Wednesday, June 23, 2010

Acid tests

This was my column on the date indicated above. This post is antedated.

The President-elect said over the weekend that he would review the Department of Labor and Employment’s decision giving Philippine Airlines the go signal to outsource some of its non-core business functions. PAL had been bleeding heavily in the last few years on account of a combination of factors—most notably the drastic fluctuations on the prices of oil as well as cutthroat competition in the airline industry—and the decision to outsource some functions is widely seen as a last-ditch effort to keep the airline afloat.

Incidentally, it’s not just PAL that is going through the same problems—many other airlines in the world, mostly national carriers, are weighed down by the same difficulties.

Three other airlines in the country with lower overhead costs have been giving PAL management intense migraines. Cebu Pacific, for example, offers various promotional packages that give away tickets at ridiculously cheap prices. A friend who works in Manila now commutes practically every weekend to Tacloban City; according to him, what he spends on a return flight is less than what he would normally spend on a weekend night out in Manila. The downside is that he has to book flights way in advance, which is not a problem for someone who has blocked off most of his weekends for these flights anyway.

Unfortunately, PAL with its massive infrastructure and bloated bureaucracy cannot go head to head with the new airlines in terms of pricing. Lest we forget, PAL invested heavily in developing the airline market in the country and had to put in place the people and the structures to make the airline operational. Long before there was Cebu Pacific, Zest Air, Air Philippines, or Sea Air, there was PAL laying the foundations that other airlines would soon be able to take advantage of. The analogy that people like to make is that PAL established strong roots in the industry—the same roots that is now pulling it down and preventing it from staying on air. Metaphorically, PAL is now trying to cut off some its roots—the result is the current messy, painful, ugly situation that has turned PAL employees against each other.

The new airlines are lean and mean and have already outsourced many of its functions right at the beginning of its operations. PAL is just catching up.

PAL’s business decision will result in quite a number of its people—some estimates put it at around 3,000—joining the throngs of the unemployed although the airline is cushioning the impact with separation packages.

As a human resource management professional, I have some reservations about PAL’s business decision. A colleague pointed out in a public forum recently that the airline does seem to have fallen into a pattern insofar as the way it makes business decisions and the way it treats its employees. But when needled about business realities and the absence of better alternatives, most everyone I know—including the colleague who spewed quite a mouthful against PAL —agreed that PAL’s business decision to outsource some of its non-core functions and consequently, to let go of some of its people, does reflect present business conditions. In short, it’s the way to go.

The PAL employees who will be affected by the DOLE ruling have sent word that they will take their case to P-Noy. They’ve announced that they would picket P-Noy’s Times Street residence. I don’t know exactly what P-Noy wants to achieve with his intended review of the DOLE decision. There’s the distinct possibility that the statement was just another knee-jerk reaction. P-Noy’s default reaction on most decisions and actions done by the outgoing administration is to suspect the worst in these—as if everyone in the whole government bureaucracy is incapable of correct judgment and as if he and his team are the only ones blessed with an abundance of wisdom.

What he does in relation to PAL is an acid test of the P-Noy presidency. The PAL case is not unique; nor is it isolated. There are many more business organizations that are slowly re-engineering their processes with the end view of outsourcing non-core functions.

The good thing about such moves is that the jobs will still be there—they will just be in another form or with another company. The jobs will still be in the country. What is alarming is the rumored exodus of some manufacturing plants out of the country.

This paper bannered yesterday the news that Nestle will be moving its production plants to Indonesia. This rumor had been whispered about for quite sometime now. Nestle executives, as can be expected, have denied that such a plan of action exists. The last thing it needs right now is a labor problem. The textbook approach to management actions like these is to go the way of Intel—which was to do it quickly, and efficiently. Announcing it months in advance poses major difficulties as employees can throw various obstacles along the way.

But it seems there is more to this than meets the eye and not just because where there is smoke there is fire. Actually, many Nestle plants in the Philippines have long been mere packaging centers since they have long stopped actual manufacturing of some of their products in the country. For example, Nestle breakfast cereals are manufactured out of the country and simply packed here.

Nestle’s industrial relations experiences are staple fare in human resource management classes. For quite sometime there, Nestle was the thought leader as well as best-practice leader in terms of human resource management practices. And yet, Nestle was wracked by major labor problems in the 80s and 90s. Some attributed the problems to massive infiltration of militant labor forces within the Nestle organization.

If Nestle is indeed packing up operations here and moving to Indonesia, then it joins the list of many multinationals that have made the painful—but some argue, wise—business decision. Labor costs in our neighboring countries are cheaper, conditions are more business-friendly, etc. There’s no need to beat ourselves hard with the harsh facts—we know Vietnam, China, Laos, Cambodia, even Indonesia and Malaysia, are being perceived as much better places to do business in and it’s really not because they rank lower in terms of corruption. There’s a confluence of factors that impacts on our overall competitiveness and it would be foolhardy for the incoming administration to think corruption is the end-all or be-all of competitiveness.

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