Breakthrough for handicraft exporters to the USA

With the permission of the sender, I am reproducing an e-mail from someone who is presumably US-based and who has a rather interesting request that might prove of interest to our readers who are into exports.

Hi. Thanks and congratulations for the very helpful tips for people like me, who has started a business and wishes to make it bigger. (The STAR, Oct. 7).

I am just wondering if it is at all possible to have a "report" on how handicraft manufacturers in the Philippines can again have a "breakthrough" in the US market. Or, if there are some other products which can be successfully launched here?

Thanks. I know you are rich in resources (reports) over there at AIM.

Thank you for reading the articles. You are correct. The object of publishing these articles is really to help entrepreneurs grow their businesses.

Let me reply to your request creatively by allowing you to visit one of our mentoring sessions at AIM’s Asian Center for Entrepreneurship during which we focused on the global handicraft game. The following discussion is a synthesis of several mentoring sessions with our Master in Entrepreneurship students in the handicraft/furniture export business. These mentoring or "guruing" sessions often cover the current issues faced by the entrepreneur.

Exporters often complain about the uncompetitive price of handicraft/furniture products made in the Philippines. According to them, Philippine-made products cannot compete with the cost structure of China, Vietnam, and other Asian economies.

As a rule, an ACE guru does not give answers directly. Rather, the guru asks questions and throws back the issue to the student-entrepreneur.

ACE guru: What do you mean by uncompetitive price structure?

Student-entrepreneur: Well, if I compare the labor costs, power costs, and other costs of doing business in the Philippines vis-à-vis China, Vietnam, and other competitors, I cannot compete on the basis of price. I have not even included the impact of labor productivity.

AG: But is the price the only basis of competitiveness? Do the buyers for the US markets decide on price alone?

SE: Not all the time. I have been told by the buyers that the reason why they continue to buy from me is due to my designs. The designs I offer the buyers meet the exacting taste of their market. My designs use indigenous materials but I do not stick to indigenous designs.

AG: What else did the buyers tell you? Any other interesting stories? Did you ever ask your buyers what they do not like about you?

SE: I have many stories. My buyers always said that my price is uncompetitive.

AG: What do your buyers not like about sources outside the Philippines?

SE: They do not like their designs. They said that non-Philippine conceptualized designs tend to be too traditional, indigenous, and ethnic. Many of the designs cannot capture the taste of the US market. Filipino designs seem to show an understanding of the potential of indigenous materials and the needs of the US market. They are able to combine the use of indigenous materials to produce craft products for the US market.

AG: So what do buyers do?

SE: Aha! Because of my designs, they buy from me in the first cycle. Because of the uncompetitive cost structure of the Philippines, a similar design is produced in other countries in the succeeding cycles.

AG: Therefore?

SE: I should compete on the basis of design and price my products knowing that I may not be asked to produce it again.

I hope that by letting you "visit" this mentoring session, your questions have been answered. In sum, the way for Philippine handicraft manufacturers to again have a "breakthrough" in the US market is to compete on the basis of design.

Instead of cracking your head trying to find ways to lower cost and increase productivity, accept that the Philippine cost and productivity structure will not be the best basis of competitiveness. Rather, use the Philippine advantage of knowing what the US market needs and wants. The Philippines has a knowledge advantage that other Asian countries do not have. Filipinos have had a longer exposure to the US lifestyle. As such, Filipinos can design better for the US market. The other Asian countries can only "copy" or imitate designs that Filipinos have pioneered.

But, do not forget to price your product properly. Price is knowing full well that there may not be a repeat order of the same design. Recover your design, research and development costs on the first order. Do not forget that price is not the primary consideration of the first cycle order. It is design. Do not forget that the design must meet the discriminating taste of American consumers. Use the Filipinos’ longer, better, and more intimate knowledge of the US market. In addition, know the potential of indigenous materials and how innovation can be used to make them superior media for craft products intended for the United States.

(Alejandrino Ferreria is the dean of the Asian Center for Entrepreneurship of the Asian Institute of Management. For further comments and inquiries, you may contact him at: [email protected]. Published "Entrepreneur’s Helpline" columns can be viewed on the AIM website at http//: www.aim.edu.ph).