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Merits of ‘coopetition’

/ 12:45 AM September 15, 2015

ANYONE WHO owns a car in Metro Manila must know Banawe Street in Quezon City, where one can buy all sorts of car accessories and parts. There is something I’ve long noticed about shops there. When you ask for something, especially in a store with Filipino-Chinese owners, chances are you wouldn’t be turned away with a curt “out of stock” reply. Instead, the shopkeeper lifts the phone and makes a call. I thought early on that they were calling their own off-site warehouse some distance away. It was only later that I realized that they were actually calling a nearby competitor, and if the latter had the item, either someone would bring it over or they’d send someone to get it. It’s a win-win-win outcome: the shop gains a customer and probably makes a little margin on the sale, provides some business to a friendly competitor (perhaps a relative, but not necessarily so), and the customer happily walks away with the needed item.

This business practice, seemingly more commonly observed among Filipino-Chinese merchants where competing shops cluster together (such as in Banawe Street or in Binondo, Manila), is a familiar illustration of what has been termed “coopetition”—that is, competition tempered with cooperation. The word, whose earliest use has been traced by Wikipedia back to 1913, refers to situations where competitors in the same market work together to achieve higher value creation than would otherwise be achieved without any interaction among them.

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Note that cartels, where firms collude to control the market, do not exemplify coopetition because they are formed precisely to limit competition. On the other hand, the aim of coopetition is to bring together the complementary resources of competing firms to achieve shared value and, as such, attain higher value creation. Competition among the firms is key, as textbook economics holds that economic efficiency is maximized (translation: scarce resources are best allocated) when competition prevails. As in the example above, coopetition makes possible outcomes where all sides win.

There are other ways by which competing firms can engage in coopetition to their common benefit. It has also taken the form of inter-company partnerships in research and development for new products, even as the companies compete for market share in their industry. A case in point is how Japanese carmaker Toyota and its French competitor PSA Peugeot Citroën conducted joint development of shared components for a new city car. The result was the Toyota Aygo, the Peugeot 107 and the Citroën C1, competing models in the tightly contested global auto markets. The companies made substantial savings on shared R&D costs through their partnership, yet remain fierce competitors in the other aspects of their industry.

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It is in the context of small firms (micro, small and medium enterprises or MSMEs) that coopetition becomes particularly valuable as a business philosophy in an economy like ours. When small competing firms willingly cluster together to be able to respond to volume orders from institutional buyers here or abroad, that’s coopetition. As export orders tend to be large, such clustering is indispensable if MSMEs are to gain and sustain access to the international markets.

The case for getting small firms to aspire for “internationalization” and aim for the export markets should be easy enough to grasp. A firm that confines itself to selling domestically puts an inherent natural barrier to its growth potentials. This is fine if a firm is content with being small, and staying that way. But why should a small enterprise limit its own growth potentials, when virtually unlimited growth is in fact possible by reaching out to the world markets? The rapid rise of the “Asian tiger” economies around us since the 1980s transpired on the back of tremendous export growth. In contrast, the Philippines consistently lagged behind, hobbled by an economy that was largely inward-looking relative to its neighbors. Our traditional trade policies fostered defensive import-substituting industries rather than aggressive export-oriented ones, reflected across the board from the smallest producers to the largest. It’s time we changed all that, and we would do well to pave the way for internationalizing our MSMEs. Coopetition is a key element toward getting there.

As it turns out, coopetition is not really new to Filipinos; it is in fact already being practiced where some might least expect it. The Sultan Kudarat Muscovado Farmers and Millers Corp. has shown the way for muscovado sugar in Mindanao, having brought together small muscovado producers to reap scale economies and collective market muscle. So has the Northern Mindanao Vegetable Producers Association Inc. (aka Normin Veggies), which clustered vegetable farmers together to achieve efficiencies that enabled them to serve markets as far as Metro Manila. Similarly, the Tubigon Loomweavers Cooperative in Bohol brought together home-based weavers of abaca and raffia fiber into indigenous fabrics, with their products now finding their way to Malaysia, with the rest of the Asean Economic Community targeted in the future.

In all three cases, active facilitation by an outside group helped the individual producers shed a seeming natural tendency for a “kanya-kanya” (individualistic) attitude that is the antithesis of coopetition. Such coopetition, manifesting the traditional Filipino value of “bayanihan” (cooperation), is vital to positioning our small businesses to spearhead inclusive growth in the face of growing regional and global economic integration.

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