News

Look West!

June 11, 2009 News

The Philippines --- for more than a century --- has looked east, because at the end of the rainbow was the American Dream, the United States of America. More than 2.5 million Filipinos have settled in the US. The US has become the largest trading partner and the Philippines inherited the American political and legal system.

Given the geo-political changes as a consequence of the global financial and economic crises, this may be the opportune time for the Philippines to Look West. At the end of the rainbow is Europe, the largest economic region of the world, where the Philippine market share is relatively small and the variety of products exchanged fairly limited.

While many Filipinos dismiss Europe as outdated and out of touch, the reality, on the ground, in the neighborhoods and communities, in corporate boardrooms, and in the corridors of power, suggests a far different state of affairs. If the American way of life was over-hyped, Europe’s cache has been woefully undervalued and undersold. The long and short of it is the Philippines is unaware of and unprepared for the vast changes that are quickly transforming Europe from a collection of disparate, and in the past, warring nations, to a United States of Europe.

Much of the European Union’s potential depends on its ability to create a streamlined and seamless internal trading market and commercial arena. Many difficulties remain in creating a cohesive internal market across Europe, including integrating the ten new Central, Eastern, and Southern European member states whose economies lag far behind the wealthier Western and Northern members. Still, the positive accomplishments far outnumber the remaining obstacles

Europe’s rebirth is propelled by a new European dream that, in many respects, contrasts sharply with the older American dream. Nowhere is that more so than when it comes to the question of defining the meaning of personal freedom. For Americans, freedom has long been associated with autonomy. If one is autonomous, he or she is not dependent on others or vulnerable to circumstances beyond his or her control. To be autonomous one needs to be propertied. The more wealth one amasses, the more independent one is in the world. One is free by becoming self-reliant and an island onto oneself. With wealth comes exclusivity and with exclusivity comes security. (Well, this dream has come to an end starting in 2007)

For Europeans, however, freedom is not found in autonomy but in embeddedness. To be free is to have access to many interdependent relationships. The more communities one can access, the more options one has for living a full and meaningful life. It’s inclusivity that brings security – belonging, not belongings.

The American dream put an emphasis on economic growth, personal wealth, and independence. The new European dream focuses more on sustainable development, quality of life, and interdependence. The American dream depends on assimilation: Americans associate success with shedding their former ethnic ties and becoming free agents in the great American melting pot. The European dream, by contrast, is based on preserving one’s cultural identity and living in a multi-cultural world. The American dream is wedded to love of country and patriotism. The European dream is more cosmopolitan and less territorial. Americans are more willing to employ military force to protect what they perceive to be their vital self-interests, although President Obama may think and act differently. Europeans are more reluctant to use military force and instead favor diplomacy, economic assistance, and aid to avert conflict and peacekeeping operations to maintain order.

Europe has articulated a new vision for the future – one they believe is better suited to meet the challenges of an increasingly interconnected and globalizing world in the 21st century.

Of course, I have to admit, that Europe is severely affected by the financial and economic crises too. And I also have to admit that we still don’t know where the bottom is; we are looking for silver linings at the horizon all the time but they have been elusive – so far.

At the same time, it has to be said though, that because of the Philippines’ extreme reluctance to ‘look west’, there are so many opportunities in Europe which have been neglected. Let me briefly mention three examples:

  1. The Philippines exports BPO services valued at US$ 6.2 billion. 65% goes to the US, 25% to Asia and Australia and only 10% goes to Europe. But Europe is the largest BPO market of the world!
  2. Thailand is exporting 500,000 tons of chicken to Europe; the Philippines not one kilo.
  3. Vietnam is exporting 145,000 tons of a fish called Pangasius, raised in huge ponds, to Germany alone; annual growth 22%!. Total export of that fish is 1.5 million tons!! Main markets in Europe: Russia, Spain, Netherlands and Germany.

This is the time to focus on Europe, do some market research in Europe and prepare for Europe.

It has to be born in mind also that with the Philippines ‘looking east’, the Europeans perceived the Philippines as being ‘part of the US’. European business took a much bigger interest in doing business with Singapore, Thailand, Indonesia, Malaysia and Vietnam.

This situation became critically clear in the process of the EU-ASEAN Free Trade Agreement (FTA) discussions; some ASEAN countries were eager to start bilateral talks, others showed little interest. Taking Vietnam as an example, it became clear that both European business and Vietnamese business wanted a bilateral FTA as early as possible and were encouraging the official negotiators on both sides to get going. This is certainly not the case regarding the Philippines.

It’s high time to Look West!!!

Much of the European Union’s potential depends on its ability to create a streamlined and seamless internal trading market and commercial arena. Many difficulties remain in creating a cohesive internal market across Europe, including integrating the ten new Central, Eastern, and Southern European member states whose economies lag far behind the wealthier Western and Northern members. Still, the positive accomplishments far outnumber the remaining obstacles

Europe, with its almost 500 million consumers, is the largest internal market in the world. It’s also the largest exporting power. And the euro is rightfully stronger than the dollar – a reality few economists would have thought conceivable just a few years ago.

Regarding the need to improve competition, we have seen many European governments displaying a protective instinct, viewing with suspicion foreign takeovers of their national champions or of firms that are considered to be in strategic sectors. Despite this, however, the trend towards cross-border mergers seems robust. The public policy question is whether ownership matters and whether Europe needs either national or European champions.

Globalization is associated with technological change, with decreases in trade and transportation costs of goods, capital, people and information, and with liberalization and market integration that simultaneously enlarge the market and increase competitive pressure. In many sectors, the number of firms will have to be reduced in an integrated or enlarged market to reap economies of scale. At the same time, a sufficient level of competition is needed for innovation, and the timely termination of bad projects drives productivity growth. In this context, artificial obstacles to hostile and cross-border mergers should be removed in Europe. Hostile takeovers are a sign of health of the market for corporate control.

The risk of de-globalization needs to be fought. Why? Look at these numbers: World exports per capita of the world’s population in 1900 was US$ 6; until 1980, this value increased to US$ 450 per head; then globalization really took off and within 27 years, in 2007 it reached more than US$ 2,000, despite a fast growing world population. In absolute numbers, world exports of US$ 9.9 billion in 1900 grew to almost US$ 14 trillion in 2007. These numbers show the size of the international division of labor which benefited almost all.

In this context, it is important that de-globalization is not given a chance. Protectionism is based on its populist potential. Politicians are tempted to get the approval of the masses through the introduction of protectionist measures. It should be born in mind that that kind of behavior lead to a very long and extremely painful depression in 1930; that protectionism started in the US and led to a collapse of world trade; President Obama should read history before he considers measures to protect the US iron and steel industry. This can easily create a chain-reaction which he (and the rest of the world) is not going to enjoy.

Luckily, in Europe, I see leaders opposing national egoism. Chancellor Merkel of Germany is pretty outspoken; UK’s Prime Minister Brown supported her views, saying ‘protectionism is a sure path to recession and depression’; and even Russia’s Prime Minister Putin added ‘we should not fall back into isolation and unlimited economic egoism’.

Globalization is not just about wages, but more broadly about finding efficiencies anywhere along complex supply chains. Yes, European jobs have been lost by offshoring, but there are winners in Asia, South American, Eastern Europe and North Africa. Europe may have created 18 million more jobs than they shed in the past decade. But the jobs are different: like America, Europe has shed manufacturing and farming jobs, and created new ones in more sophisticated services.

Today, a new generation of Europeans is creating a radical new dream – one they believe is better suited to meet the challenges of an increasingly interconnected and globalizing world in the 21st century. Perhaps, the Asians should take note of the changes in Europe. Perhaps, the Filipinos, the Philippine government and the Philippine business sector should understand that Europe matters. Europe is one of the largest investors in this country; Europe is a major trading partner and purchases more from the Philippines than it exports to this country; Europe is a major provider of technologies and European taxpayers allow the European governments to make substantial donor funds available for the development of this country. But as one of the visiting leaders of the European Commission said the other day in Manila: Donor Land is not Disney Land! It needs two to tango.

In conclusion, let me say it again: Europe matters – LOOK WEST!  For comments, contact schumacher@eccp.com.