Lessons from the ‘low price, high volume’ Chinese business strategy

As an entrepreneur who is a Filipino citizen of ethnic Chinese heritage, I was particularly struck by one of President Duterte’s lines in his SONA speech, which touched on the illegal drug problem unfortunately perpetrated by not a few for eign Chinese nationals.

Duterte cited one fascinating, old-fashioned Chinese business strategy that many good and legal entrepreneurs in various industries use all over Asia, but ironically is also cleverly used by the minority black sheep or illegal traders among our communities for their illicit trades.

Duterte said: “If you are able to contaminate, kagaya ng negosyo ng mga (like the businesses of the) Chinese, wholesale iyan sila (they’re wholesale). Maski konti-konti, kung (Even little by little) the whole of Tondo is contaminated, pera iyan (that’s money). I am not saying it’s the Chinese, practice nitong wholesale, retail. They go for wholesale. Maski na kumita lang ng isang piso diyan sa isa, okey na iyan. Kasi paramihan, eh. Iyan ang ibig kong sabihin (Even if they profit by just one peso on an item, that’s okay. Because they sell by volume. That’s what I mean).”

Local Chinese Community Backlash Vs. Illegal Drug Crooks

Allow me to reiterate admiration for the leaders of the major local Chinese community organizations, such as the Federation of Filipino Chinese Chambers of Commerce and Industry, Inc. (FFCCCII) led by its president Angel Ngu, for recently publishing advertisements in all local Chinese-language newspapers and in The Philippine STAR that we members of our minority condemn all illegal drug businesses and support President Duterte’s tough anti-crime crusade.

Not only that. A few weeks ago, Ngu called to tell me that he and the FFCCCII expressed wholehearted support to moves by progressive legislators to grant President Duterte emergency powers in order to help him decisively solve Metro Manila’s horrendous traffic congestion crisis.

Various ethnic Chinese entrepreneurs tell me they are in favor of President Duterte’s call for restoration of the death penalty for heinous crimes, which include illegal drugs. The governments of our neighbors Singapore and China have suceeded in cleansing their societies of the illegal drug menace by combining re-education and victims’ rehabilitation programs along with tough police measures and uncompromising punishments such as a swift death penalty. Let us also impose the death penalty to discourage crooks in the illegal drug trade.

I beseech President Rody Duterte to decisively cleanse, modernize and reform not only our government and bureaucracy, our police and military organizations, but also our criminal justice system.

‘Low-Price, High-Volume’ Business Champions Of The Philippines

President Rody Duterte hit the bull’s eye when he cited the age-old Chinese business strategy that has helped create many success stories through the centuries all over Asia, in many different industries (mostly legal and a few illegal fields, too): to maintain low prices, patiently be content to earn low profit margins, and aim for high volumes of business at a fast pace.

In the December 2006 issue of Harvard Business Review, Nirmalya Kumar wrote about how low-price businesses maintain their edge: “Successful price warriors stay ahead of bigger rivals by using several tactics: They focus on just one or a few consumer segments; they deliver the basic product or provide one benefit better than rivals do; and they back everyday low prices with superefficient operations to keep costs down. That’s how Aldi, the Essen-headquartered retailer that owns Trader Joe’s in the US, has thrived in the brutally competitive German market... Aldi now owns 4,100 stores in Germany and 7,500 worldwide.”

Let me share updated information on Aldi, which is like the SM of Germany. Aldi is a leading global discount supermarket chain with almost 10,000 stores in 18 countries, and an estimated turnover of more than 50 billion euros. It is based in Germany and was founded by brothers Karl and Theo Albrecht in 1946 when they took over their mother’s store in Essen, which had been in operation since 1913. It has been classified as one of the world’s largest privately owned companies.

Who are the low-price, high-volume champions of the Philippines who should inspire us with their perseverance, patience, strategic thinking and the benefits they offer us consumers?

John Gokongwei Jr. — This inspiring, workaholic entrepreneur is the original price-buster and anti-monopoly advocate, with such firms as Cebu Pacific Air dramatically bringing down the price of plane tickets and knocking even passenger shipping lines out of the competition. His free-text/free-call pioneer Sun Cellular dragged down telecommunication prices nationwide (Sun has now been sold to Smart), Payless noodles, etc.

Henry Sy Sr. — SM department stores, supermarkets, malls, and now condominiums have revolutionized the way the Philippines shops, dines, relaxes, and lives. The brand “SM” has come to symbolize reliable low prices, consistently clean and air-conditioned premises, efficient and courteous staff, good quality and diverse choices of products.

Manny V. Pangilinan — The industry leader Smart of PLDT has decisively cornered the mass market for mobile phones nationwide, then moving into other market niches and other businesses.

Andrew Tan — The affordable liquor business Emperador brandy has not only grown to become a world leader in its field by selling at low prices and with superb marketing strategies, this Philippine company is now starting to go global with high-profile acquisitions from Britain to Spain.

Andrew Gotianun and Mercedes Tan Gotianun — This entrepreneurial couple built one of the Philippines’ most solid and respected realty developers by initially focusing on and excelling in affordable housing with Filinvest. They’re now going into diverse markets like hotels, luxury brands, East West Bank, malls, and power companies.

Manny Villar — The mass housing tycoon amassed his fortune by building affordable homes; now he’s building up his diverse conglomerate, which includes memorial parks to malls.

Tony Tan Caktiong’s family — The champion affordable fast-food chain Jollibee was built up by Tony Tan Caktiong with his wife and siblings. Although the food group is already diverse, Jollibeee is still its most famous mainstay.

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