By Raul V. Fabella
“Lotus” was the most successful retail outfit in the town of Jagna, Bohol, for as far back as memory goes. From a humble beginning as a stall holder in the public market, the Salas family grew the business by dint of punishing hard work into the first detached concrete two-story retail outlet catering mostly to sari-sari store owners of Jagna and nearby towns Duero and Garcia Hernandez. Jagna is a port town hosting ships to and from Camiguin and Mindanao. This gives it a strategic advantage as a crossroad for travelers and visitors. It is home to many marine OFWs and balikbayan families who build spacious concrete dwellings. Jagna also hosts the CVIF high school, run by physicists Christopher and Maria Victoria Bernido, which institution has become a must-visit for curious educators both here and abroad. Incidentally, CVIF now also hosts volunteers of the highly innovative science corps program which aims to bring frontier science to third-world high school students. Volunteers Dr. Hyunjin Shim and Dr. Victor Sojo taught applied research and rudiments of Big Data analysis to STEM students. That Jagna is a town looking up is clear to see.
Then came 2018. Outsiders who long noticed the potential of Jagna began to act on the temptation. McDonalds Philippines opened a spanking new air-conditioned two story outlet in one corner of the public market. From the popular wooded promontory called Ilihan Hill which hosts a Barangay sang Virgen shrine, the signature yellow “M” has taken over from the church spire as the principal landmark. That rattled the food stall owners in the Jagna public market where sikwati ug puto maya are the traditional morning fare. Another bombshell made landfall with the opening of the fully air-conditioned Bohol Quality (BQ) mall! Where electricity price is prohibitive, this seems a big gamble.
BQ is one of the two dominant retailers in Bohol, both owned by ethnic Chinese and based originally in the capital, Tagbilaran. The other giant, Alturas, owns the first and only full-fledged mall in Bohol called Island City Mall (ICM) in Tagbilaran City. The Alturas control much of the retail trade in the province through its mobile distribution assets and its network of retail partners. Its principal retail partner in Jagna is Lotus.
Tagbilaran itself has become attractive to even bigger retailers plying the Visayas and Mindanao — such as Puregold based in Cebu — and the country itself, such as the elephant of them all, Shoemart (SM) Corp. Bohol’s new classy international airport located in the world-renowned resort island of Panglao attests to its upward outlook. When the big national retailers take interest in and flock to a local regional market, local capitalists tremble and scramble for refuge in remoter small towns, pushing even smaller players to the wall. This is precisely what happened in the twin cities of Bacolod and Iloilo. SM is showing every sign of intent to enter the Tagbilaran market. BQ has now made the move to Jagna and put a squeeze on Lotus. So far, Alturas has refrained from following BQ’s move, preferring rather to work with Lotus in Jagna by matching the price-discounts of BQ mall. Meantime, Lotus, now with Gem Salas at the helm, is going through a painful re-molding of its business model, trimming down its work force to the bone and trying to sell off losing ventures such as its pharmacy unit which, in previous eras, it could afford to carry. The immediate beneficial effect is the lower price for consumers. I personally lean towards the Alturas strategy.
How this small town drama will play out is a challenge for market crystal ball gazers. The two strategies being parlayed, one by BQ’s direct presence and the other by Alturas’ indirect presence through strategic local partners, are in an apocalyptic clash. The Alturas strategy avoids heavy fixed cost but splits profits with local partners. The BQ strategy incurs sizeable fixed cost but keeps management control and all the profits. The Alturas strategy calls for spending on monitoring and encouraging greater efficiencies of its partners. BQ will just mandate efficiencies in-house. Meanwhile, as the grapevine goes, Alturas itself has struck a partnership alliance in its retail business with Cebu-based, regional giant and potential intruder, Gaisano, perhaps to withstand better the shock from the prospective entry of the mother of all giants, SM, into the Bohol market. Machiavelli’s advice in The Prince is alive and well: ally not with the strongest but with the second strongest so you can keep both at bay.
This dynamic is as old as Capitalism itself. In the dog-eat-dog world of Darwinian competition, “big” is a trait selected for survival; “small’ though romantic is a trait selected for extinction. The latter is the dark side of Capitalism’s “creative destruction,” a notion we owe to Joseph Schumpeter. Let me guess what some of you may be asking: Shouldn’t government move to protect the small against the big? Perhaps by making small towns off limits to big players? To inoculate small local players from incursions by the big in the name of “small is beautiful” is a wrong-headed romantic gobbledygook. It would freeze small towns in time and deprive their consumers from the benefits of price competition. Rural poverty is largely the result of wrong-headed government interventions in rural markets ostensibly to “help the poor.”
Is there a bright side? When in the early 19th century the power-loom empowered big boys of textile manufacturing in England invaded Scotland with its family-based hand loom-weaving concerns, the Scottish businessman, Carnegie pere’s legacy business went belly up and the children, among them Andrew Carnegie, emigrated to America to find their fortune. “Andy” Carnegie eventually built Carnegie Steel, the largest and most modern steel-making corporation of America of its time, and who bankrolled the Carnegie libraries throughout small town America. One wonders whether this world-beating mega-corporation would have become possible had the Carnegies not been put through the ringer by the big English textile interests. The squeeze being put on the likes of Lotus may eventually unchain battle-tested local talents like Gem Salas to explore and conquer beyond the narrow confines of small towns.
Raul V. Fabella is a retired professor of the UP School of Economics and a member of the National Academy of Science and Technology. He gets his dopamine fix from hitting tennis balls with wife Teena and bicycling.