8/13/2019 Arando en el mar (Resumen Ingls)

1/4

Plowing the Sea.Nurturing the Hidden Sources ofGrowth in the Developing World.

by Michael Fairbanks & Stace Lindsay

Foreword by Michael E. Porter

Harvard Business School Press, 1997

Michael Fairbanks and Stace Lindsay argue that the tremendous advantages developing nations have in naturalresources, inexpensive labor, and fertile soil have actually kept these nations poor. Their advantages easily imitated

in other areas around the world have not been sufficient engines for growth. Billions of dollars have been spent toeradicate poverty; still these regions remain as dependent as ever on volatile natural resource exports and foreign aid.

Plowing the Sea is the authors attempt to unearth and nurture the hidden sources of growth knowledge, innovation,and human capital that remain untapped in developing countries.

Chapter One: Avoid Overreliance on Basic FactorsSummary from book p. 37

The belief we examined first in the story of the Colombian flowers and have explored in greater detail here -- thatcountries and companies can compete globally based on factor advantages such as natural resources, cheap wages, orgeographic location--dominates economic activity throughout the developing world. The challenge that business andpolitical leaders of those countries face is two-fold: (1) to develop more sophisticated sources of advantage that are notso easily imitated, and (2) to realize that depleting natural resources and suppressing wages will not lead tosustainable, long-term wealth creation. It is critical for leaders to develop the capacity to think about the future and to

move out of such unattractive "factor-based" industries. That will require a fundamental reassessment of howcompetitiveness is understood. The sources of growth for developing nations are hidden behind the abundance ofnatural resources that so many of them possess.

Chapter Two: Improve Understanding of CustomersSummary from book page 46-47There are three fundamental reasons the Colombian leather industry leaders had worked themselves into such adifficult position:1. They had not taken an explicit position about choosing customer segments.2. They did not try to understand customers' different needs.3. They did not seek the most attractive customers that they could serve.In the days when the local markets were protected and export markets were easier to penetrate because of favorable

exchange rates and government incentives, the issues listed above were not so critical. They are now.Firms that fail to choose specific segments are essentially enabling the competition to choose for them. Whether we arediscussing state-owned tourism in the Colca Valley of Peru, or the leather sector in Colombia, very predictable andconsistent patterns will result. In failing to choose the most attractive segments that they can serve, those firms will beforced into segments where average margins are lower, where competition on cost will be fierce, and wheredependence on exogenous variables such as exchange rates will be high. These are the patterns associated with

competing in basic-factor-dependent industries, and they are inconsistent with creating a high and rising standard ofliving for the average citizen.

Moreover, there will continue to be little incentive for innovation or cooperation among industry participants becausethey will perceive that the number of customers is limited and that one firm can succeed only if another is not. Theability to create wealth, in other words, tends to be viewed as finite. Furthermore, firms will redouble their efforts to

ensure that the government is providing them every source of advantage to continue competing in these unattractivesegments. The eyes of the productive sector will be on the government--not on the market--and that will furtherreinforce the pattern of not proactively choosing the best segments in which to compete.

Chapter Three: Know Your Relative Competitive PositionSummary from book page 59-60It is important for firms to analyze their position relative to competitors for three main reasons: (1) it can facilitate

productive dialogue between the public sector and the private sector; (2) it can help firm managers make moreinformed choices; and 3) it can help firms anticipate areas where they may be vulnerable to the competition.There are two components to relative position analysis that we should make explicit. First, it is important to understanda given firm's basis of competition--meaning, is it competing on costs, or competing as a differentiated player who cancharge more for the product by adding unique value for the consumer? If the basis of the competition is cost, then

relative cost position analysis is most critical. If the basis of the competition is differentiation, then analysis of customersatisfaction relative to the competition is most critical. Either way, the challenge is to know and understand one's ownposition in order to develop a clear view of how likely success is in the competitive battlefield.

8/13/2019 Arando en el mar (Resumen Ingls)

2/4

The second critical point regards competitors. "Competition never occurs in a vacuum." And a lack of knowledge aboutthe goals and capabilities of the competition to serve the customers may leave a firm very vulnerable.

A theme that we repeat often in our discussions and seminars is that, when it comes to market demand, developingnations have to upgrade themselves from being responders to seekers, and ultimately, to creators. Instead of extractingand exporting the basic wealth of their countries--again, a strategy that other countries can usually imitate and

therefore vulnerable to price fluctuations and exchange-rate management--firms need to learn how to understanddemand and the dynamics of competition better so that they might find more attractive customer segments. That iswhat we mean by seeking.

Furthermore, if firms in developing countries understood customer preferences so intimately that they could anticipatethem, and perhaps even help shape them, that would mean they were becoming creators. The high-end fashionproducers in Italy are creators in the sense that what they make tends to shape the tastes and preferences ofconsumers, and influence competitors, in a portion of their market. Very often, they make excellent profit margins doing

just that.

The essence of this upgrading process is in becoming competent at ascertaining relative position. As we have said, thelack of this knowledge is one of the reasons firms in developing countries find themselves competing in unattractiveindustry segments. It is also preventing the type of high-quality discussion that needs to take place between seniorpublic and private sector decision makers as they make increasingly complex decisions about opportunities that willcome and go with increasing rapidity. With a clear understanding of relative position, however, those decision makerswill be able to begin creating their own opportunities that provide even greater reward.

Chapter Four: Know When and When Not to IntegrateSummary from book page 74-75Exporters from the developing world face a wide variety of challenges regarding not only the production of their goods,

but also those goods' distribution and sales. Wide variations in the macroeconomic environment, political and socialinstability, inconsistent government policies, and poor infrastructure are the problems most often associated with poorexport performance. Correcting those problems is a prerequisite to creating sustainable and profitable growth in many

exporting industries, but it is not enough. The many strategic challenges that firms face cannot be postponed anylonger; as companies wait to make decisions about critical strategic issues, they actually cede control of their future tomore nimble competitors, and to buyers.If exporting firms in the developing world are to have any hope of capturing more of the economic rewards they nowcreate for others, they must address the three problems we have just discussed: poor knowledge of channel needs, a

failure to leverage channels, and a failure to capture market feedback.Because exporters rely on brokers and distributors who typically do not pass along valuable information about markettrends and dynamics, they are inherently less able to understand customers' needs than either the brokers or thecompetition can. That reduces their ability to differentiate themselves in the marketplace through service, betterunderstanding and fulfillment of customers' needs, or an ability to anticipate market trends. In light of the changing

market dynamics, that also poses a problem because exporting firms tend to be relatively unaware of the relativeperformance of their competition in key market areas, which could mean they will face some unexpected and painful

realizations about their industry's development down the road.Lack of forward positioning contributes to yet another problem we have observed: groups of companies in the sameindustry are unable to cooperate with each other to improve the consistency of supply, the quality of products, and thescale needed to export efficiently. That fact has hampered the growth of dynamic groups of industries that could helpupgrade the broader competitive environment. We call those kinds of dynamic industry groups clusters, and we willexamine their value in more detail in the next chapter when we discuss the specific problem of interfirm cooperation.

Poor thinking about forward integration is part of a system engendered by other patterns we discuss in this book. Forexample, a tradition of depending on natural resource based products -- what we have called factor or comparativeadvantages-- forces competition to be based simply on price and scale. That, combined with a historic dependency ongovernment policies to facilitate exports, has inhibited firms' ability to think "outside of the box" about how to distributetheir products. Forward integration would go a long way to mitigate some of the challenges facing firms and industries

in developing nations, and for this reason we consider it an underutilized strategy; another hidden source of growth.

Chapter Five: Improve Interfirm CooperationSummary from book page 91-92The three stories recounted in this chapter -- soy, fruit juice, and alpaca -- are actually the same story in one sense:

they demonstrate that a company's competitiveness often depends heavily on the competitiveness of other firms andinstitutions in the same industry. That interdependence can be a source of weakness or strength, depending on the

collective competitiveness of an industry cluster. When thinking about implementing a sound strategy, companies mustexplicitly understand where their strategies are vulnerable to the actions of suppliers and buyers, and ensure that thechains of companies behind a product are all working together. Without strong related and supporting industries,achieving sustainable competitive advantage in the developing world will be much more difficult than it should be. Inthe past, it may have made sense not to cooperate, but in the increasingly competitive global economy, firms mustseize the opportunity to create the conditions where buyers and suppliers no longer insist "Es la culpa de la vaca."

Chapter Six: Overcome DefensivenessSummary from book page 102Overcoming defensive behavior is critical to the success of all enterprises, not just those in the developing world. Toseize the opportunities identified in previous chapters, business and government leaders will need to develop more

sophisticated sources of advantage. Gone are the days when cheap labor and access to raw materials - very visible andaccessible advantages - will allow sustained success. Gone are the days when it is worthwhile to argue publicly about

how to allocate finite resources. The challenge in the 21st century will be to work together to create sustainable sourcesof growth in a way that neither degregates the environment nor exploits human beings. This cannot be done in highlydefensive environments. Today's sources of competitive advantage are more subtle than yesterday's. They are based

8/13/2019 Arando en el mar (Resumen Ingls)

3/4

on human relations, on productive reasoning, on trust, on cooperation. They are hidden sources of advantage that wemust learn to develop.

Chapter Seven: Avoid PaternalismSummary from the book page 117-118

Two choices: Breakfast with the Minister or Reshaping the IndustryIn Bolivia, we once gave a presentation to several hundred business and government leaders in a grand hall, darkened

except for the raised stage on which we were speaking. After relating some preliminary analysis about the country'sexport performance, some survey results about patterns of decision making, and some hypotheses concerning thefuture of the country, we stated that the business people in the audience had two choices going forward. The firstchoice was that they could simply wake up tomorrow and take to breakfast whichever Minister had an interest in theirparticular industry."You know the Minister," we said, "your wife knows the Minister's wife, your children baby-sit for the children of the

Minister, and on weekends you give a friendly nod to the Minister from across the tennis court at the club or on the golfcourse. You can take the Minister to breakfast and ask him for a favor. That's one choice.""But there's another choice," we continued. And we asked that someone in the audience articulate what was thatchoice. From the back of the room, a man raised his hand timidly and addressed us from deep within the anonymity ofthe darkened hall.

"We can take the Minister to lunch." And the audience laughed in a sublime moment of self-recognition.Choice number two is not that business people can have one meal or another with a Minister, but that they can try toreframe their perspective so they do not interpret events from a paternalistic frame. Specifically, they can learn how to

judge the attractiveness of industry structures, they can work on developing their competitive environment to improvetheir relative position inside those industry structures, they can focus on learning about competitor behavior and

customer preferences. In a phrase, they can learn how to reshape the industry structure around themselves. And oncethey have accomplished that, maybe they will represent a new model of a relationship between the government andthe private sector.

Chapter Eight: Strategic ActionsSummary from the book page 133Strategy is deciding to decide. It is making discrete choices along clear dimensions and is a critical first step to nurturingthe hidden sources of growth about which we are writing. Not making choices is, indeed, allowing others to make

choices for you. More than once we have shown a client his relative competitive position on a map with all of theircompetitors only to hear, "We didn't decide to be there." Our response is always the same: "No you didn't, but yourcompetitor decided for you."Competing by making better choices about where to compete, how to compete, what products to produce - this is theway to build sustainable sources of advantage. The next chapter looks more deeply into the type of learning required so

that firms can begin to make informed choices and take timely action.

Chapter Nine: Firm-Level LearningSummary from the book page 169-170

As the Cervantes quote at the beginning of the chapter suggests, learning is not without "inconveniences". He mentions"dizziness in the head" and "weakness in the stomach" among others. Our view is that it is more costly not to do thelearning.

The "three C's" in this chapter are the types of learning that inform the strategy choices that firms get to make. Thattype of learning can be one of the great points of leverage in mitigating the problems inherent in the seven patternsand turning them into opportunities for growth.Customer learning, for example, will help firms rely less on factor conditions as they learn that they are often competingfrom within a poor "five forces," with high rivalry and little ability to influence customer behavior. Understanding costs

and competitors has the effect of improving relative position, by understanding the sources of sustainable competitiveadvantages, and fundamental weaknesses that need to be worked on. The combination of all three C's allow firms tomake a decision about their capacity and the desirability to forward integrate, and provide the basis for interfirmcooperation.Perhaps the most innovative use of this type of firm-level learning is the capacity to inform the government-private

sector dialogue about the realities of the international competitive context, which provides an opportunity to overcomepaternalistic behavior. That does not mean that government should use that information to take an overtly

interventionist role; however, at present so much of the dialogue between the government and the private sector iscolored by poor information that the results is often negative attributions and defensiveness.Improved, strategic-type learning could focus a country's leaders on creating sustainable, non-imitatable advantagesthat can position local firms closer to end-users. The benefits will include the formation of international alliances and thecreation of high and rising value for increasingly sophisticated customers who are willing to pay more money for theunique value they perceive. Learning like this creates informed choice, which improves competitive positioning, and

turns the seven patterns into sources of advantage.

Chapter Ten: Steering MechanismsSummary from the book page 186-187

In the Andean region, constantly changing development strategies and inconsistent public policies over time havecreated organizational and administrative steering mechanisms that tend to reinforce -- in fact to help create--the sevenpatterns that we have observed. Competition based on basic factors is reinforced when there is neither confidence in

how the government will behave in the future nor a qualified human resource pool from which to draw. When facedwith that dual problem, firms tend to mitigate their risk by choosing industry segments that have low barriers to entryand exit. They tend to maximize short-term gains because they have no confidence that any investment in the long-

8/13/2019 Arando en el mar (Resumen Ingls)

4/4

term will be fruitful. That creates a reinforcing pattern: firms actively encourage the government to ensure they are atleast able to achieve short-term gains, which translates into strong lobbying efforts and often antagonism toward thegovernment when it is not responsive to their needs. That breeds paternalism and defensiveness. Import substitutionpolicies which limit competition make it unnecessary for firms to understand their customers and their competitors. Thisin turn makes it difficult to choose good segments in which to compete and limits the need for knowledge about relativecompetitive advantage. Finally, import-substitution-oriented steering mechanisms have inhibited the development ofstrong clusters because firms do not need to cooperate in order to succeed in those highly regulated environments.

As we suggested earlier, there have been several contributing factors to the inability thus far of firms in the Andeanregion, and in developing countries in general, to change the seven patterns into opportunities for economic growthand social equity. We have attempted to make a case that a major reason has been the rapidly changing nationaldevelopment strategies and unpredictable steering mechanisms that limit long-term strategic thinking and investment ininnovation.If leaders of developing countries can begin to develop informed and explicit national development strategies and make

steering mechanisms consistent and predictable, they will help create environments more conducive to long-termthinking and investment. This, in turn, will encourage better choices and a higher level of learning at the firm level thatwill ultimately lead to the development of more productive firms and industries competing in better ways.

Chapter Eleven: Mental Models

Summary from the book page 219-220We have attempted to do some complex things in this chapter to begin to understand some of the prevailing beliefsabout wealth creation and distribution in an uncertain country. First, we have used the example of Venezuela because,at the moment, it is a country with a great amount of uncertainty, and, as such, is a rich environment for learning.Second, we have introduced a methodology for determining how to know a little better "who is out there" through our

discussion of the five very different segment groups that we identified in Venezuela and believe exist in many countries.We described these groups and the views and "mental models" they embody, with a view toward learning what it isthat may unify them behind a shared vision. Finally, we reintroduced the "Seven Patterns" described in the first part of

this book and examined the perspectives which may be driving these patterns, and inhibiting wealth creation.We have seen that creating wealth is no longer about macroeconomics and the advantages with which countries areborn. It is more complex, involving a wide array of steps, such as building integrated frameworks based on cutting-edgeconcepts of measuring results, categorizing the scope of strategy choices, understanding institutional dynamics, makingparadigms explicit, and understanding how and when paradigms become obsolete. Most importantly, creating wealth in

the future will involve pulling the integrated frameworks referred to above together, and incorporating a fundamentalunderstanding of "who is out there," what they believe, and how one structures a process to move them to sharedunderstanding. As the quote with which we began this chapter suggests, everything now (including wealth creation)really is human relations.

Chapter Twelve: The Hidden Sources of GrowthSummary from the book page 238

How do we understand the invisible effects of the seven patterns on productivity? -- The answer is through use ofmental models, many of which we examined in the chapter on divisiveness; institutional efficiency which we studied inthe chapter on steering mechanisms; knowledge-capture along the dimensions of the scope and positions of strategy;and the three C's.These components of change, informed by the paradigm of high-productivity, create the conditions for exponential, and

even explosive growth in wealth generation and distribution.But there is yet another challenge: How can these components of exponential productivity growth fit together into anoverarching framework for positive change? And we leave that for the final chapter.

Chapter Thirteen: A Framework for Action

Summary from the book page 262The moral authority in an innovation-based environment will come from the wisdom of the leader to manage the otherpreconditions for change: electrifying and then clarifying for the electorate the new moral purpose of an innovation-based, upgrading economy girded by the high and rising standard of value created by the average citizen. This leaderwill facilitate the development and use of hard and soft technologies for change and learning. He or she will create abroad degree of real and sustained ownership of change among the political base, the opposition, and the increasingly

complex populace.It is ironic for us to think that all of the preconditions for change to a new framework for wealth creation and

distribution now exist, except perhaps that our present leadership may still not recognize the possibilities inherent: thehidden sources of growth.