Anthony J. Familia and Dr. Paul J. Fields, Statistics

Market globalization gives developing countries a better opportunity to start successful export manufacturing operations than ever before. However, because virtually no research exists on export manufacturing companies in developing countries, many micro-entrepreneurs are unable to tap into these vast international markets. Consequently, potential export manufacturers typically start small family businesses that struggle to stay afloat in their own local economies.

I spent the summer of 2005 in the Philippines studying small- to mid-size export manufacturing companies. My research sought to discover what factors differentiated successful companies from failing ones in the context of global expansion. I had a special interest in how small family-run businesses can use global exports to flourish and expand. I originally planned to focus my research on companies within PEZA, the government-run export manufacturing zone. However, when I arrived and began interviewing the PEZA companies, I found that most of them were actually just manufacturing satellites of Korean, Japanese, or American companies. They had no one in-country higher than a factory manager, no marketing arm, and no idea about the overall vision of their respective parent companies. Virtually none were the home-grown Filipino entrepreneurs I was hoping to interview.

I talked about my research with everyone I met in the Philippines, went to the Manila Entrepreneur Club, and eventually began to meet the kind of businessmen and women I wanted to interview. I presented preliminary findings to the Academy for Creating Enterprise in Cebu. Through referrals from company to company, I interviewed representatives from several types of businesses, revealing not only the characteristics of individual companies, but also a sense of the larger business community. My questions were carefully formulated to elicit individual responses rather than simple tally marks. I focused on constructing a temporal model of each company, encompassing past, present, and future. Creating an informal mood for the interview, I encouraged my subjects to first talk about the company’s founders, history, and past successes. From there, we moved on to the specific challenges the company faces now and how they are dealing with them. Finally, I asked them for their vision of the company’s future.

My findings reveal a range of strategies companies are using to compete in the global market. Some companies are taking advantage of globalization and flourishing, while others are merely coping and trying to stay alive. Important changes successful companies were making included connecting with the end-user, saving costs by eliminating middlemen, understanding the competition, moving from mass-production to more high-end design projects, and offering customization. The successful strategies can be explained under two main headings: Reaching the end-consumer and avoiding commodity mass-production.

Like all manufacturing, export manufacturing is consumer-driven. Producing quality goods with premium pricing is easy. However, American consumers are increasingly demanding quality products with low price tags. This challenging set of expectations is forcing retail super-chains, such as Wal-Mart and Target, to do whatever it takes to lower their costs. Their strategies often involve learning to eliminate middle-men and deal more closely with manufacturing companies.

Just as Wal-Mart is vertically integrating, some of the more savvy manufacturing companies I interviewed are also integrating. Instead of the traditional upstream integration, they are employing downstream integration. It is this migration towards the end-user that gives these manufacturers the edge they need to excel in the current business environment.

Companies that understand the market employ multiple strategies to compete. The manufacturing companies that are integrating downstream also typically have customizable or high-end designer products. In the commodities market, it is only a matter of time (and usually a short one at that) until the buyers are able to drive down the prices to a point where the margins of the manufacturers are razor thin. When that happens, the country with the lowest cost of labor usually wins. As a smaller neighbor to China, the Philippines will not win that battle. Because their labor costs are higher than their competitors’ in China and other less developed nations, successful Filipino companies are moving from mass-production to design and customization, and from pure manufacturing to marketing and downstream integration.

One Filipino company I interviewed illustrates very well these successful trends. Subtly playing off the Filipino penchant for imported goods, the founders named the company “Canadian.” Like many other companies I interviewed, this one was begun in the 1970’s. In response to the lower manufacturing costs of surrounding countries, they started what they call their “Character Line.” Canadian buys the rights to manufacture and label garments with specific Disney characters (Snow White, Belle, etc), for an entire region (e.g.-all of Thailand). Once they have broken into a region with their exclusive character line, they then leverage it to persuade buyers in that region to purchase their bread and butter products, sheets and comforters. Canadian keeps close tabs on its main competitors in South Korea and Vietnam to make sure it is not caught off guard.

As evidenced by my research, the following strategies are most likely to produce a successful Filipino Export Manufacturing Company:

Reach out to End-Customers

•  Eliminate middlemen
•  Do market research
•  Market directly to consumers
•  Use the internet
•  Understand the culture of your consumers
•  Network with international businesses

Leave commodity mass-production to the Chinese

•  Expand into design
• Invest in research and development
• Offer customization

I am continuing to work with Dr. Fields to publish my findings and make them available to other researchers in the field and to benefit small manufacturing operations in developing countries.