The game changers

SUITS THE C-SUITE By Cirilo P. Noel

Business World (06/15/2015 – p.S1/5)

Entrepreneurs know that winning the game can sometimes mean changing the rules. Because they are visionaries, they see possibilities and opportunities that may not be visible to others. As game changers they bring about positive transformation through innovation. They challenge traditional business models and strategies, and persist in operational reinvention. Agility, innovation and collaboration are the characteristics of the way they operate. In the process, they fundamentally change the business landscape. They are determined to generate wealth, change businesses and spur competitiveness, thereby contributing to a vibrant business community and robust national economy.

Since 2003, the Entrepreneur Of The Year Philippines has been recognizing the contributions and potential of Filipino entrepreneurs. The program honors inspiring entrepreneurs who work relentlessly to improve their lives, their communities and the country — these are the Filipino game changers who challenge convention and create new paradigms to spur social and economic development.

Many large corporations, like enduring family businesses, trace their humble beginnings to an entrepreneur founder. Most medium- and small-sized enterprises started, in all likelihood, with one person’s idea that he or she pursued with passion. This holds true for entrepreneurs the world over, regardless of location or culture.

A recent Ernst & Young (EY) Megatrends report says that “the growth and prosperity of all economies, even rapid-growth and mature, remain highly dependent on entrepreneurial activity.” In other words, entrepreneurs can very well hold the future and sustain economic growth.

The report mentioned several global changes in entrepreneurship. Among the changes that will likely have a tremendous impact on the Philippines’ growth and development are: (1) The rise of opportunity-driven, instead of necessity-driven, entrepreneurs; (2) The increasing role of women and youth; and (3) The availability of alternative financing.

The first trend shows that entrepreneurs in developing countries will start moving from necessity to opportunity. Traditionally, poor countries have higher rates of entrepreneurial activity than developed countries due to necessity. Because wages are low and jobs are scarce, people put up businesses to survive. Examples are the “buy-and-sell” micro-entrepreneurs who strive to make a living from day to day.

However, with the growth of consumer power in developing countries, it is expected that there will be a shift from necessity to opportunity. This is true for the Philippines where the increasing number of Business Process Outsourcing companies and OFW remittances are enabling more consumer spending. In fact, we have become a consumer-driven economy as household consumption accounted for 58% of economic output in 2014. This presents a huge opportunity for entrepreneurs to cater to the market.

In addition, there are now opportunities for “frugal innovation” or the offering of lower-cost products and services. There is much to be made from selling affordable substitutes and unbranded, generic products in developing economies.

Other reasons for the increase in opportunity-driven enterprises include the lowering of business costs and barriers to entry brought about by technology, as well as the opportunity for entrepreneurs in developing countries to expand their business models into other developing countries. The ASEAN economic integration is one such opportunity.

EY Megatrends next reports that the face of entrepreneurship is increasingly young and female, with nearly 50% of the world’s entrepreneurs between the ages of 25 and 44. The highest rates of entrepreneurial activity are among 20- to 34-year olds. In China, for example, 57% of entrepreneurs are between the ages of 25 to 34.

The current generation of young people, collectively called millennials, is said to be increasingly turning to entrepreneurship. No longer do they aspire to be hired immediately by a corporation after graduating. Moreover, technology and online platforms have also made it easier to reach large markets with little capital. And quite naturally, it is the tech-savvy youth that are able to take advantage of these with ease. Many young entrepreneurs are behind the independent retailers advertising their goods on social networks like Facebook and Instagram. They are also among the ones coding and commercializing new apps for smart phones. This is a particularly potent trend for the Philippines where the average age of the population is 23.4 years old.

Besides young people, more women are reported to be taking up entrepreneurship as well. According to EY Megatrends, women-run small and medium enterprises are increasing globally. At present, roughly 126 million women are establishing new businesses in 67 economies around the world according to the 2013 Global Entrepreneurship Monitor.

Having more youth and more women creating jobs and controlling their own incomes bode well for the inclusivity of development in the Philippines.

The third trend in entrepreneurship has to do with financing. EY Megatrends reports that access to funding remains the biggest hurdle among entrepreneurs. Lack of funding is cited as one of the primary reasons why businesses are discontinued around the world.

Today we are seeing innovative financing options. One such option is called “crowdfunding.” Instead of taking out a big loan from a bank, for example, an entrepreneur can ask for smaller amounts from a large group of people, usually the general public. We have seen this done, for instance, among independent film producers whose investors give small amounts in exchange for credits in the film. According to the World Bank, the crowdfunding market for developing countries, which was worth $5 Billion in 2013, could rise to 96 billion by 2025.

Another funding alternative is microfinance, which is made available to poorer segments in society and who are unable to access traditional bank financing. These typically involve very small loans with no need for collateral, although it may include wider services like insurance and remittances. There are very successful microfinance institutions in the Philippines that have provided financial assistance to the poorest of the poor. According to the 2015 Microfinancial Market Outlook, the global microfinance market is expected to grow 19% annually for the next five years.

These three trends in global entrepreneurship are welcome news for the Philippines. First, having more opportunity-driven entrepreneurs who take advantage of the large low-cost market can help boost economic activity, since more segments of the consumer market can be catered to. Second, the increasing participation of the youth and women allows the benefit of entrepreneurship to reach these often vulnerable sectors of society and enable more inclusive development. And third, the growth of alternative financing options helps fuel business success in tandem with more government support for the entrepreneurial ecosystem.

It is clear that both the public and private sector have important roles to play in creating a dynamic and sustainable entrepreneurial ecosystem, which is essential to entrepreneurial success.

From these trends we can glean that entrepreneurship is intrinsically dynamic and forward-looking — and this is also why game changers thrive in it. As a tribute to the innovative and dauntless spirit of Filipino entrepreneurs, we have also made Game Changers the theme for this year’s search for the 2015 Entrepreneur Of The Year Philippines, which is still open for nominations until 30 June, 2015.

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