PH: Preparing for the Regional Integration 2015€¦ · · 2015-07-16PRESENTATION AT THE CENTER FOR PHILIPPINE FUTURISTICS ... Human Capital. 2. Considering the 2014 Competitiveness

PH: Preparing for the Regional

Integration 2015

PROF. FEDERICO M. MACARANAS, PH.D. PRESENTATION AT THE CENTER FOR PHILIPPINE FUTURISTICS

The Aquino Administration: Two-Year Overview 25 SEPTEMBER 2014

Key Messages

1. The ASEAN Integration 2015 compels the Philippine

economy to re-examine its long-term direction vis–à–vis

Human Capital.

2. Considering the 2014 Competitiveness Report, How do

figures matter?

3. The challenge now is to be more creative and

innovative!

[Coach Chot] built a team

of what many perceived

to be misfits to play for

the national basketball

team of the Philippines,

athletes who weren’t the

tallest. They weren’t the

youngest nor the

strongest, not necessarily

the fastest nor even the

most talented. But when

they play, they play with

everything they have.

Source: Ong, I. (May-August,

2014). The Age of Enlightenment:

Creating an Industry for the world.

PANA AdEdge, Vol. 10 (14), p. 53.

“We showed the whole tournament that we belong, we can compete and tonight we showed that we could win.” -Coach Chot Reyes-

•Gilas Pilipinas coach Chot Reyes

credited his “unpredictable and

unconventional” style of coaching

for causing havoc on opposing

teams saying they made Gilas

difficult to scout.

•“All the coaches I talked with said

we were the most difficult to scout.”

-Coach Chot-

Source: Marcelo, D. (September 5, 2014). Chot credits

team’s ‘weird’ style. Manila Bulletin. Retrieved from

http://www.mb.com.ph/

Top Outsourcing Destinations Ranking City

3 Manila

8 Cebu

70 Davao

16 Ho Chi Minh

19 Kuala Lumpur

84 Sta. Rosa, Laguna

94 Bacolod

93 Iloilo

99 Baguio

Source: Tholons. (2012). 2013 Top 100 Outsourcing Destinations: Rankings and Report Overview.

PH good

standing in

outsourcing

hub is driven

by the both

English

language

capacity and

technology

adaptability

of the

Filipino

professionals

WEF GLOBAL

COMPETITIVENESS

REPORT 2013-2014

Stage 1: Factor-driven

• Cambodia

• Lao PDR

• Myanmar

• Vietnam

• India

Transition from Stage 1 to Stage 2

• Brunei Darussalam

• Philippines

Stage 2: Efficiency-driven

• Indonesia

• Thailand

• China

Transition from Stage 2 to Stage 3

• Malaysia

• Russia

Stage 3: Innovation-driven

• Singapore

• Australia

• Canada

• Japan

• Korea

• New Zealand

• USA

ASEAN Countries &

Dialogue Partners at

each Stage of

Development

Source: WEF Global Competitiveness Report 2013-2014

Like GILAS Pilipinas, shortcomings on

factors (Stage 1) can be overcome with

better action on Stage 2 (Efficiency) and

Stage 3 (Innovation) .


Philippines per capita income started to lag

behind the rest of Developing Asia in 2004.


While the Philippines

is quite lagging in

terms of Basic

requirements,

it does well on

Efficiency

enhancers and

Innovation &

sophistication

factors.

The GILAS

factor!



Philippine

Ranking

improved from 75

to 65 to 59 out of

148 countries in

the past three

years

BUT

we have better

than 59 ranking

in many pillars,

e.g.,

PERCEPTION

on auditing,

corporate boards

and minority

shareholders



Philippines’ labor market

efficiency is not entirely

dismal. Compare overall

rank of 59 with the right.


PRODUCTIVITY THE CORE OF A COUNTRY’S

COMPETITIVENESS

Managers as factor to

production were given less

importance; hence, a massive

migration of professional

/skilled managers abroad.

Robert Solow’s New Perspective on

Productivity?

• Differences in level of productivity among countries are

not due to differences in access to technology nor

access to investment capital.

• Differences in productivity is traced to organizational

differences, to the way tasks were allocated within a firm

or a division- essentially, to failures in managerial

decisions.

Source: McKinsey Quarterly Interview with Robert Solow conducted by Martin Neil Baily, September 2014

Management as a Factor to Productivity

according to Robert Solow

• “If you asked why there were differences that could be erased or diminished by better management, the answer was that it took the spur of sharp competition to induce managers to do what they were in principle capable of doing. So the idea that everybody is everywhere and always maximizing profits turned out to be not quite right.” – Robert Solow

• Competing against the global best-practice leaders is a way to encourage your own industry to use best practice.

• Competing as a part of the world economy is an important

way of gaining access to scale.

Source: McKinsey Quarterly Interview with Robert Solow conducted by Martin Neil Baily, September 2014

Summary of Findings

• To raise economic performance, there is a need to focus

on the causes of productivity differences among

companies, industries, sectors and countries.

• Operation factors, from scale to production processes,

had a far greater influence on productivity than education.

• Productivity was highest in industries and countries that

are exposed to, rather than protected from, competition.

Source: Manyika, J., Remes, J., & Woetzel, J. (2014, September). A productivity perspective on the future of growth. Retrieved September 9, 2014, from McKinsey Quarterly: http://www.mckinsey.com

Technology

propels

productivity

level

Exhibit 2 MGI’s 1993 study of

manufacturing

productivity debunked

the then-popular

notion that the

Japanese and

German economies

had become more

efficient than that of

the United States.

Rather than

doing what

the big

economies

do, PH can

focus on its

competitive

advantage

French most

productive in

RESTAURANT

S but the USA

still tops in

airlines,

general

merchandising,

retail banking

and telecom

Main Findings of MGI Research

• Sustaining economic growth would depend on:

(1) the ability of individual countries to catch up to

productivity level of the world’s top performer or the

labor-productivity frontier; and

(2) the potential to push out that frontier through

advances in management, tools, technology and the

organization of functions and tasks.


Exhibit 4

Many countries have advanced well

past the productivity frontier established

by the United States in 1964. But the

frontier has advanced, too, leaving

significant future catch-up

opportunities.

PH needs to

catch up

with the

Labour

Productivity

Frontier


• Labor-productivity frontier will advance with technology

– Robotics and large-scale factory digitization that shortens

supply chains

– Restoration of material, energy and labor inputs used in

making a wide range of goods are giving rise to a circular

economy

– Mobile applications and cloud computing

– Lean production



• Three real growth opportunities are identified:

(1) Falling barriers to trade and foreign direct investment

(2) Regulatory changes that increase competition and

performance pressure

(3) Private-sector companies that catalyze industry change

(diffusion of managerial and technological best practices)


Why management matters for productivity

• The study analyzed 14,000 organizations in more than 30

countries.

• Well-managed firms have higher productivity, market

value and growth, as well as a greater ability to survive

adverse conditions, such as global financial recessions.

• More than 80 percent of all productivity variation occurs

within a given sector for a given country.

Source: Dowdy, J. & Reenen, J. (September, 2014). Why management matters for productivity. Retrieved

September 9, 2014 from McKinsey Quarterly: http://mckinsey.com

PH managers/

management

institutions

need to

collaborate with

the

Management

institutions /

associations in

ASEAN to

benchmark

best practices

Why management matters for productivity

• Multinational companies stimulate productivity by bringing

technology and know-how, which spill over into the

broader economy.

• Multinationals also invest in their employees’ skills.

• Multinationals also pressure domestic players to improve

their own productivity.

Source: Dowdy, J. & Reenen, J. (September, 2014). Why management matters for productivity. Retrieved

September 9, 2014 from McKinsey Quarterly: http://mckinsey.com

PH

Managers’

exposure to

internationa

l culture

encourages

flexibility

and

competence

in the

workplace

BRAIN DRAIN A DRAG TO PRODUCTIVITY?

Push Factors for Migration

Home Country

Low Wages

Unemployment/underemploym

ent

Unmet Demand

For Education

Saturated Labor Force

Dense population

Pull Factors for Migration

Destination

Country

Higher Wages

More job opportunities

Better quality of

life/standards of living

Effects of Labor Migration to Sending Countries

Positive effects

• Real wage increases

• Remittances

• Poverty alleviation

• Knowledge Transfer

Negative effects

• Loss in Productivity*

• Loss in fiscal revenues

• Slow-down in poverty alleviation

• Human Capital loss (education & health care)

*Middle management case in the Philippine setting

Singapore, Brunei,

Malaysia, and

Thailand are

major destination

countries for

workers.

Cambodia and

Philippines are

major net labor

sending nations.

Supply of migrant workers by country and destination (2011)

Philippines tops India and Indonesia , then Bangladesh and Pakistan in GCC.


The Philippines has

generally a cooperative

labor-employer relations


However, some

inefficiencies exist; such

as the low flexibility of

wage determination


This could have its

roots in the inefficient

hiring and firing

practices of the country


…which manifests itself

in high redundancy

costs.

113 89

58 46

44 32 31

29 28

21 18 17 16 15

13 12

10 4

2

Australia

Myanmar

India

Russia

Philippines

Cambodia

Thailand

Indonesia

Canada

Korea

Brunei

China

New Zealand

Vietnam

USA

Japan

Laos

Singapore

Malaysia

Relationship of Pay to Productivity (Ranking)

In your country, to what extent is pay related to worker productivity? [1 = not related to worker productivity; 7 = strongly related to worker productivity]


Meanwhile, the Filipino

workers are generally

motivated by compensation

levels. It adds both push &

pull pressure on the part of

the employee’s productivity.


And taxes do not

reduce the efforts of our

workforce. Good news

is that we could further

enhance our

productivity.


First, Productivity

could be boosted by

tapping the latent

productivity of the

female workforce.

141 119

105 78

65 64

57 46

44 43

34 32

21 17

15 11 10

8 1

Myanmar

Vietnam

Russia

Cambodia

Laos

Brunei

Thailand

India

China

Korea

Indonesia

Philippines

Malaysia

Japan

USA

Australia

Canada

Singapore

New Zealand

Reliance on Professional Management In your country, who holds senior management positions? [1 = usually relatives or friends without regard to merit;

7 = mostly professional managers chosen for merit and qualifications]


Second, by keeping our

management talents.

and keeping up with the

global standards.

148 112

95 79

71 50

44 39

37 34

31 29

27 25

20 19

17 8

4

Myanmar Russia

Vietnam New Zealand

Philippines India

Cambodia Indonesia Australia

Laos China Japan

Thailand Korea

Malaysia Canada

Brunei Singapore

USA

Capacity to retain talent Does your country retain talented people? [1 = the best and brightest leave to pursue opportunities

in other countries; 7 = the best and brightest stay and pursue opportunities in the country]


But the country remains

relatively a poor choice

for our workforce.

122

97

86

80

74

69

54

51

32

31

29

28

27

26

22

17

9

6

2

Myanmar

Russia

Philippines

Japan

Laos

Vietnam

India

Cambodia

Thailand

Korea

New Zealand

Indonesia

Brunei

China

Malaysia

Australia

Canada

USA

Singapore

Capacity to attract talent Does your country attract talented people from abroad? [1 = not at all; 7 = attracts the

best and brightest from around the world]


And our capacity to

attract talent for

technological and skills

transfer is also low.

2014 IMD WORLD COMPETITIVENESS RANKING

1. USA

2. SWITZERLAND

3. SINGAPORE

4. HONG KONG

5. SWEDEN

6. GERMANY

7. CANADA

8. UAE

9. DENMARK

10. NORWAY

11. LUXEMBOURG

12. MALAYSIA

13. TAIWAN

14. NETHERLANDS

15. IRELAND

16. UNITED KINGDOM

17. AUSTRALIA

18. FINLAND

19. QATAR

20. NEW ZEALAND

21. JAPAN

22. AUSTRIA

23. CHINA

24. ISRAEL

25. ICELAND

26. KOREA

27. FRANCE

28. BELGIUM

29. THAILAND

30. ESTONIA

31. CHILE

32. KAZAKHSTAN

33. CZECH REPUBLIC

34. LITHUANIA

35. LATVIA

36. POLAND

37. INDONESIA

38. RUSSIA

39. SPAIN

40. TURKEY

41. MEXICO

42. PHILIPPINES

43. PORTUGAL

44. INDIA

45. SLOVAK REPUBLIC

46. ITALY

47. ROMANIA

48. HUNGARY

49. UKRAINE

50. PERU

51. COLOMBIA

52. SOUTH AFRICA

53. JORDAN

54. BRAZIL

55. SLOVENIA

56. BULGARIA

57. GREECE

58. ARGENTINA

59. CROATIA

60. VENEZUELA

49

45

40

36

32

31

29

20

17

15

14

12

6

5

New Zealand

China

Thailand

Singapore

Korea

India

Japan

Australia

Russia

USA

Indonesia

Canada

Malaysia

Philippines

Availability of Skilled Labor (Ranking)

Source: IMD World Competitiveness Yearbook 2014

The Philippines is

home to many

talented people.

54

49

44

31

27

26

23

23

21

18

14

12

6

3

Russia

Korea

India

China

Thailand

Australia

New Zealand

Philippines

Indonesia

USA

Singapore

Canada

Japan

Malaysia

Worker Motivation (Ranking)


Not just talented,

but relatively

motivated as well.

1800

1815

1846

1852

1949

1973

1986

2012

2037

2112

2246

2258

2308

2312

Russia

Canada

Australia

New Zealand

USA

China

Malaysia

Japan

Singapore

Indonesia

Philippines

India

Korea

Thailand

Average Working Hours Per Year


One of the

most

industrious

people in the

world.

51

49

46

36

35

32

31

28

22

20

19

17

4

3

New Zealand

Russia

India

Indonesia

Australia

USA

Philippines

Canada

Korea

Thailand

China

Singapore

Malaysia

Japan

Employee Training (Ranking)


But we still have to

upscale our

employee trainings

to constantly update

the skills of our

workforce.

56

38

35

35

31

29

20

18

17

14

13

12

8

7

Russia

New Zealand

Indonesia

Philippines

China

India

Thailand

Canada

Australia

Singapore

Malaysia

Korea

USA

Japan

Attracting and Retaining Talents


Despite having enough

workers, the country

has low capacity to

attract and retain

talents (as stipulated

earlier in the WEF

GCY)

48

43

39

34

31

23

22

19

18

12

11

5

3

2

Japan

Korea

India

Russia

Philippines

Indonesia

New Zealand

Thailand

China

Malaysia

Australia

Canada

Singapore

USA

Foreign High Skilled People are attracted to your country's business environment


These are sentiments

coming not only from

Filipinos, but also from

our global neighbors

55

47

46

45

44

32

26

25

22

19

18

15

10

4

Russia

New Zealand

Korea

China

Philippines

Japan

Thailand

Indonesia

India

Singapore

Australia

Canada

Malaysia

USA

Brain Drain does not hinder competitiveness


Our low ranking is

alarming because

brain drain is

deemed to hinder

our

competitiveness…

9.28

10.88

11.23

12.27

13.5

13.57

13.9

15.6

16.51

19.39

35.05

35.28

40.7

46.09

Australia

China

New Zealand

Japan

Korea

Malaysia

Canada

USA

Singapore

Russia

Indonesia

Thailand

India

Philippines

Remuneration Spread (Ratio of CEO to Personal assistant remuneration)


…one of the

hypotheses is that

wage differentials could

be huge such that it

‘pushes’ Filipinos to

migrate


Remuneration of HR

Dierectors in the

Philippines, being in the

median rankings, could

be the reason for the

outmigration of middle

managers.

Out-migration accelerated starting 2006, the very bsame year

when Philippine per capita income became lower than

Developing Asia

Source: POEA

Is there a brain

drain of middle

managers?

Top 20 Destinations of Filipino Managers

Numbers show annual average Filipino managers migrating

into that country from 2000 to 2010 Source: POEA

The shares of SE Asia and Middle East dominate; share of West declines

Note: Southeast Asia includes ASEAN + Australia, New Zealand, and Papua New Guinea

Source: POEA

Shares of Filipino Managers by Region

Compensation of HR Directors (proxy for middle managers)

Source: IMD World Competitiveness Yearbook

Are low

wages to

blame? Case study:

PH vs

Singapore,

Malaysia, US

Things to note:

• US wage is much higher than PH, but it has

stagnated

• Malaysian wage is lower than PH, but it is rising

• Singapore wage both higher than PH and rising

• Like the US, PH wage has remained stagnant

Higher but stagnant

Higher and rising

Lower but rising

Stagnant

This helps

explain why

Filipino

migration into

Singapore

and Malaysia

has

overtaken the

US

Major takeaway

There are a lot of factors to the brain drain

phenomenon, but clearly, low and stagnant wages

is an issue.

If we want our middle managers to stay, we must

pay them according to their high marginal

productivity, according to Solow.

KEY MESSAGE # 3

The challenge is to be a more creative

and innovative people.

What do we really need to

change and do to keep pace

with the Tigers?

As we move up the

ladder, we face

tougher and

bigger

competitors.

This is a challenge

of sustainability.

Innovation,

Brand Image

Knowledge,

Technology- Based

Capital-

Intensive

Labor-

Intensive

Physical Resource-

Based

Japan,

U.S.A.

Korea,

Singapore

Thailand

Malaysia

Brunei

Philippines

Indonesia

Vietnam

Moving Up the Value Ladder in ASEAN

Value creation increasingly occurs through sub- and regional COOPERATION.

Cambodia

Laos

Myanmar

There is no be-all, end-all solution to competitiveness.

As Michael Porter puts it,

“Improving competitiveness is a marathon, not a sprint.”

We need to

Educate — reform and raise our

educational standards

Employ — create jobs for the

latent workforce

Enhance — continuous training

and development

our people.

There is a need to change our perception of training

and workforce development…

…from cost to

investment

Regularly update the skills and knowledge of employee

to maintain productivity Need for Knowledge

Management

The most dangerous phrase in our language is “we’ve

always done it this way” (kinasanayan mindset).

Competitiveness data showed we have

very good FINANCIAL indicators (7 out

of 8 indicators are above our average

of 59th ranking), TECHNOLOGICAL

READINESS (3 out of 7 indicators),

MARKET SIZE ( 3 out of 4),

BUSINESS SOPHISTICATION (3 out

of 9), and INNOVATION (2 out of 7)

Provide an enabling environment

conducive to creativity and

innovation.

Build on the foundations:

effective managers/leaders high-performing employees

Design effective rewards or incentives that drive

performance.

Adapt performance metrics in order to capture areas

that need preferential attention for improvement.

Make effective

communication at

the center of every

organization.

Leverage on

technologies

that bolster

productivity.

Source: WEF Global Information Technology Report, 2014

Network Readiness Index of Philippines is

78 out of 148 countries)

Pro

ble

m

Source: WEF Global

Information Technology

Report, 2014

FINALLY…

We must keep in mind that

beyond competition,

there is even greater room

for cooperation.

Source: Luo, Y.(2004). Coopetition in International Business. Denmark: Copenhagen Business School Press.

Conclusions (1)

• What we need to change:

– IMPROVE OUR EDUCATION SYSTEM • Greater awareness of regional and global trends

• Convert awareness into practical knowledge for competitiveness and collaboration

• Match needs of the economy thru education reform

– CREATE MORE JOBS FOR THE LATENT WORKFORCE • More conscious policies against jobless growth (public and private)

• Promote SMEs and their linkages to the regional supply chain

– CONTINUOUSLY TRAIN THROUGH LIFE LONG LEARNING PROGRAMS

• Knowledge management programs needed everywhere

Conclusions (2)

• INNOVATE and BE MORE PRODUCTIVE even if we

have poor BASIC REQUIREMENTS for competitiveness

– COLLABORATE rather than compete alone

– RE-THINK old ways of developing human resources

• Science and technology, engineering and mathematics

• Applied knowledge on a massive scale via ICT in a mobile world

• Tap overseas talents to show that we can do it!

• Strategize differently – think GILAS PILIPINAS

Documents

PH: Preparing for the Regional Integration 2015€¦ · · 2015-07-16PRESENTATION AT THE CENTER FOR PHILIPPINE FUTURISTICS ... Human Capital. 2. Considering the 2014 Competitiveness