2015: a year for awareness and action beyond borders

SUITS THE C-SUITE By Cirilo P. Noel

Business World (12/29/2014 – p.S1/4)

THOSE with their ears to the ground may have got the sense that 2015 holds promise, while also realizing that extracting that potential will not be straightforward. It will require creativity, patience and persistence. The business landscape is becoming harder to predict due to the faster pace of transactions, complex web of interdependencies, geopolitical uncertainty, spillovers from natural and man-made disasters, domestic wrangling in top economies, evolving regulatory landscapes, and the changing cast of lead players.

To cope, businesses are advised to keep this resolution for the New Year: cultivate not just the awareness but — more important — the courage to act upon the un-obvious opportunities in the increasingly integrated markets of the region and the world.

The Asia-Pacific is forecast to have a good year ahead compared to the global outlook, which is less rosy. Capital has been shifting towards the region in recent years, especially as most of the countries here are in their developing stage, entailing more spending and frenetic economic activity than the more mature parts of the world. The region’s total output is expected to rise by 5.6% in 2015, a slightly faster clip than the 5.5% estimate for 2014 but a large gap over the 3.8% forecast for the global economy according to the International Monetary Fund (IMF). The region’s economic activity is said to be supported by robust domestic demand, accommodating monetary policies and financial costs, as well as many governments’ commitment to spend on infrastructure.

The Philippines itself has been tagged as among the stronger performers in the region along with Malaysia next year. The IMF has forecast growth of 6.3% in 2015 against an estimated 6.2% in 2014 while the government expects a more optimistic 7%-8% range for the coming year.

Certainly, with good governance as the platform, things bode well for the Philippines next year. Inflation has been manageable in 2014 according to Business Monitor Online despite price pressures from the Manila port congestion and the aftermath of several typhoons. The Public-Private Partnership (PPP) Center for its part had earlier declared that 18 more major infrastructure projects totaling over P600 billion will be rolled out by June 2015. Furthermore, President Benigno S. C. Aquino III has just notched a +39 net satisfaction rating as of December 2014 according to the Social Weather Stations, making it the highest of the four quarters this year. This should give assurance of continued support for his undertakings in the 2015.

However, businesses keen to ride this wave of good fortune may still face a hard time spotting the keys to success. The usual drivers of the world economy — United States, Japan, China, and Western Europe — have been forecast to remain laggards next year. The IMF has warned of stagnation in developed countries, volatility in the financial markets, as well as a cooling of the industrial machine that is China.

The strongest growth is anticipated in parts of South and Southeast Asia as well as Africa. It is important to note, however, that while these emerging markets offer the strongest growth opportunities, they too harbor difficult regulatory environments which need to be navigated.

Moreover, even the best laid business plans could be easily upended by looming geopolitical uncertainty. The Russia-Ukraine conflict, the war against the Islamic State of Iraq and Syria, the maritime disputes in Asia, the ebola contagion, the stalled negotiations between Iran and the United States, and the economic weakness of some members of the European Union may worsen yet and possibly even disrupt business worldwide. At the same time, positive developments such as the renewed diplomatic ties between US and Cuba and the new US-China climate deal have delivered unexpected opportunities. Companies cannot just rely on their usual assumptions about the world market. Cautious optimism seems to be the order of the day.

For 2015, companies need to keep a closer watch on international developments and play the field more astutely. Already, the general public appears to be more attuned to the intricacies of foreign affairs, due to news interest generated by issues like the South China Sea dispute, the complications arising from the US-Philippines Visiting Forces Agreement, and the dangers posed to our expatriate Filipino workers by flashpoints in the Middle East. The rest of the world, in turn, is playing closer attention to the Philippines as well: the country’s credit ratings have risen as well as its ranking in competitiveness metrics.

However, the Philippines, so far, has been slow to align its business flows with the opportunities in the wider world. For instance, only 20% of investment pledges recorded in the first half of 2014 were from foreign entities, with the bulk accounted for instead by Filipino investors, according to latest data from the National Statistical Coordination Board. Infrastructure investment and power supplies, meanwhile, remain as persistent concerns.

The country has also been slow to reach out to markets beyond its traditional partners like the United States, Japan, and Germany. Only 8% of the Philippines’ export sales were to Southeast Asia as of the latest Central Bank tally covering January to June 2014 despite repeated encouragements to target this fast-growing region. This share is similar to the full year figure for 2013 and is even a decline from the 11% share recorded a decade prior.

To enhance this, companies should devote more attention to tracking regional and global developments and take bolder action in reaching out to new markets. Filipino entrepreneurs have already taken a leap in launching their business once before; they must tap into that entrepreneurial spirit again and venture beyond our borders. If it is any assurance, help is available anyway to help navigate new markets’ unfamiliar regulatory environments.

Investment is also critical in bringing operations up to par with world standards. Action must be swifter with regard to public-private partnerships for infrastructure as well as power investments. Part of doing business is nurturing a culture of consistency and predictability of policies. The region is in the spotlight of foreign investors and the Philippines must not miss its chance.

Additionally, companies need to ensure compliance with international regulations as business increasingly involves cross-border transactions. They must also keep up with advances in technology — the very driver of increasing globalization — as well as the emergent risks these entail. For many fledgling companies keen to ramp up operations, it may be high time to explore new technology offerings for service deliveries as well as new systems to protect the firm from virtual dangers.

Above all, companies must adopt a mind-set that recognizes the interlinkages that underpin the movement of the world economy. Business strategies in this New Year should take into account, more than ever, the connectivity of regional and global events. The winning strategy for 2015, ultimately, is one that is guided by awareness beyond borders and the trademark boldness of the Philippine entrepreneurial spirit.

Cirilo P. Noel is the Chairman and Managing Partner of SGV & Co.