The Philippines was first put on the map by Portuguese adventurer Magellan working for the Spanish throne on March 16, 1521. The Philippines had become a Spanish colony and was the first country to be named after a sovereign, Phillip II of Spain.1 Spanish rule had continued until 1898 when the Philippines had become an American colony following the Spanish-American War for the stately sum of $20 million. In 1942 during WWII, the Philippines had fallen under Japanese occupation and was liberated by American and Filipino forces under the leadership of General Douglas MacArthur in a fiercely contested battle that raged on between 1944 and 1945.
The Philippines had attained its independence on July 4, 1946, and had a functioning democratic system.2 The Philippines Archipelago consisted of 7,100 islands, covering an area of 299,735 square kilometers and was slightly larger than Arizona. The capital city of Manila was situated on the largest Philippine island of Luzon (see Exhibit 1). The Philippines had a gross domestic product (GDP) per capita of $3,400.3 The percentage of the population of the Philippines living below US$2 a day was 45.2 per
PHILIPPINE BUSINESS ENVIRONMENT
Research conducted in 2009 showed that the Philippines was ranked 140th for ease of doing business and 155th for starting a business, out of a total of 178 countries. It took on average 15 procedures and a total of 52 days to complete business startup procedures in the Philippines compared to six procedures and 44.2 days and 5.8 procedures and 13.4 days for the same process in Asia and Organisation for Economic Cooperation and Development (OECD) countries, respectively.5 The Philippines had the second lowest savings and investment as share of GDP ratio in Asia6 (see Exhibit 2).
PHILIPPINE FISHING INDUSTRY
The Philippines has total territorial waters of 2.2 million square kilometers, of which coastal waters comprise 266,000 square kilometers and coastal reef area (10 to 20 fathoms deep, where reef fishing takes place) comprise 27,000 square kilometers.7
In 2003, the Philippines ranked eighth among the top fish-producing countries in the world with its total production of 3.62 million metric tons of fish, crustaceans, mollusks and aquatic plants (including seaweed). The production constituted 2.5 per cent of the total world production of 146.27 million metric tons.8
The fishing industry’s contribution to the country’s GDP was 2.3 per cent and 4.2 per cent, at current and constant prices, respectively. The industry employed a total of 1,614,368 fishing operators nationwide,9 of which the artisanal fisheries sector accounted for 1,371,676.10 Artisanal fishing operations were typically family-based and used smaller craft.
There were a total of 469,807 fishing boats in the Philippines, of which 292,180 were non-motorized and 177,627 were motorized.11 Fish was not only an important source of nutrition, but as fishing did not require landownership or special permits it was an employment of last resort for people who had no other means of subsistence.
MIA was established in Denmark in 1975 by wealthy businessman Hagen Nordstrom, who dedicated the NGO to his wife Mia and made fighting poverty his life’s work. (MIA stood for “beloved” in Danish.) MIA had initially focused solely on poverty-alleviating projects in Africa and had expanded its operations to Latin America and the Caribbean only in the early 1990s.
The grandson of Nordstrom, Gillis Nordstrom, had taken over as MIA chairman in 2004 on the eve of the Bander Aceh Tsunami of December 26, 2004, which devastated Southeast Asia and killed as many as
www.doingbusiness.org/ExploreEconomies/?economyid=153, accessed November 15, 2008. www.adb.org/Documents/Books/ADO/2002/Update/ado2002update.pdf, accessed December 18, 2008. 7
www.scribd.com/doc/354869/2005-Fisheries-Profile#, accessed December 5, 2008. 8
www.scribd.com/doc/354869/2005-Fisheries-Profile, accessed November 15, 2008. 9
NSO 2002 Census for Fisheries.
www.scribd.com/doc/354869/2005-Fisheries-Profile, accessed November 15, 2008. 11
www.scribd.com/doc/354869/2005-Fisheries-Profile#, accessed December 5, 2008. 6
130,000 people.12 Nordstrom had taken initiative and redirected MIA to focus on disaster recovery and poverty alleviation projects in Southeast Asia.
MIA had established an office in Manila in January 2006, and the young Danish development economist Borje Petersen was hired to manage the MIA Philippines office. Petersen was paid a starting salary of $75,000 a year plus housing, slightly below average for a comparable development economist position. Petersen knew that MIA’s attention was focused on Indonesia and Malaysia, which had been the hardest hit by the tsunami, and was anxious to carve out a position for MIA Philippines by designing an exceptional project. As the expansion into Asia was the pet project of MIA’s chairman, Petersen felt assured that funding would be easily appropriated and even expedited.
Petersen knew that the average overseas posting for a development economist for MIA was two years and had quickly established contact with local and international stakeholders and set up numerous meetings with large development project counterparts such as the Asian Development Bank, the World Bank and the German development aid organization GFZ to get an expedited understanding of the Philippines and its unique needs.
Based on the initial research, Petersen had decided that, whereas an agricultural project would be feasible, it would take a long time to realize and the outcome could be complicated given the Philippines’ proneness to be hit by typhoons. Petersen’s research had revealed that small-scale aquaculture projects had been successfully implemented in the Philippines in the past. However, there were hardly any projects to speak of directed at artisanal fishing and picking up on the vested opportunity and his desire to deliver fast results and prove himself worthy of the task that MIA and its chairman demanded, he had chosen to design a project helping artisanal fishermen.
Petersen had researched the possibility of helping a fishing village close to Manila and the search for the ideal village had come to a successful ending when MIA’s driver, Vicente Tubo, had mentioned how some of his distant cousins fished for a living in a fishing village seven to nine hours by car from Manila. A factfinding mission to the village Barangay San Hagon was undertaken and the village was thus chosen as the beneficiary of MIA’s pilot project in the Philippines.
BARANGAY SAN HAGON
Barangay San Hagon boasted 125 households and had a resident population of
625. San Hagon lay on the south coast of Luzon, the largest island of the Philippines. The Barangay was the smallest administrative division in the Philippines and stemmed from the Spanish “Barrio.”13 Barangay San Hagon was administered by a local government unit (LGU) and consisted of seven Barangay council members and a chairman.
The chairman of Barangay San Hagon was Rafael Buenaventura, age 59, who had held office for more than a decade. Fishing villages in the Philippines were very vulnerable to external risk, especially natural calamities such as typhoons, flooding and fish kills, which severely affected their financial situation.
www.cityu.edu.hk/searc/tsunami/index.html, accessed November 18, 2008. www.i-site.ph/Factfinder/barangay.html, accessed December 23, 2008.
BARANGAY SAN HAGON’S ECONOMY
Fishing was the main occupation of the village. Secondary occupations included rice farming, fruit and vegetable growing and livestock raising. The service sector consisted of boat builders, mechanics, barbers, tailors, drivers and Sari-Sari store operators (mom and pop-type convenience stores). Fishing was undertaken exclusively by men, whereas most of the other occupations and post-fishing activities were undertaken by the women of the village.
The village boasted 12 overseas workers employed as unqualified laborers in different parts of the Arabian Peninsula who sent back remittance payments. It was believed that more than 10 million Filipinos worked overseas and supported their families with remittance payments. The daily income for the San Hagon fisherman was approximately $1 per day.
The fishermen of San Hagon used “banka boats,” the traditional outrigger type of boat used in Southeast Asia. Whereas some fishermen had utilized traditional means of fishing with hook and line, gill nets and bamboo fish traps, the majority chose to use blast and cyanide fishing. Blast fishing consisted of throwing an explosive charge or a stick of dynamite into the sea. The explosion instantly killed every living organism within its range including coral reef. A number of the fish would float and the fishermen would scoop them up. Quite a large number of the dead fish, however, would stay submerged.
Homemade explosives from readily available materials such as powdered potassium nitrate or an ammonium nitrate and kerosene mixture packed in glass bottles were often used. These mixtures were often unstable and exploded prematurely, maiming or killing fishermen. Each village had a number of limbless fishermen and a story of how an explosive device had killed a fellow fisherman.14 Cyanide fishing consisted of squirting cyanide into the caves/dwellings of the fish in the coral reef. Fishermen used makeshift pumps, which pumped oxygen down a plastic tube, to dive into the sea.
The method was dangerous and most fishermen had experienced some form of bend while diving. The cyanide killed up to 75 per cent of the fish on contact. Cyanide also killed the coral reef.15 Once the coral reef died, fish were displaced as a result of the break in the food chain and lack of protection. Blast and cyanide fishing did not need any real skill and fishing knowledge and even though both methods were illegal and there were numerous laws in place, it was impossible to effectively enforce these laws.
SAN HAGON’S CAPITAL ASSETS
The village of San Hagon had basic capital assets on which it based its competitive position. Most fishing villages in the region had similar capital resources.
Education: Most of the villagers had some high school education. Skills: Fishing and farming skills were learnt from an informal network of fellow
villagers, friends, etc. 14
www.panda.org/about_wwf/what_we_do/marine/problems/problems_fishing/destructive_fishing, accessed December 24, 2008.
www.panda.org/about_wwf/what_we_do/species/news/stories/index.cfm?uNewsID=5563, accessed December 23, 2008.
Employment: Most villagers had multiple occupations in order to generate enough income to make a living.
Access to governmental and non-governmental information sources: The village had limited access to governmental and non-governmental organizations for the dissemination of knowledge. Information was disseminated from an informal network of fellow fishermen, friends and relatives. Role of women: The women of the village were active in the work force as a source of free labor but had little decision-making power.
Access to natural resources: The villagers had free access to the ocean, land and water. Resource ownership: Nearly all villagers owned their small plots of land where they farmed or raised livestock.
Access to financing: The village had limited access to public or private financing. Savings potential: The villagers had limited savings potential due to their limited income. Income generation: The subsistence fishing,
farming and livestock raising activities of the village coupled with services provided by the villagers allowed for subsistence living conditions. Remittances: The village had 12 overseas workers who regularly sent remittances to support their families.
Access to electricity: The village owned an old diesel generator that provided electricity. The generator required frequent maintenance work and was out of commission frequently when there was no money to purchase diesel fuel. This occurred due to lack of income as a result of poor fishing results, increased expenditures during the months when school-aged children needed supplies and in times when collecting past dues owed by households became a problem.
Access to modes of communication: Due to its remote location and small population, the village did not have access to phone lines or wireless phone service. The nearest phone line was located in San Jose, a larger settlement that was three hours away by car.
Access to transportation: San Hagon only had internal dirt roads and road access was a problem, especially in the rainy season. Roads connecting San Hagon to the outer world were mostly unpaved and it was difficult to navigate the roads at night or during the rainy season, which was five to six months of the year. Manila, the capital of the Philippines, was located seven to nine hours away by car.
Whereas most people in the village walked, the bicycle/tricycle was the preferred mode of transport. The better-off households boasted small motorcycles, of which there were more than a dozen. Transport to and from the village was provided by a Jeepney (an extended U.S. military jeep left over from WWII), the traditional form of public transport in the Philippines operated by one of the villagers that usually left for San Jose early in the morning and returned in the afternoon. Jeepneys transported people, fruits and vegetables, livestock, etc. 16
Access to safe water supply: The village did not have running water and depended on numerous deep fresh water wells for its fresh water supply. Home ownership: More than 95 per cent of households owned their own dwellings. The better-off households had cement walls and galvanized iron sheet roofing. Boat ownership: Banka boat ownership was close to 100 per cent. Approximately one third of these bankas were motorized.
Other: Most households owned modest household appliances and facilities, such as televisions, radios and electric fans.
EXISTING MODUS OPERANDI
Under the prevailing conditions, fishermen would put aside enough to feed their families and sell the rest of the catch at the village square or exchange it against fruits, vegetables, rice and other staple goods. The price of fish was not fixed and would fluctuate when there was an oversupply and the barter equivalent of other products would go up in price. Prices of fish and other goods were also affected by delays in the arrival of supply jeepneys, which supplied the village’s three Sari-Sari stores.
Commerce with other villages was limited, as these villages had a similar economic setup. Few buyers ever came to San Hagon due to the remoteness of the village and the poor road conditions. The few that came were treated suspiciously, as there had been numerous occasions when smaller buyers had taken the fish on consignment but had not paid for them. The larger traders avoided San Hagon completely and opted to do business with villages that were more accessible.
Fish was an easily perishable commodity and transporting fish for more than a couple of hours without refrigeration or cold storage was not possible due to the prevailing heat. There was no access to ice in the region and the cost of a refrigerated vehicle was beyond the village’s means. Some fishermen chose to dry excess fish and sell it locally, even though dried fish made less profit than fresh fish, or consume it themselves when fresh fish supplies were low.
Even though the villagers complained at times, they had accepted the lifestyle they led, as they did not have the financial means or knowledge to alter their situation. The only other alternative was to leave the village, migrate to larger cities and look for jobs, of which there were only low-paying, menial ones. The mantra, “Give a man a fish; you have fed him for a day. Teach a man to fish; and you have fed him for a lifetime,” had become a reality when MIA had chosen to help the village of San Hagon.
The village inhabitants had seen the effects of NGO assistance and how it had transformed the livelihood of other fishing villages. The appearance of a European NGO was a blessing and meant an influx of muchneeded money.
DIVING VILLAGES AND ENVIRONMENTAL PROTECTION
A number of fishing villages in the region had made the transition from fishing village to diving village with the help of foreign NGOs. Diving villages were villages that catered to the scuba diving expat community and wealthy Filipinos who could afford the sport. Fishermen in these villages had been transformed into tour guides and diving instructors. The transformed villages earned up to 10 times more income and helped to protect the environment.
PROJECT SAN HAGON: “HITTING MANY BIRDS WITH ONE STONE”
After initial assessment and consideration of its own capabilities, MIA had considered converting San Hagon into a diving village. Petersen, however, had later shied away from a tourism-related project for three reasons:
1. Competition: There were already two villages in the region that had already achieved name recognition and were much easier to access than San Hagon. 2. Damaged product: A significant portion of San Hagon’s coral reef had been damaged. 3. Time factor: It would take a long time to transform San Hagon to a diving village. Instead, MIA had designed a project that would entail the livelihood improvement of the village, empower women and encourage environmental protectionism. Petersen had remembered the old Danish saying “hit many birds with one stone” as he designed the project.
MIA had proposed that in return for stopping blast and cyanide fishing and reverting back to traditional means of fishing, the village would receive a grant to establish a fishing cooperative, construct a fish processing/cooperative building with all office furnishings and receive a new diesel generator, fish processing equipment, packaging equipment and training on how to process and package fish.
In addition, MIA would copyright a brand name for the village, have all marketing communication materials prepared and arrange shelf space as the exclusive supplier of malls and supermarkets in Metro Manila. It was foreseen that reverting back to traditional methods of fishing would decrease the amount of fish that were caught, but establishing San Hagon as a direct supplier to large buyers would garner top prices and substantially increase income and offset any losses.
MIA’s project intended to emphasize the importance of fish as a healthy food, and highlight fishing as a generator of employment and income and as a means to protect the environment (see Exhibit 3).
PROJECT IMPACT ASSESSMENT
Economic Impact: The business model would allow households to increase their income from $1 to $4 per day. Fish that was not in demand by the cooperative could be used for household consumption or sold/bartered/dried.
Social Impact: Women would become a part of the workforce and earn salaries for the first time in their lives and have disposable income. The extra income would also help women become more independent. Environmental Impact: The destructive blast and cyanide fishing methods would cease. This would halt the destruction of the coral reef and help increase fish stocks. Fishermen would become environmental conservationists and promote the concept of sustainability.
A knowledgeable and experienced team was assembled to manage project San Hagon. Ricardo Perez, age 65, was hired to head the local team, help with local authorities and overcome language barriers. Perez had worked as a marketing director for the San Miguel Company, a large Philippine conglomerate with a focus on the food and beverage industry, who were the makers of the famous “San Mig” beer. Perez had been consulting with small- to mid-sized Filipino companies ever since he retired at age 60. MIA also planned to rely on its extensive database and intranet to share knowledge and achieve maximum participation in the project.
Any MIA employee, regardless of rank, experience and location, could comment on projects online. Petersen posted a Gantt chart and encouraged questions and guidance from his peers (see Exhibit 4). The only restriction placed on the project by MIA was that MIA could not engage in direct or indirect payments according to its by-laws.
Three-year financial projections for the San Hagon Fishing Cooperative (SHFC) had shown that the project would make a small profit in year one and then realize its full potential in year two and year three once the learning curve constraints had been overcome (see Exhibit 5).
MIA Philippines had completed project preparations and gotten project approval and funding from MIA headquarters. The project was a first for MIA, as the NGO usually focused more on gender and education projects.
Perez and his team had prepared the application for local approval and had submitted the application to the local Fisheries and Aquatic Resources Management Council (FARMC) in San Jose for approval. The FARMC was the policymaking body for the fisheries and aquatic resources of the Philippines. The vetting process by the local FARMC had been completed after two months, after numerous on-site meetings and presentations. Petersen had been frustrated at the speed of the approval process and had directed Perez to intercede frequently. Petersen had thought to himself, “We are extending a grant and transferring knowledge and still there is all this slow-moving bureaucracy to deal with.”
Concurrently with the project permit applications, MIA had conducted one month of catch research in San Hagon to determine the quantity of fish caught by the fishermen. The survey had revealed that it would be possible to catch on average 1,250 kilograms per day (2,750 pounds per day) of prime quality fish for processing.
PROJECT SAN HAGON VALUE CHAIN
MIA had undertaken a value chain analysis of the project process and assessed how the analysis could be used to improve the project performance (see Exhibit 6). Breaking down the cost structure had further revealed that the cost structure was typically top-loaded by ingoing logistics and that the major expenditure was fuel (see Exhibit 7).
Petersen had felt that the slow application process had cost MIA too much time and he had decided to do things the “Danish way” at the project implementation phase, instilling tight controls, frequent meetings and time management to speed up the project.
MIA had concluded that the key success factors were to:
Provide grants to acquire new assets.
Transfer knowledge and train stakeholders in acquiring and maintaining new capabilities. Increase the value chain contribution of San Hagon villagers. Package and transport a differentiated product to urban centers where there would be demand for the product.
Two teams were formed and the work was divided up as follows: Team One: Product development and packaging
Team Two: Transportation, distribution, and advertising and promotion
Product Development and Packaging
Tuna, prawns, lobsters, groupers and crabs were chosen as the product types that would be most in demand in Manila. Focus was to be placed on tuna and grouper fish, the two favorite types of fish in the Philippines.
Research had determined that the demand in Manila for chilled, packaged fish fillets was similar to demand in American/European urban centers. The product appealed to the “A” income level: upwardly mobile, health-conscious customers that had time constraints. Concurrently the team had researched basic packaging machinery that could be operated and maintained under adverse climatic conditions with ease by the fishermen. The packaging machinery, along with stainless steel fish processing work stations and other equipment, was purchased by MIA, transported and set up in San Hagon.
Transportation, Distribution, and Advertising and Promotion
A small refrigerated truck was leased for a year along with a driver to transport the catch from San Hagon to Metro Manila. It was planned that the cooperative would generate enough cash to purchase the truck in due time and that a San Hagon villager would be employed to replace the hired driver in the near future. The team had come up with the brand name “ISSAGA,” which in the local Tagalog dialect was short for “Isda Sakdal Gawad” or most-prized fish. “ISSAGA” had been registered as a brand name, art work had been designed and packaging materials and labels were printed.
Petersen had personally helped with the marketing arrangements, and the venerated HUI malls and supermarkets in Manila had agreed to support the project and provide free shelf space. Petersen had met William Hui, a leading businessman of Chinese decent, at a social function at the Danish embassy. Getting shelf space in a Manila supermarket was in itself a great feat, as acquiring retail space in Philippine supermarkets was difficult, time consuming and expensive.
HUI malls had also agreed to promote ISSAGA branded fish products at points of sale. Hui, Perez and countless others had called in favors, and Manila TV stations, newspapers and magazines had agreed to support the project and showcase their corporate social citizenship by providing free pubic relations. The project would streamline the distribution cycle and increase profit margins for both supplier and buyer (see Exhibit 8).
With most of the work at the lower end of the distribution chain completed, the focus had been shifted to the top end and MIA had directed the fishermen of San Hagon to form a fishing cooperative. MIA and other stakeholders needed a formal counterpart they could address and it was hoped that being part of a formal organization would instill a sense of ownership and result in commitment and responsibility on the part of the villagers.
SAN HAGON FISHING COOPERATIVE
Chairman Buenaventura was chosen as the president of the newly formed SHFC. His two sons-in-law were appointed as manager and as treasurer of the cooperative, respectively. A basic contract was signed between MIA and the SHFC depicting the scope of the project, registration of fixed assets and depreciation scheduling.
MIA insisted from the onset that all fishermen join the fishing cooperative. One hundred per cent membership to the fishing cooperative was important because: 1. It was necessary to aggregate the catch of the village to make it feasible for the catch to be sold to the buyer HUI malls.
2. MIA wanted all stakeholders in San Hagon to benefit from the poverty-alleviation project.
MIA had initially donated $5,000 to the cooperative, and a basic building large enough to house the fish processing and packaging line, with cement walls and a corrugated steel roof, was quickly constructed. The building work was done by the villagers, who received a wage in return for their labor.
The first disagreement had occurred when Buenaventura had insisted that he receive $150 and the other cooperative employees receive monthly salaries of $100 as remuneration for the work that they would provide. MIA had initially balked at the salary demand and had threatened to call off the project. Buenaventura had, however, remained persistent and Petersen, after two weeks of deliberations and absolute inertia on the part of the villagers, had directed Perez to negotiate the demand in an attempt to rescue the project. An agreement for $100 a month for Buenaventura and $65 for his sons-in-law had been thus reached to be paid for the duration of a year.
The next conflict had arisen when Buenaventura did not want to fully disclose how much it had cost to build the cooperative building. MIA had later learnt that Buenaventura had thrown a “fiesta,” a Philippine celebration that included free drinks and “lechon” pork roast on charcoal, to celebrate the new building. At this stage, Petersen had started to wonder if he had made a serious mistake in choosing San Hagon as the pilot project and Perez as project manager.
Afraid of the consequences to his career if he terminated the project, he had decided to push on even if it meant accepting additional demands. Demands for help were frequent. Villages neighboring San Hagon had heard about the project and the MIA office received numerous phone calls daily asking MIA to extend its help to other villages. MIA had been busy turning down the inquiries, citing limited resources. Time was a resource of which Petersen did not have plenty.
He was often frustrated at the speed at which things happened in the Philippines. Project manager Perez seemed competent enough and had vast amounts of experience and was technically adapt. He couldn’t decide whether the slow progress was a result of Perez’s speed or the inability or unwillingness of the San Hagon cooperative council to hurry things along. His frustration increased, as with each passing month he was not able to report progress to MIA headquarters.
Mindful of his standing at MIA Denmark and in his quest to speed up the
project, Petersen had started to adopt a more confrontational approach, especially at the weekly project coordination meetings with Perez and the rest of the team. Perez always reported how much progress they were making. Perez and the rest of the team continuously assured Petersen that this was how business was conducted in the Philippines. Petersen was tired of hearing this. The other nerve-wracking problem was that the word “no” did not exist in the Philippine language.
It was considered rude to say “no” and hence every question and every inquiry got a positive answer. There were, however, different shades of “yes,” with some meaning “no,” some meaning “maybe” and some which really meant “yes.” It had taken Petersen more than six months to figure this out. He instructed all his employees not to feel embarrassed to say “no” to him.
But that had only resulted in further embarrassing his employees. He sometimes felt that he was getting nowhere. With only the one active project to show for, Petersen needed to quickly complete this project and start new projects if he was to stand a chance of getting promoted and assuming greater responsibilities in a bigger MIA office.
Working at MIA had begun to feel like a tug-of-war between himself and the Filipino staff, with Petersen trying to quicken the pace and the staff slowing him down at every turn. Petersen wished that Perez would take more initiative and use his decision-making power rather than run even the smallest decisions by him first. At times he had begun to suspect that Perez was slowing down the project intentionally to keep receiving his salary longer.
Salaries in the Philippines were low compared to those in Europe or America, especially in retirement, and after making $1,000 to $1,500 as a marketing director in San Miguel, Perez was only making $300 in retirement. The $700 salary MIA was paying him was quite a boost to his income.
Perez had felt that he urgently needed to complete the project. He had chosen to continue working well into retirement, as his pension payment was not sufficient enough to maintain his lifestyle and put his youngest daughter through college.
Perez had completed his bachelor of arts degree at the University of the Philippines, and had obtained a prestigious certificate for food service management at Cornell University, New York, United States. He had interviewed with MIA and accepted its job offer, because foreign NGOs usually paid better than their Filipino counterparts and, more importantly, on time.
Before retirement, Perez had managed more than 175 employees. Even though the San Hagon project was basic compared to what he was accustomed to managing and even though the MIA country manager was young enough to be his son, the pay was generous. Perez had seen himself as advisor and mentor to the young Petersen and had tried to show him the way business was done in the Philippines. He had interceded frequently to expedite the permission process and facilitated MIA’s dealings with the San Hagon fishing cooperative.
True to Philippine culture, Perez had always shown the utmost respect for Petersen, especially in public, and portrayed him as the all-powerful leader of MIA. Having young Petersen make all decisions had been a part of his show of respect and deference to Petersen’s authority. Young Petersen had, however, been difficult to deal with. The whole project had taken an unpleasant turn, as Petersen had gotten extremely confrontational at meetings. Perez had heard about the difficulties of working with Americans and Europeans.
Filipinos did not like confrontation. “Pakikisama” (group loyalty) and the importance of maintaining social harmony were a part of his management style and disagreement or interpersonal tension of any sort at the workplace was extremely distasteful for Perez. Petersen had caused him “hiya” (embarrassment) in front of the rest of the team. His team, while staying silent during meetings, had approached him afterwards and empathized with him.
Perez had felt elated when the planning stage was over and the project had entered the implementation stage, which was more in his comfort zone. Perez had designed the new product-to-market process and ensured that he would spend most of his time out of the office and avoiding Petersen.
NEW PRODUCT-TO-MARKET PROCESS
Deboning, Filleting and Packaging
In order to add value to the product and to offset the cost of cleaning and filleting the fish at a higher cost by HUI employees, it was planned that the deboning, filleting and packaging would be done in San Hagon. The cooperative had called upon the women of the village who were experienced in preparing fish to help with processing the catch. It was planned that women in the village interested in the opportunity would be paid in return for the quantity of fish they processed.
If demand for the work outweighed supply, there would be a waiting list and all interested women would get their chance to earn extra income when their turn came. Once deboned and filleted, the fish would be individually packaged in sealed cellophane packets and packed in 40 kilogram containers.
The SHFC encouraged all fishermen to bring in their catch to the cooperative early in the morning, where the catch was assessed and weighed according to the product needs of HUI malls for the week. Each fisherman had an account at the SHFC and his account was credited according to the daily catch brought in. The fishermen were free to do whatever they wanted with the catch not purchased by HUI malls.
HUI malls were only interested in selling the finest quality fish in two of their exclusive high-end malls. Second- and third-tier fish were delivered to the remaining five mid-market HUI malls in Metro Manila. As a differentiating factor, the project called for the product to be sold chilled. Upscale customers in Manila preferred chilled and filleted fish because they felt it was safer than fresh fish and easier to prepare.
Storage and Transport
Taking into account the problematic supply of electricity and high cost of establishing a cold chain, which would have required a substantial cold storage facility investment in the village, and in line with providing sustainable low technology solutions, it was planned that the fish would be stored in a refrigerated truck which operated its cooling unit 24 hours per day and would be used as both a transport and storage facility. The refrigerated truck would make daily trips to Manila and distribute the product.
Sales and Distribution
HUI malls had insisted that the allocated shelves be stocked by the San Hagon cooperative. The driver would make deliveries and stock the shelves of seven different HUI malls in Manila. Fish deliveries would be made on a consignment basis and payments based on real sales were to be made to San Hagon on a weekly basis. The model had some problems, as payment by HUI malls was delayed.
William Hui had been one of the facilitators of the project. By providing free shelf space for San Hagon, he had received free public relations and showcased the corporate social responsibility of his company. HUI malls had financially benefited as well, receiving good-quality filleted fish at bargain prices without having to invest in setting up or managing procurement and processing operations. Hui’s business savvy had become even more apparent when he was approached by a reputable Japanese buyer who had recently purchased ISSAGA fish at one of his malls and had inquired about selling the product in Japan.
Under the careful guidance of Perez, the fishermen had conducted the first limited packaging test runs. The process was fraught with problems at first. Deboning and filleting fish commercially was very different from filleting for self-consumption. At first the SHFC had wanted to package all kinds of fish, regardless of size and quality. HUI malls had rejected at least 25 per cent of the initial shipments before the SHFC had bowed to the quality standards set forth by HUI malls. Spillage and spoilage was another problem. Nearly 15 per cent of produce was lost in this way. This had been due to refrigeration problems and the freshness of the fish.
Fish was a sensitive product and had a very short shelf life unless stored properly and it had become clear that not all fishermen brought in their catch in the morning. Sometimes the truck was late in picking up the day’s catch, which led to late deliveries.
Aggregating enough supply to make the business run profitably was an issue at first. Even though all fishermen had joined the cooperative, supply problems due to adverse weather conditions and sometimes due to the complacency of the fishermen had resulted in the shipment truck making a loss nearly 50 per cent of the time.
Once the product was on the supermarket shelf however, it sold well. “But the process of getting the product on the shelf is inefficient to such a degree that the cooperative is making a loss,” Petersen had thought when conducting an interim project evaluation.
INTERIM PROJECT EVALUATION
Perez had put his vast experience to good use and had intervened to iron out the problems. The logistic problem was solved by hiring two new drivers from the village to man the truck. The initial drivers’ contract was terminated. MIA purchased and donated a second-hand refrigerated truck body with a powerful diesel-operated air conditioner, which was used to store the daily
catch if the truck was not available to pick up or deliver the product. Perez’s interventions had worked and the profits had started to seep in.
PROJECT COMPLETION REPORT
After a full year of careful scrutiny to make sure the project did not suffer from continuity problems, Petersen had sent in his project evaluation report to MIA Denmark and had lauded the project as a great success.
The results of the project had started to show in San Hagon, as most villagers had upgraded their huts to cement-walled, galvanized, iron sheet roofed buildings. Most homes had upgraded their TVs and purchased karaoke players to supplement their home entertainment. The most visible improvement was the number of banka boats that were now outfitted with engines.
FISH DELIVERIES CEASE
MIA’s country director, Petersen, was preparing to transfer to MIA Africa when the phone call from HUI malls had come in informing MIA of the abrupt halt in fish deliveries more than a month ago and asking MIA for its help. HUI malls had inferred that they were ready to negotiate with the SHFC to improve business terms if need be.
Petersen had unwillingly agreed to send a fact-finding mission to understand what had gone wrong and hired McKenzie to head the fact-finding team, as the initial San Hagon project team had already been disbanded.
MAP OF THE PHILIPPINES
https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html, accessed October 28, 2008.
PHILIPPINE SAVINGS AND INVESTMENT AS SHARE OF GDP 1996-2001 AVERAGE (%) Savings/GDP
China, People’s Republic of
Source: www.adb.org/Documents/Books/ADO/2002/Update/ado2002update.pdf, accessed November 18, 2008.
PROJECT SAN HAGON FACT SHEET
1) Increase $1/day income to $4
2) Integrate more women into the workforce
3) Promote environment conservation
PROJECT COST FORECAST
MIA local consultants/month
SHFC management salaries/month
Truck driver salary/month
SHFC workers’ salaries/month
Additional driver salary/month
Mr. Petersen, MIA director, The Philippines
Mr. Perez, project manager, San Hagon
PROJECT SAN HAGON GANTT CHART
PROJECT SAN HAGON THREE YEAR FINANCIAL PROJECTIONS
Cost of goods sold
INCOME BEFORE TAXES
NOTE: All amounts in US$ at $1=56 Filipino pesos
Fiscal year ends December 31
VALUE CHAIN ANALYSIS
VALUE CHAIN COST STRUCTURE
DISTRIBUTION CYCLE ANALYSIS
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