Selected Studies on APEC-Related Issues (TDAP Paper Series 1) by Ronald Yacat

SELECTED

STUDIES 0 N

Gloria S. Chavez Ma. Gloria V. Talavera Abigail D. De Leon Juliet T. Mendoza

PASCN

PHILIPPINE APEC Philippine

STUDY CENTER NETWORK

Institute for Development

Surian sa mga Pag-aaral Pangkaunlaran

Studies

ng Pilipinas

Printedin the Philippittes.All rightsreserved,

Thefindings, interpretations and conclusions in this volume are thoseof the authors and do not necessarilyreflect thoseof the PASCN and PIDS and other institutions assodat~d with thc studies. The publication of this bookwasfunded in whole by the PASCN whosemembersinclude: Asian Institute of.Management, Ateneo de Manila University, Central Luzon State University, De La Salle University, ForeignService Institute, Mindanao State University, Philippine Institute for Development Studies (Lead Agency and Secretariat), Silliman University, University of Asia and the Pacific, University of the Philippines, University of San Carlos and Xavier University.

Pleaseaddress all inquiries to:

PhilippineAPECStudyCenterNetwork Secretariat Philippine Institutefor DevelopmentStudies NEpA sa Makati Building 106AmorsoloStreet,LegaspiVillage 11.29Makati City, Philippines Tel. Nos.: PASCN(63-2) Fax Nos.:PASCN

893:958~; 892-5817; PillS 893-5705; 892-4059

(63-2) 893-9588;PIDS (63-2) 893-9589; 81~1091

E-mail: pascn@pidsnet.pids.gov.ph~pnblications@pidsnet.pids.gov.ph

URL:http:/ /pascn.pids.gov.ph;http://www.pids.gov.ph

ISBN 971-546-049-04 RP 08-02-500

Printing by Fil-AsiaPrinters

Foreword

xvii

CHAPTERONE

Small and Medium ManufacturingFirms in Metro Manila: EntrepreneurialStylesand Firm Performance by GloriaS.Chavez Abstract Entrepreneurship and the Entrepreneur

1 1 2

Introduction

The Universal Entrepreneur In Searchof the Filipino Entrepreneurial Style Overview of Related Literature Entrepreneurship Defined Understanding the Entrepreneur Types of Entrepreneurship

2 3 4 5 6

E~trepreneurial Characteristics

13 15

Leadership Styles The Leadership Grid Model Value Orientation Indicators of Firm Performance The Entrepreneurial Style Construct The Conceptual Framework

22 24

25 27

Filipino Entrepreneurs and their Entrepreneurial Styles Profile of Entrepreneurs Profile of BusinessFirms Firm PerformanceIndicators How the Four Entrepreneurial Styles Rated Entrepreneurial Styles and Demographic Profiles Entrepreneurial Styles and Firm Characteristics Entrepreneurial Styles and Firm Performance Conclusions and Recommendations Summary of Entrepreneurial Styles Summary of Findings Relevanceof this Study Recommendations

29 29

31 32 34 36 37 39 40 40 40

41 42

Appendices

Bibliography

69 v

CHAPTERTWO

Total Quality ManagementConstructs:Developmentand Validation A Surveyof Philippine Companies by Ma. GloriaV. Talavera Abstract

Introduction Statementof the Problem TQM as a Field of Discipline TQM as a Business Strategy Objectives of the Study Significance of the Study Scopeand Limitations of the Study TQM and Quality Management Standards Review of Philosophies and Standards The Malcolm Bridge National Quality Awards (MBNQA) The ISO 9000 Review of Related Studies Contributions of this Researchto TQM Literature Conceptual Framework ResearchParadigm ResearchConstructs ResearchPropositions Quality Management Grid Factors Affecting the Extent of TQM Adoption Framework on Quality Management-PerformanceLink Hypotheses TQM Constructs Development, Validation and Evaluation Sampling Design ResearchInstruments Statistical and Da~ Analysis Results and Discussion By Industry Type Firm Size Ownership Structure Export Orientation Production Systemand Level of Technology Development of TQM Constructs

79 81 82 82 83 84 85 87 87 88 90 91 92 97 97

98 101 105 105 106 108 111 115 116 117 118 121 121 123 123 123 123 123

Perception of Importance of Critical Components of Quality

124

Management(Survey1) Extent of Implemen~tion of Critical Components of a Quality Managementsyste, (Survey 2) Comparison of TQM Constructs Per~~ivedImportant and Those Practiced by SelectedPhilippine Cbmpanies Validation of TQM Constructs Validated Total Quality Management Constructs Use of Validated TQM Constructs in Industry Evaluation Conclusion and Recommendations Appendices Bibliography

126 128 130 131 134 156 163 171

CHAPTERTHREE China's Participation in APEC: From a Foreign Policy Perspective A Case Study on China-U.S. Bilateral Relations

by AbigailD. pe Leon

175

Abstract China's Accession to the WTO

175 176

Introduction China and the APEC: A Review of Literature How APEC Affects China: A Look at their Relationship Issue Linkage as a Self-EnforcementMechanism Strategic Organizational Approach and China's Participation in APEC APEC and Policy Interestsof China and U.S. The China Perspective The U.S. Perspective Foreign Policy Interests in China-U.S. Relations Understanding the AccessionDeal Expected Gains from WTO Accession Deal Expected Gains through Foreign Policy Linkages Market Accessand U.S.'s Foreign Policy of "Engagement" Objectives of the U.S.'s Policy on China China-U .5. Relations and the Taiwan Issue APEC: Fostering Foreign Policy Issue Linkages Analysis Taiwan and Issue Linkage vn

176 178 184

185

186 187 188 192 197 197 199 205 206 207 211 214 217 221

Analysis APEC'sRolein China-U.S.Relations APECand its PoliticalRole A New Modelin LookingatAPEC APEC'sRolein China-U.S.Relations

223 224 225 226 229 230

Appendices References

249

CHAYfERFOUR Philippine-Brunei Darussalam Economic Relations, 1984-1994: An Assessment

by JulietT.Mendoza

257

Abstra(:t Bilateral RelationsAmongNations Introduction TheNeedto Studythe Philippine-BruneiDarussalam BilateralRelations Understandingthe BilateralRelations TheStudy AreasCoveredby the BilateralRelations Reviewof RelatedLiterature History of Philippine-BruneiDarussalamEconomicRelations Factorsin Forgingthe Philippine-Brunei Darussalam EconomicRelations BruneiDarussalam The Philippines Inputsto BilateralRelations Modalities Usedin Philippine-Brunei DarussalamBilateralRelations Chronologyof Events Areasof EconomicCooperationand Extentof Implementation Trade Investments Labor(OFWs) Tourism Scienceand Technology(5&T) Official DevelopmentAssistance(ODA) Trends,Prospectsand Recommendations

257

...

258 258 258

260 261 261 262 267 269

269 271 273 285 286 295

295 299 302

321 330

333 338

Trends

339

Prospects

342

For BIMP-EAGA For ASEAN For APEC For Foreign Policy Making and Implementation Areas for Future Research Annexes About the Authors About the PASCN TDAP Guidelines

342 342 343 343 343 348 357 359

361

CHAPTERONE List of Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7

Definitions of an Entrepreneur, by Proponent Entrepreneurial Topologies, by Proponent Summary of Leadership Theories and Models Profile of RespondentEntrepreneurs Profile of Sample Firms Firm Performance Indicators Respondent's Entrepreneurial Styles Based

7 9

21 30

32 33

on FactorScores List of Figures Figure 1 Figure 2 ,Figure 3

Figure 4 CRAnER

Clustersof EntrepreneurialTraits The ManagerialGrid Schema ConceptualFramework:Relationship of EntrepreneurialStylesand FirmPerform~ce OperationalFramework:An Entrepreneurial StyleStudy

15 28 28

lWO

List of Tables Table 1 Table 2 Table 3a Table 3b Table 3c Table 4 Table 5

Table6 Table7 TableS Table 9

The TQM Philosophy: Underlying Principles The ResearchConstructs SETA On Significant Differences in the Extent of TQM

101

Adoption

112 113

SETC Significant Difference in Performance SETE On Association of Quality, Businessand Organizational Performance with TQM AdQPtion Index RespondentFirms by Category TQM ElementsRated not Critical (perception of Importance) TQM ElementsRated Moderately (Extent of Practice) Comparison of TQM Constructs from 2 Surveys Validated TQM Constructs (Using Perceptionof Importance) Classification of Respondent Firms based on their TQM Adoption Index

114 122 125 127 129

132 135

Table10 Table11 Table12 Table 13

TQM AdoptionIndexby Category TQM Adoption Indexby IndustryCategory Classificationof Quality ManagementSystem Quality ManagementGrid Classification of RespondentFirms Table 14 FactorsAffectingExtentof TQM Adoption Table15a PerformanceMeasureswith SignjficantDifference Accordingto Industry Affiliation Table15b PerformanceMeasureswith SignificantDifference Accordingto FirmSize Table1& PerformanceMeasureswith Si~cant Difference Accordingto ProductionSystem Table15d PerformanceMeasureswith Si~cant Difference Accordingto Degreeof Automation Tabl~15e PerformanceMeasureswith Si~cant Difference Accordingto OwnershipStructure Tabl~15f PerformanceMeasureswith SignificantDifference Accordingto Owne!Type Performance Measureswith SignificantDifference Tabld15g Accordingto ExportOrientation TabId1Sh PerformanceMeasureswith Si~cant Difference Accordingto EducationalBackgroundof CEO Tabl~15i PerformanceMeasureswith Si~cant Difference Accordingto OrganizationalAffiliation Table 15j PerformanceMeasureswith SignificantDifference Accordingto Quality ManagementGrid SchemaClassification Tabld15k PerformanceMeasureswith SignificantDifference Accordingto Quality ManagementSystemClassification Tabl~16 PerformanceMeasuresAssociatedwith TQM Adoption Index Tablel17' Evaluationof StructuralModelwith Goodness-of-Fit Measures

136 137 138

138 139 141 141 142 142

142

List of Figures

FiMl

Fi~2

Relationship of Quality and Profitability Paradigm of the Study

95 99

Figure 3

Churchill's Construct Development and Validation

Framework Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9

Figure10 Figure 11

Quality Management Grid Factors Affecting the Extent ofTQM Adoption Quality Management Input-OutputSystem Hypothesized Relationships of the 12 TQM Constructs Trimmed Path Diagram Showing the FactorsDerived From Survey 1 Modell Used RPQ as Quality Performance Measure, Retained 4 Factors Model 2 Used DFR as Quality Performance Measure, Retained 4 Factors TQM AssessmentModel

100 105 106 109 110

154 154 160

CHAPTERTHREE

List of Tables Table1

Table2

Summary of U.S.-China Bilateral Relationship Showing Nonfulfillment of Condition becauseof Foreign Policy Linkages E(c)-E(n) > E(v) Summary of U.S.-China Bilateral Relationship Showing Fulfillment of Condition becauseof Foreign Policy Linkages E(c)-E(n) > E(v)

204

List of Figures Figure.1

PercentageTrade Sharein China' s GNP

Figure 2

(In billionYuan) Frequency Resultsof the Content of ]iangZemin' s Speeches(1993-1999) .

Figure 3

Figure4 Figure5 Figure6

Frequency Resultsof the Content of the Leader's Declaration (1993-1999) Frequency Resultsof the U .5: s Addressesin APEC Summits (1993-1999) Frequency Results on Leader's Declaration Determining U.S. Interests (1993-1999) Frequency Resultsof China's Referencesto 1/One-China' Principle in APEC Summits (1993-1999)

XII

179 214

217 222

Figure7 Figure8 Figure9

Frequency Results of U.S.'s Referenceto " OneChina" Principle in APEC Summits (1993-1999) Frequency Resultsof Leader's Declaration's Reference to "One-China" Principle in APEC Summits (1993-1999) APECSustaining the Condition E(c) -E(n) > E(v)

222 223 228

CHAl7rER FOUR

List of Tables Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8

Table9

Table 10 Table 11

Table 12

Table13 Table14 Table15 Table 16

RP-Brunei Darussalam Trade Statistics (1984-1994,In US$) Top Five Markets for Philippine Exports, 1992 Top Five Suppliers and Importers to the Philippines Philippines' Trade Volume with Asean Countries (In Million US Dollars) Asia-Philippines Trade Distribution (in %) (1987-1993) Trade Trend on Oil and Non-Oil Exporting Countries Trade Trend in Petroleum Products with Oil-Producing Asean Countries, 1993-1995(In million US dollars) Equity InvestmentsApproved Under Investments Incentive Law, 1984-1?94 Brunei Darussalam's Total Investments in the Philippines as Compared to total Foreign Investments, 1984-1994(In thousand US dollars) List of Brunei Firms Investing in the Philippines Inward Foreign Direct Investments, by Investor Country and Financial Institution, Brunei Darussalam, 1973May 1994 (In million US dollars) Amount of Equity InvestmentsApproved under Various Investment Incentive Sourcesin Asean Countries, 1984-1995 Number of OverseasFilipino Workers Deployed by Classification, 1987-1993 Deployed Land-Based OverseasFilipino Workers, by Major World Group, 1984-1994 ProcessedLand-Based OverseasFilipino Workers, by Type of Placement, 1982-1993 Land-Based OverseasFilipino Workers Deployed in Brunei Darussalam, 1984-1994 X1ll

295 297 297 297 298 298

300 301

301

Table 17 Table 18

Table19 Table 20

Table 21 Table 22 Table 23

Top Ten Countries where OFWs are Deployed Deployed Land-Based Filipino OverseasWorkers, by Country of Destination in the Asean, 1984-1994 Profile of 1990OverseasFilipino Workers Remittance of OverseasFilipino Workers basedin Brunei Darussalam, by type of Workers, 1991-1993 (In thousand US dollars) Comparison of Remittances: Brunei Darussalam-based vs. Asia-based OFWs, 1991-1993(In US$ Millions) OverseasFilipino W orkers' Remittances by Country of Origin and by type of Workers, 1990-1993 Status of OverseasFilipino Workers' Legal Cases

Table 28 T-able29 Table 30 Table 31 Table 32 Table 33 Table 34 Table 35 Table 36

Table37

309

310

311

314

(1984-1993)

Table 24 Table 25 Table 26 Table 27

307

Status of Recruitment Regulation Cases,1985-1993 Status of Welfare Cases,1984-1993 Cases/ Complaints of OFWs in Brunei Darussalam, 1992 Welfare Mechanisms adopted by the Philippine Embassy, Brunei Darussalam in the prevention of labor-related crises Visitor Arrivals to the Philippines by Country of Residencein the last Ten Years(1984-1994) Tourist Arrivals from Brunei Darussalam to the Philippines, 1990-1994 Tourist Arrivals from Brunei Darussalam to the Philippines, 1984-1994 Profile of Tourists from Brunei Darussalam to the Philippines, 1984and 1994 Profile of Tourists Arrivals, 1994 Comparison of Brunei Tourists' Profile, 1984and 1994 Tourists' Average Daily Expenditures on Major Items, Per ~erson, 1994(In PercentageShare) Tourist Receipts, 1990-1994 Main places visited in the Philippines outside Metro Manila What Tourists Like/Dislike Most About

315 316

317

324 325 325 326 327 327 328 329

Table 38

the Philippines Key Factors That Influence Tourism in EastAsia

Table39

and the Pacific Trends and Prospectsfor Philippine Tourism

329 330

XlV

Table 40

Table41

Table42

Total ODA Committed to the Philippines, by Source, 1986-1994(In Million US Dollars) Total ODA Loans Commited to the Philippines, by Sectorand by Rank, 1986-1995 (In Million US Dollars) Total ODA Grants Committed to the Philippines by Sector1986-1995(In million US$)

307

Foreword One of the major programs of the Philippine APEC Study Center Network (PASCN) is the granting of financial assistanceto ~aduate students who are preparing to do th~ir thesis or dissertation. Through the PASCN'S Thesis and Dissertation Assistance Program (fDAP), graduate students who are enrolled in any of the 10 universities that are member-institutions of PASCN may apply for a grant. The names of these institutions are enumerated at the end of the book in the section on About the PASCN followed by the TDAP Guidelineswhich states the objectives, process of application and other details concerning the program. Since 1997 when the first mAP grants were given, 16 studies have been completed, seven of which are PhD dissertations and nine are masteral theses. The Network has decided to publish these studies under mAP as a regular series beginning with this book. Before their approval and inclusion in this booK, all TDAP studies, including the four papers herein, are presented by their authors to the mAP conference held annually. The papers in this first serieshave noticeably diverse topics as they adhere to the PASCNtesearch agenda which covers a vast scope of themes r~~ajedto the issuesand concerns of the Asia-Pacific Economic Cooperation (APEC). Thus, they tackle entrepreneurial styles and firm perforntance of small and medium manufacturing companies, total quality I{lanagement in Philippine manufacturing firms, U.S.-China bilateral relations pertaining to China's participation in APEC and Philippine-Brunei Darussalam trade relations. The succeeding series of this book will present equally interesting topics and informative studies in pursuit of the PASCN's goal of achieving a better understanding and appreciation of APEC and the country's participation in regional economic cooperation. On behalf of the PASCN, I would therefore like to express my deepest thanks and appreciation to the authors for their diligence in completing their studies. We hope that they will continue to do research in their fields of occupation and contribute to our mission of strengthening research-based policymaking in our country.

~ '~t O~Q...~ Mario. Presid

Lamberte, Ph.D. t, PIDS

and Le d Convenor,PASCN XVl1

SMALL AND MEDIUM MANUFACTURING FIRMS IN METRO MANILA: ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE GLORIA S. CHA VEl

ABSTRACT As we enter the new millennium, tKe Filipino entrepreneur faces diverse pressures presented by new tehnolo~es, global trading rules laid down by the World Trade Organization lWTO), environmental concerns renewed labor demands for more humane treatment. Will he be able to meet the challenges? It is imperative that the quality of the Filipino entrepreneur be enhanced for him to respond to the chal~engesahead of him. Who are the entrepreneurs? What qualities do they possesswhich distinguish them from the rest of the population? This study was undertaken to better understand the Filipino entrepreneur and to describe his entrepreneurial style using the dimensions of leadership behavior, entrepreneurial characteristics and value orientation. Using descriptive and correlational type of research designs, the proponent conducted a survey among 373entrepreneurs of small and medium scale manufacturing firms in Metro Manila. The statistical tools used for analysis of the data included: means and percentages,to describe the profile of the entrepreneurs and the firms; factor analysis, to group entrepreneur behavior into particular stylesiand tests such as Pearson'sr, One-Way Anova, chi-square, and canonical correlation to describe the relationships among the variables.

CHAVEZ

Findings confirmed that: (1) entrepreneurs vary along a number of dimenstions including personal characteristics, industry and firm performance! (2) there is a predominant entrepreneurial style, the entrepera or mapagtagumpayat dominantengstyle, used by entrepreneurs in small and medium scale manufacturing firms in Metro Manila; (3) the entrepera or mapagtagumpayat dominantengentreprenor(an be described as highly taskoriented, achievement oriented and personalistic style; and (4) entrepeneurial styles have a positive influence on firm performance indicators such as sales, profit, number of years of operation and asset size. The entrepera or mapagtagumpayat dominantengentreprenorand entreperin or mapagtuklasat kumparengentreprenorhave more positive influence on firm performance.

ENTRWRENEURSHIPAND THE ENTREPRENEUR Introduction A major factor in the growth of economies is the presence of a large number of entrepreneurs who, through their own effort and initiative, start the process of business by putting up small and medium enterprises. With growing liberalization and globalization brought about by trade accords such as the General Agreements on Tariffs and Trade-World Trade Organization (GATT -WTO), the ASEAN Free Trade Area (AFTA), and the Asia Pacific Economic Cooperation (APEC), small and medium entrepreneurs face greater competition. Can the Filipino entrepreneur survive the competition posed by the entry of foreign products? Is he or she capable of venmringinto forei~ markets? While liberalization and globali~on may seem to be a threat, they may also create opportunities for the FiliplhQ entrepreneur if he or she is prepared to face competition. Thus, it is imperative to enhance the qualities of the Filipino entrepreneur if he or she is to meet the challenges of the new

millenium. The Universal Entrepreneur Who are the entrepreneurs?What qualities do they possess?What makesthem unique?What is entrepreneurship?Answersto thesequestions are as varied as the terms used to describethem. Despitetwq decadesof research,thereis still greatcontroversyover the definition of entrepreneurship(Stewart,CarlandandCarland 1996).ThiS lack of universal definition hasspurredmore research.Schoolsof thought on 2

ENTREPRENEURIAL STYLES AND FIRM PERFORMANCE

entrepreneurship are essentially divided into two: those that define it as a process or as an economic activity (Morris, Lewis and Sexton1994; Stevenson and Gumpert 1991), and those that define it in relation to individual characteristics and traits. This second school of thought looks at the entrepreneur in t~rms of personality, style, skill, and motive (Carland and Carland 1997;Chan, Lau and Man 1997;McGrath, Macmillan and Scheinberg 1992; Stewart, Watson, Carland and Carland 1998). However, Withane (1996) emphasized that for entrepreneurship to become a distinct field of study and research, it has to develop a consolidated framework and research agenda. He suggested the adoption of major soda! sdence phenomena into entrepreneurship research. First, the concepts and theories of psychology that examine indi~dual behavior such as traits, motivation and leadership will be important in understanding the entrepreneur. Second, economic concepts and constructs, such as profit maximiza tion and growth that enhancethe understanding of entrepreneurial process and behavior, need to be used in the analysis. Lastly, theoretical concepts in sociology and anthropology, such as culture, can be examined to further ~nrich the practice of entrepreneurs4ip. InSe~h

of the Filipino Entrepreneurial Style There is no known study that categorically describes the Filipino entrepreneurial style. This study was undertaken to provide a structure or typology to better understand Filipino entrepreneurial behavior. , This study used the multidisciplinary approach suggestedby Withane. It includes in its concept of entrepreneurial style the characteristics, leadership behavior, and values of the entrepreneurs in the manufacturing sector in Metro Manila. The study identified the predominant styles used by the entrepreneurs in managing their firms, and determined the influence of these styles on firm performance as indicated by sales,profitability, continued business operation, and growth. The study was conducted among small- and medium-scale manufacturing enterprises in Metro Manila based on the 1995 listing of the National Statistics Office (NSO). These enterprises were Classified according to their sub-sectors: food and beverage, textile, wood and wood products, paper and paper products, publishing and printing, chemical products, tanning of leather/footwear, non-metallic and mineral products, fabricated metal products, machinery and equipment, electrical machinery, radio and 1V equipment, motor vehicles parts, transport equipment, manufacture/

CHAVEZ

repairoffumiture, jewelry, tobacco,sportinggoods,cokeand ovenproducts. Surveywas conductedfrom Juneto August1999whenthe economywas still experiencingthe effectsof the 1997Asian financi'alcrisis. Thus, many firms included in the NSO listing had alreadyclosed.Somerefusedto be included in the survey. OVERVIEW OF RELATED LITERATURE The Philippine economywas projectedto grow in 1999by only three percent. With investments having gone down, an estimated four million Filipinos were out of work and exportswere expectedto slow doWndue to high interestrates. According to Long (1996),it is preciselysuchtype of economythat could usethe effectsof entrepreneurialactivity. He listed four categoriesof economieswhich could benefit from entrepreneurship.Theseare: 1. Those which have at one time enjoyedthe benefits of thriving economiesand are now facing the impact of relatively long recessions~ poor economicperformance,unemployment,and in somecases,severesocialtensions; 2. Lessdevelopedeconomiesand thosewhosesystemsare in the processof total changeasin EasternEmopeand Russia; 3. The emergingeconomieswhich are experiencingthe earlystages of economic independence in their move from subsistence economies;and 4. Newly industrializedeconomiesthatare now enjoyingincreasing economicaffluenceas the tigers-of Asia. Wh~t is the role of the entrepreneur in each of the four categories?

The first categoryexpectsthe entrepreneurto play a significantrole in a I'turnaround strategyl' to help regenerate and spur economic revitalization. The second group looks to the entrepreneuras a peg in an "economic developmenttransition strategy'lto help provide jobs to .former farmers and artisans as the ec(jnomy moves from mostly agrarian to value-addingactivities, or from a centrally-plannedand controlled economy to more of a market-driveneconomy.Thethird and fourth groupslook to the entrepreneursfor I'...their creative talents, innovation and organization building capabilitiesas part of their move from consolidationto a long-term economicgrowth strategy'l (Long1996).

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Sincethe entrepreneurplays a very important role in the economy,a closerstudy of that role becomesimperative. Entrepreneurship Defined Recent studies attempted to distinguish the entrepreneur from entrepreneurship. Attention has moved from examining the person to examining th~ process. Looking at entrepreneurship as a process that occurs in an organizational setting has si~cantly advanced the field. Considerable attention was also given to describe the steps or stagesinvolved and to identify the factors that both constrain and facilitate the process (Morris, Lewis and Sexton 1994). Studies have shown that eJ,\trepreneurship,viewed as a process,could be applied to organizations of ~ sizes and types (Gundry and Welsch 1997; Kao 1995). Others tried to distinguish entrepreneurial from nonentrepreneurial firms. The entrepreneurial firm is defined as ope that pro actively seeksto grow and is not constrained by the resources 'CUrrently under its control (Lewis et al. 1997). Gartner (1990)surveyed 36 sCholarsand eight bu.siness leaders, with the greatest emphasis on the term entrepreneurship placed on: creating a new venture, adding value, capitalizing on opportunity, bringing resources to bear, and innovation. Kao (1995) saw entrepreneurship as the process of doing something new and/ or something different to create wealth for the individual and add value to sodety. The entrepreneurial process can also be characterized in terms of key inputs and outputs {Gartner 1990; Morris, Sexton and Lewis 1994). The inputs are environmental opportunities, the entrepreneur, an organizational context, a business concept and various financial and nonfinandal resources. The outputs may include new products and services, a going venture, profit, employment and assetgrowth{)r failure. The process involves acti'vities such as prepaI:ing, launching and developing a business \

venture.

Morris, Lewis and Sexton(1994)proposedthe following definition of enu:epreneurship as a synthesisof contemporarythought: Entrepreneurship following

is a process activity.

inputs: an opportunity;

an orga~izational

It generally

one or more proactive

context, risk, innovation,

involves

the

individuals;

and resources. It can

produce the folloun'ng outcomes: a new venture or enterprise, value, new products or processes, profit

or personal benefit and growth.

CHAVEZ

Several authors hied to link entreprene,urshipwith economic growth. Fajardo (1994)noted that in view of the innovative nature of entrepreneurship, it is thus, capable of generating more jobs, incomes, goods and services. Ultimately, this means achieving a better economy and higher standard of living for the people. However, the real contribution of entrepreneurship is measured in terms of the welfare of the masses.One of the most well-known , .studies was done by David McOellarid (1%1). He established a relationship between economic progress and the existence within a culture of a popular need to achieve which he ~efined as the desire to do something for its own sake rather than to gain power, love, recognition or prQfit. He popularized the Motivation Training Program with the view of stimulating economic growth by incre~sing the supply of entrepreneurs. The basic premise fbr this theory was that adults can acquire a strong need to achieve. . According to Hofer and Bygrave (1992), entrepreneurship1s unique among organizational and economic functions because it is initiated by an act of human volition. Thus, it is imperative to understand the individual who initiates the process of entrepreneurship.

Unde~tanding the Entrepreneur Research has produced a variety of definitions of the term "entrepreneur." In early 1700s,Richard Cantillon, an Irishman living in France, was the first to introduce the word" entrepreneur ." According to Cantillon, entrepreneurs are those "who buy the wares of the country at a certain price and sell (them) at uncertain prices" (Cantillon,cited in Stevenson1991).Jean Baptiste Say, Writing jn (1810),broadened the definition to include extensive management skills needed to successfully develop a venture. This would require bringing together the factors of production with the provision of management and bearing the risks assoCiatedwith the venture (Say, cited in Stevenson 1991). However, it was Schumpeter (1934) who added to the definition the concept of innovation in whet an entrepreneur does. Schumpeter emphasized the role of the entrepreneur in creaiting and responding to economic discontinuities. His theory of economic ;development where the entrepreneur is central argues that the entreprene*'s role is to disturb the economic status quo through innovations. ~ovation may include: .the creation of a new product or\a1teration of its quality; .the development of a new method of production; .the opening of a new market; .the capture of a new source of supply; and .the organization of a new industry I

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Table1. Definitions of an Entrepreneur,by Proponent Proponent

Period

R. Cantillon Abbe Nicolas Jean Baptiste Say J. Schumpeter F. Knight E. Penrose J. E. Stepaneck D. C. McClelland R. Budner O. Collins W. D. Litzinger J. B. Rotter

1730 1767 1810 1910 1921 1959 1960 1961 1962 1964 1965 1976

Definition A self-employed person with uncertain returns. A leader of men, a manager of resources,an innovator. A coordinator of production with managerial talent. A creative innovator. A manager respOnsiblefor direction and control. A person able to identify opportunities and develop enterprises. A moderate risk"taker. An a~ever. Has tolerance for ambiguity. Has high need for autonomy. Low need for support and conformity. Internal locus of control.

,,!:~:~T~o,~~., TypeA_~~iorpat~ern. Source: Kao (1991). ~:~. TheEntrepreneur. New Jersey: PrenticeHall. Some authors included in their definitions the condition that the entreprene~r be a founder, owner of the firJ:!;\,and that they may be differentiated from nonentrepreneursby certain behavioralcharacteristics. They suggestedthat an entrepreneuris one who takesinitiative, assumes considerableautonomyin the organizationand managementof resources, sharesin the assetrisk, sharesin anuncertainmonetaryprofit, and innovates in more thana marginal way (Chell, HawortPand Brearly1991;Hisrich and Peters1995;Kuratko and Hodgetts1995).The notion of risk, innovation,and proactivenesswere identified by Morris and Sexton (1995)as underl~g characterdimensionsof the entrepreneur. The view that entrepreneurialactivitiesareperformedby individuals whose judgment differ from the norm is incorporated in Kao's (1991) definition, which describedthe entrepreneuras" A personwho undertakesa wealth-creating and value-adding process through incubating ideas, assemblingresourcesand makingthings happen." In 1991, Kao presented a summary of the definitions of an entrepreneurwhich hesaid "should give us a very goodidea of how we have struggled for more than two centuriesto find out who an entrepreneuris" (Table1). Types of Enb'epreneurship The America!}model of entrepreneurshiprocuseson the individual (Carland, Carland and Koiranen1997).As suCh,researChers looked mostly into the personalCharacteristics, while othersconcentratedon the types of entrepreneurs(Braden1977;Dunkelbergand Cooper1982;Filley and Aldag 1978;Miner 1997;Smith1967). 7

CHAVEZ

One of the earliest studies that classified entrepreneurs was done by Smith (1967). He grouped entrepreneurs, based on their motivation and management method, as either craftsmen entrepreneurs or opportunistic en~preneurs. His study was done among 52 entrepreneurs of manufacturing firms. Craftsmen entrepreneurs came from blue collar backgrounds with very few finishing higher level or college education. Most of them had experiences in plant operations. T1\ey exhibited paternalistic tendencies, used more of personal connections in Jl\arketing and had rigid strategies. The opportunistk entrepreneurs had more exposure to education, varied experiences, middle class backgrounds and held positions in top management in previous jobs. They were more open to developing their employees by means of de~gation, more innovatiye, and used a variety of strategies to market their products. Their firms had higher growth rates than the firins of craftsmen entrepreneurs. Smith postulated that a craftsman entrepreneur tends to build a rigid firIi1 while an opportunistic entrepreneur will opt for an adaptive firm. Between these two types, a main distinguishing factor is education. Braden (1977) grouped technical entrepreneurs into caretakers and managers. Managerial entrepreneurs had more standardized products as opposed to more custom made, innovative products' offered by the caretakers. The growth rate of managerial entrepreneurs were much higher than that of caretaker entrepreneurs. / Filley and Aldag (1978) classified entrepreneurs as craftsman, promotipn or administrative types. Similar to the craftsmen entrepreneurs of Smith, craftsmen tended to be rigid, avoided risks and is more' concerned with having a cpmfortable standard of living. Promotion firms had high growth rates, were closely supervised by the owner, and were usually organized in response to a unique need. The administrative types used more formal structures and policies and were mostly in large-sized companies. Dunkelberg and Cooper (1982) used factor analysis to group 1,805 small-business owners into growth-oriented, independence-oriented, and craftsman-oriented. Craftsman-oriented entrepreneurs had the least exposure to eduqition with only 37 percent having a high school or lower education. The independence-oriented entrepreneurs and the growth-orient~d entrepreneurs had mor~ formal, higher education with 17 percent of the independence-oriented having gone to graduateschool. In terms of experience, the independence-oriented entrepreneurshad lessmarke~g background than the growth-oriented and craftsman-oriented. Craftsmen entrepreneurs had the lowest growth rate while the independent entrepreneurs had the highest. 8

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

According to Miner (1997),there are four types of entrepreneurs: the personal achiever, the super salesperson, the real manager, and the expert idea generator. The personal achiever wants to control things at his /her own pace.;He/she does things according to plans and yet practices flexibility when the need arises. This type of entrepreneur deals with problems personally. The super salesperson has good relationship with clients. His/her style is focused on selling and is capable of dosing deals because he/she values interaction. The real manager, on the other hand, likes to show that he/ she is in charge. He/she likes to set up standardized systems for his/her ventures. The expert idea generator discovers brand new ideas an~ applies it in different situations. He/she likes to work with partners who have expertise and can generate conceptsthat can beimplemented. A summary of typologies is shown in Table 2. Table2. ~~pren~urial Typolog~~,By Proponent ,,-,.:: ~TPr:ponent Smith, N. R.

:~~ 1967

--Typologies Craftsman entrepreneurs

Braden, P.

1977

Opportunistic entrepreneurs Caretakers

Filley, A. C. and R: J. Aldag

Managers Craftsman

PromoterDunkelberg, W. and Cooper, A Miner, J. B.

1982 1997

Administrator Growth-oriented Independence-oriented Craftsman-oriented Personal achiever Super salesperson Real manager Expe!:! idea Renerator

Entrepreneurial Characteristics Previous researches focused on the study of the entrepreneur (Carland, Hoy and Carland 1988;Carland and Carland 1991;McOeIland 1961; Sexton and Bowman 1986; Timmons 1994). Several researchers tried to identify those characteristics and traits which distinguished entrepreneurs from non-entrepreneurs (Carland and Carland 1991; Chell, Haworth and Brearley 1991; Long 1996; Kuratko and Hodge~ 1995). Studies that tried to understand the entrepreneur as a person mostly focused on entrepreneurial characteristics such as: self-confidence, origiilality r people orientation, task-result orientation, future orientation and risk-taking (Meredith, Nelson and Neck 1982).

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The Sundaya study (1990)listed 42 characteristics of entrepreneurs with the top ten being confidence, perseverance and determination, energy and diligence, resourcefulness, ability to take calculated risks, dynamism and leadership, optimism, need to achieve, versatility, knowledge of product market technology, and creativity. In a study commisSioned by the USAID in 1983 (cited in Tomecko and Kolshom 19961large numbers of entrepreneurswere interviewed in India, Malawi, Africa and Ecuador. The study suggested a number of character traits which fell into three main dusters (Figure 2). These are: (1) Achievement cluster: opport~nity-seeking, persistence, commitment to work, demand for quality and efficiency, and risk-taking; (2) Planning cluster: goal-~eftin~ systematic planning and controL information seeking; and (3) Power cluster: persuasion, networking and self-confidence.

Timmons (1994)summarized the characteristics of an entrepreneur distilled from 50 research studies. These include: .total commitment, determination andeerseverance; .drive to achieve and grow; .has opportunity-and goal-orientation; .takes initiative and personal responsibility; .persistent problem-solver; .is realistic and has a sense of humor; .seeks

and uses feedback; 10

ENTREPRENEURIAL STYL-ESAND FIRM PERFORMANCE

has internallocus of control; takescalculatedrisks and has risk-seekingattitude; has low needfor statusand power; and hasintegrity and is reliable. According to severalfesearche~ (Carland, Carland and Koircmen1997; Stewart, Watson, Carland and Carland 1998),three major attributes can best describe one that is entrepreneurial. These are: propensity for risk-taking; preference for innovation, and need for achievement Mullins (1998)focused on the risk-taking attributes of entrepreneurs by answering the question: "Do entrepreneurs ulj1dertake riskier new ventures than do managers?" His findings confumed the cont~ntion of Timmons (1994)that entrepreneurs are prudent managers of risk. Stevenson (dted in Cooper, Hornaday and Vesper 1997) noted that entllepreneurship is particularly concerned with innovative behavior and achievements. / A study on entrepreneurial characteristics among Thai entrepreneurs (Vinai.1992) revealed the following personality traits: self-centered, motivation to succeed,ability to effidently plan work, assumesresponsibility, a hard worker, and feeling of superiority. In Kaunlaran: Mga Pamilyang Uliran, a Development Bank of the Philippines (DBP 1990) publication, the following characteristics were used to describe the Filipino Entreprenor: Pagsasarili. The entrepreneur is self-reliant. He counts mainly on his own effort, and succeeds mainly by doing a good job and by relying prindpally on his own merit and work. His self-reliance is founded on hard work which yields for him self-fulfillment and real pleasure. The entrepreneur is on his own, devoting lots of I meaningful hours to his job or to the sprvice he renders.

Lakas-ioob.He takesrisks. He risesto a challenge,bringing into playa unique dynamism that is often spent in converting problems into opportunities. His daring is built on his " competence,which in turn is marked,by an opennessto new ideas and new skills, new developmen'ts,inthe market and in technology; Despitesetbacksand mistakes,he is willing to start all overagain,pushingaheadup to the very end.

CHAVEZ

Sipag. This working entrepreneur is obsessedwith the distinctive advantage conferred by the quality of hiS work. A big reason for hiS industq~usness is a strong sense of pride in the workmanship of hiS product. He is quality-conscious in all the components of hiS business. He is also, therefore, precise in counting costs and in ensuring value for money for his products or services. Pagpapakumbaba. The true entrepreneur has the humility and single-mindedness of pu-rpose.Where there's a chanceto earn, no matter how lowly the task, you will find him patiently at work, unmindful of~ soda! status. To him rolling his sleeves, getting his bands dirty is nothing to be ashamed of. Tiyaga is his badge of se~ty. Pagpapakumbabais the quality that enableshim to build a business from resources or opportunities, simple needs and humble beginnings. Pagkamatulungin. He learns to work with others from different fields, conscious that with their help, effectiveness can be multiplied. He thinks of others, especially those wprking for him, and of the opportunities for advancemehthe can provide for them. Through appropriate works and words, he shows that he truly cares for their personal welfare and development. Mapagtuklas. He is basically creative, with a sense of perseverance and a spirit of initiative. Never satisfied with things as they are, he continues to improve, trying new and better ways of doing things. And when difficulties, frustrations and failures come, he is never discouraged. Often, out of all these come something new. Another success. Another problem solved. Another opportunity opened. Another first. Saya. The joy of this entrepreneur lies in the satisfaction of a customer whom he puts first over everybody else. He therefore attends to the real needs of his customers with dispatch, efficiency and gradousness. Service-oriented, he is a happy man for he has discovered that the joy of giving is its own reward. His actions are not marred or saddled with personal weaknessesso that his life is wholly and fully directed by his convictions. All theseleave this entrepreneur a truly happy man. 12

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

In a study of the entrepreneurial profile of the women in Quezon province, Atienza (1990) summarized the basic prerequisites of an entrepreneur as: .a risk-taker or one who confronts uncertainties and eventualities ~s result of his business operation; .an innovator, a generator of new ideas or one who improves or develops existing ideas; .an exploiter of economic opportunities or one who looks for sources of raw materials and taps them, and combines the avail able resourcesin the most appropriate manner to attain effidency and effectiveness in production; .an organization man or one who organizes an enterprise and takes responsibility for the entire operation of the business; .an initiator-reactor of change who places himself/herself into the microcosm of a dynamic business sector which requires his/her vision, creativity, initiative, and determination to achieve; and .a business leader who is at the same time the fulcrum of business and organizational development who determines the directions and the balance of business success. In a 1998 study by Edralin, a large percentage of Filipino entrepreneurs attributed their successto traits such as: being hardworking, responsible, self-confident, industrious, persevering, having self-control and discipline, being sincere, and being ~chievement-oriented. Someunpublished casestudies done in 1999on Filipino entrepreneurs by De La Salle University students majoring in BusinessManagementrevealed entrepreneurial characteristics common among Filipino entrepreneurs. These are: self-confidence! commitment, determination, risk-taking, persistence, esourcefuIness, opportunity-seeking, and acceptanceof criticism.

LeadershipStyles The entrepreneur's leadership capability ts important to the entrepreneurial process and to the eventual successof the enterprise. Leadership style or behavior was used interchangeablyin the 1940sto describewhat leadersdo. Researchers were concernedwith identifying the kinds of leadershipbehaviorthat enhancedthe effectivenessof subordinates and helpedachievegroup goals.Theycameup with the following:

CHAVEZ

The autocratic-democratic-laissez-faire theory One of the earliest studies o~nleadership wa.sreferred to as the "Iowa Childhood Studies" by Lewin, Lippitt and White in the 1930s(dted in Luthans 1995). The shldies identified three types of leadership styles. These are: .The autocratic -where all decisions were made by the leader; .The democratic -where group decisions were made by the majority vote; .The laissez-faire -where the leader's direction was kept at a minimum and the group was with little supervision. The initiating stJUctureand consideration theory The Ohio State Leadership Studies in 1945 identified Initiating Structure (task orientation) and Consideration (relationship or people orientation) as the focus of a leader's behavior (Bryman 1992). Consideration refers to the extent by which leaders promote camaraderie, mutual trust, liking and respect in their relationship with their subordinates. Initiating Structure denotes the degree to which leaders tightly organize work, structure the work context, provide clear-cut definitions of role responsibility, aI:ld playa very active part in getting the work at hand fully scheduled. In the original Leadt!r Behavior Description Questionnaire (LBDQ), there were 130 questions about how frequent the focal leader engaged in certain kinds of behavior. The LBDQ has, since then, undergone a number of changes and the most frequently used version is the LBDQ-Form XII. In 1990, Childers, Dubinsky and Skinner conducted a research among 588 insurance a~entsto determine the effectsof initiating structure and consideration on job satisfaction. They found out that professional orientation, task characteristics and customer relations moderat.ed the relationship between initiating structure and job satisfaction while cohesive work groups and customer relationships moderated the positive relationship between consideration and job satisfaction (cited in Podsakoff, Mackenzie, Ahearne and Bommer 1995). At about the same time as the Ohio Statestudies were conducted, the University of Michigan researchersdid leadership studies which identified two conceptscalled "employee orientation" and "prod11ctionorientation" (cited in Hersey, Blanchard and Darvey 1996).

Rensi$Likert's System1-4 The idea of System 1-4 developed by Rensis Likert (dted in Luthans 1995)was based on the Michigan studies of leadership behavior which used the fraptework: differentiation of supervisory role, closenessof supervision, 14

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

employee-centeredness, and group relationships. Based on this framework, Likert identified four kinds of leadership system: System 1 -an exploitative authoritative system where the manager makes all the decisions and simply orders the members to follow. System 2 -where a benevolent authoritative leader tells the members what to do, but the members are given the chance to comment. System 3 -where a consultative leader sets goals and issues orders only after discussing them with members System 4 -where a partidpative leader who makes decisions with his

members. The Leadership Grid Model Previous studies emphasized task accomplishment and the development of personal relationships. Blake and Mouton (1985)made use of the Msk and relationship dimension of leadership in their five different styles of leadership (Figure'2). A 9,1 or a task-oriented leader is high on production orientation. A 1.,9 leader or a country dub leadership style would have high concern for people. A 1,1 leader is an impoverished leader since he would be low on both people and production orientation. -A 5,5 leader or the organization man balances the necessity to get work done while maintaining people's morale at a satisfactory level; A 9,9 leader uses a team management style with maximum concern for production and people.

Fi~re 2. The Managerial Grid Schema

Concern For

People

CHAVEZ

This grid suggeststhat a 9,9 approach or a high concern for both people and production is the most effective leadership style in all situations. This team orientation is indirect contrast to a task-orientation (9J-J, or a country dub orientation (1,9) which is more concerned with people tha:n tasks. An impoverished leadership (1,1) would be sorely lacking in both people and task orientation. Styles necessary for entrepreneurial successin one situation may not be needed in another situation. Researchershave suggested the need for more than one type of leadership to attain group goals. The contingency approac~ to the study of leadership proposes that leaders should adjust their style based on the situations. Fiedler's contingency model A task or relationship orientation might be altered because of the leader's power, the task structure and the relationship harmony between the leader and the employees (Fiedler, dted in Daft 1999).One of the best-known contingency-determined leadership theory is Fiedler's Theory of Leadership Effectiveness. This was based on the relationship between organizational performance and the leader's at,titudes. Fiedler was interested in determining whether leaders who were less discriminating in evaluating their associates were JIlore (or less) likely to ha.v~effective, high-producing groups th'an their counterparts who were highly-demanding or discriminating in evaluating their people. To measure these attitudes, Fiedler and his assodates developed the "leastpreferred coworker scale" (LPC)which measureshow favorably a leader evaluates the least preferred coworker. The respondent is asked to think of the individual with whom he or she had the greatest difficulty in gettin&.a-job done and to describe this person on the LPC scale: Initially; the researchers hyp~ized that high LPC scoreswould be assodated with effective group performance. Rowe\1er, the research yielded both mixed and conflicting results. Thus, Fiedler observed ,that the "right" type of leadership behavior depends on whether the group mtuation is favorable or unfavorable to the leader. The three dimensions that determine situational favorableness are: .Leader-member relations. This refers to the quality of relationship between the leader and the group. I.t is measured by how well the individual is liked and trusted and how warm and friendly are his/her relationships with the members. .Task structure. This refers lo the degree to which the task is programmed or spelled out via established procedures. It is measured by how clearly the goals are stated, and by the 16

ENTREPRENEURIAL STYLES AND FIRM PERFORMANCE

correctness of the solution or decision as demonstrated by appeal to authority, logical proceduresor feedback. Position-power. This refers to the degreeto which the position itself enablesthe leader to get membersto acceptand comply with his/her direction or leadership. Someof the measuresof position-powerinclude the authority to recommendpromotions or demotions. The situational leadership model Leadership style might be altered depending on the maturity or development level of the employee (Hersey, Blanchard and Darvey 1996). In an attempt to integrate previous knowledge about leadership into ~ prescriptive model of leadership style, Paul Hersey and Kenneth Blanchard developed a situational model of leadership that spedfied the readiness of followers --defined as the ability and willingness to accomplish a spedfic task --as the major factor that influences appropriate leadership style. Follower-readiness incorporates the follower's level of achievement motivation, ability, and willingness to assume responsibility for his/her own ~ehavior to accomplish spedfic tasks, and education and experience relevant to the task. This situational model incorporates two dimensions of leadership style. These are: (1) Task behavior --the extent to which the leader engagesspells out the duties and responsibilities of an individual or group. This includes telling people what to do, how to do it, when to do it, where to db it and who is to do it; (2) Relationship behavior --the extent to which a leader engagesin a two-way or multi-way communication. This behavior includes listening, facilitating and supportive behaviors. Combining these dimensions results in four leadership styles: .Using a telling, guiding, directing or establishing style. The leader provides spedfic instructions and closelysupervisesperformance. The style combinesbelow-averageamount or relationship-oriented behavior with above-average amount of task-oriented behavior that result in leader-made decisions. Leadersshould use this style when followers have low readiness and are unable, unwilling or insecure. .Using a selling, explaining, clarifying or persuading style. The leader explains decisions and provides opportunity for clarification. This style combines above-average amount of 17

CHAVEZ

relationship oriented behavior with above-averagetask-oriented behavior that result in leader-made decisions with clarification. Leaders should use this style when followers have moderate to low readiness and are unable but willing or confident. Using a participating, encouraging, collaborating, or committing style. The leader sharesideas and helps facilitate decisionmaking. This style combines above-average amount of relationshiporiented behavior with below-average amount of task-oriented behavior that result in jointly made decisions or follower-made decisions with encouragement from the leader. Leaders should use this style when followers have moderate to high readiness and are able but unwilling or insecure. Delegating, observing, monitoring or fulfilling style..The leader turns over responsibility for decisions and implementation to followers. This style combines below-average amount of relationship-oriented behavior with below-average amount of task-orient~d behavior that result in follower-made decisions. Leaders should use this style when followers have high readiness and are able, willing and confident. The path-goal leadership theory The path-goal theory of leadership associatedwith the work of House and Mitchell (dted in Daft, 1999),is another good example of a contingency or situational approach to leadership. It represents an application of the expectancy theory of work motivation. Expectancy theorists propose that people choose levels of effort at which they are prepared to work. Leaders will choose a high level of effort if in their assessment it leads to good performance and that the outcome of good performance is valuable to them. Leaders are important sources of motivation if their behavior can induce among their subordinates the desire to perform well and help them attain their goals. If subordinates believe that a high level of effort and good performance lead to desirable outcomes, they will work harder. If the perceived outcomes are undesirable or unclear, subordinates will not be motivated to work harder. House and Mitchell examined four kinds of leadership behaviors which may have an impact upon the motivational processes that the theory emphasizes.These are: .Instrumental leadership (sometimes called directive). The leader gives a systematic clarification of what is expected

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

of subordinates, how work should be accomplished, each person's role, and the like; Supportive leadership. The leader is concerned with the subordinate's well-being and status; the supportive leader tends to be friendly and approachable; Participative leadership. The leader adopts a consultative approach and seeksto involve subordinates in decisionmaking; Achievement-oriented leadership. The leader sets high performance goals and exhibits confiden~e in the subo1,"dinate's ability to attain set standards. In 1990, Mathieu tested instrumental leadership and supportive leadership behaviors of 298 army and navy ROTC cadets of two universities. He found out that the need for achievement moderated the relationship between instrumental leadership behavior and satisfaction, and between supportive leadership behavior and satisfaction(cited in Podsakoff, Mackenzie and Ahearne 1995). I;n smaller businesses employing up to 150 persons, it is presumed that the role of leadership is more likely to matter than in larger org~tions as leaders should be able to exercise more direct contrQl:over the affairs of their companies than what is necessary in large org~tions (Petzall and Kim 1995). In a study of lead~rship styles of Singapore small-business owners, researcherstried to determmewhidl of the following leadership styles were used by these owners, based on the following Altman, Valenzi and Hodgetts (1985)leadership questionnaire: Directive style. A leader who is task-oriented. Negotia tive. A leader who gets things done by making deals with subordinates. Consultative. A leader who allows subordinates to have inputs ~to the decision eventually made. \ Participatzve. A leader who allows subordinat~s to share in the decision eventually made. Delegative.A leader who allows subordinates to obtain results in their

own ways. The major findings of the study were: (1) The directive style was preferred by more respondents of all the main races in Singapore;

CHAVEZ

(2) Females,althoughthey accountfor only a smallpercentageof the total sample,weremore stronglydirectivein theirstylesthanmale respondents; (3) Proprietors of businessesless than 10 years old adopted the directive style while proprietors of businessesbetween10 to 19 yearsold adoptedthe.delegativestyle. Transfonnationalleadership model Recent thinking on effective leadership has supplettlented the situational approach with emphasis on transformational leadership, also called visionary and charismatic (Bass1995; Kotter 1997)(Table3). Transformational leadership is described as the process of pursuing collective goals through mutual tapping of leaders' and followers' motive basesto achieve the intended change. Transformational leadership occurs when leaders and followers raise one another to a higher level of motivation. These denmtions sugg~$t a contrast with another form of leadership --transactional leadership which is Characterized by its focus on proViding material rewards to subordinates in return for their committed effort (Bass1995). A transformational leader changes an organization by developing a vision for it, communicating that vision to its members, mobilizfug them to accept and help achieve it, and then institutionalizing the new changes. This is done through the following steps: 1. The leader helps subordiRates recognize the need to reVitalize the organization by developing a felt need for change and overcom 2.

ing resistance to change; The leader creates a new vision and mobilizes commitment. He or she can use planning or education, change the composition of the team, alter managementprocesses,and help membersreframe the way they think about the business as ways of generating commitment; The leader institutionalizes change by replacing (;lId technjcal, political, cultural and social networks with new ones.

Basically, this type of lea-der-attempts to motivate followers to perform better. Transformationalleaders considerthemselvesto be Change agents;are courageousrisk-takers,believe in people,and try to empower others. They act a(:cording to a well-articulated; set of core values, are continuouslearnerswho learn from their mistakes,can deal with complex, 2~

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

Table 3. Summa!! of Leadership Theories and Models Proponent Period Theory or Model Lewin, Lippitt and White (Iowa 1939 Autocratic-democratic-laissez..faire Childhood Studies) Stogdill (Ohio State Studies) 1945 Initiating Structure-Consideration Likert 1964 System 1-4 Blake and Mouton 1967 Managerial Grid Fiedler 1967 Contingency Model Hersey and Blanchard 1969 Situational Leadership House and Mitchell 1974 Path-Goal Theory Altman, Valenzi and Hodgetts 1985 Directive to Delegative Style Bass 1995 Transformational Model

TheFilipino style of leadership In his "Pinoy Management" Franco (1986)wrote about the four generaltypes of Filipino managerswhosestyleswere: (a) managementby kayodwherethe realistmanagerworks very hard even on holidays; (b) managementby lusofwhere the opportunist managerwants the leasthardship yet wants things fast and easy; (c) managementby librowhere the idealist managermanagesby the book and lives on ideals or stylespracticedby Americans,and (d) management by ugnayanwhere the manager subscribes to reconciliation methods and is concerned with making all the componentsof his enterprisework as a whole. Andres (1986) is anotli.er Filipino author who believes that for a management theory to work it must adapt to the local culture. He describes four leadership styles. These are: 1. Management by pakiramdam. These are managers who work according to what they feelis the desire of management. They follow exactly what ma,nagement wants them to do. They are rule-oriented rather thart result-oriented, uncreative, conservative, dependent and have no decision of their own. 2. Management by takutan. This is management by fear. ~1anagers get results by threatening or inflicting fear. In meetings, tbey suPRfess questions and objections and force their side on all issues. 3. Management by kulit. These managers follow up things requiring approval. They see to it that every task is well-monitored and programmed.

CHAVEZ

4. Management by patsamba-tsamba.Such managers work without direction or procedure. They employ trial and error in everything under their command. Value Orientation Value systems are factors that determine the success of an entrepreneur within a given culture. According to Withane (1996), cultures and subcultures within a country are directly related to the adaptation process of entrepreneurship. From previous studies, it was shown that the cultural setting under which an e-'trepreneur operates has an effect on what he may value. A value is something a person cherishes or a vision which motivates him to action (Jocanol990). In a study of small Chinese family ~usinessesin Singapore, Lee (1996) found four key features of Chinese management that are distinctive from Western management. Thesefeatures are anchored on what the Chinese value or hold as im~ortant in their life such as: Human centeredness. In this management style, Chinese entrepreneurs place people as the center of concernand therefore pay great attentioJ} on issues of emotion and trust. Business relationship is always subsumed. under the mo~:aIisticnotion of friendship, loyalty and trust. Highly associated with concern for feelings and respectof relationship is the concept of "face.1I"Facell is used as a mechanism for inculcating a strong sense of group responsibility and serves as a mediating force in social relationships. Family-centeredness. The family, which is the primary agent of socialization in Chinese culture, exeri,$ the most significant influence on the individual's value systE}ffiand role expectations. Parental authority has a strong impact on Chinese management. In the Qrganization, the boss-employee relationship follows the model of filial piety found in the parent-child relationship. Centralization of power. The power structure is usually characterized by two levels -the power core controlled by the boss or a small number of people usually family members, and the second level formed by the employees, who are either relatives, friends or outsiders. Small size. Most Chinese organizations start with a small capital and a small number of people. A small enterprise is easy to control 22

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

and manage.It allows for a closerinterpersonalrelationship, a shorter decision-makingchain and faster decisionmaking. In another study by Chan, Lau and Man (1997)of small-business ownersin Hong Kong, they identified certain personalityattributes which contribute to a particular style of managing.Theseare growth orientation, risk orientation,innovativeness,opportunism,flexibility, quality mindedness and willingnessto learn. Lavador (1981)describedthe Filipino entrepreneuras havinga high regard for authority, hasa propensityfor pakikisama and utangna loob(the reciprocity value), and whose decisionmakingis oftenaffectedby personal considerations. Quisumbing (1980)listed the following Filipino values that can be utilized for development:personalismwhich canbe the basis of authentic commitment,mature freedomand involvement;pakikisama which canbe the basisof teamworkand group consciousness; and small-groupcenteredness which canlead to concertedaction. Certainvaluesinfluenceleadershipin the Philippines,accordingto a study done by Camadanget al. (1983).Among t~emare: (1) Personalism-which placesvalue on the personrather than on the job; (2) Patentalism -which placesstrong emphasison the manageras the headof the family; and (3) Pakikisama-where a leadergivesin to the suggestionsof others or yield to-the will of the leader or the majority to obtain a unanimousgroup decision. Other

Filipino"

values

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Andres

person's

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concerned

CHAVEZ

Lastly, Mathias (1997) examined the mediation of culture, religion and situation in the development of va1ue~,attitudes and patterns of business behavior among Chinese and Filipino entrepreneurs in the Philippines. He concluded that cultural factor is the key to understanding the differences in economic performance betweerithe two communities in Philippine society' Indicators of Firm Perfomtance Slevin and Covin (1995)observed that the ultimate measure of firm erformance is finandal growth. Parametersto describe firm performance lwere used to gauge whether motivation, entrepreneurial characteristics, and leadership can influence performance. Gillin and Hornsby (1997) compared the growth rates of 110 Australian entrepreneurial companies. Firm performance was examined by looking at growth performance, maturity of products, reco~tion of business and accessto capital. Results revealed that marketing skills were rated more important than leadership. Previous entrepreneurial experience was also perceived as more important than conventional education. To measure the effects of resource availability and entrepreneurial orienta.tion on firm performance, Brown and Kirchhoff (1997) defined firm performance as growth, specifically, changes in sales and employment over the period 1991-1994. Results of their study confirmed that entrepreneurs' perceptions about resources contributed to their successas measured by firm sales and employment growth. Similarly, Pleitner (1997) listed the success factors in an international longitudinal survey in eight European countries. These are quality of management, reputation, technology, product design and quality, low costlevel, market share,finandal strength, customerrelations, flexibility and product adaptation. To study the success factors in small-scale industries in Thailand, V~ai (1992)used the following successindicators: return on equity, number of employees, number of product lines, number of outlets/branches! return of investment, annual net income, value of net worth, and income tax. The measures of successare important elements in the Edralin study (1998). Considered by the respondents as the most important indicators of success were: continued patronage of customers, satisfaction of customers, continued operation of the business, personal satisfaction, harmonious labor management relations, expansion, generating employment, and high productivity.

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Contributions to Future Resean:h From the above discussions, it is clear that it is possible to identify a Filipino entrepreneurial style and come up with a typology of Filipino entrepreneurs. A number of researcheson entrepreneurial characteristicshave been done and characteristics common to entrepreneurs were identified. The question is: Are these characteristics culture-bound? There are indications that certain characteristics may be more pronounced in some cultures than in others. While earlier studies on leadership styles were often done on the classical theory of task or people orientation, more recent ones tried to look into situational variables that make leaders more effective. They also used sales, profitability, motivation and satisfaction of workers to test leadership effectiveness. In addition, the studies on value orientation that incorporates cultural nuances may give a better picture of which leadership styles are most effective. This study choseto focus on entrepreneurial style that combined these constructs: entrepreneurial orientation, leadership style and value orientation. This study, therefore, is different from existing studies on entrepreneurial characteristics,. leadership styles or studies on values because it is precisely the combination of these facets of the entrepreneur which was investigated. The major contribution of this researchis the creation of an instrument to describe what constitutes a Filipino entrepreneurial style. The instrument incorporates the Filipino values which are not found in instruments used by previous studies. Hence, this instrument may now be used to describe an9 classify the Filipino entrepreneur according to the types of entrepreneur/aI styles. Hopefully, this instrument can be used not only to find out !the predominant entrepreneurial styles of Filipinos in the manufacturing sector but also in other industries. There is a possibility that the entrepreneurial styles of Cebuanos, llocanos or Mindanaons are /different from that of /

entrepreneurs in Metro Manila. These are avenues which future research can explore. mE ENTREPRENEURIAL STYLE CONSTRUCT Entrepreneurship is considered the catalyst of economic development. For a developing country such as the Philippines, it is therefore critical to understand in order to fully develop entrepreneurship. In the last 30 years, numerous opportunities were open to entrepreneurs as markets were still developing and expanding. Tod~y, resources have grown scarce while 25

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competition from both local and foreign products had become very stiff. In addition, technological changes can turn a product obsolete overnight, thus the necessity to be constantly innovative. To be able to survive in today's environment, a business must be able to quickly respond and to seize new opportunities. It is the precisely the environment of entrepreneurship which can quickly convert threats into opportunities. What makes entrepreneurship unique among organizational and economic functions is its being initiated by an act of human volition (Hofer and Bygrave 1992). Thus, it is imperative to understand the person who initiates this process. While previous researchesfocused on entrepreneurs' personal characteristics, more recent ones have looked into an interesting area which is entrepreneurial behavior. The patterns of entrepreneurial behavior or characteristics, value orientation, and leadership styles are described in this study as entrepreneurial style. Based on the entrepreneurial characteristics cited by authors in the previous section, these three major characteristics best describe a person with entrepreneurial qualities: .propensity for risk-taking, which involves the willingness to commit resources to opportunities having a reasonable chance of failure; .preference for innovation, which usually refers to seeking creative or unusual solutions to problems and needs; and .achievement orientation or the preference for setting goals, solving problems, and accomplishing these goals. Another aspect of entrepreneurial style is the leadership style which refers to the way leaders influence followers. The leadership styles advanced by Altman, Valenzi and Hodgetts (1985)which was adopted by Petzall and Kim (1995)were used in this study. These are: .Directive style -where the entrepreneur is a task oriented leader. .Negotiating style -where the entrepreneur gets things done by making deals with subordinates. .Consultative style -where the leader allows subordinates to have inputs into the dedsion eventually made. ..Participative style -where the leader allows subordinates to share in the dedsion eventually made.

ENTREPRENEURIAl. STYLESAND FIRM PERFORMANCE

Delegativestyle -where the leaderallowssubordinatesto obtain resultsin their own way. Sinceentrepreneurialstyleis definedasthe patternof entreprene~ behaviorindicated by entrepreneurialcharacteristics,leadershipstylesand value orientation! certainFilipino valuesbecamerelevantin this study. Thefollowing value orientationsadvancedby Filipmo authorsasdted previously were alsousedin this study: .Personalism. An orientatiQnwhich placesvalue on the person rather than on the job. .Paternalism. A value which places strong emphasis on the manager as father to the employees who takes care of their physicalas well as emotionalneeds. .Pakikisama. A value which allows concession, gives in to suggestions,and yields to the will of the leaderor the majority tQ obtain a unanimousgroup decision. On the other hand, Covin and Slevin (1991)state that the ultimate dependent variable in entrepreneurial success is firm performance. The following variables were used assuccessindicators of firm performance: sales, profit performance, continued operation of the business, and growth in asset size.

The ConceptualFrameworl< The conceptual fra:meworkin Fi~e 3 shows the relationship of entrepreneurialstyles and the independentvariables -factors which are e~ected to influence firm performance. Figure 3 presentsthe model of entrepreneurialstyles which is a composite of entrepreneurialchar,\cteristics,leadershipstyles and value orientation.Theentrepreneur'spersonalcharacteristicsinclude gender,age, civil status,educationand birth orderin thefamily. Thefirm's characteristics include type of business,form of ownership,and numberof employeesin the company.Firm performanceindicatorssuchas salesperformance,company financialposition, n~ber of yearsof operationand ~owth in assetsizewere alsopresented.The'operationalframeworkis presentedin Figure4.

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ft.-.

SoCQfcsnUALftAMEWORX:DLAUafafm

~ ~~.

ANDnRM~caMANca

n...4. OnRA110MU-OH:AN~IOZUBIAL ST~.TUDY

~. D.a!f~

~@J

~~ 1~~--

--~__~~_, 28

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

mlPINO

ENTREPRENEURS AND THEIR ENTREPRENEURIAL

STYLES With the new millennium, Filipino entrepreneurs face diverse pressures posed by new technologies, global trading rules laid down by the WTO, environmental concerns,and renewed labor demands for more humane treatment. Are they prepared to meet the Challenge? It is imperative that the quality of Filipino entrepreneurs be enhanced if they are to capably respond to the challenges. But who are the Filipino entrepreneurs? What qualities do they possessto distinguish them from the rest of the population? 1)1isstudy hopes to help the reader to better understand the Filipino entrepreneur by describing his or her entrepreneurial style using the dimensions of leadership behavior, entrepreneurial characteristics, and value orientation. The descriptive and correlational type of research designs were used in this study. A survey among 373 entrepreneurs of sma11-and medium-scale manufacturing firms in Metro Manila was conducted. The statistical tools used to analyzed the data included means and percentages to describe the profile of the entrepreneurs and firms; factor analysis to group entrepreneur behavior into particular styles; and tests such as Pearson'sr, one-way Anova, chi-square, and canonical correlation were used to describe the relationships among the variables. Profile

of Entrepreneurs

Of the 373 entrepreneurs included in this study, the males (221 or 59.2%) outnumbered the females (149 or 39.9%)(Table 4). The youngest was 20, the oldest was 73 years old and the mean age is 41. Most or'114 (31.6%) of the entrepreneurs were in the 40-49 age bracket while 89 or 24.7 percent were in the 30-39age level. A good proportion (70 or 19.4%) was quite young, belonging to the 20-29 age level while three (0.8%)were above 70 years old. Majority or 264 (70.8 %) of the entrepreneurs were married. Some 94 (25.2%) were single, six (1.6%) were widowed, three (.8%) were separated, and one (0.3 %)was divorced.

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Table 4. Pro ile 0

reneurs No. of Res ondents

Gender Male Female Did not specify

221 149 3

Age 20-29 30-39 40-49 50-59 60-69 70-79

19.4

24.7 31.6 18.8 4.7

Single

Married Widowed Separated

0.8

3.2

25.2

264

70.8

3 .1 5

Divorced

, Did not specify Educational Attainment Elementary High School College graduate Graduate studies Did not specify College Degrees Commerce

3 48 288 30

~ 134 46

Engineering

Liberal Arts Science

Computer Science Fine Arts Fashion Design Interior Design Architecture Nutrition

15 8 8

4 3 3 3

Law

2 2

Education Theology

Did not specify Birth Order in the Family First born

108

Second

Middle Last Others

59.2 39.9 0.8

114

Did not specify Civil Status

Percenta e 00

1.6 0.8 0.3 1.3 0.8 12.9 77.2 8.0 1.1 46.52 15.97 10.76 6.90 5.20 2.70 2.70 1.38 1.04 1.04 1.04 0.60 0.60 1.04

29.00 19.03

22.78 16.34

12.86

ENTREPRENEURIA-L

STYLES AND

FIRM PERFORMANCE

Most or 288(77.2 %)of the entrepreneurs were college grad~ates with 30 (8 %) among them evenhad graduate studies. A total of 48 (12.9%)finished high school and 3 (0.8 %)were elementary graduates. Of the college graduates, 134 (49.08%)went through a businesscourse,. 46(16.84%) took up engineering, 31 (11.35%)had liberal arts background, 20 (7%) took science courses, and 15 (1.8%).3:computer science.course. There were also teachers, doctor~, dentists, architects, theologians, lawyers, fashion designers and artists among the respondent entrepreneurs. Of the 373 entrepreneurs, 108 (29%) were first born, 71 (19%) were second born, 85 (22.8 %) were middle childten, and 61 (16.4 %) were the youngest in the family. Profile of Business Films Of the manufacturing companies included in this study, 75 (20.1%) are engaged in the textiles business such as garments and ready-to-wear clothing; 49 (13.1%) dealt with chemical products; 47 (12.6%)were in food and beverag ; 35 (9.4%)were in publishing and printing; 34 (9.1%) were in fabricated metal products; 25 (6.7%)were in nonmetallic and mineral products; and 20 (5.4%) were in machinery and equipment (Table 5). Another 15 (4%) were in transport equipment; 11 (2.9%)were in paper and paper prod~cts; 10 (2.7%) were in jewelry, tobacco and sporting goods; seven (1.9%) were in both electrical machinery' and motor vehicles parts; three (.8 %)weTe in both radio, T.V. equipment and transport equipment; while one (.3%) was in the coke and oven industry. Of the 373cQmpanies,191 (51.21 %)were registered as corporations, 168 (45.04%) were sole proprietorship while 14 (3.75%) were listed as partnerships. Based on the National Statistics Office classification, 316(84.71% were small-scale while 57 (15.28%) fall under the medium-scale enterprises

category. A good number or 174 (46.64%)of the companies had only from one to 20 employees. For the rest, 64 (17.15%)had from 21 to 40 employees, 44 (11.79%)had from 41 to 60 employees while six companies had between 181 and 200 employees. The average number of employees is 45.

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Table 5. Profile of Sample Firms

No. of Firms

1. Nature of Business Textiles Chemical products Food and beverage Publishing and printing Fabricated metal products Nonmetallic and mineral products Tanning of leather, footwear Machinery and equipment Transport equipment Paper and paper products Jewelry, tobacco,sporting goods, oven and coke products W60d and wood products Elettrical machinery Motor vehicles parts Radio, T.V. equipment Transport equipment 2. Form of Ownership Corporation Sole proprietorship Partnership 3. Company Size Small scale Medium

20.1

49 47

12.6

35 34 25 22 20

15 11 11 9

7 7 3 3

191

4. N umber of employees 1-20 21-40 41-60 61-80 81-100 101-120 121-140 141-160 161-180 181-200

13.1

9.4 9.1 6.7 5.9 '5:4 4.0

2.9 2.9 2.4 1.9 1.9 0.8 0.8

51..20

168 14

45.04

316

84.71 15.28

scale

Percenta~e(%)

174 64 44

21 13 16 11 14 10 6

3.75

46.64 17.15 11.79 5.60 3.48

4.28 2.94 3.75 2.68 1.60

Fimt Perfomlance Indicators Sales Peifonnance Entrepreneurs were asked to indicate their firms' sales performance for the last five years. A total of 204 (54.7%)said they had an average level of sales, 120 (32.2%)indicated a low level of sales,and 49 (13.1%)reported high level of sales (Table 6). Financial Posinon Entrepreneurswere expected to hesitate to reveal their actual financial position in peso terms, thus, they were asked to describe their financial position 32

ENTREPRENEURIAl:

STYLES AND

FIRM PERFORMANCE

for the last five years in terms of loss, breakeven, low profit, average profit or high profit. Responsesindicated that a good number of the firms 158 (42.4%) experienced average profit, 67(18%)had low profits while 19 (5.1%)reported high profits. Of the total firms, 95 (25.5%)were able to breakeven while 31 (8.3%)suffered losses. Continued Operation of the Business The number of years the firms have been operating ranged from one to 87 years. Almost half or 183 (49.06%)have been operating for one up to 10 years while 92 (24.66%)have been around for 10-20years. One company had been operating for the last 60 years while another was around for over 80 years. The average number of years of operation is 15 years.

Growth in Assets Entrepreneurs were also asked to compare the growth of their assets since the start of business operations. Almost half of the firms 186 (49.9%) increased their assets since the start of business operations, 147 (39.4%) reported that their assetsremained the same while 39 (10.5%)claimed that their assetsdecreased. Table6. ~

Performance Indi~

--No.

--~

of Firms

1. Sales Performance Low sales Average sales High sales 2. Firm's financial position Loss

120 204 49 31

Breakeven

Profit Low Average High 3. Yem~foperation 1-10 11-20 21-30 31-40 41-50

Percentage (Ufo)

32.2 54.7 13.1 8.3

25.5

67 158 19

18.0 42.4 5.1

183 92 60 26 7

49.06 24.66 16.08 6.97 1.87

51-60

.80

61-70

.30

71-80

.00

.30

39 147 186

10.5 39.4 49.9

81-90 4. Growth in assetsize Decreased Remained the same Increased 33

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Responses were grouped into entrepreneurial styles using factor analysis. The principal objective was to uncover latent structure (dimension) of a set of variables that could be used to develop a typology of variables (Zikmund 1997) (Appendix 111).

How the Four Enmpreneurial StylesRated Results indicated that among the four entrepreneurial styles, the entreperaor mapagtagumpayat dominantengentreprenorwas dominantly exhibited by the respondents (Appendix N). This was closely followed by the entrepati,or mapagtuklasat mapagkalingangentreprenorand the entreperinor mapagtuklasat kumparengentreprenor. The style least used by respondents was the entreparis or mapagsapalaranat dominantengentreprenor.This is contrary to what Jocano (1993a)observed in his field studies that Filipinos are risk-takers with their strong adherenceto bahalana attitude that bestdescribesthe risk-taking, daring and courage of Filipinos. This is also described in the "Filipino Entreprenor" (DBP 1990)which characterized the Filipino to have lakas-looband one "rising to the challenge, bringing into playa unique dynamism that is often spent in converting problems into opportunities." While studies by Filipino sodologists (Jocano 1993;Quisumbing 1980) noted the personalistic and achievement orientation of Filipinos, the Filipino entrepreneurs' preference for entrepera (mapagtagumpayat dominanteng entreprenor)indicates that they are more achievement-oriented than risk-takers. The entreperaor mapagtagumpayat dominantengentreprenoris similar to the personal achiever type of Miner (1997).The personal achiever was described as one who wants to control things at his/her own pace,does things according to plans and yet practices flexibility when the need arises. This type of entrepreneur was also described as one who deals With problems personally. For these two characteristics-~irectiveness and achievement orientationto combine is not unusual since they both refer to goal orientation. What is surprising is for the personalistic value to come in. When one is directive and achievement-oriented, that person usually pays attention to the job and not to the person. However, in the case of the entreperaor mapagtagumpayat dominanteng entreprenor,this could imply that Filipino entrepreneurs, while being directive and achievement-oriented, are able to balance the characteristics of task-orientation with people orientation. These two styles, the entrepera or mapagtagumpayat dominanteng entreprenor(most dominant) and the entreparisor mapagsapalaran at dominanteng entreprenor (least dominant) revealed the directi,'e or autocratic leadership 3.4

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

styles of Filipinos. This is consistent with the results of the studies done by Camadang et al. (1983)where the Filipino leader was described as d,ominant and would want to have things done his or her way. This directiveness is consistent with what Andres (1986) described as "management by kulit," where the leader seesto it that every task is programmed and well monitored. This directiveness can also be explained in the context of what Hofstede (1994) referred to as power distance or the extent to which sodety accepts that power in organizations is unequally distributed. In the study conducted in 40 countries, the Philippines ranked as one of the highest in power distance. This implies that it is quite acceptable among Filipinos to have an autocratic leader since it is expected that leaders maintain their power. That an entreparis or mapagsapalaranat dominantengentreprenoreasily combines both directive and paternalistic characte~tics is not surprising since these two concepts are related. A directive leader is autocratic. Being paternalistic also carries a strong desire to be followed as the "father" of the employees. The entrepati or mapagtuklasat mapagkalingangentreprenorand the entreperinor mapagtuklasat ku~pareng entreprenor,both focused on the people orientation of the respondents, are consistent with what Jocano (1993b) observed in his studies as "one's sensitivity to harmonious relations with others or pakikipagkapwa-tao.The entrepati or mapagtuklasat mapagkalingang entreprenor,whose values i11cludepaternalism, confirms the results of the study of Camadang et al. (1983)that paternalism or strong emphasis on the manager as the head of the family are among the values which influence leadership in the Philippines. The entrepreneur's innovative characteristic was also highlighted in DBP's (1990)"Filipino Entreprenor" as being mapagtuklasor the quality which describes the "Filipino asoeing basically creative, with a sense of perseverance and spirit of initiative." The entrepatior mapagtuklasat mapagkalingangentreprenorand the opportunistic entrepreneur of Smith (1967) have similar characteristics. Both were more open to developing their employees by means of delegation, were more innovative, and used a variety of strategies to market their products. The entreperin or mapagtuklas at kumpareng entreprenor,whose characteristics include people orientation, pakikisamaand propensity for risktaking, is similar to Miner's (1997) super salesperson.The super salesperson has good relationships with his or her clients and is capable of closing deals because he or she values interaction. People orientation and pakikisamago together since both characteristics refer to a strong soda! need.The data on the following table reveal that most of the respondents exhibited the characteristics of an entreperaor mapagtagumpayat dominantengentreprenor 3S

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(63%). Entreparis or mapagsapalaranat dominantengentreprenorwas practiced by the least number (2.1%) among the respondents (Table 7). Table 7. Res ondent'sEntre

les Based on Factor Scores Frequency Entrepati or mapagtuklas at mapagkalingang

entreprenor

Entrepera or mapagtagumpay at dominanteng

entreprenor

-Entreperin or mapagtuklas at kumpareng entreprenor EntrepariS or mapagsapalaran at

Percentage (%) 20.4

235

63.0

14.5

2.1

dominanten~ entreprenor

Entrepreneurial Styles and Demographic Profiles For eachof the styles, the following demographic characteristics were

observed: 1. The entrepati or mapagtuklasat mapagkalingangentreprenorswere mostly males (145 or 60%)while 30 or 40 percent were females. The mean age is 44. Status-wise, 61 or 82.4percent were married, 11 (jr14.9% were ~gle and two or 2.7 percent were widowed. As to educational attainment, 58 or 76.3 percent were college graduates, 16 or 21.1 percent were high school graduates, while two or 2.6 percent have had graduate studies. Also, 29.7 percent were middle children, 27 percent were first born and 14.9 percent were youngest in their families. 2. The majority of the entreperaor mapagtagumpayat dominanteng entreprenorswere males (135 or 57.9%) with 98 (42.1%)females. The mean age is 39.98. A total of 110 (68.7%)were married, 68 (29.2%) were single, 1.3 percent were widowed and two were either separated or divorced. For educational attainment, 187 (80.5%) were college graduates, 24 (10.3%) were high school graduates, three (1.3 %) only finished elementary school, while 18 of the entrepreneurs have taken graduate studies. Again, 67 (29%) were first born, 48 (20.8%)were middle children and 42 (18.2%)were youngest in the family. The entreparin or mapagtuklasat kumpareng entreprenors were mostly male (36 or 66.7%). Only 18 (33.3%) were females. The mean age is 40. They were m(jstly married (37 or 69.8 %)with 13 (24.5'%)single, tme widowed and two separated. There were 39 36

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

(69.8%)college graduates, nine (17%) with graduate studies, and seven (13.2%) high school graduates. Of their total n~mber, 19 (35.2%) were first born, 16 (29.6%) were middle children, and 11.1%were youngest in the fanlily. For the entreparis br mapagsapalaranat dominantengentreprenors, five (62.5%)were males and three (37.5%)were females. The mean age is 41.5. Six (75%)were married and two (25%) were single. Six (75%)were college graduates, one is a high school graduate and another has taken graduate studies. Two each were first born, second child, and youngest.

Entrepreneurial Styles aIid Firm Characteristics 1. Entrepati or mapagtuklas at mapagkalingang entreptenor This style was commonly used in the textile indush'y (21 %); food and beverage industry (13.2 %); publishing and printing (11.8 %); and in nonmetallic and mineral products indush'y (10.5%). Among the firms, 37 (48.7%)were sole proprietorship, 33 (43.4%)were corporate ownership, and six (7.9%) were partnership. Their number of employees fall mostly under the 1-20 range (52%), and one each in the 161-180and 181-200 categories. Among these firms, 41 (54.7%) have been operating from one to 10 years, while 16 (21.3%)have operated for the past 11 to 20years. One company has existed for more thah SOyears. In terms of sales,42 (55.3 %)reported average sales for the last five years while 27 (35.5 %)have had low sales. Only seven (9.2% ) experienced high sales. In terins of profit, 13 (48.7%) reported average profit, 15 (19.7%)had low profit and only one (1.3%) had high profit. Also, 14 (lS.4%) broke even while19 (11.8%) suffered losses.Meanwhile, 35(46.1%) described their' gtowth in assetsas having remained the same, 31 (40.Srct)increased their assets,and 10 (13.2%)reported decreased assets. 2. EntTepera ormapagtagumpay at dominanteng entTeprenor This style was mostly used by entrepreneurs in the textile industry (19.6%), followed by food and beverage (11.9%), publishing and printing (11.8%), chemical products (11.9%), then fabricated metals industry (11.5%). The most common form of ownership was corporation (122 or 51.9%), followed by sole prpprietorship (122 or 46%). Only five (2.1%) were into partnerships.

CHAVEZ

Of the firms, 100(44.1 %)have 1-20 employees w~ 14 (6.Q%>.have 181-200 employees. Some 103 (45.4%)have been aro~d for 1-10 yearS, -63 (27.8%) for 11-20 years, and 39 (17.2%) for 21-30 y~ars. One company has been in operation for more than 50 years. Some 135 firms (59.4%)reported average sales for the last five years, 75 (31.9%)experienced low sales,while 25(10.6 %)reported high sales.Average profit was reported by 97 (41.8%), 44 (19 %)had low profit, while 10 (4.3%) generated high profits. Again, 64 (27.6 %)broke evenwhile 17 (7.3%)suffered losses for the last five years. A good number (119 or 50.6%), however, increaSed their assets. 3. Entreperin or mapagblklas at kumpareng entreprenor This style was commonly practiced in the chemical products industry (24%), and in textiles (16.7%) and food and beverage industry (14.8%). Majority (33 or 61%) of the firms were corporations, 18 (33%) were sole proprietors, and three (5.6 %) were partnerships. Of the firms, 21 (39.6%) have 1-20 employees, seven (13.2%)have 21-40 employees, six (11.3%)ha~e 41-60 employees, and three (5.7%) employed from 181 to 200 employees. Also, 25 (47.2%)have been in operationfor 1:-10years, 13 (24.5%)for 11-20years, and eight (15.1 %) for 21-30 years. One company has been around for over 50

years.

Salesperformance data showed that 16 (29.6%)experienced low sales for the last five years, 22 (40.7%)had average sales,and 16 (29.6%)generated high sales. For financial performance, five (9.3%) suffered losses during the last five years, 16 (29.6%) broke even, seven (13%) posted low profits, 18 (33.3%) had average profits, and eight (14.8%)had high profits. Increased assetswere reported by 31 (57.4%)firms since they started operations whIle assets of 19 (35.2 %)remained the same. Decreased assetswere reported by four (7.4%).

4. Entreparis or mapagsapalaran at dominanteng entreprenor This style was used by four (50%) entrepreneursin the textile industry, with an entrepreneur each in the food and beverage, chemical products, and machinery and equipment industries. The form of ownership often used is sqle proprietorship (5 or 62.5%) while three (37.5%) were corporations. Four (50%) of the firms have 1-20 employees, one (12.5%)had 21-40employees, two (25%)had 41-60employees and one (12.5%) had 181-200 employees. Again, four (50%) have been in operatiQn for 1-10 years, while three (31.50%)have been around for 21-30 38

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

years. One company has been operating for 41-50 years. Five (62.5%) had experienced average sales for the Iastfive years while two (25%) reported low sales. O1lly one posted high sales. Six (75~) reported average profit, one experienced low profit, and another one only breaking even. Five (62.5%) had increased their assetssince the start of their operations while one reported asset size to have remained the same. Two reported decreasesin assetsize. That entrepaHor mapagtukl~ at mapagkalingangentreprenor,entrepera or mapagtagumpayat dominantengenfreprenorand entreparisor mapagsapalaran at dominantengentreprenorare commonly used in the textile industIy imply that a paternalistic and personalistic style of management is .called for espedally in the garments sector which is characterized by Iabor-intensive, small operations and where very often, the owner/manager directly supervises the employees. The owner/manager has a strong interface with the employees such that even personal concerns of the employees are known by the manager (Tolle do, E., personal communication, January 10, 2000). On the other hand, entreperinor mapaghlklasat kumparengentreprenor is often used in the chemical industry since the type of operations in this industry is such that one operator mans the work station. Hence, the entrepreneur has to practice a strong pakikisama~th his operator. According to Tolledo, "the innovation in this industry which has very standardized products are usually in terms of the creation of different qualities of products." (Tolle do, E. personal communication, January 10, 2000).

Entereprene~ria1Stylesan~ Firm Performance SalesPerforn'tance

Pearson's correlation results demonstrate that there were no significant correlation betweensalesand entrepreneurialstyles (Appendix Table 7) Financial Performance The correlation results in the sametable show that there were no significant correlation betweenfinancial performanceand enti'epreneurlal styles. ContinuedOperation ofthe Business The correlationresultsfurther exhibit that there were no significant correlationbetweencontinued operationof thebusi1}ess. Growth in AssetSize The correlation results (Appendix Table 7) show that entreperaor mapagtagumpayat dominantengentreprenorand entreperin or mapagtuklasat 39

CHAVEZ

kumpareng entreprenor are positively and significantly correlated with the growth of the company. This indicates that entrepera or mapagtagumpay at dominanteng entreprenorand entreperinor mapagtuklasat kumparengentreprenorare important conmbuting factors to the growth of a firm. To confirm the above results, the canonical correlation was used (Appendi;( Table 8). The results showed that there is a significant relationship between the set of variables under entrepreneurial styles and ~e set of variables under firm performance.

CONCLUSIONS AND RECOMMENDATIONS Summary of Enmpreneurial Styles Findings confirmed that entrepreneurs vary in a number of dimensions including personal characteristics, industry and firm performance. The entreperaor mapagtagumpayatdominanteng style used by entrepreneurs in small- and medium-scale manufacturing firms in Metro Manila stood out as the predommant entrepreneurial style. This style can be described as highly task-oriented, achievement-oriented and a personalistic strLt.' ~es~ts also confirmed that entrepreneurial styles have a positive influ~nce on firm performance indicators such as sales, profit, number of years of operation and assetsize. However, entreperaor mapagtagumpay at dominantengentreprenor and entreperin or mapagtuklasat kumparengentreprenorhave more positive influence on firm performance. Summary of Findings There were four entrepreneurial styles which surfaced among small-and medium-scale manufacturing firms in Metro Manila. These were the entrepati or mapagtuklas at mapagkalingang entreprenor, entrepera or mapagtagumpay at dominanteng entreprenor, entreperin or mapagtuklas at kumpareng entreprenor and entreparis or mapagsapalaran at dominanteng entreprenor. Among these styles, the entreperaor mapagtagumpayat dominanteng entreprenor was found to be predominantly used byt~e entrepreneurs. The least used style was the entreparisor mapagsapalaran at dominantengentreprenor. The entrepera or mapagtagumpayat dominantengentreprenorcan be described as personalistic and highly task- and achievement-oriented. The leader tells the subordinates what they are supposed to do, dominates the decision-making process and exercises-ttghtsu'pervision. Being achievement oriented, this entrepreneur strives for excellence. A closer analysis also 40

ENTREPRENEURIALSTYLES AND FIRM PERFORMANCE

revealed that being personalistic as well, the entrepreI1;euris necessarily "makatao." This value, in fact, becomesthe balancing factor which makes the entrepreneur not just task- or goal-oriented but people-oriented as well. As clearly demonstrated in the findings, entrepreneurial styles have positive influence on firm performance indicators such a.s sales, profit performance, number of years of operation as well as growth in asset size. The entrepera and the entreperin have more positive influence on firm performance. The entreperastyle uses a directive-achievement oriented and personalistic approach while entreperin style uses a more people-oriented approach. This would indicate that Filipinos are still more people-oriented than task-oriented and are able to achieve goals with the use of pakikipagkapwataD. The fact that majority of the entrepreneurs are goal- and achievementoriented with a personal touch redeems the image of the Filipino who is perceived to have a bahalana or high risk-taking mentality. The achievement orientation of the Filipino entrepreneur is supported by the fact that 50 percent of those using the entrepera style have increased their assets since their companies started their operations. While sales and profits may only be average for the last five years, it must be noted that with the economic crisis which affected the rest of Asia for the last two to three years, even average sales and profits are good news. Relevance of this Study The major contributjon of this r~earch is the creatjon of an indigenous instrument to describe the entrepreneurial style of the Filipino. The instrument specifically included Filipino values which are not found in earlier instruments used. This instrUment can henceforth be used to describe and classify the Filipino entrepreneur under typologies which labeled as entrepreneurial styles. The results of the study could also aid the fopowing: .Existing entrepreneurs, to help them understand their entrepreneurial styles and their effect on firm performance; .Entrepreneurs who are involved in new ventures, to help them develop styles with better chances of success; .Trainors in the field of entrepreneurship development and leadership, to guide them in choosing entrepreneurial styles that ensure business successand survival; .Government agencies tasked with increasing the number of entrepreneurs, to make them better understand entrepreneurial propensities; 41

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The academe,to provide them with an empirically basedreference for teaching entrepreneurship courses and organizational behavior; and Researchersinvolved in the study of entrepreneurial behavior, to explore other possible combinations of variables for further research. Recommendations Based on the findings and their implications, the following are recommended: (1) Conduct follow-up studies to find out if the entrepera or mapagtagumpay at dominantengentreprenoris the predominant style across industries and regions. These will reveal if there is truly a Filipino entrepreneurial style. Since this style correlates with firm perfonnance, it becomesall the more necessaryto conduct followup studies. (2) Use the ins.trument on entrepreneurial s~yles to bring about entrepreneurs' awareness of their styles, to help them identify their strengths and weaknesses,~d to pursue areaswhich need to be developed. (3) Design training programs which not only deepen awareness on effective entrepreneurial styles but also teach ways to enhance

them. (4) Results of this study could be used by academic institutions with entrepreneurship programs to prepare a curriculum that identifies the kind of entrepreneur they want to develop, and focusing on entrepreneurial styles which impact on firm perfonnance. Further, an empirically based study could enhance faculty and student interest in entrepreneurship. (5) Government and nongovernment agencies involved in entrepreneurship development could use the entrepreneurial style instrument and the results of the study to identify potential entrepreneurs and effective styles thereby maximizing use of their resources. (6) Further research on entrepreneurial styles could include other variables in the study such as: motivation, to own company; background experiences, management practices, entrepreneur's response to changes in the environment, and how style changes as the company moves through the different stages of 42

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

development from incubation, start-up, growth and aturity. Cluster analysis to develop groupings of individ als and discriminant analysis to understand groupdifferen<;es c uld also be used. Since this study was limited to the Metro M .area, a study of entrepreneurial styles across the different regio could provide a national picture of the Filipino entrepreneur. Any tool or instrument that can lead to the formation and g owth of new enterprises is most welcome since the country urgently nee~s .creased entrepreneurial activity at present. As the country enters the new millennium, Filipino entre reneurs nlust be well equipped not only with the technical,.managerial, an human relations skills necessaryto survive. They must also be ready to face threatS and opportunities of a fast-changing environment.. By being awar of their entrepreneurial styles and their effects on firm performance, entre reneurs will be able to fortify their strengths and work on their weaknesse and be more prepared to face the challenges of the 21atcentury.

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Hypotheses of the Study After the Filipino entrepreneurialstyleshave beenidentified through factor analysis,the following propositionswere tested: There is no predominant entrepreneurial style among entrepreneurs in small and medium manufacturing firins in Metro Manila. The en~epreneurs' personal characteristics such as gender, age, civil status, education and birth order have no significant influence in their entrepreneurial styles. The firm's type of business, form of ownership, size, number of employees have no significant influence in the use of particular entrepreneurial styles. The entrepreneurial styles of entrepreneurs in small and medium manufacturing firms in Metro Manila have no significant influence on firm performance in terms of:1, Sales, 2. Profitability, 3.

Continued operation of the business, and

Growth in asset size

Assumptions of the Study The study assumed that the following elements in entrepreneurial styles were used by entrepreneurs in the management of their smaIl and medium enterprises: .Entrepreneurial characteristicssuch as risk-taking, innovation and achievement orientation. .Leadership styles that include directive, developing"partidpative, negotiative and delegative styles. .Value

orientation

such as paternalism,

personalism

and

pakikisama. .That firm performance or successindicators can be measured in terms of profit, sales, continued operation of the business and growth in asset.

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Operational Definitions ofTerntS The following operational definitions were utilized: 1. Company size. The National Statistics Office (NSO) defines'the sizes in terms of the actual number of employees: .Small-l0

to 100

.Medium-l01-200

2. Manufacturins, enterprises.As defined by NSO, theseinclude manufacturing,food and beverages,textiles, wood and wood products, paper and paper products, publishing and printing, chemicalproducts,tanningof leather/footwear,non':metallicand ! mineral products, fabricated metal products, machinery and equipment,electricalmachinery,radio and TV equipment,motor vehicles parts, transport equipment, manufacture/repair of furnitures, jewelry, tobacco, sporting goods, coke and oven products.

Entrepreneurial Style. A pattern of behavior among entrepreneurs based on their entrepreneurial characteristics, leadership styles and value orientation. .Entrepati or !rlapagtuklasat mapagkalingangentreprenor.He is people-oriented, paternalistic and innovative. .Entreperaor mapagtagumpayat ~ominanteng entrep!enor. He i~ directive, personalistic and achievement-oriented. .Entreperin or mapagtuklas at kumpareng entreprenor. He is people-oriented, strong in pakikisa1!Jll and innovative. .Entreparis or mapagsapalaran at dominanteng entrepren or. He is directive, paternalistic and a risk-taker.

Entrepreneurial chanlcteristics. A term used to describe the qualities of an entrepreneur. These jnclude: .Innovation. The Schumpeterian definition of innova90n was used in this sl(Udy.He described innovation in terms/of the ability to intrbducepew products or methods of production, to open new mar~ts or new sources of supply or to reorganize th,ecompaiiy. .Achievement Motivation. A preoccupation to perform tasks e~cellently for the sake of excellence, not for rewards of 45

CHAVEZ

prestige, money, recognition or power. It also refers to a preference for setting goals, solving problems and knowing that goals are accomplished. Risk-taking.Willingness to Gommitresources to opportunities that have a reasonable chance of failure.

Leadershipstyle. A pattern ofleadersmpbehaviorthat refersto how a leaderinfluencesthe subordinates.This includesbeing: .Directive. Being task-oriented leader, the leader gives directionsto subordinateson how he or shewants things to be done. .Negotiative. Theleadergetsthingsdoneby makingdealswith subordinates. .Participative. The leaderallows subordinatesto sharein the decisionseventuallymade. .Developing. The leader assistsmembers when they need support with dectsionmaking. By encouragingpeople to disC;tlsS problems openly, the leaderis developingthem to assumeresponsibility. .Delegating. The leader empowersmembers of the team to make decisionsand to take actionin areaswhere they have the expertiseand are motivated to follow-through.

Value orientation. Specific values that influence leadership in the Philippine setting. These include: .Paternalism. A strong emphasis on the entrepreneur as father to the employees and the whole team as members of a family. .Personalism. Placing value on the person rather than on the job. .Pakikisama. Giving in to suggestions of others or yielding to the majority to obtain unanimous group decision.

Firm success factors. Measures of firm performance which include: .Sales. The amount of peso sales in a given year. This was measured by a 3-point Likert scale ~gP, average, and low). .Profit. The excess of returns over expenditures in the transactions in a given year. This/was mea!1UI~dby a 3-point Likert scale (high, average, low). 46

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Continuedoperationof thebusiness. The number of years the businesshasbeenin operation. Growth. Expressed in asset increase since the time the companystarted to operate. 8. FOJDl of 'ownership.Thisrefersto soleproprietorship,partnership or corporation. 9. Entrepreneurial personal background. This includes the following demographiccharacteristics: .Age. The age of the entrepreneurat the time of the survey. .Gender. Male or female. .Marital status.Single,married, widowed, or separated. .Education. Classifiedas (a) elementary,(b) high school, (3) college,and (4) graduatestudy. 10. Position in th.e family. Refers to the birth order of li!te entrepreneurin the family.

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Resean:hMethodology Resean:hDesign This study used descriptiveand correlationalresearchdesigns.The descriptive researchinvolved the description, recording, analysis and interpretation of conditionsthat exist.The goal of correlationalresearchis to identify the relationshipsbetweenvariables(Sekaran1996). The qescriptive design focused on the entrepreneur's personal background, companyprofile and the entrepreneurialstyles used by the entrepreneursin small and medium manufacturingfirms in Metro Manila. The correlationaldesignwas used to determinethe influence of the entrepreneurialstyle on firm performance. Sampling Plan This study wa~ limited to small and medium manufacturing firms in Metro Manila. The NationalStati~tics Office, in its 1995survey, listed 7,801 small and medium establishmetlts in Metro Manila. To estimate the sample size (n), a 95 percent confidence level and a st-andard deviation of 10 percent was used. Using the Table of Sample Sizes for Random Selection of Infinite and Finite Population (De Jesus, Moortgart, Buzar and Brawner 1984),373 was determined as the sample size. This figure was proportional.1yallocated to obtain a stratified random sample per manufacturing subsector or division using the formula: ni = Ni/N

x 373

where ni is the random sample for the ith company, Ni is the number of firms in the subsector, and N is the total number of firms in the manufacturing sector.

his/her vision,creativity,initiative, and determinationto achievei and a businessleader who is at the sametime the fulcrum of businessand organizationaldevelopmentwho determines the directionsand the balanceof businesssuccess.

ENTREPRENEURIAL

STYLES AND

fiRM

PERfOR짜ANCE

Appendix Table.1presentsthe samplesizesper subsector. ndix Table1. S Subsector

Subsectorin Manufacturin Numberof Firms (Ni) ~

Food and beverages--

998

Textiles Wood and wood products Paper and paper products Publishing and printing Olemical products Tanning of leather, footwear Nonmetallic and mineral products Fabricated metal products Machinery and equipment Electrical machinery Radio, TV equipment and medical instrument Motor vehicles parts Transport equipment Manufacturing/ repair of furniture Others a ewelry , office equipment, tobacco,c~ke and oven products)

-~~

espoqdents(Ni) 47

1,570 185 225 724 1,025 470 528 707 418 137 74

75 9 11 35 49 22 25 34 20 7 3

145 54 317

7 3 15

207

The list of companiesincluded per sectorwere chosenusing the systematicsamplingwith the formula: K

=N/n

where K N n

is the sampling intervaL is the total population and is the sample size.

Therefore K = 7823/373 or 21

Every 21otcompany was chosenas respondent. Whenever the company was n<?tavailable anymore or the owners are not willing to be included in the survey, a replacementwas assured by moving to the 2Q1h or~o the 22ndcompany or to the 19thor 23rdcompany and so on until a replacement is found as suggested by Bojma and Atkinson (1995). Collection of data was done from June to August, 1999 with the assistance of 259 students of the Entrepreneurship Seminar classesof the Entrepreneurship program of De La Salle University. A total of 550 questionnaires were fielded. Of these, 465 questionnaires including unusable ones were retrieved for a response rate of 84.5 percent. 49

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Method of Data Collection The data were gathered using the primary data collection method. A survey questionnaire developed by the researcherwas used. The items in the questionnaire were generated using the following procedures: 1. Seventy-five entrepreneurs (not included in the NSO list) were req~ested to provide items for the constructs related to entrepreneurial style. From them, 917items were generated. This list of items were trimmed down to 220 after removing the redundant and unclear statements. 2. The 220items were categorized and analyzed by experts according to the related constructs. The experts included: Dr. Alexa Abrenica, a Ph.D. in Counseling Psychology of the Behavioral Sciences Department of De La Salle University; Maria Angeles Lapena, a Ph.D. candidate of the same department, Roberto Mendoza, a Ph.D. candidate also of the Behavioral Sciences Department, Flordeliza Volante, a Ph.D. candidate of the Psychology' Department of De La Salle University, and Porfirio Ferrer, a Ph.D. can~date in Human Resource Management of the Uiuversity of S~to Tomas. An item was selected if three out of five experts were in agreemen1in their classification. Of the 220 items, 120 items were collected. This instrument was pretested by administering it to 30 entrepreneurs. The results of the pretest were subjected to Reliability Analysis to determine the reliability of the instrument. After the first run, the items were reduced to 90. The second run resulted in a reliability coefficient of alpha = .9509. The items were further reduced to 67. The Entrepreneurial Style Survey Instrument had two parts. Part I described the profile of the entrepreneur in terms of gender, age, dvil status, educational attainment and birth order in the family. The company profile was described in terms of nature of business, form of ownership, size and number of employeesin the company. Company performance was describedin terms of number of years of operation, sales performance, finandal condition, and growth in assetsize. Part II referred to the entrepreneurial styles of the entrepreneur. Entrepreneurial styles were described in terms of the following dimensions: 50

ENTREPRENEURIAL

STYLES AND

FIRM PERiFORMANCE

Leadershipstyles. This included the following styles: .Directive. Theleadergivesdirectionsto subordinateson how he or shewants things done. .Negotiative. Theleadergetsthingsdoneby makingdealswith subordinates. .Participative. The leaderallows subordinatesto sharein the decisionseventuallymade. .Developing. The leaderassistssubordinateswhen they need support in dedsionmakingby encouragingthem to discuss problemsopenly. .Delegating. The leader empowers members of the team to makedecisionsand to take actionin areaswhere they have the expertiseand the motivation to follow-through. 2. Entrepreneurial characteristics .Innovation. The ability to introduce newproductsor methods of production, opennew markets or new sourcesof supply or to reorganizethe company. .Achievement motivation. A preoccupationto perform tasks excellently for the sake of excellence not for rewards of prestige, money, recognition or power .It also refers to a preferencefor settinggoals,solvingproblems,and knowing that goalsare accomplished. .Risk-taking. The willingness to commit resources to opportunitieswhich have a reasonablechanceof failure. 3. Value orientation. This include: .Paternalism. A strongemphasison the entrepreneurasfather to the employeesand thewhole teamas membersof a famuy. .Personalism. Placingvalue on the personrather than on the job. This value alsorefersto considerationfor the feelingsof others or pakikipagkawa-tao. .Pakikisama. Giving in to the suggestionsof othersor yielding to the majority to obtain a unanimousgroup~decision. The response for each item in Part II was weighted using Likert's S-point scale with the following eqUivalent weights. 5 -Strongly agree 4 -Agree 3 -Neither agree nor disagree 51

CHAVEZ

2 -Disagree 1 -Strongly disagree There were 67 validated items for entrepreneurial styles, included in Part II of the questionnaire. ThiS'is shown in the following table. Appendix Table 2. Survey Instrument Items on Entrepreneurial Styles Dimensions of Entre cnn-epreneunal

I St I ~[Yles

Directive Style Participative Style Del .#'s30/34/55/58, egative Developing Negotiative Paternalistic Pakikisama Personalism Risk-takin g

Item

Numbers

Total

Number

#'sl,2,20,35,43,45,46,60 #'s 4,12,53; 62,66

( . opposite codin g ) #'s 7/17/47/56/61 #'s 22/49/52/59/67 #'s15/16/18/19/23,27,41 #'s 40,50/51/63,65 #'s 3,5,26,54,57 #'s 9/24/28,31/32 (opp) 33 (opp),36,37

5 5 7 5 5 8

Inn

6/10/11/13/14(opp) 25,38/39/42

Achievement- Oriented

#'s 8/21,29,44/48,64 Total number of Items

6 67

.#'s ovative

Items

8 5 4

Method of Data Analysis Data analysisinvolved severalstatisticalprocedures.This was done by using the StatisticalPackagefor Sodal Sciencefor PersonalComputers (SPSSPC+)software with the help of Mr. FrumendoCo, a Ph.D.in Statistics candidate at the DLSU Mathematics Department. These statistical tools included the following: \

Variables

Analytical

Profile of respondents and companies Grouping of entrepreneur behavior into

Frequency distribution; Factor analysi!;

particular styles Identification of predominant

Mean, standard deviation,

styles u!;ed by

entrepreneurs Entrepreneurial styles by personal characteristics and firm characteristics Gender differences per style Differences in personal characteristics; civil status, education, birth order per style Differences in firm characteristics and firn\

tool %

factor scores

Factor !;cores used as basis for frequency;

performance per style Differences in age per entrepreneurial style Test of independence of personal and firm characteristics per entrepreneurial style Extent of influence of entrepreneurial styles

T -te!;t One-way

Anova

One-way

Anova

Pearson's r Chi-square test Canonical correlation

analysis

ENTREPRENEURIAL

STYLES AND

FIRM PERiFORMANCE

Factor Analysis Factor analysis is a statistical technique used to analyzetbec-structure of interrelationships (correlations) among a large number of variables (e.g., questionnaire response) by defining a set of common underlying dimensions, known as f~ctors (Hair, Anderson and Tatham 1997). In this study, this involved correlating the different items in the questionnaire to correspond with entrepreneurial characteristics, leadership styles and value orientation, and analyzing the resulting factor loadings. A correlation matriX was created which showed the correlation coefficients oithe different items (Appendix C of original dissertation). From the correlation matriX, it was seenthat there were vari'\lbleswhich have moderate if not high correlations, a ~ecessary condition for doing factor analysis. It was e~cted that the items measuring related characteristicscorrelated highly with each other. The extraction method used was principal component analysis. The initial unrotated factor matrix could not provide a meaningful interpretation Since more than half of the items was loaded in factor 1 (Appendix D of original dissertation). Both the orthogonal (Varimax) and oblique (Promax) rotations were used (Appendix ,E of ori~al dissertation). Since the results in both rotations were similar, the varimax or orthogonal rotation was used to analyze the resulting entrepreneurial styles. Among the criteria used in deciding how many factors to retain were: the Kaiser criterion also known as the eigenvalue greater than one criterion (Kaiser 1958 cited in Hair et al. 1997) That is, unless a factor extracts at least as much as the equivalent of one original variable, then it is dropped. If this criterion is used, too many factors Will be retained. Another criterion used was the scree test. According to Cattel (1996 cited in Hair et al. 1997), this involves plotting eigenvalues and looking for the p,Ointwhere thesmooth decrease of eigenvalues appears to level off to the right of the plot. To the right of this point, one Will find factorial scree or debris which need not be considered anymore. Using this criterion, only four to five factors Will be retained (Appendix F of ori~al dissertation). The last criterion used was the percentage of variance (Appendix F). For factors 1 to 5, the percentage of variance was at 3.0 and above. For factors 6 to 18, the increase in the ~otal variance explained was negligt"ble.

FactorScores Factorscoresare compositemeasuresfor each factor representing eachsubject.The original raw data measurements and the factor analytic 53

CHAVEZ

results were utilized to compute factor scores for each individuaJ (Hair, Anderson aI)d Tatham 1997). Conceptually speaking, according to the authors, the factor score represents the degree to which each individual scores high on the group of items that load high on a factor. An individual who scores high on several variables that have heavy loadings for a factor will obtain a high factor score on that factor. The factor score, therefore, shows that an individual possessesa particular charactemtic represented by the factor to a high degree. The factor scores for each respondent were used to identify the predominant styles used by the entrepreneurs. This was also subsequently Used for the frequency and percentage of the ~onal and' firm charactemtiis for each entrepreneurial style (App@~ G of original dissertation). Canonical Correlation Analysis Canonical correlation analysis is employed to study relationships between two yanable sets when each variable set consists of at least two variables (Shawa 1996). This test was used in this study to determine the overall as&ociation among the predictor or independent variables, entrepreneurial styles, and the criterion or dependent variables, to the firm performance indicators such as sales,profit p~rformance, number of years of operatiOn/aDd growth in assetsize. Hair et ill. (1997)suggested the following criteria toint~rptet canonical correlations: (1) level of statistical significance, (2) extent of canonical correlation, and (3)a redundancy measureto determine how much variance in one set of variables is accounted for by another set of variable.

ENTREPRENEURIAL

STYLES AND

FIRM PERFORMANCE

The Four FactorModel A fow-factor model was chosen for this study after going through the Kaiser criterion, the scree test and percentage of variance criterion. Appendix Table 3 sho,vs the fow factors with their corresponding loading, eigenvalues and dimensions. There were 21 items that loaded in factor 1. This factor described the partidpative/negotiative/ developing-paternalistic-innovative style. This style was labeled entrepatiOf mapagtuklasat mapagkalingangentreprenor.The word entrepati was coined from the words, IIentre" referring to entreprenewial and Ilpati'l referring to paternalistic and innovative. T~hePilipino term mapagtuklasrefers to innovativeness while mapagkalingarefers to nurturing. This style is highly people-oriented. Entreprenews with this orientagon allow partidpation, negotiate with and develop their people. They also have paternal concern for their employees' physical and emotional well-being, areperceptive of their creative talents and supportive of their innovative activities being themselves

innovators.

There were 11 items that entered factor 2. This factor represented the en1repreneurial style that is directive-personalistic-achievement-oriented characteristics. This was labeled as the entrepera or mapagtagumpay at dominantengentreprenor."Entre" again refers to entrepreneurial while !~pera" refers to being pe"rsonalistic and being achievement-oriented. The Pilipino word mapagtagumpayrefers to being an achiever and the word dominante describes being directive or autocratic. Being directive, such entrepreneurs are very much aware of their role and goal to achieve. They are sensitive and perceptive to the needs of their people as they perform their function so they could help their team achieve their goal. On the other hand, Factor 3 which loaded 11 items described a negotiative/ developing/ delegative-strongin pakikisama-innovativestyle. This :was called the entreperin or mapagtuklasat kumparengentreprenor. "Entre" came from entrepreneurial while "perin" referred to people orientation and innovation. Mapagtuklas described the innovative side of the entrepreneur while kumpare referred to the ability in pakikisama as well as strong interpersonal relationship. Such entrepreneurs are very people-oriented as indicated by their being negotiative, developing, and delegative in leadership style. But their people orientation is geared toward the group as a clique. They have the ability to push their people to pursue innovative way~ of doing thinRS. 55

CHAVEZ

And finally, factor 4which covered 13 items.indicated a directive-paternaJisticrisk-taking style. This was labeled as entreparis or mapagsapalaran at dominantengentreprenor. "Paris'~~ferred to paternalistic and risk-taking. The equivalent of risk-taking in; PiIipino is mapagsapalaran while dominante described the directive as well as paternalistic style. Such entrepreneurs are directive, concerned that everybody is doing their jobs, yet they also .look after the needs of their employees as a father does. They initiate taking risks.

Appendix Table 3. Rotated FactorLoadings or EntrepatiStyle FACTOR1 PeopleOriented-Paternalistic-lnnovative

It is important to have a ... We are like one big... Supporting the actions. .. I hold meetings... Employees feel important.. I value friendship... A leader who listens... I allow employees... I am flexible... I know my worker's... It is important to have... My employees are usually., Leadership is a... I conduct sodal... Before I make decisions... I give incentives... I give-in to suggestions... I give benefits... I usually give... I always abide by... I allow advances...

.653 .607 .585 .544 .534 .522 .518 .502

.480 .473

.473 .454 .447 .419

.418 .390 .388 .380 .368 .364 .358

ENTREPRENEURIAt

FACfOR2 Style

STYLES AND

FIRM PERFORMANCE

Directive-PersonaJistic-Achievement Oriented or Entrepera

Items

FactorLoadines

I welcome suggestions... I regularly check... I give dear... All tasks should be... I regularly check... I set goals... I follow the schedule... Problems should be dealt with... I order my employees... I do not tolerate... Spedal emphasis should... Personal networking helps...

.669 .598 .578 .564 .558 .471 .464 .434 .410 .409 .402 .347

FACTOR3

People Oriented-Pakikisama-lnnovative or EntreperinStyle

I am not afraid... I sometimesallow myself.. To succeedin business... I like to takerisks... My businessis growing... Businessmust change... It is important to keep... I conduct... Rewardsaregiven... I enjoythe challenge... To solveproblems... FACTOR 4

.523 .576 .493 .491

.471 .439 .439 .428 .427 .417 .359

Directive-Paternalistic- Risk-Taker Style or Entreparis

Nobody cantell... My employeesaresupposed Blood is thicker... 57

.478 .557 .548

CHAVEZ

I feel upsetwhen... I take over... I do not allow... Decentralizationusually.. I know all my... I do not borrow... My workersregard me;.. Businessis largely... It is better to work... I personallycheck...

.528 .528 -.517 .517 .401 -.306 .357 .352 .352 .326

Factor 1Factor 2Factor 3Factor 4

Eigenvalues

17.94%23.01%26.50%29.82%

ndix Table 4. Labels of Cate ories and Dimensions based on rotated factor loadin s Categories and Dimension Labels Entrepreneurial Leadership Value Characteristic Style Orientation Entrepati or Innovative Developing Paternalistic Mapagtuklas at Negotiative Mapagkalingang Participative

Entreperin or Mapagtuklas at Kumapareng Entreprenor Entreparis or

Innovative

People-oriented

Pakikisama

Risk-taker

Directive

Paternalistic

Mapagsapalaran at Dominanteng

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Appendix IV Entrepreneurial Styles By Characteristics A

endix Table 5. Mean and Standard Deviation of Entre Entrepreneunal

.Standard Styles

Mean"

Entrepati or Mapagtuklas at Mapagkalingang Entreprenor (People-oriented -PatemalisticInnovative Style 1) Entrepera or Mapagtagumpay at Dominanteng Entreprenor (Directive-Personalistic -4.1986 Achievement-oriented Style 2) Entreperin Style or Mapagtuklas at I<Iumpareng Entreprenor (People-oriented -PakikisamaInnovative Sryie 3) Entieparis Stykor Mapagsapalaran at Dominanteng Entreprenor irective-Paternalistic-Risk- Taker St Ie 4 *Mean responsesbased on a 5-point Likert Scale 5 -strongly agree 4 -agree 3 -neither agree nor disagree 2 -disagree 1 -strongly disagree

3.9855

les

DeVlati on .3990

.316&

3.%12

.4489

3.4829

.3388

Entrepreneurial Style by Personal Characteristics The mean response exhibited by respondents show that entrepera or mapagtagumpayat dominanteng entreprenor consistently had a high mean classified by gender; age, civil status, educational attainment and birth order. Entreparis or mapagsapalaran at dominantengentreprenorhad the lowest mean in terms of gender, civil status, educational attainment and birth order. This implies that entrepera was commonly used by the majority of respondents while entreparis was the least preferred style among the respondents. Appendix Table 6 compares the mean rating given by respondents for the four entrepreneurial styles classified by personal characteristics. In addition to this, tests were used to evaluate if the difference between mean ratings for the different styles differ significantly by gender, age, civil status, educational attainment and birth order. ,Although educational attainment had a pvalue of .01, Duncan's multiple range test (DMRT) showed otherwise due to the lopsided number of casesin the four groups being compared. Oassified by gender, female respondentsgave a higher mean response for styles 1,2 and 4. T-test resulted to p values that are higher than 0.05. This 59

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

STYLE

D.Educ'l N Attainment 1. Elern.

2. High

1 3

Mean 3.77

.120

Mean 4.22

Mean

.277

3.62

.167

3.69

SD .468

3.87.

405

3 ..57

393

3.95

.477

4.07

.287

288

3.98

.398

4.21

.319

3.97

.456

3.48

.317

4.10

.355

4.29

.315

4.07

.460

3.43

.429

School

3. College 4. Graduate

p Value (One-way .31 .01. .14 .14 ANOV A) ~ignificant at .05level of significance. However, Duncan's Multiple Range test (DMRT) showed otherwise. This may be due to the lopsided number of casesin the four groups being compared.

E. Birth

Order

STYLE N

Mean

108

4.01

.423

4.21

.295

4.05

.563

3.52

.334

Second Born

3.93

.398

4.11

.258

3.88

.381

3.46

.353

Middle

3.97

.398

4.19

.304

3.95

.398

3.47

.356

Last

3.99

.353

4.24

.305

3.95

.398

3.46

.301

Others P Value (One-way ANaVA)

4.01

.426

4.26

.459

3.94

.394

3.48

.359

First Born

.67

.08

.15

.75

Entrepreneurial Styles by Film Characteristics Annex Table,7 presents the mean response given by respondents for the four entrepreneurial styles classified by firm characteristics. The data presented on the same table show that by industry, as well as by firm characteristics (i.e., form of ownership, size, number of employees, number of years of operations, sales performance, companyfmandal performance, and growth in asset), the entreperaor mapagtagumpay at dorm'nanteng entreprenor has a consistently high mean score. On the other hand, the entreparis or mapagsapalaran at dominantengentreprenoralso shows a consistently low mean score on the same characteristics mentioned. In addition, testswere used to evaluate if the difference betweenmean ratings for the different styles differ significantly by industry, form of ownership, size, number of employees, number of years of operation, sales performance, profit performance, and growth in asset size (Annex Table 7). Oassmed by natute of business, one-way Anova testsshowed that in entreperin or mapagtuklasat kumparengentupr'tnor (p value of .007) and entreparis or 61

CHAVEZ

mapagsapalaran at dominanteng entreprenor (p value of .Q36), there is a significant diffe'rence in the mean response given by the respondents. Intensity of behavior exhibited within the style varied. Classified by form of ownership, one-way Anova tests showed that in entrepera or mapagtagumpay at dominanteng entreprenor, there was a significant difference (p value of .028) in the mean response given by respondents. Intensity of behavior exhibited within the style varied by form of ownership. Oassified by number of employees, one-way Anova tests showed that in entreparis or mapagsapalaranat dominantengentreprenor,there was a significant difference (p value of .000)in the mean response given by the respondents. By number of years of operations, one-way Anova tests in entrepati or mapagtuklas at mapagkalingang entreprenor (p value .006) and entreparisor mapagsapalaranat dominantengentrepenor (p value .007)showed that there is a significant difference in mean response given by the respondents. Oassified by profit performance, one-way Anova tests showed that in entreperin or mapagtuklasat kumparengentreprenor,there is a significant difference (p value .041)in the mean response given by the respondents. Oassified by size, testsshowed that there is no significant difference in the mean response given by the respondents. This is contrary to the findings of Baum (1995) that organization size is an important determinant of differences in entrepreneur's ability. In this case, since the sizes small and medium are often taken together as a classification, it is understandable that size did not affect the mean response given by the respondents. Oassified by sales performance and growth in asset size, one-way Anova tests showed that, there is no significant differertce in the mean response given by respondents for all four styles.

ENTREPRENEURIAi. STYLESAND FIRM PERFORMANCE

STYLE

E. By No. of Yearsof

Operations

Mean

173

4.04

.396

4.22

.346

4.01

.471

3.53

11-20

3.96

.370

4.16

.271

3.93

.45<>

3.43

.360

21-30

3.83

.449

4.17

.303

3.90

;396

3.40

,347

31-40

3.94

.373

4.16

.305

3.85

.425

3.41

.349

41-90

.4.17

.335

4.35

.187

4,06

.363

3.64

.246

1-10

P value

.006*

.241

.235

Mean

.316

.007*

(one-way Anova)

* Significant

at .05 level of significance.

F. By Sales Perfonnance

STYLE N

Mean 1. Low 2. Average 3. High

120 204

3.98 3.97

SD .373 .406

4.01

.432

Mean 4.19 4.19

Mean

.283 .339

4.24

.299

Mean

3.93 3.94

SD .471 .458

3.47 3.50

SD .322 .329

4.08

.325

3.41

.408

P value ( \o~~~ay

An i\nova}-

)

.854

.547

.107

.257

* Significant at.05 level of significance.

STYLE

G. ByCompanys N

l'manCIaI

Penonnance

Mean

.381

4.22

.274

3.92

.400

3.48

.331

1. Loss

4.11

2 Break-even

3.98

.363

4.19

.297

4.00

.607

3.50

.343

3. Low profit

3.95

.411

4.21

.407

3.84

.414

3.45

.307

158

3.97

.416

4.17

.291

3.96

.355

3.48

.348

4.02

.420

4.28

.333

4.17

.346

3.49

.352

4. Average profit 5. High profit 6. Did not specify P value ( ~one-way

An 1\nova)

)

3 .410

.664

* Significant at .05 level of significance.

.04:1*

.894

CHAVEZ

H. By Growth in Assets 1. Decreased 2. Remained the

STYLB N

Mean

4.03

.336

4.17

.336

3.89

.370

3.49

.355

147

3.98

.415

4.15

.282

3.89

.489

3.51

.332

186 1

3.97

.399

4.23

.335

4:03

.422

3.45

.339

same 3. Increased 4. Did not specify

P value (one-way Anava) .744 * Significant at .05 level of significance. showed otherwise

.043* .011* .275 However, Duncan's Multiple Range Test (DMRT)

for Style 4 because of the lopsided number of cases being compared.

*Mean responsesbased on the 5-point likert's scale ( 5 = strongly agree; 4 = Agree; 3 = Neither agree nor disagree; 4 = disagree; 1 = strongly disagree) Style 1 -People-oriented-Paternalistic-lnnovative Entrepati Style 2 -Directive-Personalistic and Achievement-oriented or Entrepera Style 3 -People-oriented-Pakikisama-Risk-taker or Entreperin Style 4 -Directive-Paternalistic-Risk taker or Entreparis

ENTREPRENEURIAL STYLESAND FIRM PERFORMANCE

Relationship of Entrepreneurial Stylesto Film Perf'olmance Appendix Table 8. Pearson's Correlation Results for Entrepreneurial Styles and Firm Performance Firm Performance Entrepreneurial Styles ...Contin,;,ed ;:;...

...Sales

Profitability

Entrepati or mapagtukJ;asat pamagkalingang entreprenor r

.009

-.046

g value Entrepera or mapagtagumpay at dominanteng entreprenor .

.860-..

.378.244

r p value Entreperin or mapagtuklas at kumpare~ entreprenor r p value

Operation

-.060

Growth

-.027

.603

.038

-.007

-.013

.1 {YJ*

.464

.898

.801

.038

.090

.038

-.071

.137**

.083

.462

.173

.008

Entreparisor

Mapagsapalaran at donlinanteng entreprenor r -.025 p value .629 Pea~on's correlation Correlation significant at the 0.05level Correlation significant at the 0.01 level

.000

-.084

-.069

.995

.107

.182

The canonical correlation analysis (Appendix Table 9) showed that there is a significant relationship between the set of variables under the entrepreneurial styles and the set of variables under firm performance as shown by the canonical correlation values RC.Entrepera or mapagtagumpay at dominanteng entreprenor and entreperin or mapagtuklas at kumpareng entreprenorwere more highly correlated with firm performance with p values of .03461and .00142,respectively. RC, on the other han4, showed the proportion of total variability from the original variables extracted by the canonical model (for both sets of variables). This is also called the shared variance. For entrepati or mapagtuklas at mapagkalingangentreprenor,12% of the variability of the variables were extracted by the canonical model. For entrepera or mapagtagumpay at dominantengentreprenor,roughly 10% of the variability of the variables were extracted by the model. Of the variability of the variables under entreperin or mapagtuklasat kumpareng entreprenor,15% was extracted by the model, while of the variability of the variables under entreparis or mapagsapalaran at dominantengentreprenor, 7% was extracted by the model. 67

CHAVEZ

The variance extracted showed the proportion of the variability of the independent variables extracted by the independent variates in the canonical model. In this case, 16.03% for entrepati or mapagtuklas at mapagkalingang entreprenor, 31.28% for entrepera or mapagtagumpay at dominanteng entrepenor,27.62% for entre perin or mapagtuklasat kumpareng entreprenor, and 25.80% for entreparis or mapagsapalaranat dominanteng entreprenor. Independent variates are the variables in the canonical model as distinguished from all the variables in the data set. Redundancy explains the proportion of variance explained by the other set of variables. For instance, in entrepati or mapagtuklas at mapagkalingangentreprenor,1.13% proportion of variability of independent variables were explained by the dependent variables under firm performance. The 8.31 %proportion of variability of dependent va~'lbles (firm performance) WE'reexplained by the independent variables. 68

ENTREPRENEURIAL STYLESAND FIRM PERFOR/Ii.ANCE

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Starcher, D. 1998. Women Entrepreneurs.Available from World Wide Web: (htpp:/ /www.ebbi.org/women.htm) Stevenson, H.H. and J.C. Jarillo. 1990. A Paradigm of Entrepreneurship: Entrepreneurial Management. StrategicManagementJournal 11:17-27. Stevenson, H.H. and D.E. Gumpert. 1991. The Heart of Entrepreneurship. Harvard BusinessReview 90076:71-80. Stevenson, H.H.1991. A Perspective on Entrepreneurship. InJ. Kao (ed.) The Entrepreneur. New Jersey: Prentice Hall. Stewart, Jr. W.H., J.C. ~land andJ.W. Carland. 1996. Empirically Defining the Entrepreneur. Journal of Businessand Entrepreneurship8(1):1-18. Stewart, Jr. W.H.; J.C. Watson, J.C. Carland and J.W. Carland. 1998. A Productivity for Entrepreneurship: A Comparison of Entrepreneurs, Small BusinessOwners, and Corporate Managers. Journal of Business Venturing 14:189-214. Sundaya, R. 1990. Towards the Development of a Model for Successful Business EntrepreneursWp in Indonesia. PI1.D. dissertation, De La Salle University-Manila. Tai-Iok, W. 1994. ChineseEntrepreneurshipin Context..Hongkong: Horigkong Institute of Asia-Pacific, Studies. Tomeeko, L. and T. Kolghom.1996. Entrepr~eurship. Boston: Irwin. Timmons, J.A. 1994. New VentureCreation: Entrepreneurfor the21'1 Century. Boston: Irwin. .1985.New VenturesCreation. Homewood, III.: Richard D.lrwin, Inc. Tolledo, E.S. Vice-President for Operations, Lirag Textile Mills, Montalban w,d Malabon Plants. Personal communication. n.d. ..Vice-President and Corporate Secretary, Nerissa Marketing Corporation. Personal communication. n.d. --.Vice-President HM ARCA Chemical Trading Co. Personal. communication. n.d. Udani, l.A. 1990. UnderstandingFilipino Values.Ortigas, Pasig: Center for kesearchand Communication. Vinai, V .1992. Towards the Identification of Factors Related with Successin Small-Scale Industry Entrepreneurship in Thailand. Masteral thesis, De La Salle University-Manila. Winkler, A.C. and J.R. McCuen. 1999. Writing theResearchPaper.San Diego: Harcourt Brace College Publishers. Wjthane, S.1996. Broadening the Concept of Entrepreneurship: A Multidisciplinary Approach. Journal of BusinessVenturing 14(3):225240. 76

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Woo, C.Y., A.C. Copper and W.C. Dunkelberg.1991. The Development and Interpretation of Entrepreneurial Typologies. Journal of Business Venturing 6(2): 93-114. Wright, P.L.1996.Managerial Leadership.London: Routledge. Yammarion, P.J., A.J. Dubinsky, L. Comer and M. Jolson. Women and Transformational and Contingent Reward Leadership: A Multiple Level of Analysis Perspective. Academy of Management Journal 40(1):205-222.

i~OTAL QUALITY MANAGEMENT CONSTRUCTS: DEVELOPMENT AND VALIDATION A Survey of Philippine Companies

MA. GLORIA V. TALAVERA

ABSTRACT This study determines the critical components of Total Quality Management (referred to as TQM constructs) and the spedfic strategies, policies and programs that should comprise each TQM construct (referred to as TQM elements). It validates theseTQM constructs in selectedcompanies in the Philippines, then it utilizes the resulting validated instruments in assessing to what extent these companies adopt TQM. The study evaluates the possible relationship between company performanceandTQM adoption. To gather data for this purpose, two surveys were conducted. Survey 1 determines the managers' perception of the critical elements that should comprise a TQM construct. Survey 2 determines the extent to which TQM elements ~e implemented in surveyed companies. Development of TQM constructs involved theoretical derivation from exiSfing literature. The validated constructs were used as instruments to determine to what extent selected firms in the Philippines have adopted and implemented TQM in their organizations. Validation of the resulting instruments involved assessing their reliability through the Internal Consistency Method, with Cronbach coefficient alpha as the relevant coefficient. A panel review determined the content validity, while Exploratory and Confirmatory Factor Analyses were used to determine construct validity.

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The Multiple Linear Regression(MLR) analysiswas used to determme the factors affecting TQM adoption, and to evaluate its association with company performance. Further, the Structural Equation Modeling using PROC CALIS (Covarianc~Structure Analysis) was used to determine the interrelationships of TQM constructs and their possible association with quality performance. Results of Survey 1 indicate that the majority of elements included in the 72-item instrument are generally perceived as important by 347managers from 63 companies. TQM elements rated not critical belong to the following constructs: Supplier Quality Management, Customer Orientation, Human Resources Management, and Benchmarking. Survey 2, which involves 323 managers from 64 respondent firms, indicates that about 60 percent of the firms exhibit a large extent of TQM adoption, while 40 percent exhibit moderate adoption:TQM elements rated not critical are generally those moderately implemented. There is a discrepancy between perception of importance and extent of practice ofTQM constructs and elements. This may be due to resource constraints associated with TQM adoption. Reliability tests show significantly high Cronbach coefficient alpha for the whole instrument and for each TQM construct. This indicates high reliability of the instrument. Analysis of construct validity using Common Factor Analysis, with perception of importance as basisfor scaledevelopment; shows that certain elements of a construct converge with those of another construct when they sharea similar function. The elementswere then grouped. The resulting groupings were found to be relevant and conceptually meaningful, and they presented the multidimensional aspect of TQM implementation. A significant difference between extent of TQM adoption and performance was noted among respondent firms Categorized according to industry affiliation, ownership structure, export orientation, and quality management grid classification. Results of MLR analysisreveal that firm size (measured in terms of asset level) and technology level (represel)ted by Flexible Manufacturing System) significantly determme the extent of TQM adoption. This supports the notion that top management commitment, in terms of time and resources, is critical in the successful implementation of TQM constructs. TQM adoption is found to have a significant association with quality, business and organization performance. It is associated with about 6-12 80

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percent improvement in quality performance (measured in termsoftelative product quality and reduced defects),5-11 percent improvement in business performance (measured in terms of net profits and sales), and 20-30 percent improvement in the majority of organizational performance parameters, indicating the critical role played by TQM in motivating employees. ResUlts of Structural Equation Modeling show the retention of four TQM factors having significant assodation with quality performance (as measured in terms of relative product qu81jty). These factors are: (i} feedback in the design of quality management strategies, (ii) employee involvement, (ill) quality management technique orientation, and (iv) quality monitoring and control. The element.. associated with these factors reflect the interplay of both technique and philosophy orientations of a quality managementsystem in affecting quality performance. Top management commitment no longer emergesas a separateconstruct. Its elementsare subsumed in the four factors, indicating that, in practice, top management's commitment should be present in every component of its quality management program.

INTRODUCfION The world of manufactilring had changed dramatically over the past 20years. The challenge for firms to become and remain competitive had never beenmore pronounced. Competition was no longer just based on cost, but on other key success factors such as quality, flexibility, delivery, service and innovation. Along this line, the Japanesewere able to introduce a competitive strategy in the early 1980s which combined competing in terms of quality and cost, that is, producing high quality products at a lower cost. This emphasis on quality had become more prevalent due to the perceived and quantifiable value derived from managing quality, \vhich usually created impact on the firm's business performance. One of the contributing factors in the successof the Japanesein their competitive strategy was the adoption of Total Quality Control (TQC), which was later named Total Quality Management (TQM) in the United States.TQM is considered the new approach in managing quality (Rao et al. 1996). Its principles are espoused by authors such as Taylor, Shewhart, Deming and other gurus associated with the quality movement. TQM teachings are founded on the principles of Scientific Manage~ent, Statistics, and the

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Behavioral school of thought of management. The principles espoused by TQM are described comprehensively in the definition below (Goetsch and Davis 1997): "TQM consists of continuous improvement activities involving everyonein the organization -managers and workers -in a totally integratedeffort toward improving performanceat every level.This improvedperformanceis directedtoward satisfying such cross-functionalgoals as quality, cost, schedule,mission, need,and suitability. TQM integratesfundamental managementtechniques, existing improvementefforts,and technicaltools under a disciplined approach focused on continued process improvement. The activities are ultimately focused on increasedcustomer/ usersatisfaction." Statement of the Problem

There are current concerns about the theoretical and the implementation aspectsof TQM and its effectivenessin improving the quality and business performance of firms which adopt it. TQM as a Field of Discipline There is no single, standard definition of what a TQM is. It is referred to as an approach, a system, a tool, a technique, and/ or a philosophy aimed at achieving a certain quality target. The lack of a coherentand comprehensive definiti'on of TQM, in effect, indicates ~e lack of a specific and explidt theory supporting the adoption of TQM. The lack of coherence may be attributed to the various teachings by quality m~gement gurus, which have not been formally synthesized into a single quality management theory. Consequently, the absence of an explidt theory on TQM is probably the reason why business practitioners seem to have some difficulty comprehen~g its power and usefulness in meeting targeted quality and business performance. There is also a perception in the business community that TQM is not intellectually substantial (Grant et al. 1994). While there may be various case studies on the successes and failures of TQM adoption, mostly in US manufacturing companies, very limited studies have been condu~d to truly probe and scrutinize the real meaning and scope of TQM (Ahire et al.1995). Most TQM literatures have been oriented toward casestudies and empirical

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work on TQM implementation. Effort to truly develop a real definition and conceptual framework of TQM theory has been very limited. Thus, it is sometimes looked at as just a fad and not a strategic decision area for a company. Despite various teachings on quality management,TQM has ~ot been recognized as a distinct field of disdpline. In fact, TQM has been critidzed as lacking in coherence, which is a result of the existence of various programs tl1atcan easily fall under TQM heading. For example, the adoption of quality circles, or the utilization of statistical quaIlty control, or the advocacy of a zero defect policy, or the combination of all could indicate that TQM is present in the company. There seemsto be no complete and comprehensive list which could indicate that a company is indeed implementing TQM, the real and complete TQM program. TQM as a Business SQ"ategy TQM,

just

pther '"

management

programs

being

implemented

manufacturing firms, is expected to improve the overall performance offirms which adopt it. However, in practice, TQM seemstQbe experiencing negative results brought about by failures in its implementation and the dismal firulndal performance of companies which adopted it, raising doubts on the usefulness of this quality management system as a potent business strategy. As some managers have discovered, the TQM efforts of their respective companies ended with disappointing results (Elkidson 1995). By comparing typical TQM programs with the- general pattern in over 150 successful organizational turnarounds, Elkidson noted the following: (i) TQM is not a cure-all strategy; (ii) cost management and reduction are not ~mphasized in most TQM efforts; (iii) successful resolutions of problems in turnaround companies rarely put emphasis on TQM; and (iv) TQM implementation is not able to directly address major components of success, such as competitive positioning, marketing, firulndai structure, diversification, orgarlizational structure, and political strategies. While many TQM pr,actitioners viewed TQM as the answer to all the organization's problems, some firms were disappointed to find out that their efforts did not directly contribute to the real bottom-line-objetlives--of the organization (Steele 1993). One possible reason was the management's lack of understanding of what TQM is supposed to achieve. This was manifested by the management's troubled implementation of TQM, and its inability to sustain motivation for quality improvement over the long term (Gull 1995).

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Further, despite long years of teaching TQM to Americans, still two-thirds of quality efforts in the US are f~g as most employees feel that the promises of empowerment, involvem~nt in decision making, and meaningful rewards have not been kept. Besides, employees still fear the changes required by a total quality transformation (Ryan 1995). Thesefindings have implications on how to view quality management as a business strategy. It need not be overemphasized tP!it manufacturing and service firms really need to value quality to meet customer requirements. But there appears to be an unexplored area on the possible ~ssodation of the adoption of various quality management approaches with a fjrm's performance and competitive advantage. The-development of a comprehensive definition of what should constitute a comprehensive TQM program and the establishment of this TQM-performance link is important for the ..following reasons. Firms which proclaim to be formal adopters of the J.QM may not be ad.o~ting the complete, com~rehensive, and realcompo~ent~ of TQM as ~heir ongmal proponents (Amencan and Japanese TQM guru's) have conceived them to be. Implementation of just a limited portion of the real TQM version could miss out on the more important implemet:\tation component.. of this program. Firms may have also a limited understanding of the scope and coverage of TQM implementation. They could have just beenenticed to adopt TQM due to the "bandwagon effect." Such a limited understanding of how TQM must be implemented and the extent to which it can improve the firm's performance create unrealistic expectations aboutTQM..Thus, some adopter firms get dismayed because their TQM efforts do notmeet their expected results after several months of implementation. Firms may likewise have isolated TQM from-the other business strategies, which altogether have an effect on meeting the firm's quality targets and firm pe;rformance. Lastly, firms may have implemented TQM together with other strategic initiatives which, if combined, have counterproductive effects, due to fundamental differences in philosophies-andorientation.

Objectives of the Study Given thesecurrent concern...on TQM, it is important to conducta comprehensivestudy to determine the various strategies,programs and policies which define TQM, and to subsequentlyutilize this definition in determiningthe extent of adoptionand implementationof TQM in selected Philippine companies.

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Specifically,the study aims: 1. To developthe TQM consb"uctswhichinvolve the following: a. Consolidatethe various principles,scrategies, and programs associatedwith TQM imp~emerttation(referred to as TQM consb"ucts);and to devel~poperational definitions of these consb"ucts(referredto as elements);and b. Determinethe perceptionofrespondentsfrom the Philippine manufacturing induscry as to the degree of importance of eachelementin describinga particular TQM consb"uct. 2. To validate the developedTQM COnstn,lCts by: a. Assessingthe reliability and validity of the theoretically derived TQM constructsusing perceptionof importanceas basisfor scaledevelopment;and b. Evaluating the extent to which these validated TQM consb"uctsare being practiced by selectedindustries in the Philippines. 3. To utilize the validated TQM consb"uctsfor induscryevaluation by: a.

c. do

Describing the: respondent firms' extent of TQM adoption and quality management grid classification; Comparing the extent of TQM adoption and the performance (quality, business and organizational) of respondent firms according to the following independent variables: industry affiliation, firm size, ownership structure, owner type, level of technology, export orientation, educational level of CEO, and organizational affiliation; Identifying the independent variables which significantly affect the respondent firms' extent of TQM adoption; Exploring the possible association of the firm's overall performance (quality, business, and organizational) with the TQM Adoption Index level of the respondent firms; and Determining the interrelationship among TQM constructs and their possible direct and indirect effect on quality performance.

Significance of the Study With increasingdemand on Philippine firms to producecompetitive quality products, TQM is one of the managementapproachesand system 85

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technologies considered to bring competitive advantage as it integrates both the management philosophies and strategies, as well as techniques, to reach the firm's performance objectives. Improvement in quiility performance as perceived by customers is a source of market gains and results in higher sales and ~arketshare. On the other hand, improvement in quiility performance also means few or zero defect rates, resulting in higher productivity and lower rework, scrap and wastes, and consequently leading to lower manufacturing and service costs. This combination of increased revenues and lower total costs result in improved competitiveness and higher profitability for the

company. However, a more important aspectof TQM adoption is the significant change in the values and orientations of people in the organization, especially in terms of participation, teamwork, camaraderie, and quiility mindset. This significant behavioral and human-related change is possibly the main factor why TQM, despite criticisms of-the concept, is still perceived to be a strong potential source of competitive advantage. TQM's strategic orientation is to link and integrate the quality management process into the overall business process. TQM adoption is expected to improve productivity, reduce production cost, and change the way the employees value their work and organization. All these are expected to result in significant improvements in business performance. It is very important, therefore, that the critical strategies which should comprise the implementation of a TQM program be identified, properly defined, and integrated comprehensively. Developmertt and validation of the critical components that should define TQM is important (i) to synthesize the fragmented teachings on TQM for a better understanding of.the implications of its implementation; (ii) to establish the various disciplines (Statistics, Organizational Theory, and Strategic Management) from whichTQM draws its teachings; (ill) to-link the theoretical teachings and the prescriptions of the two known quality management frameworks -the Malcolm Baldrige National Quiility Award and the ISO 9000 -to provide even the non-MBNQA and non-ISO 9000 certified companies with a comprehensive listing of the strategies, policies and programs that should comprise a TQM program; and (iv) to link the technique and behavioral or philosophical orientations of a quality management system. Lastly and more importantly, the study hopes to bring to business practitioners' attention the dusters of quiility management strategies which

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could be used for monitoring and evaluating their existing, quality managements~tems. And since the study also looks into the possible associationof quality, businessand organizationalperformancewith TQM adoption, resultscould proviqe insights on better utilization and treatment of specificTQM-relatedstrategiesto improve performanceoutcomes. Scope and Limitations of the Study The study conducted two surveys: the first was to determine the components of a quality management system perceiyed by managers to be critjcal in selected Philippine companies, and the second was to look into the extent to which these critical components were being implemented at the shop floor level. About 95 percent of the participating firms were in manufacturing. These included the semiconductor and electronics, food processing, automotive, switch gear and primary cells, toiletry, pharmaceutical, and cement industries. Survey 1 covered 347 managers in 63 companies. Survey 2 covered 323 managerSm anothe~ 63companies. The respondent managersrepresented the manufacturing, marketing, human resources, purchasing, finance, and quality departments. Given that the instrument used for Sqrvey 1 consisted of 72 items for validation, a sample size of five per item should have been the appropriate respondent base. Due to time and budget constraints, about 90 percent of expected sample size was achieved. Since only 80 percent of the respondent firms from Survey 1 joined Survey 2, a direct comparison of the results for the two surveys on a firm by firm basis was qot possible.

TQM AND QUALITY MANAGEMENT STANDARDS This chapter presents a more detailed discussion of TQM and the current quality management standards considered in business environment, namely, the Malcolm Baldrige National Quality Award (MBNQA) and the ISO 9000. It reviews the previous studies conducted on TQM constructs development, and describesthe contribution of this researchto TQM literature.

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Review of Philosophies and Standards TQM Teachings One of the ~trategies to which the successof the Japaneseeconomy is attributed is the implementation of a Total Quality Control (TQC) program. TQC is not an original concept from Japan but an adaptation of the quality management teachings of well-known American gurus such as"Shew~ and Deming. It was perfected by the Japanese in more than 40 year~ of implementation (Ishikawa 1985). TQC is defined as the totality of an integrated product and process development. Its main aim is to build quality into the design of the product and process through the application of various quantitative tools and techniques within the process of Statistical Quality Control, such as the Seven Basic (Old) Tools, Seven Management (New) Tools, Seven Product Planning Tools, Quality Function Deployment, and the Taguchi Methods (Dean1995). The inclusion of the term total refers to the involvement of all emplQyeesin the company's efforts to achieve quality. The Japanesedeveloped this system to implement Kaizen (Continuous Improvement) and is sometimesrefen'ed to as Company-Wide Quality Control. This system also introducedt}te use of the Quality Circles in the organization. Inspired by the success of quality development in Japan, the Americans saw it urgent to adopt a quality management system which could improve the quality of their products. American gurus like Juran, Crosby, and Feigenbaum introduced the need to focus Ohthe h~an behavior and cultural management aspects of quality management. They emphasized the involvement and participation of all employees in the organization, especially the commitment of top management and the all-out support of managers and the rank and file. They underscored the formation of quality and productivity improvement circles and training on total quality concepts. This quality management system, adopted in the 1980s,had been referred to by the Americans as Total Quality Management (TQM). What is TQM? What are its intellectual origins, focus, and emphasis?TQM derived its p4ilosophy mainly from such disciplines as Statistics.,Organizational Theory, Strategic Management, and Industrial Organization (Table 1). It can be said that its development is not separate from the other quality systems but mor~ of an improvement or refinement of previously developed quality systems. Table 1 also illustrates the stt-ategicfocus of TQM in achieving its quality, business, and organizational goals through both technique and philosophy orientations of a quality management system. 88

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Table 1. The TQM Philosophy: Underlying Principl~ Description Underlying Principles of TQM Intellectual Origins Statistical Theory, Sampling and Variance Analysis Linkage with other Statistics, Organizational Theory, Economics and Strategic Disciplines View of Organization Time Orientation Organization Goals Individual Goals Coo;rdination and Control Emphasis on Management Control Role of Information Principles of Work Design

Management Open Systems; organization changes; drivers of change are customer focus and quality Emphasis on both current needs and long-term requirements; dynamic and innovative; oriented on continuous improvement Serving customer needs with the highest quality as opposed to just maximizing profits Individuals motivated by other motivators (other than money) Employees are willing and able thus requiring limited supervision Every setgoal must be measurable

Firm Boundaries Requirements for

Timely, complete, and accessibleinformation critical System-based optimization with emphasis on dynamic performance Firm needs to link closely with suppliers and customer Role of top management very critical

Leadership Impact on Organization Culture

Requires significant change in organizational culture focusing on teamwork and customer orientation

Sources: Grant, Sham and Krishnan 1994; Vinzant and Vinzant 1996.

The quality managementstrategie~ common to the teachings of Deming,Juran and Ishikawa with referenceto TQM have beenempirically studied (Hackmanand Wageman1995)and summarizedasfollows: 1. Explicit definition and measurement of customer requirements. Customer here has beendefined as the IInext process down the line.1I Within the organization, the assessmentof customerrequirementsservesasa tool to foster cross-functional cooperation. Cross-functionalhere refersto a team or group compo~ed of representatives from various departments like production, marketing, engineering, finance,etc. 2. CIeation of supplier partnerships.TQMauthoritiessuggestthat organizations should choosevendors on the basis of quality, rather than solely on price. 3. Use of cross-functional teams to identify and solve quality problems. Theseteamsare createdto identify problems in the production area, diagnose the causesof such problems, and developand testpossiblesolutionsto them.

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4. Use of scientific methods to monitor performance and to identify points of high leverage for performance improvement. TQ'M authorities advocate the use of statistical tools (e.g., control chart, Paretoanalysis,and cost of quality analysis)to monitor and analyzework processes. 5 Use of process-management heurIstics. These techniques (flowchart, brainstorming,cause-and-effect diagram)have been, suggestedto enhancete~ effectiveness. These TQM prindples and teachingshad beenuseful in the theoretical derivation of the constructs that would comprise the comprehensive components of a quality management system. Current Quality Management Standards Unlike other fields of management, Quality Management in general and Total Quality Managementin particular have not yet reached fuU maturity as fields of discipline. TQM, for example, is still referred to by its critics as a "[ad" or one of those "management buzzwords." Prescriptions on how to manage quality systems like TQM are usually associated with the principles espoused by a certain guru or personality or proponent of a philosophy and not with a solid theoreti(al background. Consequently, the absence of a coherent theory for TQM has made it difficult to identify a practical and standard model which could be used by organizations to develop their quality management systems and to measure the effectiveness of these programs in improving performance. But are there really no standards to evaluate the quality management systems of manufacturing firms and service firms? What about Quality Awards such as the MBNQA and ISO 9000 certification? Can they not be considered standards that would approximate the TQM theory? To date, these two famous frameworks are used as standards to evaluate the quality management systems of manufacturing and service firms (Chase and Aquilano 1995). Below are brief descriptions of MBNQA and 1509000 and how they relate to TQM. The Malcolm Baldrige National Quality Award (MBNQA) The quality management system wl'lich serves as the standard for the manufacturing and service companies in the United Statesis described in

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the 1994 Malcolm Baldrige National Quality Award Criteria (Besterfiel.d et al.1995). This is an award given yearly to US companies which excel in quality management. It was created by Public Law 100-107 on August 20,1987 and has three categories -manufacturing, service, and small business. Scoring for th!s award falls into seven major categories: (i) leadership, (ii)wormation and analysis, (ill) strategic quality planning, (iv) human resource development and management, (v) management of process qualit~ (vi) quality and operational results, and (vii) customer focus a1}dsatisfaction. This award has not beenadopted worldwide. It has not been formally recognized as the TQM theory. Nevertheless, the criteria being investigated in the MBNQA provide useful reference to any firm implementing any p~ticular kind of quality management system to assessthe effectiveness of its quality management efforts. The ISO 9000 Another iI)ternational standard currently advocated by manufacturing companies worldwide ~ certification to ISO 9000. What is ISO 9000?Can the standards mentioned in ISO 9000 be used by adopters of TQM in the~ evaluation? Can the ISO 9000stfindards be essential components of the TQM theory? Do TQM adopters need to be ISO 9000 certified? Does ISO 9000 certification aut'pmatically mean that firms are adopting TQM? To answer these questions, a review of what ISO 9000 encompasses and why it is necessary to be ISO 9000 certified should be discussed. The ISO 9000 series of quality standards was developed by the International Standards Organization (ISO)in 1987(Besterfield 1995). Its main objective was to standardize the practices on quality management and assurance regardless of a company's quality man~gement philosophy. The ISO 9000standards are a compilation of the best quality managementpractices which member countries, after achieving a consensus,agreed to adopt as the model of quality management systems. Conformance to international standards by different firms in a whole business chain facilitates international b'ade and exchange. The ISO 9000standard series is a group of five individual but closely related standards which respond to various issues on quality. The five types of ISO 9<XX> certification are ISO 9001, 9002, 9003, 9004, and 9005. The ISO ~1, ~2, and 9003 serve as quality models which relate to conformance standards for quality assurancesystems and supplier-custo~er relationships. The ISO 9<XX> and 9004, on the other hand, are guidelines that relate to the de\i;elopment of quality systems within the company. 91

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To a certain extent, one may be convinced to think that the 20 elements of the ISO 9000 would comprise the TQMthebry, as there were instances when companies which formally adopted TQM (though calling it by some other title) ertded up being ISO 9000certified. A closer look at these elements, however, shows that ISO 9000certification, more than being a result of TQM implementtation, is one of the prerequisites prior to an effective adoption of TQM. Admittedly, there are companies which apply for ISO certification even if they are not into a formal TQM program. But as it relates with TQM ideally, the ISO 9000, in fact, presents the basic nature of work processes necessary for an organization to achieve the objectives ofTQM. Thus, the ISO 9000 is a critical first step in implementing a TQM system. Applying for ISO 9000 certification requires documenting and reporting the key processes of the organization. TQM as a business philosophy goes beyond documentation and quality audit. The ISO 9000 process may be considered as the audit phase, which is needed prior to the adoption of TQM. There seems to be no inconsistency with having a TQM program and ISO 9000 certification. Firms which adopt TQM are expected to be ISO 9000certified, or at least applying for ISO 9000certification. In the absenceof a comprehensive and acceptedTQM implementation framework, the MBNQA criteria may be considered the closest standard in effective quality management framework. Strict compliance with and adherence to the ISO 9000 guidelines, not just a focus on the documentation aspect of this framework, prepare~ an organization for the adoption of a particular quality system, more so, for the adoption of TQM. Reviewaf Related Studies On TQM Constnlds Development Using the teachings of quality managementgurus and the experiehces of manufacturing companies in the US and Europe which adopted TQM, there have been initial attempts to put together the various principles, strategies and policies that should comprise a real TQM program. A literature review on the development ofTQM reveals that several comprehensivestudies have been done along the line of TQM construct development, starting with Saraph et al. (1989), followed by Ahire et al. (1996) and Black and Porter (1996). Other empirical studies on how to implement TQM programs more effectively include those done by Powell (1995)and Flynn et al. (1995).

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The first major study on TQM construct development aimed to systematically organize and synthesize various TQM prescriptions and to propose measures of organizational quality management for critical elements of TQM (Saraph et al. 1989). This study sh9wed that most researcheson TQM focused on case studies with limited emphasis on systematically putting together .the prescriptions on how to implement TQM effectively. In response to this finding, Saraph et al. synthesized the quality literature, identified eight factors of quality management, and developed operational measures for these factors, which will then be used in the assessmentof the status of a quality management program. Another important research on TQM indicated that most researches on quality management dealt with conceptual, practitioner-oriented, case types of studies with very limited attention on the empirical side of it (Ahire e~al. 1996). The authors developed and validated 10 TQM constructs, which they noted were not considered in the work of Saraph et al. Theseinclude the Customer Focus and Benchmarking. The study also analyzed the impact of prescribed quality management strategies on the product quality of sE;!lected manufacturing firms in the US. The lack of a single mo<;ielto serve as a basis for the TQMtheory was also mentioned in another TQM research done in Europe (Black and Porter 1996), This study noted the'lack of sdentifically derived industry standards for making diagnostic assessments of TQM programs. It developed and validated nine critical factors of TQM. The lack of standards can be very well seen in the evolution of quality management systems where various gurus or authors prescribe various frameworks on how to manage quality. There seems to be no single, coherent, and definitive theory on TQM that synthesize these prescriptions, lending credence to claims that TQM is nothing but a fad, a philosophy that falls short of being considered a field of diSdpline. Two other studies which attempted to identify the factors comprising TQM were those done by Powell (1995) and Flynn et al. (1995). Powell ex~mined TQM's potential as a source of competitive advantage for firms. He identified 12 TQM factors, including two constructs -apen Organization and Zero Defects Mentality -not found explidtly in the studies of Saraph et. at. and Ahire et. al. These two constructs reflect the corporate culture that must be present in a firm to effectively implement TQM. Flynn et a,l., on the other hand, empirically investigated the relationship between spedfic quality management practices and quality performance. They proposed an integratesi, interfunctional quality management systemto achieveand sustain competitive 93

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advantage. The authors proposed eight components of an integrated quality management system. These works on TQM construct development used almost the same approach needed in developing multi-item scale as prescribed by Churchill (1979)and Malhotra (1981).The basic procedures for developing better multiitem measures consist of (i) a construct development through a thorough literature review, (ii) development of the scale, and (ill) purification of the scale through assessmentof the reliability and validity of the instrument. The studies differed in terms of industry focus, sampling frame, approach in developing the TQM constructs, and methodologies to test for validity and reliability of the instrument. Despite these differences, these researcheswere able to derive critical factors that could establish the definition of TQM. The abovementioned studies focused mainly on the assembly type of production systembasedin the US, where the MBNQA framework is currently recognized. No similar studies have been done for Asian or Asia-based manufacturing firms. On Quality Management-Perfonnance Link Several authors have noted the importance of quality in organizations. Juran (1988) presented the concept that achieving high quality could enable companies to improve operations, meet customer or market needs, and enjoy high profitability. This link between quality and profitability had also been studied empirically by Garvin (1984). Garvin's main contention is that the quality-profitability relationship can be achieved through two major directions -improvement in marketing performance and improvement in reliability or conformance. The first direction focuses on gaining marketing advantage through improved performance, leading to increased sales and higher market share. The other focuses on reduction in costs through improvement in production effidency, in turn resulting in fewer defects and lower manufacturing and service co_sts(Figure 1). Garvin noted a strong positive association of quality and profitability with high quality, leading to higher return on investment (ROI). He also noted that quality improvements, by increasing market share, led to experience-based cost savings and profitability gains, and that relationship between quality and costs is less firmly established. Along the same research direction, Phillips et al. (1983)developed a causal modeling methodology to examine the competing,methodological and theoretical hypotheses on the effects of product quality on direct costs arid 94

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ROI. Results of this study indicated that product quality does not have a consistently direct effect on business unit ROI as a positive effect was only observed in hall of the businesses studied (consumer nondurables, capital goods, and components). ,The study also noted that the attainment of high quality and pursuit of low direct cost were not necessarily incompatible business strategies as shown by the beneficial effect of relative product quality on relative direct cost via market share across all industries.

Otherstudiesfailed to presenta directquality-businessperformance link. Theseincluded thoseconductedby Elkidson(1995)and Powell(1995). They noted that while adoption of a quality managementsystemlike TQM could lead to economicvalue for a firm, it is not enoughby itself to improve a firm's competitiveadvantage.Theirstudiespoint to a possiblelink between quality and improved quality performance, but not necessarily overall businessperformance. Macy and -Izumi (1993)conducted a seven-yearmeta-analysisof organizationalchange,organizationaldesign,and work innovation efforts based on 131 North Americanfield studies. They noted that aside from a quality managementprogram, otherplannedaction-leversor designfeatures affectquality, business,and organizationalperformance.Theseaction-levers 95

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include structural, humanresources,technologicai, andTQM designs. Their study shows that organizational outcomes measured in terms of financial, behavioral and attitudinal indica~ors are moderated by two variables -work site and individual skills (or abilities and differences). Flynn et al. (1995) empirically investigated the possible relationship of specific quality management practices to quality performance. Using path analysis, their study shows that external quality performance indicator such as perceived quality market outcome is associatedwith product designprocess and Statistical Process Control (SPC),while an internal quality indicator like percentage passing final inspection without rework is related to process flow management and SPC. TQM constructs which help attain target quality performance include Top M-anagementSupportand Workforce Management. Results of their study emphasize the need to coordinate the implementation of various programs associated with TQM. The study further indicates a positive relationship between TQM practices and plant performance. Ahire (1996) looked into the possible link between the size of firm and quality performance. His study showed that firm size has no bearing on operational differences in TQM implementation. Small and large firm respondents which exhibited high levels of quality were found to implement ." TQM equally effectively. Large firms were hypothesized to implement TQM more effectively and thus achieve better qpality mainly because they had the resources and the infrastnicture to adopt the majority of strategies associated with TQM. Small firms lacked such resources, managerial expertise, and market clout. Despite this, small firms could take advantage of flexibility and innovation, something which large firms found hard to do as they were constrained by the bureaucracies associated with their size. The study recommended that other variables which could affect quality performance be investigated, such !is technical competence, flexibility, and innovation. Choi and Eboch (1998)looked into the possible association of TQM practices with customer sati..faction and plant performance. These practices were represented by the following constructs: Process Quality, Human Resource, Strategic Quality Planning, and Information and Analysis. Using Structural Equation Modeling through LISREL 8.10, they found out that respondents perceived TQM practices to have a stronger impact on customer satisfaction than on plant performance. This contradicted Flynn's study which showed a positive associationbetween TQM practices and plant performance. Still in 1999, Samson and Terziovski studied 1,200 manufacturing firms in Australia and New Zealand using six TQM constructs derived from

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MBNQA criteria, namely, Leaderslup, People Management, Customer Focus, Strategic Planning, Information and Analysis, and ProcessManagement. Their analysis showed that only the first three co~tructs had a significant positive effect on organizational performance, measured in terms of customer satisfaction, employee morale, productivity, and spedfic quality performance. These varied findings on quality management-quality performance link present an even ~ater need to understand the nature of relatio~hip between adopting quality management systems and quality performance, or more spedfically, on the factors that could affect the achievement of such a link. Contribution of this Resea~h to TQM Literature Existing works on TQM construct development have used manufacturing firms based in the US and Europe. Thus, most strategies associated with TQM are western in context. The Japanesesuccessin adopting and implementing Total Quality Control has made necessarythe inclusion of certain Japanesequality management ideas in finalizing TQM constructs. No study has been done on:TQM constructs development in Asfu, including the Philippines. This study, thus, contributes to theoretical TQM research by attempting to (i) synthesize preVious work on TQM constructs development, (ii) link theoretical teachings and existing quality management frameworks (MBNQA criteria and ISO 9000 framework), (ill) link the technical and behavioral orientations of quality management systems, (iv) include the Japaneseteachings in TQM constructs development, and (v) develop TQM constructs as applied in Philippine setting. On the practical side, the study looks into the possible relationship of specific measures of quality, business and organizational performance to the extent ofTQM adoption in order to determine primarily if implementing the strategies associated with TQM is worth the financial investment in this program.

CONCEPTUALFRAMEWORK This chapter presents the conceptual framework. Specifically, it presentsthe researchparadigm; the factorsexpectedto significantly affect the extent of TQM adoption, the possibleassodationof quality, business,

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and organizational performance with TQM adoption; and the study's hypotheses. There is a ~eed to synthesize the various teachings on TQM to come up with a more cQh~ent definition of it. This would:be useful in understanding the theoretical assumptions underlying TQM, which in turn could aid in the effec~ve implementation ofTQM in the work setting. The valid~ted TQM consb-ucts can be used by business practitioners and strategists as tools for assessment, benchmarking, and evaluation of their existing quality management programs.. The gaps in the theoretical aspects of TQM and in its implementation as a business strategy point to the need for an assessment model which may be used in evaluating the extent of adoption and implementation of TQM in various industries. The gaps in TQM research addressed by this study include the following: 1.

Operationalization of the definition, scope and coverage of each of the prindples and strategiesassociatedwith the implementation of TQM; Development of a framework to assessthe effectiveness of the various quality management programs (whether termed TQM or by any other title), specifically focusing on (i) identification of the possible intervening factors which may affect the extent of TQM adoption, (ii) analysis of the assodation of quality, business and organizational performance with TQM adoption, and (ill) determination of the critical factors for successful TQM implementation in the Philippines.

Resean:hParadigm The study's paradigm (Figure 2) consists of three parts: (1) TQM Constructs and Scale Development, (2) Validation of TQM Constructs and Scales, and (3) Utilization of Validated TQM Constructs in Monitoring the Quality Management System of Selected Philippine Companies.

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Figure 2. Paradigm of the Study

! PART 2 Validation ofTQM Constructsand Scale I. Pretestingof tile MeasuremmtScale 2. Developmentoftlte Purified Scale 3. Datacollectionusing Purified Scale 4. Evaluationof scalereliability andvalidity

The paradigm usaf 10 design the measurementscale was arrival at after reviewingthe previouswork on TQM constructdevelopmentandas prescribedin the work of Malhotra(1981)

Part 1 -TQM Constructsand ScaleDevelopment Thispart involved a literature review to determinethe extentof work done on defining TQM. The programs and strategiesassodatedwith TQM implementation were referred to as "TQM constructs." This part was conductedto ensurethat the definition of eachquality managementvariable is brought down to operationallevel so that respondentswould have the samelevel of understandingof sucha variable. Part 2 -Empirical Validation of the TQM Constructs Development and validation of the TQM constructs followed the general framework prescribed by Churchill (1979). As shown in Figure 3, the 99

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process of scale development and purification involved sevensteps in a series of three major stages, namely: (i) Experts' Review, (ii) Survey 1 (u~in& Perception of Importance), and (ill) Survey 2 (using Extent of ImplementatirnJ. Results of step 1 had been previously discussed under TQM constructs development. Steps 2-3were performed under S~rvey 1, and steps 4-7 under Survey 2. Survey 1 results were subjected to reu&bility and validity tests as part of the scale development process. Part 3 -Use of Empirically Validated TQMConstriicfs The validated TQM scales were utilized as the main instrument to determine the extent to which selected Philippines firms have adopted and implemented the validated TQM constructs in their organizations. The respondent firms' quality management systems were compared with the valictated TQM constructs. Basedon their responses,they were then positioned vis-a-vis the Quality Management Grid pres~nted in this conceptual

framework. Figure 3. Churchill's Construct Developnlent nnd Validation Franlework

~ 4 Cdlecl Data

thr<OJ2h Field Survey

~ I I

Assesreliability

I I

~ f -AsseS:afuity

~ I

Devel~J짜mm Source: Churchill Jr- 1979.

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After the respondent firms had beeJ;lcategorized-accord,ing to Quality Management Grid and to jndependent variables used in stratification, the study evaluated the extent to-which the respondent firms implemented each of the items defining the 12 TQMconstructs. It then determined the significant factors affe:tting the extent of the firms' TQM adoption. The firms were investigated for the behavior of their quality, business, and organizational performance in the last three years, and the possible association of each performance parameter with the extent of th~ TQM adoption. Research Conshucts

The proposed12 TQM constructsas derived from literature review and as initially validated in the Experts' Revieware presentedin Table2. Table2. The ResearchConstmcts

TQM ConstntctNo.1: TopManagemeJltCommitment This refersto the extentto which an-organization'stop management commitstime and resourcesin planningand designingquality systemsand in continuous implementationof quality managementprograms. A critical requirement in implementing TQM is the-commitment of management, espedally,the ChiefExecutiveOfficer(CEO),in terms of financialresources and his or her own time. The top executiveneedsto be involved in the planning, implementationand monitoring of the TQM program sinceTQM involvesa significantchangein thewhole organizationand corporateculture. And sinceorganizationalchangeto total quality is a learningexperiencefor the whole company,the bossmust know enoughaboutwhat is happeningto make rational decisionsaffectingthis change.

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TQM Construct No.2: Strategic Quality Planning This refers to the planning process in the company which prioritizes quality and integrates quality p}aiming into the overall strategic planning process. TQM should not be looked at as a L'Ure-allstrategy. It does not follow that a company which implements TQM will let go of all its other operations strategies, and productivity and cost reduction initiatives. The adoption of a TQM program should not be looked upon as a separate program but a lead program that binds all the other operations strategies of the company. Limited integration of TQM with the fundamental strategies of business had been considered a key to solving the problems of TQM's limited success, clearly emphasizing that strategic planning is the missing link in TQM. TQM Consbuct No.3: Customer Orientation This important cornerstone of TQM recognizes that quality management efforts must be geare~ mainly toward the satisfaction of the firm's internal and external customers. Customers need to be considered as partners for success.Thus, customers should not only serve as t11efocus, of the firm's quality efforts but should be actively involved in designing, plannh1g and improving the quality of the products or serVicesbeing provided to the~.

TQM ConstntctNo.4: Supplier Quality Management This refers to the extent of involvement of the firms' suppliers in designingand planning for quality sincesuppliersplaya critical role in ~e whole supply chainin which the firm belongs.Thisalso refersto the nat~e of relationshipof the firm with its suppliersand to its effortsto ensuretJilat suppliers likewise practice good quality management.Partnering with suppliersrequiresa commitmentfrom both partiesto try to understandand meet eachother's needsand be united in the achievementof quality and businessperformancetargets. TQM Conshuct No.5: Human ResourceManagement This refers to the various changes related to human reso.rce management policies which need to be in place in the course of implementing TQM. This includes changesin reporting relationships betweenthe work teams (Quality Circles) and their supe~ors, in the organizational structure, in the reward and performance system, and in the overall corporate culture in the I

company.

An important observation from the emp~ical studies 'on TQ~ implementation is that while TQM has always adilocated team work and 102

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continuousimprovement,performanceevaluationand reward syste.msstill havefocusedonindividual performanceand productionvolume orientation. While recognition and rewards may have beenprevalent in organizations that implementTQM, it appearsthat proviSionof financialrewardsand thus modification of compensationsystemarecritical to motivate employees.The conceptsof Worker Empowerment(dewee of authority and d~cisionm~g powers ~ven to workers), Employee Involvement (extent of employee partidpation in the firm's family efforts)and CorporateCulture (changesin the company's ~alue and belief system)have beensubsumed under this . construct. TQM ConstroctNo.6: EmployeeEducationand Training SinceTQM adoptionwill involve introducingto the companycertain techniques and new managementphilosophies, employees need to be educatedand trained on {<eytopics such as teambuilding,empowerment, problem solVing,and utilization of statisticaland quantitative techniquesin planning, desi~g and monitoring quality. TQM Construct No.7: Product/ Service and Design This refers to the company's efforts to include quality considerations and market Information as early as the product development phase and to involve key~departments{marketing, manufacturing, engineering)in product/ service desig1'ing. It is very/important to include the ideas and opinions of the key stakjeholders in apy design and improvement activities of the organization. This construct also refers to the extent to which a firm utilizes quantitative techniques in product/service designing. TQM Construct No.8: Workplace and Organization This refers to the adoption of the Orderliness and Organization principles $poused in the SS program advocated and promoted by the Japanese.1~seems logical and obvious that before a firm can implement a program to produce defect-free products, the environment in which the products \짜ill be,produced should be clean, orderly and free from an forms of wastes! Workplace organization and orderlif\ess is the foundation of any factory or plartt improvement. Any firm claiming to have high quality products must likElwise reflect an organized and orderly factory, warehouse, storeroom, and offide.

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TQM Constnlct No.9: Process Management and Control This refers to the extent quality is built into the process and the extent to which processes are monitored to ensure the production of defect-free products. It also describes the extent of the firm's utilization of quantitative/ statistical techniques in monitoring and improving quality. This construct basically refers to the adoption of the quality managen\entprinciples espoused by Shewhart, Deming, Ishikawa, and the other proponents of the application of statistics in quality monitoring and improvement. TQM Consbuct No. 10: Quality Information Management This refers to the presence of a quality performance monjt째ring and measurement system and the utilization by management of the information derived from the system in improving quality strategies. It is important that any quality management system being employed must have a tneans of generating information about the firm's quality performance ~sing appropriate performance indicators. Such indicators should be able to dearly provide management the current status of its quality eftortsand how the firm could improve. its quality s-ystem.The use of statistical techniques in monitoring quality is subsumed under this construct. \

TQM Const1Uc:tNo. 11: Benchmarking This refers to the extent to which a firm conducts benchmarking activities with the best practices in the world to ens~ that its products/ services meet international quality standards. Benchmarking allows firms to evaluate their position in terms of business processes and operations vis-a-vis best practices in the industry and in other industries. Included in this construct are (i) the company's adherence to international quality standards through ISO 9000 certification and (ii) the recognition by quality award-giving bodies. TQM Constnlct No. 12: Continuous Impropement This refers to the firm's efforts to p.rovide long-term support to quality m~ge~ent an,4p~o~~c~vity improvementp~ograms as well as to produ~1 serVIce Innovation Inlt~tives. Hackman and Wagem~ (1995), commenting on the writings of W. Edwards Deming, JosephJuran and Kaoru Ishikawa, noted that quality imprpvement is a never-endiI\g process.Organizations need to continuously monitor their quality efforts and; make corresponding revisions in strategies if necessary. 104

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Reseatth Propositions This part presentsthe study's propose~ quality managementgrid, the factors affectingthe extent of TQM adoptio~ the "quality management input-output system,and the expectedinterrelationshipsamong the TQM constructsand quality performance. Quality Management Grid The term "Extent of TQM Adoption" refers to the employment of various strategies, policies, and programs aimed to put in place a comprehensive quality management system in the organization (regardless of whether or not the program is called TQM). Based on the respondent firm's extent of TQM adoption (as measured by a TQM Adoption Index) and based on the extent of adoption of techniques or philosophies as orientations of their quality management system, the respondent firms had been positioned in this quality management grid (Figure 4).

Figure 4. Quality Managenlent Grid

Adoption of TQM Philosophies

Technique-Oriented Quality Management System -Firms classifiedunder this systemheavily emphasizethe utilization of quantitative and statistical techniques in improVing' and monitoring quality, but gi~e little importance to adoption of certain quality managementphilosophies;--

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2. Philosophy-Oriented Quality Management System -Firms here

heavily emphasize the adoption of quality management philosophies but give low importance to utilization of quantitative and statistical techniques in quality management. TQM Adoption -Firms adopting this quality management programs give equally high importance to utilization of quantitative and statistical techniques and to adoption of quality management philosophies. The majority of quantitative and statistical techniques and quality management philosophies associated with TQM are widely implemented by firms in this

category. 4

Non- TQM Adoption -Firms here do not utilize quantitative and statistical techniques and do not adopt quality management

philosophies. Factors Mfecting the Extent of TQM Adoption

The study sought to investigate eight independent variables as possible determinants affecting TQM adoption (Fi~re 5). These variables are: (i) indusb"y affiliation, (ii) firm size, (ill) ownership structure, (iv) owner type, (v) level of technology, (vi) organizational affiliation, (vii) export orientation, at1d (viii) educational background of owner/CEO.

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Industry Mfiliation -Firms in various manufactUring industries are expected to have a significant difference in the extent of their implementation of TQM constructs owing to differences in their

indUstry structure, management systems, organizational systems, and nature of operations. It is also expected that the semiconductor and electronics industry would exhibit a higher extent of TQM adoption than the other less technology-driven industries. 2. Firm Size -This variable is expected to have an effect on the nature and type of TQM practices to be adopted by firms as this determines the company's resources(i.e., finances and manpower) to be able to implement TQM. While AhUe (1996)noted the lack of difference in the quality management systems of small and large North American firms, still this variable is worth investigating under Philippine experience. Firm size is defined and measured here in terms of asset base and total number of employees. Large companies are expected to have larger financial resources than smaller firms, thus, are better equipped to adopt TQM program. They are like/wise expected to have better quality products than small firms. 3 .OWnership Stmcture -It is the study's hypothesis that foreignowned firms would exhibit a larger extent of TQM adoption visa-vis Filipino-owned firms since they are more exposed to TQM concepts which originated from the US, Japan and Europe, and they would have more resources to implement such a program. 4. Type of Owner -It is expected that .the nature or type of ownership would have an impact on the extent of TQM adoption, primarily on the orientation of quality management systems, considering that each country has peculiar characteristics that would be highlighted in a firm's quality management program. 5. Level of Technology -This is measured in terms of the degree or level of automation and computerization. TQM strategies aim to improve product and process designs like process management and control, product and service design, and use of quantitative and statistical techniques. These are expected to be adopted by fully automated and computerized firms, which have .thetechnical expertise and infrastructure to implement them.

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Organizational Affiliation -This is determined in terms of the company's formal involvement or participation in any quality management association in the Philippines. It is expected that firms belonging to quality associatio)1S or networks are mo!e likely to adopt TQM due to better access to information on TQM philosophies and techniques. They are able to interact and benchmark with other firms to improve their quality performance. Export Orientation -This is determined in terms of the firm's engagement in the export business (percentage share of exports sale to total company sales). It is expected that firms which export would be more likely to adopt TQM since tlley are normally required to be ISO 9000 certified to meet international product quality standards. Adoption of TQM, side by side with the application for ISO 9000 certification, is expected to improve further the quality systems of exporting firms. 8. Educational Background of Owner/CEO -This is measured in terms of highest educational attainment level. Literature review shows that top management's decision to commit time and

resources is critical for the success of any quality management program. Sucha decision relies greatly on the direction provided by the company's owner or CEO, which in turn depends on his or her educational background or orientation. It is expected that firms whose ownersjCEOs have high educational attainment (Masters' or MBA degree) would be more likely to adopt TQM as the graduate program exposes them to innovative business philosophies associated with TQM. Framework on Quality Management-Performance Link Figure 6 shows the framework illustrating the possible lirik between implementation of TQM constructs and performance. The framework shows a-Quality Management Input-Output system. The TQM program serves as the core business strategy that will convert the set of inputs to achieve its expected outcomes in terms of performance level. The inputs include the materials, manpower, machinery, methods, and measurement needed to run a TQM program. The output or expected outcome would be improvement in performance, which is measured in terms of quality, business, and organizational performance. The mechanisms by which this expected outcome may be realized had been derived from the framework of Garvin (1984),which illustrates the relationship between quality and profitability. 108

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Figure 7 presents the interrelationship among the 12 TQM constructs and their possible association spe~ifically with quality performance. Based on literature and the previous empirical work on TQM, Top Management Commibnent (TMC) must be present.prior to any quality initiative since top management involvement in terms of time, resources, and moral support will provide the impetus in the adoption and implementation ofTQM. But commibnent is not enough. Top management needs to translate its support into actilal plans and decisions,;giving priority to quality considerations. Thus the need to implement Strategic Quality Planning (SQP). Once plans and programs are laid out, the firm needs to implement TQM programs on Supplier Quality Management (SQM) and Customer Orientation (CO) in order to involve the stakeholders (suppliers and customers) in planning and designing for quality. BenChmarkingwill provide firms \"lith information on the best practices in businessprocessesand quality systems, which could guide them in improvement activities. External and internal information on quality performance, business process, and product and service improvement will be more effectively gathered, processed, disseminated and utilized when a Quality Information Management (QIM) system is present. Using the outputs derived from suppliers and customers, the Product/Service Design construct is performed in~egrating quality in the product/service development stage. This is followed by the implementation of various systems related to ProcessManagement and Control. This includes building in quality into the process through Statistical Quality Control, defect prevention and detection systems, and utilization of various quantitative techniques to monitor and contr61 quality. This is facilitated also \"lith the

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Figure 7. Hypodiesized Relationships of die 12 TQM Constnlcts

training of employees on improving their respective work places (plant and offices), record keeping system, and housekeeping system (Workplace Organization and Orderliness). Side by side with the implementation of these constructs which utilize various quantitative, statistical and data gathering techniques, firms which adopt TQM also implement various programs on Human Resource Management. Since employee involvement is very crjtical 10 the success of any strategic initiative, they need to be trained on team building, problem solving, and quality principles to maximize their contribution to the quality initiatives of the firm (Employee Education and Training). Hopefully, the various training programs and the company's strategic pl~g activities would develop among employees the Continuous fmprovement Orientation which is very important in ensuring their c_o.nt~uedparticipation in this quality management,system. Since there are various definitions and measures for quality performanc~, which could either be quantifiable or su.bjective/perceptual, and Since firms included in the study belong to manufacturing industries

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with varying product lines, production processesand technologies, utilization of quality management tools and techniques, and quality requirements, it has been difficult to seta standard quality measure that can be used to compare the respondent firms. Given this limitation, the study utilized various measures of quality performance: 1. Quantitative Measure. Percentage improvement/ decline in whatever critical quality indicator the company is using to monitor the quality of its major product line (e.g., defects rate, rework, cycle time, delivery time, production cost, customer complaint, etc.) 2. Subjective Measure. Subjective judgment as to the relative quality performance of a firm's major product line in comparison with the product of its closest competitor, referred to as Relative Product Quality. Note that the firm's quality performance is measured in terms of its impact on cost reduction. Thus, the framework focuses on the "Cost Savings" portion of the model presented by Garvin (1984). The decision to .focus the study on the impact of quality management in redu~g manufacturing and service costs is due mainly to the relative ease of quantifying the impact of quality on costsas against the difficulty of measuring market gains, which is largely affected by various compounding factors in the firms' external environment that could affect market gains and, consequently, profitability. Aside from looking at the relationship of each TQM construct to quality performance, the study also determined the possible association of overall performance (in terms of quality I business and organizational performance) with overall extent of TQM adoption by the respondent firms. It is the main thesisof the study thatfirms un"tha greater extentof TQM adoption would presentsignificant and positive improvementsin their overall performance.

Hypotheses Based on the proposed conceptual framework, the independent variableshypothesizedto have an effect on the extentof TQM adoption and performancelevels of the respondentfirms include industry affiliation, firm size, ownership structure, owner type, production system, degree of automation, export orientation, educational level of owner or CEO, and

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organizational affiliation. Based on the expected relationship of thesevariables to adoption of quality management systems, the following null hypothese~ (Tab~es3a to 3c) are tested: Table 3a SET A On Significant Difference in the Extent of TQM Adoption, (Comparing TQM Adoption Index for each Category/ Moderating Variable) BY INDUSTRY BY FIRM SIZE BY OWNERSHIP STRUCTURE

There is no significant difference in the extent of TQM adoption among firms belonging to various manufacturing industries. There is no significant difference in the extent of TQM adoption between large-scaleand small-scale manufacturing firms. There is no significant difference in the extent of TQM adoption between locally-owned and foreign-owned manufacturing

firms. BY OWNER TYPE

BY PRODUCfION SYSTEM

BY DEGREE OF AUTOMATION BY EXPORT ORIENTATION BY EDUCATIONAL LEVEL OF CEO

BY ORGANIZATIONAL AFFILIATION

There is no significant difference in the extent of TQM adoption between manufacturing firms owned by different nationalities. There is no significant difference in the extent of TQM adoption between manufacturing firms with computerized, high-tech, product-focused systems and those with less SQphisticated and process-focusedsystems. There is no significant difference in the extent of TQM adoption between automated ltIanufacturing firms and those with manual operations. There is no significant difference in the extent of TQM adoption between export-oriented manufacturing firms and those which sell locally. There is no significant difference in the extent of TQM adoption between manufacturing firms which has a CEO with a masteral degree and those which has a CEO with only a college degr~. There is no significant difference in the extent of TQM adoption between manufacturing firms with organizational affiliation and those which do not have linkages with management

SETB On FactorsAffecting Extent of TQM Adoption (Consideringthe combined,effects of independentvariables on TQM Adoption Index) Null Hypothesis: Independent variables -such as industry affiliation, firm size, ownershipstructure, ownertype, productionsystem,degreeof automation, export orientation,educationallevel of CEO,and organizationalaffiliationdo not have a significanteffecton the extentof TQM adoption.

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Table 3b SEr C Significant Difference in Perfonnance HYPOniESES BY INDUSlRY There is no significant difference in performance (quality, business, and organizational) among firms belonging to various manufacturing industries. BY FIRM SIZE There is no significant difference in performance (quality, business, and organizational) between large-scale and small-scale manufacturing firms. BY OWNERSHIP There is no significant difference in performance (quality, SlRUCTURE business, and organizational) between locally-owned and foreign-owned manufacturing firms. BY OWNER 1YPE There is no significant difference in performance (quality, business, and organizational) among manufacturing firms owned by different nationalities. BY PRODUcnON There is no significant difference in performance (quality, SYSTEM business, and organizational) between manufacturing firms with computerized, high-tech, product-focused systems and those with less sophisticated and processfocused systems. BY DEGREE OF There is no significant difference in performance (quality, AUTOMATION business, and organizational) between automated manufacturing firms and those with manual operations. BY EXPORT There is no significant difference in performance (quality, ORIENTATION business, and organizational) between export~riented manufacturing firms and those which sell locally. BY EDUCATIONAL There i? no significant difference in performance (quality, LEVEL OF CEO bu.siness, and organizational) between manufacturing firrits with a CEO who has a masteral degree and those with a CEO who has only a college degree. BY ORGANIZATIONAL There is no significant difference in performance (quality, AFFILIATION business, and organizational) between manufacturing firms with organizational affiliation and those which do not have linkages with managementorganizations. QUALITY There is no significant difference in performance (quality, MANAGEMENT GRID business, and organizational) between firms with large CLASSIFICATION extent of TQM adoption and those with moderate extent of adoption. QUALITY There is no significant difference in performance (quality, MANAGEMENT business, and organizational) between manufacturing SYSTEM firms which formally implement a TQM program and CLASSIFICATION those which have other formal quality management QUALITY MANAGEMENT SYSTEM

ORIENTATION

systems. There is n6 significant difference in performance (quality, business, and organizational) between manufacturing firms with technique-oriented QMS and those with

philosophy-oriented QMS.

Alternative Hypothesis: /Independentvariatiles -industry affiliation, firm size, ownership sb"ucture, owner type, production system, degree of automation, export .. orientation,educationallevel of its CEO,and organizationalaffiliation -have a significant effecton the extentof TQM adoption 113

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SET D On Inten-elationships of TQM Constructs with Quality Performance Null Hypothesis: There is no sigriificant association between TQM conscructs and quality performance. Alternative Hypothesis: There is a significant associationbetween TQM constructsand quality performapce. More specifically, the constructs Process Management and Control and Continuous Improvement Orientation have a direct association with Quality Performance. The other TQM constructs are expected to be indirectly associated with Quality Performance. Table 3c. SET E On Association of Quality, Business and Organizational Performance with TQM Adoption Index

HYPOTHESES QUALITY PERFORMANCE

Improvement in the following quality performance measures is not significantly associatedwith TQM Adoption Inde~: Relative Product Quality Defects Rate Reduction Reduction in Rework Cycle Time Reduction Delivery Lead Time Reduction Reduction in Customer Complaints Red,.tction in Production Costs

BUSINESS PERFORMANCE

.Improvement in the following business performance measuresis not significantly associatedwith TQM Adoption Index: Increase in Market Share Increased in Net Profits Increase in Sales Total Cost Reduction

ORGANIZATIONAL PERFORMANCE

Improvement in the following organizational performance measures is not significantly associated with TQM Adoption Index: Reduction in Absenteeism Rate Reduction in Tardiness Rate Reduction in Turnover Rate increase in Suggestionsfrom Rank and File Improvement in Skills Level of Rank and File Reduction in Accidents Teamwork within a Department Teamwork between Departments Communication betweenManagement and R & F Communication Among Departments Attitude Towards Work Pride in Company Information Flow Quality Provided to Internal Customer Quality Provided to External Customer Quality Provided by Supplier

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TQM CONSTRUCTS DEVELOPMENT, V ALmATION AND EVALUATION This chapter presentsthe research design used to address the research problem, the specific activities done, the sampling design, the variables used and their measurements,and methods used in the statistical and data analysis. Part 1 -TQM Constrocts and Scale Development The TQM constructs previously identified and developed by various authors had been compiled and gathered. A comparative evaluation of these consti-ucts was conducted to determine their commonality and differences. The evaluation results and the previous literature review done were used as inputs in developing the study's proposed 12 TQM constructs. These 12 constructs were defined conceptually, and their definitions brought down to their operational level by describing their spedfic scope and coverage. These detailed descriptions were referred to as "Elements." All the possible elements that would describe each construct were listed, and then subjected to a rational analysis to determine which among them accurately and completely described the construct. The rational analysis drew (rom: (i) the teachings of American and Japanese TQM gurus, (ii) prescriptions of ISO 9000 and fue MBNQA, ,(ill) descriptions of constructs presented in previous empirical work on TQM construct development, and (iv) the researcher's actual experience on quality management audit work. For manageability, six items were retained for each construct. Each element was then converted to spedfic statements, referred to as "Items," and was rated by respondents in the survey. The six items per construct were expected to provide a meaningful definition and measurement of the construct being studied. The instrument generated from this part was then subjected to an Experts' Review to determine the face or content validity of the instrument. The content validity spedfies the degree to which the scale items represent the domain or universe of the concept under investigation. Spedfically, this panel review was done to determine the comprehensivenessand the relevance of the identified constructs under Philippine setting. The members of the review team included the president of the Philippine Quality Awards Foundation, the president of the Quality Circles Practitioners' Association, members from the academe, and selected MBA students.

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After gatheringthe experts' opinionsand comments,the instrument was revisedand thensubjectedto empirical testing.Thefinal output was the development of the 12 TQM constructs (which could be considered the ComprehensiveComponentsof a TQM Program)and the items for each construct. Part 2 -TQM Constructs Validation This consisted of two stagesof data gathering. Survey1 was conducted to determine the perception of respondent managersas to the critical strategies that would define a particular TQM construct. Reliability and validity tests using perception of importance were then done to validate the developed constructs and scales. Survey 2 aimed to validate further the results of Survey 1 by determining the extent to which these critical components are implemented in selected Philippine companies. It also probed whether firms having different degrees of TQM adoption also have significant difference in terms of quality, business and organizational performance. Results of Survey 2 were then compared with those of Survey 1. The major outputs of Survey 2 were: 1. Description and comparison of the respondent firms' quality management strategies in terms of their adoption and

implementation of validated TQM constructs; Comparison of the extent of TQM adopti~n by the respondent firms according to the various independent variables; Classification and positioning of respondent firms according to

the proposed Quality Management Grid; Comparison of the respondent firms' quality, business, and

5. 6.

organizational performance; Identification of the significant factors affecting TQM adoption; Determination of the associatfon of quality, business and organizational performance with TQM Adoption Index level and the other independent variables; and Determination of the interrelationship among the TQM constructs and their possible direct and indirect effect on quality performance.

Sampling Design Two sets of sampling designs (Appendix 1) were used. The first involved a survey of 63firms and 347managers,the second involved a survey

116

TOTAL QUALITY MANAGEMENT CONSTRUCTS

of 64 companies representing 323 managers. The responde.nt firms predominantly belonged to such industries as semiconductor and electronics, fo~d processin& toiletry, automotive, pharmaceuti~al, cement, and others. Respondent managers came from manufacturing, marketing, human resources, finance, quality, and purchasing departments. Respondents in Survey 1 were asked about their perception of the importance of certain strategies, policies and programs in implementing a particular TQM component. Once the results of Survey 1 had been processed, Survey 2 was started, this time using an instrument which sought to assessthe extent to whkh the critical TQM constructs were being practiced. Coordination was done with the Philippine Quality Awards Foundation (PQAF), Quality Circle Practitioners' Association, Inc. (QCPA), UP Manufacturing Linkage Program (UP-MLP), Personnel Management Association of the Philippines (PMAP), and Philippine Sodety for Quality (PSQ) for the partidpation of their member firms and for the distribution, administration and retrieval of questionnaires from the respondent managers. Access to the directories of these associations enabled this study to select manufacturing entities from the list of their members, after which a 100 percent enumeration was employed. Purposive sampling was used in the selection of respondent managers from each participating firm. A representative from each association was requested to take charge of retrieving the questionnaires from the respective member firms of the association. Resean:h htsbumentS Each firm was given five sets of a 10-page quesfiotmaireconsisting of 72 questions. Respondentmanagersfrom selected departments -such as HRD, quality, marketing, manufacturing, finance, purchasing, mventory control, etc. -were made to rate six statements on how critically important is a particular component of quality management. A five pomt Likert Scalewas used for Survey 1, with five pomts for the statement "the strategy is a very critical aspect of the component being described," and one pomt for the statement "the strategy is not a critical aspect of that component." The respondents were made to rank each item m terms of order of importance. Survey 2 also used a five pomt Likert Scaleto determme the extent of implementation of the validated TQM constructs from Survey 1. Specific pomts were given to the following statements: the strategy is implemented to a large

117

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extent,five points; moderateextent,four points;limjted extent,three points; later, two points; and no plan of implementing,onepoint. Statistical and Data Analysis Following are the methodologies used to analyze the results of the studies: Part 1 -TQM Constmds and Scale Development This involved a qualitative researchconsisting of literature review in order to derive and identify the TQM constructs. Refinement of the items defining each TQM component was done through rational analysis and experts' evaluation of the instrument. Part 2 -Empirical Validation ofTQM Constmcts After identifying the TQM constructs and items, the resulting instrument was subjected to Survey 1, and then evaluated for reliability and validity. This part sought to generatea comprehensive listing of the constructs and items which most accurately define and describe TQM, Measurement for reliability was conducted to determine whether the measurement scale developed would have consistent results if measurements were done repeatedly. This had to be established to ensure the consistency and stability of a score from a measurement scale.The study used the Internal ConsistencyMethod in determining the in5trument's reliability, with Cronbach coefficient alpha as ~e relevant coefficiept to evaluate. Measurement for validity, on th~ other hand, determined the extent to which the developed instrument wO1t;ldmeasure what it was designed to measure (Emory and Cooper 1993). Corltent Validity was evaluated through Experts' Review, while Construct V ali~ty of the instrument was dete~d by conducting both Exploratory Factor Analysis (through Common Factor Analysis) and Confirmatory Factor Analysis (through Structural Equation Modeling). Validity tests were important as they dealt with scale accuracy (Davis 1996). Part 3 -Use of Refined Scale in SuroeyProper

The validated instrumentfrom Survey.1was thenused for Survey2, which aimed to determinethe extentto which the constructswere practiced by selected companies in the Philippines. Results of Survey 2 were subsequentlyused to evaluate: (i) ~e ~spondent firins' extent of TQM

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TOTAL QUALITY MANAGEMENT CONSTRUCTS

adoption; (ii) the factors affecting their adoption level; (ill) their perfornirnce in terms of quality 1 business and organization; and (iv) the assoctafionof their performance with TQM adoption. The statistical techniques used in t1tis part were: (1) Multiple Linear R~gressionand Structural Equation Modeling (a) Multiple Linear Regression

The Multiple Linear Regression (MLR) is the multivariate statistical technique used to analyzethe relationship betweena single dependentvariable and several independent variables. This was used to identify the factors which signjficantly affected the adoption of TQM (Modell). It was also used to ,determine the association of eachof the performance indicators with the extent of TQM and quality management grid classification (Model 2). Modell

Factors Affecting

E (Yl) = floXo + fl1Xl

the Extent of TQM Adoption

+ fl2X2 + fl3X3 + fl4X4 + fl5X5 + fl6X6 + fl7X7 + fl8X8 + S

where

E (Yl) refers to TQM Adoption

while Xl = Industry Category X2 = Firm Size X3 = Level of Technology X4 = Ownership Structure X5 = Owner Type X6 = Export Orientation X7 = Organizational Mfiliation X8 = Educational Background of Owner / CEO

Model 2 Associations of Quality, Business and Organizational Performance with Extent of TQM Adoption and Quality Management Grid Classification .E

(Y2) =floXo + fl1Xl + ...+fl8X8 +fl9X9 + s

where E (Y2) refers to each of the Quality Perfonnance, Business Perfonnance, and Organizational Perfonnance Indicators

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while Xl = TQM Adoption Index or QM Grid Classification X2 = Industry Category X3 = Finn Size X4 = Level of Technology X5 = Ownership Structure X6 = Owner Type X7 = Export Orientation X8 = Organizational Affiliation X9 = Educational Background of Owner/CEO

Critical in MLR is the determination of the dependent variable to be predicted by the identified independent variables. Prior to the conduct of MLR, the data were evaluated to ensure that they met the various assumptions of MLR with regards to normality, linearity, homoscedasticity, and the presence of multicollin~arity. This technique also required that the data must be metric or appropriately transformed. The residual plots and certain diagnostic tests were evaluated for this purpose. The ability of an additional independent variable to improve the prediction of the dependent variable is related (i) to the correlation of the addition of the independe~t variable to the dependent variable and (ii) to the' correlation(s) of additional independent variable(s) to the independent variable(s) already in the regression equation. Thus, it is critical for MLR to have an adequate sample size, since this will have an effect on the statistical power of the significance testing and the generaliza'tjon of results. The resulting R2valuesgenerated from the various MLR models were analyzed and compared with the values prescribed in Hair et al. (1995)1,which indicate the minimum R2value that can be found statistically significant at a power of 0.80 for a given significance level, sample size, and number of independent variables.

Minimum R2 V alu~ Statistically SipifKant at a PoW~ of 0.80for a giv8\ SampleSize,Sipif"Kance Level andNo. oflndependentVariabl~

S;p;f"OCA." Lev"Ial..n No.ofI o...' VariA.'" SAmp" Sm. 20 50 100

250 500 1000

2 45 23 13

5 56 29 16

10 7I 36 20

S;..;I;, No.ofI 21 NA 49 26

2 39 19 10

5 48 23 12

L.w.'tal..IS Varl..'., 10. 64 29 15

20 NA U 21'

3 1

4 2

6 3

3 1

4 1

5 2

, 2

s-- "", f ""', AlA' (,

11y ~"".. &om ~"""'~o'~n"'n"inCo.....Co". 120

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(b) Structural Equation Modeling

A statistical technique known as Structural Equation Modeling (SEM) was conducted to determine the interrelationships among TQM constructs and the possible association of each construct to quality performance. SEM is a multivariate technique which combines multiple regression (examining dependence relationships} and factor analysis (representing unmeasured concepts -factors with multiple variables) in estimating a series of interrelated dependence relationships as they occur simultaneously (Hair et al. 1995). .

RESULTS AND DISCUSSION Results of Survey 1 indicate that the majority of the elementsincluded in the 72-item instrument are perceived critical by respondent managers. Survey 2, on the other hand, shows that about 60 percent of the firms exhibit large extent of TQM adoptio:n. Validation of the TQM constructs shows high reliability and construct validity. TQM adoption is found to have a significant association with performance. Firm size and technology level are found to determine extent of TQM adoption. By Industry Type In Survey I, 24 percent of respondent firms were in food processing, 19 percent in semiconductor, 14 percent in automotive and parts, and 44 percent in other industries, such as switch gear, primary cells, insulated wires, fluorescent lamp, toiletry products, ceramics, glass, chemicals, pharmaceuticals, packaging, tire ~d TV and radio receivers. In Survey 2, the semiconductor and electronics industry comprised the bulk of respondents (26.56%), followed by the food processing industry (18.75%).Table 4 shows the percentage share of the respondent firms and their industry category groupings.

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Table 4. Respondent Firms by Category SURVEY 1 Classl

0 0 .Nooof lcabon

INDUSTRY CATEGORY' Food Processing Switch Gear, Primary Cells, Lamps Semiconductor, Electronics Automotive / Parts Others EMPLOYEE SIZE < 500 500 -1,000 1,000 -1,500 1,500 -2,000 > 2,000 ASSET SIZE (Total Assets as of 1997), In Million Pesos < 500 500 -1,000 1,000 -2,000 2,000 -3,000 > 3,000 OWNERSHIP STRUCTURE 100% Locally -Owned 80 -99% Local 60 -79% Local 40 -59% Local 1 -19% Local 100% Foreign-Owned EXPORT ORIENTATION 100% Local Sales 80 -99% Local 60 -79~ Local 20 -39% Local 1-19% Local 100% Export Sales PRODUCTION SYSTEM Job Shop Batch Production Operator -Based Assembly Line Equipment -Based Assembly Line Flexible Manufacturing System Continuous Flow Combination (Assembly Line &

Firms

"ioto Total

SURV!i"i2 Nooof Firms

"ioto Total

15 7 12 9 20

23.8 11.1 19.0 14.3 31.8

'12 3 17 9 23

18.8 4.7 26.5 14.1 35.9

34 11 5 1 12

,?'4.1J 17.5 7.9 1.6 19.0

38 13 3 2 7

60.3 20.6 4.8 3.2 11.1

17 13 6 11 16

27.0 20.6 9.5 17.5 25.4

19 12 8 10 15

29.7 18.8 12.5 15.6 23.4

26 3 10 1 6 17

41.3 4.7 15.9 1.6 9.5 27.{)

6 3 7 1 8 19

40.6 4.7 10.9 1.6 12.5 29.7

22 22 1 3 5 10

34.9 34.2 1.6 4.8 7.9 15.9

22 18 '4 3 4 13

34.4 28.2 6.2 4.7 /~.2 /20.3

1 14 5 9 4 10 20

1.6 22.2 7.9 14.3 6.3 15.9 31.8

1 11 3 8 11 9 21

1.6 17.2 4.7 12.5 17.2 14.1 32.8

L 10 '35 4 13

1.6 15.9 55.6 6.3 20.6

0 7 45 4 8

10.9 70.3 6.2 12,5

FMS) LEVEL OF TECHNOLOGY Manual Operations Mechanized Operations Partially Automated Operations Fully Automated Operations Combination (Partial Automation

and Batch Production) 2The percent repreSentation of the subindustries to the total number of firms in their respective industries are as follows -(a) Food Processing -10 percent, (b) Switch Gear, Primary Cells , Lamps -five percent, (c) Semiconductor/Electronics / Electrical -20 'percent, (d) Automotive and Automotive Parts -10 percent, and (e) Other industries -each subindustry accounting for about 5 percent of the total population of their subindustry. 122

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Firm Size

Firm size was measured in terms of number of employees and total assets. The majority of respondents (53.97 percent in Survey 1 and 60.32 percent in Survey 2) have less than 500empl9yees, while about 20 percent for both surveys have more than 2,000 employees. In terms of total assets, 53 percent of the participating firms have assets over P1 billion and are thus considered large, while 20 percent have assets of P500 million to Pl billion and are considered medium, and 27 percent have assetsbelow P500 million and are considered small.

Ownership Structure Themajority, or41 percent,of respondentfirms for both surveysare owned 100 percentby Filipinos, while 31 percenthave joint ventures with foreign companies,basicallywith Americans,Japanese, Koreans,and Swiss. The rest are multinational corporations. Export Orientation Only 35 percentof the firms sell 100 percentlocally. The majority have export sales. Production System and Level of Technology Thirty-two percent of the re~pondent firms for both surveys have a combination of assembly line system and Flexible Manufacturing System (FMS), while 70-75 percent use equipment- and computer-based production systems, indicating a high technology orientation. The number of firms using pure FMS increased from four in Survey 1 to 11 in Survey 2. Most of these firms are in semiconductor and electronics industry. Despite this high technology level, labor is still largely utilized in operations, as shown by the large percentage of firms engaged in partially automated operations (56 percent in Survey 1 and 70 percent in Survey 2). The list of partidpating companies-is presented in Appendix 2.

Development of TQM Constructs Derivation

As presentedin the previoussection,the theoreticalTQM constructs developedfor this study were derived from the componentsof the MBNQA framework. Previous researches on TQM constructs development and

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validation from the US, Europe and Australia were likewise referred to in the development of the constructs (Appendix 3). Twelve constnicts were drawn from theseresearches.Each construct had more than 10 items to describe it. The items referred to strategies, programs, and projects associated with each TQM construct. A rational analysis was performed to shortlist the items and retain six of them per construct. Considered in the finalization of item number were the significant loadings of items from previous researches and the distinction of one item from the other in terms of scope and coverage. Considering the Japaneserole in the development and promotion of TQC concepts,Japaneseliterature was likewise consulted to determine Japanesecontribution in the field of quality

management. Perceptionof Importance of Critical Componentsof Quality Management(Survey1) The 347respondentmanagersin Survey1 were askedto rate eachof the six items pertaining to a particular TQM constructor component.Each item was rated based on its degree of importance vis-a-vis the other five itemS.After the rating, the respondentswere alsoaskedto rank thesix items per construct accordingto order of importance,in order to group together thosestrategiesand programs which contribute to the implementationof a particular component of a TQM program. Results of this phase were subsequentlyvalidated in Survey2, where respondentswere askedto what extent these critical components of quality management were being implemented. Resultsshowed that for the whole Philippine manufacturing (asrepresentedby the 63 companies),the majority (90 percent)of strategies included in the 72-itemquestionnairewere rated critical.Theitems rated not critical (with grand meanof lessthan 4.0)are presentedin TableS. Table5 shows the need for intensive training and educationon the conceptof valuing internaland externalcustomers,and ontheadvantagesof having strong supplier partnerships.Resultsindicate that despite all the trainings and efforts to introduceemployeeempowermentin theworkplace, still the respondentmanagersperceivethat providing theworkers with actual authority is not a critical aspect of the human resource management componentof a quality managementsystem. Investmentin up-to-datetechnologyasa way to build in quality into the process was rated not as critical as the other it~ms under Process Managementand Control. Apparently,the majority of respondentsthink that \

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Table 5. TQM Elements Rated not Critical Perce tion of 1m ortance

TQM Construct SUPPLIER QUALl1Y MANAGEMENT

Code

SpecificElementsof EachTg~ Cons~ct

SQM 2 SQM 3

Reliance on limited but dependable suppliers Inclusion of supplier's feedback in improving product / process/ service designs Provision of training on quality management to Suppliers Provision of awards/incentives to suppliers for Excellent management performance Provision of authority to production line workers in finding and correcting line problems with minimal intervention from

SQM 4 SQM 5 HUMAN RESOURCES MANAGEMENT

HRM 5

PROCESS M~AGEMENT AND CONTROL BENCHMARKING

PMC 1

CONllNUOUS IMPROVEMENT

BM 3 CIO 5

supervisors Investment in up-to-date machinery, equipment, and technology to ensure quality is built into the process Companyapplli:ation for recognition for its excellent quality managementsystem Provision of inoentives to employees for their -quality improvement suggestions

ORIENTAll0N

an effective quality m~gement system depends more on the quality of the firm's labor force. As to Benchmarking, it is noted that while awarding an excellent performance is good, it,is not the reasonwhy firms adopt a particular quality management system!. And while -TQM espouses continuous improvement, survey indicates that the majority of respondents perceive the provision of incentives to employees for their quality improvement suggestions to be not as critical as the provision of financial or technical resources to quality management programs. Survey 1 indicates that, in general! respondents still consider that the mo~t critical components are those related to Shop-Floor Quality Control, as evidenced in the ranking of the first three components which all relate to the use of techniques in generating information and monitoring quality. While proponents of Quality Management, especially of TQM, have been inculcating the need for top management support, customer orientation, and empowerment, results indicaje1hat the respondent managershave positioned them in the lower level of criticality. Researchfindings were presented to the member firms of the Quality Practitioners' Association and the UP Manufacturing Linkage for validation. This created various reactions. Some managers from the semiconductor and electronics industry have in fact wondered about the noncritical items considering that from actual experiencethe majority, if not all, of the strategies mentioned in the 72-item questionnaire were critical. However, the separate 125

TALAVERA

analysisdone for the semiconductorand electr째t1icsindustry, which hashigh sensitivity to technology,and the review done for the other industries still indicate the samefindings on the items considerednot crincal.This simply shows that the abovementionedelementsare rated in the same manner regardlessof industry affiliation. Therefore,TQM elementsrated not crincalby the respondentsneed to be reviewed more thoroughly, to determine why they are rated thus. Possibleexplanationsinclude the following: 1. hnplementationbarriersto thesestrate~es,in relation with the other componentsof quality management; 2. Possibleresponseproblems owing to varied compositionof the respondents; 3. Rating thesestrate~esin terms of !heir levelof importance vis-avis the other items defining each construct, not in terms of importanceper se.Thus,in comparisonwith others,theyare not rated by the majority of respondentsas not crincal. These major findings indicate a possible need for quality management practitioners to have more training on how to inculcate among employees a comprehensive view of what a quality management system should be. In particular, there is a need to institute ground and shop floor strategies' that will highlight the role of top managem~nt, the need for customer <:>rientation, and the need for strong linkages with suppliers. Extent of Implementation of Critical Components of a Quality Management System (SulVey 2) In practice/ the majority of items in the 72-item instrument are implemented to a large extent by the respondent Philippine companies/ as shown by the high scores on impl~mentation for thetotal sample and even for individual industries. The bulk (90-95 percent) of the items registered scoresof four to five/ indicating high extent of adoption. Someitems/however/ registered scores below the 4.0 mark/ indicating moderate and even limited extent of TQM adoption. Basedon the responsesof 323managersrepresenting 64 manufacturing companies/ the quality management strategies and programs shown in Table 6 had moderate ratings in terms of implementation. They registered mean scores below 4.0.

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TOTAL QUALITY MANAGEMENT CONSTRUCTS

Table 6.

Elements Rated Moderatel

!9M Constr\lct

Code

Extelit'df Practice

Specific mementsof EachTQM C~s~cf

TOP MAN AGBMENT COMMITMENT

TMC 3

Evaluation of top and middle managers for the firm's quality performance

STRATEGIC QUALIlY

SQP3

Prioritization of planning and designing for quality in corporate strategic planning agenda

CO 2

Conduct of techniques to determine and measure external customer satisfaction about products Presenceof program to improve customer servjce Organization of training programs / information campaign to educateemployees on valuing customers Provision of training on quality management to suppliers Provision of awards / incentives to suppliers for excellent management performance Establishment of quality circles in the company to promote employee participation in quality management programs Provision of authority to production line workers to stop production line if n~essary Provision o(authority to production line workers in finding and correcting line problems with minimal supervision Recognition of employees for achieving quality targets Proyision of training on qUality control Re 'ular conduct of training for rank and file and su rvisors Multifunctional team review of new product / service d~igns Utilization of quality designing techniques

PLANNIN G CUSTOMER ORIENTATION

CO 3 CO6 SUPPLIER QUALIlY MANAGEMENT HUMAN RESOURCES MANAGEMENT

SQM 4 SQM S HRM 2

HRM 4 HRM S

EMPLOYEE EDUCATION AND TRAININ G IN,TEGRATION OF QUALIlY IN PRODUCT /

HRM 6 BET 2 BETS PDS 3 PDS 6

SERVICE DESIGN WOO6

Employee discipline and initiative in practising rules on orderliness

PROCESS MANAGEMENT AND CONTROL

PMC 1

QUALITY INFORM AnON MANAGEMENT

QIMl QIMS

Investment in up-to-date machinery, equipment, and technology to ensure quality is built into the process Integration of defect prevention and correction system~ into the production processes Presence of database management system to gather, control, and share data from k!!y processes and subprocesses Visibility of quality performance and progress towards

BENCHMARKING

BM 2

WORKPLACE ORGANIZATION &r.ORDERLINESS

PMC2

.p;oals

BM4 BM 6 CONnNUOUS IMPROVEMENT

CIa 5

Benchmarking the busln~ processes of leading organizations in other industries to improve operations Company application for recognition for its excellent quality performance Ensuring that benchmarking activities result to significant improvement in quality performance Provision of incentives to employees for their quality improvement suggestions

ORiENTAnON

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Surprisingly, results of Survey 2 showed that most of the items not being practiced to a large extent by selected Philippine companies were in fact those that rated critical from the previous survey. Also, sb'ategiesrelated to customer orientation and employee involvement (through establishment of quality drcIes and conduct of regular meetings) were reported to have limited extent of practice. Further, the notion that Philippine manufacturing companies consider ISO 9000 certification as important and, therefore, is being practiced to a large extent was not validated in Survey2. Lacking from the list were somesb'ategies related to Supplier Quality Management and Process Man~gement and Conb'oL which were rated not that critical in Survey1 but were being practiced by Philippine manufacturing. The said noncriticalSb'at~gies included use of limited sourdng, provision of incentives to suppliers, l1$e9fup-to-date process technology; and presence of database management system. Comparison of TQM Constructs Perceived Important and Those Practiced by Selected Philippine Companies As presented in Table 7, there is a discrepancy in the 12 TQM constructs in terms of perception of importance and extent of practice. While these constructs are generally perceived to be critical components of a quality management system, reso~rce constraints prevent them from being fully adopted by Philippine manufacturing companies. The recent Asian economic crisis, which affected the firms' competitiveness and financial conditions, resulted in decreasedresourcesneeded to carry out strategies on productivity improvement. Table 7 al$o shows that certain items originally considered critical in Survey 1 are implemented to a moderate extent in such areas as (i) use of quantitative techniques in product designing and (ii) human resources-related strategies like employee empowerment and quality circles. The Philippine manufacturing al$o lac~ practice in customer orientation. In terms of industry, results indicate that the semiconductor and electronics industry reflected higher adoption for most of the constructs owing to its high technology orientation. The switch gear/primary cells industry reflected consistently low adoption scores for the majority of TQM items, followed by the food processing industry. Table 7 presents the items which rated lowest in both surveys, those which rated critical bu~ were implemented to a moderate or to a limited extent, and those which rated not that critical and yet implemented to a large or moderate extent. t28

TOTAL QUALITY MANAGEMENT CONSTRUCTS

T~ble 7.~~~~risono!T~ ~~~~from2 '. Items rated uLowest" for their respective construct in terms of importance and practice

~UlVeY8

lMC3 -Evaluation of top and middle management for the firm's

quality performance SQP3 -Priorit~tion of planning and designing for quality in corporate strategic planning agenda SQM4 -Provision of training on quality management to suppliers SQMS -Provision of awards / incentives to suppliers for excellent performance HRMS -Provision of authority to production line workpJSto find and correct line problems with minimal supervision PDS3 -Multifunctional team review of new product / service designs PDS6 -Utilization of quality designiilg techniques PMCl -Investment in up-to-date machinery, equipment, and technology BM4 -Company application for recognition for its excellent

Items rated "Critical" in SulVey 1 but rated uModerately" in terms of practice

Items rated UNot Critical" in SulVey 1 but rated uCritical" in Survey 2

quality managementsystem CIOS -Provision of incentiveS to employees for their quality improvement suggestions ! CO2 -Conduct of specific techniques to determine and measure external customer satisfaction CO3 -Presence of a program to improve customer service C06 -Organization of training programs / information campaign to educateemployees on valuing customefs HRM2 -Establishment of quality circles in the company to pro$ote employee participation HRM6 -Rec,bgnition of employees for aChieving quality targets EET2 -Provision of training en quality control BETS-Regular conduct of training for rank & file and supervisors EET6 -Integration of training lessonsto work processes WOO6 -Employee discipline and initiative in practicing rules on orderliness PMC2 -Integration of defect prevention and correction systems into the production processes QIMI -Presence of a databasemanagement system to produce relevant information on finn's quality performance QIMS -Visibility of quality perfonnance data and progress towards goals BM~ -Studying the businessprocessesof leading organizations in other industries to improve operations BMS -Involvement in quality management association BM6 -Ensuring that benchmarking activities result to significant improvement in performance CI04 -Top management provision of technical, financial and educational assistanceto quality managementprograms COIImplementation of programs to protect customer rights SQM2 -Reliance to limited but dependable suppliers SQM3 -Inclusion of suppliers' feedback in product / process desijtns

129

TALAVERA

Validation ofTQM Constmds The 72-iteminstrumentw~ssubjectedto reliability and validity tests using perceptionof importanceasbasisfor scaledevelopment. Reliability Test Results indicate that, overall, the 72-item instrument reflects a coefficient alpha of 97 percent, with each of the 12 constructs similarly registering high values. This means that the survey instrument developed haSvery high reliability, indicating that the item ~coresare consistentfrom a measurementscale. Validity Test The CorrelationMatrix wasanalyzedin determiningwhich elementS describinga TQM constructwere si~cant and should be retained. Mter the first factor analysis,a review of the final communalityestimates(PCBs) ~d of the item's standarddeviatio~ and correlationmatrix was done.FCBs indicate the correlationof one item with the otheritems. In the reView,FCBs indicated that initially six items may be deletedfor the secondrun of factor

analysis. Theseitems, which had FCEsbelow0.30,include: 1. TMC.1- Relativeimportancegivenby top management to qualio/ over"costwhen makingbusinessdecisions 2. SQP 3 -Prioritization of planning and designingfor quality in corporatestrategicplanningagenda 3. SQM 2 -Relianceto limited but dependablesuppliers 4. PDS 5 -Facilitation of product developmentcycletime for timely responseto marketneeqs 5. PMC 3 -Regular conduct of incoming, in-process,and final inspectionsfor materialsand products 6. QIM 1- Presenceof databasesystemto gather,controLand store data from key processesand subprocessesto produce the information neededto measurethe resultsof quality efforts The output of the secondfactor analysiswas subjectedto a thorough analysis of the relevanceof the factorsgeneratedand of the congruenceof the items which loaded in a particular factor. Severalitems wererated very high but did not load in any factor. A review of theseitems indicated that these may be consideredprerequisitesor routinary activities prior to any 130

TOTAL QUALITY MANAGEMENT CON5TRUCTS

implementation of a TQM program, and were thus retained as items. After the item analysis, and after a review to determine if the items could be defined conceptually and if they were congruent to original constructs, a third run of factor analysiswas performed, resulting in 25 items which were not considered significant. Validated Total Quality Management Consbucts Ten factors were targeted to be generated from the factor analyses runs. However, following the Latent Root Criterion, only factors one to seven were found to be significant (Table 8). These factors accounted for 85 percent of the total percentage variation. Thus, of the original 72 items, only about 50 percent were retained to constitute those components of a quality management system perceived critical by managers of Philippine manufacturing firms. It can be seen,in general, that the theoretical constructswere validated by the first phase of the survey, but there was significant regrouping in elements, which indicated multielemental and multifunctional aspec,t .of quality management constructs. The difference of groupings in the re~ting' American, European and Australian constructs could be explained 'by the difference in the instrument used. In this case, percentage of importance, instead of extent of practice, was used as thE}measurement scale. Survey 2 was expected to jibe with the foreign quality management constructs considered to be critical. '0 While deviations were observed in grouping,째the resulting constructs were found to be conceptually meaningful and re.tic. In fact, they presented a more comprehensive view of the TQM constructs. The resulting groupings presented the multidimensional and multifaceted aspect of TQM adoption. The deviations may be explained by multiindustry grouping of the sample and the multifunctional implementation of the constructs. On the other hand, the low item loadings due to high correlation among constructs may also be due to the social behavior orientation of the variables'under study.

131

TALAVERA

Table 8. VALIDATED TQM CON FACTOR Items 1 Getting Feedback in

Included PDSI

PDS4

Designing QM Strategies

PDS2 PDS3

coo

Customer Focus (A strategic

TMC2

concem) CO!

CO2 TMC4

Employment of 5S and Kaizen

Prinlitry'consideration of quality in product design Getting feedback from technical

WOOl WOO 2 WOO 3 WOO 4

CIO2 4

PMC6

Quality Monitoring and Control

woos CIO6 SQP5 SQMl

.579

PDSconstruct generally

.559

validated;

SIGNIFICANT

experts

BM6 2

Inclusion of customer feedback Multifunctional review of product / service design Ensuring benchmarking activities result to improvement Program to impl~ent customer service Top management involvement in plarJ\ing quality Integration of training lessonsto work processes Inclusion of customer feedback Techniques to determine customer satisfaction Provision of technical support by TM

.488

.471 .359

.527 .401

Merged Customer Focusand

TMC .378 .359 .348

.341

1MC construct to be critical component in implementing

customer

orientation;

SIGNIFICANT

System on item segregation Signboards and labels Records management system Oeanliness t'rograms on waste elimination

.567

WOO

.497 .477

construct validated; SIGNIFICANT

Adoption of repair and preventive maintenance Employee compliance to

.527

regulations Periodic quality audits Review of departmental targets Quality as primary consideration in supplier selection

132

.386 .376

.407

Multi-item construct depicting monitoring and control;

.387

SIGNIFICANT

.431

.376

TOTAL QUALITY

MANAGEMENT

CONSTRUCTS

Table 8. continued... Items

FACIOR

Description

Item

REMARKS

Includ~d PMCS

5 QM Technique Orientation

.510

Deal~ on training and provision of

.497

quantitative tools and techniques on

Training on quality control

.417

management;

Organization of regular meetings Encouragement of employees Oarity and formality in goals TM involvement in planning & implementing QM programs Presenceof multi-functional teams Presenceof quality circles

.521

A multi-item

.382

construct

.373

depicting involvement of rank and

Utilization of quantitative techniques in process Utilization of quantitative techniques in production

PDS6

.543

design

Training on problem solving techniques

quality SIGNIFICANT

SQP6 TMC5

Employee Involvement

SQP2 TMC6 HRMI HRM2

.369 .328

file, managers,

.300

and top

management inQM strategy formulation

and implementation;

SIGNIFICANT 7 Incentive and

8M3

Recognition System

BM4 CIO5 BM5

Application for ISO 9000 certification Co. application for recognition Incentives to employees Involvement in QM association

.506

Refers to provision of incentives, assistance

.347

and

.552 .514

recognition to QM system Merged some items under

Benchmarking and CIa;

SIGNIFICANT Indicators: Measure of Sampling Adequacy = 0.893 Eigenvalues of Reduced Correlation Matrix = 25.12 Eigenvalues of each Factor

FAcrou

v_e..

I3.IB

52."

3 4

157 t.36

&25 037

IJII

4CO84Gl

.'15 ."2

732

..."-" ...8).e

F.~ v_e..

52., 59...

~ 71.61

133

TALAVERA

The instrument, as a whole, was found to have a high content valid)ty (as shown in the results of Experts' Review). It was also found to be an acceptable construct validity due to the congruence in the factors derived. The majority (sevenout of 12 constructs)were retained after the factor analysis. A clustering of similar items had been observed to constitute a new set of quality management constructs which were considered critical by 347 respondent managers. In general, therefore, the validated TQM constructs did not invalidate the literature but in fact presented a realistic and comprehensive view of the components of a quality management system. The test on the measure of sampling adequacy for the whole instrument and even for each construct was found to be favorable. The other significant findings from the factor analysis were: 1. Top Management Commitment was not identified as a separate QM construct as it was the important requirement to make these constructs work. The items referring specifically to TQM we~ not considered critical. 2. Conduct of inspections to monitor quality was not considered critical; instead employee empowermeiifwas considered the more critical component in implementing an effective QM. 3. Supplier quality management also did not emerge as a separate construct, as it and investment in high technology were not considered critical by respondents. Use of Validated TQM Constrocts in Industry Evaluation Extent of TQM Adoption TQM Adoption Index To determme the extent of TQM implementation in the Philippine manufacturing industry, a TQM Adoption Index (TQMIND) using 35 elements validated from Survey 1 was generated. This was computed by getting the sum of the av~rage company scores for each item, dividing it by the total score for the validated seven factors derived from Survey 1. The adoption scores for the validated TQM constructs were as follow: 25 percent of the constructs had adoption soores-of 91-100 percent, 39.06 percent had 81-90 percent, and 25.66 percent ltad 71-80percent. Six firms had limited extent of TQM adoption (Table 9).

134

TOTAL QUALITY MANAGEMENT CONSTRUCTS

Table 9 Class' 1QM Ado

ent Firms based on their No.

-~4

81-90 71-80 61-70 Below 61 Total

25 17 7 1 64

~9.0 26.6 10.9 1.6 100.0

The TQM Adoption h\dices of the respondent firms were compared based on several independent variables to determine if a significant difference existSbetWeenthe subsamples(Table 10).These independent variables include (i) industry, (ii) firm size (measured in terms of assetlevel), (ill) ownership structure,..\(iv) owner type, (v) export orientation, (vi) level of technology (measured using production system and degree of automation), (vii) educational ba~ground of CEO, and (viii) organizational affiliation. Table 10 shows that the TQM Adoption Indices betWeen firms with large extent of;(adoption (average index = 86.99) and those with mod~rate extent of adoption (ave~ageindex = 73.25)indeed have a very high difference (t-value=8.12). A surprising finding, however, was that the TQM Adoption Indices of respondent firms did not significantly vary according to owner type, meaning that regardless ()f the natio~ty of the company owner the extent of the firms' implementation of TQM-related strategies was more related with their industry affiliation. Table 10 also shows that manufacturing firms with CEOs who have masteral degree~ were observed to have relatively higher extent of TQM adoption than those firms with CEOs who have only college degrees. This supports the hypothesis that CEOs exposed in graduate schools would be more open to adopting contemporary and sophisticated strategies associated with a TQM program.

135

TOTAL QUALITY MANAGEMENT CONSTRUCTS

Factors Affecting the Extent of TQM Adoption As presented in Figure 5, independent variables have an influence on the extent of TQM adoption by respondent firms. These variables include industry affiliation, firm size, ownership structure, owner type, export orientation, technology leveL organizational affiliation, and educational level of the CEO. The Multiple RegressionAnalysis was conducted to determine which among thesevariables affectthe eXtentofTQM adoption. The analysis revealed that only firm sizeas measured by asset leyel and technologylevelas measured by the type of production system (spedflcally Flexible Manufacturing System) were noted to affect the extent of TQM adoption (Table 14). Table 14. FactorsAffecting Extent of TQM Adoption DETERMINANTS Par. Est. T-value Prob> Partial R2 Model R2 F Value Prob > F ItI 0.0016 16.77 3.32 1.60 Asset Level 0.0002 7.67 28.~ 0.0070 7.79 2.79 7.83 Flexible Manufacturing

Basedon Hair et al. (1995), a regressionequation based on 250 observationswith 20 or more ilidependentv,!riablesrequiresan R2value of at least11 percent(a=.Ol)and eight percent(a=.05)for the relationshipto be statistically significant with a power of 80percent.Sincethe R2values from the study's regressionmodel is 28 percent,the resultspresentan acceptable statistical power of the regressionmodel to determinethe factors affecting the extent of TQM adoptionin Philippine manufacturing. The VarianceInflation Factor(VIF)valueswere found to be closeto one, indicating that the interpretationof the regressionvariate coefficientsis not affectedadverselyby multicollinearity. The resulting regressionequationsaresummarizedasfollows: Y = Extent of TQM Adoption as measuredby.the TQM Adoption Index (TQMIND) X1 = TechnologyLevelasmeasuredby thetype of productionsystem X2 -Firm Sizeas measuredby the fim1's assetlevel

139

TALAVERA

Resulting RegRSSion Model Y (TQMIND) = Int-erCept.f=51Xl + bZ Xl + Error Term Y (TQMIND) = 77.02 +7.83 FMS + 1.60 ASSETLEV + error term This regression model validated the first hypothesis that TQM adopnon is afunction offirm size.This makes sensesincethe high extent ofTQM adoption presupposes the presence of a lot of finandal resources, which are necessary considering the comprehensive scope and coverage of TQM. The other hypothesis -TQM adopnonisa funcnon of technologylevel- is likewise validated as the nature of the production system similarly highlights the greater need for companies to ensure compliance with quality standards, thus the adoption of TQM. The TQM Adoption Indices of the respondent firms classified according to Industry and Ownership Structure presented significant difference in extent ofTQM adoption when eaChof the independent variables was considered in the regression analysisindependently. However, a different picture was observed when all the independent variables were taken together. Industry and Ownership Structure did not appear as determinants of the extent of TQM adoption, but tfie variables firrn sizeand technologylevel,whiCh are both resource-based,did. Results indicat~ that the extent of adoption by a manufacturing company of the various strategies a1)dprograms associated with a TQM program depends on the availability of financial and technical resources more than on the firm's industry affiliation, ownership structure, and export orientation. Comparison of Respondent Firms According to Penoln1ance The following discussions present the results of the t-test analysis done to determine whether a significant difference exist in the respondent firms' quality, business, and organizational performance when each of the moderatingvariableis taken independently.

Industry Affiliation and P~onnance Resultsindicatethatregardlessof industry grouping,the respondents generallyperceivedthe samelevel of improvementin quality, bu~inessand organizationalperformance,exceptreductionin production costs(PCOSR), as a measure of quality performance and market share (MSHR). The semiconductorand electronicsindustry reflectsa significantimprovementin thesemeasurescomparedto the'food and processingindustry (Table15a). 1.40

TOTAL QUALITY

MANAGEMENT

CONSTRUCTS

the hypothesis that greater fo~ ownership means more resources,systems and new philosophies infused into the company, which could possibly explain improvement in performance. Owner Type and Perfonnance On type of owner:s, no significant difference in quality, business and organizational performance was observed between Japanese-and Filipinoowned firms (Table 15ÂŁ).Li1<ewise,comparing Japaneseand American firms showed significant difference in sales and net profits, but no sigrrificant difference in quality and organizational performance. As shown in Table 15f, American firms presented higher sales and net profits during the last three years compared to Japanese-owned manufacturing firms. Table 1St Perfonnance Measures with Significant Difference Accordin.e;to Owner Type

VARIABLE

NPRfT SALFS

..-Significant

No. 12 12

JAPAN Meaft 2.79 3.38

.93 1.09

No. 12 12

at5% level of significance, ~ -Significant

US Mean

4.18 4.41

0.92 1.14

t.val

frob.

-3.67 .001 -2.28.03

Remarks ** *

at 1 % level of significance

Export Orientation anti P~onnance For export-oriented respondent firms (i.e., more than 80 percent of their products are for export), there was generally a significant reduction in production costs (PCOSR)and improvement in their net profit levels (NPRFT) (Table 15g). The other .quality performance indicators were found not to vary between the two sample categories,except for some organizational parameter~ such as A1T, PRIDE, QINTC, QEXTC, QSUP and INFOFLOW. This shows that managers in export-oriented firms perceived improvement, during the Table 1Sg.Pemlmance Measureswith SignificantDifferenceAccordinl to ExportOrientation LOCAL ORIENTED EXPORTORIENTED (with 80.100%of sales (with 80.100%of sales sold locally) sold abroad) VARIABLE No. Mean SD No. Mean SD t-val Frob. Remarks

~OSR NPRFT TURN ATr PRIDE INFOFLOW QlNTC QFXTC

(;$UP

42 44 44 44 44 44 44 44

4.32 3.12 2.98 4.09 3.94 3.88 3.92 4.00

1.03 1.11 0.64 0.50 0.51 0.53 0.43 0.43

3.78 0.48

19 20 20 20 20 20 20 20

5.13 3.72 3.36 4.35 4.28 4.27 4.24 4.30

-2.73 .008 -2.02 .05 -2.15.04 -2.09.04 -2.61.01 -2.79 .007 -2.72 .009 -2.67.01

4.09 0.55-2.28.m

..-Sl8nlfk:ant at5' level of significance," -Significantat l'

143

1.16 1.02 0.70 0.40 0.42 0.46 0.48 0.41

levelof significance

.. . . . .. .. .. ..

TALAVERA

last three years, in (i) the overall attitude of employees toward work and organization, (ii) the quality of products supplied to them by suppliers, and (ill) the quality of output provided to both their internal and external customers. Educational Background of CEO and Petfonnance No significant difference in quality, business and organizational performance was observed between respondent firms with CEOs who have masters degrees and those with CEO who have only college degrees (Table 15h). The hypothesis was that CEOs with higher levels of education would bring in their respective organizations certain philosophies and mindsets necessary for the adoption of a new system technology such as TQM. Apparently, this was not the case in Philippine manufacturing. The only variable which showed a significant difference in performance was Relative Product Quality (RPQ), which was a subjective measure of the firm's competitiveness, as shown in Table 15h. Table ISh. Performance Measures with Significant Difference According to Educational Back~ound

of CEO

CEO With Masters

CEO With College ~

V ARIABLE

No.

Mean

No.

Mean

t-val.

frob.

RPQ ~- -

4.50

0.47

4.17

0.42

2.84

.006

4 .-Significantat5%

level of significance,

--Significant

Remarks

at 1% level of significance

OrganizationalAffiliation and Performance Finally, the respondent firms were grouped according to their organizationalaffiliation. The hypothesiswas that firms which belong to organizationswould have better accessto technologies,systems,and new philosophies, and therefore would adopt thesesys~emsto improve their performance.Results,however,showedthat thefinancialand organizational performance of the two groups did not significantly vary, but quality performancediffered only in terms of reductionin cycletime (CYCLE)and in customercomplaints(CaMP) (Table15i).

144

TOTAL

QUALITY

MANAGEMENT

CONSTRUCTS

Takenoteas well thatin this grouping,firms which did not belongto any organizationpresentedimprovementin quality performancecompared to thosewith organizationalaffiliation. Quality Management Grid Classification and Performance Ha~g considered these various independent variables, the study pursued the possible association of a firm's performance with the extent of their adoption of TQM strategies. Thus, firms were classified into two major quality management grid categories. Category 1 consisted of firms with a large extent of TQM adoption, and Category 2 included firms with a moderate extent of TQM adoption. The hypothesis was that firms in Category 1 would reflect better quality, business and organizational performance as argued by Garvin (1984) and by this research, based on the relationship of quality, profitability and motivation. Resultsshowed a significant difference in quality performance -i.e., reduction in defects rate (DFR), reduction in cycle time (CYCLE), and improvement in relative product quality (RPQ). Likewise, the majority, if not aIL of the organizational parameters were found to significantly vary according to quality management grid classification of the firms. These findings meant that as firms employed TQM strategies to a larger extent, their quality performance improved. More importantly, respondents perceived significant improvement in the way the employees communicated and coordinated with and treated eachother. There had been a significant improvement in human behavior parameters. However, regardless of the extent of the firms' adoption of TQM-related strategies, no significant difference in business performance was noted (Table 15j). This could be explained by the fact that about 52 percent of the respondents attributed their financial performance to their QMS, while the other 48 percent attributed their business performance to the following: re~ional economic crisis (36), cost cutting program (29), competition in ;the industry (27), organizational changes (24), and marketing campaign (1'8).

145

TALAVERA

TablelSj. PerformanceMeasureswith Significant DifferenceAccordingto Quality Mana~ement Grid Classification

\("ARlABLE DFR CYCLE RPQ Affi TARD s:trGG SKILL TWlNT TWEXT COMLM COMDPT ATT PRIDE INFOFLOW QINTC QEXTC QSUP ..-Significant

No. 37 36 ~ 38 38 38 38 38 38 38 38 38 38 38 38 38 38

QMGRID1QMGRlD2 -~ Mean SD ~-5.39 f).9'J 25 9.:J:9 1.26 22 4.56 0.42 26 3.77 0.56 26 3.88 0.52 26 4.11 0.52 26 4.33 0.42 26 4.35 0.38 26 4.18 0.35 26 4.25 0.45 26 4.26 0.35 26 4.36 0.37 26 4.25 0.42 26 4.18 0.47 26 4.19 0.41 26 4.24 0.38 26 4.09 0.42 26

at 5% level of significance, ..-Significant

Mean 4.80 4.48 4.12 3.26 3.31 3.64 3.84 3.92 3.74 3.72 3.81 3.89 3.75 3.75 3.78 3.88 3.56

SD 0.99 0.83 0.43 0.62 0.64 0.49 0.48 0.47 0.39 0.53 0.50 0.49 0.48 0.53 0.44 0.45 0.50

---

t-val. Prob. Remarks 2.30 .025 . 2.35.02 . 4.02.000 .. 3.40 .001 ** 3.94.000 ** 3.72.000 ** 4.26.000 .. 3.99.000 .. 4.67.000 ** 4.31.000 ** 4.27.000 ** 4.38.000 .. 4.42.000 .. 3.44 .001 .. 3.83.000 .. 3.42 .001 .. 4.58 .000 ..

at 1 % level of significance

Quality Management System Classification and Perfonnance The study investigated whether the performance of respondent firms would differ if they categorically mentioned implementing TQM or not. The respondents were thus grouped into: quality management classification 1 (the respondent firm refers to its quality management program as TQM) and quality management system 2 (the respondent firm employs a formal quality management program but does not call it TQM). Results indicated no significant difference in quality performance, business performance (except for TCOSR), and most of the organizational performance parameters (except for ABS, TARD, SKILL, and ACC) (Table 15k). This means that performance did not significantly vary among firn'ls that employed a formal QMS, whether it is a TQM program or not. Table lSk. PerformanceMeasuf8 with Sis-nificantDifferenceAccordinsto Quality

--QMSCLASS1 Management VARIABLE TCOSR ASS TARD SKILL ACC

No. 20 20 20 20 20

SyatemCla..ifica~2~ QMSCL_~S2--.=.

Mean 3.04 3.80 3.92 4.38 4.02

SD 0.82 0.55 0.57 0.36 0.57

No. 25 25 25 25 25

Mean 2.52 3.38 3.46 3.98 3.51

SD 0.79 0.76 0.70 0.63 0.93

-. t.val Prob. Remarka 2.12.04 .. 2.06.04 .. 2.38.a2 .. 2.50.02 .. 2,13 .~~..

..-Sign1flcal\t at 5~ level of sigNficance," -Significantatl ~ levelof significance

1~6

TOTAL

QUALITY

MANAGEMENT

CONSTRUCTS

Quality ManagementSystemOrientation and Perfonn'ance Results indicate that there is no significant difference in quality, businessand organizationalperformancewhether firms employ technique orientation (i.e., more quantitative techniques)in their QSM or behavioralrelated strategiessuch as employeeempowerment,teamwork, and quality fides. In summary, the study shows that significant difference in the majority of performance parameters were noted for firms classified according to: (i) quality management grid, (ii) quality management system, (ill) ownership structure, and (iv) export orientation. Firms classified according to quality management grid (i.e., those with large extent of TQM adoption versus those with moderate extent of adoption) reflected significant difference in quality and organizational performance, specifically in the following: (i) quality performance -DFR, CYCLE and RPQ and (ii) organizational performance all organizational performance measures except reduction in absenteeismrate (ABS), reduction in turnover rates (TURN), and reduction in accident occurrence (ACC). No significant difference in business performance was noted for firms categorized according to quality management grid, as improvements in their financial performance were measured in terms of market share, net profits, and sale:s,which were more a function of the firm's ownership structure. Association

of Perfonnance

with TQM Adoption

Taking all the independent

Index

variables and considering

performance and business and organizational

both quality

performance, the TQM Adoption

Index for the validated elements from Survey 1 was found to be more significantly associatedwith organizational performance parameters relative to quality and business performance improvement quality,

indicators.

As presented

in quality

defect rate, cycle time,

significantly

associated

in Table 16, about 5-13 percent

performance with

percent of the improvements

-as

measured

and delivery

TQM Adoption

time -was Index.

in netpro~t

found

to be

Approximately

5-11

and sales, may be attributed

TQM adoption. These figures imply that as-firins implement to quality

product

in the respondent firms' financial performance,

as measured by improvements

approach

by relative

management

th~r

products

a more comprehensive generate

substantial

advantages in market. Their processes become more efficient and, therefore, cost competitive. The study presented certain degree of association with

147

TALAVERA

quality and financial indicators but the relatively low R2 values for this assodation indicated that there were factors other than TQM adoption which could improve quality and business performance. On the other hand, a sigtrificant portion (15-35 percent) in the improvement of organizational performanc~ was found to have a significant assodation with TQM Adoption Index. This meam that as the extent of TQM adoption by respondent firms increases, the respondent managers perceive that improvements in communication and teamwork in their organizations are largely due to TQM adoption. Of the 16 items describing organizational performance, TQM adoption w~ found to be not assodated with three variables -absenteeism rate, tardiness rate, and acddent reduction. It was found to be highly and positively assodated with organizational performance indicators, indicating that TQM was still used as a system technology aimed primarily at effecting behavioral change and was not in fact the sole strategy that could affect quality and business performance. This similarly confirmed previous researches on association of quality management with performance. 5ince TQM is normally implemented through the conduct of 55, establishment of quality circles, and adoption of philosophy-oriented strategies, TQM's assodation with organizational performance is expectedly more pronounced. This indicates that when a company implements an organizational intervention, such as a TQM program, immediate results may be observed in the area of organizational improvement. Performance parameters with more objective measures such as quality and profitability would be reflected much later inTQM implementation. TQM Constructs and Quality Perfolmance The interrelationships among the derived TQM constructs, especially their respective association with quality performance, were investigated on the premise that in practice, quality managementstrategieswere implemented in combination, comprehensively, and in integrated manner. Furthermore, not only one TQM construct would be responsible for achieving quality targets. Instead each construct has some sort of a direct or indirect effect in meeting quality goals. (See Figure 7 for the hypothesis on the relationship between the TQM constructs.) Structural Equation Modeling through PROC CALIS (Covariance Structure Analysis) LINEQS model was performed for this purpose using the SASsoftware. The LINEQS model fits simultaneous regression equations

148

TOTAL QUALITY MANAGEMENT CONSTRUCTS

Table 16. PettOm1aDCeMeaSJ!re8Assocjated with TQM Adopt\oPclndex PettOm1aDCe Indicators Pamal R2 5 Model R2 PERFORMANCE

both

the

direct

and

0.0415 0.0334 0.0004 0.0102

11.14 5.15

51 46

0.0149 0.0378

25.67 27.05 14.50 19.75 24.71 28.09 2290 2238 2259 24.25 24.41 34.10

29.3 35. 26.18 36.3.1 29.99 5240 38.9t/ 424,$ 39.5:1 48.~ 49.41 SO.5I)

0.0001 0.0003 0.0014 0.(xx)5 0.(xx)1 0.(xx)1 0.(xx)1 0.(xx)1 0.(xx)1 0.(xx)1 0.0001 0.0001

indirect

effects

TQM

performance.

quality

estimate

12~ 15.82 44. 44.

1273 6.61 6.54 5.22

Relative Product Quality Defects Rate Reduction Reduction in Cycle Time Delivery Time BUSINESS PERFORMANCE Net Profit Sales ORGANIZATIONAL PERFORMANCE Suggestion Level Skills Level Teamwork within a department Teamwork Among departments Communication (Mgt &Emp) Communication (bet. Depts.) Attitude towards work Pride in Company Flow of Information Quality for l~ternal Customer Quality for Extemal Customer Quality By Suppliers

onstructs

QUAUTY

Prob> I t I

(TMC)

was

critical

and

shown

Figure

the

are

reflected

and have

conStructs

would

The

yield~d

iterations,

very

run

low

indirect

deemed

most

the

other

relate

TQM

quality

fro~stakeholders

-i.e.,

was

!;hat

and

process

constructs

ImP

perform,

quality

vement

Process

while

Orientationthe

other

effect.

PROC

CALIS

consisting

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1~9

TALAVERA

number of sample observations could reliably estimate. Thus, a trimmed model was considered. The SEM results using the validated factors from Survey 1 served as the main data source in running the subsequent CALIS procedures. As shown in Figure 8, this trimmed model yielded seven significapt factors. The construct TMC no longer emerged as a separate construct but its corresponding elements were subsumed in the other validated factors. This indicates that, in practice, top management's commitment to quality is not seenas a separate program, but its commitment to provide time and resources to quality management program transcends all its quality management strategies. Factor 1 (getting feedback in designing QM strategies) is considered now as exogenous latent variable with the six elements describing it as

Figure8. Trinuned PatbDiagram SbOWUlg the FactorsDerivedfrom Survey1

Nit",

U...J Covvi81CC Matrix.L- ~..es -MoximumLikelihood ESim.ti", MedlOd; Then..m... in () refÂŤ to r_ioo oc_dUral ooc/Iicialtswilli Redu";", in PrOOIl1ion C pcrfocm&nce PadtF3 to F7 8,d F6 toF7 -

150

asmeasure ofqlaiit

TOTAL QUALITY MANAGEMENT CONSTRUCTS

exogenous manifest variables. All the other six validated factors are referred to as endogenous variables, i.e., dependent or outcome variables in at least one causal relationship. In terms of path diagram, at least one arrow leads to the endogenous construct or variable. Figure 8 indicates the critical role played by generating feedback from the company's key stakeholders when the company is planning and designing for its quality managementprogram (Factor1). Once the feedback information is generated, it is important that the company implements spedflc policies and programs to: (i) determine customer satisfaction and improve customer service (Factor 2); (ii) immediately involve the rank and file in implementing a quality managementprogram through establishmentof a 5Sprogram (Factor 3); (ill) get the participation of employees -top and middle management and rank and file -in implementing and monitoring a quality management program (Factor 4); (iv) educate the employees on the use of quantitative and statistical techniques in quality monitoring (Factor 5); and (v) give employees incentives and recognition (Factor 6). With these strategies, the company can closely monitor and control the effectiveness of its quality management program in meeting targeted quality performance outcomes (Factor 7). Improve~ent in quality performance was measured in terms of the respondent managers' perception of the perc~ntage improvement in the following quality performance parameters: (i) reduction in defectsrate (DFR), (ii) reduction in rework (REW), (ill) improvement in cycle time (CYCLE), (iv) improvement in delivery time (DLEAD), (v) reduction in production cost (PCOS), (vi) reduction in customer complaints (CaMP), and (vii) relative product quality (RPQ). The RPQ and DFR were chosen for the PROC CAL~ procedures over the other quality performance measures as they were determined to be significantly associated with TQM adoption from the previous regression anal~ses. Using this trimmed model, a significant improvement in GFI from 0.30 to 0.73 was observed, with the majority of regression paths having significant t-values, except for paths F3 to F7 and F6 to F7. Exploratory runs were then conducted to determine structural fit.

151

TALAVERA

Structural Equation Model Evaluation To determine the final Structural Equation Model, the following evaluation procedures were used: 1. Investigation of the plausibility of individual parameter estimates ~d associatedstatistics for every PROC CALIS run to determine structural fit; 2. Determination and comparison of goodness-of-fit of the competing models through (i) chi-square value and chi-square over degrees of freedom; (ii) goodness-of-fit indices (GFI), adjusted GFI, parsimonious GFI; (ill) Bentler BonnetNon-Normed Fit Index, and other relevant indices to assessabsolute fit of the

model; 3.

Deletion of structural paths which reflected insignificant regression coeffidents at P < .OS;and

Conduct of a series of exploratory runs to determine the model which satisfies theoretical relationships, structural fit, and absolute model fit. These exploratory runs included (i) changing the matrix used from correlation matrix to covariance matrix; (ii) trying out several quality performance measures; (ill) revising the path diagrams by exploring other feasible relationships among the TQM constructs; and (iv) changing the optimization method from the default Levenberg-Marquardt and Newton Rhapson to Quasi-Newton (QU ANEW).

These evaluation procedures resulted in two competing models whose

relationships and performance are presented in Figures 9a and lOb Table 17 for details of structural fit evaluation). Table 17 shows that there is no significant difference in the majority of evaluation indices for both models. To determine the final structural model, the percentage variability that may be attn"buted to the four remaining TQM factorsw~ identified. Approximately 12 percent of the variability in relative product quality as the measure for quality performance may be attributed to these four TQM factors.

152

TALAVERA

On the other hand, only three percent of the variability in the reduction in defects rate was found to be associated with the implementation of the 19 elements representing the four TQM factors. Based on this and on the regression analyses presented in Table 16, improvement in RPQ was found to be significantly and solely associated with TQM adoption. Model 2 was thus selected as the final structural equation model.

Figure in Modd 2 UsedDFR asQuollty Perforu.anceMeasure,Relolned4 factors

Resulting Structural Equation Model Ideally, the interplay of the original 12 TQM constructs is expected to affect quality performance. However, the interaction among the constructs resulted only in four constructs presenting significant association with quality performance. The figure shows that in breaking down a TQM program into specific components, four TQM factors emerge to have a significant association with quality performance; measured in terms of the respondent managers' perception of their company's RPQ vis-a-vis the quality of the major product

154

TOTAL QUALITY MANAGEMENT CONSTRYCTS

of their closest competitor. These four TQM factors are: (i) getting feedback in designing quality management strategies (referred to as F1), (ii) employee involvement (F4), (ill) quality management techniques orientation (FS), and (iv) quality monitoring and control (F7).The elementscomprising thesefactors present the interplay of both technique and philosophy orientations of a QMS. Relative product quality is represented by F8. RegressionEqURtions F4

FS f7 F8

= Gamma} F1 + D1 = Gamma2 F2 + 02 = Beta} F4 + Beta 2 F5 + 03 = Beta3 f7 + D4

LAtmt VariableEquations F4

= 1.0178 F1 + 1.000 D1

Std. Error

0.0406Gamma1

T-value

25.0553

FS Std. Error

T-value F1 Std. Error

T-value F8

= 1.0339Fl + 1.00002

0.0492Gamma2 20.9961 .0.7462

+ 0.2699 F5

0.0453 Beta1 16.4632 .0.2960

1.000 03

0.0456 Beta2

5.9182

Std. Error

0.0438 Beta3

T-value

6.7648

+ 1.000 D4

Total Structural Effects (Direct and Indirect Effects) Thereis no hypothesizeddirect relationship betweenFactor1 and quality performance;Rather,the following paths -Path 1 (F1-F4-F7-FS) and Path 2 (F1-FS-F7-FS)..were found to have indirect effects on quality performance. INDIRECf mFECfS-> PATH 1 + PATH 2 -(n-F4-F7-F8) + (Fl-FS-F7-F8) .-(1.0178)(0.7462) (0.2960)+ (1.0339)(0.2699)(0.2960) -0.22 + 0.08-0.30 155

TALAVERA

Since there is no direct effect measured, the total effect is equivalent to 0.30, which means that an improvement in the implementation of the elements assodated with the four TQM factors leads to a scale improvement in quality performance as measured by RPQ at 0.30. A review of the squared multiple correlation of the foUr factors indicates the following: F4 with 0.74, F5 with 0.86, F7 with 0.99, and F5 with 0.12. This indicates that about 12 percent of the variability in the improvement of quality performance of respondent firms may be attributed to the combined effects of the four factors, which consist of 19 critical TQM elements. As shown in Table 17, results of the evaluation of fit of the final structural equation model were observed to slightly deviate from acceptable limits. A deviation of approximately 10 percent from standards was noted for certain statistics (GFl; AGFl, Bentler Bonnet Non-Normed Fit fudex, among others). This deviation may be attributed to certain risk5 associateq/with a social sdence research, such as this study on TQM. These risk5 maybe due to limitations in sample size, s~pling procedure and instrument administration; and fluctuations in responses owing to the use of ,perceptual scale and subjective measures of quality performance. Despite theselimitatioN, results of the StructUral Equation Modeling reveal the significant impact ot. the 19 elettlents with both techniq~e and phi1o~ophy orientations on quality performance. ~ validates the hypothesis that to effectively implement a TQM program, equal attention must be given to the use of quantitative and statistical techniques in the 'design, monitoring arid control of a QM5 and in the employment of behavioral and human-related quality management strategies.

CONCLUSION AND RECOMMENDATIONS This study was conducted primarily to define and consolidatethe major strategies,policies and programs associatedwith a TQM program component, as gathered from various literature. Theoretically derived constructswere validated empirically by gettingthe perceptionof managers of Philippine manufacturingfirms on the importanceof a specificstrategyas part of a TQM program component(also referred to as TQM construct). Respondentmanagerswere also asked to what extent theseTQM-related strategiesand policieswerepracticedin Philippinemanufacturing.Reliability and validity tests were performed to validate the TQM constructsand the researchinstruments. 156

TOTAL QUALITY

MANAGEMENT

CONSTRUCTS

Based on responsesin Survey2, the respondentfirms were categorized according to their TQM Adoption Index and, subsequently, to their quality management grid classification. The significant factors that affected the extent of their TQM adoption were identified. The association of the firms' quality, business and organizational performance with their TQM Adoption Index was investigated. Likewise, the interrelationships among the TQM constructs and their effect on quality performance were also explored. -TQM Co~tructs Development and Validation Validation wa~ conducted to determine empirically whether the theoretically derived TQM constructs accurately defined what TQM was supposed to comprise. Content validity was evaluated using an Experts' Review while the construct validity was determined through Factor Analysis. The validation procedure used Perception of Importance as basis for scale development. Results of the validation procedure indicate a slight deviation in the perceived critical components of a quality management system vis-a-vis those theoretically defined or developed. As theoretically developed, a whole range of strategies could be considered components ofTQM. The study proposed 12 TQM constructs, with six elementsassociated with eachconstruct. Survey 1 indicated that, in general, the items pertaining to a theoretically derived TQM construct no longer formed part of such a construct but merged with other items in another TQM construct which shared a similarity in function. For example, strategies associated with using multifunctional teams were grouped together even if such an activity was done as part of human resources management (HRM) or product/ service designing (PDS). This finding (leviated from the theoretical derivation of the TQM constructs and implied that in Philippine context, and when using perception of importance as basis for scale development, integration of activities, strategies and functions associated with TQM adoption is perceived by respondent managers as more critical. The findings from Survey 1 presented the multifunctional and multidimensional aspect of the TQM constructs. Survey 2 asked the respondent managers to what extent the critical TQM constructs and elements were being practiced at the shop floor. This served as another way of validating the TQM constructs generated from Survey 1. In general, the ratings in terms of perception of importance for the TQM constructs were higher than their corresponding scores for extent of practice. In particular, it was noted that some elements originally perceived

157

TALAVERA

as critical were moderatelyimplemented.Theseelementsmostly belonged to the following TQM consb"ucts:customerorientation(CO), benchmarking (BM), and supplier quality management(SQM).Limited implementationof TQM consb"uctswas primarily due to lack of resources.On the other hand, some items perceived not critical were neverthelessbeing practiced. This discrepancywas due to the availability of resourcesand level of technology of respondentfirms, which turned out to becritical determinantsof the extent of TQM adoption. Extent of TQM Adoption and its Association with Perfomtance A review of the respondent firms' TQM Adoption Index indicates that the Philippine manufacturing industry in general reflects a large extent of adoption of the strategies and programs associated with a TQM program. Although only 31.25 percent of the respondents categorically mentioned that they were into TQM, other respondents were implementing a quality management program but do not call it TQM. Of the eight independent variables, a significant difference in the extent ofTQM adoption was observed when respondent firms w~re categorized according to industry affiliation and ownership structure. Firm size (as m~asured by asset level) an~ level of technology (as measured by type of production system) were found to be sigpificant determinants of TQM adoptio~. This implies that the successof a TQM program and the extent to which a manufacturing firm could implement a comprehensive quality management system relies heavily on the availability of financial resources needed to run the program. A review of the respondent firms' quality, businessand organizational performance indicated that those firms categorized according to variables such asindustry, organizational affiliation, quality management classification, firm size and technology level did not show significant difference in performance. Of the eight independent variables, ownership structure, export orientation, and quality management grid classification showed a significant difference in the majority of performance parameters, i.e., respondent firms which were foreign-owned, export-oriented and had high extent of TQM adoption index showed significant and more positive improvements in performance. Results also showed a significant difference in quality, business, and organizational performance of firms categorized according to industry affiliation and ownership structure. Foreign ownership of firms implies the transfer of technologies and systems and infusion of resources to Philippine-

158

TOTAL QUALITY .MANAGEMENT CONSTRUCTS

based manufacturing fadliti~, -allowing the firms to be competitive in the market. Results also indicated that export-oriented firms need to improve the quality of their products to conform to international quality standards. A l,1igh TQM adoption index means that the firm implements to a large extent the majority, if not all, of the critical components of a quality management system. Implementation of a comprehensive quality management system is expected to be significantly associated with the companies' competitive advantage. Survey results show that, on average, about five to eleven percent of the improvement in business performance in Philippine manufacturing can be attributed to the adoption of a q~ality management system like TQM. However, the significant association of organizational performance improvement with TQM adoption, relative to the association of quality and business performance with TQM adoption, confirms the contention of Powell (1995) that the advantage TQM is derived more from the human behavior aspectof the program, i.e., on the firm's ability to motivate employees to improve their performance. Further, programs like TQM can be a source of competitive advantage not really by reducing defect rates or other quantitative variables but by improving organizational performance.

TQM Constmctsand their Impact on Quality Perfomtance Basedon the resultsof the StructuralEquationModelling,four TQM factors were found to have significant effectin improving the respondent firms' relative product quality. Theseare (i) getting feedbackin designing quality maMgement strategies, (ii) employee involvement, (ill) quality managementtechniquesorientation,and (iv) quality monitoringand control. Thesefactors,composedof 19 TQM program elements,were found to have both techniqueand philosophy orientations.This implies that firms which plan to implementa quality managementsystemsimilar to TQM need not start with a comprehensivelisting of TQM-relatedstrategies,espedally if there are constraintsin time and resources,but could initially start with the said four TQM factors. Conclusion

and RecommendationS

Resultsindicate the need for a single, universally accepted assessment model to make a relevant diagnostic evaluation of the various quality management programs, whether they are called TQM or by another name (Figure 11'. Part 1 of the framework involves identifying, defining and

159

TALAVERA

validating the components of a comprehemive listing of thestrategies,policies, and programs associated with TQM. A validated checklist of these TQM strategies is useful for organizations wanting to have a quick assessmentof the extent of their adoption of the quality management strategies which they may employ later on for evaluation and contirluous improvement purposes. This will likewise giye pr,actiti~pers directiom on w~c~ ~t:t,~gies ~eed improvement and enhancement. .

160

TOTAL QUALITY MANAGEMENT CONSTRUCTS

Parts 2 and 3 involve using the standards developed in Part 1 to assess the quality management programs of firms. The various constructs of the QMS of firms being evaluated will be inventoried and compared with the prescriptions in Part 1. Implementation gaps will then be identified, and measures to improve implementation of QMS will be developed. Results of the study can give practitioners indications on the extent of TQM adoption in the Philippine manufacturing and on the major sub-industries which may be utilized for benchmarking purposes. The assodation of quality, businessandorgariizational performance with the extent of TQM adoption can also give practitioners' a fuller and more realistic view of what a comprehensive QMS can do for a particular company, making their expectations of program benefits more realistic. More specifically, the findings of a strong association between organizational performance and TQM may be used by firms to implement TQM more effectively. While the presence of high technology and defect prevention systems definitely helps in achieving quality, motivating and empowering employees to take upon themselves the responsibility of monitoring quality as work teams is another significant result of TQM adoption. Results of the Structural Equation Modelling, which has identified four major constructs to be positively associated with improving quality performance, could help practitioners direct and focus their quality management efforts. The study has also indicated that although adoption of a TQM program is not the only solution to various operational, marketing and financial problems, the finding that about five-11 percent of the improvement in business performance may be attributed to TQM at least highlights the significant contribution of TQM in providing Philippine manufacturing firms a competitive advantage. Results have indicated that 60 percent of the respondent firms implement TQM to a large extent, and 40 percent to a moderate or limited extent. More training programs on TQM need to be done by various quality management associations in the Philippines, spedally on the basic TQM principles found implemented to a moderate extent in Philippine manufacturing setting, namely: (i) strategic quality planning, (ii) customer orientation, (ill)

supplier quality management,

161

TALAVERA

(iv) (v)

employee empowerment, and use of quantitative techniques in product design and quality monitoring.

Seminars and forums on TQM should focus on the success factors and on problems .associated with TQM adoption and implementation. In particular, the impact of TQM adoption on selected quality, business, and organizational performance indicators need to bepresented to encouragemore firms to adopt TQM. The perception that TQM is just a "fad" stems from the absence of clear. and tangible results highlighting the economic and organizational value derived from TQM.

Areas for Further Resean:h FutureresearchesonTQM constructsdevelopmentcould try to work on a single or a few industries to achieve higher internal validity of the instrument. TheTQM constructsunder investigationcould utilize the seven factorsderived from Surveys1 and 2, and maybe up for further validation in future researchesto makethe analysismorefocused.An importantconstruct which may be investigatedis the conceptof internal customer,which in the study was subsumedunder customerorientation.A larger respondentbase should be targeted to enablethe conduct of more sophisticatedstatistical analyses.Respondentsin future researchesshould include not only middle managersbut representativesas well from the top managementand the rank and file to capture the sentimentof the whole organizationregarding the extent of TQM adoption in their companyand the extentto which it has affectedcompanyperformance. A longitudinal study may also be performed for selected manufacturing or service companiesto look into tJte stagesinvolved in implementing TQM and the impact of TQM on performancevis-A-visthe otherstrategiesbeingimplementedin selectedcompanies.

162

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163

TALAVERA

Appendix 2. List of Participating Companies

SURVEY1 FOOD PROCESSING 1. Archipelago Water Products (Int'l), Inc. 2. California Mimufactttting Co., Inc. 3. Destileria Limtuaco, Inc. 4. Goldilocks Bake Shop, Inc. 5. Griffith Corporation 6. Macdouton Enterprises (phils.), Inc. 7. Nestle Philippines, Inc. (Pulilan Plant) 8. Nestle Philippines, In<:. (Laguna) 9. Northern Foods Corporation 10. Nutri-Ucious Foods Corporation 11.' Purefoods Corporation 12. RFM Corporation 13. SanMiguel Corporation 14. Universal Robina Corporation 15. Victorias Foods Corporation SWITCH GEAR, INSULATED WIRES, PRIMARY CELLS, FLUORESCENT LAMP 16. Everready Battery Company PhUs., Inc. . 17. Imarflex Battery Manufacturing Corp. ' 18. Phelps Dodge PhUs.Energy Products Corporation 19. Philippine Electrical Manufacturing Co. (PEMCO) 20. Oriental and Motolite Corporation

21. RAMCAR ~. Yazaki- Torres Manufacturing, Incorporated

SEMICONDUCTORINTEGRATEDCIRCUIT,OrnER ELECTR.ONIC AND ELECTRICALCOMPONENTS 23. 24. 25. 26. 27. 28. 29. 30.

Allegro Microsystems Phils., Inc. American Power Conversion Amkor Anam Pilipinas, Inc. Asea Brown Boveri (ABB) Dai-ichi Electronics Manufacturing Corp. lonics Circuits, Inc. !.'.tegrated Microelectronics, Inc. Intfj Phils. Manufacturing, Inc.

31. Lagu.\a Electronics, Inc. 32. Philir-SemiconductolS Calamba 33. Pricon MicroElectronics, Inc. 34.

Team Pacific CorporaUon

164

TOTAL QUALITY MANAGEMENT

CONSTRUCTS

AUTOMOllVE, MOroRCYCLE AND AUTOMOllVE 35. Asian Transmission Corporation 36. Carparts Manufacturing, Inc. 37. EDS Manufacturing, Inc. 38. Honda Philippines, Inc. 39. Mitsuboshi Belting Philippine Corporation 40. Mitsubishi Motors Phils., Corp. 41. Philippine Belt Manufacturing Corp. 42. Universal Motors Corporation 43. Univille Motors Corp.

OTHERS Packaging 44. Container Corporation of the Philippines 45. 46. 47. 48;

Inca Plastics Phils. SanMiguel Metal Oosure & Lithography Plant Premium Packaging International, Inc. San Miguel RengoPackaging Corporation

Phannaceuticals 49. Hizon Labolatories, Inc. SO. United laboratories, Inc. 51. Glaxo Wellcome Philippin~, Inc.

Toilem Products 52. Johnson& JohnsonPhils.,Inc. 53.

Procter and Gamble

54. ~

-Clark Philippines,Inc.

GarmentSc 55. Creative Home Linens, Inc. 56. Sara Lee Personal Products Phils. Ceramics 57. MariwMa Siam Ceramics, Inc. 58. Guoco C!jramics, Inc. TV and Radio Receivers or Video R~ordins

59. Sharp(Phils.)Cc.poration 60. Matsushita FJectlic:~.

Co.-p.

165

PARTS

TALAVERA

Appendix

2. continued...

~ 61. Republic -Asahi Glass Corp.

~ 62. GoodyearPhils.,Inc. Chemicals

63. RI Chemical Corporation SURVEY 2 Semiconductors and Electronics 1. ON Semiconductors (A Divisio~ of Motorola) 2. American Power Conversion 3. 4. 5. 6. 7. 8. 9. 10. 1~. 12. 13. 14.

Pricon Microelectronics .Ionics Circuits Laguna Electronics Integrated Microelectronics, Inc. Integrated Device Technology Philippine Semicondu~ors Matsushita Electronics Asea Brown Boveri (ABB) Fuji-Haya Electronics Analog Devices Music Semiconductors Allegro

15. Yazaki-Torres 16. Intel Philippines 17. Texas Instruments Automotive and Automotive Parts 18. EDS Manufacturing 19. Philippine Belt Manufacturing 20. Star Motor Manufacturing

21. JP-Aoki 22. Honda Cars Philippines 23. Asian Transmission Corporation 24. Univille Motors 25. Honda Philippines 26. Mitsubos~iCorporatfon Food ProcessinE 27. Nestle Philippines, Inc. (Pulilan) .28. Coca Cola Bottlers' Phils., Inc. 29. Northern Foods Corporation 30/ RFM Corporation 166

TOTAL QUALITY. MANAGEMENT

CONSTRUCTS

31. Nutrilicious Corporation 32. SelectaW~ls, Inc. 33. Nestle Philippines, Inc. (Canlubang) 34.

Victoria Foods Corporation

35. Destileria Corporation 36. Macdouton Enterprises 37. Archipelago Water International Products 38. Universal Robina Corporation Swith Gear. PrimarY Cells. Batteries 39. Phelps Dodge Phils. 40. Oriental and Motolite Corporation 41. PEMCO Toiletrv Products

42. ProcterandGamble,Inc. 43. Kimberly Oark Philippines,inc. 44. Jolmsonand Jo~n Phils.,Inc. 45. SplashManufacturing Packadn~

46. SMC Rengo Corporation 47. Tiongson Industries 48. SMC Metal Closure and Lithograpl1y Plant 49. Premium Packaging Pharmaceutical so. Lejal Laboratories 51. United Laboratories 52. Astra Zeneca 53. , Hizon Laboratories 54. Uoyd Laboratories

Cement 55. FR Cement Corporation 56. Davao Union Cement Corporation Other Industries

57. Dutch Boy Philippines 58. Mariwasa Ceramics 59. Lepanto Ceramics 60. Republic Asahi Glass 61. Lux Manufacturing 62. Rl Chemical 63. Bacnotan Steel 64. Nihon Garter 167

TALAVERA

Appendix 3. Theoretical TQM Constructs and their Elements NO. TQM CONSTRUCT CODE SPECIFICELEMENTS OF EACH TQM CONSTRUCT 1 TOP MANAGEMENT TMCl Relativeimportancegiven by top management COMMITMENT to quality over costwhen making business TMC2

decisions

TMC3 TM C4 TMCS TMC6

STRATEGIC QUALITY PLANNING

SQP1 SQP2

Top managementinvolvement fu planning quality managementprogram Evaluation of top and middle managementfor firm's quality performance Provisio~ of technical and flnancialsupport to quality improvement activities Encouragementof employeesto participate in quality managementprogram Top managementinvolvement in implementation and follow-up of quality managementprogram Focusof short-term and long-term strategies on quality performance Clarity and formality in the writing of quality

SQP3

goals

Prioritization of planning and designing for quality in corporate strategic planning

sqP4 ,

agenda

SQP5 SQP6

CUSTOMER ORIENTATION

COt

Inclusion of customerfeedbackin improving products / services/ processesdesigns Conduct of specific techniquesto determine measureExtern.,I customersatisfaction Presenceof a program to improve customer service Implementation of programs to protect customerrights Understanding customerneedsthrough regular Client meeting Organization of training programs / information campaign to educate employeeson valuing customer

CO2 CO3

CO4 COS

CO6

SUPPLIERQUALITY MANAGEMENT

SQMl SQM2 SQM3 SQM4

SQM5 SQM6

Departmental preparation of quality targets and strategies R~view of departmental targetsand goalsfor congruenceto overall company plan Orgac:lliza tion of regular meetingsand fuIormation campaignsto communicate quality goals

Quality as the primary considerationin supplier selection Relianceto limited but dependablesuppliers Inclusion of supplier's feedbackin improving product / service / processdesigns Provision of training on quality management to suppliers Provision of awards / incentives to suppliers for excellentperformance Implementation of a supplier evaluation, certification and ac~editation program

168

HRMI

TOTAL QUALITY MANAGEMENT

HUMAN

Organization of multi-functional te&ms when developing programs to improve quality Establishment of quality circles in the company to promote employee participation in quality management

RESOURCE

MANAGEMENT

HRM3 HRM4

IiRM5 HRM6

EMPLOYEE EDUCATION TRAINING

EETI AND EET2 EET3 EET4 EET5 EET6

IPfTEGRATION OF QUALITY TO PRODUCT/ SERVICE DESIGN

POSI PDS2 PDS3 PDS4

PDS5

PDS6

WORKPLACE ORGANIZATION OM.DERLINESS

CONSTRUCTS

WOOl AND WOO2

WOO3 WOO4 WOO5 WOO6

programs Regular meetings between supervisors and labor to solicit quality improvement suggestions Provision of authority to production line workers to inspect product 'Juality; to pull out defective units; and to stop production line (if necessary) Provision of authority to production line workers in correcting line problems with minimal supervision Recognition of employees for achieving quality targets Provision of training on Total Quality Management concepts Provision of training on Quality Control Provision oftrainiJlg on Team Building / Group Dynamics Provision of training on problem solving techniques (fishbone diagrams, flow charting) Regu.lar conductor training for rank and file and supervisors Integra tion of training lessons to work processa Primary consideration of quality in product / service development phase Inclusion of customers' requirements and suppliers' feedback in product / service development Multi-functional team review of new product service designs Solicitation of feedback from technical experts, manufacturiJlg and process eJlgiJleers on n\aJlufacturability of product desigJls FacilitatioJl of product development cycle time for timely respoJlse to market Jleeds UtilizatioJl of quality desigJliJlg techmques (e.g., Taguchi methods, quality fuJlction deployment, desigJl for quality, desigJl for maJlufacturability, etc.) Presence of a system for segregatiJlg Jleeded items (iJlveJltory, machiJlery aJld equipment, documeJlts;supplies, parts) from uJlJleeded items PreseJlce of signboards aJld labels for easy 10catioJl aJld ideJltificatioJl of various departmeJlts, iJlventory, machiJlery aJld equipmeJlt PreseJlce of aJl effective records managemeJlt system Clean, hygiemc and orderly facilities and surroundiJlgs Regular momtoriJlg aJld evaluatioJl of employees' compliaJlce with housekeepiJlg rules aJld regulatioJls Employee

169

discipliJle

aJld iJlitiative

iJl

TALAVERA

Appendix 3. continued... NO.

TQM CONSTRUCT

CODE

QUALrrY INR)RMAll0N MANAGEMENT

QIM1

QIM2 QIM3 QIM4 QIM5 QIM6

B-ENCHMARKING

BM1' BM2

BM3 BM4 BM5

BM6

CONTINUOUS IMPROVEMENT ORIENTATION

CIO1 CIO2

CI03 CI04

CIO5 CI~

SPECIFICELEMENTSOF BACH TQM CONSTRUCT Presenceof databasesystem to gather, control, and store data from key proce~ and subprocessesto produc~ relevant information neededto measure the results of its quality efforts Measurementof achievementof quality targets from raw materialssourcing to final production stage Timely production of update and complete quality performance data Accessibility of quality performaoce data to all employees Visibility of quality performaoce data.and progress towards goals Inclusion of quality performaoce data and indicators in the development of QM strategies Studying the businessprocessesof the leading organizationsin its industry toimprove operations Studying the businessprocessesof leading organizations in other industries to improve operations ""Application for ISO9CXX1 certification as aphereoceto international qualitr. standards Company application for recognition for its excellentquality managementsystem Involvement in a quality management assodation for better accessto quality information and product / service innovations ~g that benchmarking activities result to signiticant improvement in perfo~aI.:f. Presenceof on-going plans and programs to reduce production cycle time Presenceof on-going plans and programs to identify and eliminate all possible sources of wastesin the company's operations Presenceof on-going plans and programs to think of various ways to improve products proce~ Top managementprovision of technical, finalrial and educational assistanceto quality managementprograms of the company Provision of iocentives to employeesfor their quality improvement suggestions Conduct of periodic quality audits (internal and external)to monitor effectiv~ss of

qualitysystem Sources:Literature and Expert Reviews

170

TOTAL QUALITY MANAGEMENT CONSTRUCTS

BmLIOGRAPHY Ahire, S.L., R. Landeros and D. Y Golhar. 1995.Total Quality Management: A Literature Review and an Agenda for Future Research. Production and OperanonsManagement4(3):277-306. Ahire, S.L. and D.Y. Golhar. 1996. Quality Management in Large vs. Stt\all Firms: An Empirical Investigation. Journal of Small Business Management34(2):1-13. Ahire, S.L. D.Y. Golha~ and M.A. Waller. 1996. Development and Validation of TQM Implementation Constructs. DecisionSciences27(1). Asian Institute of ~ agement, Management Association of the Philippines, and the Phili ine Quality and Productivity Movement. Integrated Application Proj t 1993. A joint research project conducted in 1993. Bechtel, G.A. and D. Wood. 1996. Improving the Accuracy of Total Quality Management Instrument. Health CareSupervision14(3):21-26. Black, S.A. and L.J. Porter. 1996. Identification of the Critical Factors of TQM. DecisionSciences27(1):1-21. Choi, T.Y. and K. Eboch. 1998. The TQM Paradox: Relations Among TQM Practices, Plant Performance, and Customer Satisfactio~. Journal of OperanonsManagement17:59-75. Churchill, G.A. Jr. 1979. A Paradigm for Developing Better Measures of Marketing Constructs. Journal of Marketing Research16:64-73. Elkidson, Lloyd. 1995. TQM's Role in Corporate Success: Analyzing the Evidence. Nanonal Productivity Review14(4):25-38. Flynn, B.B., R.G; Schroeder and '} Sakakibara. 1995. The Impact of Quality Management Practices on Performance and Competitive Advantage. DecisionSciences26(5). Garvin, D.A. 1984. What Does Product Quality Really Mean? Sloan ManagementReview1:37. Grant, R.M., R. Shani and R. Krishnan. 1994.TQM's Challenge to Management Theory and Practice. SloanManagementReviewWinter:25-35. Gull, G.A.1995. In Search ofTQM Success.ExecunveExcellence12(7). Hackman, R.J.andR. Wageman. 1995.Total Quality Management: Empirical, Conceptual, and Practical Issues. Administranve ScienceQuarterly 40:309-342. Macy, B.A. and H. Izumi. 1993. Organizational Change, Design and Work Innovation: A Meta-Analysis of 131 North American Field Studies

171

TALAVERA

1961-1991. Researchin Organizanonal Changeand Development7:235313. Malhotra, N.K. 1981. A Scale to Measure Self Concepts, Person Concepts, and Product Concepts. Journal of Marketing Research18:456-464. Phillips, L.W., D.R. Chang and R.D. Buzzell. 1983. Product Quality, Cost Posi.tionand Business Performance: A Test of Some Key. Hypotheses. c l. Journal of Marketing:2b-:43: Powell, T.C.1995. Total Quality Management as Competitive Advantage: A Review and Empirical' Study. StrategicManagementJournal 16:15-37. Ryan, J.T. 1995. Is Total Quality Fading as a Strategy? HR Focus. Samson, D. and M. Terziovski, 1999. The Relationship Between Total Quality Management Practices and Operational Performance. Journal of OperanonsManagement17:393-409. Saraph, J.V.P., G. Benson and R.G. Schroeder. 1989. An Instrument for Measuring the Critical Factors of Quality Management. Decision Sciences20(4):457-478. Statsoft. 1995. Reliability and Item Analysis: Intrpductory OverView. STATISTlCA Manual:3112-3131. Steele,J. 1993. Implementing Total Quality Man'4gementfor Long- and ShortTerm Bottom-Line Results. Nanonal Productivity Review. Vinzant, J.C. and D.H. Vinzant. 1996. Strategic Management and TQM: Challenges and Choices. Public Administranve Quarterly Summer:2O1219.

Books Atkinson, H., J. Hamburg and C. Ittner. 1994.Linking Quality to Profits (QualityBased Cost Managemenet. Milwaukee, WI: American Society for

Quality. Besterfield, D.H., C. Besterfield-Michna, G.H. Besterfield and M. BesterfieldScare. 1995. Total Quality Management.Milwaukee, WI: American Society for Quality. Brocka, B. and M.S. Brocka.1992. Quality Management:Implementing the Best Ideasof the Masters,Homewood, IL: Irwin, Inc. Chase, R.B. and N.J. Aquilano. 1995. Production and OperationsManagement. 7th ed. Homewood, IL: Irw1n Inc. Davis, D. 1996. BusinessResearchfor DecisionMaking. 4th ed. Belmont, CA: Puxbury Press.

172

TOTAL QUALITY -MANAGEMENT CONSTRUCTS

Deming, W.E.1986. Out of theCrisis. MassachusettsInstitute of Technology. Emory, C.W. and D.R. Cooper. 1993. BusinessResearchMethods, 4th ed. Homewood, IL: Irwin Inc. Gable, R.K and M.B. Wolf. 1993.InstrumentDevelopmentin theAffectiveDomain: Measuring Attitudes and Valuesin Corporateand SchoolSettings. 2nd ed. Bo~~.on:Kl~er Aca4emic. . Goetsch, David L.and Stanley B. Davis (1997), Introduction to Total Quality (Quality Managementfor Production,Processing, and Services). New York: Alpha Books. Hair, J.F., R.E. Anderson, R.L. Tatham and W.C. Black. 1995. Multivariate Data Analysis (with Readings),4th ed. Englewood Cliffs, NJ: Prentice

Hall. Ishikawa, K. and D.J: Lu. 1985. What is Total Quality Control? The Japanese Way. Englewood Cliffs, NJ: Prentice Hall, Inc. Juran, J.M.1988. Juran on Leadershipin Quality. New York: Free Press. .1992. Juran on Quality By Design. New York: The Free Press. Mueller, R.O. 1995. Basic Principles of Structural Equation Modeling: An Introduction to LISREL and EQS. New York: Springer-Verlag, New York Incorporated. Rao, A, L.P. Carr, I. Dambolena, R.J. Kopp, J. Martin, F. Ra,fii and P.F. Schlesinger. 1996. Total Quality Management: A Cross-Functional Perspective.New Jersey: Wiley. Russel, R.S.and B.W. Taylor III. 1996.Productionand OperationsManagement. Englewood Cliffs, NJ: Prentice-Hall, Inc. Other References Asian Institute of Management. 1993.IntegratedApplication Project1993. Study conducted by the Asian Institute of Management, Management Association of the Philippines, and the Philippine Quality and Productivity Movement. Dean, E.B. 1995. Total Quality Control from the Perspectiveof Competitive Advantage.Available from WorldWide Web:(http:/ /www.dfca.org/ bus /bpre.html)

173

CHINA'S PARTICIPATION IN APEC: FROM A FOREIGN POLICY PERSPECTIVE A Case Study on China-U.S. Bilateral Relations

ABIGAil

D. DE lEON

ABSTRACT As an economic forum, the Asia Pacifjc Economic Cl?operation.(APEC) haSbeen criticized for not being able to advance its vision of freer trade in the region. Critics note that in past summits it addressed more political, rather than economic, issues. These are valid comments, although politicaJ issues are not totally irrelevant to APEC's vision. This study is about the People's Republic of China's constructive and cooperative dialogue with the United States on regional economic iss"iioes, which was made possible by the non-confrontational and consensusbuilding strategy of APEC, and how it s1:rengthensthe foreign policy issue linkages of China-US bilateral agreements, positively contributing to the overall bilateral relationship. This study looks at two agreements: the World Trade Organization (WTO) Accession Deal and the three]oint-Communiques that govern ChinaUS relations on the Taiwan issue. Employing Yarbrough and Yarbrough's strategic organizational approach,the study shows that the China-US WTO J}ccessionDeal is viable for both countries only to the extent that it is linked tp their respective foreign policy interests. On the part of China, it is to be able to actively participate in the formulation and revision of the rules of the game. On the part of the US, it is to make China play by the rules of the irtternational system. The Taiwan caseexhibits a lack of strong issue linkages

DE LEON

that would hold ~e viability of the Joint Communiques.This observation explainswhy both China and the US oftenviolate this particular agreement. This study usescontentanalysisin looking at APEC'srole in forging the China-USbilateral agreement.Resultsreveal that APEC has a gn:ater role on the WTO AccessionDeal than on the Joint Communiques. This observation is mainly attributed to the existenceof foreign policy issue linkages.The study concludesthat APEC only affectSbilateral relationships through their bilateralagreem~1\ts, and the latter shouldpossessstrongissue linkages that APEC directly fosters. CHINA'S ACCESSION TO THE WTO Introduction On November 15,1999, the Asian Wall StreetJournalheadlined on its front page:_"China, U.S. Reach Historic Trade Deal." It was a landmark in China-US bilateral trade relations. Mter thirteen years of negotiation on China's accessionto the World Trade Organization (WTO), the United States finally accepted China's concessions.These were the same concessionsthat the US rejected eight months back, which cooled once again their bilateral relations. The accidental bombing by tpe U.S. of the Chinese Embassy in Belgrade the next month further exacerbated the relationship. In September 1999, the Asia Pacific Economic Cooperation (APEC) held its seventh summit in Auckland. Once more, it attracted criticisms, especially from media which pointed out that it had not advanced its purpose. Yet, it was this summit that broke the mounting iceberg between China and ~e US. A week later, the two countries resumed talks, which ended fruitfully in November. Why did the U.S,/changeits mind? Does the November accord open the door for a harmonious bilateral trading between China and the U.S.? Why did tn-eywait until the APEC summit? What role did APEC play in the resumption o~egotiations? To answer these questions, this study investigates a possible relationship between'<;:hina's participation in APEC since 1991 (Harris 1996) and the status of its bila'ieral relations, both economic and political, with its second top trading partner, &e U.S. (Zhao 1999).It looks at the deepimpediments to bilateral relations between Q1ina and the US, and how APEC addresses these impediments. Bijit Bora (1995) defines these deepimpedimentsas trade barriers, which basically have some~g to do with policymaking, including divergences in domestic policy such as s~dards, administrative procedures,

176

CHINA'S PARTICIPATION IN APEC

and commercial legislation. Among the various foreign policy issues that concern China-U .5. bilateral relations, the study spedfically 100M at the WTO Accession Deal (a term the study uses interchangeably with the WTO Accession Agreement, or Agreement alone) and the Taiwan question. These two issues constitute the deepimpedimentsto the bilateral relationship. The choice of these issues js based on the frequency in which they appear in academic and journalistic pieces of literature. Thus, this study answers the main question: How does China's participation in APEC reinforce its bilateral relations with the U.S.? The hypothesis underlying this question is that China's constructive and cooperative dialogue, with the U.S. on regional economic issues is made possible by the nonconfrontational and consensus-building strategy used in APEC forums. This strategy strengthens the foreign policy issue linkages of bilateral agreements between China and the US. The ongoing debate over the value of APEC is based on the results of its past forums, which were observed to be hardly economicin nature. Asiaweek (1999)observes:

As another APEC summit is concluded, another round of questionsabotttthe groupin~'seffectiveness begins. For the second year in a row, the /Asia Pacific Economic Cooperationforum saw its bland age~daupstagedby events on the sidelines. Last year, U.5, Vice President Al Gore insulted APEC's Malaysian hosts by speaking out for reformasi,the rallying cry of the just jailed former deputy Prime Minister Anwar Ibrahim. This year, it was the tra~c eventsin EastTimor that grabbedthe attentionof theleaders and the media. Also on the fringe of the New Zealand meeting,the U.5. and Chinabeganmendingthe fencesthat were shatteredwhenNATO bombsfell onBeijing'sembassy in Belgrade. In light of such observation, this study analyzes a political role for APEC by looking into the case of China-U.S. bilateral relations. It shows the relationship between the nonconfrontational and consensus-building sb"ategy employed in APEC forums and the frequency in which foreign policy interests concerning the China-U.S. bilateral relationship are referred to in APEC summits. This indicates APEC's capacity to foster bilateral relationships by reinforcing the issue linkages that hold their bilateral agreements viable.

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The study presentsa new modelin looking at economiccooperation. UsingChina'scase,it assesses a country's partidpationin a regionaleconomic forum like APECin the light of its foreign policy considerations. The study also determinesthe noneconomicfactors that influencea country's partidpation in APEC, includjng political motivations that affect its national and international policies. It suggestsanothervenuein which a nation can indirectly manifest its general foreign policy concerns.It also suggeststhat political factors be taken into considerationwhen a country participates in international forums. Finally, it confirms the inherent interdependenceof political and economicfactors that motivate a nation to join an international organization,no matter what regimesthe latter may

serve. China and the APEC: A Review of Literature Few works have been written about the dynamics of China's participation in APEC. They generally looked at China's behavior in internati'Onal organizations and at the processes of China's negotiations in seeking WTO membership. Wen Hai (1998) enumerates China's objectives in trying t~ achieve most-favored-nation (MFN) status in the WTO, and narrates China's difficulties in obtaining such statusbecauseof certain conditions and demands. by other WTO member countries, specifically the U.S. Wen also cites the importance of China in multilateral trading order. "China is too big to be changed and too important to be ignored," he wrote. However, domestic and international political pressures create obstacles in developing to the maximum China's economic capacities. Wen says, "[T]he process of negotiation over China's accessionto the WTO is an international' game.' Both sides want to maximize gains through the proce~s. For the United Statesand the Western countries, it is an opportunity to access the Chinese market and formalize,the future direction..of China's economic development. For China, it is an important step in gaining international recognition and integrating itself into the world economy" (Wen 19987).The varied interests of various players paralyze the process of Cbina's integration into the multilateral trading order. "Meanwhile, as an alternative, China will play an active role in APEC. Its 'unilateral' and 'voluntary' principles will make China more comfortable about deciding its own pace of reform and trade liberalization. 'Peer pressure' from APEC countries will provide a positive external role in pushing China's

178

CHINA'S

PARTICIPATION

IN APEC

economic reform and trade liberalization, which, in turn, will pave the road for China's accessionto the WTO," Wen observes. This study relies on Wen for a background on the present status of China's WTO accession.Wen's reference to APEC as an alternative to WTO in the process of China's accessionis significant. However, the most recent WTO Accession Deal between China and the US shows that China does not seem to be satisfied with APEC alone. What then is the value of APEC to China? Trade does not seem to be a significant factor. Statistics show that it does not account for the sharp increase in China's GNP in the early 1990s(Figure 1). Hence, this study looks into the noneconomic factors, i.e., the foreign policy interests that motivate China's participation in APEC. Figure 1. Perc~tage Trade Share in China'. GNP (In billion Yuan)

~--~ -'-P ,. T

JOCD.

4000. 3000

2000

1000

...,

= .8

1-4

..81 .9.. ..83 ..88 ..8.

...'917

1'"

1...

1990199. .~

199.

1997

Source: ADB F-cononUcs and Develop~t Resource Center.Key Indicato~ of Asian and Pacific &onomes. OxfOMUniversity Press.1W8

Madelyn Ross (1994)reviews the changing behavior in O\jna's foreign relations through its economicrelations. Ross identifies the various themes that ran through China's foreign economic relations from the 1950s to the early 1990s,and gives the historical events that support these themes. "Most important [of these themes] is the persistent driving force behind all of dlina' s foreign economic relations which has remained the same-to make China stronger, more modem, and more self-reliant. The underlying premise since 1949 has been that trade-and later foreign aid and investment-could serve China's quest for modernization and provide the means to acquire needed goods and build abroad base of national industries"(Ross 1994: 437). Thus, China's economic interests partially motivate its participation in APEC. Ross also observes that China has consistently practiced economic nationalism, rather than liberalism or Marxism. Ross (1994) describes the period 1979-1990as China's awakening to the "realities and illusions of the 'open policy.'" It realized that its acceptance of both multilateral and bilateral foreign trades in 1978 welcomed direct 179

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foreign investments in 1979,and designated four Special Economic Zones in South China. The Chinese policymakers' acceptance of the logic behind international specialization, the increased effort to develop China's comparative advantage in the world market; and the removal of all remaining constraints on the country's choice of trading pa~ers were all a result of the I'open-door' policy implemented by the post-Mao era (Ross1994).However, this open economic policy had its political consequencesin the domestic and international spheres. Ross observes a I'rift that developed between Otina's moderate and liberal reformers, who/formed an alliance in the late 1970s to implement economic reforms and openpolicy, but whose goals and methods increasingly diverged in the 1980s." On the one hand, the moderates were willmg to allow foreign participation in the economy, but under strict control of the central government: On the other hand, the liberal reforme~ adhered to a more radical opening up of China's economy to international competition, leaving the market on its own. Similar to Wen, Rossalso deals With China's international economic participation; this time from a more general perspective. While Wen dwells on the specific position of China in joining WTO, Ross gives a general theoretical review of China's foreign eco~omic relations since the 1950s. Samuel Kim (1994) summarizes the evolving pattern of China's behavior in participating in international organizations from 1949 to the first half of the 1990s~He usesa behavior-centered approach, which basically posits that "a state's foreign policy must follow, not precede, the empirical specification of foreign behavior." Kim's analysis basically looks into how international organizations have influenced Otina' s national agenda. From a lt1ore theoretical perspective, he observes that Otina's foreign policy position over the past five decadeshad shifted Widely -"from Marxism to Third World dependenciatheory to neorealist structural realism to institutional realism to neofunctional technocratic globalism" (Kim 1994). First, Kim looks at China's international organizational behavior following the post~Mao reforms. He observes that in this period, China's behavior was a mixture of neorealism and neofunctionalism, or what may be called" state-enhandng functionalism." Much of the positive attitude in the post~Mao era can be explained by the Chinese belief that the United Nations is or can be a state-centric system anchored on such principles as state sovereignty, state equality, state responsibility, and state right maintained by and for states. Second, Kim observes that Otina's increasing partidpa,tion

180

CHINA'S

PARTICIPATION

IN APEC

and membership in various international organizations has increased the "permeability of Chinese State sovereignty." In relati~n to this second observation, Kim concludes that "most international organizations, particularly the World Bank and the United Nations Development Programme (UNDP), have exerted varying degreesof influence through their own agendas and funds on the shaping or reshaping of Chinese national agendas." Kim also gives a general review of China's behavior in the international system since the 1950s,but this time in the area of foreign policy and international relations. Kim's analysis is significant to this study in terms of the background it gives on the general foreign policy behavior of China in its participation in international organizations. Since this study posits that APEC provides a venue for discussing not only economic concerns but also of those pertaining to other foreign policy objectives, Kim's analysis provides perspective for the latter. The three abovementioned studies recognize China's presence in the international community and the reality that China can no longer be treated in isolation, unlike during the 1950sand 1960s. The next three studi~s by Joseph Chai, Susan Shirk, and Brantly Womack and Zhao Guangzhi look more into ~e domestic dynamics of~' s post-Mao economic reforms. Chai and Shirk/refer to the actual policy reforms that China had undertaken, while Brantly and Zhao look into the microeconomic environment within which the policy reforms were implemented. Chai (1997) goes over the trade policy reforms China undertpok in order to increase trade. He identifies two major problems in China's trade which the reforms hoped to address. First, "the physical separation of domestic producers and consumers from their foreign counterparts through a foreign trade and exchange monopoly." Second, "th~ divorce of foreign and domestic prices through an artificial exchange'.~ate system and an automatic system of variable taxes and subsidies." He observes that there have been improvements after the Chinese government addressed these problems through reforms, but concludes that overall gains in trade liberalization would have been greater if reforms in domestic pricing system and the incentive system of trading and production preceded the entire

process. Shirk (1997)gives a background on China's economic reforms. Unlike Chai who takes an economic perspective in analyzing China's reform, Shirk interestingly takes a political perspective. She examines how China achieved

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DE LEON

economic reform without political reform, unlike in the Soviet Union. She mainly attributes this to the fact that China's version of communism was less well institutionalized and more decentralized than that of the USSR. She analyzes how the political logic of the Chinese system prevents it from integrating deeper into the world market,spedfically because of the reform path it took -gradualism, administrative decentralization, and particularistic contracting. She explains that this same domestic political logic, despite making partial opening and shallow integration possible, "will not automatically push the door to open further, much lessproduce harmonization with international standards for intellectual property, labor, and the environment. International pressure and changed group preferences within China, however, are combining to move China toward greater openness and deeper international integration" (Shirk 1997). In terms of policy strategy, the author proposes that "China offers a new and very different model to the world, a model of marketization and internationalization under authoritarian rule. People in countries like the Democratic People's Republic of Korea, Vietnam, and Cuba, as well as other noncommunist state-dominated economies that admire China's success, may find [this] analysis 'useful for understanding the political practicab,ility of the new Chinese model" (Shirk 1997). Womack and Zhao (1994) focus on 'a more domestic and microeconomic description and analysis of the consequences of China's economic reforms. They concentrate on the differences in the pattern and magnitude of international exports of China's provinces. They look into the various trading possibilities of the diverse provinces of China, taking into account the differing geographical situation of each.The authors classify these trading possibilities into three: coastal, border, and inland. "Coastal provinces have the grand advantages of global accesswhich put them at the forefront of internationalization and also make their trading patterns similar to national trading patterns. Border provinces have the advantage of convenient accessto a specific neighbor. For inland provinces, trade is relatively insignificant." The study also takes into account the political implications of such trading arrangements. It claims that the coastal provinces will be vitally interested in national trade polides and will generally favor internationalization. However, their economiesare also the ones most exposed to external uncertainties. "Border provinces would tend to be more focused in their international interests, and their interests in relation with a neighbor might well diverge from national policy. They are exposed to border

182

CHINA'S

PARTICIPATION

IN APEC

difficulties as well as to trading opportunities. Inland provinces have less to gain from internationalization, but they want the advantages enjoyed by provinces with better access" (Womack and Zhao 1994). Overall, this study offers an interesting overview of the trade structure of China by focusing on the trade activities of the provinces. Furthermore, the study also takes into account the policy implications of the diverse trading practices of these provinces. It gives a picture of the degree of the central government's influence on the trading activities of these provinces, and, in turn, the latter's influence on the central government's policy-making activities. The study contains important data on determining the degree of trade's importance to China's economic reform. It also provides a clear measure of how the decentralization polides in economic reform, as mentioned in other studies, have taken root and bore fruit at the provincial level. As mentioned earlier, the domestic political and economic costs and implications of China's reforms influenced its decision to partidpate more extensively in the international community. Chai dtes two important problems that the post-Mao reforms had to address. These are the consequencesof the Central Planning System (CPS)which also caused the failure of the sodalist economies of the Soviet Union and Eastern Europe, and the recognition of the need to eradicate domestic economic distortions. Thus, Shirk's claim that China was able to achieve economic reform without political reform needs further refinement in terms of definition and context. The results of China's political reforms may not be as quantifiable or as explidt as those of economic reforms, nev:ertheless,the gradual abandonment of the CPS and the greater room given to market forces have resulted in lesser centralization. Chai (1997 ) is more explidt in his observation that since the reforms in 1979, decentralization took place through the gran~g of trading rights not only to a few national foreign trade corporations (FTCs)but also to local authorities, industrial ministers, associations,and production enterprises. In other words, domestic economic units have gained more rights to partidpate directly in foreign trade. In the end, Shirk's institutional approach has a rather limited scope. She apparently equates China's political reform to a major overhaul if not the abolition of the Communist Party rather than to the subtle decentralization and liberalization processes that resulted from economic reforms. Seeing the general domestic economic and political implications of China's post-Mao reforms, Womack and Zhao take an e,venmore micro approach and analyze the implications of the reforms on the provinces. They provide a background on that part of China which is more inclined to trade. 183

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In summary,the threestudiesby Otai, Shirk,and Womackand Zhao give a d~ic picture of China's reforms at the domestic setting. Their significanceto this study is the background that they give Oftthe domestic factors that affectChina's decisionsin trade. More specifically,a review of thesedomesticfactors,which consti~e China'strade policies,gives proper perspectiveto the actionplansand c0ncessions it proposesto the APECand the United States. How APEC Mfects China: A Look at their Relationship In looking at A~EC' s flexible character and its implications on China's bilateral relations with the U.S., the study uses the Strategic Organizational Approach of Yarbrough and Yarbrough (1992). In this framework, the authors propose international 'Organizationalforms -unilateral, bilateral, minilateral, and multilateral.! This study takes on the assumptions of the bilateral organizational form. The general assumptions of the StrategicOrganizational Approach in the context of a bilateral agreement are: (a) the absence of third-party enforcement; and (b) the greater benefit of continuing the bilateral relationship tJtan not continuing!'

A third-party enforcementmay eitherbein the form of a hegemon,a multilateral internationalorganization,or regionalgroupingswhere thisthird party overseesthe implementationof the agreement.Theabsenceof a thirdparty enforcement mechanism is compensated for by the nature of the agreement,which makes it more gainful to comply with, rather than violate, the commitment (Yarbrough and Yarbrough). This condition, as illustrated in formula (1),is "both the necessaryand the suffident condition for a self-enforcingagreement,"becauseif the expectedgain from violating the agreementis higher than or equal to compliance,the benefiting ~ty contemplating on violation might simply opt to do so. Self-enforcement mechanismsmaybe in the form of economic"hostages,"redprodty, or isfiue linkages.3 1Different setso~assumptions correspo~d to eachgovernance structure, as discussed in the other chapters of the book of Yarbrough and Yarbrough (1992). 2The expectefbenefitsfrom compliance, ~ (c),and the exp~cted.ga~from violation, E(v): ~ep~d on the agreement's terms. If one country Imposes protectIon vlolatmg the agreement, glvmg It a benefit of v, the other country responds by terminating the agreement, which serves as the only possible penalty. On termination, each country receives E(n). SeeYarbrough and Yarbrough. SMore details on economic hostages and reciprocity as enforcement mechanisms in Yarbrough and Yarbrough (1992). 184

(1)

CHINA'S PARTICIPATION IN APEC

For purposes of this study, the issue linkagesas self-enforcement mechanismsare deemedmore significantbecausethe assumptionsin using this mechanismmatchesthe conditions that APEC provides, unlike in the mere use of "hostages,"or reciprocity. E(c) -E(n) > E(v)

where, E(c) = value of the expected stream of benefits jfboth parties pursue trade policies (or foreign policies in general, as the context on which this study is interested) consistent with the agreement; E(n) = value of expected stream of benefits jf the countries do not comply with the agreement; and E(v) = value of the amount that the country expects to gain from a sudden opportunistic violation.

Issue Linkage as a Self-Enfon:ementMechanism In trade negotiation"S1a single agreement often links peculiar combinationsof goods that seemtotally utfrelated. This linkage may allow the c~nditions for a self-enforcingagreementto be met i.e.1benefits from violating the agreementis lessthan the benefitsfrom complying with it when this is impossible for a single product. Supposefree trade in one of m independentproducts does not satisfy the condition for one of the party to comply with an agreement this product is linked with another of the m products which satisfiesthe condition for a self'-enforcingagreement.ThUSI agreementon this Ilpackage//of linked goodscanbe reached.In this caselthe condition for self-enforcementno longer holds for eachproduct but for the packageof linked goods. This explainsthe unusual combinationssometimes coveredby an agreement-for examplelleatherlfilml glasslaluminuml paper productsl sporting goodsl and silicon wafers in one U.S.-Japanagreement (Yarbroughand Yarbrough1992). This product linkage mechanisml when applied in political and security issueslbecomesor is known as issue linkage mechanism.In this mechanismlinstead of linking a good with anothergoodin order to reachthe condition necessaryfor a self-enforcementagreementthe trade of a good is linked with a certainissueof dispute betweenthe trading parties(Yarbrough and Yarbrough1992). 185

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Examplesdted by Yarbrough and Yarbrough were "the Jacbon-Vanik Amendment which explicitly linked V.S.-Soviet trade with Soviet emigration policies. The 1968-1971 V.S.-Jap~n talks implicitly linked reductions in Japaneseauto and textile protection to the return of Okinawa to Japan. The 1962Hickenlooper Amendment, designed to protect V.S. foreign investment abroad, mandated suspension of bilateral foreign aid for countries discriminating against or confiscating the property of V.S. investors." The use of Yarbrough and Yarbrough's "Strategic Organizational Approach" in this study is slightly modified. Instead of making use of issue linkages in order for both China and V.S. to achieve consensus on their trade agreement on goods, the study reverses it by making use of trade agreements in order to put forward their respective issue interests.

StrategicOrganizational Approachand China's Participation in APEC APEC'sinability to actasa third-party enforcementmechanismleaves its membereconomiesto carry out their respectivecommitmentsthrough self-enforcement.This is the point of a study by Mohammed Ariff (1998). According to Ariff, APEC will complement the efforts of su'bregional groupings or bilateral relationshipswit~ the regionin achievingeconomic cooperationif APEC: .remains to be a looselystructured organization; .continues to practice"openregionalism," thatis, regionalefforts with a global orientation; .plays the role of catalystby stimulatingmarketforcesto integrate the Asia-Padfic region without muchfanfare. Currently, informal integration of regional economies is being achieved through informal trade and investment linkages. APEC may do great harm if it attempts to formalize this current informal process (Ariff 1998). APEC's emphasis on unilateral liberalization, i.e., allowing each member economy to determine its own pace of trade liberalization, very much assumesthe absenceof a third-party enf()rcement mechanism (Garnaut 1996). APEC's loose structure and flexible character also give room for the bilateral relations among the member economies to continue. Thus, this study assumes that China's bilateral relations with the U.S. is fostered more by, rather than suffer under, these flexible conditions of APEC.

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APEC and Policy Intere'stsof China and U.S. This study usescontentanalysisto identify the relationshipbetween APEC'sflexible characterand the foreign policy interestsof China and U.S. that affect their bilateral relationship. This method addressesthe following questions: 1. What interestsmaketheWTO agreementimportant to Chinaand the U.S.? 2. In which of the Leaders' Meetings or APEC summit meetings did China and the U.S.mentionstatementsthat suggestedtheir respectiveforeign policy interests? 3. Finally, how.were the respectiveforeignpolicy interestsof China and the U.S.formally strengthenedthrough APEC? On the first question, this study analyzes the following: (1) official statements by Orina's Foreign Ministry and the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) regardJng its views and position on the international system; and (2) the summarjy of U.S. policy on China, as contained in a speechdelivered on April 5, 2000by StanleyO. Roth, Assistant Secretary of State for East Asian and Pacific Affairs at the Washington State's China Relations Council. Roth's speech summarizes all the other arguments of the advocates from the U.S: government, of Orina's accessionto WTO. It also presents the basis of the U.S. government's strategic interests on this agreement. On the second question, selected speechesare analyzed in terms of the references they contain on the respective foreign policy interests of Orina and the U.S.. For China, the speechesselected are those of Jiang Zemin's keynote addresses in the APEC Summit's Informal Leaders' Meetings from 1993 to 1999: These speechesare chosen based on the assUJnption that ~ey should reflect and summarize the official position of China. They are analyzed according to the economic and foreign policy interes\.sof China, which mainly consist of the following: (1) the completion of China~ economic reforms and international recognition for these reform efforts; and (2) China's aim of contributing to international peace and stability through active partidpation in the formulation and revision of the rules of the game.

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THE CHINA PERSPECTIVE Completion of EconomicRefomtSand International Recognition Completion of China's economic reforms and international recognition for these reform efforts are understood in the context of the importancegiven to the following principles: A. Economicand technicalcooperation .Promotion of economicprosperity,Amongmembereconomies .Promotion of trade and invfJstment liberalization and facilitation .Narrowing the gap betWeenrich and poor countries and achievingcommonptosperity .Scientific and teclmologicalexchanges ..Fostering e~nsive economicties through bilateral trade on a wide raRgeof goodsand services B. Opening up policies of individual membereconomies C. Current position on tariff and nontariff measures,as contained in indMdual action plans of membereconomies. The a\:1oveprinciples are identifjed as determinants of whether the speechesor Statementspertain to the completion of China's economic reforms. The basic consideration in identifying them is whether or not they have direct and con,crete implications on China's modernization program. Direct and concrete implications are measured in terms of actual investments (whether foreign direct or portfolio), technical assistance,physical technology transfer, and the like, which would benefit a member economy directly and the region 115a whole indirectly. In other words, the main consideration is their direct contribution to the economic development of a member economy. Economic and technical cooperation Economic and technical cooperation is one of the three pillars of APEC activities established during the 1995 Osaka summit. The Osaka Leaders' Declaration of Common Resolve defined economic and technical cooperation as a principle having to do with the promotion of trade and investment liberalization and facilitation. The aim was to narrow the disparities within the region and aChiev~growth and prosperity for the region as a whole (APEC Secretariat 1995).

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Economic and technical cooperation is to be achieved through consultations on macroeconomic, financial, exchangerate, and other policies regarding capital flows, capital market development and infrastructure financing (APEC Secretariat 1995). In the 1996 Manila Action Plan (MAP A), the Leaders' Summit concluded with six areas on which economic and technical cooperation should focus. Theseare: development of human capital; fostering safe, effident capital markets; strengthening economic infrastructure; harnessing technologies of the future; promoting environmentally sustainable growth; and encouraging the growth of small and medium enterprises (APEC Secretariat 1996a). Economic and t~chnical cooperation m~y be consid~ a criterion for completion of economic reforms because developing the six areas of focus is expected to facilitate trade and investment flow among APEC member and nonmember economies. In the area of finance, for instance, trade cannot function smoothly with disparities between domestic and world prices, as in the case of China. Thus, APEC contributes to this area of reform through consultations at the ministerial level regarding the appropriate polici~s for, and the pacing of, the reforms. This same principle applies to scientific and technological exchanges, this rime pertainins to technology transfer derived from trade.

Openingup policies of individual membereconomies In severalofJiangZemin'saddresses,hementionedthe needto open up developingand developedeconomiesto facilitate trade and investment liberalization. Opening up polides necessarilypertain to the completion of the components of economicreforms. For example,bringing down trade barrierswill fadlitate entry of tradeand investmentsin a countryand augment its development.Openingup the marketsof developedcountriesfor exports from developingcountriesmaybe an indication of recognitionfor the latter's efforts at developmentand desire to further integrate themselvesin the international system. Individual action plans Individual action plans (lAPs) of membereconomiesare concrete indications of their political willingnessto undertakeand facilitate trade and investmentliberalization. lAPs contain the actualpolicies that eachmember hasundertaken,or is planning to undertakein orderto achievefreer trade by 2010 or 2020. 189

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Conbibuting to Stability by Revising Rules of the Game This foreign policy linkage pertains to speeches that refer to the maintenance and promotion of the overall regional conditions of peace, stability, cooperation, and flexibility that would be conducive to the development of eachindividual member economy. China perceives an active contributiop to this international condition by being able to take part in the formulation and revision of the rules of the game, which is only possible if all member economies, whether developed or not, are given equal opportunities to do so. China's desire to actively participate in the formulation and revision of the rules of the game is determined by the importance given to the following

factors: A. A:PEC'sapproach, which recognizes regional diversity and stresses on voluntarism, consensus,flexibility and gradual process; B. APEC'sframework for strengtheningeconomiccooperationand development (APEC Secretariat1996b)pursued through the following principles: .mutual respectand equality .mutual benefitand assistance .constructive and genuinepartnership .consensus building c_:. APECas a support for existing multilateral trading system. APEC' 5 approach and framework

Discussion in this section focuses on APEC's approach since it reflects the principles governing the framework for strengthening economic cooperation and development. The framework gives the additional characteristics used in determining whether Jiang Zemin's messagessuggest China's foreign policy interests. Recognition of diversity, consensus, voluntarism, flexibility, and gradual process is valuable for China's process of integration into the international system. China's emphasis on its independent foreign policy of peace calls for recognition of and noninterference in the domestic affairs of a country. Respectingtheseprindples allow China to put forward its foreign policy it'lterestsin the following manner: .RecogniHon of the region's diversity is the first step in allowing countries to give their respective opinions on the development path that should be taken by the region in general. This recognition

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prevents the imposition of rules created by a few "powerful" members, and encourages consultation and consensus. Stresson voluntarism contributes to the formulation ar.d revision of the rules of the game by allowing an individual member to determine its own pace of liberalization and development path. This allows for the building of a consensuson what pace the region as a whole should undertake in the area of liberalization and development. Consensusis a concrete process by which member economies actively take part in the formulation and revision of the rules of the game. This prindple J:)ecessarilybuilds on the consideration of the views 'and prindpl~s of the member economies. Flexiblecharacter initially gives the impression of absenceof rules. In fact flexibility allows member economies to play by the rules of the game without being too pressured by it. This characteristic is a result of the recognition of regional diversity. Advocacy for a gradual processis also a result of the recogmnon ,j of regional diversity. This process does not directly affect how a member economy would cont1bute to the formulation and revision of the rules of the game.fHowever, it allows members to confirm the feasibility of the rules of the g~e, and to define the points in the existing rules that may need adjustment without haVing to spoil the entire system, as may be the caseif the process is more drastic. APEC's suppottfor multilateral trading system The APEC Leaders' Economic Vision Statement at Blake Island recognized the open multilateral trading system as the foundation of the region's econottric growth (APEC Secretariat 1993). In the Bogor Declaration, this vision statement was further affirmed by recognizing that APEC activities were geared toward strengthening and reinforcing, not challenging, the existing multilateral trading system. In fact, the 1994 Leaders' Declaration recognized APEC's positive contribution to the successful conclusion of the Uruguay Round (APEC Secretariat 1994). As indicated in Jiang's keynote speeches, China's foreign policy interest lies in indirectly taking part in the formulation and revision of the rules of the game. Since APEC was created to hasten liberalization of trade in the multilateral system, this implies that APEC has to play by the rules of the

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existing system. Partidpation of member economies in creating the norms and processesin APEC is the direct means by which they indirectly contribute to the formulation and revision of the rules, norms, and processes of the multilateral trading system. THE U.S. PERSPECTIVE Various speechesand statements by President Bill Clinton and other V.s. offidals delivered or issued from 1993to 1999 were analyzed. These include speechesand remarks that referred to the geJ'leralvision of APEC, or were addressed to certain groups that took part in the summit (e.g., APEC host committee, V.S. business community, Pacific business leaders, etc,), and those issued in press conferences. The speechescand remarks chosen pertain to the gener~ vision of APEC to match them With the characteristic of the keynote speechesof Jiang. Analysis will show whether the V.S. gave importance to the issue linkages that would motivate it to fu1fil1 its obligation in the WTO Accession Deal. Assessment of the speechesand remarks was based on V.S. foreign policy interests in pursuing bilateral trade with China. These interests are basically reflected by two concerns: (1) to integrate China in the international system and, thus, engage it into playing by the rules of international trade, i,e., WTO; and (2) to increase access of V.S. goods in China's market.

Integration and EngagementStrategy V.S.'s integration and engagementstrategyis seenin the context of those statements made by President Clinton or other V.S. official ~presentatives in APEC meetings.Thesestatementsrefer to three general themes:consensusbuilding, security,and referenceto GATT or WTO. These themesare important instruments for V.5.'s engagementpolicy. Consensus building One characteristic of AP~(:' s approach is consensusbuilding. It is a useful foreign policy insb"ument of the V.S. in its overall integration and engagement strategy. It is a tool for V.S. engagement at three levels. At top level is the meeting between the U.S. President and China's Leader. At second level is the meeting between members of the V.S. Cabinet and their counterparts in Beijing. At third level is the working level, where no news about meetings of top leaderships is released (~oth 2000).

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The criterion usedin determiningwhethera paragraphsuggeststhe engagementand integration strategyof the U.S.is the importance given to the following: .Openness and cooperationwithin the region; .Recognition of the region's diversity; .Discussions and consultationsonvariousareassuchasbusiness, sdenceand technology,harmonizationof customspolides, etc; .Partnership and dialoguein various areas; .Private sectorparticipation; and .Discussion on human rights issues. These ideas referred to in thecspeeches reflect the characteristics of the three levels of U.s. engagement. Reference to openness and cooperation and the recognition of the region's diversity are made at the top and second levels. Referenceto the other four ideas refers to the third level of engagement. At this level, they could be understood as engagement among the respective businesses and private sectors tapped by the respective govern;p1entsof the APEC member economies to contribute to the actual policym_aking at the higher levels of engagement. This contri?ution may be in the form of information, technical specialization, or technological reiJiforcement. It is in this third level engagementwhere other norieconomk concerns,such as human rights, can be tackled on the side, either through informal talks or by mere example of their counterparts in the process of doing business. On security StanleyO. Roth, Assistant Secretary of State for EastAsian and Pacific Affairs, mentions the need to integrate China into various regional organizations that are concerned with security, such as ASEAN Regional Forum-tARF), as part of the V.S.'s integration strategy. Regional stability and security is a common concern for both China and the V.S.. While China sees it as a pragmatic necessity to sustain its development, theV.S. sees it as a necessity to maintain its leadership in the region. The more important ideas used as criteria that suggest the integration and engagement inte~sts of the V .5. and reflect the theme of security, were those statements that referred to the following: .V.S.'s enlargement strategy ~anifested in its support for democratizing political systems and market econpmiesi

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U.S.leadershipin the region; and Creation of new arrangements(regional or global institutions) that facilitate internationalrelations. The V.S.'s preference for democratic societies is understandable not only becau~e of its natural bias and pride for its own system but because democratic systems are generally less of a threat to regional stability. Democratic societies have various channels through which public opinion and grievances c-ould be vented. These channels are important outlets of the political temperature of a society. Absence of these outlets is tantamount to suppressing small political pressures, procrastinating their release, and accumulating them until they explode when the system can nt>longer sustain them. The V.S. realizes that in a much more integrated system, these small political pressures cannot be allowed to accumulate through repressive regimes because they would pose too much risk for the investments of the country. In several of the speechesby V.S. officials, the V.S. did not deny its leadership role in the region. The V.S. realizes,however, that it cannotmaintain its leadership if it does not involve itself in the region's concerns. This is w!1y reference to V.S. leadership suggestsinterests in engagementand integration. Finally, the creation of new arrangements for international relations is equivalent to increasing the V.S. government's engagementinstruments. It is in the rules, norms and processesof these international arrangementswhere the V.S. finds the venue to officially engagethe countries involved. By coming up with ne't': arrangements for international relations and engaging the countries into their rules, norms and procedures through identification of common interests, the V.S. decreasesthe possibility that a country involved in these arrangements would causechaos or instability in the system because it would suffer from such disorder as well.

GATTandwro WTO is one of those international organizations which the U.S. deems useful in enforcing its engagementpolicy on China. Thus, statements referring to the GATT or WTO, in the context of APEC's cooperation with them in order to advance the APEC vision, are considered criteria in evaluating whether a speech or statement suggests engagementand integration interest of the U.S..

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Market Accessfor the U.S. Achievingmarketaccessis a natural consequence of increasingtrade activity betweencountries. Evaluation of this interest generallypertains to the economicbenefitsthatthe U.S.may obtainfrom an increasedengagement and involvement in the APEC region. Unlike the previous foreign policy discussed,which was 'generallyconcernedwIth broad strategicinterestsin the region, this U.s. interestwill be focused on the statementsthat indicate its economicbenefit,particularly exportbenefits,in the region.Thefollowing ideas are used as criteria in determiningwhethera statementsuggestedthe U.S.government'smarketaccess: .Granting of. normal tr.,:ding relations (NTR) and permanent normal trading relations (PNTR)statusto othercountries,apart from China, which are newly integrating in the international system; .Improving domesticeconomicstrength of the U.S. in order to increasecomp~tiveness in the global market; .Creation of jobs and other export opportunities; .Opening and expansionof markets; .Bringing down tariff barriers; .Individual Action Plans; .E~ly Voluntary SectoralLiberalization(EVSL);and .Concrete economicreform policies for recoveryfrom the crisis. On one hand, the provision for extending PNTR status to China provides the U.S.a stableaccessto Chinesemarketunder WTO rules. On the other hand, the rest of the criteria generallycontribute to increasedmarket accessof the U.S.in two ways. First, by directly bringing down barriers to trade, resulting in a more openand expandedmarket.The individual action plans of membereconomiesand the identification of the sectorsthey deem ready for international competitionfadlitate this. Second,by fadlitating the openingof marketsthrough making domesticmarketmore competitiveand creatingjob opportunities. How APEC Strengthened China-U.S. Foreign Policy Relations This brings us to the third question: How are the respective foreign policy interests of China and the U.S. formally strengthened in APEC, based on the statements in the Leaders' Declarations?

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This question pertains to the official incorporation of the respective foreign policy interests of China and the u.s. in the resolutions of the APEC summits. In answering this question, similar procedures employed in analyzing the speechesaddressing the second question are used. The same set of criteria used in analyzing the respective speeches, remarks and interventions of China's and U.5.'s representatives is used in this analysis. The difference is that 1he documents assessed here are the Leaders' Declarations which reflected the resolutions of APEC's annual summits. This redounds to subjecting the analysis of the Leaders' Declarations under three sets of criteri.J: China's/foreign policy interests, U.S. foreign policy interests, and the Taiwan issue. In assessingthe relationship of APEC's flexible character With ChinaU.S. relations,in the context of the Taiwan issue, a single criterion governing the Chiha-U.5. relationship is used: the "One China" principle. The study co~iders tfrls principle as reflective of the foreign policy interests of both China and the U.S.. The agreementsstudied in this issue are the three ChinaU.S. Joint Communiques of 1972, 1978 and 1981. All 21 speeches,remarks, interventions and resolutions that are analyzed under different sets of criteria in the previous case,i.e., WTO issue, will be analyzed according to the criteria set by the "One-China" principle. The key ideas that suggest adherence to the "One-China" principle are the following: .recognition of the need for a peaceful and stable environment; .recognition of the diversity of the region; and .consensus-building, unilateralism, and voluntarism. Recognition of the needfor a peacefuland stable environment implies adherence to the One-China prirldple. Otherwise, it posesa threat to re~na1 peace and stability becauseChina does not rule out the use of fo>eeas the last resort in achieVing reunification. Recognitionof the region's diversity ideally results in noninterference in the domestic affairs of memb_erstates, further resulting in mutual respect and peacefiil coexiStence. Similarly, adherence to a consensual approach, unilaterali.smand voluntarism is premised on respect for the independence of countries. This ultimately redounds to respect for a country's sovereignty and .for its decision on its own internal affairs, based on its judgment of how it would b~nefit from the existing international conditions.

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Covernge of the Study Although China officially participated in APEC in 1991, the official summits only started in 1993. Thus, the speeches,remarks, interventions, and Leaders' Declarations analyzed in this study were those that came out from 1993 to 1999. In terms of China-U.S. bilateral relations, this study takes the WTO accessionissue and the Taiwan issue into account. The WTO issue represents the bilateral economic relationship of China and the U.S., while the Taiwan issue represents their bilateral political relationship. These two issues were specifically chosen for their relevance in the bilateral relationship. The WTO issue is deemed relevant becauseO1jna has consistently offered concessions for its accession for the past thirteen years, and the U.S. has consistently rejected these concessions until November 1999. Thus, this issue will allow the study to show its relevance and objectives in looking fo~,J:.he noneconomic factors that motivate a country's compliance to a bilateral agreement, the same noneconomic factors that motivate a coufitry' s partidpati~n in APEC. The Taiwan issue, on the other hand, is deemed ,relevant ~cause of its sensitivity to the political relationship of China and the U.S., as reflected in the three joint communiques. This issue wjjl be able to show the e~tent of APEC's capacity to support the security concerns of China and the U.S.. Given the vast number of meetings held in and out of the APEC summit, this study takes into account those criteria set down by the methodology, in selecting the speeches, remarks, interventions, and resolutions to be covered by the study. Finally, the study looks at the relevance o(APEC not in the multilateral trading system, but in bilateral relationships, specifically between China and the Unites States. FOREIGN POLICY INTERESTS IN CffiNA-U.S. RELAnONS Understanding the Accession Deal The China-U .5. bilateral WTO AccessionDeal or Agreement basically consists of provisions that put forward the economic interests of both countries. This\section discusses the provisions, gains and concessions that China and the U.S. have agreed upon, by focusing on tariff and nontariff measures since these constitute the most basic and least controversial form of trade barriers. ,China's economic interests in this agreement are summarized in its modernization and' economic reform goals. Only by cutting down its trade barriers will the technology necessary for its socialist modernization be able 197

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to enter its market. To achieve this, China has agreed to give the following concessions on its tariff measures: .Tariffs cut from an average of 24.6 percent to an average of 9.4 percent overall, and 7.1 percent on U.S. priority products; .Participation in the Information Technology Agreement (IT A) to eliminate all tariffs on products such as computers, telecommunications cquipment, semiconductors, computer equipment, and other hIgh-technology products; .Tariffs cut in the auto sector, from the current 80-100 percent to 25 percent by mid-2006, with the largest cuts in the first years after accession; .Tariffs cut on auto parts to an average of 10 percent by mid-2006; .Tariffs cut in the wood and paper sectors, from the present 12-18 percent on wood and 15-25percent on pa~er to generally between five and 7.5 percent; and .Implementation of chemical harmonization initiative, under which tariffs will be at 0 percent, 5.5 percent and 6.5 percent for products in each category (China Trade Relations Working Group 2000). For nontarlff measures, i.e., the elimination of quotas and licenses, China has agreed to eliminate restrictions with phase-ins limited to five years. These will have the following schedules: .Upon accessionto WTO, China will eliminate existing quotas for top U.S. priority products (e.g., optic fiber cable), and phase out remaining quotas generally by 2002 but no later than 20OS. .Quotas will grow from current trade levels at 15 percent annually in order to ensure that market accessincreasesprogressively; and .China will phase out auto quo~as in 2005. In the interim, the base-level quota will be $6 billion, and will grow by 15 percent annually until elimination (China Trade Relations Working Group 2000). Licenses in the form of trading rights (i.e., the right to import and export) and the ability to own arid operate distribution networks are currently under severe restriction by China. Under the Agreement, trading rights and distribution services will be progressively phased out in over three years. China will also open up sectorsrelated to distribution services, such as repair and maintenance, warehousing, trucking and air courier services. 198

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Given a more open China market for U.S. exports, the latter only gains this market access, which is its primary economic interest from the deal, if it deddes to grant China a PNTR status. -I'Permanent NTR (PNTR) describesthe unconditional Normal Trade Relations tariff status that members of the World Trade Organization (WTO) accord each other as part of their mutual commitments as WTO members. In international law this is more known as the Most Favored Nation{MFN) status. PNTR refers to the stanaard or 'general' tariff treatment the United States extends to other countries in return for mutually favorable tariff treatment for U.S. exports" (China Trade Relations Working Group 2000). For the U .5., ~e extension of a PNTR status to China is the crudal step, next to the AccessionDeal, in order to put forward its interests. Moreover, the extension of a PNTR status to China is the only obligation the U.S. has to fulfill in relation to the Accession Deal because the U.S. market has always been open to China's exports. Give~ these respective economic interests and the corresponding obligations of China and the U.S. in the Accession Deal, the question that arises is, to what extent would these econQmic interests guarantee the fulfillment by China and the,U.S. of their obligations to the Agreement? Yarbrough and Yarbrough's "Strategic Organjzational Approach" for bilateral agreements provides an answer, as seenin t'he following discussion. Expected gains from WTO accession deal Modernization and Economic Refontls in China Among those targeted for reform and modernization in China are the state-owned industries. Reform in this sectoris closely related with reform in the financial sector. China's industrial sector is lagging behind in modernization. State-owned enterprises (SOEs)need to be reformed if not totally privatized. Reform of the SOBsis very much related to a crucial reform that China has to undertake in the financial system, which has to be aligned with the prices in the world system. If China is to modernize through trade liberalization, its financial system should facilitate the convertibility of investment profits. In an analysis, Edward SteinfieId (1998) mentions the substantial role that the SOBs continue to play in China's industrial sector. First, SOBscontinue to monopolize capital-intensive industries. While the growth of medium- and small-scale enterprises in the urban areas has marginalized the SOBs in this sector, SOBs' dominance in heavy industry remains ~challenged (Steinfield 1998).Second,SOBscontinue to absorblabor. According to Steinfield, "China's total labor force in 1995 amounted to

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approximately 623.9 million persons, 173.5 million of whom were classified as urban workers. 'Sixty-five percent of those workers, even in 1995, were still employed in state-firms. In short, state firms employ about seven out of ten urban workers in China. That portion, interestingly, has not declined significantly during the reform period, and stands in stark contrast to the far more dramatic decline in the state sector's share of national industrial output". Finally, and most important from the government's perspective, SOBs continue to provide significant revenue for the government. "In 1995, SOEs produced only 35 percent of China's industrial output value but still contributed 71 percent.of government's revenue" (Steinfield 1998). Steinfield further claims that "unlessSOEs in the transitional context are revitaliZed, the state's capacity to generaterevenue Will continue to erode. ThiSis because despite the significant tax reforms in 1994and a substantial restructuring of the revenue mobilization process, the state industry still remains the only sector that the government can tax with any substantial effect (to its revenue earnings)." China's modemirntion through trade and investment liberalization is challenged by the need to maintain a limited competition for the SOBs, since the latter is one of the more substantial sources of the government's revenue. In another analysis on the relation of modernization of the SOBswith reform in the finandal sector, Nicholas Lardy (1994)enumerates the spedfic polides pursued by China to undertake these reforms. First it enhanced the autonomy, or freedom from political interference of the local branches of the People's Bank in making lending decisions at the local level by reorganizing it along regional lines. Second,also mentioned by ADB (1998),it recapitalized the four largest state-owned banks by injecting RMB270 million into its reserves in order to shape it up for commerdalization (ADB1998). Third, on bad debts incurred by enterprises, it committed more funds to finance the loss~s-to be incurred in writing off these debts. Fourth, it encouraged the banks to take risks into consideration when setQJ\ginterest rates for borrowers, which ultimately boiled down to operating on a more commerdal basis. In support for this policy, the system of mandatory lending quotas was phased out in 1998. "Instead, the central bank will regulate the lending of banks through spedfying certain asset-to-liability ratiosl/ (ADB 1998). Fift~ the Chines~central bank tightened the regulation and supervision of both banks and nonbank finandal institutions. This is fadlitated by a new scheme for classifying nonperforming loans. This new system is more aligned with mtemational standards. Also, classification will lie based partly on risk rather

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than exclusively on paymentstatus. Moreover, the system of setting aside provision for nonperforming loans is to be overhauled."Finally, the State Administration of ExchangeControlhasbeenchargedwith the responsibility of ensuring both that all international commercialborrowing by domestic institutionsis approvedin advanceand thatborrowed amountsdo notexceed certainmultiples of the borrowers' net assetsand foreignexchangeearnings. Thesenew regulationsseverelylimit the ability of nonfinancialfirms to incur foreign exchangerisks" (ADB1998). The influx of foreign direct investmentsasa result of the WTO deal would be helpful in boosting thesepolicy reforms in the industrial sector, specificallyon theSOEs,.inorderto promotemodernization.However,China also facesa greatchallengein the increasingneedto modernizeand reform the financial systemin order to unify domesticand world prices. Lardy's enumeration of reforms in the financial sector shows that China's modernizationcanbeaccomplishedevenwith minimal, or without compliance to any trade deal sincethe reforms are basedon domesticinstitutions. Cuts in tariff and nontariff measuresdo not significantlyaddressthe major~ector, i.e., the SOEs,targeted by China's modernizationpolicy. Goingbeyond the tariff and nontariff measuresthat are ttlanqated by the WTO, and looking into the mandate for state-ownedenterp~s and industries, the accession agreementstatesthat: The Protocoladdressesimportant issuesrelated to theChinese. government'sinvolvementin theeconomy.China has agreed that it will ensure that state-ownedand stateinvested enterpriseswill make purchasesand salesbased solely on commercialconsiderations,su(:has price, quality, availability and marketability, and that it will provide U.S. firms with the opportunityto competefor salesandpurchases on nondiscriminatoryterms and conditions. Chinahasalso agreedthat it will not influencethese commercialdecisions(either directly or indirectly) exceptin a WTO consistentmanner. With respectto applying WTO rules to state-ownedand state~invested enterprises,we have clarified in severalways that thesefirms are subjectto WTO disciplines: .Purchases of goods'or servicesby thesestate-ownedand stateinvestedenterprisesdo not constitute"governmentprocurement" and thus are subject-toWTO rules. 201

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We have clarified the status of state-ownedand state-invested enterprises under the WTO Agreement on Subsidies and Countervailing Measures.This will help ensure that we can effectively apply our trade law to theseenterpriseswhen it is appropriate to do so (China Trade Relations Working Group 2000). Modernization of the SOBs is not addressed under this Agreement. Instead of reform and modernization, the Agreement merely clarifies how the SOBs are to' be subject to WTO discipline, which is fair enough. Gi ven this, it is still licit to conclude that modernization of the heavy industry sector, ie.,the SOBs, still very much relies on the domestic impetus rather than on the signifiCa11t influence of the Agreement. Thus, from the perspective of Otina, modernization as a benefit from the Agreement does not suffice as the condition for compliance to the Agreement because noncompliance or opportunistic violation of the Agreement can still allow China to pursue its reform and modernization, especially in relation to the SOBs. Modernization of the SOBslies in the government's ability to purchase technology to upgrade the industry. However, if the bulk of the problem lies in the nonperformance of these industries, which may be due not only to inefficiency but to lack of , demand or the obsolescence of the industry, then increased availability of technology in the market may not address the insolvency of the SOBs. Here it could be seen that China's gains from violating the agreement is similar, if not equal, to the gains from noncompliance with the agreement, which gives China the option to gain more from an opportunistic violation. Given these domestic options in achieving modernization, China )nay opt for another possibility of achieving it without complying with the agreement. Given the current NTR status that China has with U.S., it can simply opt to be patient with the latter's annual review of this status and China can continue t9 benefit from the existing trade. Greater market accessin China try U.S. exports

The u.s. is rather happy with the one-wayconcessionthat China is offering in the WTO accessiondeal. Its main trade interest in granting the PNTRstatus to c;:::hina is achieving greatermarket access.In summary, the Agreementcomprehensivelyliberalizes a wide range of sectorsin China's economy. "It will reduce Chinesetrade barriers acrossthe range of goods, servicesand agricultural products;eliminate or sharplyreducerestriction on 202

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freedom to import and distribute goods within China; address industrial policies intended to draw jobs and technology to China; and strengthen the guarantees of fair trade practices" (Barshefsky 2000). Reduction of tariff and nontariffbarriers on this Agreement basically covers the trade of the industrial sector. More concretely, the Agreement will allow American exports to enter the Chinese market with tariff barriers reduced from 24.6 percent in 1997 to 9.4 percent by 2005,binding them at the latter levels. Quotas and other numerical restrictions will also be eliminated. American firnls will be able to freely import and distribute their products in China (Barshefsky 2000). Some who are against the granting of PNTR status to China argue that adopting such policy would be "demoralizing" on the part of the U.S. government because it is tantamount to shelving aside more critical unresolved issues, such as human rights, religious and political freedom, etc.4In other words, they argue that granting such status to China would be losi11gthe leverage of U.S. against these other issues. Putting political issues aside, it can be seen that to gain the market accessbenefits that are expected upon China's accessionto WTO, the annual review of the NTR will be enough. In the end, the expected trade gains by the U.S. can be achieved even if it opts not to c;omply with the agreerllent, or commit an outright opportunistic violation 1:/ynot granting the PNTR status to China. As remarked by Clinton and U.S. trade representative Charlene Barshefsky in several of their addresses, the PNTRstatus is merely the same NTR status that they have been granting China for the past twenty years. This implies that they would be achieving the same market accessin China and giving the same market access to China from their side.s Hence, as in China's case, the expected market accessgain of the U.S. from compliance with the agreement is not sufficient because it gives the U.S. an option for greater gains through noncompliance or through outright opportunistic violation.

4Statement by House Democratic Whip David E. Bonior on release of letter signed by members opposing Permanent Most-Favored Nati9n Status of China. March 30, 2000; JosephM. Hoeffel, a Democrat law maker. Remarks delivered in the House of R~pre9~tatives. March 30, 2000; Statement of Representative Nancy Pelosi announcing coalition working to revoke Most-Favored Nation Trade Statps for China, May 21. 5The main difference between the PNTR and the usual NTR status that has beengranted to China is that the .former allows the u.s. to sanction China according to the WTO rules once it joinsWTO, while mere NTR status does not allow U.S. to do this. U.s.-China BusinessCouncil. PNTR Fact Sheet,February 2000. www.uschina.org 203

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Table1 pre~er.tsa summary of the bilateral relationship. From the table, one may conclude that mere expectationof economicgains from the agreementdoesnot provide suffident condition for the bilateral relationship to continue.On the onehand,while China expectsto accelerateits domestic modernization by complying with the agreement, it can still pursue modernization, and even reduce the risk of externalpressure for political reform even if it does not comply with, or commit outright violation of its commitment, to the agreement.On the otherhand, the U.S.also finds itself in a ~ situation.While it expectsto gain greatermarketaccessfor granting a PNTR status to China, it also sees greater noneconomic gain of noncompliancewith the agreement,ie., it canhavea leverageof pressuring China to speedup its reformsin the area of political freedom,environment, and other noneconomicissues.Furthermore,the U.S.can seeeven greater gainsfrom outright opportunistic violation of the agreement,achievemarket accessin China through annual review of the NTR, and at the sametime havethe leverageof pressuringChinato undertakefurther domesticpolitical reforms. Q

Table 1. Summary of U.S.-China Bilateral Relationship Showing Nonfulfillment of Condition because of Foreign Policy Linkages E(c)-E(nÂťE(v) Country E(c) E(n) E(v) China Modernization' China loses the Modernization is still possible; and opportunity to increase Discussion of other political development influx of technology from issuescan be relegated to augmenting the U.S. and delay the other summits. China's process of its economic economic reforms through reforms. modernization. .Remains at status quoreducing the risk of domestic political instability due to increased pluralism that accompaniesdrastic liberalization. United Greater market. Losing a greater market Greater market accessin States accessin accessin China. China is still possible with China. .It serves as a tool giving annual review of NTR status; the U.S. a leverage to U.S. maintains leverage to encourage improvement of pressure China on other China's conduct in the areas political and nontrade issues. of human rights, Taiwan issue, democratic practices, etc.

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In the final analysis,there must be something more precious than mere modernization or market accessthat would convinceChina and the u.s. to comply with the AccessionDeal. Expected gains through foreign policy linkages The previous discussion showed how mere expected trade gains from the WTO Accession Deal are not sufficient to ensure continuation of the bilateral relationship. This part of the study introduces the foreign policy issue linkages that China and the U.S. put in the agreement in order to make it viabl_e. President Jiang Zemin's keynote speeches at the APEC leaders' informal meetings show how he addressesthe foreign policy interes~ of Otina. Similarly, the ,domestic campaign in the U.S. for Congress's approval of the PNTR status for Otina reveals the U.5.' foreign policy interests. These interests will be considered as the noneconomic factors that impedesmooth trading relationship between Otina and the U.S.. However, linking foreign policy issuesto theseimpediments to the agreementwill serve as the self-enforcement mechanism to make the agreement viable. The discussion summarizes the basic prindples that govern the dea1ihgsbetween China and the U.S. in the context of the Accession Deal, reflecting their respective forei~ policy interests. Modernization and China's Foreign-:Puttq Interests China's f~reign policy interest is to actively take part in the formulation and revision of the rules of the game in order to preserve its independence and sovereignty over domestic or internal matters, and pursue its modernization and economic reform. China sees that it can achieve this foreign policy interest if it actually forms part of international organizations such as WTO. As China emerges from its isolationist trade policy of the Cold War decades,the Ministry of Foreign Trade and Economic Cooperation (MOFTEC) explains that China's foreign policy interest in committing itself to WTO demonstrates its confidence and determination to undertake international obligations. An article entitled "China's Proposition on the Establishment of a New International Political and Economic Order," posted by the Foreign Ministry, confirms China's willingness to work with other countries to bring

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about a just and equitable new international political and economic order.6 This is in line with itS view of economic globalization, which is characterized by increasing disparity between rich and poor nations. China's proposition is that equal partidpation of developed and developing countries in economic affairs should 'extend to the right to equal participation in the formulation and revision of the "rules of the game." The rules should not be determined by a small group of countries alone.7 Through this statement, China's pragmatic foreign policy interest in forming part of the WTO is revealed. The essenceof this pragmatic motivation can be summarized into two: First, to bring into completion the components needed for its economic reform, which does not completely satisfy China's interest in joining WTO. Second,and more important, to achieve international recognition for its modernization and economic reform efforts, and to actively contribute to international peace and stability, which it deems necessary to fully realize its development goals. China realizes that this is only possible if it is able to take part in the formulation and revision of the "rules of the game."

Basedon its view of economicglobalizationand its propositionsfor a newinternationalpoliticaland economicorder, Chinaadheresto a strategy that allows countries to aim lor their national interest, provided that they acJ1ieveit in the context of international interdependenceand cooperation. China's advocacy for cooperation is aimed against hegemony. This is underscoredby its call for equal rights of both developingand developed countries to participate in the formulation and revision of the rules of the game.For China, allowing everyone,asmuch aspossible,to participateand contribute to the environment of cooperation, peace and stability will ultimately redound to everyoneachievingits national interest. Market Access and U.S.'s Foreign Policy of "Engagement" I The U.S. foreign policy interest is to engageChina in the international system and make it play according to its rules. The U.S. does this by facilitating Chiria's membership in international organizations such as WTO.

6Foreign Ministry of the People's RePublic of China. "China's Proposition on the Establishment of a New International Political and Economic Order." www.fmprc.gov.cn 7Foreign Ministry of the People's Republic of China. "China's View on Economic Globalization." www.fmprc.gov.cn 206

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In the domestic debate whether or not to grant China a PNTR status, the advocates of the policy explicitly link U.S. strategic interests to the agreement. ...China's WTO accessionalso has deeper implications. Our relationship with China, given China's size and economic weight, affects all of America's foreign policy and security goals in Asia... We have serious differences with China in a number of these issues,sand have found areas of common ground as well. And we have a fundamental responsibility to develop a stable mutually beneficial relationship in which we act upon areas of shCiredb~efit and mutual interest. WTO accession will allow us to do so, as it complements and supports long-standing American goals in China policy: -By helping to open 'and liberalize China's economy, WTO accession will create new economic freedoms for Chinese citizens and promote the rule of law in many fields now dominated by state power and control. -By integrating China more firmly into the Pacific and world economies, WTD accession will give China a greater stake in regional stability and prosperity. It will, thuS, together with our military presencein the Asia-Pacific and our regional alliances, .bea factor in favor of long-term regional peace.9 Objectives of the V.S.'s Policy on China In a speech, StanleyO. Roth, U .S. Assist~t Secretary of State for East Asian and Pacific Affairs, states the objective of the U.S. government's Orina policy, which is to make it "a strong, stable, prosperous, and open Orina, one which respects the diverse views and strengths of its own people. Our strategy is to integrateChina into regional and global institutions, helping it become a country that plays by the accepted international rules. Engagementis the coherent set of tactics to accomplish this strategy" (Roth 2000). 8These issues range "from broad strategic interests to regional issues in Korea, Southeast Asia and elsewhere; human rightS'~d religious freedom; weapons proliferation; environmental issues; labor rights; crime and narcotics trafficking; and many others..." Testimony of Charlene Barshefsky,U.S. trade representative, to the House Committee on Ways and Means. February 16,

2000. , Testimony of Ambassador Charlene Barshefsky, U.S. trade representative before the House Committee on Ways and Means. Washington D.C. February 16, 2000. Similar words were also delivered at the National Conference of State Legislators, Washington D.C., February 4, 2000. www.usinfo.org 207

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u.s. policy seesa strong China having positive repercussions in four areas:first, a strong China is able to defend its borders and interests. Second, a strong China motivates it to cooperate with its neighbors in countering transnational problems that corrupts the region, such as drug trafficking and ev'rironmental-degradation. Third, an economically strong and dynamic China is able to offer its dtizens an improved standard of living, attract imports and both foreign and domestic investment, and export competitively. Finally, a strong China contributes to the security and prosperity of its neighbors (Roth 2000). The U.S. seesOrina's demographic and geographic sizes as potential factors for chaos and instability in the region. Thus, it deems it better to have a stable Orina, or otl1erwise risk regional chaos, according to Roth. The U.S. also perceives the potential of a prosperous China for increased export and investment opportunities of U.S. companies, espedally in technology. Roth draws this conclusion from the current status of China's trade relationship with the U.S., being its 11 th largest trading partner. Finally, opening China would hasten its democratization process. Socially, politically and culturally, U.S. envisions an -openChina as one that not only respects freedom of thought, expression and religion, but one that sees these freedoms as factors that would benefit both the dtizens and the government. This is only possible if the government ensu~s an environment that would allow the emergence of new ideas and give room for old ideas to be challenged and reconsidered. Economically, U.S. envisions an open China as one which welcomes the entry of new technologies in its market, in view of expanding development and exchanges of information and ideas (Roth I

2000). The integranon strategy GenerallYI the V.S./s integration strategy for China encourages its increased participation in the global community through membership in regional and mpltilateral international organizations in the area of both economic and security. The V.S. does this at three levels. Firstl it encourages China to be more tolerant of the values and concerns of others. Thus, the IIimprovement of human rights has been, and will remain, a vital part of our engagement with China." Second, it makes China agree and play by the rules of trade and investment by encouraging its participation and membership in regional and international trade organizations such as APEC and WTO. Finally, it brings China into global and regional institutions that help preserve 208

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peace(Roth2000).By successfullyencouragingOrina to partidpate in these vehicles of integration, i.e., economic and security regional and global groupings, there will be lesserprobability of an unstable region from the perspectiveof the U.S.' China policy objectives. Engagement as a tac"c V.S. government's engagement policy takes place at three levels. At top level are the periodic summits between the V.S. President and China's leadership. At second level are meetings between the Cabinet members of V.S. government and their counterparts in Beijing. The third level is the "working level," i.e., when no news about meetings of Chinese and American leaders or Cabinet officials is released. For the V.S., this tactic serves two purposes. First, in the words of Roth, it "de-demonizes" the V.S., that is, it changes China's negative views of the V.S. foreign policy objectives. In other words, engagement is .the V.S. strategy toward confidence building between the two nations. Second, it helps deter China's military expansion. It can be seenthat given the V.S. government's China policy objectives, the Accession Deal is valuable for the V.S. for reasons other than market access.China's WTO accessionis an importa1'it aspect of the V .5.' s int~gration and engagement strategy. However, prior to being able to engageChina into more democratic processes,such as openness to the diversity of ideas of its own people and of other countries, the v.s. has to tentatively engage China through another venue -the APEC. V .5.'s interests in its China policy, as reflected in the WTO Accession Deal, can be seen at two levels. Firt is gre-ate~market a~cess,which is a direct economic consequence, but it is not sufficient to make the WTO agreement viable for the US. Second, and more important, is the engagement and integration of China into the international system in order to make it play according to the rules of the trading system. This is the foreign policy linkage that makes the WTO accessionagreement viable to the V.S.. Table 2 summarizes the fulfillment of the conditions that make the agreement viable for both China and the V.S.. The table shows how the linkage of China and the V.S. governments' foreign policy and economic interests hold the agreement viable for both. As the Table shows, only through China's compliance with the agreement will it be able to actively participate in the formulation and revision of the r\}1es of the game, which represents its foreign policy interest, while at the same time achieving modernization and economic reforms which

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represents its economic interest. For the U.S., only by complying with the agreement that it is able to engage China in the rules of the international system, while achieving greater access in China's market. These are the respective foreign policy interests that China and the U.S. are currently giving priority in their bilateral relationship. The weight given to these foreign policy interests servesas the self-enforcementmechanism that provides the necessary condition for both countries to see greater benefits in complying with, instead of violating, the agreement. Table 2.

Summary of China-U.S. Bilateral Relationship Showing Fulfillment of Conditions because of Foreign Policy Linkages E(c)-E(nÂťE(v)

Country

China

E(c) .Modernization

and development augmenting China's economic reforms; .Able to actively participate in the fonnulation and revision of the rules of the game.

United States

.Greater market accessin China; .Enforcement of its foreign policy of engagement through the wro rules.

E(n) .Loses opportunity to increaseinflux of technology from the U5. and delay the processof its ecOl}omicreforD!Sthrough modernization. .Remains at status quo lessening the risk of domestic political instability due to increased pluralism that accompanies drastic liberalization. .Loses greater tt)arket accessin China. .It would be a tool giving the U5. a leverage to encourage improvement of China's conduct in the area of human rights, the Taiwan issue, democratic

E(v) Modernization is still possible; DiscuSsionof other political issuescan be relegated to other summits.

.Greater market accessin China is still possible with the annual review of its NTR status; .Maintains its leverage to pressure China on other political and non trade issues.

It can be seen,therefore, that this was the reasonwhy the V.S. changed its position after rejecting the initial concessionsof China for WTO accession. However, despite successfulclosure of the deal in November 1999,the formal normalization of China-V.S. bilateral trade relations is still under debate in the V.S. Congress. Only with the extension of the PNTR status fer China will th~ V.S. be able to achieve its overall interests, in terms of economic and, more importantly, foreign policy, from the WTO Accession Deal. Having separately analyzed the respective foreign policy interests of China and the V.S., this section has demon$trated the dynamics and weight that these interests play in dedding whether or not one will comply with a

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given concession. And having understood the considerations that caused the previous meltdown of China-U.S. bilateral trade relations, one question remaim: What role did APEC play in achieving the China-U.S. WTO Accession Deal? China-U.S. Relations and the Taiwan Issue This section looks at another important issue -the Taiwan questio~ in China-U.S. bilateral relations in the context of APEC. "One-China" Principle: A Review China and U .5. in~erestson the Taiwan issue are reflected in the "OneChina" principle elaborated in the Joint Communiques of 1972, 1979, and 1982. The white paper released by the Taiwan Affairs Office and the Information Office of the state Council on February 21, 2000, explains the history and basis of the "One-China" principle}O From this document, one can draw several consequencesof the One-China principle. First, in terms of recog11ition and representation in international relations, the One-China principle holds the People's Republic of China alone (PRC), and not the Republic of China under the Kuomintang (KMT), asthe legitimate government representing the entire people of China. Sec~nd,since the _declaration-ofthis principle and its acceptance at theUnited N~tions, China gave the signal that it was: "ready to establish diplomatic relations with all foreign governments that were Willing to abide by the principles of equality, mutual benefit and mutual respect for ea'th other's territorial integrity and sovereignty" (Taiwan Mfairs Office and the Information Office of the State Council 2000). As a consequence, the One-China principle became a premise for the "peaceful" reunification of Taiwan with the mainland. Otherwise, nonacknowledgement of the One-China principle could provoke China into using force in achieving reunification, since the latter sees this nonacknowledgement as meddling in its internal affairs, a threat to its territorial integrity, and a violation of its sovereignty as the legitimate government over Taiwan. As stated in the white paper, a. key point of this principle is that "China' will do its best to achieve peaceful reunification, but will not commit itself to ruling out the use of force...since it is an internal affair". Thus, the third consequence of the "One-China" principle is its repercu~sions on the peace and stability of the region. Finally, the fourth consequence is the direction of China's policies toward ~ater exchangewith the international community. China will actively j

10Taiwan Affairs Office and In1ormation Office of the State Council. White Paper- The One-China Principle and the Taiwan Issue. February 21, 2000. www.fmprc.gov.CD 211

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support people-to-people contacts and economic and cultural exchanges between the mainland and Taipei, and start direct trade, postal, air and shipping services as soon as possible. After reunification, the implementation of the "one country, twfJ"System$"s1tall be woJiked out, giVing Taiwan a high degree of autonomy and a1lo~g it to maintain a capitalist system for a substantial period of time (Taiwan Affairs Office and the Information Office of the State Counci12000). The Taiwan question continues to be a sensitive issue, if not a stumbling block to China-U .5. relations. The three communiques remain the basis for a healthy and stable relationship between the two countries in the face of the Taiwan question, as stated in the white paper. These communiques contain the principles upon which the two countries have agreed to deal with the Taiwan issue. These same principles were reiterated in the white paper on "One-China" policy just mentioned. The difference is that in thesecommuniques theU .5. agreement on theseprinciples is confirmed. The Communique on the Establishment 9fDipiomatic Relations, released on December 15, 1978 and tookeff~ct on January 1, 1979, summarized these prindples: that tlie U.S. recognizes the Government of the People's Republic of China as the sole legal government of China; that within this context, the people of the U.S. will maintain cultural, commercial, and other unofficial relations with the people of Taiwan.ll China and the U.S. also re9ffirmed the principles contained in the 1972 Shanghai Communique. Some of these prindples are: .Both countries agree to reduce the danger of international military conflict; .Neither seeks hegemony in the Asia-Pacific region and each is opposed to efforts by any other country or group to establish such hegemony; and .The U.S. ackitowledges China's position that there is ,bu~ one China ~d Taiwan is part of China. Dearly, the main interest of China in these jointcommuniqu~is to be recognized as the sole legal government of 01ina. This serves as the premise for its peaceful reunification with Taiwan. China's concessioQ'in order to achieve this interest is to allow the U.S. to have cultural, com~erc~, and other unofficial exchanges with Taiwan.

11Joint Communique of the United States of America and the PeoplesRepublic of China. January 1, 1979. www.usinfo.org

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The V.S. government's interest in these communiques is to maintain peace across the Taiwan strait, which is only possible if the V .5. a~es, or at leastremains neutral, with China's clairil as the sole legal government of China. More concretely, the V.S. government's obligation in thesejoint communiques is the withdrawal of V.S. military installations from, and the reduction of arms sales to, Taiwan. Given the interests and the concessions of China and the V.S. on the Taiwan issue, how do they fulfill their obligations to the a~ement? And why is there continued tension between China and the V.S. on the Taiwan

issue? Evidently, China.allows the U.S. to have unoffidal exchangeswith Taiwan, including Taiwan's partidpation in APEC as a membereconomy. The U.S.is also Taiwan's top trading partner. However, China views with misgivingssomeunoffidal exchanges,suchas LeeTeng-hui'svisit to Cornell University, his alma mater, in 1995/_to keynote the graduation ceremonies and receivehis doctorate(Levine1998). For its part, the U.S. pursues concrete policies that violate the agreement,suchas its adherenceto the Taiwan RelationsAct (TRA)and ~e Taiwan EnhancementAct (TEA),which ~a perceivesas violationSof the "One-China" principle. Both legislative actSincreasesalesof sophisticated weaponsto Taiwan. This nonfulfillment by the U.S. of its concessionsto the agreement maybe attributed to the absenceof a strongerlinkage that could motivate the U.S.into fu1fi1lingits obligations.China's concessionis basicallyto allow the U.S. market accessin Taiwan, but, as mentionedin previous discussionon the WTO AccessionDeal, the U.S. is not so bent on increasingits market access.For its part, China seesreunification with Taiwan as a very solid motivation to adhereto its obligations.This explainsChina'swillingness to allow continued exchangesbetweenthe U.S. and Taiwan. However, what China doesnot toleratein theseexchanges is the U.S.government'sunspoken support for Taiwan's independence-which w짜 how it viewed Lee Tenghui's visit to Cornell University (Lavine 1998). ' In Yarbroughand Yarbrough,the China-U.S.accord on the Taiwan issueis an exampleof the nonfulfillment of the condition for the viability of the agreement.Theyseethat the U.S.government'sviolation of the agreement is a suffident reasonfor China not tofulfm its own obligations,resulting in both parties agreeingnot to comply with the agreement(Yarbrough and Yarbrough 1992). The absence of a strong issue linkage on the joint 213

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communiques explains the continued tension between China and the U.S. on the Taiwan issue. Both parties simply resort to noncompliance or outright violation, perceiving a greater gain in it.

APEC: FOSTERING FOREIGN POLICY ISSUE LINKAGES What role did APEC play in achieving the AccessionDeal? This section tries to answer the question. The previous section pointed out how, on the one hand, the linkage of China's and the V.S.'s re$pective foreign policy interests served as selfenforcement mechanism for both parties to fulfil1 their obligations to the WTO accessionagreement. It also pointed out, on the other hand, how the absence of a strong issue linkage, as in the case of the Taiwan issue, resulted in the violation of, and noncompliance with, the agreement. Tl1isstudy proposes that APEC plays a significant role in overcoming the deeper impediments to bilateral trade thro~h dialogues in the APEC

Figure 2 shows that in 1993 and 1994,China's foreign policy interest of contributing to international peaceand stability through active participation in the formulation and revision of the rules of the game was given emphasis.. This could be attributed to the fact that APEC's agenda in 1993 basically consisted of its economic vision, and in 1994, the agenda was about setting the specific period for liberalization.. In establishing APEC's economic vision, it was inevitable to consider a wider and long-term perspective of the community's goal.. It naturally followed that this perspective involved foreign policy interests since they constituted the wider picture of a country's foreign economic interests.. On 214

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the other hand, setting the specific period for liberalization touched on the foreign economic interests of a country. Since foreign economic interest had to be discussed within the wider context of a country's foreign policy interests, Jiang Zemin's emphasis on the latter in 1994 was w'\derstandable. However, it should be noted that APEC's 1994 agenda focused on more concrete economic goals for the region. Therefore, China's economic interests were given greater emphasis in 1994 than in 1993. In 1995,Jiang gave equal emphasis to China's economic and foreign policy interests. This could be attributed to APEC's agenda that year which called for more concrete actions in achieving liberalization. This summit, held in Osaka, establishedthe ,ActionAgenda on trade and investment liberalization and on facilitation of economic and technical cooperation. Thus, the dear economic nature of the Agenda did not give much room for China tq harp on its foreign policy interests. In 1996, the Manila Action Plan gave China more room to expound on its foreign policy interests. This was the year when the Individual and Collective Action Plans were adopted. Emphasizing on ttnilateralism and voluntarism, China was able to justify its individual action plan in the context of its foreign policy interests. In 1997, greater emphasiswas given to economic interests because of the Asian financial crisis. In 1998,as the region was still recovering from the crisis, China's emphasis on its foreign policy interests was watered down, although it still exceeded the emphasis on economic interests. In 1999, foreseeing China's accessionto WTO, Jiang used the APEC summit to harp on China's foreign policy interests, emphasiziI)g on the role that China was willing to play in the international trading system. It was in that year when China forged the WTO Accession Deal with the U.S..

Adopnngforeign policy issuelinkagesin theLeaders'Declaranons Leaders' Declarationsare offictal documentsreleasedby the APEC secretariatreflecting the consensusand resolutions of the annual summit. Forconsistency,thesamecriteriausedin categonnngtheparagrapmofJiang's speechesare usedin analyzingthesedocuments. Figure 3 shows the results of the content analysisof the Leaders' Declarationsfrom 1993to 1999.

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Figure 3. Frequency Results of the Content of the Leader$' Declaration (1993-1999)

OE.x.nONn;'ftfonn CONnponen" aInt'lp~and.tability 8Neutral

1993

1994

1995

1'196

1998

1999

Leaders' Declarations of Common Resolve from 1993 to 1999 contained a total of 197 paragraphs. Of this, 34.01 percent suggested China's underlying interest in completing its economic reforms and in gaining recognition for these reform efforts; 41.12 percent suggested an interest in contributing to the regional and international conditions of peaceand stability for more sustainable develop~ent; and 24.36 percent were neutral. Figure 3 shows hJ>wprinciples suggesting China'sforeign policy interests are officially recogrtized in APEC summits. The resUlt of this analysis gives a toned-down perspective of Q,ina's foreign policy interests because the resolutions contain not only China's positions but also the overall consensus of the region' smembers. This toned-d(>wnpersp~ctive is also good in the sense that it shows the real weight of China' s fqr~ign policy interests, as reflected in the APEC resolutions. U.S. Interests as Suggestedin Al':EC Since 1993, the U.5..has given greater e~hasis on its foreign policy interests in APEC summits.. In fact, Figure 4sh(>ws that the U ..5..is not so much concerned with increasing its market access,as indicated by the neutral bar, which is almost at par with the~arket accessbar. The speechesof President Clinton and of the other U.S.representatives in the APEC summits totaled 257paragraphs. Of this, 64.66 percent suggested US interest in engagement and integration strategy. Only 26.72 percent suggested US interest in achieving market access.The remaining 23.88percent represented neutral paragraphs. Figure 4 shows the comparison. The data validate the hypothesis made earlier that the U.S. attaches greater importance to engaging China in the economies of the region than in achieving market

access. 216

CHINA'S PARTICIPATION fN APEC

Flg\lre 4. Frequency Results of the Contents of the U.S: s Addresses in APEC Summits (1993-1999)

How were the foreign policy issue linkages adopted in the Leaders' Declarations? The answer suggeststhat APEC has the capadty to sustain the foreign policy interests of the U.S.. Analysis of the Leaders' Declarations in this section used the same criteria applied in analyzing the various speechesdelivered by the U.S. in the APEC summits. These criteria reflect U.S. interests in engagement and integration and in market access. As mentioned earlier, the Leaders' Declarations from 1993 to 1999 contained 197 paragraphs. Of-this, 63.45 pe,cent suggested US interest in engagementand integration, 37.07percent suggested interest in greater market access"and 9.64 percent were neutral. Figuye5. Frequency Resultson Leader'. Declaration Determining U.S. Interests (1993-1999)

Figure 5 shows the results of the content analysis of the Leaders' Declarations from 1993to 1999 with respect to U .5. foreign policy interests. It is clear from the Chart that APEC provides another venue for the Q:.5.to put forward its engagement policy.

Analysis -In negotiating for China's accessionto WTO, China and the U.S. agreedto offer concessions despiteinsufficient directeconomicbenefitsfrom 217

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increased trade as a result of lower trade barriers under WTO rules, and despite a debate in the V.5. Congress whether to allow China to join WTO. In forging the Accession Agreement, both countries channeled their foreign policy interests in two different ways. China offered concessionsagreeableto the V.5., while the V.5. saw the PNTR to be relevant to its purposes. Ultimately, their foreign policy interests were geared toward a broader and common joreign policy goal, which is the maintenance of regional peace and stability. China's idea of regional peace and stability is based on the principles of mutual respect for sovereignty and territori~l integrity, mutual nonaggression, noninte)"ferencein each other's internal affairs, equality and mutual benefit, and peaceful coexistence. China makes operational these principles by actively participating in international affairs through membership ip spedfic international organizations. China, thus, recogni~s that international organizations are venues where a country can make its interests officially known to other countries, so that countries can act according to the abovementioned principles. In the long run, China sees its active parqcipation in the formUlation of the rules of the game as an important factor in sustaining its development and modernization goals. On the other hand, the V.5. seesChina's isolation as a potential threat to regional peace and stability. This perceived threat is a spillover of the V.5. foreign policy strategy of enlargement, which it employed initially after the <;:oldWar and before implementing its engagement strategy. The bas,icidea of enlargementpolicyis to increasethe number of democratic societiesaround the globe by supporting the democratic transition of post-Communist states. The V.5. has employed several tactics in applying this policy to China (e.g., linking human rights issues with China's accessionto WTO prior to 1994). i ' However, it realizes that this only results in the further isolatiOJ\~f ~, and increase_sthethreat to peace. Hence, the V.5. seesthe need to integrate China in the international system" and "engage" it in the ~ rules, norms and procedures of existing regimes. This way; the V.5.lessensthe "threat" posed by an isolated China, since it will be able to impose sanctions if China "misbehaves." In the long run, the V.5. seesinternational peace and stability as a key to securing its leadership role in the Asia-Pacific region. Given the common foreign policy interests and different approaches in achieving thettl, the value of a regional economic forum is highly regarded. Though APEC, unlike WTO, cannot be considered as a multilateral forum becauseit cannot act as a third p~ to enforce the commitments of its member economies, it has great value in terms of strengthening the foreign policy ,

218

CH[NA'S

PART[C[PAT[ON

[N APEC

interests of member countries. These foreign policy interests are deemed important in creating a sufficient condition for compliance with bilateral agreements. Thus, the value of APEC lies not so t;I1uchin creating new rules and procedures for trade but in supporting and encouraging the implementation of existing bilateral trade agreements, or the rules of the mUltilateral trading system at large. In the case of China-U.S. bilateral trade agreements, the APEC summits provided room for promoting their foreign policy interests. This observation is validated by the results of the content analysis of significant speeches, statements and remarks made by both countries in the APEC summits. These results are summarized in Figures 1 and 2 for China and Figures 3 and 4 for the U.S.. Looking closer into O\ina's case, it is apparent in Figure 1 that Jiang Zemin's speeches emphasized more on China's interest in actively participating in regional and international organizations than in economic reforms. However, there were some years (ie., 1995and 1997) when interest in economic reforms was at par with, or even exceeded the interest of active participation in regional and international affairs. There is no doubt, however, that Otina is keenly interested in contributing to regional peace and stability through active participation in the formulation and revision of existing rules and processes of the game. Three criteria were ~sed in measuring China's move to contribute in this task. First was the emphasis on APEC's approach. Second, similar to the first, was the emphasis on APEC's framework in strengthening economic cooperation and development. Third was the importance given to APEC s role in supporting the existing multilateral trading

system.

Similarly, Figure2 indicatesa regionalconsensusthat acknowledges, even if indirectly, China's foreign policy interests.However, as the region envisionsprogressin the area of regional trade and economics,the regional consensus,ascontainedin Leaders'Declarations,indicatesthat foreignpolicy interestscannotbe too dominant over economicinterests.This explainsthe lesserdisparity betweensuggestedinterestsin economicreform components and suggestedinterests in active contribution to international peaceand stability. Yet, despitethe toning down of China's foreign policy interestsin the Leaders'Declarations,they still exceededthe economicreform interests by 5.12 percent on averagefrequency.Thus, the APEC summits served as appropriate venuesfor China to strengthenits foreign policy interests, not. only through Jiang'skeynotespeechesbut alsothroughthe overall consensus and resolutionsof the summit, as reflectedin the Leaders'Declarations. 219

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In the case of the U.S., Figure 3 clearly shows that U.S. interests lie in the integration and engagement of the Asia-Pacific region in general, and of China in parti~r. It is striking that, unlike in the case of China, the U.S. foreign policy interests were never outweighed by, or never came close to, the frequency suggestions for market accessinterest. However, as in the case of China, U.S. foreign policy interests had to be toned down in the Leaders' Declarations. Still, suggestionsfor U.S. interestsin engagementand integration of the Asia-Pacific region dominated the APEC resolutions. From this analysis, several observations may be derived. First, China is evideritly concerned with completing the components of its economic reforms. This is China's reason for drastically cutting down its tariff and nontariff measures, as indicated in its individual action plan12and by the concessions it offered to the U.S. in clos"mgthe WTO Accession Deal. More important, the content analyses of China's and U,S.'s messages in APEC summits strongly indicate that APEC has been very relevant as a forum for ventilating the respective foreign policy interests of the two countries, and, thus, in er..orcing their bilateral trade agreements and in fostering their bilateral relationship. Severalrelevant questionscan, therefore, be raised. What are the chances of sustaining the foreign policy interests of China and the U.S. without APEC? What are the chances of China's accessionto WTOif these foreign policy interests are not reinforced? Is there a need for other regional or global institutions to reinforce these foreign policy interests? To be sure, the respective foreign policy interests of China and the U.S. will remain as such even without APEC. Their foreign policy interests have been there even before APEC. The principles of mutual respect for sovereignty and territorial integrity, mutual nonaggression, noninterference in each other's internal affairs, equality and mutual benefit, and peaceful coexistencehave governed the foreign affairs of both countries since the 1950s. However, the need to strengthen regional peace and stability, so that countries may confidently pursue their respective national interests, calls for regional and global institutions that woUld serve as forums for discussing issues on bilateral relationships. The GATT or WTO is not a sufficient entity for enhancing the foreign policy interests of players in the international system because its institutionalized and formal set up can exclude major players, such as China. Furthermore, the rigid characteristic of WTO does not openly

USee appendix

220

CHINA'S

PARTICIPATION

IN APEC

give room for declaration of foreign policy interests. Negotiations at WTO usually take up immediate economic matters, relegating the foreign policy interests of members countries behind trade commitments. Sometimes the nature of negotiations or settlement is confrontational, raising the high probability of conflict and collapse of negotiations. Such was nearly the case in the Uruguay Round, and such was achlally the casein the Seattle meeting in November 1999. AJt alternative may be the Assodation of Southeast Asian Nations (ASEAN), but it is doubtful if its geographic representation could expand to include the Pacific region, in which the U.S. identifies itself. In any case, it is clear that there should be an entity, a regional grouping, that would capture, make operational and reinforce foreign policy interests in order to strengthen bilater~l relationships. This study has demonstrated that APEC fits this role. On the question of China's chances at WTO without its foreign policy interests being reinforced, the truth is that China is not affected by issue linkages simply because the entire process is not purely bilateral in nature.13 What APEC encourages is for China to fu1fill its obligations upon entry in the WTO, and APEC offers a .{orum for continuous dialogue and discussions of issues. Otherwise, China will not be allo~ed to participate in the formulation and revision of the rules of the game, -Whichis its ultimate objective in the WTO agreement. Thus, APEC's value lies in its capacity to link foreign policy interests to bilateral agreements, using nonconfrontational approach, which ultimately helps strengthen bilateral relationships. In the final analysis, APEC s value lies in enhancing parncular bilateral trade relationships, not necessarily the multilateral trading system.

Taiwan and Issue Linkage The discussionon WTO AccessionAgreementbetweenChina and the U.S. showed APEC's role in helping foster forei~ policy linkages of bilateral relations.This sectionpresentsthe results of contentanalysison the Taiwan issue.

13The process of acCessioninwi'Oh:aSa_-mWJcilateralcharacter which is beyond the scope of this study. Whether or not the US.-grantsOlina the PNTRstatus, China could still enter the WTO if it is able to contract similar agreements with (;JtherWTO member countries, and if they grant China the PNTR status. However, even if this is theoretically possible, the US., which exercises hegemonic power, can greatly influence decisions inmultilateral arrangements such asthe wro. 221

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The"One-China" principle in APEC meetings Figures6 and 7 show the summary of results of the frequencywith which this prindple was referred to by the leadersof China and the U.S. during APECsummits. Figure 6. Frequency Results of China's Referencesto "One-China" Principle in APEC Summits (1993-1999)

0 One-Cllma Principle

BNeutral

6 4 2 0 1993

1994

1995

1996

1997

1998

1999

Figure7. Frequency Results of U.S:s Referenceto "One-China" Principle atAPEC Snnunits(1993-1999)

Results indicate that Jiang Zemin referred to the key ideas on "OneChina" prindple more frequently during the early years of the APEC summits. Similarly, results in Figure 6 of the analysis of U.S.addressesin APEC summits show the same pattern. However, Unlike China, U.5.' s reference to the ideas on One-China prindple has been scarce from the very beginning. APEC Resolutions on "One-China" Principle The Leaders' Declarations from 1993 to 1999 are analyzed here as they pertain to how they addressed the "One-China': issije based on the scarce references made by both China and the U.S. Figure 8 shows the results of the content analysis of the Leaders' Declaration.

222

CHINA'S

Fi~re

PARTICIPATION

3. Frequency Results of Leader's Declaration's

1993

1994

199519~

1997

IN APEC

Reference to "One-China"

19~

Principle

(1993-1999)

1999

The results show that despite the scarce references/made by China and the U.s. to the One-China principle during leaders' and ministerial. meetings, the Leaders' Declarations gave it some attention. Apparently, the references made by China and the U.s. on the issue had been proportionally enough to merit consideration in the APEC resolutions. The next section looks into the implications of these results.

Analysjs The trend of results in Figures 6, 7 and 8 indicates that the Taiwan question remains an exclusivematter of China-U.S. bilateral relations. This suggests several things. First, it validates the framework of this study that foreign policy issue linkage is important in bilateral agreements. Although it has been pointed out earlier that there is an absence of strong issue linkages that ~ould make viable the China-U .5. agreement on the Taiwan issue, this does not invalidate / the fraUlework. On the contrary, it confirms, even if inversely, the hypothesis of this study: that APEC plays a significant role in strengthening China-U.S. bilateral agreements by fostering foreign policy issue linkages. Taiwan is an important foreign policy issue in China-U.S. bilateral relations because it has great implications on regional peace and stability. It is an issue too sensitive and crucial to be loosely dealt with in an informal regional fQrum. From China's perspective it is an internal issue. The U.S. is forced to playa neutral role to prevent chaos in the Taiwan straits. On the Taiwan Issue, APEC's capacity to influence the Otina-U .5. bilateral relations in the area of regional peace and security has beenlimited by the absence of a foreign policy issue linkage. .Second,APEC as a regional economic forum, plays a political role. This study confirms this role. As mentioned in the first sectionJthisstudy is 223

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motivated by the criticisms against ~EC in the past summits. Thesecriticisms point out APEC's failure to achieve its trade and economic vision. On the contrary, the frequency results generated on theWTO issue and, in this case, the Taiwan issue, show that AF'EC sticks to its economic vision. It can be said that APEC has achieved a balance in dealing with both economic and political issues that emerge from the increased trade within the region. The political issuesare tho.c;ewhich are directly linked to existing bilateral tradeagreements between China and the U.S.. In other words, APEC still works within the boundaries of its economic vision while being flexible enough to give room to political concerns that inevitably emerge from this economic vision.

APEC's ROLE IN CHINA-U.S. RELATIONS This study has shown how constructive ana cooperative dialogue between China and the U.S. on regional economic issues fosters the foreign policy linkages of their bilateral agreements and enhances their bilateral economic and political relationships. The study took two agreements into consideration: the WTO Accession Deal, which represents China-U.S. trade relations, and the Three Joint Communiques, which represent their political relations. Discussion and cmalysis of the Accession Deal showed the need to link foreign policy interests with the agreement in order to motivate China and the U.S.,to fulfill their respective obligations. APEC's role in strengthening these foreign policy interests was seenin two areas:in the Leaders' Meetings, where representatives of China and the U.S. delivered their keynote speeches, interventions, and remarks; and in the Leaders' Declarations, which reflected APEC's official reco~tion of the respective foreign policy interests of the two countries. Discussion and analysis of the Joint Communiques, which represent the agreement governing China-U .5. relations on the Taiwan issue, confirmed, even if inversely, the hypothesis of this study: that a strong foreign policy issue ~age makes an agreement viable. In the case of the Taiwan issue, there is an ab~ce of a strong issue linkage. This has two implications. First, both China and the U.S. perceive greater benefits in violating, and in not complying with, the agreement, resulting in nonfulfillment of their obligations. Second, the lack of an issue linkage which APEC could foster or work on prevents it from influend1}g the China-U .5. bilateral relationship on the Taiwan issue. 224

CHINA'S

PARTICIPATION

IN APEC

It should be recalled that the central question posed in the first section of this paper is: how does China's participation in APECrelate to its economic and political relations with the u.s.? In other words, what is APECs role in China-U.S. relations? These questions required an analysis ofa political role for APEC, through finding the relationship between APEC's flexible character and the frequency with which foreign policy interests that bear on bilateral relationship are referred in APEC summits. This indicates APEC's capacity to reinforce issue linkages that would make bilateral relationships viable. The study also presents a new framework upon which to look at APEC or any other regional economic forum. This framework refers to issue linkages in foreign POlICY interests as self-enforcement mechanism of bilateral relationships. Finally I in terms of policy, the study discovers the noneconomic factors that influence a country's participation in APEC. This section looks at how these questions were addressed and the objectives stated were met. APEC and its Political Role The study described APEC's political role in the context of its capadty to strengthen the foreign policy issue linkages in bilateral agreements. The value of these linkages in relation to China,-U.S.bilateral agreements was extensively discussed in the second section of this paper. The disCussion focused on foreign policy issues that are linked to China -U.S. WTO Accession Agreement and the Joint Communiques on the Taiwan issue. Using Yarbrough and Yarbrough's "Strategic Organizational Approach" to bilateral relations, the study showed that the Accession Agreement was not spared from the strategic foreign policy interests of both China and the U.S.. Analysis showed that these foreign policy interests, and the economic interests that go with them, served as motivating factors for China,and the U.S. to comply with the Accession Agreement. APEC's importance was recognized in the need to strengthen the foreign policy interests of China and the U.S.. APEC accomplishes this role by being flexible in accommodating in its meetings .and dialogues the <;ommonforeign policy concerns not only of China and the U.S. but of the region as a whole. Two questions were derived from this. The first question pertained to whether these foreign policy interests could be brought out or sustained without APEC. Since these interests have existed even prior to the establishment of APEC, was there a need for such an informal forum? The main argument for such a forum, however, was the need to reinforce these foreign .policy interests through nonconfrontational and consensus:building

225

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dialogue. Thus, an entity such as APEC was deemed important. It was even suggested that there might be alternatives entities, such as the ASEAN, which could take the role of APEC. However, APEC was the only entity at the moment which met the requirements for promoting peaceand stability in the Asia Pacific region through cooperation and engagement. The second question pertained to the chances of China's accessionto WTO if its foreign policy interests were not given attention to at APEC summits. From the outset, it seemed that APEC's role in this was not so important, becauseChina's accessionto WTO could be explained by the fact that the accessionwas also a multilateral, not a purely bilateral, process. This meant that China's accessiondid not solely depend on the U.S. government's decision to grant it a PNTR status. China's accessionwas determined primarily by the Accession Deal which it closed wi~ the U.S. in November 1999.. However, the APEC summits served the purpose of encouraging China and the U.S. to adhere to their commitments to the deal, i.e., China stuck to its concessionswhile the U.S. granted China the PNTR status. Thus, APEC was important in strengthening the china-U.S. bilateral relationS. However, in the context of multilateral trading system, the value of APEC role is diminished because the multilateral system has a third-party enforcement mechanism which can substitute for the issue linkages as self-enforcement mechanism in bilateral relationship. Nonetheless, APEC indirectly contributes to the' multilateral trading system by enhancing the existing bilateral trading relationships, which actually comprise the multilateral system. The Taiwan issue tends to diminish the importance of APEC's political role in bilateral relationships, since in APEC summits, there is very limited reference to key ideas that suggest adherenceto the "One-China" policy. This means that this sensitive issue remains a highly exclusive matter in ChinaU.S. bilateral relationship. However, this study points out that APECremains committed to its economic vision, and that it has a clear .political role. This polifi<;aI role dwells on political issues that emerge as a consequence of increasing trade within the region.

A New Model in Looking at APEC This study has ventured into a new perspectivein viewing APEC: the foreign policy linkageperspective. The s~dy demonstrated how APEC reinforcesforeign policy linkages that make viable and help foste~bilateral itgreements.Table 2 exhibits how the foreign policy linkagesin China-U.S. bilateral relations, in the context of the WTO AccessionDeal, create the 226

CHINA'S

PARTICIPATION

IN APEC

condition for the viability of the two countries' compliance with the agreement. This viability is expressed in Yarbrough and Yarbrough's equation E( c) -E(n) ::..E(v). In the case of China, the expected gains from compliance outweigh the expected gains from noncompliance with, or violation of, the agreement. In the first place, the weight of expected gains from compliance, E(c), made significant by the foreign policy lirikage, is hardly diminished by the weight of expected gains from non-compliance, E(n). This is borne by the review of China's foreign policy interests made in previous chapters. The review shows that China dearly intends to go on with its reforms, and is ready to take the domestic political risk tiJat these reforms may entail. Perception of this risk explains China's gradual approach in undertaking the process of reforms. Compared to the right side of the equation, E(v), the left side of the equation, E(c) -E(n), continues to have greater weight. Although expected gains from violating the agreement are more or less equal to the expected gains from compliance, relating the agreement does not necessarily guarantee China's active participation in the formulation .and revision of the rules of the game. Active participation in defining rules of the game is China's main foreign policy interest}t puts greater weight on the left side of the equation, making the condition sufficient for the viability of compliance with the bilateral agreement. In the case of the U.S., it seemsto be ambivalent about engaging China through WTO rules, or maintaining its pressure to make China adjust its domestic policies on political and noneconomic issues,such as human rights, that the international community perceives to be violations of universal norms. The left side of the equation shows that the U.S. can achieve more gains from compliance with the agreement. This gives it an opportunity to engage China through WTO rules. Complying with the agreementby extending PNTR status to China makes it less necessary to use pressure as a leverage in making China improve its domestic policies. The engagementapproach also assures more relax bilateral relationship, unlike the pressure approach which isolates China and poses risk of regional instability. Having demonstrated the satisfaction of the condition E(c) -E(n) > E(v) through foreign policy linkages, Figure 9 demonstrates how this condition is reinforced by APEC in its annual summits.

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Figure 9 lays out the overall picture of APEC's political role. The heavy lines and heavily lined boxes represent crucial entities and relationships that define APEC's role in China- V .5. bilateral relations. Figure 9 summarizes APEC's political role and it limitations as follows: .The focus of the study is the China-V.S. bilateral relationship, fostered by an agreement, the viability of which is satisfied by the condition E(c) -E(n) > E(v). .The parties involved in this bilateral relationship, i.e., China and the V.S., have respective foreign policy interests in actively participating in the formulation and revision of the rules of the game, and in engaging in the rules of intemationallaw. .The common vision of these foreign policy interests is to maintain regional peace and stability in order to sustain other activities in the region. These activities are mainly geared toward increased trade through elimination of trade barrie~. For China, elimination of trade barriers will help it achieve modernization. For theV.S., it will help increase its accessin China's market. .An important issue in China-V.S. bilateral relations is the WTO Accession Agreement. This issue is highlighted in Figure 9 but, 228

CHINA'S

PARTICIPATION

IN APEC

as discussed earlier, it has no direct link with APEC. This is one limitation of APEC's political role. The only connection of APEC with WTO is through the China-U .5. bilateral relationship. APEC helps strengthen this bilateral relationship by giving room for promoting the foreign policy interests of both countries. These foreign policy interests serve as the noneconomic factors that influence a country's decision to participate in regional econonUc forums. Another limitation, as may be noticed in the diagram, is the absenceof the Taiwan issue. APEC's Role in China-U.S. Relations Having demonstrated a new perspective in which to consider the role of APEC, it can be said that APEC has maintained its economic vision while positively contributing in the political aspectof the international system. In addressing the question of China's partidpation in APEC and its economic and political relations with the U.S., the study has shown both the scope and limitation of APEC's political role. APEC fosters China-U .5. bilateral relations by reinfordng the foreign policy interests that motivate both countries to adhere to their obligations in their bilater~ agreements~Through APEC's nonconfrontational approach, China ha~ engaged in constructive and cooperative dialogue with the U.S. on regional economic iSsues.The APEC summits were instrumental in this. Thus, APEC's capadty to foster ChinaU.S. bilateral relationship, which constitutes part of the multilateral trading system, positively contributes to its goals in the long run.

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APPENDIX A Tables of Raw Frequency Data from Content Analysis of China's References on WTO Issue

Table Al

ear

Raw Fre Comp ete econOmIC reforms/recognition f 0 ref 0 econOmIC orm efforts

note Addresses ontri ute to Neutra international d o . f con ltions 0 peace and stability

0 t a I no.

1993

1994

1995 1996

6 5

6 7

1 1

13 13

1997

1998 1999

5 3

6 9

5 4

16 15

Total

100

Table A.2 Raw Fre uenc Scores on LeadelS' Declarations Complete economic Contribute to refonns/recognition international

ear

f econOmIC

efforts

f re

orm

con

d 째 ti Ions

eu al T 0 t a I nooo P aragrap

f 0

peace

and stability

1993

1994

1995 1996 1997 1998 1999

3 10 11 19 9

13 13 7 9 16

3 3 11 17 6

17 26 29 46 36

Total

197 ,

230

0 f

P hs aragrap

f s

CHINA'S PARTICIPATION IN APEC

APPENDIXB

Tables of Raw FrequencyData from Content Analysis of U.S. Referenceson WIO Issue Table B.l RawFre Speech no. .gra (as ordered In

ch. cti 3, par2)B, se on

ScoresonU.S. R resentatives'S eechesin APEC Summits 1993-1999 Engagement Market Neutral and

Inte Y ear

Accessjlncreas lng Exp0rts f Am .Total

ti on

Str te

a gy

no. of

or encan I nus d try

Paragraphs

(no.of

(no. of

para~aphs)

1993

1994

3 4 5 6 7

1994 1995 1997 1998 1999

10 13 27 12 14

7 5 5 5 7

1 9 15 9 3

Table B.2 Raw F uen Sco~ on Leaders' Declarations 1993-1999 Engagement and Market Access Neutral Integration /Increasing Strategy Exports for Y Am .ota ear encan Industry

18 27 47 26 24

T I no. 0f Paragraphs

(no.of paragraphs) 7 .2

(no. of para1;raphs)

1993

(no.of para~raphs) 12

1994

1995

1996

1997

1998

1999

Total

125

197

231

19 24

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APPENDIXC Tables of Raw FrequencyData from ContentAnalysis of References on the Taiwan Issue Table C.t Raw Frequency Scores on References to "One-China" Principle in Jiang Zemin's Keynote

Addresses

.ear

"One-China" I Pnncl f pe

( no.o

paragrap

1993 1994 1995 1996 1997 1998 1999

Neutral h

)

(no.

Total no. of

paragraphs)

Paragraphs

15 13 13 16 16 15

14 13 11

3 4

Table C.2 Raw Frequency

Scores on References to "One-China"

Principle

in Addresses

U.S. representatives (1993-1999) "One-China"

Speech.nnclp no. (as

ordered

P ..

In ch.

B . par u, section

1 2 3 4 5 6 7

2) -,

Year

Neutral

( no.o f ~~~~~hQ\

( no. 0 f ~~~~~hQ\

t'ara~._t'..s, h 2 5 2 4 3 1 2

1993 1994 1994 1995 1997 1998 1999

T 0 t a I no.

P aragrap

t'ara~'Rt'..S, h 8 39 16 23 33 24 22

11 42 18 27 47 26 24

Table C.3 Raw Frequency Scores on References to "One-China" Principle in leaders' Declarations (1993-1999) "One-China" Y

P ear

.. rmclp

Neutral e

Total

no.

( f h ) no.o paragrap s

(no. of paragraphs)

1993

1994 1995 1996 1997 1998 1999

15 13 13

232

Paragraphs

16 16 15

CHINA'S PARTICIPATION IN APEC

APPENDIX D

Table D.1 Summa

Year

of China's Commitments to APEC on l1LF Tariffs and NTMS T riff (O;') T riff R d cti Items Covered By No. of Items

(se: by ccq

a(APEqr/o) on a Ta1:r~~~~n

Still ~ed

1996

39.5

23.0

4,900/6,350

1997

17.0

4,800/6,459

384 385

1998

17.0

-/6,941c

372

1999

16.7

6,940d

372

a. Percentageof tariff reduction committed by China to APEC b. Number of items covered by China's commitment vs. number of items covered as setby China's Customs Import and Export Tariff. c. Number of items covered by China's commitment to APEC is u~ecified but cannot be assumed to be the same with items covered as setby Customs Import and Export Tariff. d. Number of items covered by China's commitment to APEC is the same asthe one set by its Customs Import and Export Tariff.

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APPENDIXE SUMMARY OF CHINA-U.S. BILATERAL wIO AGREEMENT Febmary 2, 2000

Agriculture The Agreementwould eliminatebarriersand increaseaccessfor U.S. exportsacrossa broad range of commodities.Commitmentsinclude: .Significanttuts in tariffs to becompletedby January2004.0veraB averagefo~cagricultural products will be 17.5percent, and for U.S.priority-Products, 14 percent(down from 31 percent). .EStablishment of a tariff-rate quota (TRQ)systemfor impo~ of bulk commodities,e.g.,wheat,com, cotton,barley,and rice, that provides a shareof the TRQfor private traders. Specificrules on how the TRQ will operate and increasedtransparencyin the process will help ensure that imports occur. Significant and growing quotaquantities subjectto tariffs that averagebetween one and three percent. .Immediate elimination of the TRQ systemfor barley, peanutoil, sunflower seedoil, cottonseedoil, and a phase-outfor soybean oil. .The rightto imp,ortanddistributeproductswithout goingthrough a state-tradingenterpriseor middleman. .Elimmation of export subsidieson agricultural products. China has also agreedto the elimination of Sanitary-PhytoSanitary (SPS)barriers that are not basedon scientificevidence. Industrial Products China would lower tariffs and eliminate broad systemicbarriers to US expori$,such as limits on who can import goodsand distribute them in China, as well as barrierssuchas quotasand licenseson USproducts. Tariffs Tariffs cut from an average of 24.6 percent to an average of 9.4'{ percent overall, and 7.1 percent on U.S. priority products.

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O1ina will participate in the Information Technology Agreement (IT A) and eliminate all tariffs on high-technology products such as computers, telecommunications equipment, semiconductors, computer equipment, and others. In the auto sector, China will cut tariffs from the current 80-100 percent level to 25 percent by mid-2006, with the largest cuts in the first years after accession. Auto parts tariffs will be cut to an average of 10 percent by mid2006. ~ the wood and paper sectors, tariffs will drop from present , levels of 12-18 percent on wood and 15-25 percent on paper gown to between 5 percent and 7.5 percent. China will also implement chemical harmonization initiative. Under that initiative, tariffs will be at 0, 5.5 and 6.5 percents for products in each category.

Elimination of Quotasand Licenses WTO rules bar quotasand otherquantitativerestrictions.China has agreedto eliminate theserestrictionswith phase-inslimited to five years. .Quotas: Uponaccession,China will elimmateexistingquotas for top U.s. priority products (e.g.,optic fiber cable).It will phase out rem~g quotas,generallyby 2002,but no later than 2005. .Quotas will grow from currenttrade levelsat 15 percentannually to ensurethat marketaccessincreasesprogressively. .Auto quotaswill be phasedout by 2005.In the interim, the baselevel quota will be $6 billion (the level prior to China's auto industrial policy), and will grow by 15 percent annually until elimination. Right to Import and Distribute Trading rights and distribution are amongthe top concernsfor U.S. " manufacturersand agricultural exporters.At present,China severelyrestricts trading rights (the right to import and export) and the ability to own and operate distribution networks. Urtd};!rthe Agreement,trading rights and distribution serviceswill be progressivelyphasedin over threeyears.China will also open up sectorsrelated to distribution services,such as repair and maintenance,warehousing,trucking and air courierservices.

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SelVices China has made commitmentsto phase out most restrictions in a broad range of services, including distribution, banking, insurance, telecommunications,professionalservicessuch as accountancyand legal consulting,businessand comppterrelatedservices,motionpicturesand video and sound recording services. China will also participate in the Basic Telecommunicationsand FinancialServicesAgreements. Grandfathering China will grandfather the existing level of market accessalready in effect at the time of China's accession for u.s. services companies currently operating in China. This will protect existing American businesses operating under contractual or shareholder agreementsor a licensefrom new restrictions as China phases in their commitments. Distribution and Related Services China generally prohibits foreign firms from distributing products other than those they make in China, or from controlling their own distribution networks. Under the Agreement, China has agreed to liberalize wholesaling and retailing services for most products, including imported goods, throughout China in three years. In addition, Otina has agreed to open up the logistical chain of related services such as maintenance and repair, storage and warehousing, packaging, advertising, trucking and air express services, marketing, and customer support in three to four years.

Telecommunication China prohibits foreign investmentsin telecommunications services. For the first time, China has agreed to permit direct investments in telecommunicationsbusinesses.China will also participate in the Basic TelecommunicationsAgreement.Spedflc commitmentsinclude: .Regulatory Principles-China has agreed to implement the procompetitive regulatory principles embodied in the Basic Telecommunications Agreement(includinginterconnectionrights and independent regulatory authority) and will allow foreign suppliers to use any technology they choose to provide telecommunicationsservices. .China will gradually phase out all geographicrestrictions for paging and value-addedservicesin two years,mobile voice and 236

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data services in five years, and domestic and international services in six years. China will permit 50 percent foreign equity share for value-added and paging services two years after accession,49 percent foreign equity share for mobile voice and data services five years after accession,and for domestic and international services six years after accession. .Insurance Currently, only two U.S. insurers have access to China's market. Under the agreement: .China agreed to award licenses solely on the basis of prudential criteria, with no economic-needs test or quantitative limits on the number of licenses issued. .China will progressively eliminate all geographic limitations within three years. Internal branching will be permitted consistent with the elimination of these restrictions. .China will expand the scope of activities for foreign insurers to include group, health and pensiQnlines of insurance, p~ed in over five years. Foreign property and casualty firms will be able to insure large-scale commercial risks nationwide immediately upon accession. .China agreed to allow 50 percent ownership for life insurance. Life insurers may also choose their own joint venture partners. For nonlife, China will allow branching or 51 percent ownership on accession and wholly owned subsidiaries in two years. Reinsurance is completely open upon accession(100 percent, no restrictions).

Banking Currently, foreign banks are not permitted to do local currency businesswith Chineseclients (a few can engagein local currencybusiness with their foreign clients).China imposesseveregeographicrestrictions on the establishmentof foreign banks. .China has committed to full marketaccessin five years for U.S. banks. .Foreign bankswill beableto conductlocal currencybusinesswith Chineseenterprisesstarting two yearsafter accession. 237

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Foreign banks will be able to conduct local currency business with Chinese individuals from five years after accession. Foreign banks will have the same rights (national treatment) as Chinese banks within desi~ated geographic areas. Both geographic and customer restrictions will be removed in five years. Nonbank financial companies can offer auto financing upon accession. Securities China will permit minority foreign-owned joint ventures to engage in fund management on the same terms as Chinese firms.. By three years after accession,foreign ownership of these joint ventures will be allowed to rise to 49 percent. As the scope of business expands for Chinese firms, foreign joint venture securities companies will enjoy the same expansion in scope of business. In ad,dition, 33 percent foreign owned joint ventures will be allowed to underwrite domestic equity issues and underwrite and trade in international equity and all corporate and government debt issues. /

Professional SelVi(:es China has made strong commitments regarding professional services, including the areas of law, accounting, management consulting, tax consulting, architecture, engineering, urban planning, medical and dental services, and computer and related services. China's commitments will lead to greater market accessopportunities and increased certainty for American companies doing business in China. Motion Pictures, Videas, Sound Recordings China will allow the 20 films to be imported on a revenue-sharing basis in each of the three years after accession. U.S. firms can form joint ventures to distribute videos, software entertainment, and sound recordings and to own and operate d1,\emas.

Protocol Provisions Commitmentsin China's WTO Protocoland Working Party Report establishrights and obligationsenforceablethroughWTO dispute settlement procedures.We haveagreedon key provisions relatingto antidumping and subsidies,protectionagainstimport surges,technologytransferrequirements, 238

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and offsets, as well as practices of state-owned and state-invested enterprises. These rules are of special importance to U.s. workers and business. China has agreed to implement the Trade-Related Investment Measures (TRIMs). Agreement upon accession,eliminate and ceaseenforcing trade and foreign exchange balancing requirements, as well as local content requirements, refuse to enforce contracts imposing these requirements, and only impose or enforce laws or other provisions relating to the transfer of technology or other know-how, if they are in .accordance with the WTO agreements on protection of intellectual property rights and trade-related investment measures.

These provisions will also help protect American firms a~ainst forced technology transfers. China has agreed that, upon accession, it will npt condition investment approvals, import licenses,or any other import approval process on performance requirements of any kind, including: local content requirements, offsets, transfer of technology, or requirements to conduct research and development in China. Anti-Dumping and Subsidies Methodology The agreea protocol provisions ensure that American firms and workers will have strong protection against unfair trade practices,including dumping and subsidies. The U.S. and China have agreed to maintain current antidumping methodology (treating China as a nonmarket economy) in future antidumping cases. This provision will remain in force for 15 years after China's accessionto the WTO.Moreover, when applying countervailing duty law to China, the U.S. will be able to take the special characteristics of China's economy into account when identifying and measuring any subsidy benefit that may exist. Product-Specific Safeguard The agreed provisions for the protocol package also ensure that American domestic firms and workers will have strong protection against rapid increases of imports. To do this, the Product-Specific Safeguard provision sets up a special mechanism to address increased imports that causeor threatento causemarket disruption to a U.S. industry. This mechanism, which is in addition to other WTO safeguard provisions, differs from traditional safeguard measures. It permi"ts the U.S. to address imports solely from China, rather than from the whole world, that are a significant cause of material injury through measures

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such as import reshictions. M,oreover, the U.S. will be able to apply restraints unilaterally based on legal standards that differ from those in the WTO Safeguards Agreement. This could permit action in more cases.The ProductSpedflc Safeguard will remain in force for 12 years after China accedesto the

WTO. State-Owned and State-Invested Enterprises The Protocol addresses important issues related to the Chinese government's involvement in the economy. China has agreed that it will ensure that state-owned and state-invested enterprises will make purchasesand sales based solely on commerdal considerations, such as price, quality, availability and marketability, and that it will provide U.S. firms with the opportunity to compete for sales and purchases on nondiscriminatory terms and conditions. China has also agreed that it will not influence these commerdal decisions (either directly or indirectly) except in a WTO consistent manner. With respect to applying WTO rules to state-owned and state-invested enterprises, these firms are subject to WTO disciplines: .Purchases of goods or services by these state-owned and stateinvested enterprises do not constitute "government procurement" and, thus, are subject to WTO rules. .Status of state-owned and state-invested enterprises are subject to the WTO Agreement on Subsidies and Countervailing Measures. This will help ensure that trade laws can be effectively applied to these enterprises when appropriate.

Textiles China's protocol packagewill include a provision drawn from 1997 bilateral textiles agreement,which permits U.s. companiesand workers to respond to increasedimports of textile and apparel products. This textile safeguardwill remain in effect until December31,2008,four yearsafter the WTQ agreementon Textile artd Oothing expires.

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APPENDIX F

Joint Communique of the United States of America and the People's Republic of China

February28, 1972 1

President Richard Nixon of the United States of America visited the People's Republic of China at the invitation of Premier Chou En-lai of the People's Republic @fChina from February 21 to February 28, 1972. Accompanying the President were Mrs. Nixon, U.S. Secretary of State William Rogers, Assistant to the President Dr. Henry Kissinger, and other American officials. President Nixon met with Chairman Mao Tsetung of the Communist Party of China on February 21.The two leadershad a serious and frank exchange of views on Sino-U .5. relations and world affairs. During the visit, extensive, earnest and /frank discussions were held between President Nixon and Premier chou En-lai on the normalization of relations between the United States ~f America and the People's Republic of China, as well as on other matters of intere~t to both sides. In addition, Secretaryof StateWilliam Rogersand Foi"eignMinister Chi Pengfei held talks in the same spirit. President Nixon and his party visited Peking and viewed cultural, industrial and agricultural sites, and they also toured Hangchow and Shanghaiwhere, continuing discussionswith Chineseleaders, they viewed similar places of interest. The leaders of the People's Republic of China and the United-5tates of America found it benefidal to have this opportunity, after so many years without contact, to present candidly to one another their views on a variety of issues. They reviewed the international situation in which important changes and great upheava~s ,are taking place and exp<;,unded their respective POSitiOl\Sand attitudes. The Chinese side stated: Wherever there is oppression, there is resistance. Countries want independence, nations wan liberation and the people want revolution -this has become the irresistible trend of history. All nations, big or small, should be equal: big nations should not bully the small and strong nations should not bully the weak. China will never be a superpower and it opposes hegemony and power politics of any kind. 241

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The Chinese side stated that it firmly supports the struggles of all the oppressed people and nations for freedom and liberation and that the people of all countries have the right to choose their social systems according their own wishes and the right to safeguard the independence, sovereignty and territorial integrity of their own countries and oppose foreign aggression,interference, control and subversion. All foreign troops should be withdrawn to their own countries. The Chinese side expressed its firm support to the peoples of Viet Nam, Laos and Cambodia in their efforts for the attainment of their goal and its firm support to the sevenpoint proposal of the Provisional Revolutionary Government of the Republic of South Viet Nam and the elaboration of February this year on the two key problems in the proposal, and to the Joint Declaration of the Summit Conference of the Indochinese Peoples. It firmly supports the eIght-point program for the peaceful unification of Korea put forward by the Government of the Democratic People's Republic of Korea on April 12,1971, and the stand for the abolition of the "U.N. Commission for the Unification and Rehabilitation of Korea." It firmly opposes the revival and outward expansion of Japanesemilitarism: and firmly supports the Japanesepeople's desire to build an independent, democratic, peaceful and neutral Japan. It firmly maintains that India and Pakistan should, in accordance with the United Nations resolutions on the Indo-Pakistan qu~stion, immediately withdraw all their forces to their respective territories and to their own sides of the ceasefire line in Jammu and Kashmir and firmly supports the Pakistan Government and people in their struggle to preserve their independence and sovereignty and the people of Jammu and Kashmir in their struggle for the right of self-determination. The U.S. side stated: Peacein Asia and peacein the world requires efforts both to reduce immediate tensions and to eliminate the basic causes of conflict. The United States will work for a just and secure peace: just, because it fulfills the aspirations of peoples and nations for freedom and progress; secure, because it removes the danger of foreign aggression. The United States supports individual freedom and social progress for all the peoples of the world, free of outside pressure or intervention. The United States believes that the effort to reduce tensions is served by improving communication between countries that have different ideologies so as to lessen the risks of confrontation through acddent, miscalculation or misunderstanding. Countries should treat each other

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vilith mutual respect and be willing to compete peacefully, letting performance be the ultimate judge. No country should claim infallibility and each country should be prepared to reexamine its own attitudes for the common good. The United Statesstressedthat the peoples of Indochina should be allowed to determine their destiny without outside intervention; its constant primary objective has been a negotiated solution; the eight-point proposal put forward by the Republic of Viet Nam and the United States on January 27, 1972represents a basis for the attainment of that objective; in the absence of a negotiated settlement the United States envisages the ultimate withdrawal of all U.S. forces from the region consistent with the aim of self-determination for each country of Indochina. The United States will maintain its close ties with and support for the Republic of Korea; the United States will support efforts of the Republic of Korea to seek a relaxation of tension and increased communication in the Korean peninsula. The United States places the highest value on its friendly relations with Japan; it will continu~ to develop the existing close bonds. Consistent with the United Nations Security Council Resolution of December21, 1971,the United Statesfavors the continuation of the ceasefire betwe,en India and Pakistan and the withdrawal of all military forces to within their own territories and to th~ir own sides o(the ceasefire line in Jammu a1;\dKashmir; the United States supports the right of the peoples of South Asia to shape their own future in peace,free of military threat, and without having the area become the subject of great power rivalry. There are essential differences between China and the United States in their social systems and foreign policies. However, the two sides agreed that countries, regardless of their soda! systems, should conduct their relations on the principles of respect for the sovereignty and territorial integrity of all states, nonaggression against other states, noninterference in the internal affairs of other states, equality and mutual benefit, and peacefulcoexistence.International disputes should be settled on this basis, without resorting to the use or threat of force. The United States and the People's Republic of China are prepared to apply theseprinciples to their mutual relations. With theseprinciples of international relations in mind the two sides stated that: .progress toward the normalization of relations between China and the United States is in the interests of all co~tries .both wish to reduce " the danger of international military conflict. neither should seek

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hegemony in the Asia-Padfic region and each is opposed to efforts by any other country or group of countries to establish such hegemony -neither is prepared to negotiate on behaU of any third party or to enter into agreements or under standings with the other directed at other states. 10. Both sides are of the view that it would be against the interests of the peoples of the world for any major country to collude with another against other countries, or for major countries to divide up the world into spheres of interest. 11. The two sides reviewed the long-standing serious disputes between China and the United States.The Chineseside reaffirmed its position: the Taiwan question is the Crucial question obstructing the normalization of relations between China and the United States; the Government of the People's Republic of China is the sole legal government of China; Taiwan is a province of China which has long been returned to the motherland; the liberation of Taiwan is China's internal affair in which no other country has the right to interfere; and all u.S. forces and military installations must be withdrawn from Taiwan. The Chinese Government firmly opposes any activities which aim at the creation of "one China, one Taiwan," "one China, two governments," "two Chinas," an 'Iindependent Taiwan" or advocate ~t IIthe status of Taiwan remains to be determined." 12. The U.S. side declared: The United States acknowledges that all Chinese on either side of the Taiwan Strait maintain there is but one China and that Taiwan is a part of China. The United States Government does not challenge that position. It reaffirms its interest in a peaceful settlement of the Taiwan question by the Chinese themselves. With this prospect in mind, it affirms the ultimate objective of the withdrawal of all U.S. forces and military installations from Taiwan. In the meantime, it will progressively reduce its forces and military installations on Taiwan as the tension in the area diminishes. The two sides agreed that it is desirable to broaden the understanding between the two peoples. To this end, they discussed specific areas in such fields as science, technology, culture, sports and journalism, in which people-to-people contacts and exchanges would be mutually beneficial. Eachside undertakes to facilitate the further development of such contacts and exchanges. 13. Both sides view bilateral trade as another area from which mutual benefit can be derived, and agreed that economic relations based on equality and mutual benefit are in the interest of the peoples of the two countries. They agree to facilitate the progressive development of trade between their two countries. 244

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14. The two sides agreed that they will stay in contact through various channels,including the sending of a seniorU.s. representativeto Peking from time to time for concreteconsultationsto further the normalization of relations betweenthe two countriesand continue to exchangeviews on issuesof commoninterest. 15. The two sides expressedthe hope that the gains achieved during this visit would open up new prospectsfor the relations betweenthe two countries. They believe that the normalization of relations betweenthe two countries is not only in the interest of the Chineseand American peoplesbut also contributesto the relaxation of tensionin Asia and the world. 16. PresidentNixon, Mrs. Nixon and the American party expressedtheir appreciationfor the gracioushospitality shownthemby the Government and people of the People'sRepublicof China.

Joint Communique of the United Statesof America and the People'sRepublic of China January1, 1979 (The communiquewas releasedon December15,1978,in Washington, D.C. and Beijing.) The United States of America and the People's Republic of China have agreed to recognize each other and to establish diplomatic re~tions as of January 1,1979. The United States of America recognizes the Government of the People's Republic of China as the sole legal Government of China. Within this context, the people of the United Stateswill maintain cultural, commercial, and other unofficial relations with the people of Taiwan. 3. The United States of America and the People's Republic of China reaffirm the principles agreed on by the two sides in the Shanghai Communique and emphasize once again that: 4.5.Both wish to reduce the danger of international military conflict. Neither should seek hegemony in the Asia-Pacific region or in any other region of the world and each is opposed to efforts by any other country or group of countries to establish such hegemony. Neither is prepared to negotiate on behalf of any third party or to enter into agreements or understandings with the other directed at other states. 245

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The Government of the United States of America acknowledges the Chinese position that there is but one China and Taiwan is part of China. Both believe that normalization of Sino-American relations is not only in the interest of the Chinese and American peoples but also contributes to the cause of peace in Asia and the world. The United States of America and the People's Republic of China will exchange Ambassadors and establish Embassies on March 1,1979.

Joint Communique of the United States of America and the People's Republic of China August 17,1982 In the Joint Communique on the Establishment of Diplomatic Relations on January 1, 1979, issued by the Government of the United States of America and the People's Republic of China, the United Statesof America recognized the Government of the People's Republic of China as the sole legal Government of China, and it acknowledged the Chinese position that there is but one China and Taiwan is part of China. Within that context, the two sides agreed that the people of the United States would continue to maintain cultural, commercial, and other unoffidal relations with the people of Taiwan. On this basis, relations between the United 2.

States and China were normalized. The question of United Statesarms sales to Taiwan was not settled in the course of negotiations between the two countries on establishing diplomatic relations. The two sides held differing positions, and the Chinese side stated that it would raise the issue again following normalization. Recognizing that this issue would seriously hamper the development of United States-China relations, they have held further discussions on it, during and since the meetings between President Ronald Reagan and Premier Zhao Ziyang and between Secretary of State Alexander M. Haig, Jr. and Vice Premier and Foreign Minister Huang Hua in October 1981. Respect for each other's sovereignty and territorial integrity and noninterference in eachother's internal affairs constitute the fundamental prindples guiding United States China relations. These prindples were confirmed in the Shanghai Communique of February 28, 1972 and reaffirmed in the Joint Communique on the Establishment Of Diplomatic

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Relations which came into effect on January 1, 1979. Both sides emphatically state that these principles continue to govern all aspects of their relations. The Chinese Government reiterates that the question of Taiwan is China's internal affair. The Message to Compatriots in Taiwan issued by China on January 1, 1979 promulgated a fundamental policy of striving for peaceful reunification of the motherland. The Nine-Point Proposal put forward by China Qn September 30, 1981 represented a further major effort under this fundamental policy to strive for a peaceful solution to the Taiwan question. The United S"tatesGovernment attaches great importance to its relations with China, and reiterates that it has no intention of infringing on Chinese sovereignty and territorial integrity, or interfering in China's internal affairs, or pursuing a policy of "two Chinas" or 11 one China, one Taiwan."

The United States Government understands and appreciates the Chinese policy of striving for a peaceful resolution of the Taiwan question as indicated in China's Messageto Compatriots in Taiwan issued on January 1, 1979and the Nine-Point Proposal put forward by China on September 30,1981. The new situation which has emerged with regard to the Taiwan question also provides favorable conditions for the settlemen~ of United States -China differences over United States arms sales to Taiwan. Having in mind the foregoing statements of both sides, the United States Government states that it does not seek to carry out a long-term policy of arms sales to Taiwan, that its arms sales to Taiwan will not exceed, either in qualitative or in quantitative terms, the level of those supplied in recent years since the establishment of diplomatic relations between the United States and China, and that it intends gradually to reduce its sale of arms to Taiwan, leading, over a period of time, to a final resolution. In so stating, the United StatesacknowledgesChina's consistent position regarding the thorough settlement of this issue. 6. In order to bring about, over a period of time, a final settlement of the question of United States arms sales to Taiwan, which is an issue rooted in history, the two Governments will make every effort to adopt measures and create conditions conducive to the thorough settlement of this issue. 7. The development of United States-China relations is not only in the interests of the two peoples but also conducive to peace and stability in the world. The two sides are determined, on the principle of equality and mutual benefit, to strengthen their ties in the economic, cultural,

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educational, sdentific, technological and other fields and make strong, joint efforts for the continued development of relationS between the Governments and peoples of the United States and China. 8. In order to bring about the healthy development of United States-China relati째n,s' maintain world peace and oppose aggression and expansion, the two.'Governments reaffirm the prindples agreed on by the two sides in the Shanghai Communiqu~ and the Joint Communiqu~ on the &tablishment of Diplomatic Relations.The two sides will maintain contact and hold appropriate consultations on bilateral and international issues of common interest.

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Simon, J. 1978. Basic Research Methods in Social Science. 2~ ed. Canada: Random House, Inc. Shirk, S. 1997. How China OpenedIts Door: ThePolitical Successof the PRC's ForeignTradeand InvestmentReforms.Washington D.C.: The Brookings Institution. Sincich, T.1995. BusinessStatisticsby Example.New Jersey:Prentice-Hall, Inc. Snape, R. 1996. NAFTA, the Americas, AFTA and CER: Reinforcement or Competitionfor APEC? Canberra: Australia-Japan ResearchCentre. Soesastro, H. 1994. The Institutional Framework for APEC: An Asian Perspective. In APEC: Challenges and Opportunities.Singapore:Institute of Southeast Asian Studies (ISEAS). Steinfield, E. 1998. Forging Reform in China: The Fateof State-OwnedIndustry. United Kingdom: Cambridge University Press. Taiwan Affairs Office and the Information Office of the State Coundl. 2000. White Paper -The One-China Principle and the Taiwan Issue. 21

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Totten, G. and Z. Shulian. 1992. China's EconomicReform:Administering the Introduction of theMarket Mechanism.Boulder: Westview Press, The Center for Pacific Asia Studies. United Nations Department of Economic, Social Information and Policy Analysis. 1996. The Uruguay Round of the Multilateral Trade Negotiations: A Preliminary Assessmentof Results. In H. Sanderand A. Inotai (eds.) World TradeAfter the Uruguay Round. London and New York: Routledge. US-China Business Council. 2000. PNTR Fact Sheet. 24 February. Available from World Wide Web:(www.uschina.org) .2000. PNTR Trade Status for China: Ten Key Considerations. 24 February. Available from World Wide Web:(www.uschina.org) Walizer, M. and P. Wiener. 1978. ResearchMethodsandAnalysis: Searchingfor Relationships.New York: Harper & Row Publishers. Wen, H. 1998. The WTO and China's Objectives as a World Trading Power. In J. Dorn (ed) China in the New Millenium: Market Reformsand Social Development.Washington D.C.: Cato Institute. Wolwovitz, P. 1994.The Asia Pacific Region: Confidence-Building in the PostCold War Era. In ~PEC: Challengesand Opportunities. Singapore: Institute of Southeast Asian Studies (ISEAS). WomaCk, B. and G. Zhao.1994. The Many Worlds of China's Provinces. In D. Goodman and G. Segal (eds.) China Deconstructs. New York: Routledge. 254

PHiliPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS, 1984-1994: AN ASSESSMENT

JULIETT. MENDOZA

ABSTRACT The Philippine-Brunei Darussalam bilateral economic relation is pn important aspect of Philippine diplomacy. Aside from being neighbors and members of the Brunei Darussalm, Indonesia, Malaysia, Philippines-East Asean Growth Area (BIMP-EAGA), Assodation of Southeast Asian Nations (ASEAN) and Asia-Pacific Economic Cooperation (APEC) trade blocks, the two countries have had fruitful early relations. However, the quality of their diplomatic rela'tion can be only be fully beneficial if it is equitable and reciprocal. In the light of the new economic order, where the essence of regionalization and globalization provide the basisand incentives for a mutual cooperative enterprise, the two countries must have Ii balanced economic relations to promote their national interests. In this study, it was seen that there is a need tp redirect economic relationship between the two countries. This study tried to answer a number of questions. Do national interests, economic opportunities and problems that relate to Philippine-Brunei Darussalam bilateral relations warrant reassessmentand redirection? What agreements on trade and investments, labor, tourism, sdence and technology, and official development assistancehad been made between the two countries? In foreign policymaking and implementation, what are the problems of the present economic relations between the two

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countries? What measures may be formulated to attain a more equitable economic bilateraJ relations which is in accordance with the principles and objectives of BIMP-EAGA, ASEAN and APEC? The bilateraJ relations of the two countries were analyzed in terms of flow of commercial visits, economic exchanges, .tnd economic agreements. Qualitatively, it focused on available raw and descriptive data and inductively searched for patterns that would answer the questions raised above. Due to the scarcity of materials and data, facts gathered from available government documents-published and unpublished-served as primary sources. Secondary sources were news clippings, theses, dissertations, and other reports.

BILATERAL RELAllONS AMONG NAllONS Introduction Peaceful coexistence for national development is always an objective of nations. Pursued bilaterally or multilaterally, coexistence or mutuality is only possible in an atmosphere nourished and nurtured by the spirit of equality, mutual respect, and trust. What happens if nations, in order to survive, forego the opportunity to interact through trade or economic interdependence? History proves that economic andsodal interactions bring successful relations among nations. Otherwise, conflict and war take place. The Cold War is an example. But this same phenomenon may also have moved nations faster toward greater complementation and cooperation. A "global community" is now fast taking over most spheres of human transactions. One only needs to see the rapid changes in th~ economic, political, sociocultural, and technological fields. This " global ~ommunity" thrives in an environment where barriers are breaking down and people are learning to increasingly work together.

The Need to Study the Philippine-Bnmei DarussalamBilateral Relations The Philippine-Brunei Darussalambilateral relationsare generally viewed asbeneficialand complementary. This study attemptsto assessthese ,relations,presentsits observationsand makessuggestionson how to redirect it for a more equitableand productive bilateral relations. There is much to learn to fully understand the two countries' relationship for the past tenyears.Wasthe relationshipmutually beneficial?

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RELATIONS

To answer this question, the following need.to be asked: (i) What modalities and approaches reflect the economic relations of the Philippines and Brunei Darussalam? (ii) What were the areas of cooperation? (ill) How equitable and reciprocal was the relationship? (iv)What were the problems and opportunities in the relationship? Answers to these questions could suggest ways to strengthen the relationship. There is also the need to find out if in this bilateral relationship, the right processes were observed and modalities were consistent with the more encompassing principles and objectives of the BIMP-EAGA, ASEAN, and APEC. Thus, this study focused on the economic relations between the two countries in the context of BIMP-EAGA, ASEAN, and APEC of which they are members. This study also hopes to contribute to the development efforts being pursued by the Philippines in its search for prosperity in the 21 It century. While several countries in Asia have alreadJ;evolved into "economic tigers," the Philippines is still struggling to be counted among them. Former President Fidel V. Ramos himself hasunderscored the need of SoutheastAsian countries for "...economic ~ompetitivene~s, and not so much in arms race or military build-up, not even political astendancy in our dynamic region of Asia and the Pacific.. ." (Philippine Star August 7, 1994p.l). The study is also significant in the light of the ASEAN's and EAGA' s search for regional development. While data and other information generated by this study could help the Philippines and Brunei Darussalam overcome basic disparities between their trade and investments relations, increase the opportunity to protect overseas Filipino workers (OFWs), and increase the official development assistance (ODA) and exchanges in science and technology (S&T) and tourism, other member-countries may also find useful insights that could lead to attaining economic stability and harmony in the region through equitable trade, technology, and sociocultural exchanges. Knowing the factors that influence the two countries' reciprocal relationship could help policymakers in formulating appropriate policies and in effectively implementing them.

Areas01Cooperation Six areas of economic cooperation were assessedin this study. These are trade, investment, labor (OFWs), tourism, S&T, and ODA. These areas of cooperation measure the economic relationship the two countries have

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forged and provide the data that determine the extent or depth of the relationship. They are also useful in finding out which areasreflect mutual relationshipand which areasrequire balancingor strengthening. Understanding the Bilateral Relations Brunei Darussalam joined ASEAN in 1984. Immediately after it became independent from British rule in 1984, bilateral relations were formalized between the Philippines and Brunei Darussalam. This relationship initially focused on economic cooperation and was further strengthened by the formation of the newest subASEAN sector grouping known as the BIMP-EAGA. This subregional group has committed to promote economic cooperation in their common borders. ASEAN also helped nourish the two countries' relationship. This study notes that trade between the Philippines and Brunei Darussalam since 1984had beenfluctuating. For example, Philippine exports to Brunei Darussalam in 1993were comparatively much lower than its imports from the same country. Trade deficit that year amounted to P48.4 million. Paul G. Dominguez, former Presidential Assistant for Mindanao Affairs, was quoted as saying that economic cooperation with Brunei Darussalam "...is not yet mature" (Philippine Star August 7, .1'94 p.8). Former President Fidel V. Ramos, during his state visit to Brunei Darussalam was also quoted as saying (Manila Bulletin August 6,1994 p.l): "I intend to correct the trade gap betweenthe two countries which is lopsidedly and consistently in favor of Brunei Darussalam,duelargely to thePhilippines' importation of oil and petroleumproductsfrom the Sultanate."

In response,SultanHassanalBolkiah stressedthe need to broaden the economiccooperationbetweenthe Philippinesand his country through official visits so that the two ASEAN neighbors could build a stable relationshipbasedon long-terminterests. The two leadersboth realized that it is imperative to improve not only trade relations but also other mutual interests such as investment, tourism, labor (throughthe OFWs),S&.T,and ODA. This study, therefore,lookedinto the dimensionsof that relationship in terms of the: a) extent or range of cooperation,b) problems inherent to suchrelatipnships,and c) how much still needsto be done.

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PHILIPPINE-BRUNEI DA~USSALAM ECONOMIC RELATIONS

The Study Cordial relations between the two countries have long existed. ThiS study, however, covered only the period when formal diplomatic relations were established in January 1984 between the two countries. A macroanalysis of trade and investments and of other areas of economic cooperation was used to assessthe economicrelations. Trade indices such as the value and compensation of exports-imports were examined to identify changes in size, volume and structures of the overall trade exchange. Other data oninvestments, joint ventures, commercial and technical exchanges and cooperation in tourism, S&T, ODA and labor exchange were also examined. The simple input-throughput-output conversion process was used to understand the workings of the economic bilateral relations between the Philippines and Brunei Darussalam. This process gave a step-by-step presentation of the bilateral relationship-where it begins and where it ends. The paradigm or conceptual framework is found in Annex 11. Areas Covered by the Bilateral Relations Thjs study looked into the status of the Philippine-Brunei Darussalam bilateral relations from 1984to 1994. Mainly economic in focus, the analysis of the relations includes the flow of commercial visits, economic exchanges, and economic agreements between the two countries. These are also seen in terms of the regional environment of BIMP-EAGA, ASEAN, and in the prindples and objectives of APEC. Not much is known about the bilateral relations due to the scarcity of materials. Most of the sources were materials from Philippine government documents, thus, caution was taken due to the possibility that these maybe partially biased toward the Philippines. The study also takes the Philippine point of view since it was designed mainly for the Philippine foreign policies in relation to national interests, and as applied to the bilateral relations with Brunei Darussalam. The timeframe, 1984-1994,is due to the fact that Brunei Darussalam achieved its independence only in 1984and it was only during this year that the country began to exercise foreign policy as a sovereign natibn-state. It is believed that ten years is an adequate sample period to analyze economic relations between the two countries. This paper is organized as follows: the first section introduces the background, problems, significance, objectives, scope and limitations of the 261

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study. The second sectionpresen~ a review of various literatures on Philippme external relations. The third section presen~ a brief history of the PhilippmeBrunei Darussalam relations from 1984 to the present relations within the global and regional economic spectrum, placing emphasis on the geopolitical environment of the ASEAN, and the economic alliances of BIMP-EAGA and APEC. The fourth section deals with the Ilmput" phaseof the bilateral relations and discusses the factors that helped forge the present Philippme-Brunei Darussalam economic relations. It also discusses the national mteres~ and the membership of both countries m the BIMP-EAGA, ASEAN, and APEC. The fifth section discusses the modalities chosen to conduct the bilateral relations between the Philippmes and Brunei Darussalam and the specific areas of economic cooperation. These include the chronology of bilateral exchange visi~, agreements arrived at, and Memorandum of Understanding (MOU) signed. This chapter is important smce from here, it can be determined which areas of the relations need to be further improved or enhanced. The sixth section discusses the findings on the six areas of cooperation between the two countries, particularly on trade, mvestment, labor (OFWs), tourism, science and technology (S&T), and official development assistance (ODA). And finally, the seventh section draws conclusions from the nature and trends of the Philippme-Brunei Darussalam economic relations from 1984-1994. It also outlines recommendations on how to improve the conduct of foreign policy planning and implementation for the Philippme government.

REVIEW OF RELATED LITERATURE Singh(1984)narratesBruneiDarussalam'sexpansioninto an empire during the early 15thcentury. It dtes Sultan Bolkiah as the Rajah who conquered the Kingdom of Soolook(Sulu), made.the country of Selurong (Manila) a dependency,and married Lela Menchanai,the daughter of the Batara(ruler) of Sulu. At this time, Selurongwas payinga gantangof gold as yearly tribute to Brunei Darussalam. The bookalsorelatesthat during thisperiod, BruneiDarussalamwas at its goldenage. Its sovereigntyextended over the whole island of Borneo (that includesthe sultanatesof Sambas,Pontianak,Banjarmasin,Pasir,Kotei and Bolongan),the Sulu archipelago,and the islands of Balabec,Banggi, Balambanganand Palawan.

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PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

Wadi, Solidum, Urn et al. (1998)survey the development of external relations of the Filipino people in the last hundred years -from the precolonial natural state of borde!'lessness, to colonial subjugation, to neocolonial dependenceand then finally to the sove~ign independencewhich the Filipino people bravely fought for. The book also chronicles Philippine external relations with the Islamic world, Southeast Asia, Otina, Japan, the United States of America, the European countries, and how it related with the United Nations. Meanwhile, Carlos (1996)assesseshow the Philippines benefited from its more than three decades of membership in selected areas of cooperation in ASEAN. The book c1\roniclesthe 27years of cooperation in seven functional areas which includes drugs, social development, culture and information, environment, food, agriculture and forestry, transportation and communication, and science and technology. This study demonstrates that there is a fairly high level of cooperation between the Philippines and the other ASEAN countries in the areas dted above. It also highlights the significant role of the Philippines in education, drugs, and the environment, and identifies the areaswherein the government will have to exert more efforts. It also notes the increasing scope of functional activities among the ASEAN coUntries that led to more intensive and extensive cooperation involving more political actors. Finally, the book emphasizes that the close collaboration among the countries in ASEAN hasresulted in tremendous benefits to both the Philippine government and the private sector. The APEC Substantive Group of the Philippine's Department of Foreign Affairs documented the preparations of the Philippines when it hosted the 1996 meetings of the APEC forum. The final report or document weaves together the many ideas and positions which various sector representatives discussed in a series of dialogues with government agencies beginning in August 1995 and culminating on December 7, 1995 with the National Preparatory Summit for the 1996 APEC meetings held at the Philippine International Convention Center in Manila. The document also discussesthe key areas for Philippine participation as outlined by then President Fidel V. Ramos, as well as his leadership on the way to MAP A '96 (Manila Action Plan for APEC 1996). The final product of these efforts was getting the Philippines to be the host and getting assigned with the work of compiling the various individual action plans of APEC's 18 member-economies. This includes the collective action plans of the committees

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MENDOZA and subcommittees working on 15 specific areas on trade and investment liberalization and facilitation, and the progress reports and further plans and programs on economic-technical cooperation in 13 different areas ranging from agricultural technology to transportation. Also included in this publication are President Ramos' keynote and closing speeches that challenge all Filipinos to energize, coordinate and harmonize the actions of membereconomies toward a concerted implementation of the APEC agenda, and for the Philippines to bear the burden of APEC leadership by example. Patanfte (1994)highlights the old and long-time relationship between Manila and Brunei Darussalam during Mariila's precolonial history. , The author pointcSout that few Bruneian natives had settled down in the island of Luzon, espedally in the towns of Manila and Tondo, a few years before the Spaniards came. It also notes that the people of the two islands (Borneo and Luzon) intermarried. The article IcllsOemphasizes ~t the Malays who settled down in Tondo came from Brunei. Brunei-Malay communities were already thriving around !:he Mariila area in the 13thcentury. The article also mentions, from Pigafetta's account, that on July 29,1521, while the Spanishships Victoria and Trinidad were anchored off Btunei Bay, th~y intercepted a fleet of Brunei Darussalam war boats, and in one of the junks (joangas),-they captured the son of the King of the island of Luzon, and that the prized captive was described as the Captain-General of the King of Brunei Darussalam. The article further notes Brunei-Malay traders' presencein the Mariila Bay area before 1500. It mentions Brunei Darussalam aristocracy s control of the area, as it sought to strengthen its hold on strategic points of the river mouth. It also notes the control by Brunei Darussalam rulers of Tondo and Manila of the flow of goods down the Pasig River to the bustling settlements upriver like Lamayan, Santa Ana, and to the thriving communities in the Laguna de Ba-i region. According to Patanfie, the Tondo-Mariila area during that time served as an entrepot for native products that came from surrounding river settlements and those in the Laguna de Ba-i area. Finally, the article relates that when Legaspi came, he found that practically the whole interisland trade was in the hands of Bruneian Muslims. Another article by Yu and Zietlow (ASEAN EconomicBulletin March 5,1995 p.300) identifies and empirically tests the factors affecting the level of trade between 14 countries in the Pacific region by using a gravity model. This study demonstrates that the market size of exporting and importing countries, political stability, political distance, cultural similarity, membership

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

in ASEAN, and being a newly industrialized counb'y are significant indicators of the bilateral trade relationships in the Pacificbasin. It also states that physical distance between countries does not signifiQ:antlydiscourage trade activities ~d price levels between countries in the Asia and the Pacific countries. In another study conducted by Bautista and Faustino (Philippine Star July 9,1995 p.17), it notes that trade liberalization is usually seenas a subset of policy in the Philippines. The authors say that working out the Margin of Prefer~nces (MOP), tariff reduction or even devaluation is viewed as individual p~licy ~d not as part of an overall policy. The study also observes that the Department of Trade and Indusb'y (DTI) is responsible for export and investment promotions although some of the necessary elements to achieve this may be in cooperation with other sectors of the government. The study further says that while "development diplomacy" is the new byword in trade policy, not many government officials know what it really means or know how to operationalize it. Moreover, the study found out that there is no office in charge of trade policy, and that the Philippines does not have an overall trade policy framework. The study then concludes that in the absence of an overall policy framework, it is difficult to imagine the Philippines being capable of playing a strategic trade game. In a workshop report entitled For an Independent Foreign Policy (Economic Workshop Group Reports 1988), the Philippines' pursuit of industrialization was observed to be saddled with problems summarized as follows: There is lack of popular participation and representation in the economic planning process; 2 The Philippines continues to pursue a wrong path of industrialization by following the IMF-WB recipe of laborintensive, export-oriented, agri-based, and transnational dependent "industrializationll; 3. The Philippines is a victim of unequal trade arising from importexport dependence on industrial capitalist countries which engage in unfair trade practices; and The program for manpower export is a palliative measure that aggravates the distortions and dependence of the Philippine economy on external forces a.'1dit should not be used as a longrange measure.

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Caugma (1981) points out that Japan had taken steps to impose restriction on Philippine export to Japan. It further notes~t the Philippines continues in its role as a raw material supplying economy to Japan, while Japan has become the Philippines' leading supplier of fii1ished products and technology aside from capital and expertise. In terms of trade, the study notes that the Philippine-Japan economic relations hasbeen of ambiguous advantage to the Philippines which continues 'to be saddled with mounting trade deficits in her trade ttari$actions with Japan. On the other hand, Japanese investments have penetrated major economic sectors -from agricultural services to manufacturing, thus providing Japaneseinvestors increasingly stronger influence on decisions and activities in these sectors. Similarly, the study found out that Japanese investments in the Philippines have not been totally conducive to the development of the country's industrial sector. It observes that Japaneseeconomic missions to the Philippin.eSare largely exploratory in character and are meant to provide a quasi-diplomatic channel for the formalization of Ja,paneseeconomic penetration. Conversely, Philippine trade missions to Japan have been negligible as well. as uncoordinated, and need expertise to render fu~JIYas effective tools for foreign trade promotion. SinceJapaneseeconomic dominance in the Philippines hasbeen found to be increasingly pervasiver the study of Caugma concludes that PhilippineJapan economic relations, by all means, is in favor of Japan. . South Korea, another economic tiger in Asia, has increasingly traded with the Philippines. Ina study conducted by Polo.{1981),shenot~ ~tformat bilateral relations between the two countries are amicable but minimal, espedally in the economic, sociocultural, political-diplomatic, and post-Korean war military fields. It fo~ses on the two countries' interaction at the different levels of the international environment: global, regional and bila~a1 'within the context of the bipolar bloc alignment also known as:the Cold War. Moreover, Polo observes that the shift of Philippine foreign -policy is a deviation from the U.S. orientation of the anti-Communist stand. This observation tendS to see ASEAN as the cornerstone of foreign policy. Finally, the study sees that South Korea's rapidly expanding world trade, including its export of technical expertise, has made it as an economic force of growing importance in the region. Hill (1981) reveals that the relationship enjoyed by Mexico and the Philippines has been primarily based upon sentimental factors ~g from a

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

commonlysharedhiStoricaland cultural heritage.Economics,thereforeis of minor significancein determiningthe relationshipbetweenthe Philippines and Mexico within the period studied. Hill also says that both nations, as developing sodeties, export productsthat arecompetitiveratherthancomplementary.However,the study points out that sincethe 1980s,the trade pattern betweenthe two countries hasbeenconsistentlyincreasmg.

mSTORY OF PHILIPINE-BRUNEI DARUSSALAM ECONOMIC RELAnONS The Philippinesand BruneiDarussalam'sbilateral relationsactually started in the early 13ihcentury precolonialera and \verebasedon trade and friendship (patanfie1994). The 15~ century history of BruneiDarussalamtells of its expansion from a vassalstate of the MadjapahitEmpireto a position of overlord. Using diplomacyand force;the popular SultanBuJkiahconqueredthe Kingdom of Soolook(Sulu), made the country of Selurong(Manila) its dependent,and married Lela Menchanai,the daughter of the Batara ~uler) ofSulu. From that time on, Seluronghad to pay a gantangof gold as a yearly tribute to BruneiDarussalam(Singh1984). During this goldenageof BruneiDarussalam,her sovereignextended over the whole island of Borneo,which included the Sultanatesof Sambas, Pontianak,Banjarmasin,Pasir,Koteiand Bolongan'beingher vassals,theSulu archipelago,.and the islands of Balabec,Banggi,.Balambanganand Palawan. BruneiDarussalamnativessettled on the island of Luzona few yearsbefore tbe Spaniardscolonizedit, especiallythe towns of Tondo and Manila. The people of BruneiDarussalamand Luzonmtenilarried. By1521,the Bruneian aristocracy,seekingto strengthenits hold on its strategicpoints, controlled interisland trade in the archipelago. Whenthe Spaniardsled by MiguelLope~de Legaspilandedin Manila on May 17,1571,they wereconfrontedby the ruling chiefsof what was later to becomeManila, RajahMatandaand hisnephew,RajahSolaimanandRajah Lakandula of Tondo. Rajah Matanda and Rajah S6laiman were of royal Bruneiandescent. Legaspifound that the Bruneian aristocracypractically controlled the whole interisland trade of Manila.

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Brunei Darussalam's conquest of Sulu ~d Luzon involved her in the politics of this area more than in the rest of the island of Borneo. She even came into conflict with the Spaniards and the-Sulu residents for supremacy in the area, a historical fact which is still manifested today in the Philippines' claim over Sabah, even though the role of Brunei Darussalam then has been taken over by Malaysia. The coming of the Spaniards weakened the empire. Brunei Darussalam's grip on Manila and Sulu weakened when the Philippines was colonized by Spain. The 18thcentury for Brunei Darussalam was beset with a declining economy and an inefficient aristocracy which depleted the empire's power, blamed largely on mismanagement and inefficiency. To survive politirn-lly, the kingdom came under British control in the early 191h century. It was as a British Protectorate that the ancient kingdom was spared from total extinction, eventually becoming what is now the oil-rich modem Brunei Darussalam. After Brunei Darussalam obtained its independence ".. .shortly after midnight on December 31, 1983 when His Majesty declared Brunei Darussalam a fully independent sovereign nation ready to resume its; international responsibility" (Ministry of Law, Brunei Darussalam 1993), full diplomatic relations between the Philippines and Brunei Darussalam were established. In 1984, the Philippine Consulate-Gen/eralwas elevated to an embassy in Bandar Seri Begawan and an embassy of Brunei Darussalam was subsequently opened in Makati. Over the years, Philippine and Brunei Darussalam relations continued to be warm and cordial. There is no outstanding problem between the two countries. There were opportunities for closer relations arising from the geographical pro,an\ity, greater economic interactions, bilateral talks especially on security and region~ issues, and increased cooperation within the framework of ~e BIMP-EAGA, ASEAN, and APEC. I The bilateral ties of the two countries have been highlighted by a series of state visits between Sultan Bolkiah and the various Presidents of the Philippines, and other exchange of officials visits even before Brunei Daruss~am obtained its independence {rom the British Protectorate.

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

FACTORS IN FORGING THE PffiLIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS Two factorsprovided impetusin the forging of thebilateraleconomic relationsbetweenthe Philippinesand BruneiDarussalam.Theseare the (a) national interests of each country, and (b) influencesprovided by a much larger external environment such as the regional groupings where both countriesare signatories. Before discussingnational interest as the first determinant of the bilateral relations, a brief review of the economicstatus of both countries should provide a richer perspective.The resourcesof each country will provide a betterunderstanding on what shapedtheir national interestsand priorities in the areasof economiccooperation. Bmnei Damssalam Brunei Darussalam is a Malay Islamic monarchy situated on the northwest end of the island of Borneo. It has a population of some.276,800 and the land occupies a territorial expanse of 5,765square kilometers (Brunei DarussalamNewsletterFebruary 28,1995 p.12). An oil and petroleum-rich country with a per capita income of US$17,500(Manila Bulletin, August 4, 1995 p. 13), Brunei Darussalam is a first-class welfare state. Its people enjoy a wealthy lifestyle with the government largely subsidizing housing, education, health and other needs from its income from oil, rents, royalties, taxes and dividends. Citizens do not pay taxes. Its current monarch, Sultan Hassanal Bolkiah, "has properties (with an) estimated net worth of more than US$40billion." He is reputed "to be the richest individual in the world." BruneiDarussalam'shuge foreignreserves now amount to US$30billion (Richardson1995). The country's population has lived the good life in an economy that basically consists of a 50-50 partnership bP,tweenthe Royal Dutch Shell group and the Sultan's government. The country has 129,000vehicles -every other man, woman and child is a car owner (PhilippineStar 1995). Oil exploration and timber concessionbrought the ancient kingdom back to its feet in the last one-and-a-halfcenturies. However, the government has beenrwming a budget deficit since oil prices dropped in 1989. Moreover, oil expertspredict that Brunei Darussalamhas, at most, 40years of oil reserveleft if it keeps pumping at the current rate of 180,000barrels a day. With a population that is expectedto double in 30years,the governmenthasannouncedan economic diversification program. Some 5$5.5 billion (US$3.93billion) has been allotted

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in the current five-year development plan to broaden the economy (Pmlippine Star May 15, 1995p. 24). Its present economy is broadly supported by income from oil; a small manufacturing base, featuring a textile factory and a canning and bottling plant; and, its biggestbusineS5outside oil- a cattle ranch in Northern Ausb'aJiaowned by the Sultan. This cattle ranch is slightly larger than Brunei Darussalam itself. It supplies all of Brunei's beef. The Pmlippine Star also reported that Brunei Darussalam's official business guide lists some of the advantages for foreign investors. Theseare: no taxes, good infrastructure and a 100% foreign ownership in many enterprises. On the other hand, foreign diplomats in Brunei Darussalam say, "the country has high cost of living, scarceand expen5iveworkfon:e, and a ban on foreigners owning land as barriers to investment. Yet, if the oil stops flowing, the income from investments managed by the Brunei Darussalam Investment Authority (BIA) would keep the economy afloat. Estimates of US$ 60 billion portfolio and an annual income of about US$2billion should keepthe economysurvive." In spite of its GNP and increased reserves, Brunei Darussalam has encouraged foreign investment. The Manila Chroniclereported in 1994 that its government is vigorously pursuing opportunities to diversify the nation's economy so that it can reduce its reliance on the oil and gas industries. It further reported that its Ministry of Industry and Primary Resoun:es establishe~ in 1989 has undertaken a number of programs and trade missions to boost industrialization as well as encourage foreign investments. Priority was given to the development of business services, transshipment activities, technical support services, natural resources and horticulture. Their most favored investment proposals are "those of long-term partnerships with companies committed to good corporate citizenship and compaboility with the nation's physical and social environment. The Ministry hasalso established a one-stop agency to help investors prepare accepta"bleproject proposals, arranged for the release of government land and approvals for foreign workers' licenses. It also helps make construction plans and assistsin technical operations and processes. Foreign companies are grouped under the Foreign Limited Company and the term "Berhad Bhd" follows the end of their written names (Manila ChronicleFebruary 28, 1994p. 9).

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The Philippines The Philippines lies southeast of the continent of Asia, directly below Taiwan at its northern tip, and is only 530 kilometers (km) away from ~e nearest coast of China. It is bounded on all sides by the Pacific Ocean, the China Sea and the Celebes Sea. Its closest neighbors are the Indo-Chinese peninsular countries to the west, and Indonesia and Malaysia in the northwest. The Philippines' southwestern tip is only 48 km from Malaysia. Its current geopolitics stressesthe country's strategic location in Asia. It is a member of the ASEAN and the BIMP-EAGA. It has a fearful-friendly relationship with China and notes the growing importance of Japan and, to a lesser extent, Australia as its economically powerful neighbors (Guzman and Reforma 1988). The country is an archipelago of 7,100islands with three major islands -Luzon, the Visayas and Mindanao -stretched over 1,295,000 square kilometers of oceanic waters and 300,000sq km of land. Numerous beaches are found along its length of 1,851 km and breadth of 1,107km. Its extensive mountains, forests, expansive plains, volca11oes and mineral springs are tourist attractions. Its tropical climate -high temperature, high humidity, abundant rainfall and wet and dry seasons-combined with a generally fertile soil result in a lush green countryside. The country lies in a belt of volcanoes, dotting the three main islands of the country. TyPhoons and other calamities frequently visit the country~desb"oying crops, property and people. Nevertheless,the fatalistic attitude of the country's family-centered people helped them survive and continue to pursue economic growth.

Its 1998population, accordingto the National StatisticsReport,was 73 million with a median age of 16,with approximately50 percentbelow 20 making for a large dependentpopulation (National StatisticsReport 1998). Filipinos are of Malayo-Polynesianstock, brown-skinned, of averagebuild and height, of mixed ancestrydue to the migration of earlyChineseand Arab settlersand the colonizationby the Spaniards,Americansand, in a brief era, the Japanese. In many ways, the Philippine economyis shapedby its agricultural products. Riceis the major crop, but banana,pineappleand other fruit crop productionshave increased,often turning former rice lands and idle farms into large-scaleagribusinessventures. Rich deposits of gold, copper, iron and coalare found ontheislands,and mining is a relativelygrowing industry 271

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in the country, since-tJ1e 1920s 1ffider the Americans. Its manufacturing industry produces consumer goods; textile, wearing appareL tobacco, refined chemicals, electrical machineries and transport equipment (Ibon Facts and Figures 1994): In spite of its rich natural resources and abundant and literate labor, the country still faces problems common to underdeveloped countries. Poverty affects 70 percent of its population due to unemployment and underemployment and the lack of entreprene~ capital. De Guzman and Reforma (1988) provide an apt description of the Philippine economy with the following: Thecountryremainsa dependenteconomywhichrespondsmore to thedemandsof more affluent areasthan to the needsof its overwhelming poor, rural population. The export picture reinforcesthepre-independence imageof a colonywhichserves as a 'hewer of wood and drawer of water'. Its top ten exports are still theagricultural,forest and mineral productsfor which the Philippines was known in .1946.The only product not alreadyexportedby thecountry at that time, whichfigures in thetopten now,is banana,whichis producedby multi-national companiesor by Filipinos in partnership with Japaneseand American interests.Themain productsfrom theseplantations are large,greenlacatanswhich commandvery high pricesand are grown especially for export. Bananas for local consumption'shavebeenlimited to smallervarietiesand those rejectedby foreign consumers. Inspite of the above, the Philippines has a bright side to it. An article in the Visitors' Guideto thePhilippinesreported tha~ from zero growth in 1992, when power shortages almost crippled the econQmy, growth rate was posted at 2.6 percent and 5.1 percent in 1994 and six percent in 1995. That growth rate was the highest among ASEAN and APEC-member countries, but it was still far from those made by established economies of the world. Its increased exports, increased dollar reserves and acquisition of an Article VIII status as member-country of the International Monetary Fund was a signal to the world that it can manage its economic affairs without the artificial exchange rate controls. This-was described by Nellor (1996) as "more soundly based than previous economic recovery episodesbecausegrowth is fueled by investments

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and exports, and domestic savings, instead of external debt, are finandng the recl;)very." The same article attributes the .Philippines' breakthrough in government reforms from i) the elimination of cartels and monopolies primarily in telecommunications, resulting in the improvement of phone density; ii) opening up of banking to foreigners; ill) liberalization of shipping, insurance, cement, agricultural trading, and the oil industry; iv) allowing two official carriers for international passageand two domestic airlines serving inter-island passengers; v) opening of wholesale trade to 100 percent foreign investment, with retail trade expected to follow suit through legislation; vi) opening of a 100 percent foreign participation opportunity through Financial or Technical Agreements (FTAs) and a most liberal and innovative buildoperate-transfer (BOT) law with over 10 variations that enable private investors to take the lead in infrastructure development, transport, water and waste management, and other public utilities; vii) offering multinational fums the opportunity for ready-to-occupy locations in about 40 growth centers, industrial estatesand export zones,namely, Subic Bay Freeport Zone, Oark Special Economic Zone, Calabarzon, and Socsargen, among others (Nellor 1%6). Despite this new picture, the Philippines' further need to develop better work attitudes and values corollary to the development of needed technology was seen in order. to continue economic development along with its ASEAN neighbors. Inputs to Bilateral Relations Domestic and foreign policies are the logical articulations of a country's national interests. Thus, national interest is singled out in this study as the first component that determined the bilateral relations of the Philippines and Brunei Darussalam. Bilateral relations work along the principle of quid pro quo -specifically in economic exchanges.No nation in the world has beneficially assisted other nations, under this principle, based principally or solely on benevolence. It maybe possible for such to happen but not most of the time. One has to give something in exchange for what it can get. And what a country would like to get from another in exchange for a benefit is determined basically by its national interest.

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National Interests National interests, as defined in this paper, refer to those things that countries do or seekto protect or achieve in relation to others. It also refers to the standard, expectations and advantages by which both the Philippines and Brunei Darussalam would like to achieve and gain from each other. According to Hartmann (1973), once interests were identified, they do not remain constant as part of a nation's foreign policy. National interests today may include some items such as:food, protection and alliance while tomorrow or the next may include diplomatic recognition, technical services, or investments. Any inputs to a nation's foreign policy could not be totally credited as factors internal to the environment or factors derived from the external environment. Policy revisions, if made, could'be due to global or regional pressures or to internal pressures that must be looked at carefully. for each case and circumstance. Hartmann continues to say that relations between two nations also stem from a choice of positions by the parties involved such as cultural factors, emotional attitudes derived from historical experience or from perceived economic advantage, or from many other causes.Therefore, how individual nations determine policies and pick the specific mix of interests to pursue become paramount in any analysis. When common interests predominate, it is said that the relationship is friendly; when interests clash, then the relationship is said to be hostile or "more" hostile. Domingo (1983) asserts that the primordial consideration in determining the foreign policy of a state is its own national interest. In general, national interest refers to the state's i) self-preservation; ii) security; andw) well-being. In this paper, national interests refer to those coming from within (internal) and those developments shaping the world (external). The internal or domestic factors that determine national interest are sometimes easier to identify. The external factors are more complex and require some time to study. The effects, for example, of the finanCial crisis that hit the region in 1997 only became evident in 1998. It was only a little later when the Philippine government was able to maintain macroeconomic stability and prevent a worsening of the economic situation. It is relevant to underscore at this point the thrust of the Ramos administration. Summarizing this thrust, former President Ramos said in one of his speeches:

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

"The most i.mportant wars of the 21st century will befought no longer on the physical battlefield, laboratories,

but in corporate boardrooms,

stock exchanges, classrooms and shop floors."

(Siazon 1998)

This strategic thinking permeated the initiatives of the Ramos administration in the external environment. Quoting Foreign Secretary Siazon in a speech given during the- second University of the Philippine Public Lectures on the Philippine Presidency and Administration on March 11, 1998 at the University of the Philippines in Manila, he said: "In closecoordinaHonwith other departmentsand their attaches,theforeign servicepost of the Departmentof Foreign Affairs has beenharnessedto attract foreign investments, promotePhilippine export products,andenHceforeign tourists to visit our country. In-boundand out-boundinvestmentsand trade missionshave beenfacilitated, and tradefairs, tourism shows,businessmeeHngs, and media interviewshavebeenset up. The country team approach also underlies economic intelligence,in whichmid- to long-termviewsof developments within a country and their impact on otherstatesare rouHnely fed to governmentplanning agenciesand interestedparnes to guidepolicy and inform investmÂŁnt,tradeand otherdecisions." Theseefforts have led to the conclusionof 10 new trade agreements, 18 investment protection and promotion agreements, eight taxation agreements, 11 air services agreements, 12 economic and science and technology cooperationagreements,six tourism agreementsand a host of otherbilateral economicpacts. Thegovernmentalsomadeeffortsto makeupfor thecurrent account deficit of the economy,which representstheforeign reservesneedof the country that cannot be met by receipts generatedby exports. This is achieved,asidefrom the income remittances of overseasFilipino workers, through official developmentassistanceor aDA, which amounts to between two to threebillion US dollars yearly.

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Multilateral economic arrangements, which constitute another aspect of Philippine foreign relations, and which influence to a large extent its polides and decisions, comprise the other factor input to Philippine-Brunei Darussalam economic relations. These come in the form of multilateral agreements which act as a very influential determinant of Philippine foreign policy. These subregional or regional agreements are the BIMP-EAGA, ASEAN, and APEC. These agreements form t~e outer ring of influence that affect the Philippine-Brunei Darussalam bilatelral relations. The Philippine representations in world and regional initiatives and arrangementswere dear manifestations of the Ramosgovernment's economic diplomacy. As of this writing, the Philippines actively participates in World Trade Organization (WTO), APEC, ASEAN, Asia-Europe Meeting (ASEM) and other multilateral fora. It must be recalled that General Agreement on Tariffs and Trade (GATT) was succeededin January 1995 by a more formal and results-oriented body called the WTO. With 131 members, this is the most comprehensive and universal economic arrangement in which the Philippines actively participates. The objectives of the Philippines in the WTO include the facilitation of trade and investnlents relatioI)S with other countries and the opening of markets for Philippine export products on a free-and level playing

field. While WTO seeks to provide a framework for the conduct of international trade, APEC is a more informal grouping of economiesin the Asia-Pacificregion which was formed in 1989.This body sprung from the growing economicinterdependenceof the 12 original members.With the admissionof Peru,Russiaand Vietnam, it now has21 membersand APEC economiesaccountfor almost half of global trade and more than half of total world income (Siazon1998).The Philippines hosted the 1996 APEC Meetingand was died as one of the bannerachievements during the Ramos administration. While the WTO and the APECare important economicgroupings,it is through simultaneous economic arrangements in ASEAN that the Philippinescontinuesto seekin order to consolidateits economicfuture. To illustrate how Philippine-ASEAN-global triadic frameworkoperates,Filipino foreign policy and economic experts draw a concentric circle with the Philippines at the center.The circle spirals out to relate first with ASEAN, thento the regionand to the world. It is to be noted that ASEANstarted out as a political grouping of SouthEast Asian countriesbut-hasprogressively 276

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

moved toward greater economic iritegration. It is so through ASEAN that the Philippiries is able to use channels that deepe economic relations with other blocks and economic powers, such as the E opean Union and Japan, two very important tradirig partners and sources f irivestments and official development assistance (ODA). The Asia-Europe Meeting (A5EM) held iri Bangkok iri 1996was an ASEAN initiative. So, too, e the A5EAN Free Trade Area (AFT A), the ASEAN Investment Area (AI ), and growth zones like BIMP-EAGA. ~

Multilateral Influences The BIMP-EAGA Much smallerin membershipand areaco eragethan the ASEANis the East ASEAN Gro~ Area (EAGA) compose of Brunei Darussalam, North and South Sulawesi, East and West Ka antan~andMaluko iri Indonesia;Sabah,Sarawakand Labuanin Malay ia; and Mindanao in the Philipp~es. Theseterritories banded together 'th the aim of achieving economicprosperity in the area. ~ mi s with a total land areaof The Growth Area brings togethereCO 690,000sq km. EastIndonesia-.comp~singili pr vincesof West.and East Kalimantan, North and South Sulawesiand '"-is the biggestin the group at.385,695sq km, West and EastKalim n form most of Borneo; which alsoincludesthe Malaysianterritories of S awak, Sabahand Labuan " that, together,makeup 200,564sqkm. Mindanaois thethird largest member at 102,630sq km. The smallestbut the richestin p r capitaincomeis Brunei Darussalamat 5,769sq km, BruneiDarussalam'sp r capitaincomeis $8,525, followed by Malaysiaat $1,582by EastIndonesia t $893,and by Mindanao at $505.The whole area,which has a combinedp pulation of 28 million, is rich in timber, energy and mineral resources,an<llit is where the world's richest fishing grounds are alsofound (Daiwey1994). During the ministerial m~etingon March 6, 1994;the group agreed to promote transport and shipping services, fishing, joint tourism development, agriculture and horticulture, e ergy exploration and development,environmentalprotectionand manag ment,forestryand timber production, human resources development, i dustry and trade and investment, Immediately after the meeting,North S esiordered 24~OOO tons of cementfrom DavaoCity. In return, Davaoorde ed 15,000tons of asphalt. fr~ North Sulawesi,which, from there on, will b1ilY100,000tons of cement 277

MENDOZA from Davao every year. The asphalt from North Sulawesi was used in the construction of roads in Mindanao. Davao and North Sulawesi, reportedly the most active of the group's members, are already into joint ventures in fish-canning. Two canneries have been put up in Manado and both are run by Filipino technicians and managers. While Malaysia is investing in the Samal Tourism Project aimed at making the island off Davao City a world-class resort, it is also investing in rubber and palm oil plantations in some Mindanao provinces, taking advantage of available knowhow and cheap labor in the area. In 1994,a team of businessmen from Labuan -a free port and financial center off Sabahvisited Cotabato, Zamboanga and Cebu on an exploratory tour. Business groups have already begun negotiations for cooperation in the development of air and sea transport, fisheries and tourism. Malaysian government is the leader for joint tourism development. A joint tourism master plan for the whole area has already been prepared. Brunei Darussalam is the center of the groups' air transport network, while the Philippines, with its expertise and trained manpower, is the leader for fisheries ~evelopment. Indonesia is taking care of sea transportation, which has already discussed and organized meetings for regional industry of sea routes, and port for trade and tourism. A bigger joint venture is expected since the Asian Development Bank (ADB) has completed a study that would recommend large enterprises for public and private cooperation. The relationship between the Philippines and Brunei Darussalam is not yet mature. The 1994 state visit made by former Philippine President Fidel V. Ramos was expected to move Philippines and Brunei Darussalam relations beyond diplomatic and political links into the dimension of strengthened economic cooperation (Gonzales 1994). On the same year, Brunei Darussalam also assured Philippine officials that it would continue hiring Filipino workers which numbered 18,000(a few having their own businessesthere), with salariesranging from US$500(P8,500) for starting unskilled or service workers to US$4,500 (P76,500)for middle level executives. Brunei businessmenso far had limited their investments in the country to real estates. The Philippine Business Council (PBC) has been created in Brunei Darussalam and the Brunei Council had also been established in the Philippines to expand the private sectors' cooperation between the two nations.

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PHiliPPINE-BRUNEI D~RUSSALAM ECONOMIC

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The BIMP-EAGA is not the first cross-border arrangement on economiccooperationin Asia. However, it was touted asthe mostpromising sinceits impact is seento be benefidal and profitable for all the partidpating membercountries- by creatingmorejobs,more businessopportunities,and ultimately, a betterlife and prosperity for the membercommunities. The ASEAN / The Associatio~of SoutheastAsian Nations is a regional organization established on October 7, 1967in Bangkok, Thalland with Indonesia, Malaysia, Singapore, the Philippines, and Thailand as members. The organization has since expanded its membership to include Brunei Darussalam, Cambodia, Laos, Myanmar and Vietnam. ASEAN has a seven-fold objective as enumerated in the ASEAN Declaration or the Bangkok Declaration which was signed by the Foreign Ministers of ASEAN countries on August 8, 1967 in Bangkok, Thailand. The objectives are: 1. To accelerate the economic growth, social progress and cultural development in the region through joint endeavors in the spirit of equality and partnership in order to strengthen the foundation for a prosperous and peaceful community of South-East Asian nations; 2. To promote regional peace and stability through abiding respect for justice and the rule of law in the relationship among countries of the region and adherenceto the principles of the United Nations Charter; To promote active collaboration and mutual assistance on 3. matters of common interests in the economic, social, cultural, technical, scientific and administrative fields; 4 To provide assistance to each other in the form of training and research fadlities in the educational, professional, technical and administrative spheres; To collaborate more effectively for the greater utilization of 5. their agriculture and industries, the expansion of their trade, including the study of the problems of international commodity trade, the improvement of their transportation and communication facilities and the raising of the living standards of their peoples;

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To promote South-EastAsianstudies; and To maintain close and beneficial cooperation with existing international and regional organizationswith similar aims and purposes,and explore all avenuesfor even closer cooperation amongthemselves(ASEAN Secretariat1978).

On its 27thfounding anniversary, ASEAN has been acknowledged as the world's most dynamic regional grouping. Former President FidelV. Ramos in a speech in that forum described it as ... IIa bodycreatedprimarily to maintain stability and security in the region, ASEAN has evolved into a strategic venuefor fostering cooperationin almosteveryfield of humanendeavor. " (Philippine Daily Inquirer August 8, 1994p. 15) The members of the ASEAN fostered cooperation by joining forces in the massive global competition along trade, economic survival and competitiveness, and economic suffidency. From 1970to 1985, former President Ferdinand E. Marcos also placed the primacy of ASEAN in his foreign policy by constantly referring to it in his diplomatic agenda. He honored all visiting dignitaries from the ASEAN member states while his government consistently complied 'With all the work that had to be done under ASEAN even during the martial law years. In 1984, at the ASEAN Foreign Ministers Meeting, the Philippines committed itself to the establishment of a new international economic order t!tr째ugh the elimination of protectio~m in maritime resources of the ASEAN nations while they pursued interdependent trade and economic relationships 'With other countries (Wadi et al.1998). Former President Ferdinand E. Marcos once said, "We have cometo thepoint where thenational interest of the Philippines is almost equivalent to the interests of ASEAN itself(Domingo 1983). With the emergence of globalization at the end of the Cold War, ASEAN members' regional interests assumed a new direction. Definitions of both national interest and the regional interest had been liberated from the narrow parameters to which they have been confined by the anticomm~t ideology. j

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC: RELATIONS

Although ASEAN meetings appear to be social ones, they provide the occasions where the culture and alchemy of ASEAN power play and negotiations are tested and glued. Many personal relationships at the highest levels are established and ASEAN dynamics are better understood (Wadi et al. 1998). During the 25th ASEAN Ministerial Meeting in July 1992, then President Fidel V. Ramos attested to the continuing commitment of the Philippine government to the ideals and objectives of ASEAN ever since his late father, Foreign Secretary Narciso Ramos, became one of the founding fathers of ASEAN. During the 1992 ASEAN Summit in Singapore, the heads of government of the six ASEAN member-countries adopted substantive and far-reaching proposals. Consistent with the principles of free and open trade, the ASEAN heads of government formally launched a free-trade area with a 15-year time frame to begin in January 1993. This then would lead ASEAN " toward a higher plane of political and economic relations in trade industry, minerals and energy, finance and banking, food, agriculture and forestry, transportation and communications. A more current initiative; of the Philippines in ASEAN was the establishment on March 26,1994 of!the BIMP-EAGA with Brunei Darussalam, Indonesia, Malaysia, and the Philippines that would enhance cross-border trade and investment linkages in the sub-region. In his statement during his departure for state visit to Brunei Darussalam at the N AlA in Manila on August 6, 1994, former President Fidel V. Ramos said that, "This visit emphasizes the priority we give ASEAN as the comer-stone of our foreign policy and economic diplomacy (Manila Bulletin August 8,1994 p.ll). From ASEAN's inception in 1967,the Philippines has been a dynamic force in making it a viable and cohesive force in Asia and the world. There was full and continuous Philippine participation in all ASEAN activities since the organization was established. As a member, the Philippines has benefited from all its cooperative efforts, whether they were successful or not. After almost 33 years of continued existence, ~SEAN has balanced its national and regional interests. As a parmer in the ASEAN, "the Philippines has continuously performed creditably m all its work in the committees and under the agreements and declarations" (Wadi et aI. 1998). It has likewise contributed to the successof ASEAN. On the other hand, ASEAN also brought Philippine foreign relations with Southeast Asian states, "to a most desirable lever' . 281

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The APEC The Asia~Pacific Economic Cooperation was established in 1989 in Canberra, Australia upon the initiative of Australian Prime Minister Bob Hawke. This was in response to increasing calls fQr closer economic cooperation through increased trade and investment flows among the economies in the Asia-Pacific region. It was formed as an informal forum to address growing economic interdependence in Asia-Pacific. Begun as an informal dialogue group, APEC has since become the primary regional vehicle for promoting open trade and practical economic cooperation. Its goal is to advance Asia-Pacific economic dynamism and sense of commumty. The folloWing are the objectives of APEC: 1. To sustain growth and development of the region for the common good qf its peoples and, in this way, to contribute to the growth and development of the world economy; 2. To enhancepositive gains, both for the region and the world, resulting from economic interdependence, by encouraging the now of goods, services, capital, and technology; 3. To develop and strengthen the open multilateral trading system in the interest of Asia Pacific and all other economies; and 4. To reduce barriers to trade in goods and services among participants in a manner consistent with GATT principles, where applicable, and without detriment to other economies (Asia-Pacific Economic Cooperation 1996). The APEC's 18 member-economiesare: Australia, Brunei Darussalam, Canada, Chile, People's Republic of China, Hongkong, Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Republic of the Philippines, Singapore, Chines~ Taipei, Thailand, and United States of America. Recently, the economiesincluded Peru, Russiaand Vietnam as members designate with the ASEAN Secretariat, Pacific Ecopomic Cooperation Council (PECC), and South Pacific Forum as observers. There are currently 11 economies with pending applications for membership in APEC.

As an economicgrouping, APEC is significantsince it includes the largest and most popul6Useconomiesin the world. Its member-economies are characterizedby cultural diversity with varying levels of scientific and 282

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technological advances offering immense potential for economic, scientific and technological complementation and development for each member economy ~APEC is one of the more important regional economic organizations and its significance is bolstered by accounting for about 55 percent of total world income and 46 percent of global trade; by representing almost half of the world's total merchandize exports; by representing 40 percent of the total world population by about two billion people; by occupying 30 percent of the world's land area; and by grouping together three of the world's largest economies (U.S., Japan, and Canada), and the Asian "tiger" economies. Having as members the fastest growing economies in the world today, and as major" contributor to global prosperity and stability, the APEC has established itself as the primary vehicle for Asia-Pacific economic cooperation. It has focused on the key issues of trade and investment liberalization and facilitation (TILF) and has developed cooperative projects in such areas as trade and investment, human resources development, energy, telecommunications, transportation, tourism, and fisheries. The Philippines in APEC As one of the founding m~mbers, the Philippines sees APEC as an important vehicle in propelling the country's short- and long-term economic intetests. Aside from ASEAN and WTO, APEC alSoprovides an avenue where the Philippines can undertake consultations with its major economic partners and at the same time, interact with the other newly industrialized economies in the region. APEC can provide the policy environment conducive to greater cooperation and dialogues where the Philippines can maintain stable and productive relationships with other economies, either individually or collectively, to address economic and trade issues. As chairman of APEC in 1996,the Philippines had the opportunity to stamp the Philippines' thinking and policies on the relations among the AsiaPacific economies. While Osaka Oapan) became APEC's defining moment, 5ubic (Philippines) was the proving ground with the adoption of the Manila ActiQn Plan for APEC (MAP A). MAP A embodies the individual and collective action plans of the 18 economies. 50 far, these plans :rep~esentthe best effort ,commitments of each economy to liberalize their respective economies. The MAP A which was adopted in 5ubic is the Philippines' greatest legacy to APEC. The country paved the way for tile business sector's full entry into the APEC process through the APEC Busine~ss Forum held in Manila in 1996 (Department of ForeignAffairs 1998).For the first time, business leaders 283

MENDOZA from all over the region met with the economic leaders and forged agreements on five priority areas: cross-border flows, finance and investment, infrastructure, economic and technical cooperation, and small and medium enterprises. ~g the business forum, there was also the significant endorsement of the APEC Leaders of the "Manila Declaration on Economic and Technical Cooperation" which is a framework that provides greater focus and coherence in economic and technical cooperation. The said Declaration established a three-dimensional model for economic and technical cooperation. First, the sharing of information, knowledge, experience and expertise; second, the involvement of the private sector, and third, priorities are jointly set where there are no junior partners -only equal partners. The Philippines has four major policy objectives that it seeksto achieve in APEC: 1. To reinforce the operation of those market forces that bring 2.

prosperity to the region; To strengthen economic and technical cooperation, or ECOTECH,

in the "Asia-Pacific; To foster-a stronger seIySeof regional community within the Asia-

Pacific; and To fashion APEC into a major component of a new regional system that will buttress long term Asia-Pacific stability well into the 21 at century (Siazon 1998).

During the National Preparatory Summit for APEC held on December 7,1995 which was attended by all sectors of Filipino society, the Philippine APEC narrowed its focus on the following broad areas: 1. Trade and investment liberalization andJacilitation. It should be the overriding concern to promote the Philippines as alocation for production in the region, thus providing employment and 2.

incomes for its people. Small and medium enterprises. This is an area where technical and economic cooperation can go a long way toward upgrading the country's many small enterprises thcit employ a large number of people and guide them into the mainstream of economic activity. In addition, SMEs are the likely vehicle of technology transfer and partners for foreign investments.

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PHILIPPINE.BRUNEI DARUSSALAM ECONOMIIC: RELATIONS

Infonnation technology and telecommunicano~s. The infrastructure for information technology and telecommunications must be developed and fully utilized if the country is to capita1ize on its initial advantages on skilled human resources and take advantage of the growing trade in services in the next century. Human resource development. The Philippines has a distinct advaptage over other developing countries in APEC since it has a pool of skilled or highly trainable working people and has globally competitive niches in services. Through cooperation, this initially small advantage can be expanded and capitalized on to pull in more investments into the country. At the same time, the liberalization of certain services and professions and mutual recognition of standards in the future may offer a wider market for Filipino service firms, including education and training institutions. Sustainable development. It should not be forgotten that sustainable development is the preferred framework for evaluating projects and initiatives that have an impact on the na tural environment and human well-being, including those pertaining to energy, marine resources conservation, fisheries, tourism, and so on (Macaranas 1998).

Finally, viewed as an economis:community encompassing the AsiaPacific, APECis only part of a larger Philippine regionalpolicy that covers ASEAN and the AFTA, the ASEANRegionalForum(ARF),ASEM. To summarizethe discussionsin this section,the bilateral economic relations betweenthe PhilippInesand BruneiDarussalamare influenced by two determinants-their national interests and their outside multilateral relations (BIMP-EAGA,ASEAN~and APEC). i

MODALITIES USED IN PHILIPPINE-BRUNEI D)\RUSSALAM BILATERAL RELAllONS What are the ways and meansby which coUIuriesofficially conduct their relationship? In particular, how do the Pllilippines and Brunei Darussalamconduct their economiccooperation?

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It is important to consider that the relationship between the PlItilippines and Brunei Darussalam is shaped not only by these two countries btjLtalso by the framework of other "bigger" agreements like the BIMP-EAGA" ASEAN, and APEC. The Philippines and Brunei Darussalam are also bound by existing subregional or regional agreements in which they are signatories. These agreements either serve as guide to their bilateral relations or function as a rein or control to the relationship into which the Philippines and Brunei Darussalam enter. Their bilateral relations and their membership in these multilateral agreements demand compatibility of goals, objectives and modalities. The bilateral relations of the two countries have been manifested by the exchange of state visits between Sultan Bolkiah and the various Presidents of the Philippines, and by other officials of the two countries even before Brunei Darussalam obtained its independence frotn Britain. Chronology of Events .December 30, 1974 -Sultan Hassanal Bolkiah arrives in Manila for a four-day visit. .January 7, 1984-The Philippines welcomes Brunei Darussalam as newest member of the ASEAN. Diplomatic relations are established shortly thereafter. .February 22, 1984 -President Ferdinand E. Marcos visits Brunei Dar;ussalamto grace its independence ceremonies. .June 28-July 1, 1987 -Brunei Darussalam's Minister for Foreign Affairs Dato Haji Zakaira makes an official visit to the Philippines. .August 24-25,1987 -Vice President Salvador H. Laurel visits Brunei Darussalam. .August 24, 1987-Air Service Agreement between the Philippines and Brunei Darussalam is signed in Bandar Seri Begawan. .November 1987 -Secretary of Foreign Affairs Raul S. Manglapus visits Brunei Darussalam to extend the invitation of Presid~nt Corazon C. Aquino for Sultan Haji Hassanal Bolkiah to attend J:l1eASEAN Summit in Manila. ..December 14, 1987 -Sultan Bolkiah arrives in Manila for the ASEAN Summit and had occasionto meet with PresidentAquino. .August 29,1988 -President Aquino arrives in Brunei Darussalam for a three-day visit. The visit highlights Philippine-Brunei

286

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

Darussalam relations for 1988. It brings the proposed Philippine Aid plan (PAP) closer to realization when the Brunei monarch commits his government's participation in the planned international effort to rehabilitate the Philippine economy. The two heads of states also agree to encourage efforts for greater cooperation in bilateral trade, investments, communications, shipping and construction, March 4,1989 -President Aquino launches the maiden voyage of M/V Isla Mindanao, the vessel chartered by the Philippine International Trading Corporation (PITC) to ply between Manila and the Muara ports via Sandakan,Sabah. It formally opens direct shipping services between Brunei Darussalamand the Philippines. August 2-3 1989-President Aquino, on a personal invitation from Sultan Bolkiah, goes to Brunei Darussalam along with four other ASEAN heads of govern~ent to attend the Berkhatan rites commemorating the con)irig-of-age of the Sultan's eldest son and heir-apparent to the t~one. The two-day Islamic rites give the ASEAN leaders a chance to hold bilateral talks. For the Philippines, two results are achieved: (i) Brunei Darussala:tt1gives the Philippines a loan of 05$100 million payable in 18 years with a seven-year grace period at three percent interest per annum, to be paid quarterly but without interest on the default; and (ii) Malaysian Prime Minister Mahathir Mohammad agrees with President Aqumo to reopen talks on the Philippine-Malaysian border. July 16, 1990 -Brunei Darussalam donates 05$100,000 to the Philippines for the earthquake victims. August 13-19,1991 -Then Secretary of National Defense Fidel V. Ramos, upon invitation, visits Brunei Darussalam for the first time to attend the 45thbirthday celebration of Sultan Bolkiah. August 16-19,1991 -Sultan Bolkiah comes to Manila for a fourday state visit. It is the Sultan's second visit, the first being in December 1987 when he attends the ASEAN Summit. Although no formal agreementsare signed between the two governments, the Sultan declares to President Aquino his personal commitment to help i1\ the Philippine economic recovery program following the calamities that struck the country. 1991 Gulf Crisis -Brunei Darussala:tt1responds to the Philippine request for additional supply of six shiploads of crude- oil 287

MENDOZA

provided to Filipinas Shell, under the ASEAN Petroleum Supply Agreement. In the same year, Brunei Darussalam donates US$l00,OOOfor the victims of Mt. Pinatubo eruption. January 27-28,1992-At the Fourth ASEAN Summit in Singapore, President Aquino and Sultan Bolkiah meet again. The meeting provides political impetus to move the ASEAN toward a higher level of political, economic, and socio-cultural cooperation. April 1992 -The Philippines signs Air Services Agreement with Brunei Darussalam. Early 1992 -Then Defense Secretary Renato R. de Villa visits Brunei Darussalam, paving the way for closer rapport and understanding between the two countries' military and defense officials to improve mutual concerns. October 4-6, 1992 -President Ramos visits Brunei Darussalam to attend the 25th anniversary celebration of Sultan Bolkiah's ,ascensionto the throne. July 19, 1993 -President Ramos and former President Aquino attend the Sultan's birthday celebration. Also during the same month, the Royal Brunei Armed Forces {RBAF) sends an officer with the rank of major to attend Senior Military Course at the Command and Gener'll Staff College of the Philippines in Fort Bonifacio. Two other officers, candidates for major, are sent to the Armed Forces of the Philippines (AFP) Training Co~and at Camp Capinpin, Rizal. 1995 -Brunei Darussalam sends another RBAF office~ for training at the General Staff College. The AFP also opensa slot for a Brunei cadet to study at the Philippine Military Academy, but Brunei expresses inability to send one.

In addition to regular training programs, military cooperationwas fosteredthrough participation of the AFPin the Annual ASEANArmies Rifle Meet and the Brunei Skill-at-Arms Meet hosted by Brunei Darussalamin 1993. Following are notable exchangesbetweenBrunei DarussaIamand Philippine military and police officials: 1. RBAF Commander Peron Dato Harimaupadang Dato Seri Pahalawsan'Haji Husin leads a delegation of senior military

288

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIIC RELATIONS

offidals to the ASEAN DefenseTechnologyExchangehosted by the Philippines on 18:'23April 1995. 2. AssistantDirectorGeneralAgericoKagaoanand otherPhilippine National Police officials visit Brunei on 12-13 March 1995 to strengthenlinkages among police officers through formal and informal meetings and to ensure continuous contacts among police officers. PNP officersand non-governmentofficers also visit Bruneiin March 1992to attend PoliceAttachmentSeminars conductedby the Royal BruneiPoliceForce(RBPF). 3. The Embassy's defense and armed forces attache attends symposium on Joint Bank Fraud hosted by the RBPFon 18-20 January1995. On September 22, 1993, President Ramos and Sultan Bolkiah met at the wedding of Irene Ria Moerdani, daughter of Indonesia's Defense Minister General L.B. Moerdani, in Jakarta, Indonesia. Again on November 20, they met at the APECLeaders' Meeting in Blake Island, Seattle, U.S.A. On both occasions, they reiterated exprE7ssionsof friendship and goodwill. On March 20-24, 1994,!then Secretary of Foreign Affairs Roberto R. Romulo went to Brunei Darussalam to furth~r strengthen bilateral relations. During Romulo's audience with BfURei's leader, the latter expressed hbpe for more visits because of the two country's closebilateral ties and geographic proximity. On March 26, 1994, a meeting of BIMP-EAGA was held in Davao City. This Philippine initiative was meant to foster greater cooperationamong the members and to further develop collaboration between the two countries, particularly in their involvement in BIMP-EAGA. The Sangguniang Panglungsod of Zamboanga City passed Resolution No. 183 calling for the setting up of a Brunei Darussalam consulate there. The DF A requested the Philippine Embassy in Brunei Darussalam for comments. On May 2, 1994,the Embassyresponded with an endorsement of the resolution for the following reasons: a. It would facilitate processing and issuance of visas for Filipino workers and nationals from southern PI1ilippinesi b. It would facilitate the promotion and implementation of BIMPEAGA programsi and

289

MENDOZA

The presence of Brunei Darussalamin southern Philippines would be anothermariifesta~onofthe importanceand strength of the two countries'bilateral relations (DFA Document1994). On August 6-8, 1994, President Ramos went to Brunei Darussalam for another statevisit. It provided occasionfor further bilateral talks. President Ramos described this visit as a "quantum leap," especially in reinforcing the economic relations and strengthening the bonds of friendship and goodwill ~th Brunei Darussalam. During the bilateral talks, President Ramos expressed appreciation for Brunei Darussalam's full support to the EAGA initiative. They discussed how both countries could facilitate and enhance the BIMP:-EAGA through cooperative endeavors. There was alsv an exchange of views on how to enhance the prospects of regional security in light of the ASEAN Regional Forum, ~n accelerating the AFT A and the APEC, and on the salutary fu\plications for both countries of the development of a Southeast Asian Community envisioned in an enlarged ASEAN. President Ramos also reiterated appreciation for Brunei Darussalam's consistent support of the Philippine government's peaceinitiatives in southern Philippines within the Organiz.ation of IsIamic Conference (OIC). He gave an ,update of the Philippine government's efforts to improve the quality of life in MuSlim communities and of all the people of southern Philippines. Sultan Bolkiah hosted a banquet in honor of Presidentand Mrs. Ramos and the members o( the Philippine delegation at Istana Nurul Iman on August 6, 1994. In his spee~, Sultan Bolkiah said the Philippines had shown signs of recovery and Presid~nt Ramos had "restored political stability and created conditions conducive for economic growth." (Philippines News Digest September 1994 p. 2) He said the Philippines and Brunei Darussalam could take advantage of opportunities in such areasas tourism, telecommunications,. airport development, and transnational airlines. Acknowledging the contributions of Filipinos 1:0Brunei Darussalam's development, Sultan Bolkiah said: "Brunei Darussalam has its manpower constraints with a population of under three hundred thousand. The Philippines, with its abundant entrepreneurial and management expertise and a population of over 68 million, can complement our shortfall. We have in the past tapped your expertise and specialist manpower to help development projects in Brunei Darussalam."

290

PHiliPPINE-BRUNEI DARUSSALAM ECONOMIC

RELATIONS

In reply, President Ramos said: "... His Majesty's support for initiatives and programs for the development of both the Philippines and Brunei Darussalam have been unfailing, consistent and generous. Brunei Darussalam's participation in EAGA is invaluable." He also expressed the Filipino people's gratitude for the business and employment opportunities that Brunei Darussalam had provided to thousands of Filipinos. During the three-day visit several memoranda of understanding/ intent were signed. They were: 1. MOU for Joint Tourism Development between the Mindanao Tourism Council and the Brunei Association of Travel Agents, signed on August 7, 1994. 2. MOU on Air Services, amending existing air services agreement and allowing direct flights between Bandar Seri Begawan and Palawan, Zamboanga, Davao and General Santos.This was signed on August 7, 1994 between then Transportation and Communications Secretary Jesus Garcia, Jr. and Minister of Communications Dato Seri Laila Jasa Awang Zakaria. 3. MOU on the establishment of deep-sea fishing venture between Cantoja Deep ~ Fishing Ventures Inc. in General Santos City and BerAdah Sdn. Bhd. in Bandar Seri Begawan, signed on August 7, 1994. 4. MOU on education between the Asian Institute of Management (AIM) and the University of Brunei Darussalam Management School {UBDMS)i for closer academic and economic collaboration and assistance,signed on September 16,1994. 5. MOU on the establishment of direct exchange of airmail between Zamboanga City and Bandar Seri B~gawan; and 6. M91 between the Chambers of Commerce and Industry of the Philippines and Brunei Darussalam to form joint business councils. This will facilitate the exchange of trade information and trade and investment missions between the two countries, especially within the framework of EAGA. This was signed by Aurelio Periquet and Haji Idris Bin Haji Abas (DFA documents 1994). On this second state visit, President Ramos also met with Brunei Darussalam's business leaders and told them of the restoration of investors' confidence in Philippine economy. He invited the businessmen to examine

291

MENDOZA

business opportunities in the Philippines. Part of his visit was a reunion with some 3,000members of the Filipino community, where he acknowledged the vital contribution of OFWs in the country's economic growth. He stressed his administration's commitment to protect the rights of OFWs. Even prior to President Ramos's second state visit,' the Philippine Embassy had discussed with Bruneian officials a high level Bruneian investment mission to the Philippines. On his arrival from Brunei Darussalam, President Ramos announced the planned visit of a high level Bruneian investment mission to survey opportunities, hold further discussions, and make additional contacts. Bruneian businessmen were also invited to visit Mindanao for investment opportunities. On August 7-11, 1994, the Philippine Embas~y, together with the Department of Trade and Industry's Center for International Trade Expositions and Missions (CITEM) and other government agencies,held the first Philippine Solo Exhibition at Bumiputra Trade Center in Bandar Seri Begawan, showcasing such products and services as furniture, food, cut flowers, computer software, engineering consultancy, landscaping, and interior design (Philippines News Digest1994). The exhibit was hailed as the best ever held in J3tuneiDarussalam by a foreign country. It generatea good export sales and upgraded the Philippines' international image as a nation of skilled and creative people. The eXhibit reportedly attracted some 8,000 visitors and generated sales amounting to $290,181,or P7.54million. For the first time, Brunei Darussalam's business communi~ attended a gathering where President Ramos briefed them on the reco~!y of the Philippine economy, the adoption of economic policies of liberalization, the new investment climate, and the return of peace and stability in the Philippines. On November 17-19, 1994, more than 1,200 delegates from Brunei Darussalam, Indonesia, Malaysia and southern Philippines attended the First East-ASEAN Business Convention and Exhibits (EABCE) of the EAGA at the Central Bank Convention Center in Davao City. The event aimed to open up greater trade, investments, tourism and services among Brunei Darussalam, Central Sulawesi, North Sulawesi, South Sulawesi, SoutheastSulawesi, East Kalimantan, West Kalimantan, Maluko, Labuan, Sabah, Sarawak and Mindanao. In his address, PresidentRamoscalled for the tramormation ofEAGA ~to a "borderless economic region." He said: "We view the EAGA in the

292

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

future as a dynamically growing subregion where there is no distinction between domestic and foreign investment and business operating within the growth area" The gathering of "Eagans," as the President called its participants, was a long~'ferdue reunion of a "family that can trace its connections back to a thoi1s.~d years." President Ramos, who first broached the idea of EAGA to Southeast Asian heads of state in Brunei Darussalam in October 1992, said the governments and peoples of ASEAN have a strategic stake inEAGA' s success. Former Senator Vicente Paterno, chairman of the steering committee of the private sector-led convention, said: "Instead of being apprehensive about competition to domestic industries, we may welcome free trade within East ASEAN as making each other's markets accessible to new consumer goods industries that would otherwise have too limited a domestic market to be viable" (Philippines News Diges~1994). A total of 13 business deals w<?rth$118 million were signed during this convention and hundreds of meetings on possible joint ventures were held. The Brunei Darussalam delegation, composed of more than 25 representatives from the government and private sectors,was headed by Dato Mali Ali Othman. He gavea well-received and highly informative presentation on Brunei Darussalam's rol~ in gIMP-EAGA, business opportunities, and development directions and policies of the country. On November 18, 1994, President Ramos witnessed the signing of 13 memoranda of agreementsfostered mostly by the ongoing institutionalization of the EAGA concept. AMOA covering the $SO-million Malaysian hotel resort in Kaputian, Samal Island off Davao City was one of those ~igned during the three-day convention. The other business agreements were: 1. A $15-million project between Tobias M. Tiangco of Trans-Pacific Journey Fishing and Robert Mandang of PTPrima Comexindo; 2. A $6-million project between East Asian Inte~ational Marketing Ventures and PT ASA Group of Compames, the former to supply interior design work and ma11\tfacturefurniture for the five-star 3.

Ukupang Hotel in North-Sulawesi, Indonesia; A $S-million project between AMS SteelCorp. and Rincia Karya Utana, th~ local firm to supply steel products for distribution t6 the Indonesian firm; 293

MENDOZA

A project, with cost still to be determined, betWeen South Star Telecom Enterprises and Mirusa Ham Shop, the former to expand telecommunications services on radio and rural telephone netWorks with the setting up of service branches in Manado, North Sulawesi; S. A $S-million project betWeen Southern Ship Handlers Inc. and PTPrima Comexindoi the former to consolidate cargo shipments from Davao and General Santos City, and the latter to provide vessel; 6. A $2-million project betWeen G&P Builders Inc. and National Contractor Assodation of North Sulawesi, the latter to supply asphalt from Manado, North Sulawesi for road construction in

Mindanao; Nova Vista Management and Development Corporation and Sarawak Economic pevelopment Corporation, a joint venture to establish a coconut processing factory in Southern Mindanao. Project cost is $20 million; 8. A joint study, with cost yet to be determined, betWeenEast Asian International Mark~ting Ventures and Permodalan Sabah on setting up a furnitUre manufacturing plant in Kota Kinabalu, Sabah to serve the regional furniture markets in Sarawak and Brunei Darussal~; 9. A joint tourism promotion project betWeenTravelway Tours Inc. and Jetselt Travel for Mindanao and Eastern Australia; 10. A $l-million joint training on environmental protection betWeen the provincial government of South Cotabato and the Western Mining Corporation (WMC); and 11. A joint telecommunications investment between Marbel Telephone System Inc. and Sun Moon Star of Taiwan (Philippines News Digest 1994). 7.

PresidentRamos1'ointedout that in all his trips, trade promotion is one of the major goa1s;butthe paramountgoal is improvement of bilateral relations (Policy Statements/Government document,vol. 20 p. 58).

294

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC

RELATIONS

AREAS OF ECONOMIC COOPERATIONAND EXTENT OF IMPLEMENTATION Trade Economic diplomacy became a buzzword in Philippine external relations during the administrations of former Presidents Ferdinand E. Marcos, Corazon C. Aquino, and Fidel V. Ramos. However, it was during the Ramos adtninistration that the concept of economic diplomacy was used to refer to six areas of cooperation, which are the focus of this study. As earlier mentioned, the six areas of cooperation are: trade, investments, tourism, labor (OCWs), science and technology (S&.T), and official development assistance (ODA). Available data on these six areas are uneven. Data in some areas ~e adequate, and in others inadequate. Where data are inadequate, this st~y made some careful extrapolations or interpretations to make clearer some points. Therefore, the views and perspectives raised should not be treated as conclusive but as mere attempts to clarify or establish some trends. A more thorough research in the future could shed light on some issues that were yet Unclear. Table 1 presents the trade trends between the Philippines and Brunei Darussalam in 1984-1994.The 10 year trade exchangeshowed great fluctuation and imbalance.

Table I. RP -Brunei Darussalam Trade Statistics 1984-1994,In US$ TTotdal % change Exports % change Imports % change Balance of Year ra e Trade 1984 55,409,605 509,lal 54,900,503 54,391,401 1985 15,125,048 72.70 490,376 3.68 14,634,672 73.34 14,141,293 1986 13,631,403 9.88 576,076 17.68 13,054,327 10.80 12,471,251 1987 51,789,100 279.92 152,272 21.63 51.,336,828 293.26 50,884,556 1988 34,436,169 33.51 167,143 18.82 34,469,al6 33.64 33,701,893 1989 47,974,818 39.32 550,693 49.89 17,424,125 39.20 16,873,431 1990 110,742,994 130.84 950,727 72.64 109,792,267 131.51 108,841,544 1991 96,477,951 12.88 1,043,991 4.81 95,433,960 13.08 94,389,969 1992 93,964,446 2.61 2,127,662 103'.80 91,836,784 3.77 89,709,129 1~3 53,021,939 43.57 2,305,958 8.38 50,715,981 44.78 48,916,023 1994 8,311,218 132,369 7,578,649 6,846,080 Sour~:

1992 Philippine Statistical YeRTbook

Annual trade volume duringt!!e 10-year period was a roller coaster ride. Percentage change was highest in 1990 at 130.84 percent (72..64%for exports and 131.51%.for imports) and lowest in 1992 at 2.61 percent (1J)3.80% for expo~ and 3.77% for imports). The trade imbalance alwayยง-ietl in favor of Brunei D~ssalam. 295

MENDOZA

Brunei Darussalam's main exports to the Philippines are petroleu,in oils and bituminous oils, which account for 91.89 percent of the countty's total imports. The Philippines' top ten exports to Brunei Darussalam are: (i) cocks for breeding and Jive chickens not weighing more than 185 grams; (ii) articles of goldsmiths and silversmiths whether or not plated or clad with other predous metals; (ill) glazed ceramic flags and paving, hearth or wall tiles; (iv) glazed ceramic mosaic cubes and the like; (v) glass elecl;rl<;al insulators; (vi) cigarettes of Virginia type; (vii) mango juice and other concentrates; (viii) seats of rattan or cane; (ix) domestic cooking appliances and plate warmers of iron or ste~l; and (x) twine cordage, ropes and cables (Department of Foreign Affairs 1994).Despite the varied proqucts which the Philippines exported to Brunei Darussalam, the trade imbalance petsisted because the oil imports cost much more. Since local oil supply cannot meet industrial requirements, the Philippines needs the oil from Brunei Darussalam. Table 1 also shows that 1990 had the highest trade volume at U5$110,742,944. At that time, the Philippines needed more oil and petroleum because it was experiencing acute power shortages. But in 1993and 1994, the Philippine government was able tp institute t;'eformsin' the management of oil and energy resources, particularly those run by the National Power Corporation (NPC) and its subsidiaries. The counto/ s importation of Brunei Darussalam oil and petroleum products decreased and was lowest in 1994. T~bles 2 and 3 illustrate the Philippines' export profile, particularly its markets and,top suppliers and importers. Table 2 shows that Japanis the biggest market fQr Philippi1)e pr~ducts and Brunei Darussalam is the smallest. This is explained by Brunei Darussalam's population, which is only 276,000.South Korea and the United Kingdom also comprise large export markets for the Philippines but they have not been tapped to the maximum. Brunei parussalam's total imports from the Philippines of US$91,826,748in 1992is low if seen against the total volume of Thailand and Singapore markets. Table 2 shows where the Philippine products go, with PhilippineBrunei Darussalam trade exchange constituting the smallest volume. Table 3 shows the five top suppliers and importers to the Philippines: SingaporeUS$669.5mil1ion, United States-US$498.4million, United Kingdom-US$417.5 million, Japan-U5$174.5 million, Malaysia-U5$164.8 million, and Brunei Darussalam-US$91.8 million.

296

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC

RELATI9NS

Table 2. Top Five Markets for Philippine Exports, 1992 Country Value (in million US dollars) 1. Japan 1,2'32.9 2. South Korea 285.1 3. United Kingdom 208.0 4. Thailand 198.9 5. Singapore 180.0 ..Brunei Darussalam 2.13 Source: Department of Trade and Industry (Dll), 1992. Table 3. To Five Su liers and 1m olters to the Phili Country 1. Singapore 2. United States 3. United Kingdom 4. Jap~ 5. Malaysia ..Brunei Darussalam Source: DTI 1994

ines Value in US$ (millions) 669.5 498.4 417.5 174.5 164.8 91.8

Despite the small amount involved, Brunei Darussalamis still a significantsupplier. The oil and petroleumproductsthePhilippinesgetsfrom Brun~iDarussalamare necessary.Besides,proximity makesimporting these products from Brune:iDarussalam;cheaper in terms of transport cost than importing them from Saudi Arabia:and other Mi,ddle Eastcountries.Proper interpretation of data should be based, therefore, on the preference for "quality" rather than "quantity" trade analysis. Quality is underscored becausethe bulk of imports from Brunei Darussalamis essentialto the Philippines. Table 4 shows the Philippines' trade volume with other ASEAN

countries. Table 4. Phili CO

ines' Trade Volume with Asean Countries In Million US Dollars EXPORT

TRY

NEAR\

IMPORT

~.,.

NEAR\ \'~~'1

1987 1988 1989 1990 1991 1992 1993 1987 1988 1989 1990 1991 1992 1993 Brunei

--1

112

161

200

172

131

123

128

161

234

247

183

186

403

413

239

252

287

520

508

175

551

221

166

150

100

138

114

Indonesia

Malaysia

119

116

100

127

196

221

217

240

125

126

155

156

2 12 13 9 Vietnam Legend: ** Oil Exporting Countries

Singapore

Thailand

Source:Dll1~

297

--21

MENDOZA Oearly, the Philippines' trade exchangeswith other ASEAN countries also exhibit trade imbalances in favor of these countries. Thailand is an exemption. It has incurred trade defidt with the Philippines from 1987 to 1993, except in 1992. While the general trade imbalance is largely due to Philippine importation of oil and other petroleum products, the trade relati째l1 with Thailand is worth studying. The implication is for the Philippines to adopt, if possible, its experience with Thailand as a model for foreign trade approach, spedflcally for countries where the Philippines imports oil and petroleum. Table 5 again shows the trade imbalance between the Philippines and the whole of Asian region. From 1987to 1993, trade defidt averaged 35.3 percent. Clearly, there is a need to reassessthe Philippines' export position with other Asian countries. Table 5. Asia-Phili Year

ines Trade Distribution in % (1987-1993) Export Asia Import Asia Trade Deficit

1987 1988

1989

1m 1991 1992 1993

(%)

26.00 19.70 17.20

28.80

2.80

10.00

28.~

9.20

31.00

28.50

11.30

39.~

17.30

28.30

11.00

38.80

18.70 16.70 21.00

3270

14.00

4280

38.40

21.70

56.50

29.10

8.10

27.80

Table6 indicatesthat the Philippineshasa greatertendencyto import than to export. Thisis shownby the outward flow of the US dollarsto pay for all the imported goodsand servicesfrom othercountries.Moreover, thereis a much biggertrade gapbetweenoil exportingcountriesand nonoil exporting countries. Table 6. Trade Trend on Oil and Non-Oil Country

Export (Year) 1~

il Ex~rting ountnes on-Oil xporting ountries

Countries Import (Year)

1988 1989 1990 1991 1992 1993 1987 1988 1989 1990 1991 1992 1993

156 114

173 150 177 225 288 943 926 1,2281,663 1,464i,640 1,712

1,2801,467 1,426 1,5401,787 1,7922,8261,986 2,7903,5774,081 4,3% 4,621 5,691

Source:D111994 298

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

Table 10. List of Brunei Finns lnvesting:i~

Nameof Fimt rkgo Industries Corporation Madonna Mktg. Import-

xport

.ommerce

Philippines

Products{Activity Prawns C

Inv=:~~OOO)

YearApproved

3,000

1989

19J

1991

orporation

Philippine Vision Manpower Incorporated

Placementof manpower

Source: BOI

There is scarcity of data from the Board of mvestments (BOI) on Brunei Darussalam companies operatini in the Philippines. Amore comprehensive data banking system,-using the internet and coordinated with other offices that deal with local and foreign investments, would help foreign trade policymaking. The greater need, however, is for the government to resolve the disadvantaged Philippine trade and investment relations with other countries. Table 11 shows that based on the records of the Foreign Exchange Depattment (FED) of Bangko Sentral ng Pilipinas, Brunei Darussalam had no direct investments in the Pbilippines between 1973and 1992. It was only in 1993,after two decades,that it invested some US$250,OOO. This may be because the Philippines had formal relations with Brunei Darussalam only in 1984. Prier to that, Brunei Darussalam did not show any interest in investing in the Philippines. This could be an interesting topic for another research. Such a study could help map out the investment preferences of Bruneian investors, especially of the royal family.

Brunei ~ieign

0.00 0.25 0.25 0.00 0.25 0.00 0.00 0.00 ExchangeDepartment-Bangko Sentral ng Pilipinas (FED-~P); National Economic and Development Authority (NEDA). 0.00

301

MENDOZA

Table 12 shows that in terms of investments among ASEAN members, Singapore had the highest, followed by Malaysia, Indonesia, Thailand and Brunei Darussalam. Vietnam was admitted tQ ASEAN in September 1995 and, therefore, has no record of equity investment. The data again show that despite its wealth, Brunei Darussalam had invested very little in the Philippines. Labor ( OFWs) Between1983and 1994,the average unemployment rate for both sexes in the Philippines was 10.37%, while underemployment between 1987 and 1993 was 20.6%. These figures strongly suggest an acute shortage of jobs in the country. This shortage caused millions of Filipinos to migrate abroad and find work. OFWs have contributed tremendously in alleviating the country's economic crisis. Now called the new heroes, they propped up the government budget and the debt servicing requirement, helped propel the economy! and reduced the country's current deficits through their foreign exchange remittances. Table 13 shows a greater number of land-based than sea-basedOFWs c

all over the world. The DOLE has di:vided the OFW deployment into seven major world groups. The Middle-East has the biggest number of deployment with 68.74 percent (2,684,979),Asia with 24.6 percent (959,810),the Americas with 2.1 percent (81,249), Europe with 1.78 percent (36,104),and Oceania with 0.17 percent (12.353).

302

MENDOZA

Table 13. Number of Overseas Filipino Workers Dep!oyed by Classif!cation, 1987-1993 CLASSIFICATION

Land-Based Sea-Based

1987

1988

1989

1990

1991

1992

382,229 385,117 355,346 334,883 489,260 549,651 67,042 85,913 103,280 111,212 125,759 136,806 49,271 471,030 458,626 446,095 615,019 686,457

1993 550,872 145,758

696,630 TOTAL DEPLOYED , Sour-ce:-1993Yearbookof Labor Statistics,Department of Labor and Employment (DOLE), 1994,

Related findings are shown in Table 14. The Middle-East is the most significant employer of Filipino labor, covering over half of OFWs. Asia employs almost one fourth of the total OFWs. This implies a need to refocus on employment opportunities in other regions, like the Americas and Europe, which are known for fair labor ~atment. Table 15 shows that private hires dominated OFW placements between 1982and 1~. There were no data for name hires (thosehired directly by employers, not through recruitment agencies)between 1982and 1987. But from 1988 to 1993, there were more name hires than government hires. Since there are more p,rivate-hired,than government-hired OFWs, there is a need for the government to monitor foreign private companies that import Filipino labor. DFA ~ust put up a monitoring system to ensure that only good companies hire Filipino workers, instead of spending much time solving cases of troubled employment for women conditions by requiring workplaces. This would

OFWs. Since domestic services provide significant OFWs, the local embassies should check OFWs' DF A personnel to visit Filipino workers in their assure OFWs that their government is protecting

them.

Thus, all OFW contractsshould include a provision for periodic embassypersonnelvisitations.

304

PHILIPPINE-BRUNEI

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305

RELATIONS

MENDOZA

Table 15. Processed Land-Based Ovemeas Fili Year

Government Hires

1982 1983

1982-1993

Name Hires

Private Hires

Total

5,037 5,953

ND f\JD

245,078 2'31,300

250,115 2'37,253

1984

7,697

198,448

206,145

1985 1986

11,530 9,053

ND ND

169,415 189,514

180,945 198,567

1987

13,188

230,089

243,277

1988

2,531

10,822

183,772

197,125

1989

4,181

13,002

169,736

186,919

1990 1991

3,088 4,514

13,786 16,186

236,879 314,715

253,753 335,415**

1992

3,397

18,788

283,62'3

305,808**

1993

2,524

15,576*

275,944

294,044**

Legend: ND -No data available * -Facilitation and Review Office (FARO) name hires included ** -Reports from Regional Extension Units (REU) included Source: POEA

A proper recordingof OFWsin BruneiDarussalamin 1984revealed a remarkable400%increasein their number.iTherewas a slight decreasein their number in 1989-1990and in 1993-1994due to some restrictions on outgoing OFWs after the unfortunate cases of Flor Contemplacion in Singapore,SarahBalabaganin Kuwait, and the so-called"Bruneibeauties." Data show that BruneiDarussalamis a highFilipino labor-importing country Table 16. Thus, the number of OFWsis expectedto increasein the yearsaheadbecauseof persistinglocal unemployment.However, thereis a need to address two issues: (i) Will Brunei Darussalam'sdiversification program require the importation of expatriatelabor? (ii) Is the Philippines capable of supplying the human resourcerequirements?There must be a thorough study on theseissuesto predict the flow of expatriatesto Bruneiin the long run. Table 16. Land-Based Overseas Filipino Workers Deployed in Brunei Darussalam, 1984-1994 1984

1985

12,521 3,292 Sources:

1986

1987

1988

1989

1990

1991

4,643 4,737

5,528

5,617 4,2~

8,738

1993 Y MTbook of Labor Statistics, DOLE and POEA

306

1992

1993

1994

10,866 10,960 9,731

~ ~ f

~ e

~ !J

~ "t

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PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

fO\

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307

MENDOZA

Table 17 shows that the Kingdom of Saudi Arabia was the largest employer of Filipinos, with 58.4 percent (2,014,975)in 1984-1993,followed by Hong Kong with 10.67 percent (368,299),Japan with 10.27 percent (354.417), the United Arab Emirates with 6.13 percent (211,644), Kuwait with 4.33 percent (149,286), Singapore with 2.73 percent (94,173), Bahrain with 2.1 percent (69,411), Qatar with 1.94 percent (67,152), Brunei Darussalam with 1.77 percent (60,838),and Oman with 1.74 percent (60,234). The table also indicates that except for Hong Kong, Japan and Singapore, all the other employers of OFWs are Muslim countries. This implies that Muslims in the Philippines who have adequate ~kills easily find employment in these countries. Similarity in religion makes it easier for Muslim migrant workers to adjust more easily to local cultures abroad. Table 18 shows that the number of Filipino workers deployed in Brunei Darussalam has been constantly increasing, except in 1994and 1995. Singapore showed the biggest increase from 1985to 1987, although it slowed down from 1988 to1990. Data, however, show a general increase from 1991 to 1994. In terms of rank, Singapore is first, Malaysia second, Brunei Darussalam third, Indonesia fourth, Vietnam fifth, and Thailand sixth. The data exclude Laos and ~v1yanmarsince both countries have just become ASEAN members in 1997. It can be rioted that a bigger number of Filipino domestic workers went to MalaY$ia, followed by Singapore and Brunei Darussalam (figures in parenthesis). The number of domestic workers in Brunei Darussalam slumped by over 70 percent from 4,391 in 1993 to 1,219 in 1994. The trend was also seenin Singapore, with a decreasefrom 4,413in 1993to 2,322in 1994.Thailand, Indonesia, and Vietnam had the same pattern. The decreasemay be explained by the hanging of Flor Contempladon for killing her ward, the death sentencing of Sarah Balabagan for killing her employer, and the increasing reports of mysterious deathsand well-publicized maltreatments of Filipina domestic workers. These data also imply that hiring of skilled male workers in service, construction and manufacturing industries may increa~e as a result of government restrictions on female labor traffic. Table 19 shows that OFWs generally belong to the service workers category, particularly domestic helpers with related housekeepingwork. They remit an average of US$2,439each. The males are 35-44years old, while the females :are generally 25-34years old. The males have college level education while the females are largely college graduates. 308

PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

Table 21. Comparison nf Remittances: Brunei Darussalam-basedvs. Asia-based OfWs, 1991-1993(in US$ Millions) YEAR roTAL ASIA BRUNEI DARUSSALAM 1991 1,500,291 86,487 283 1m 1,769,522 100,111 202 1993 2,229,582 172,935 242 J994* US$3,200* OS$3,200* US.'iI2,429* *Average lP.mittanceper worker. Source: DOLE

Table 22 shows that the biggestOFW remittancein 1993was from the US. After a wide gap, the next biggestwere Europe, Middle E3stand Asia. A fluctuating trend of OFW remittance from Brunei Darussalam was observ2d for 1991-1993.In 1991,05$.283 million was remitted, going down to U5$.202 million in 1992 and coming up again to 05$.242 million in 1993. Data show that remittances from Brunei Darussalam fluctuate with the increase or decreasein deployment of OFWs in that country. Since 1984, the number of POEA legal casestotaled 28,460,invol,'ing 18,977OJ.Ws (Table 23). Of these cases,only 17,948 or 63.3 percent have been resolved. The number of casesdramatically declined to 1,759in 1986,increased again to 3,727in 1992, and then to 6,140 in 1993. This implies the need for a n".oresystematized and speedy resolution of OFW cases, and to identify the countries with highest number of OFW legal cases.

311

MENDOZA

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PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC

RELATIONS

Cases of illegal recruitment and their disposItion have been reported since 1985 (Table 24). POEA reports covering a period of 10 years, indicate that disposition of illegal recruitment ca...eshad been high, except in 1986 when only 42.36 percent of the cases were disposed of, and in 1987 when only 54.73 percent were resolved. Otl\erwise, the disposition rate was between 76.52 percent in 1988 to 97.28 percent in 1990. There were arrests of illegal recruiters and closw'e of erring placement agenlies, but some victims opted for amicable settlement. Table 25, however, has incomplete data in some years, showing that the paBA has to improve its monitoring and reporting capabilities in order to give the government a fair basisfor formulating policies and guidelines on OFW recruitment. ~M-

Sta of _!ment

Roral.llonCues,1~1"3

1. Numberof ~RoguIation

CusHandled

1985

1986

1987

1988

198'

1"0

1'91

1"3

2516

2600

2180

1711

1090

721

1137

862

1390

771

1409

877

595

4.~

109

328

745

1191

1116

657

594

1063

1355 Z3

lib nb nb

nb nb nb

lib nb nb

nb nb lib

Numberof

RogulaIIDn C.s~ at1he

8egIIIDiIIs Total Numb..- of

~ c.s_ed ~

1062

.m~olBx_Natureof c .~~ of An. 29 .LAC/NAIARap.-t-:!3 .OIIW.

CCX11)JaIn.. Invd-

621 9 185

nb nb nb

:114

_lnvolvcxl

488

lib

2639

lid

nd nd

lid

nd nd

647

1023

Sj4

629

Db Db

Db nb

Db Db

nb nb

~ 2mt715.SS 811901.00

111

P16145t~.30

.-.00 2. N1DIIbÂŤ of

110'/

c...R...I*

1585

1278

Noba'O of C-

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Art. 29

-LAC/NAJAR8J..-t _VIol-. -Olhen

CA-..,1oinIa BenoIiIed

Db nb

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Db nl:

nd nd

44.00~

66.27

Amount3. R8_Rate

956 13

4. -con""",,

~ 8

Db Db

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nb nd nd

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lib

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illdlcated Note: M..u...ing of -Regulation

nb nb 708 P 2622.~98.50

In 198.'-

--paBA

315

MENDOZA

Tablo 2S. Sta_OfWelfare 1.. rorAL~

Ca-. 1e1914-1993 1_'

OFCASB> HAND1BD PeDdIngC...

5742

1_7

1-'

1990

1991

1992

1993

13404

8625

7308

6a74

&!86

5715

5810

344S

3929

5(126

3811

2667

2989

2&38

8427

565

791

dleBegi1mJng Number! Nature

1291

4951

6644

9956

4696

2282

2719

2726

2972

ofcCounseling R-=eivod A. B. Repatrlaiion c. Tr8cing of

Db Db nb

nb Db Db

Db 861 nb

nb 589 nb

2158 695 243

1&39 287 156

1645 e 179

1962 506 251

1889 596 241

2m ~ 204

1720

OCWo'

whoreabou.. D.O8Io..

3599

3497

3407

:&gl

2877

2684

1&38

2183

1SJO

974

1268

S12 54

27'7 lIB

164 59

342 67

1756 2~ 65

nb nb

934 nb

1200 0

600 0

1889

2135

nIB 0 nIB

nb nb nb

1679 210 nb

1836 299 nb

Heipe1Y b.2&-

nIB

b.3 -~ Oth~

nIB

Number( Nature of C Resolved Co1m8eHng Repatriation Tr8:ingof

3959

nb nb nb

Db Db Db

nb nb

()CWo wh_abouls Ardoived Otboro Number of Wom..lnvolved Mala Fomale b.1 Domestic

Amount

Involved

L Nonpaymont of Wages 2. Dead. Benollt 3. Rotund of

$841868.00 P416,OOO.OO P51SM.00 P26?870.68 ~1.20 P127l6&91 P16564494.97 P9771194.70 P889,OOO.00 2.14286&23 $14S587.~ 113$9674.03-$880451.41 $ 494 SR 591£00 Y26000000 7.00 Pl618914.19 PQJ94647.00 PI30000000 Pl90000.00 1'317520990 $50280.34 SR127C12.23 1547554.69 113$ $121771584 SR 12000.00 $ _.84 1499712 719071997 P22?876L20 SRSOOOOOO N 156623 PI0,00Q00 P204,00000 Y20000000

Placement

Fee

4. Jnsu ,e

PSO.oooOO

$ 200000

Benefits £ Delayed ADotrnont(

P17,80000 P3S.48~00 P299£00 P45.D113.20$12288:36

Bockwages 6.Rafundof

P6527VLOO

P20949.00

PlaneF...

113$=00

7. ""'oun.. bDitIes SoRed1Iction of Salarleo 9.OWWA

Pl0325.65 113$1470.55 $1100.00 Pl0000.00 P21612.12

$367.13

Requirement( Compensation 10. Medka1

P20766.62 P34S1~.23 Pll1402.31

BenefIts

lL SlItpboard

36,820.80 P1l65439

Pl945S.00

P 5426221

PU,67l.00

P240674.40

Pay 12.DIaa~ Legend: nb -no breakdown available nd -no data available rim -not previoualy monitored

s..w.,., POI!A

316

P54484~ $ 615000.00 Q()48OO.00 SR 1800.00

MENDOZA

number of complaints (108),followed by maltreatment (63), rape/ sexual abuse (35), poor working conditions (~O),and contract substitution (25). A total of 722 OFWs personally inquired with or consulted the Philippine Embassy in Brunei Darussalam, v..hile 854 just phoned in. Others lodged their compJainl'i by other means. It should be noted that the Embassy conducted for the OFWs orientation lectures and other OFW-related activities. In 1992, tl1e Overseas Workers Welfare Administration (OWW A) reported the following forms of assistanceto 216casesit received for action: "TheEn1bassy: 1. Provided assistancell1 claiming wages fron1 employer, either by referral to the Brunei Darussalam Labor Department or settlement at the Labor Sectionof the Philippine Embassyin the total amount of B$55,753.53or P875,330.42i 2. Forwarded 126 tickets for returning OFWSi 3. Provided 126 airport assistancei 4. Pro\tided admittance to 161 OFWSi 5. Presented 606 OFWs to avail themseJvesof the FWSC (Filipino Workers Social Center) facilities; 6. Provided telephone or walk-in counseling for 526 OFWSi 7. Pro"ided orientations to 502 newly arrived OFWSi and 8. Implemented four projects directly benefiting 4,505OFWs.

The report also presented common problems in OFW working conditions, suchas: 1. Maladjustmentsduring the three-monthperiod after arrival; 2. Ovenvork and long working hours; 3. Servinglarge families, e~peciallyM~YI) who include ~xtend~d family membersin fue househpld; 4. No day-otis; 5. Substitution of salary in the i=ontractuppn arrival of OFW&in BruneiDarussalam (OWWA Qpc~~nt 1992:). To counter theseproblems, the Philippine OverseasLabor Office (POLO)in BruneiDarussalaminstituted the following welfare mechanisms: (i) verification of contracts/job orders, (ii) implementationof the domestic helper (DH) program, (ill) orientation of newly arrived OFWs, (iv) phor.e counselingand/or personalcounseling,and (v) visitation and information dissemination(Table27). 318

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC

RELATIONS

Aside from enumerating the five major tasks, the table identifies the measures taken to improve labor conditions of OFWs in Brunei Darussalam. By ratio, 24 out of 1,000 OFWs experience anyone of the problems earlier revealed by OWW A. The government can use these data in formulating better policies that would deter these aberrations.

Table 27. Welfare Mechanisms adopted by the Philippine Embassy, Brunei Darrussalam in the prevention of labor-related crises .MEASURES TARGET PREVENTIVE AREA UNDERTAKEN CLIENTELE OUTCOME 1. Verification of contracts/job

orders

-Provisions in the contract are verified -Salary verified

Employers and n1anpower agencies

-Disapproval of contracts or job orders with questionable veracity -Employers and agencieshave become more aware of their responsibility in handling Filipino OFWs -Increased consciousnessof employer in following contract provisions

Agencies accredited in the DH Program

-Increasedawareness of agenciesin their role of assisting OFWs with problems -In proper coordination with POLO,~gencies solve problems through mediation between employers and workers

-Actual job

description verified -Employers and companies are checked against any records of conlplaints by previous Filipino employees

2. Implementation of the DH Program

-Hiring of DH approved only through accredited agencies -Strict conformity with prescribed wages as guaranteed by the agencies -Strict implementation of welfare mechanisms

~19

MENDOZA

Table 27. continued... AREA

MEASURES UNDERTAKEN

TARGET

3. Orientationof newly arrived

-OFWs oriented on what to expect in the

OFWs

hostcountry

Newly arrived or newly deployed OFWs/employers/ agencies

CLIENTELE

-Information on the servicesavailable at the Embassy.

4. Phone

-OFWs are briefed on

counseling/

labor/immigration

Personal

laws.

counseling

-OFWs are briefed on proper and lawful measures to take particularly when terminated. -Occasionally, employers are briefed on other services of

OFWsjEmployers

PREVENllVE OUTCOME -OFWs are more prepared to meet the demands of their

jobs.

-OFWs are aware of relevant information pertaining to their employment in the host country -Through COU11Seling, incidence of runaways is reduced sincethe workers are enlightened of the situation. They are ready to confront their own feelings and the external factors affecting their employment

the embassy 5. VISitationand information dissemination/ mobilewelfare services/

networking with Filipino community

-Living and working conditions of OFWs are checked -Outreach sessions update OFWs on

OFWsjEmployers

latest changes/innovations in service delivery of the embassyand government agencies, both in host country and in the

Philippines

-OFW complaints are voiced out and resolutions are carried out before the problem or situation gets worse -Employers/ agencies are adVised to respond to complaints -Provides opportunity for counseling and enlightenment of

workers Source: POBA

320

PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

Tourism Tourism brings in much-needed foreign exchangeearnings. A service industry, it promotes amity and sodal interaction among variQus peoples. Tourism exchange between Brunei Darussalam and the Philippines has not been very remarkable. Brunei Darussalam, a small country with a small population, is a small tourism market for the Philippines. Table 28 shows Philippine tourist statistics for 1984-1994.It reports the number of tourists coming from Asia, East Asia, South Asia, North America, Oceania, Europe, and the Middle East, and of returning Filipinos, or "balikbayans." It sh'}ws the total growth in the tourism industry. The data reveal that tourist arrivals from Brunei Darussalam were the lowest of the ASEAN countries. Four posted proportional increases,except Thailand. There was also an increase in tourist arrivals from North America, Europe, and Oceania. Europe showed the most significant increase, from 85,556in 1984to 162,894in 1994, or a 97.54 percent growth. In the case of the Middle East, the oil glut in 1985and the Gulf War in 1990-1991caused a decline in tourist arrivals. The Brunei Darussalam's tourist arrival pattern shows a lack of effective marketing program and tourist motivation for Bruneians to come to the Philippines. Ironically, the ASEAN neighbors are very near each other compared to North Am,ericans arid Europeans. Aside from cultural ties, the proximity should encourage greater impetus to visit. The Department of Tourism (DOT) must double its efforts to adopt effective strategies, such as a marketing blitz, that would attract more visitors from Asia. The performance of foreign officials must be periodically assessed. " \ Tourism attaches all over the world should make double efforts to sell the f=Ountry. Table 29 shows an overall increase in tourist arrivals in 1992-1994. The biggest increase was posted in 1992 at 21 percent. Although the rate slowed down in 1993 and 1994, overall tourist arrivals indicated a positive growth.

Tourism is easily affected by international crisis, such as the Gulf War. However, it is also easily increasedby media blitz, strategiesand promotions. Table30showsthe fluctuating patternof tourist arrivals from Brunei Darussalamin 1984-1994. The yearly arrival of 2,000tourists is quite small. However, 1994posted the highest volume at 2,612,while 1990posted the lowest at 1,657due to the Gulf War.

321

~ ~

!":. ~ ~ ~ .,,:

MENDOZA

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322

MENDOZA

Table 29. Tourist Arrivals from Brunei Darussalam to the Phili YEAR

VOLUME

ines, 1990-1994 PERCENTAGB OF INCREASF/DECREASB

1990

1,024,520

-13.89

1991 1992 1993 1994

951,365 1,152,952 1,372,097 1,573,821

-7.14 21.19 19.01 14.70

Source: DOT Table 30. Tourist Arrivalsfrrom Bmnei Da~~lam_~~ the_P_~i!ipp~~~,19~~ YEAR 1984 1985~986 1987 1988~989 1~ 1991 ~

.~1993

.~. 1994

BRUNEI 2/024

2,226

2,612

2/140

2,001

1,8~

2,382

2/456

1,660

1,657 1~50

Source:DOT

In 1994, the percentage of Bruneian tourists in the Philippines to total Bruneian population was 0.094 percent. This shows that the Philippines is not a popular tourist destination for Bruneians.1n fact, there were more OFWs going to Brunei Darussalam than Bruneian tourists coming to the Philippines. Table 31 shows more male (71.56%) than female (26.65%) tourists coming to the Philippines in 1994. Only 1.74%jof the tourists were un~sified as to sex. The to\!rists' median age was 33.9. Many came as independent travelers (75.56%) and only 12.33% came through travel packages. A few (12.10%)did not state their form of travel arrangements. The majority were repeat visitors (64%), while a third were first timers (33.90%).Thus, the data show that, generally, the typical Bruneian tourist in the 1990's was a middleaged male who came independently as repeat tourist. In the early 1990s,fewer females came as tourists than in the 1980s,and more came independently by air route. There was a decrease in Bruneian females visiting the Philippines. These data could be used by the travel industry to map business strategies. There should be more motivation for families to travel together. Family incentive tours, using historical; cultural reasons for travel, should be promoted. Business and family leisure trips should be encouraged, especially among ASEAN countries, including Brunei Darussalam where the Malay culture is the common root.

324

PHiliPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

Table 31. Profile of Tourists from Brunei Darussalam to the Philippines, 1984And 1994 YEAR CHARACl'ERI5fICS 1984 1994 (perrentage) (perrentage) (By sex) Male 71.56 78.55 Female 26.65 19:65 NotStated 1.79 1.80 Average

36.01

33.90

(By travel arrangement) Packages Independent NotStated

12.33 75.56 12.10

7.8 83.95 8.25

24.71 57.70 17.59

33.90 64.20 1.90

(Frequencyof visit) First Repeated Nots~ Source: DOT.

Table 32showsthat, generally,tourists comingto the Philippinesin 1994were professionals(35.83%),male (64.66%),of median age (38.62), married (65%), and earningan annual averageof US$62,147.69. The male came independentlyas a repeat visitor and stayed for an averageof 11.47 days. This tourist, of course,is affluent. Tourists from Brunei Darussalam belong to this profile. Table32. Profile of Tourist Arrivals, Philippines, 1994 (Sex) Male Female

64.66% 35.34%

(Age)

Median Age (in years)

38.62%

(Civil Status) Single Married Widowed/Separated/Divo",ed

31.50% 65.00% 3.50%

Annual Gross Income (In US$) Average Income (Occupational Group) Professional/Managerial/ Admin Clerical/Sales Services Industrial Worker/Laborer Housewife Student/Minor Retired Military/Government Personnel Others/Not Stated

62,147.69 35.83% 6.41 % 3.20% 6.58% 8.27% 2.69% 1.96% 35.06%

(fraveJArrangements)

Package Independent

73.98%

26.02%

(Frequency of Visit) First Visit Repeat Visit

58.68%

41.32%

(Over-allAverageLengthof Stay) (In Nights) Foreign

11.49 10.31

So=e:OOf 325

PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

Table 37. What Tourists LikPjDislike

Most About the Philippines %

(What Tourists Like) Wann hospitalityandkindnessof the people Beautiful scenery/nicebeaches Goodfood/liquor Goodclimate (What Tourists Dislike) Pollution/dirty environment Heavytraffic Bad weather Reckless/dishonest taxi drivers Peoplealwaysaskingfor tips Poor airport facilities Widespreadpoverty/beggars Poortransportation/communication/ supportservices Source:DOT

54.50 15.20 6.80 5.80

20.40 5.80 5.80 5.00 3.60 3.60 3.00 2.70

The tour agendes/operatorsmustbe encouragedto sell destinations that are free from pollution and traffic. Focusshouldbe on the countrysideCebu,Baguio,Subic,Iloilo, Cagayande Oro, Zamboanga,and Davao. With good beachescomesthe Malay culture componentwhich the tourists from Asia may find interesting.C Table 38. Key Factors That Influence Tourism in East Asia and the Pacific NEGATIVE FACTORS 1. Insufficient air se~t capacity 2. Slowdown of Japaneseeconomy resulting in slight reduction in outbound travel 3. Political instability 4. Natural disasters 5. Increased competition among countries

POSITIVEFACTORS 1. 2. 3. 4. 5. 6. Source: DOT

Intensive and successful marketing and promotional efforts by national tourism organizations Opening of the international gateways and increased flight-frequencies Modernization and expansion of tourist facilities and infrastructure Increase in personal disposable income in newly industrialized countries Growth in private sector activity, business and finance More frequent short duration trips

329

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As Table 39 indicates, more tourists are expected to come.to AsiaPacific. Philippine image would continue to improve because of political stability, and tourists are likely to disperse to provincial destinations because of congestion in the metropolis. Economic results of increased tourism include improved accommodations and transportation facilities. More investors would be interested to invest in hotels, resorts, and transport equipinent. Southern Philippines is expected to playa big role in BIMP-EAGA tourism. More Mindanao destinations will be scheduled as a result. Finally" local tourism will grow due to an improving economy. Table 39. Trends and Prospects fo! Philippine Tourism -.Travel in Asia-Pacific region continues to post robust growth. .Philippine image continues to improve as political stability is achieved. .Increasing proportion of visitors goes directly to provincial destinations. .Accommodations and transportation facilities/ services improve due to new investments in hotel resorts and transport equipment. .Southern Philippines plays a key role in BIMP-EAGA tourism. .New destinations emerge as development of tourism estates/ areas is completed in the medium-term. .Domestic tourism osts res ectable rowth due to im rovin econom'Source: DOT

The implication of these forecastsis that Mindanao tourism authorities should bond together and make tourism an important economic activity of the region. The peace and order problem in Mindanao is not as serious as the media project. There are more safe areas for tourists, such as Davao, Cagayan de Oro, General Santos, Bukidnon, Camiguin, Zamboanga del Sur, Dipolog, and Ozamis, among others. Science and Technology (S&T) Cooperation in science and technology, environment, culture, information, social development and drugs and narcotics control has provided a firm foundation and a rallying point for common action toward strengthening ASEAN solidarity and cooperation (Sing 1992). The ASEAN Committee on Science and Technology (COST), established in 1970, aims to achieve overall sodoeconomic development in Southeast Asia through promotion of scientific and technological development. COST has 56 projects in food science and technology, meteorology and geophysics, microelectronics and information technology, material science

330

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

331

MENDOZA

for another 20-40years, depending on how fast it wants to pump oil. However, due to improving exploration technology, thesefigures are expectedto change. The country is the world's fourth largest producer of liquefied;natural gas (LNG) and its exports account for half the nation's income. The Philippines' new venture in oil research and exploratiQns can learn from Brunei Darussalam:s advanced oil technology through exchange programs, and the research findings can be coursed through ODA (with application in science and technology). Forestry and forest development are also areas where the two countries can develop bilateral agreements, or where Brunei Darussalam can help finance the Philippine government's efforts to reforest the country through ODA. The 1987 Philippine Constitution provides: "The state shall give priority to researchand development, invention, innovation, and their utilization; and to sdenceand technology education, training and services. It shall support indigenous,appropriate,andself-reliantsdentific and technological capabilities, and their application to the country's productive systemsand national life. " "The Congress may provide for incentives, including tax deduction,to encourageprivate partidpation in programsofbasic and appliedsdentific;research.Scholarship,grants-in-aid, or other forms of incentivesshall beprovidedto deservingsdence~tudents, researchers, scientist, inventors,technologists,and spedally gifted dtizens." "The Stateshall regulatethetransferand promotetheadaptation of technologyandfrom all sourcesfor thenational benefit.It shall encourage the widest participation of private groups, local governments,and community-based organizationsin thegeneration and theutilization of Sdenceand Technology." "The State shall protect and secure and exclusive rights of scientists, inventors, artists, and other gifted citizens to their intellectual property and creations,particularly whenbenefidal to the people,for such period as may be provided by law." (1987 Philippine Constitution, Art. XN, Section. 10-13)

332

PHllIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

The goal of DOSTis "to enablethe Philippinesto attain the status of a newly industrialiZed country" (DOSTBrochure1994). Along this line, DOST'sSdenceand TechnologyMaster Plan (STMP)adheresand pursues threestrategies: 1. Modernization of the production sector through massive technologytransferfrom domesticand foreign sources. 2. Upgrading of research and development (R&D) capability through intensified activitiesin high priority sectors. 3. Developmentof sdenceand technologyinfrastructure,including institution building, manpowerdevelopment,and development ofaS&TcUIture. Cooperation between the Philippines and Brunei Darussalam has been along food and quality control, aquaculture, and marine resources development. Other than the ASEAN forum, science and technology cooperation between the two countries .has not been fully established. It is along this perception that the lack of cooperation along scienceand technology has been assessed. Official Development Assistance (ODA) Official development assistance (ODA) in this study refers to the grants and/ or loans acquired hom Brunei Darussalam and other countries and used for various sectors, such as agriculture, science and technology, etc. Table 40 shows the total ODA committed to the Philippines by Brunei Darussalam between 1986 and 1994. Along multilateral agreements, the highest commitment came hom the International Bank for Reconstruction and Development (1BRD),followed by Asian Development Bank (ADB). The World Bank (WB), the European Economic Council (EEC), and the United Nations (UN) posted comparatively less significant ODA commitments to the Philippine Government.. In bilateral relations, the biggest ODA came from Japan, followed by the United States. Considerable ODA also came hom France, Germany, Canada, Australia, Italy, Brunei Darussalam, United Kingdom, Spain, the Netherlands, Switzerland, Denmark, Belgium, South Korea, Singapore, and New Zealand. The data imply that Brunei Darussalam's OD A, though small, was of significant value to the Philippines. Moreover, more ODA hom Brunei Darussalam can help a long way in the development projects of the government, especially in developing the infrastructure system of Mindanao. 333

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PHiliPPINE-BRUNEI DARUSSALAM ECONOMIC: RELATIONS

Table 41 shows that the social services sector was the top recipient of OD A committed to the Philippines. S&:T did not receive any CD A in 1986and 1987, and received only US$O.88million (0.02%) in 1988, US$O.43million in 1989, and US$1.32million (0.32%)in 1990. Table 41. Total ODA Loans Committed to the Philippines, by Sector and by Rank, 1986-1995(In Million US Dollars)

SECTOR AgricUlture Natural Resources Industry, Trade and Tourism Social Services

Transportation Water Resources Energy, Power and Electrification Cornrnunications Scienceand Technology (5&1') Development Administration

AMOUNT

째li,

Rank

236.50 272.00 368.50 510.00 752.10 746.30

3.25 3.74 5.06 7.10 10.30 10.20

11 10

1-521.70 285.20 400.00

21.00 4.00 5.40

2 9 6

7 5 3 4

Planning and Support Services

181.00

2.40 5.00

Integrated Area Development Commodity Aid Others

363.00 1,641.80

22.55

TOTAL

7,278.60

100.100

12 8 1

Source: NEDA-PIS

The data clearly implies that science and technology is not a major !concem of the govetnment, which explains why, unlike its neighbors, the Philippines caImot develop further its 5&T programs. Table 42 shows that the ODA extended to industry, trade and tourism is bigger than that extended to s&T. The biggest was posted in 1989 at U5$12.13 million (2.78%), and the lowest in 1990 at U5$5.3 million (1.22%). This discrepancy may be explained by the fact that the trade and tourism are income-generating sectors where payments ofODA are more assured.

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MENDOZA

TRENDS, PROSPECTSAND RECOMMENDAllONS This study analyzed and evaluated the growth of the economic bilateral relationsbetweenthe Philippinesand BruneiDarussalamfrom 1984 to 1994to achievethe following objectives: 1. To determine,alongthe lines of nationalinterestsand within the framework of BIMP-EAGA,ASEAN, and APECprinciples and objectives, if economic relations betweenthe Philippines and BruneiDarussalambring equitableand reciprocalbenefits; 2. To study the various economicbilateral agreementsbetweenthe two countrieswith respectto trade, investments,tourism, labor, scienceand technology,and 00 A; 3. To assessthe problems of this relationship in the context of improving suchrelationship;and 4. To suggestmeasuresthat would bring about more equitable economicrelationsbetweenthe two countriesin consonance with the national interestsof each,and in accordancewith the BIMPEAGA, ASEAN, an~ APECmultilateral agreements. This evaluative analysis in the growth of economic relations between the two countries showed the need to strengthen a mutually reciprocal and equitable relationship, espedally for the Philippines. The study pointed to huge trade deficits for the Philippines due to oil importation. ODA has been very minimal and cooperation along scienceand technology has been only within the level of ASEAN COST. Likewise, tourist arrivals from Brunei Darussalam have not shown a si~cant increase. It was only in the labor (OFW) relations that the Philippines has an advantage in the total economic relations. It is along this findings that the Philippines must properly direct its economic policies, plans, and programs to narrow down economic imbalance in the current relationship, which is lopsidedly in favor of Brunei Darussalam. For its part, Brunei Darussalam must also show its sincerity to help eliminate unfair trade practices in the ASEAN region. Moreover, it is in the light of the BIMP-EAGA, ASEAN, and APEC that a facilitative effort to improve such relations can be effectively channeled. Prospecting of opportunities must be immediately done to enhance a more

338

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC: RELATIONS

equitable and redprocal relations with Brunei Daru:)salam and with other ASEAN countries. A major inadequacy of the study is the inability to interview as primary data sources the direct partidpants in the conduct of foreign polides. Their feelings and perceptions would have been invaluable. Ukewise, some offidal data are not available, e.g., the data on Filipino tourists going to Brunei Darussalam and Bruneian OFWs coming to the Philippines. It is believed, however, that the secondary sources used can speak for themselves. Nevertheless, for greater comprehensiveness,a more extensive data sourdng may be undertaken by future researcherswho may want to make a follow-up study on the topic.

Trends Trade and friendly ties between the Philippines and Brunei Darussalam began in the 15thcentury. During the rule of the popular fifth sultan of the monarchy, Sultan Hassanal Bulkiah, Manila and Sulu became Brunei Darussalam's vassals. It ended when the Spaniards made the Philippines a colony of Spain. The friendly relations continued even after grunei Darussalam' became a British protectorate in the early)9th century. On the other hand, the Philippines became a Spanish colony, an AIiterican Commonwealth, and a captive of Japan for a brief period. In all these periods, the Philippines maintained friendly relations with Brunei Darussalam. The two countries' official bilateral relations, however, became sealed only when Brunei Darussalam obtained its independence from Great Britain in 1984 and subsequently became a member of the ASEAN. History, therefore, shows that there existed friendly relations between the two countries in the last five centuries. This relationShipshould be nurtured within the demographic and racial perspectives to bring about social, culturaL and economic benefits to both countries. The end of colonialism and the Cold War brought the 21st century into globalization and competitiveness. The ASEAN, the subregional BIMPEAGA, and the national interests of Southeast Asian countries were brought together into a common economic bloc through APEC. The growing trend toward free trade brought fear of massive competition among underdevelo~d and developing countries. Thus, global, regional, and subregional alliances were formed. Asian leaders constantly held high level regional talks, while

339

MENDOZA

businessmen and bureaucrats continued to find fresh approaches to enhal1ce trade and other economic activities. While bilateral relations aim for mutual economic well-being and prosperity, an analysis of economic data between Brunei Darussalam and the ASEAN countries reveal that more adjustments still have to be made to bring about greater benefits for all. From the facts gathered in the study, the following conclusions were drawn: 1. Quantitatively, the Philippines is in a disadvantaged position in its economic relations with Brunei Darussalam, as indicated by the large trade deficits it incurred in 1983-1994. Massive importation of oil and petroleum products to propel the country's economy is observed to be the cause of the trade imbalance. This imbalance is also true with other ASEAN countries, except Thailand. Investment inflow as a measure to offset trade deficits with Brunei Darussalam has been very minimal. Investments come very seldom, implying that Brunei Darussalam has little interest in pouring capital into the country. Tourism exchange is also unimpressive. Labor (OFWs) is the only factor favorable to the Philippines in the economic relations. Except for labor, the outcomes of economic relations with Brunei Darussalam do not seemfavorable.to Philippine national interest. The situation does not seemto contribute significantly to the enhancement of BIMPEAGA, ASEAN, and APEC objectives of mutual economic benefits. Thus, the economic relations between the two countries 2.

are still far from being equitable and reciprocal. Exchange visits have characterized the growing relations between the Philippines and Brunei Darussalam. As a result, several bilateral agreements have been made particularly on trade and investments, labor, and tourism. But conuilitments on ODA have been very minimal, and cooperation along scienceand technology has been only within the level of ASEAN COST. As to outcomes on trade and investments, trade with Brunei Darussalam has resulted in consistently huge trade deficits for the Philippines in 1984-1994.This is largely due to importation of oil and petroleum products. Table 1 (RP-BruneiDarussalam trade statistics) shows that Philippine importation of oil and petroleum products was 97.7 percent and its exports were only 2.3 percent of the total trade volume. On the other hand, Brunei Darussalam's~

340

PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

investments to the Philippines were negligible and irregular comparedto investmentsfrom other ASEANcountries. While overall tourist arrivals have increasedsignificantly, tourist arrivals from Brunei Darussalamhave not shown a significantincreasein 1984-1994. Obviously, BruneiDarussalam is a small tourism market for the Philippinesand it doesnot see the Philippinesas a favorable tourist destination. On labor, the OFWsin Brunei Darussalam,most of whom are female,have grown in number after a slump in 1991.While their averageremittanceswere lower comparedto those from OCWsin ASEAN countriesand other parts of the world, their economiccontribution to the Philippine economyappearsto be the only significant a;spectin the relations.However, there is a growing number of OFW casesinvolving maltreatment,sexual abuse, poor working conditions, and other work-related problems.Also, diminishing labor opportunities for Filipinos is seenin the future due to competitionwith much lower-salaried Indian nationals and the takeover by Bruneian citizens of the management of Brunei Shell. There is no data available on Bruneianexpatriatesin the Philippines. Cooperationin scienceand technologyis mainly through the ASEANCOSTand alongfood, aquaculture,and marineresource researches.This allianceis not direct or bilateral. Thus, there is still a needto strengthenand broadencooperationalongscience and technology. ODA is supposedto help propel Philippine economy.With its zero debt,huge foreignreserves,high per capitaincome,large currentdepositsandhugeprofits from oil sale,BruneiDarussalam has not shown a significant interest in granting 00 A to the Philippines. Brunei Darussalamcan,in fact, redirect part of its profits from oil saleas 00 A to the Philippines on projectsthat can support development of new technologies and other

researches.

The trade imbalance between the Philippines and Brunei Darussalam could be attributed to the oil-dependent industrialization efforts of the Philippines. The lack of coordination among different governmentagenciesin planning and implementingPhilippine foreign policy is also observedin 341

MENDOZA

this study., In contrast, Brunei Darussalam has a more ~cted and simple foreign policy governance. Further, foreign policy workers lack the necessary skills and effidency to implement economic foreign policy guidelines in a more coordinated and effective manner. Thus, the Philippines may not be able to take full advantage of the opportunities arising from increased trade with ASEAN neighbors, including Brunei Darussalam. The Philippine-Brunei Darussalam bilateral relations need re-evaluation to find new directions that ~ould lead to a more reciprocal and equitable trade relations. These new directions should set Philippine economic relations within the framework of the greater ~IMP-EAGA, AS~AN, and APEC regional settings. Prospects The Philippines will always incur defidts in its trade with Brunei Darussalam and other ASEANcountries unless it properly directs its economic polides, plans, and programs. Brunei Darussalam, a rich state without debt and with a high per capita ~come, can help the Philippines accelerateits growth through increased investments and ODA. This would narrow d~wn the economic imbalance in the current relationship which is lopsidedly in favor of Brunei Darussalam. This would also be a chancefor Brunei Darussalam to show sincerity in helping eliminate unfair trade practices in the ASEAN region. For BIMP-EAGA Under BIMP-EAGA, relationships could be enhanced through well-directed and focused polides that would harness deeper multilateral relations on at. least four major areas, namely: transportation, marine and fishing dev~lopment, air services, and communication and tourism. Joint development research on alternative sources of energy may also be undertaken, particularly on geothermal power and on development of fuels using indigenous materials. Geothermal power has relatively greater sources, including those that may be tapped from the oceanfloor. For ASEAN Philippine-Brunei Darussalam economic relations must be situated within the broader context of ASEAN trade relations. The Philippines must formulate measures and implement programs that would lead to mutual and redprocal benefits. f

342

PtlILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

For APEC This study could be a preliminary source of information for determining how the APECcould promote trade relations that would properly protect the internal interestsand well-being of the member countries. APEC members could collaborate to developbettertrade balancein the region. For Foreign Policy Making and Implementation Many developing countries experience trade deficits. The Philippinesis largelya trade deficit economybecauseof massive oil impo~on. Unfortunately, the oil reservesof oil-producing countriesare exhaustible.Brunei Darussalattl'soil reservesare predicted to last for 40-50 years more. The implication for the Philippines is to remake its foreign policies through the predictive systemsapproaCh,one that is forward-looking, the implementation of whiCh is evaluated from a more organized manner through a participative and pro-active involvement of both the private and public sectors,on a continual and periodic . assessment of the internal and the internationalmilieu. Areas for Future Resean:h Thisexploratorystudy containsseedinformationthatcanhelpfurther researchesontopics that determinethe aspectsusedin the study with Brunei Darussalattl,or othercountrieswith whom thePhilippinesmaintainsbilateral, regional or multilateral relations. Moreover, there are researchesthat ,may have direct relationsto this study. Theseare: 1. Ail Assessmentof the Brunei Darussalam-Philippines EconomicRelations. To have a more comprehensiveview of the bilateral relations between the two countries, a counterpart study from the perspectiveof BruneiDarussalammaybe undertaken. 2. Philippine-Thailand EconomicRelations Among all ASEAN countries,it is Thailand which maintainsa balancedtrade with the Philippines.This study could serveas a model for the Departmentof Trade and Industry in its searchfor equitablebilateral relations.

343

MENDOZA

BIMP-EAGA

Cooperation

in Science and Technology:

Proposal Sdence and technology research has not been given top priority by most EAGA countries. This is one reason why the area cannot take off economically. Promoting state-of-the-art science and technology in the region can be of great help in brin~g about economic development, espedally on the aspectof communication 4.

technology. An Assessment of the Philippine-ASEAN Economic Relations There is a need for a follow-up study on the current economic relations between the Philippines and ASEAN, taking into account existing ASEAN economic objectives. It would be interesting to seehow the ASEAN spirit will be harnessedto bring about greater

ASEAN economic well-being. Toward Equitable Philippine

ASEAN This study could summarize Philippine economic relations within the ASEAN region. This would help underscore its strengths and weaknesses within the region. An Assessment of the Philippine-APEC Economic Multilateral

Economic Relations in the

Relations The study must assessthe real benefits and constraints in the economic relationships of member countries. Who benefits largely from the relations and why? This is one question that needs some 7.

answers. Department of Foreign Affairs Human Resou~es: Toward Organizational Effectiveness There is a need to improve organizational effectiveness and efficiency to enhance the country's economic relations. An effective and effident foreign diplomatic corps can help find the most of opportunities for the OFW and lessenthe chances of his or her being exploited. Philippine Economic Directions in the New Millennium In the new millennium, the Philippines must cope with the challenges and opportunities brought about by the globalizing economy, rapid technological development, and increasing security tensions (Siazon 1999).

3AA

PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

While varied opportunities and benefits can be derived from the Philippine-Brunei Darussalam relations, there are wide-ranging problems and constraints needing appropriate solutions, on the levels of policy and of implementation. Invigorating such relations may be difficult but it can be achieved. The Philippines has much to do in terms of careful study and analysis and thorough understanding of both domestic and global environment and of adjusting and synchronizing good polices and correct implementation. To enhance its bilateral relationship with Brunei Darussalam, the Philippines must address the following issues: .On the trade imbalance, what goods and services does Brunei Darussalam n,eed which the Philippines could produce and provide to offset the cost of oil importation? .On investments, if Brunei Darussalam is able to invest in Australia, a huge a cattle-raising land, what kind of investment opportunities should the Philippines offer Brunei Darussalam especially as the latter has already started to diversify its economy? .On labor, is household help the only service-oriented workforce that the Philippines can export to Brunei Darussalam? The Philippines has a skilled workforce -doctors, nurses, medical technologists, agriculturists, engineers, teachers, etc. Will Brunei Darussalam not need them for its diversification program? .On tourism, how can the Philippines attract Bruneian tourists in spite of Brunei Darussalam's small size, and considering that the Philippines is not its priority as a tourist destination? There is the BIMP-EAGA cooperation agreement. Can the Moslem culture in Mindanao offer some sort of attraction? .On sdence and technology, how can there be a better technology exchange? Brunei Danrssalam can offer oil and petroleum management and technical assistance,while the Philippines can offer manpower expertise for a diversifying Brunei Darussalam. .On ODA, how can Brunei Darussalam be encouraged to increase its grants and loan contributions to the Philippines in selected areas as prioritized along the BIMP-EAGA agreement? Addressing these issues requires a greater understanding of the essentialneeds ofboth..countries, a common perspective in regional economic development and much improved bilateral relations, not to mention good

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intentionsand honestyonthe part of thosewho planand implementprograms and projectsto make the bilateral relationssucceed. Recommendations

Based on the above observations, the following are reconunerided: 1. Trade and Investments .The Philippines must keep a better balance of trade. Exports must be increased, not only of labor but of new commodities. There should be more genuine efforts to attract more Bruneian tourists to the Philippines. .More investments should be made to improve Filipino human resources so that they can produce goods and services that are competitive in the world market. .Strong motivational policies should be developed to promote and enhance creativity which can help improve the production of quality goods not only for export but also for local consumption. Relevant and appropriate programs of training ~nd technology transfer should complement these motivational policies. .Foreign investments should be regulated in areas where the Philippines has capabilities and encourage them where the country lacks .appropriate technology and manpower training, so that foreign capital is invested appropriately and transfer of technology is maximized. .The Board of Investments (BOI) should coordinate with the OF A and other government offices in planning and executing investment policies. 2. Labor and Tourism .Deployment of OFWs must only be a palliative measure and should be stopped or regulated to allow Filipinos to develop their skills and talents in the country and help in its development. The massive brain drain is not helpful in the long run. .Legal and welfare cases involving Filipino OFWs, par~icularly domestic and service workers, must be regularly menitored so that they are immediately given solutions and are minimized. (ill) A more effident POEA and OWW A integrated functions should be installea in different embassies and consulates abroad. These functions should be manned by a highly motivated

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC: RELATIONS

staff with adequa~etraining and understanding of the tasks and responsibilities involved, in order to prevent an increase of Iegal and welfare casesinvolving OFWs. .OFWs should undergo an intensive awareness orientation course vis-a-vis job expectations, skills, culture, human relations, etc.

~ Databaserelativ(!to tourist forecastsmade by foreign countries should serve as basis for strategiesin the planning of tourism activities. There should be a wider media exposure of tourist destinationsin order to attract not only local but also foreign visitors. 3. Science and Technology and ODA .Science and technology cooperation should be enhanced between Brunei Darussalam and the Philippines. The Philippines can undertake joint research projects of reciprocal benefits, with Brunei Darussalam providing the financial su~port. .A stronger science and technology cooperating arm should be dev~loped in the different academic and learning institutions in the two countries. Mindanao StateUniversity (MSU) in the BIMP.,. EAGA can serve as a center for technology research on four major areas: transportation, marine and fishing development, air services, and communication and tourism. .Science and technology exchanges and cooperation should be a continuing priority among ASpAN partners. .The Philippines must find ways to encourage Brunei Darussalam to increase its ODA and help offset the disadvantaged Philippine trade position. This ODA can be given to sectorssuch as tourism, communication and transportation, and environment and natural resources, which are within the cooperative agreement under BIMP-EAGA.

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Definition

of TelmS

Actors -refer to the Philippines and Brunei Darussalam as the two countries involved in the bilateral economic relations referred to in the study. ASEAN -stands for Association of Southeast Asian Nations, composed of Brunei Darussalam, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore,Thailand, and Vietnam. Its goal is to promote active collaboration and mutual assistance on matters of common interests, including the economic fields. APEC -stands for Asia-Padfic Economic Cooperation, composed of 21 member economies: Australia, Brunei Darussalam, Canada, Chile, People's Republic of China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, the Philippines, Singapore, Taiwan, Thailand, and the United States of America; the three members-desi~te: Peru, Russia, and Vietnam; and three observers: ASEAN Secretariat"Pacific Economic Cooperation Council (PECC), and South Pacific Forum. BIMP-EAGA -a subregional grouping, it stands for Brunei Darussalam, Indonesia, Malaysia, Philippines-East Asian Growth Area. It also refers to the agreements between these countries to intensify economic cooperation and promote prosperity. It covers the following areas: (i) the whole of Brunei Darussalam; (ii) the eastern province of North and South Sulawesi, East and West Kalimantan, and Maluko of Indonesia; (ill) the eastern states of Sabah, Sarawak and the Federal Territory of Labuan in Malaysia; and (iv) the southern islands of Mindanao, Sulu, and Palawan in the Philippines. Bilateral economic relations -refer to economic relations between the Philippines and Brunei Darussalam, covering the period 1984-1994which in the study is limited to trade, investri1ents, labor (OFWs), tourism, science and technology (S&T), and official development assistance(ODA). Detenninants -refer to the influencing factors that shape decisions or judgments of the two countries. In this study, national

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PHILIPPINE.BRUNEI DARUSSALAM ECONOMIC RELATIONS

interests and influence of regional bodies are identified as factors that determine the conduct of bilateral economic relations between the Philippines and Brunei Darussalam. These determinants form the input phase in the bilateral relations process. Modalities -refer to the preferred ways and means that enable the Philippines and Brunei Darussalam to carry on their bilateral relations. National interest -a primordial consideration in determining the foreign policy of a state. In general, it refers to the state's selfpreservation, security, and well-being. It is the ultimate criterion by which state action is measured as to whether it is ~ failure or success. It also refers to those things that states could do or seek to protect or achieve vis-a-vis other states. In this study, it also refers to the standard, expectations and advantages by which both the Philippines and Brunei Darussalam would like to gain from each other. Official development assistance (ODA) -refers to the grants and/ or loans acquired from Brunei Darussalam and other countries and used for various sectors, such as agriculture, science~d technology, etc. Relationship variables -refer to the variables used in this study in assessing the bilateral relations between the two countries. The variables include trade, labor (OCWs), investments, tourism, offidal development assistance(ODA), and science and technology (S&:T). Throughput -the operations/implementation phase of the bilateral process. In this study, the bilateral relations involve the modalities in the relationship and the chosen areas of involvement. Trade imbalance -refers to the Philippine trade deficit resulting from its having more imports from Brunei Darussalam than exports to the said country.

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ANNEX II FrameworkjParadigmof the Study 1. The Input- Throughput-Output Process INPUT -What factors serve as determinantsto the forging of economic relationships between the Philippines and Brunei Darussalam?Theseare: (i) national interests(2aand 3a) of both countries(2 and 3), and (ii) influences(decisions/agreements) of the greater outside environment of the BIMP-EAGA, ASEAN, and APEC(4). This is Phase1. THROUG~UT -How the bilateral relationshipis managedso that it works or functions. Two stepsin this processw()rk out clearly in order to show how the methods of cooperationare chosen(No.5 -modalities of cooperation)and what specificareas bilateral relations work (No.6 -areas of cooperation).This is Phase2. OUTPUT -What are the results from Phases1 and 2?The~eare eithergainsor losses,accomplishmentsor nonaccomplishments, or otherdiscernibleconsequenc,sproducedto describethe kind .of relationshipthe two countrieshaveforged; Is trade exChange favorable to both or is it favorable to one at the expenseof the other? Do we see the same arrangements with regard to investments or the other areas chosento conduct economic relationship?This is Phase3. The conceptual framework shows the entire process of bilateral relations between the Philippines and Brunei Darussalam.This processis shown in sevensteps (or three phases)representedby the sevengeometric figures (as Roman numeral) 1 to 7. The direction of the arrows suggests chronological and logical sequencing of activities -how the bilateral relationship betweenthe two countriesworks. 2. The Environment (Rectangle A and Rectangle B) These geometric figures are contained in two big rectangles which represent the two kinds of environment influencing the two countries in their bilateral relations. Rectangle A is the bilateral relations environment of the Philippines and Brunei Darussalam -the two actors in the bilateral relations. Rectangle B is a bigger environment representing the regional groupings of BIMP-EAGA, ASEAN, and APEC which affect RP-BD relations. Rectangle B

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PHILIPPINE-BRUNEI DARUSSALAM ECONOMIC RELATIONS

enclosesRectangleA. This suggeststhat policies and decisioP8emanating from theseregional groupingsprovide a directbearing on the decisioP8and polices of the two actorsin EnvironmentA, either negativelyor positively. The two actors, of course, cannot simply ignore the regional environment becausethe decisioP8emanatingfrom it are formal regionalagreements.It should be noted that Actors 1 and 2 are membersof thesethree regional groupings. 3. The Actors (2 and 3) Thisstudy dealswith theeconomicbilateralrelationsof two countries, namely: the Philippinesand BruneiDarussalam.Theseare the actors.While the two countrieshaveforged bilateral relations,they, too, are membersof biggerregional groupingssuchas the BIMP-EAGA,ASEAN,and APEC. ' 4. Determinants of Foreign Relations/policy (4) Nations adhere to factors or influences that guide decisions of policymakersin shapingthe mannerof relationships..This study calls them determinants.In this case,thereare two. National interestis one.Thenation's interest should be the paramountprinciple that guides a nation in all of its transactions.Boththe Philippinesand BruneiDarussalamadhereto thisbasic tenet in forging their relationships. Another determinant is conformity or adherenceto agreements entered into by larger bodies to which both the Philippines and Brunei Darussalamare offidal signatorie's.Theselargerbodiesarethe BIMP-EAGA, an economic-orientedgrouping offour countries in ASEAN; the ASEAN which, at this time of Writing, has nine members;and the APEC with 21 membercountries.The Philippinesand BruneiDarussalamare membersof thesethree groupings.Theyarebound by whatevertreatiesor agreementsof theseregional groupings. Thesetwo determinantsprovide the INPUT ingredientsof PhaseI of the bilateral relationsprocess. 5. Modalities in the Relationships (5) Modalities refer to the design, instrument or processby which the RP-BDbilateral relationship is defined and sustained so that something tangible is accomplished.Like in any relationship between (bilateral) and among (multilateral).nations, sustainingand strengtheningit make use of

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agreements, negotiations and contracts, mutual visit (either official or nonofficial) and other forms of activities. One other factor that defines further purposive relationship between the Philippines and Brunei Darussalam is the faithful adherence to treaties and agreements earlier signed, or to be signed in the context of the three regional groupings to which the two countries belong -the BIMP-EAGA, ASEAN, and APEC. 6. Areas of Cooperation Six areas of economic cooperation are undertaken by this study: trade, investment, labor (OFWs), tourism, sdence and technology (S&T), and offidal development assistance (ODA). These six activities measure the economic relationship the two countries have forged. Theseareas of cooperationprovide the data that determine the extent or depth of the relationship between the two countries. Which area shows mutual relationship, which areas require balancing or strengthening, etc?

7. Output/Outcome (7) These are the results when the various mechanisms or modes of conducting mutual relations are observed in order to enhancethe six areas of coope~ation in the economic sphere. As earlier stated, these will either be findings in the form of gains or losses, accomplishments or nonaccomplishments, or balanced or imbalanced relationships. From these findings will be generated suggestions or recommendations to improve the bilateral relationship between the two countries. Results would likely be in the form of pluses and minuses -pluses indicating enhanced or greater mutual benefits; minuses indicating weaknesses, failures, lapses, wrong priorities, or neglects. Volume of trade and commensurate financial benefits might have been achieved on one hand, while on the other hand, decreasein the export of manpower services of one country to another might have tapered off, or there are enhanced benefits in some of the areas of cooperation to the neglect of others.

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BmLIOGRAPHY ~ublications Anonymous. 1988. For an Independent Foreign Policy. In EconomicWorkshop Group Reports. Proceedings of a conference. 26-27 February 1988. Dillman: University of the Philippines. Brunei Darussalam Ministry of Law. 1993. Brunei Darussalamin Brief Brunei Darussalam: Government Printing Department. Caugma, A.C. 1981. Bilateral Trade, Japanese Investments and Economic Missions (1968-1978): An Analysis of Philippine-Japan Economic Relationship. M.A. thesis, University of the Philippines Dillman. Carlos, C.R. 19%. Philippinesin ASEAN: An Assessment of27 Yearsof Cooperation in SelectedFunctional Areas:. Pasay City: Foreign Service Institute, Department of Foreign Affairs. Daiwey, E.P. 1994. Growth Polygon. Philippine FreePress.30 July:28. Department of Foreign Affairs (DFA). 1994. Overview of Philippines-Brunei DarussalamBilateral Relations.PasayCity. .1998. TheAsia-Pacific EconomicCooperation(APEC). PasayCity. Department of Labor and Employment (DOLE). 1993. 1993 Yearbookof Labor Statistics.Manila. Department of Tourism (DOT). 1993. 1993Statistical Reports.Manila. Domingo, B.B. 1983. The Making of Filipino Foreign Policy. Manila: Foreign Service Institute, DFA. Guzman de, R.P. and M.A. Reforma. 1998. Governmentand Politics of the Philippines. Singapore: Oxford University Press. Hartmann, F.H.1973. TheRelationsof Nations.New York: Macmillan Publishing Co., Inc. Hill, H.M.1975. Philippine-Mexican Relations. M.A. thesis, University of the Philippines Diliman. Ibon Philippines Databank and ResearchCenter. 1994.!bon Factsand Figures. Volume 17. Manila. Macaranas, F.M. (ed.) 1996.APEC and thePhilippines: Catchingthe Next Wave. PasayCity: APEC Substantive Group, DFA. National Statistics Office (NSO). 1993. 1992 Philippine Statistical Yearbook. Makati: National Statistical Coordination Board, NSO.

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.1998.National Statistics Report.Manila: NSO. Polo, L. A. 1981. Philippine-South Korean Relations: 1948-1971.M.A.. thesis, UP Dillman. Patanfie, E.P. 1994. The Old Brunei-Manila Connection. Philippine Panorama, 7 August:20 .1996. Doing Business in the Philippines. Visitors' Guide to the Philippines:43

Siazon, D.L. Jr., 1998. The Philippines in the Asia-Pacific Century (Speeches). PasayCity: Foreign Service Institute, DFA 1:104-105 , Singh, A.D.1992. Strengthto Strength.Indonesia: ASEAN Secretariat. Singh, R.D.S.1984. Brunei Darussalam 1939-1983: The Problemsof Political Survival. New York: Oxford University Press. Wadi, J.M., E. Solidum and B. Lim. 1998. Philippine External Relations: A Centennial Vista. PasayCity: Foreign Service Institute, DFA. .1978.10 YearsASEAN. Jakarta: ASEAN Secretariat. Yu, C., J. and D.S. Zietlow. 1995.The Determinants of Bilateral Trade Among Asia Pacific Countries. ASEAN EconomicBulletin 2(3):300.

Newspapers

Anonymous. 1994. 13 EAGA Project Agreements Signed. Philippines News Digest1(3):7-8. Anon~ous.1995. Bninei in Brief. Brunei DarussalamNewsletter28 February:12. Anonymous. 1995. Brunei's 'Shellfare' economy starts modernization path slowly. Philippine Star 15 May:24 Anonymous. 1994. East ASEAN BusinessConvention and Exhibition in Davao City. Philippines News Digest 1(3) November:45 Anonymous. 1994. Encourag~g foreign investments. Manila Chronicle 28 February:9 Anonymous. 1994. Philippine Exhibition in Brunei Lauded. Philippines News Digest 1(1):8 Anonymous. 1994. President Ramos, party off to Brunei. Manila Bulletin 6 August:1 Anonymous. 1994.Ramos Hails ASEAN on 2~ Anniversary. Philippine Daily Inquirer 8 August:1 Anonymous. 1994. RP-Brunei Businessmen Ink Trade Ventures Today. Philippine Star 7 August:8

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About the Authors Dr. Gloria S. Chavez is an associate professor at the De La Salle University (DLSU)-Manila and currently the Dean of the College of Business Administration of DLSU-Dasmarmaswhere shehas beensecondedsince2000. She obtained her inasteral and doctoral degrees in Business Administration from DLSU-Manila in 1974and 2000respectively. As associateprofessor, she handles Strategic Management, Organizational Behavior and Entrepreneurship Development courses at the undergraduate and the graduate levels. She was a visiting professor at the Anhui University in Hefei, China in summer of 2002.Previous to joining the academe,shewas in involved in government and industry and has devoted more than 30 years in development work focusing on enterprise development, livelihood and microfinance projects. She is a member of the Board of Directors of the Service Bureau for Small Fisherfolks (SBSF)a Canadian International Development Agency project and the Urban Program for Livelihood Training and Development (UPLIFT) a French-Filipino NGO specializing in microfinance. She heads the Business Skills and Development Resource Center, the microfinance arm of the Caucus on Poverty Reduction of the DLSU System which has projects in Cavite, Manila and Laguna. Currently, she also chairs the Cavite Council for Entrepreneurship and Enterprise Development of the Office of the Governor of Cavite. Dr. Chavez was instrumental in the development of the entrepreneurship thrust of DLSU-Manila's Business Management Department and currently holds the Amb. Ramon del Rosario I Chair of entrepreneurship in DLSU-Manila. Dr. Ma. Gloria V. Talavera is an associateprofessor at the University of the Philippines (UP) College of BusinessAdministration where she obtained her masteral and doctoral degrees in 1993 and 2001, respectively. Prior to that, she was a Cum Laude graduate of Agricultural Economics from U.P. Los Banos. As associate professor, she handles Production/Operations Management at the undergraduate and graduate levels and also teaches BusinessPolicy and Strategic Management. Aside from teaching, Dr. Talavera conducts training and provides consultancy services on Strategic Planning, Operations Strategy, Total Quality Management, Project Feasibility Study and other Operations and Organizational Management-related topics. In 1999,

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she served as an economic/ agriculture expert in a consultancy engagement with the National Economic and Development Authority-World Bank and also in the preparation of a Resource Management Strategy for Oriental Mindoro in 1996. Prior to her present involvement in the academe, Dr. Talavera worked for the Sycip, Gorres & Velayo (SGV) Company under its Agri-Industry Section. Ms. Abigail D. De Leon is presently a consultant for the Philippine Foundation for Cultural and Educa~pnal Deyelopment, Inc. She obtain~d her Master of Arts (M.A.) in Politics/ (major in Political Economy) degree from the University of Asia and the Pacific (UAP) in 2000. Prior to her present occupation, she worked for the World Trade Organization (WTO)-ASEAN Free -Trade Area (AFT A) Advisory Commission under the Office of the President also as consultant. Ms. De Leon also did lectures at her alma mater a year after graduating and worked as Research and Project Management Assistant at the Asian Institute o(Management-W. Sycip Policy Center where she helped organize the National Poverty Debate Seriesfunded by the World Bank Institute. Her areas of research specializations are international political. economy of post-communist economies, trade and foreign policy of developing countries, and political dynamics of multilateral and regional economic groupings. Ms. Tuliet T. Mendoza is associateprofessor at the King Faisal Center for Islamic, Arabic and Asian Studies of the Mindanao State University (MSU), Marawi City Campus where she also heads the Department of International Relations. She earned her Bachelor of Science in International Relations and M.A. in Education (candidate) degrees from the same institution. However, she obtained her M.A. in Philippine Studies (major in External Relations) degree from the University of the Philippines. While doing her thesis, she served as practicum supervisor at the Department of Foreign Affairs. Ms. Mendoza also serves as adviser of the Junior Diplomats CI':1bof the King Faisal Center and the Philippine Int~rnational Studies Foundation, Inc. of MSU-Marawi City Campus.

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About the PASCN

The Philippine APEC Study Center Network (PASCN) was establishedon November 23, 1996by virtue of Administrative Order No. 393, as the Philippines' reponseto th~ APEC Leaders' EducationInitiative. Among the goals of the PASCN are to promote collaborativeresearchon APEC-relatedissues;fadlitate the exchangeof informationbetweenor among government and nongovernment organizations, academic or research institutions, businesssectorand the public in general;encouragefaculty and studentsof higher educationto undertakestudies,thesesand dissertationon APECissues;undertakecapacity-buildingprogramsfor governmentagencies on mattersrelated to APEC;and provide technicalassistanceto government agenciesand private organizationson APEC-relatedinitiatives. The Network is composed of the Asian Institute of Management, Ateneo de Manila Uinversity, Central Luzon StateUniversity, De La Salle University, Foreign Service Institute, Mindanao State Uiversity, Silliman University, University of Asia and the Padfic, University of the Philippines, University of San Carlos, Xavier University and the Philipine Institute for DevelopmentStudiesas Lead Agencyand Secretariat.

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Thesis and Dissertation AssistanceProgram(TDAP) Guidelines NaturP/Objective The Thesisand Dissertation AssistanceProgram of the Philippine APEC Study CenterNetwork is a financial assistance grant to graduate students of the member institutions of the PASCN. It aims to extend finandal support for the writing and production of the graduate student's thesis or dissertation. The program is open only to graduate students who have already completed all their academic requirements for a Masteral or PhO degree, except for the thesis or dissertation. Graduate students who are required to do a "spedal p~blem research" instead pf a thesis or dissertation will be

given spedal consideration. Who mayApply?

All graduate students from the member institutions of the PASCN > who are preparing to do their thesis or dissertationmay apply. Graduate studentsfrom non-PASCNmembersmayalsoapplyand submit their thesis/ dissertation proposals but priprity will be given to graduate studen~ of PASCNmember-institutions. Priorities/Areas ofConcern Topij2Sfor the thesis/dissertationproposalsshould fall under the current researchagenda of PASCN. The researchagendaof the PASCN is updated everytwo yearsand thus, all applicantsareadvisedto communicate with the PASCN Secretariatoffice for more information on the topics that maybe consideredunder the agenda. Criteria lor Evaluation 01Proposals The following constitutethe setof criteriato beusedin evaluatingthe proposals: .Relevance of proposedresearchto nationalor regionaldevelopment; .Conbibution of the researchto a better understandingof the APEC; and .Compliance with generally accepted standards for thesis and dissertation.

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Terms and Condinons of Grant Amount of financial assistance. An amount of P35,OOOto P45,OOO will be extended for the preparation of a masteral thesis while an amount of P75,OOO to Pl00,OOOwill be provided for a PhO dissertation. The final amount, however will be dete~ined by the PASCN Thesis Grants Committee, depending on the topic and nature of proposal. Other benefits. Besides the financial assistance, the successful applicant or grantee may also enjoy free accessto all the available databases covering the Asia-Pacific at the PASCN Secretariat which include, among others, trade data, social statistics, financial statistics, food and agriculture data as well as world economic indicators. The expertise provided by the members of the Thesis Grants Committee in their review and evaluation of the proposals may likewise be considered as free technical assistance given to the grantee. Timeframe for completion. The masteral thesis should be completed within a period of one year while the Pho. dissertation must be finished within two years from the date of approval of the grant. Requestsfor an extension may be approved, if justified, on a case-to~ case basis. The period of extension, however, should not exceed one year. Neither should the request for extension involve a request for additional funding. Vis bursements and usageof grants. The financial grant shall be spent only to defray actual expensesincurred in the writing and production of the thesis/ dissertation. This includes data gathering as well as payment for enumerators/interviewers and encoders, supplies and materials, "Computer time, transportation, typing and binding services. No part of the grant shall be spent for salaries, honoraria, allowances and the like in any form for the grantee, adviser, consultant or similar person(s). The schedule of releases of grant will be as follows:

First release(25 percent)- upon approval of the application by the steeringcommitteebasedon the recommendationof the ThesisGrantsCommittee; Second release (25 percent)- upon completion of the conceptualframework togetherwith the certification of the adviser;

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Third release(25 percent)- upon submission of the study preliminary results;and Fourthand final release(25percent)-upon submissionof the two bound copies of the completedthesisor dissertationto the PASCNSecretariat. Obligations a/the grantee. Under the grant agreement, the grantee's obligations include the following: .Submission of a written status/progress report once every semester following the PASCN-TDAP format (please .refer to the PAsCN Secretariat for a copy of the format); .Submission, in writing, of any changein the grantee's research schedule; .Acknowledgement of the PASCN financial assistancein the grantee's research study; .Submission of computer diskette(s) containing data used in the study to the PASCN to make use of such data with the appropriate acknowledgement of the source(s); .Submission of two bound copies of the completed thesis/ dissertation, together with an abstract of the study; and .Submission to the PASCN Secretariat of all the required outputs corresponding to the amount(s) already released if and when the grantee is unable, for some reason or another, to complete his or her study.

Contract ofagreement.A contractoutlining all the aboveterms and conditionsshallbe enteredmto by and betweenthegranteeand thePhilippme Institute for Development Studies (as the lead agency of the PASCN) representedby its President.The Dean of the grantee'sGraduateSChoolas well as the grantee'sadviser/supervisor shallbe Witnes~es to the contract. Failure to comply with the conditions of the grant shall render the granteemeligible for further grants.Said provisions will remain until suCh time that the granteeis ableto completeall the requirementsof the contract App lication Requirements Applicants are required to submit the following: .Application letter addressedto the PASCNSecretariat; .Endorsement letters of the Deanof GraduateSchoolof the applicant's institution asweIl as his supervisor.Saidletter(s)should alsoinclude 363

what other grants the applicant may receiving or is expected to receive from other institutions/ agencies; Copy of approved thesis/ dissertation proposal, following the PASCNTOAP format as well as the certification of approval by the department chair or thesis adviser; Transcript of records of graduate studies; Budget proposal; and Work program/schedule

All applicationsmay be submitted to: The ProjectDirector Philippine APEC Study CenterNetwork (PASCN)Secretariat Philippine Institute for DevelopmentStudies NEDA sa Makati Building, 106Amorsolo Street LegaspiVillage, 1229Makati City Telephonenumbers:839-9588,892-5817 Faxnumber: 893-9588 E-mail: pascn@pidsnet.pids.gov.ph Evaluation of applicationis done during the months of May and October.

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