Makati Business Club » Blog Archive » 2. Jun 1. 3: Speech: DIOSDADO P. BANATAO2. 01. 1 Jun 1. Speech: DIOSDADO P. BANATAOGOING GLOBAL—DO WE HAVE WHAT IT TAKES? Diosdado P. Banatao. Managing Partner, Tallwood Venture Capital. Chairman, Philippine Development Foundation. MBC- MAP Joint Membership Meeting. June 2. 01. 1, Monday. The Asian Pacific Fund administers 12 scholarship programs to help undergraduate and graduate. The Family of Dado and Maria Banatao. Diosdado “Dado” Banatao. Scholarship Program Engr. Diosdado Banatao 8 CLSUIAG VP Meets. BANATAO SHARES HIGH HOPES FOR THE PHILIPPINES By. Dado & Maria Banatao. Dado and Maria established the Banatao Family Filipino American Education Fund with the Asian Pacific Fund. The Peninsula Manila, Makati City. Good morning. Twelve years ago, Fernando Zobel and Vicky Garchitorena established Ayala Foundation USA in the Bay Area, San Francisco. The goal was and still is to act as a bridge for Filipino- American gift- givers to fulfill their desires to help the country. In the last ten years, close to $1. M was successfully channeled from the U. S. Except for scholarship grants, this gift giving was mostly humanitarian in nature, a very tactical activity.
Two years ago, the board of the foundation decided to add a strategic initiative to our philanthropic activities. Right or wrong, we thought that there is not enough wealth from Filipinos in the U. ![]() S. We then renamed the foundation—Philippine Development Foundation or Phil. Dev. Research has shown that in any economy, sustained high growth happens due to a number of common attributes such as: a functioning market system, high levels of saving, public and private sector investment, resource mobility, and political leadership and its ability to deploy the right infrastructure and business policies. But, it is the resources of the global economy that stand out as the driving forces in sustaining high growth in a developing economy, and these come in three parts: demand, technology, and foreign direct investments. It is important to note that in a relatively poor economy, the global economy is huge, in comparison, and at the right prices and costs, demand is, for practical purposes, unlimited. To quote the report from the Commission on Growth, “Once the challenge of identifying industries in which the country can invest in acquiring a comparative advantage is met, growth in exports will not be constrained by demand, and growth in the economy can occur at a rate determined by the savings and investment rates. Much of that investment in the early stages will go into the export sector, which can grow at rates high enough to pull the economy along. As we saw Japan, Korea, Singapore, and now China, the growth of exports can set in motion a process of sustaining growth which is transmitted to the whole economy and could not be achieved by relying on domestic demand alone.”Is the Philippines taking advantage of this global demand? We are part of this global demand, and because of this, foreign companies compete in large value add segments of our market with no local competition. High gross margin revenue is exported out of the country. I claim that to compete globally we must be able to compete locally first. While it does provide jobs, revenue, and profit to the owners, the overall value returned is low. Return on labor is good but it lacks the leveraging value of investment capital and intellectual property. We are taking advantage of global services demand but again lacking on the value of leveraging. While there is significant contribution to local savings through remittances and could be a resource for investments toward economic development, these remittances to a large extent are not savings for possible investments because they are mostly for family assistance. The second resource of the global economy to sustain high growth is technology. They range from engineering and production and services technology to managerial expertise and global market knowledge. Technology transfer may be used but only if there is a level of expertise locally to sustain and potentially surpass state- of- the- art. Otherwise, it is not sustainable and is yet another form of high gross margin revenue loss. Compared to industrialized developed countries, we are severely lagging in technology. The country finds itself not competitive in high value add products based on technology. It has been shown in other wealthy nations that industrialization is one of the more lasting solutions to poverty. Industrialization is simply the process of creating technology- based value add products and services by local companies. It also transforms countries from a consumer status to that of a producer. To catch up, the Philippines must start this whole process by creating a large globally competitive base of scientists and engineers to create leading technologies for product creating relevant to the global market. We saw this in the case of Japan, Korea, Taiwan, and most recently, China. The lack of technological base manifests itself in many forms: 1. Government must provide the seed money. However, I believe that the government does not have enough financial resources to solve this enormous problem alone. In the U. S. Evidence of funding by foreign foundations and governments are random at best. A few years ago, a small group of us from the industry started a dialogue with the government—namely, the previous president, the secretary of science and technology, and the College of Engineering at the University of the Philippines to address this problem. The idea is for the government to provide funding for universities to produce thousands of Ph. Ds and Master of Science degree scientists and engineers. This resulted in a program called ERDT, Engineering Research and Development for Technology, administered through the Department of Science and Technology. It was funded to support scholarships in seven universities all over the country. At the same time, research institutes were set up so scientists and engineers may begin to instantiate science concepts into technologies that industry can then use to create high value add products. I am glad to mention that one start- up has been created and is in production of an electronic system product using a technology coming from one of the research institutes. A second one is now in formation. Royalties from product revenues based on technologies coming from these research institutes will be used to fund further research. It is worth mentioning and proud to say that the current government is fully supportive of ERDT and has continued funding the program. However, to reiterate, funding for research by the government alone is not sufficient. Help from industry and philanthropy is necessary. The third resource of the global market for sustained high growth is foreign direct investments beyond the capacity of local economy to save. FDI is especially important in that it brings in more technology, market knowledge, and access to global markets. To attract foreign direct investments, industry must create investment opportunities and provide globally competitive expertise to attract foreign expansion in the country. In the last four years, the commitment by the government to produce the necessary expertise in science and engineering is unparalleled in recent history. I am challenging industry to now do an equivalent effort in investments in research and development of technology- based product and services. Once industry has defined market opportunities, there are basically three necessary requirements for value creation to happen: 1. Also, large infrastructures being developed by the government is large enough in scope that it may create additional local market. In many cases, markets in developing economies are expansion markets for foreign companies and usually sell products beyond local market requirements with high cost and therefore opening local markets to local competition. However, a fresh look coming from a relative outsider may reveal new insights. My favorites (details not included due to time constraints): Electric Power Minigrids –These are grids that may be as small as a small barrio. Source of power may be from solar backed by large storage cells for night operations, wind power with storage, or electric generators powered by biodiesel fuel derived from locally processed algae or other cost effective bio- oils. In the end, cost and performance prove viability. Almost no transmission cost and DC will provide high efficiency. Biofuels – While the cost of crude oil fluctuates, the trend is established that it will monotonically increase over time. Biofuel derived from local materials applied to industrial, transportation, and power needs can be processed in miniature plants that minimizes cost of distribution and processing infrastructures. Low- End Transport Vehicles – Copying the success of the Volkswagen Beetle years ago and the Indian Tata Nano of recent, a low- cost vehicle using alternative clean fuels and tailored to local affordability and mobility habits may disrupt import products keeping revenues in the country. Alternate Micro- Telecom Infrastructure – Mostly tailored for data on Internet protocol. Stateless Thin Clients and Cloud Computing. To summarize, industry must close the loop that the government and academe started in expertise training. The industry’s involvement in creating companies with focus on value add products or simply high gross margin revenue products and services will enable the country to finally be part of the global market, creating a sustainable poverty- reducing high- growth economy.
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