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Put a ‘two-pizza team’ in charge of innovation

By Mariel Alison L. Aguinaldo

Innovation should be placed in the hands of a “two-pizza team,” said Eric Ries, entrepreneur and author of The Lean Startup, a New York Times bestseller on how to “create radically successful businesses.” 

A two-pizza team refers to a group of employees that can be comfortably fed with two large American-sized pizzas. Whenever a company or a department wants to conduct an experiment, the two-pizza team is put in charge.

By having a two-pizza team, Mr. Ries continued, innovation is integrated into the corporate structure of a business, and an entity—not necessarily a single “chief innovation officer”—becomes responsible for innovating.

“Innovation should be a function in the org chart. It should have teams and standards, and it should be accountable for innovation and disruption results,” he said during a recent virtual conference.

Once the team is established, a company can then build structures around it, including its source of funding and promotion hierarchy. 

When these experiments yield a more efficient internal process or a revolutionary product or service, companies must be prepared and committed to undergo transformation.  

“Most organizations use regulatory compliance as an excuse for their own bureaucracy. The truth is… it’s their own internal process that they have built up around the regulations that is causing them to go slow” said Mr. Ries. “Compliance is not improved because there’s so much politics and truth-hiding.”  

To deal with inevitable failures—the cost of innovation—Mr. Ries suggested taking the “portfolio of experiments” approach, discussed by business author Eric D. Beinhocker in his book The Origin of Wealth. 

In this approach, a company implements a variety of experiments simultaneously to find out which will work best. Some of them will fail, but these missteps will help a company identify the best solution and build their knowledge at the same time.

“Nobody wants to hear that there’s going to be failure involved… [but] you’ve got to be willing to run these experiments and you have to build a big enough portfolio to know if you’re any good at it or not,” said Mr. Ries.

Digicon Omni, a virtual conference organized by the Internet and Mobile Marketing Association of the Philippines, runs until October 9.

Another cop dies from COVID-19 as cases in the police force reach 6,270

ANOTHER POLICEMAN  succumbed to  the coronavirus disease 2019 (COVID-19), bringing the death toll in the police force to 19. The latest casualty was a 51-year-old personnel of the Police Security and Protection Group who died August 15 but his swab test result showing he was COVID-19 positive was only received by the police management on Oct. 7. The late police officer was among the 43 new cases recorded as of Thursday by the Philippine National Police (PNP). Eleven of the new patients are from Metro Manila, seven from Calabarzon (Cavite-Laguna-Batangas-Rizal-Quezon), five from Caraga, two each from Central Luzon and Nothern Mindanao, and one each from Western Visayas, Soccsksargen (South Cotabato-Cotabato-Sultan Kudarat-Sarangani-General Santos City) and Zamboanga Peninsula. The 13 other cases are from various administrative and operational units of the PNP. The PNP has so far recorded 6,270 COVID-19 cases, with 5,344 recoveries. — Emmanuel Tupas/PHILSTAR

Budget delay seen to hurt recovery

By Charmaine A. Tadalan, Reporter
and Kyle Aristophere T. Atienza

A DELAY in the passage of the 2021 national budget will likely hobble the Philippine economy’s recovery, as a reenacted budget will prevent the release of much-needed funds for the pandemic response and infrastructure projects, economists said.

Socioeconomic Planning Secretary Karl Kendrick T. Chua said a reenacted budget could risk the country’s economic recovery next year as it forces the government to spend less.

“A reenacted budget means using the 2020 budget, which is not COVID-responsive. It is also some 9 to 10% lower, so will not help much in our (economic) recovery,” Mr. Chua said in a Viber message.

The government allocated P4.5 trillion for its 2021 spending plan, with around P1.1 trillion set aside for infrastructure projects that it hopes will fuel economic recovery.

The virus-hit Philippine economy slumped by a record 16.5% in the second quarter and is expected to contract between 4.5% to 6.6% this year. Economic managers expect gross domestic product (GDP) to grow by 6.5-7.5% next year.

The House of Representatives on Tuesday approved on second reading the 2021 national budget, but suspended sessions until Nov. 16 amid a leadership squabble. House leaders earlier committed to approving the budget bill by mid-October.

Due to this delay, senators said it is likely the government will operate under a reenacted budget in early 2021. The spending plan for this year stood at P4.1 trillion.

“A scenario of a reenacted national budget in 2021 may definitely lead to slower economic growth and reduced government spending especially on infrastructure, which is a key priority/pillar in the economic recovery program,” Michael L. Ricafort, chief economist of the Rizal Commercial Banking Corp. (RCBC), said in an e-mail.

Management Association of the Philippines (MAP) President Francis E. Lim said there should be no delays to the passage of the 2021 budget, “which is even more critical now given the need to mitigate the impact of the current crisis.”

“The situation reminds us of the 2019 national budget, the enactment of which was delayed due to the impasse between the Senate and the House of Representatives. As a result, our GDP grew only 5.6% in the first quarter of 2019, much lower than the 6.5% growth recorded during the same period of 2018,” Mr. Lim said in a statement.

This brought the country’s GDP growth at 5.9% for the full year 2019, the slowest in eight years.

RCBC’s Mr. Ricafort noted the GDP growth in 2019 would have settled at 7%, if the national budget was passed on time.

“(The) timely approval… will be important especially at this crucial time and situation to support funding for various COVID-19 programs and other government spending especially for infrastructure and other government projects that are needed most to further improve economic recovery prospects and, more importantly, also provide assistance for the hardest-hit/most vulnerable sectors,” Mr. Ricafort said.

The European Chamber of Commerce of the Philippines (ECCP) said lawmakers should approve the national budget in time, as the country faces economic and social challenges due to the pandemic.

“We trust that the Philippine government will prioritize the common good, and restore confidence of foreign investors in the country amidst uncertainties,” the ECCP told BusinessWorld.

Aside from the budget, the ECCP said Congress should prioritize the passage of the Accelerated Recovery and Investments Stimulus for the Economy (ARISE) bill, amendments to the Public Service Act, Retail Trade Act, and Foreign Investment Act.

“The swift passage of these measures will not only enhance business resiliency especially for heavily-affected industries and MSMEs, but also accelerate economic recovery through job generation and increased competitiveness,” ECCP said.

Meanwhile, Presidential Spokesperson Harry L. Roque, Jr. said Malacañang may call for a special session of Congress if needed to prevent the delay in the passage of the national budget.

“The House Speaker said it will be approved on final reading on Nov. 16, so I think there is enough time… If really needed, after Dec. 14, we may call for a special session,” he said during a briefing on Thursday.

Senator Panfilo M. Lacson, vice chairman of the finance committee, urged the House to resume session within the month even after House Speaker Alan Peter S. Cayetano insisted the suspension will only lead to a one-day delay in the passage of the national budget.

“It is definitely not a one-day difference as claimed by Speaker Cayetano… With that said, I have just suggested to the Speaker if it’s possible for him to resume their session, which is merely suspended and not adjourned, before All Saints’ Day just to approve on third and final reading the House version,” Mr. Lacson said in a statement.

Mr. Cayetano has promised the House will approve the budget bill on third and final reading on Nov. 16, giving the Senate little time to finalize their version and hold plenary debates.

“I also told him the senators… need at least one week to study the House version and submit to the mother committee our reports. Another week will be needed for the finance committee to consolidate everything and file its committee report. In doing so, we can start floor debates immediately after we resume session on Nov. 16, or even before that,” Mr. Lacson said.

Senate President Vicente C. Sotto III, for his part, asserted the deferment of the budget’s third reading approval until Nov. 16 will mean a month-long delay.

“Do not be misled, the (House) has delayed the budget for a whole month. No one can ever blame the Senate for this delay,” he said in a social media post.

Should Congress fail to submit the budget in time for President Rodrigo R. Duterte’s signature by the end of the year, this would be the second time the administration will be operating on a reenacted budget.

PSE plans new financial products for 2021

The Philippine Stock Exchange, Inc. is planning to launch new financial products in 2021. Photo shows the PSE logo on the exterior of the building at Bonifacio Global City, Taguig, March 17. — VEEJAY VILLAFRANCA/BLOOMBERG

By Denise A. Valdez, Senior Reporter

THE Philippine Stock Exchange, Inc. (PSE) is eyeing to launch new financial products next year to lure foreign investors back to the local bourse.

In a forum by the Financial Executives Institute of the Philippines on Wednesday, PSE President and CEO Ramon S. Monzon said the bourse operator is planning to introduce new sector classifications and indices as part of its post-pandemic recovery plan.

“To attract foreign investors, we need to develop more financial products. We are coming up with new sector classifications by increasing our sectors from six to eight, and we expect this to be launched in the first half of 2021,” he said.

The PSE currently classifies sectors into six indices: financials, industrials, holding firms, property, services, and mining & oil.

The PSE wants to increase this to eight with financials, industrials, holding firms, property, mining & materials, consumer, energy & utilities, and technology, media and telecoms.

This plan was initially slated for 2020, but because of the coronavirus pandemic, it was postponed to the first half of 2021.

“We will also be introducing new indices…(and pushing for the) creation of new ETFs (exchange-traded funds) and other index-linked funds. We hope to launch these new products in the second half of 2021,” Mr. Monzon added.

Regarding the new indices, the PSE wants to introduce an index that tracks the performance of mid-cap companies and high dividend issuers.

The ETFs are securities that track an underlying index, which allows investors to monitor stocks across industries with less expenses on brokers.

Aside from financial products, the PSE hopes to increase market activity by amending the listing rules to attract more companies to list, and allowing investors to engage in short selling.

Short selling refers to the sale of a security that is not owned by the seller, but will be settled by the delivery of borrowed securities. An investor can generate profits by selling borrowed securities at a time of higher prices, then buying them at a lower price in the future.

The Securities and Exchange Commission has approved short selling guidelines in 2018, but the PSE is still securing regulatory approval for the global master securities lending agreement, the offshore collateral for foreign investors, and the application of the Philippine Depository and Trust Corp. to be a securities lending agent.

“We’re enabling our algorithmic trading, although in a regulated environment, to be adopted starting next year. We’re working on reducing the minimum commission rate on direct market access transactions. And hopefully, we will be launching the short selling program very shortly,” Mr. Monzon said.

The PSE has recorded a net foreign selling of P109 billion year to date, reversing its net foreign buying of P1.25 billion in the same period last year. Foreign buyers have been net sellers for 161 days out of 191 trading days this year, as investor sentiment remains dampened due to economic recovery worries.

The PSE index closed at 5,942.66 on Thursday, down 24% from its 7,815.26 close in end-2019.

Disasters, failure of governance are top risks to business

NATURAL CATASTROPHES and failure of national governance dominate the concerns for business executives in the Philippines this year, according to the World Economic Forum’s (WEF) “Regional Risks for Doing Business 2020” report.

In the survey conducted between January to July, business leaders were presented with a list of 30 risk issues and were asked to pick five they believe to be of most concern for doing business in their respective countries within the next 10 years.

In the Philippines, natural catastrophes topped the list with 54.5% of the country’s respondents including it in their list of five highest perceived risks in doing business —  the second-highest response rate for this issue out of 130 countries, only behind Japan’s 75.3%. This is also way above the global and East Asia and Pacific (EAP) averages of 15.8% and 39.4%, respectively.

Top risks of greatest concern for doing business

The Philippines is prone to natural disasters such as earthquakes, volcanic eruptions, and typhoons.

Other top perceived risk issues in the Philippines include failure of national governance (51.1%, 10th overall); spread of infectious diseases (51.1%, 18th); failure of critical infrastructure (40.9%, sixth); and extreme weather events (35.2%, eighth).

Key issues among Filipino business leaders differed from those at the global level, which had “unemployment or underemployment” as the top concern with 34.5% compared with the country’s 19.3% (100th overall).

Besides jobs, top global concerns include the spread of infectious diseases (32%), fiscal crises (26.5%), cyber attacks (26.1%), and profound social instability (26.1%).

For the EAP region, concerns on the spread of infectious diseases ranked highest at 47.9%, followed by asset bubbles (40.6%), natural catastrophes (39.4%), interstate conflicts (35.2%), and cyber attacks (29.6%).

Sought for comments, University of the Asia and the Pacific Economist Victor A. Abola said that the risks raised by Filipino business leaders are valid, adding that the public and private sectors should work together to address those risks.

“We need to spend more to minimize negative effects of calamities (but more is being done since Yolanda and now COVID-19), but failure of national governance is clearly a strong message,” Mr. Abola told BusinessWorld in an e-mail.

“However, more than NG (National Government), I think the problem is in the LGUs (local government units) whose officials do not have the national interest at heart,” he said.

The survey, which had about 12,000 respondents, was conducted by the WEF in partnership with US-based professional services firm Marsh & McLennan, Swiss-based Zurich Insurance Group, and South Korean conglomerate SK Group. — Ana Olivia A. Tirona

Top risks of greatest concern for doing business

NATURAL CATASTROPHES and failure of national governance dominate the concerns for business executives in the Philippines this year, according to the World Economic Forum’s (WEF) “Regional Risks for Doing Business 2020” report. Read the full story.

Top risks of greatest concern for doing business

Privatization of government mining assets ‘long overdue’

By Revin Mikhael D. Ochave, Reporter

THE GOVERNMENT’S plan to privatize some of its mining assets is long overdue, and will provide a huge boost to the mining industry amid the pandemic, the Chamber of Mines of the Philippines (COMP) said.

“It’s about time that the government should look deeper into reviving the mining industry, especially in the midst of the COVID-19 pandemic. The idea of selling or privatizing the government’s legacy mining assets should have been done a long time ago,” COMP Executive Director Ronald S. Recidoro told BusinessWorld via mobile phone message.

While productivity of these old mines will not be as good as new ones, Mr. Recidoro said it would “address the environmental issues posed by the abandoned mines such as erosion, while companies will be able to unlock the value of these mines.”

He said the government-owned mining assets still have value that can be tapped once operations resume, unlike new mining projects that would have to undergo a long application process.

“If you want to have immediate returns or revenue, you may want to consider reviving the old mining projects. It will be less costly to rehabilitate old mining sites than to approve new mining projects because the winning bidders of the existing state-owned assets will not have to conduct too much exploration work,” Mr. Recidoro said.

However, Mr. Recidoro said the government should address other issues before the mining industry can be fully revived, such as the current moratorium on new mining projects under Executive Order 79, the ban on open-pit mining, and the ongoing suspension of mines by the late Environment Secretary Regina Paz L. Lopez.

Meanwhile, Mines and Geosciences Bureau (MGB) Director Wilfredo G. Moncano said the privatization of state mining assets will go through a process but will take less time than securing a new permit.

“There is still a process after a winning bid is awarded but it is not as tedious as a new applicant,” Mr. Moncano said in a mobile phone message.

Mr. Moncano said the country’s mining sector’s full potential has not been maximized, but would need the support of both the executive and legislative department.

Currently, House Bill No. 6135 that provides a fiscal regime for the mining industry has hurdled the House Committee on Ways and Means while the counterpart measure Senate Bill No. 313 is still awaiting committee approval.

Mr. Moncano said the MGB’s Land Geological Survey Division has estimated that the value of the country’s metallic and non-metallic mineral resources, including sand and gravel, are worth $7 trillion.

The current contribution of the mining industry to the country’s gross domestic product (GDP) is less than 1%. He said this contribution can be bigger once mining policies are improved.

“There had been mining operations in the past that left their mining sites unrestored and unrehabilitated when major problems occurred like tailings spill, global recession, or major drop in mineral commodity prices,” Mr. Moncano said.

“These idle mining assets have values in several billions that need serious investors that are willing to comply also with our country’s law,” he added.

Finance Secretary Carlos G. Dominguez III on Wednesday said the government wants to revive the mining industry to generate revenues and create jobs.

He said he has asked the Privatization and Management Office (PMO) to proceed with the plan to privatize Nonoc Mining and Industrial Corp. and Basay Mining Corp., among others, after reviewing all of the government’s existing mining assets, to look for additional revenue sources.

Cebu Pacific eyes $500M for recovery

FUNDRAISING aims to help carrier ‘navigate current environment and thrive in the ‘new normal’ — BW FILE PHOTO

By Arjay L. Balinbin, Senior Reporter

CEBU AIR, Inc., the listed operator of budget carrier Cebu Pacific, is seeking to raise about $500 million in fresh capital to “strengthen” its balance sheet, as the industry fights for survival amid the ongoing coronavirus pandemic.

In a disclosure to the stock exchange on Thursday, Cebu Air said it “intends to undergo a fundraising plan” that will enable it to “navigate the current environment and thrive in the new normal.”

It added it aims to raise “aggregate proceeds of approximately $500 million.”

The fundraising plan involves a “convertible preferred share rights issue for an aggregate proceeds of about $250 million” and “a private placement of convertible bonds with aggregate subscription price of up to $250 million.”

Aside from boosting its balance sheet, Cebu Air plans to use part of the proceeds for general corporate purposes.

In a separate disclosure, the Cebu Pacific operator noted an urgent need to fast-track its transformation because of the “exceptional change in market conditions and industry dynamics.”

The business transformation involves “right-sizing of the network and fleet to meet new demand, and improvement of operations efficiency through process and policy enhancements and digitalization, among others,” Cebu Air said.

Cebu Air has scheduled a special stockholders’ meeting on Nov. 20, where it will be seeking the shareholders’ approval to increase the company’s authorized capital stock from P1.3 billion to P1.7 billion and “create a new class of convertible preferred shares with a par value of P1.00 per share.”

It said the issue price of the convertible preferred shares rights issue and the convertible bonds private placement “will be decided based on various factors, including the prevailing market price at such relevant time, and the broader equity capital market conditions.”

“The conversion price of the convertible preferred shares and the convertible bonds is expected to be the same and to be set within P38 to P45 range, representing 2% to 21% conversion premium over Cebu Air’s 30-day volume weighted average price from August 26, 2020 to October 7, 2020,” the company added.

Cebu Air previously reported a net loss of P7.96 billion for the second quarter, reversing a profit of P3.79 billion in the same period last year.

The government-imposed travel restrictions during the period resulted in a nearly 93% decline in the company’s gross revenues to P1.42 billion from P23.53 billion in the year-earlier period.

Shares in Cebu Air on Thursday closed 1.21% lower at P36.65 apiece.

Pepsi shares may finish tender offer outside PSE facilities

By Denise A. Valdez, Senior Reporter

PEPSI-COLA Products Philippines, Inc. has suspended the tender offer of its shares by Lotte Chilsung Beverage Co. Ltd. due to a possible change in the transfer procedure.

In a letter to the exchange publicly disclosed on Thursday, Lotte Chilsung said it suspended its ongoing tender offer of Pepsi-Cola Philippines for two days, and will be relaunched on Monday, Oct. 12.

This decision was due to an advice by the Philippine Stock Exchange (PSE) that Lotte Chilsung will need to conduct the tender offer through facilities outside the bourse.

First Metro Securities Brokerage Corp., the tender offer agent of Lotte Chilsung, was supposedly verbally told by the PSE that the company’s on-exchange transaction cannot be approved because the shares being tendered are below the minimum public ownership requirement and are currently suspended from trading.

“As a result thereof, the tendered shares cannot be crossed as an on-exchange transaction, and the transfer of such shares will be conducted outside the facilities of the PSE,” it said.

“[Lotte Chilsung] deems it prudent to suspend the conduct of the delisting tender offer pending settlement and finalization of the mechanics of the off-exchange transaction,” it added.

Minority shareholders from whom the shares are being bought may withdraw their shares through First Metro Securities.

Lotte Chilsung is currently buying 77.86 million common shares in Pepsi-Cola Philippines through a tender offer. This is after Lotte Chilsung bought 1.13 billion shares in the listed company earlier this year, which brought the company’s public ownership below the PSE’s minimum requirement.

Falling below the minimum public ownership requirement is a ground for delisting. Pepsi-Cola Philippines decided last month to delist its shares from the bourse, as it is unable to comply with the minimum public float in the prevailing market condition, it said.

Shares in Pepsi-Cola Philippines stopped trading on June 17, when it closed at P1.70 apiece.

Honda positive on hatchback model, but aligns with industry forecast

HONDA Cars Philippines, Inc. is expecting sales opportunities through its hatchback models while its overall sales decline remains consistent with the local industry.

Similar to other manufacturers, the car company said that it will not be reaching its sales forecasts set at the start of the year.

“Because of the pandemic, we have to reduce [the forecast] to a certain level. Basically, whatever is the forecast of the industry about the sales for this year, we are basically aligned with that,” Honda Philippines Vice-President for Sales Louie Soriano said in an online briefing on Thursday.

Local manufacturers expect a 41.5% sales decline in 2020, compared with the level last year.

However, Honda is seeing some growth opportunities for hatchback models.

“It’s still the City that has the biggest contribution to our sales, and looking at the industry, there is an opportunity for a growth in the hatchback. So, I think our Brio was able to contribute to the growth,” Mr. Soriano said.

“Basically, we were able to increase our market share in that hatchback market,” he added.

Honda sales in eight months to August declined 43.9% to 7,335 units, according to a report from the Chamber of Automotive Manufacturers of the Philippines, Inc. (CAMPI) and Truck Manufacturers Association (TMA)

Earlier this year, Honda shut down its car production facility in Laguna.

The Department of Trade and Industry had said that it was considering placing safeguard measures on imported cars to protect local assembly. — Jenina P. Ibañez

FPJ’s Ang Probinsyano returns as ABS-CBN partners with Zoe

AFTER months off the air, some ABS-CBN shows including variety show It’s Showtime and the long-running series FPJ’s Ang Probinsyano, are returning to free TV starting Saturday on the rebranded A2Z Channel 11 of Zoe Broadcasting Network, Inc.

Starting Oct. 11, It’s Showtime will be airing live on A2Z and variety show ASAP Natin ‘To will start airing on Oct. 12.

The weekend will also see marathon telecasts of FPJ’s Ang Probinsyano, Ang Sa Iyo ay Akin, and Walang Hanggang Paalam before these shows resume airing with fresh episodes on weeknights starting Monday, Oct. 12.

Other ABS-CBN shows which will be airing on A2Z are talk show Magandang Buhay, game show I Can See Your Voice, and drama anthology MMK, though no specific dates for these have been announced yet.

In the months after Congress denied the renewal of the network’s franchise, ABS-CBN has focused on getting its shows out online via Facebook and YouTube and through its streaming service, iWant. The network has also pushed to export its shows to other countries including South America and Africa.

But with the deal signed with Zoe Broadcasting Network, the embattled network has found a way to return to free TV via block-timing or buying timeslots to air its shows.

Zoe Broadcasting Network is the broadcast media arm of the Jesus is Lord Church, headed by Eddie Villanueva. A2Z was formerly Zoe Channel 11 and with the channel rebranding come new shows from ABS-CBN and programs from Christian Broadcasting Network (CBN Asia) and Knowledge Channel, among others.

A2Z is on Channel 11 (analog) on free TV and SkyCable and other cable and satellite TV providers. — Zsarlene B. Chua

AboitizPower bags First Bay’s supply contract

ABOITIZ POWER Corp. has secured the supply contract of First Bay Power Corp., extending their partnership which spanned for more than a decade ago.

After three months of a competitive selection process, AP Renewables, Inc., the power firm’s renewables arm, was chosen out of four bidders for the distribution utility’s power supply agreement.

The deal is to deliver 10 megawatts of geothermal energy to Bauan town, Batangas, the franchise area of First Bay.

“It is our privilege to take this journey further, as we support the needs of FBPC, and in turn, contribute to the continuing growth of residents and businesses in the province, in ways that are reliable and sustainable,” said AboitizPower Vice President for Commercial Operations Juan Alejandro A. Aboitiz in a statement.

AP Renewables runs two geothermal facilities; one in Bay, Laguna and another in Tiwi, Albay. These were acquired from the National Power Corp. back in 2009.

First Bay replaced Bauan Electric and Light System as the Batangas town’s distribution utility. In 2016, the government granted it with a franchise.

Two years ago, the Department of Energy under Secretary Alfonso G. Cusi enforced a competitive selection process in the procurement of power supply by power utilities from generation firms. The scheme aims to bring down electricity cost.

Shares in AboitizPower fell by 1.15% to close at P25.90 each on Thursday. — Adam J. Ang

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