Jaime A Zobel de Ayala on globalization

January 30, 2017 at 17:30

I always read your columns and enjoy the seriousness and thoughtfulness of your articles. However, I hope you might allow me to respond to your article written last January 22nd, entitled “Globalization rewards only the elite.” It is a topic that I am personally interested in and I wanted to send you my own thoughts and reactions on the matter.

Contrary to the title of your column, I believe that the world as a whole, across social strata, has greatly benefitted from globalization, and this is particularly relevant for us here in the Philippines. True, globalization is not a perfect system and there have been shortcomings. However, I believe that the constructive way forward is to explore the opportunities that globalization offers and to continue to find solutions to address its limitations.

Let me start by highlighting some of the positive outcomes from globalization that the Philippines has greatly benefitted from. You mention them in passing but they bear emphasizing in a more specific and accentuated way. Specifically, I point to the IT-BPM industry and its adjacent sectors, overseas Filipino remittances and the growth of the middle class, and the rise of manufacturing.

First, you mentioned the BPO sector briefly in your piece. I believe that we cannot overstate the tremendous benefits that the BPO and the broader IT-BPM sector have given the country. The IT-BPM sector has already directly contributed around $22 billion in revenues and 1.15 million jobs as of 2016. Equally important is the indirect impact IT-BPM has had to adjacent sectors such as food, financial services, real estate, transportation, and retail. P204.1 billion of revenues have been generated by these adjacent sectors from 2011 to 2016, and this can increase to P268.9 billion and 5.7 million total jobs by 2022. These are employment opportunities that a broad sector of the population can and have participated in. It is difficult to imagine what could have replaced this if it did not exist.

Second, we must recognize the overseas Filipino phenomenon as a positive outcome of globalization. Globalization has facilitated the movement of labor, enabling the growth of the Filipino diaspora to a number over 10 million as of 2013. Personal remittances of our overseas countrymen have increased to $26.88 billion as of November 2016, from $21.92 billion in 2011, insulating the local economy from external shocks, as well as driving domestic consumption. More importantly, these remittances, along with the aforementioned gains from the IT-BPM sector, resulted in the growth of the Filipino middle class, with GDP per capita now reaching $3,000 per person. The Brookings Institute considers the point at which there is a significant entry of people into the middle class as the “sweet spot of growth.” Countries reaching this point of transition start a movement to high-value economic activities from previously low-cost labor value creation, as we are now seeing in the Philippines.

Finally, you mentioned manufacturing and its frequent movement to cheap labor markets as a negative product of globalization. On the contrary, we believe that manufacturing is a key driver of Philippine economic growth. In fact, manufacturing has surged in the last few years, averaging 7.8 percent growth from 2010 to 2015, compared to just 3 percent growth from 2004 to 2009. As of 2012, the total number of all manufacturing establishments in the formal sector also reached 25,064 – this is 54 percent more than the estimated number back in 2010. This development prompted the Department of Trade and Industry to focus its efforts in attracting labor-intensive and high-tech industries, such as electronics, aerospace, automotive, and chemicals.

At one of our group companies, Integrated Microelectronics – a global electronics manufacturing services provider with factories all over the world – we have seen our Philippine manufacturing operations successfully compete globally. Our Philippine manufacturing base is one of our most productive and cost-efficient in the IMI group. More importantly, IMI employs over 6,000 workers in the Philippines alone and is one of the largest employers in the Ayala Group. We are proud that these jobs have been stable over time, given the steady performance of our operations and growing efficiency of our Philippine manufacturing environment.

More importantly, across our group, we continue to see more and more interest from manufacturing firms eager to expand into the Philippines. I agree with your point that public and private sector efforts should be focused on moving up the value chain to maintain these investments in the country, rather than compete purely on cost. Exploring these higher value opportunities is our focus as well. For instance, we have partnered with the KTM, one of the largest global manufacturers of motorcycles, to produce motorcycles in the Philippines to export to Southeast Asian markets and to China. Complex manufacturing, visible in this project, creates jobs beyond the factories themselves. We have engaged a number of local Philippine suppliers just on this project alone. With careful thought, precise targeting of industries where we can best compete, and consciously moving up the value chain, we believe that the manufacturing industry in the Philippines can develop into a major driver of economic value creation for the country – a positive outcome of globalization.

There are other instances that illustrate how globalization has benefited our country, along with other nations and the global economy in general. Globalization has enabled the spread of development across Southeast Asia and other developing parts of the world. Open economies and the promise of business has promoted competition and pushed incumbents and new market entrants to be more efficient and innovative – benefiting consumers with better and more affordable products and services. The Philippines, for one, has gained much from cross-border trade and investments, technology and knowledge sharing, and cross-cultural exchange. Philippine job generation has been on an upward trend in recent years, with 2.7 million jobs created from 2010 to 2015, for example.

However, I recognize that amidst this liberalization, discrepancies in income and quality of life remain. I consider these, along with the rise in populist movements, not as a failure of globalization, but as a strong wake up call to accelerate initiatives to make globalization work for a greater mass of people. I believe it is incumbent upon us to increase the level of competitiveness of our country and people. This is especially relevant now given that the Philippines enjoys a demographic dividend – where the majority of our population are of working age, and this is seen to last until 2045. There is no doubt that we have to double our efforts to improve people’s lives.

The private sector has a critical role to play in finding solutions to improve both employment and education. At Ayala, we have moved deliberately to invest in the field of education to better prepare students for gainful and meaningful employment. Through our education arm, AC Education, we aim to empower the Philippines’ young workforce with high quality, relevant education to prepare them for better jobs or further studies. To do this, we emphasize developing character, knowledge and skills of students in our 27 Affordable Private Education Centers (APEC) which today enroll 10,000 high-school students. At the tertiary level, we have partnered with universities, launching initiatives such as Learning with Industry Collaboration (LINC) to make entry level professional employment, with potentially higher starting salaries for graduates, a reality. Through our LINC initiative, we are working with corporate partners to develop proper curriculum and on the job training opportunities for our students, to improve their skills and better prepare them to engage in a globally-competitive workplace. In addition, we are leveraging best practices, low-cost technology and decades of experience of our global education partners to bring these initiatives to scale – all of which have been made possible by globalization.

That said, the public sector also has a critical role to play. Policies to greatly enhance educational and employment opportunities for the broader population, with a focus on better industry matching and skill development, should continue to be pushed. Policies that promote an environment conducive to massive, job-generating investments should be encouraged: The infrastructure gap should be bridged, trade barriers should be greatly reduced, red tape should be cut, MSMEs should be linked to large local and global value chains, and our agricultural policy should put greater emphasis on productivity and scale.

In summary, I believe that globalization has succeeded in improving the state of the world and its people. However, as this economic trend continues we need a more aggressive, effective and collaborative effort from both government and business to make it work for all. We believe that focusing on our strengths as a country, investing in the BPO sector and manufacturing industries, and creating shared value through education, are important steps to bridge the inclusivity deficit, and help ensure that the Philippines will remain competitive and increasingly more relevant in a globalized world.

Thanks for your patience. Your article made me reflect and I hope you don’t mind my taking this time to respond to your thoughts.

With warm best wishes,

Jaime

Jaime A Zobel de Ayala

Ayala Corporation

Source: https://www.philstar.com/opinion/2017/01/29/1666493/jaime-zobel-de-ayala-globalization