David versus Goliath –– can lack of size create competitive advantage?
With the Estimates Debate in the Lower House now complete, with all the politicking and occasional reference to the core issues that create or can negate our economic fortunes, I once again feel as though we continue to address what all can see and shy away from what is in the back room and requires some ventilation.
We are preoccupied, in many cases due to the poor judgement of our leaders and the perceived benefits of being political into thinking, with the notion the issue is simply that we don’t have money. For example, the need to pay fees at the University of the West Indies and potentially at the Queen Elizabeth Hospital is not simply a lack of money, but a lack of restructuring and innovative advances.
As a small developing state, we already have certain perceived and real challenges that befall us and make our advancement economically and socially all the more fragile to manage, but I believe that our size and lack of scale could actually work in tandem with higher productivity to create competitiveness and economic fortunes.
So what is this issue of scale and how does it relate to our future successes?
Consider David fighting the giant Goliath, with lesser strength and a slingshot, but he was more competitive and successful due to his strategy and use of limited resources?
Consider LIME, Flow, Digicel, and TeleBarbados all trying to serve the same buying population and all investing considerable sums in equipment and other resources? And imagine the benefits of pooling these resources in a merger to better serve the customer and earn a better return.
Whether we are speaking about agriculture or manufacturing, we do not as individual farmers or manufacturers or even in many cases service providers have enough output to satisfy the entire needs of a large customer, far less export on a large basis. If we then add other parameters we end up with the following:
1. High cost of labour. We have higher labour costs than our neighbours and many international markets where production is carried out.
2. Low productivity. An ongoing noose around our necks that must be addressed through motivation and incentives to perform, and must be led by our managers and supervisors.
3. Reduced or less than optimal outputs. This is as a result of high input costs, lack of production capacity.
4. Distribution channels. With a small scale we cannot demand access to distribution channels, shipping lines and so on, and so access to overseas markets is a challenge, even if there is demand.
The proposed merger of LIME/Flow therefore provides a simple lesson that has nothing to do with if they get approval or not. A far different approach to our local and regional markets is required at all levels to address some the items listed above:
1. To improve scale of output and capacity, we need to pool resources and talent at the production level. So we can have two farmers who pool their resources, but can still for retail purposes maintain two brands/packaging and determine which outputs are branded how. But the inputs would have been pooled to increase capacity, reduce costs per unit and increase outputs, while attaining full capacity.
2. The Caribbean needs one airline –– a merger between LIAT, CAL, Bahamas Air and so on to create a competitive company with bases in the north and south to cater to our tourism and business needs, but also movement of stock/cargo. The relocation of LIAT operations base to Barbados is not the solution to anything.
Likewise we may not be able to own a shipping line, but leasing arrangements or other MOUs for use of shipping of space may be negotiated.
3. The use of idle industrial estates to provide factory, production space for development and production of Barbados branded outputs: furniture, condiments, souvenirs and the like. But each factory will attain full capacity by having multiple business owners joining forces by sector to achieve economies of scale.
4. Apply a more innovative approach to traditional sectors and move swiftly on new ones to achieve competitiveness;
5. We desire free social services, which are only sustainable where our productive and service sectors are earning at the right rate –– based on a diversified and restructured economy to support such services. Tourism is too susceptible to shocks to be the basis for economic growth that is sustainable.
So what does our future hold?
1. Advancements in ICT and technology –– we are well placed to be a technology hub and progress beyond a data entry and processing hub.
2. Trans-shipment services –– via a redeveloped port moving cargo from east to west and supplemented by the north-south traffic based on our easterly location. We have successfully accomplished home porting for cruise vessels; we can add ship maintenance, we have the expertise and can use our educational plant to further develop and enhance these skills.
3. Agriculture –– innovate this traditional sector for several reasons: to reduce our deficit and consumption of foreign exchange we need to grow more of what we eat. Our tastes are now quite varied, beyond breadfruit and yam –– even if they remain the healthiest option in what is now a fairly ailing society. However, more mechanization and use of new processes like aquaculture for fisheries and crops may be useful. The Chinese and others have the technique, cash and resources at their disposal for technical assistance.
4. Manufacturing –– the former Intel, Lenstec are key examples of high manufacturing. Exploration of technology-related assembly is another avenue is see us developing in a meaningful way. Furniture manufacture based on traditional Barbadian culture and style can find a place if we coordinate it well and mix it with the more contemporary offerings.
5. Creative industries –– from drama, to music, to art, to movies, to poetry and all other aspects of the industry. We are blessed with a talent that is truly Caribbean and needs to be exported. How do we bring our cultural practitioners together to capitalize on this? We must create a free zone with tax and other exemptions on equipment and so on to assist this industry in thriving.
6. Our health and education sectors cannot be sustainable based on Barbadian and CARICOM residents only, and I call for specialist development of the QEH that would facilitate world-class health care to be provided in areas of speciality utilizing philanthropy and private investments in the areas of cancer, diabetes, heart disease and the other ailments that plague Caribbean society and make the health care system a revenue earner in these speciality areas.
We have the skill sets that can be developed in our young and even our more seasoned doctors/nurses. Our educational institutions need to be better linked to our economic and development needs
7. Energy –– oil and gas, or renewable energy, Barbados has been a leader in solar energy, and this has to be a critical part of legacy that drives our future development. Solar goes hand in hand with the green economy
So can Barbados punch even higher than its weight? Yes, but not with the same coach and trainer. We must approach this differently.
Our size and lack of scale must be addressed; but therein lies our greatest competitive advantage. Are we willing to join forces at a sector level to achieve it?
We don’t need one sector to save us; we need a blend of sectors that will come together cohesively to take us forward. Tourism, international business, oil and gas, energy, creative arts and so forth must be bedfellows if we can address the challenge of our inherent size and costs structure.
A well planned diversification based on reducing cost through collaboration and not in absolute terms, through cheaper materials or paying labour less can achieve this plan. Our size simply means we can’t do it alone, whether locally or internationally. Linkages, alliances and overall cooperation and the subversion of individual desires can get us there.
(David Simpson is managing director of Prestige Accounting Inc.and a director of the Barbados Entrepreneurial Foundation.)