This paper offers a comprehensive competitive strategy analysis on the Philippine economy. It examines the local processes and industries in the light of 2023 economics, and adds insight into possible solutions moving forward with innovation.
The former Philippine President Ferdinand Marcos coined the name "the sick man of Asia", which the title of this paper also refers to. This description was due to the fact that the country, despite having key natural resources, a strong pool of talent, and opportunities to develop, many factors continue to hold it back from becoming globally competitive. The author argues that Marcos' nickname is still relevant today and lists several reasons for why the country has not yet succeeded.
The first part discusses the topic of inclusion, or rather the lack thereof. The concept of inclusion here means the economic gains and opportunities are equally accessible to all citizens. While the Philippines are doing quite well according to their GDP, domestically the country deals with high povery rates and a huge financial split through the society. In the second part of the paper, the author analyzed the impact colonialisation has had on the country and its understanding of trade and import and export. In the last step, the author discusses industries and processes that carry potential and opportunities for innovation.
The Sick Man Can Become Strong: A Paper on Philippine Competitive Advantage
The Philippines is an interesting place. Economics wise, you would often find the country at the top or upper echelon of GDP growth rates. In 2022 alone, its GDP was a high 7.5%, with an expected growth rate relaxing down to 5.5% in 2023 as the economy revitalizes after the post-pandemic recovery (Salting, 2023). The Philippines is a prominent exporter of many products for the world market including electronics, oils, and agricultural goods (“Top Philippines Products for Export,” 2022). In terms of development, there is no shortage of examples. The Philippine Arena is the world’s largest indoor arena; SM Megamall is the world’s largest shopping mall in terms of commercial space; cityscapes such as BGC continue to define urban innovation, and world-class airport and infrastructure projects across the nation imply relentless development (de Vera, 2014; Savills, n.d.; “Resilient and Livable Asian Cities”, n.d.; The World Bank, 2022). In the Philippines, there is no shortage of fun things to do and places to go. Situated in the heart of one of the most biologically diverse regions in the world, the country is lined with 36,209km of world-class coastline, the world’s most diverse marine ecosystem, 7000 islands, 861,000 hectares of lush forests, thousands of rolling hills and about 5,590,000 hectares of arable fertile land (“Philippines,” n.d.).
While the Philippines is indeed economically prosperous, it is far from inclusive. According to the Asian Development Bank (2021), inclusion is defined as a state wherein an economy’s gains and opportunities are shared by all. In other words, no citizen is left behind, and everyone has access to resources that enable self-reliance, development and growth. According to a survey conducted by the Department of Social Welfare and Development (DSWD) near the end of 2022, it was identified that 5.6 million Filipino families live in dire poverty. Given that the average size of the Filipino family is six persons, this translates to at least 33 million Filipinos living in perennial poverty, or about 30% of the currently 111 million Philippine Population (Cullen, 2023). In short, statistics reveal that three out of ten Filipinos are poor and hungry. Furthermore, according to Cullen (2023), the rich and politically powerful dynastic families with their relatives, cronies and friends, together with local and multinational corporations, continue to have a tight grip on the Philippine economy in which they strive to grow for their own benefit drawing on the labor of the poor underpaid Filipinos. The rich continue to grow richer and the poor poorer. Key oligarchs influence politics, control land, transport, infrastructure, financial services, businesses, and in return benefit the most from the people’s hard work (Bulaong, Mendoza, & Mendoza, 2022). Lack of climate resilience infrastructure in some regions ensure that it takes years to recover after getting hit by typhoons, children risk their lives crossing mountains and rivers just to get to school, the education system is in shambles, traffic is considered the eighth worst in the world, environmental degradation is showing its signs, and many are left hopeless if things will ever change (Dy, 2018; de Guzman, 2022). SWS surveys indicate that quality of life is mediocre at best, and that Filipinos have learned to live with the helpless situation; but for those very few with the option, migrating to or working in nations such Canada, Australia, Singapore, or the U.S. are often seen as the only escape (“To a Better Life: Filipino Migration through the Years,” 2018).
Despite key natural resources, a strong pool of talent, and opportunities to develop, many things continue to hold the Philippines back from becoming globally competitive - earning it the moniker of the Sick Man of Asia - a term first coined during the time of former President Ferdinand Marcos, but is still arguably relevant today.
People: The Philippine’s Greatest Asset and Opportunity
Regardless of the industry, nature of work or place, Filipinos are known to be an endearing and resilient people. They are hospitable, accommodating, hardworking, and productive which can be founded on strong family-oriented values of fellowship, respect and acceptance (Espinase, 2020). Because of this, they are typically preferred and sought after by foreign recruiters. This resulted in Filipinos having a majority share of certain job roles; around 30% of all seafarers in the world (boat captains, seamen, etc) are Filipino, and so are 2% of all nurses in the world (Brice, 2019). Among other job roles where Filipinos are very prominent include IT, engineering, and construction.
These competitive sets of values allow the Philippines a great potential for innovation, it could be argued from the aforementioned evidence that Filipinos are dynamic and challenging internationally, but when it comes to the local context, things start to change.
Colonial Mentality: The Hindrance to Innovation
If one is new to the Philippines, it isn’t hard to observe that Filipinos love all things foreign. They shop for European, American, Japanese or Korean fashion, they have foreign contractors design their roads and railways, marrying foreigners and having moreno babies is considered a status symbol, and perhaps worst of all is the allure many Filipinos have about leaving their country behind in search of a better life in a foreign land. These are all things to be expected of a country that has been colonized three times over the past 300 years (Constantino, 2008). The Philippines is no longer oppressed as it used to be, but its people are still acting like it. One example of this is the Filipinos’ obsession with white skin, or their lack of assertiveness when it comes to their corrupt government and its flawed implementation of the law (Filipiknow, 2019; Dy, 2018).
It is said that competitive advantage is created and sustained through a highly localized process, and one very important factor that drives this localized process is the sophistication of home demand (Porter, 1990). In other nations such as Italy or Japan, we can see that the unique and sophisticated tastes of its people drive innovation; it not only forces players in the industry to level up their standards of quality, but it also allows them to anticipate buyer demand abroad. This is why Italy is to leather, Japan is to musical instruments and so on. Given the inert colonial mentality deeply embedded in the Filipino culture, it is no surprise that innovation suffers as well. Instead of challenging the firms in the economy, Filipinos just accept what they get and don’t demand for more. In order to move forward, the Filipino people must start demanding more from local firms and their government with conviction that if the foreigners can do it, so can we.
Opportunities for innovation: Industries and Processes
Agriculture - Previously, the Philippines was a prime exporter of agricultural goods, but now 69.8% of these goods come from imports (Talavera, 2022). The lack of research, demand-driven innovation and prevalence of imports all contributed to the inefficiency and eventual decline of Philippine agriculture to the world market. There are three proven solutions that the Philippines can do to address this challenge; reduce the amount of imports to increase prices and force innovation, conduct agrarian reform through policies that support development and domestic competition, and increased government intervention and support to farmers through subsidies, assistance and protection. These three steps are what helped Korea and Taiwan develop from infertile war-torn lands in the 50s to agriculturally competitive through the 70s and 80s (Purugganan, 2021). Manufacturing; The Philippines used to export a lot of sophisticated finished goods such as cars, engines and heavy equipment. Its prowess in the 60s to the 90s was challenged by high amounts of export tax, which rendered the Philippines price-uncompetitive against its regional neighbors. Introducing lower taxes and government support for exports can help make Philippine exports more price-competitive; it has already been proven in countries such as China, India, Vietnam, Germany, Poland or Morocco, which are usually chosen as manufacturing hubs due to their low export taxes (World Integrated Trade Solution, 2023). Entertainment; Filipinos should not settle for low-class entertainment on TV, rather they must demand for quality so as to remind producers that they deserve more than the typical showbiz gossip, foreign movie copycats and pangmasa entertainment they broadcast on prime time. Korea has had major success in this industry for being original, and seeking opportunities to push its product abroad (Messerlin & Shin, 2017). Koreans are very proud of their unique culture; if Filipinos possess the same level of national pride, there is a chance to innovate and bring out the unique Philippine culture through entertainment.
These are just a few examples, but arguably the most important sector to innovate on is Education and Research. Good institutions yield good people, which can directly address many of the nation’s problems. Patterned after other countries such as Singapore or Japan, it is recommended that the Philippines increase the amount of business-academe research and consultancy partnerships to boost competitiveness in faltering industries (“Why Academic Partnerships Are so Beneficial,” n.d.). The University of the Philippines (UP) has already been making strides in this aspect for the engineering and agriculture sector, but more positive effects would be gained if all universities follow the same path (University of the Philippines, 2022).
In Summary: Porter’s Diamond
Factor Conditions; The Philippines has a huge talent pool of skilled labor, but many of the highly educated ones fly out of the country in search of a better life resulting in what many call the brain drain (“To a Better Life: Filipino Migration through the Years,” 2018). There have been many recent developments in infrastructure (bridges, roads, airports, etc.) and technology allowing for faster industry development, but it will take time for these effects to be felt . Demand Conditions; As mentioned previously, the Philippines suffers from weak consumer demand driven by a deep sense of colonial mentality and low national pride. This leads to a domino-effect wherein firms aren’t able to predict buyer demand and become globally competitive, and the government itself isn't pressured enough to stimulate innovation through regulation. Related and Supporting Industries; The Philippines itself is capable of supplying many of its own goods, but high taxes and lower-priced imports prevent it from truly maximizing its potency. In the realm of agriculture alone, there seems to be a disconnect between the suppliers, government, and the markets who sell the goods; instead of mutually supporting, the three sectors often conflict and neglect each other leading to lackluster innovation (IBON Foundation, 2020). Firm Strategy, Structure and Rivalry; In the Philippines, very few industries are in a state of perfect competition; many of which are oligopolies which have majority stakes in essential industries such as agriculture, utilities and real estate (Cullen, 2023). Government entities such as Philippine Competition Commission (PCC) exist to regulate this, but the previously mentioned shady deals, red tape and government inefficiencies as well as unsophisticated demand limit the drive to innovate (Philippine Competition Commission, n.d.; The World Bank, n.d.).
Leadership, government, promises and outlooks
The new administration began with handsome promises of making the Philippines great again, with the rose-tinted vision of reviving the glory days of the 60s where the nation was considered a world leader in many regards (Beltran, 2022). As of writing, many of these promises have yet to be realized, and only actions and measurable change can really be the true determinant. There is a lot of work to be done, and it is highly recommended that the government look into improving the system of competitive advantage; invest in research, globalize, reject managed trade, deregulate competition to open up the free market, incentivise innovation (or if possible, force it by implementing higher standards), and of course, control corruption (Porter, 1990).
With its excellent talent pool, geography and natural resources, the Philippines is perfectly capable of becoming competitive, all it needs is a push from the government to jumpstart innovation, and of course for its people to let go of their stubborn colonial mentality.
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- Quote paper
- Anthony Betia (Author), 2023, The Sick Man Can Become Strong. A Competitive Strategy Analysis Paper on the Philippines, Munich, GRIN Verlag, https://www.hausarbeiten.de/document/1341985
