Globalization and Competition: The World Scenario and Philippine Realities

1. Globalization and Competition: The World Scenario and Philippine Realities 36 PMAP National Conference Waterfront Hotel, Lahug, Cebu City September 27-30, 2000 Dr. Victor S. Limlingan Professor Asian Institute of Management

2. Outline I. Basic Premises II. The World Scenario III. Philippine Realities IV. Policy Analysis V. Policy Recommendations

3. Basic Premises: Definition • Globalization is defined as the creation of a global economy that enables any entrepreneur to raise money anywhere in the world and, with that money to use technology, communications, management, and labor located anywhere the entrepreneur finds them to make things anywhere he or she wants and sell them anywhere there are customers • (Global Squeeze: The Coming Crisis for First-World Nations by Richard C. Longworth)

4. Basic Premises: Status • We are not yet a global economy but are moving towards one in three different areas at different paces • Globalization of Capital • Globalization of Trade • Globalization of Labor

5. World Scenario: Capital • Foreign Direct Investments • Private Capital Flows

6. Gross Foreign Direct Investment% of Purchasing Power Parity (PPP) Gross Domestic Product (GDP) Source: 2000 World Development Indicators, World Bank

7. Gross Private Capital Flows% of Purchasing Power Parity (PPP) Gross Domestic Product (GDP) Source: 2000 World Development Indicators, World Bank

8. World Scenario: Trade • Growth of World Trade • World Trade Organization after Seattle

9. International Trade% of Gross Domestic Product (GDP) Source: 2000 World Development Indicators, World Bank

10. WTO Annual Report 2000 • Notwithstanding the Outcome of WTO’s Third Ministerial Conference in Seattle, the state of the world trading environment remained generally sound in 1999. There has been no major trade policy reversals during the year, and there is no evidence of a resort to protectionist policy. On the contrary, a number of countries have undertaken concrete measures to further liberalize their economic and trade regimes.

11. World Scenario: Labor • Labor Force Growth • Workers without Frontiers

12. Growth in World Labor ForceAverage Annual Growth 1980-98 1998-2010 USA 1.3% 0.9% Japan 1.0% -0.3% Germany 0.5% -0.2% Asia Pacific 2.0% 1.1% Philippines 2.9% 2.4% Source: 2000 World Development Indicators, World Bank

13. Workers without frontiers - The impact of globalization on international migration, by Peter Stalker, ILO Geneva • Far from reducing international migration flows - by moving products instead of people - globalization will give rise to increased migration pressures in the years ahead. A new book published by the ILO - Workers without Frontiers: The impact of globalization on international migration - argues that flows of goods and capital between rich and poor countries will not be large enough to offset the needs for employment in poorer countries.

14. Workers without frontiers - The impact of globalization on international migration, by Peter Stalker, ILO Geneva • The total number of migrants around the world now surpasses 120 million - up from 75 million in 1965 - and continues to grow. • The book finds that falling prices for transportation and the increased speed of communication have changed the character of international migration, making it much less a permanent move. By 1990, air transport costs per mile had dropped to 20 per cent of their 1930 level. Between 1930 and 1996, the cost of a three-minute telephone conversation between London and New York fell from US$300 to US$1.

15. Basic Premises: Implications • Intense Competition follows necessarily from globalization as • There are many more players • There are fewer barriers to entry • There is less government can do to favor its nationals • There is more multinationals can do

16. Basic Premises: Architecture • Post-Cold War Era has removed political divisions and tensions • Capitalism has emerged as the commanding economic ideology • Technological advances in Computerization, Telecommunication and Transportation has made the world smaller

17. Philippine RealitiesNeed for Foreign Capital • Savings Rate of Philippines compared to other ASEAN Countries • Foreign Direct Investments in Philippines compared to other ASEAN Countries

18. Low Savings RateCompared to Other ASEAN Countries (1997) Singapore 56.4% Indonesia 38.5% Malaysia 38.0% Thailand 35.0% Philippines 16.9% Source: NEDA

19. Low Inward FDI Flows compared to Other ASEAN Countries (Million US Dollars) COUNTRY 1991 1992 1993 1994 1995 1996 1997 1998 Singapore 4,887 2,204 4,686 6,550 7,206 7,884 9,710 7,218 Thailand 2,030 2,114 1,805 1,364 2,068 2,336 3,733 6,969 Malaysia 3,996 5,183 5,006 4,342 4,178 5,078 5,106 3,727 Philippines 544 228 1,236 1,591 1,478 1,517 1,222 1,713 Indonesia 1,482 1,777 2,004 2,109 4,346 6,194 4,673 -356 Source: Department of Trade and Industry

20. Philippine Realities:Improved Export Performance Year World Philippines % Share 1980 $ 2,034 b $ 5.74 b 0.2034 % 1985 1,950 4.61 0.2364 1990 3,439 8.07 0.2347 1995 5,076 17.50 0.3448 1999 5,611 34.95 0.6229 Source: World Trade Orgamization

21. WHERE WE ARE...  Japan GLOBALLY-COMPETITIVE  China  Hong Kong  South Korea  Taiwan   Singapore Malaysia  WHERE WE WANT TO GO . . .  Indonesia  Thailand  Vietnam India  Philippines Here! By Year 2010 Note: Based on 12 - month Exports (In US$) Source: Asiaweek, 9 June 2000

22. Philippine Realities:High Unemployment Rate (1997) Philippines 8.70% Malaysia 2.50% Indonesia 4.68% Thailand 3.50% Singapore 1.95% Korea 2.60% Taiwan 2.82% China 3.10% Source: Neda

23. Philippine Realities:Increasing Unemployment • Unemployment as a percentage of total labor force increase from 4.8% in 1980-82 to 7.4% in 1994-1997 • Average hours worked per week decreased from 47 hours in 1980-84 to 43 hours per week in 1995-99

24. Philippine Realities: Migration of Filipino TalentRegistered Filipino Emigrants 1981-1999 USA 737,153 Canada 133,187 Australia 77,160 Japan 44,291 Gemany 7,411 United Kingdom 5,382 Others 18,776 Total 1,023,360 Source: Commission on Filipinos Overseas (CFO) as of March 2000

25. Philippine Realities:Reliance on Overseas EmploymentOverseas Filipino Workers Deployed (1993-1997) 1993 738,958 1994 760,091 1995 662,294 1996 667,669 1997 755,350

26. Executives in Asia rank India and the Philippines tops for quality, cost and availability of skilled labor. Indonesia is the lowest (Far East Economic Review - September 2, 1999) 0= best 10= worst India 2.00 Philippines 2.63 China 3.46 Australia 3.90 Taiwan 4.27 Japan 4.55 Vietnam 4.67 South Korea 4.72 Malaysia 4.83 Singapore 5.04 Thailand 5.08 Hong Kong 5.10 Indonesia 5.85 Philippine Realities:Second Most Skilled in Asia

27. Philippine RealitiesAttractive Back Office • America On Line (AOL) - 600 Filipinos answer customer e-mails at the Clark Special Economic Zone near Manila • Andersen Consulting - 515 Filipinos develop and customize software in downtown Manila • Caltex - Accountants for the oil company in Manila process transactions and authorize payments for Southeast Asia and Hong Kong Source: Far East Economic Review, September 2, 1999

28. Policy Analysis:Perspective on Human Capital • If there is one area of globalization where the Philippines is the most competitive, it has to be in the labor force or more generally in human capital as compared to financial capital or trade capital.

29. Policy Analysis:Perspective on Human Capital • If that were so why then do we have the highest unemployment rate and the highest underemployment rate?

30. Policy Analysis:Perspective on Human Capital • Clearly the fault lies not in the People but the Place. • And when we talk of the Place, we do not mean Physical Infrastructure.

31. Policy Analysis:Perspective on Human Capital • More specifically, we argue that when we refer to the Place, we mean our past and present public policy makers have adopted the wrong policies

32. Policy Analysis:Perspective on Human Capital • Instead of our public policy makers focusing on our most competitive resource, our local human capital, we have instead sought to protect our least competitive resources, our financial and trade capital

33. Policy Analysis:Labor Force as of July 2000 Labor Force Working Abroad 5.500 m Labor Force Working Here 28.178 m Labor Force Unemployed 3.510 m Total Labor Force Available 37.188 m Source: Department of Labor and Employment

34. Philippine Analysis:Labor Force as of July 2000 Labor Force Working Here 28.178 m Services 13.176 m Agriculture 10.568 m Industry 4.434 m Source: Department of Labor and Employment

35. Philippine Realities:Service Sector Based Structure of Output 1980 1998 (% of GDP) Agriculture Value Added 25% 17% Industry Value Added 39% 32% Manufacturing Value Added 26% 22% Service Value Added 36% 51%

36. Policy Analysis:Perspective on Human Capital • Our Labor force can be our source of strength in globalization instead of being our most debilitating problem • For labor to be a source of strength, we must reverse our policies of saving the declining sectors, starving the promising sectors and neglecting the critical sectors

37. Policy Conclusions • Develop the promising sectors • Save the critical sectors • Outsource the declining sectors

38. Policy Recommendation While business enterprises seek to enhance shareholder value, we recommend that public officials and civil society set as their governing goal the enhancement of human capital

39. Policy Principles 1. Human capital is not a cost to be avoided but a resource to be drawn upon as a priority; 2. Human capital is not a commodity to be traded but a product to be upgraded;

40. Policy Principles 3. Human capital is not a factor of production to be integrated into the economy but a community of people to be liberated from poverty; 4. Human capital will be consistently utilized and constantly developed as the competitive advantage of the venture;

41. Policy Principles 5. Raw materials preferably sourced from discarded or recycled products, not human capital will be source of cost competitiveness 6. Responsible management not human capital will create and maintain the flexibility to cope with globalization and the volatile business environment; and

42. Policy Principles 7. Superior strategy and not the sacrifice of human capital will bring success to the Philippines.