousin, entrepreneurship, are not developed in the Philippines, the economic potential of this sector cannot be tapped and they will make little or no contribution to economic growth.

Gatchalian referred to the Act as “a smart investment we need to make today in order to secure the bright high-income future of the Philippines”. And he’s right – but it’s going to take far more than that Act to build a sector that never seems to have been taken seriously. It’s going to need investment – and lots of it.

In research and development (R&D), for example – a vital component of this sector – the Philippines is one of the lowest spenders globally. In short, it can’t compete. It’s also desperately short of scientists and engineers – and to get that up to strength is not only going to take lots of money, it’s going to take lots of time too.

In fact, the infrastructure for the entire entrepreneur/innovator environment needs to be properly built from the ground up – world-class labs; a robust grants system to encourage a greater intake to the faculties of science, engineering and mathematics; competitive wages to stem the brain drain and entice scientists and engineers working abroad to return home, and the development of a culture that actually prizes those who come up with and develop new ideas.

Why all that’s necessary can be seen in the Philippine results for the 2017 Global Entrepreneurship Index (GEI) – an annual indicator supplied by the Washington-based Global Entrepreneurship and Development Institute. In this infographic we look at three areas – ‘Product Innovation’, ‘Process Innovation’ and ‘Internationalization’ – which form part of the GEI’s sub-index, ‘Aspiration’.

Here we explain those areas and show how the Philippines fairs in each of them. Although the GEI evaluates 137 countries world wide, for our purposes we’ve extracted just the 10 member states of the Association of Southeast Asian Nations (Asean); those forming the Philippines’ peer group and its major regional competition.

First, then, ‘Product Innovation’. Developing countries, like those of Asean, are able to produce new products – as well as reproduce or replicate old ones – far cheaper than there Western counterparts. Large young workforces operating at substantially reduced labour costs are the main reasons for this.

But before reaching the production stage, those new products have to have been conceived and designed. In other words, entrepreneurs must first identify the market need for them, and then innovators need to supply the know-how for how to bring them to market cost-effectively.

That doesn’t happen in a vacuum; it needs among other things, innovation and technology transfer – in other words, access to new ideas and methods of problem solving; part of ‘Networking’ which we covered earlier in this series.

In the area of ‘Product Innovation’, the Philippines does well. Take a look. Singapore, 0.66; Philippines, 0.58; Indonesia, 0.49; Thailand, 0.38; Brunei, 0.30; Vietnam, 0.30; Laos, 0.29; Cambodia, 0.25; Malaysia, 0.23; Myanmar, 0.21.

This clearly shows that, within its peer group, the Philippines’ ability to generate new lines of products and satisfactorily imitate existing ones shows great potential for the country’s entrepreneurial sector. This result, in fact, is reason enough for directing more investment to the country’s entrepreneurial sector as a whole – for everything from training to research and development (R&D) to paying the conceptualisers of those products well for their work.

And why that investment is needed can be seen in the Philippines’ score for ‘Process Innovation’.

Let’s look at the results first. Singapore, 1.00; Malaysia, 0.71; Thailand, 0.32; Indonesia, 0.20; Philippines, 0.20; Vietnam, 0.19; Myanmar, 0.15; Brunei, 0.08; Cambodia, 0.08; Laos, 0.07.

Although showing up midway in Asean, these are poor scores and don’t hold up well outside this region. But what they really show is that although the Philippines has the skills to come up with new products, it lacks the ability to innovate the processes for delivering them.

Process innovation requires dedicated R&D, and for that it needs, not just funding – which, as we’ve stated, it considerably lacks – but access to quality domestic scientific institutions as well as to well-qualified scientists and engineers. And the fact is, there aren’t enough of either of them in the Philippines right now. Without that support, however, the development and implementation of new technologies will be seriously handicapped.

Finally, ‘Internationalization’. This is a tricky metric which attempts to assess a country’s openness to international entrepreneurs. Why that’s important is that countries which are open to foreign entrepreneurs and innovators develop those sectors much more comprehensively than those that don’t.

A remark made after the US beat the Soviet Union to get the first manned mission to the Moon, sums up in a wry way the advantage of internationalisation. The remark, made by a US politician who’d pushed for funding for the project, was this: “Our German scientists are better than their German scientists”. In short, it’s space programme was internationalised.

In simple terms it’s like this. Someone who lives in a small village for all of his life has less opportunity to interact with large diverse groups than someone living in a city. In the former, new ideas don’t prosper so much where the pool of knowledge is limited. In the latter they flourish as new sources of knowledge constantly replenish the knowledge store.

Thus, domestic entrepreneurs who have access to international innovators and entrepreneurs in this way acquire for their skills greater internationalisation.

Here are the GEI scores. Singapore, 1.00; Brunei, 0.65; Malaysia, 0.38; Philippines, 0.15; Vietnam, 0.14; Myanmar, 0.12; Thailand, 0.09; Cambodia, 0.06; Laos, 0.06; Indonesia, 0.04.

Not impressive for the Philippines – and, in fact, there’s no good reason for it. This is an extremely outgoing society that thirsts for knowledge. We know it’s entrepreneurial and we know it has undoubted skills. All it needs is access to more knowledge. Filipinos can take it from there; they’re fast learners.

Conclusion. Building this project is a long-term endeavour; an entrepreneurial sector isn’t thrown up overnight. But it needs to start. The Philippines has the human resources, but it’s not been developing them. Hopefully, the National Innovation Council which was established by the Innovation Act, will now do that. Its first job is to prepare a long-term roadmap “based on innovation and coordination of such efforts in both the private and public sector through a National Innovation Agenda and Strategy Document”. We’ll be looking at that closely once it’s been produced.

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  • … i remember during PNoy’s time that there was a lady professor who produced a light powered by sea water… even former US President was impressed… she was asking for financial assistance then but it was the foreign company Alibaba offered and answered her needs… and now we haven’t heard of said product innovation again… to me, that was very frustrating… it was an opportunity because the product was something new and different from solar products yet the government just let it go.

    • We heard it too, but multinational companies reportedly bribed some cabinet men of pnoy, thus, they did not back it up. Same thing with many innovations of our genius fellow Filipinos, they could not penetrate the power of moneyed corporations. Remember, the Lopez clan is allied too with the aquinos.

    • What we had and still have are few rich and powerful families who have almost totally controlled the major aspects of our country. They have taken strangle-hold of us and their insatiable greed want them to keep it that way.

  • Since when has legislation changed anything?

    Fix the defective Constitution. As long as foreign investment is blocked by that defective document, this nation will not advance.