Pag-asa Turns Gold

FIFTY YEARS OF PAG-ASA PROVES THERE IS HOPE FOR PHILIPPINE INDUSTRY
Filomeno S. Sta Ana III

This article originally appeared in the December 14, 2014 issue of BusinessWorld.

PAG-ASA MEANS hope. Pag-asa, the proper noun, symbolizes hope for the revival of Philippine manufacturing and hope for all-round national development.

That proper noun is also Pag-asa Steel, which celebrates its golden anniversary on Dec 18. In 1964, a period that marked the take-off of Philippine manufacturing, an enterprising, persevering Tsinoy named Francisco Tong founded Pag-asa Steel. Rare is the Filipino company engaged in heavy industry that survived and grew for 50 years or more. Economic and political crises, combined with institutions and policies not responsive to industry and agriculture, have wiped out many manufacturing corporations.

How Francisco Tong, or Kiko to peers and friends, established Pag-asa is an unusual story in itself. From the late 1940s to the early 1960s, Kiko managed and grew the Philippine Blooming Mills into the country's biggest integrated steel company of his time. When he retired from PBM, the grateful owners expressed their thanks to Kiko by hosting a dinner tribute. In his farewell speech, Kiko humbly compared himself to a gardener who was entrusted with a garden to tend. "The garden has bloomed," he said, "and I'm happy to turn over a blooming garden."

After PBM, Kiko studied the cement or polyvinyl chloride (PVC) industries. He was averse to returning to the steel business.

But history is full of accidents. On a trip to Tokyo, he met Kazuo Hirahara, who persuaded him not to close his options. When he saw what was offered to him -- a technologically advanced steel mill originally intended to supply steel bars for the infrastructure of the 1964 Tokyo Olympics -- Kiko was awe-struck. And so, back to the steel industry it was for him.

Pag-asa was the first automatic rolling mill in the Philippines, the most advanced in its time. Since its founding, Pag-asa established its reputation as a steel company that is "First in Quality."

How Kiko met Kazuo is a story worth telling. The Japanese gentleman loved the Philippines, having spent most of his adult life doing business in the country.

But World War II brought untold suffering personally and materially. Forcibly repatriated, he returned to Japan, only to find out that his family had given him up for dead. By the time he reunited with his family, his wife had already remarried. Desolate and impoverished, Kazuo was determined to start life again, in the Philippines. But how? At the Tokyo airport, he randomly chose a Filipino whom he could befriend. And that Filipino, fortuitously, was Kiko. Kiko took pity on him, believed in his decency, and in time helped Kazuo return to the Philippines. Kazuo got his life back together. The two of them became good friends.

The virtue of kind-heartedness is one of the many traits that Kiko and his wife Flora, a former school teacher, inculcated in their children and in Pag-asa. Also: Hard work and perseverance, prudence and frugality, simplicity and humility, honesty and trustworthiness, fairness and integrity, honor and excellence. The couple ingrained these values into the family and the company. They lived and worked by example.

Developers, contractors, buyers and suppliers have remained loyal to Pag-asa through the years. Pag-asa has been providing quality and high-grade steel bars at competitive prices to infrastructure projects, skyscrapers, industrial plants, schools, hospitals, churches, museums, residential houses, hotels and shopping malls.

Although a producer primarily for the domestic market, Pag-asa meets the highest global standards. It is the only Philippine steel mill that the rigorous United States Nuclear Regulatory Commission has pre-qualified. It has ISO (International Organization for Standardization) certifications for quality management systems, environmental management systems, and occupational health and safety management systems.

But what makes Pag-asa distinct is that "it has a soul," which lives through the core values, to quote Willy Tong, Pag-asa's president.

Pag-asa cares for its buyers, suppliers and employees. A customer's story exemplifies how Pag-asa values its relationship with partners. The story, recounted to me by a newly hired manager, involved his first exposure to one of Pag-asa's customers. The customer told him that he respects Pag-asa because it never takes advantage of a situation that would make it better off but at the expense of its business partner. The customer had experienced the opportunistic behavior of other companies which cancel contracts to gain from a sudden steep increase in price.

But Pag-asa works hard at building its reputation for fairness, reliability and integrity. In the words of General Manager Gabby Tong, "Integrity is non-negotiable." In Pag-asa, rules apply to everyone -- whether owners, managers or workers. Collegiality is observed. Everyone has a sense of duty. And everyone, regardless of position or affinity, is accountable.

Despite Pag-asa's success, the road that it has traveled in the last 50 years has not been easy. Although incorporated in December 1964, it rolled its first bar only in 1967. The loan that it had applied for, already approved by the National Investment and Development Corporation (NIDC), a subsidiary of the Philippine National Bank (PNB), came late. Securing loans then was unpredictable, and approval or release of loans was subject to political vagaries. And Kiko insisted on the straight path.

Pag-asa, however, was -- and continues to be -- a responsible borrower. Pag-asa paid the NIDC amortizations fully and on time. In fact, Pag-asa fully paid the 10-year loan ahead of maturity. Economists and finance people would dismiss such prepayment as sub-optimization with an "opportunity cost." Nevertheless that turned out to be a strategically wise decision. Kiko's unconventional prudence enhanced Pag-asa's reputation of being credit-worthy.

The head then of the NIDC told Kiko that in NIDC's history, only three corporations had fully paid their loans -- one of them being Pag-asa. Moreover, only Pag-asa had the singular distinction of fully paying its loan before maturity. Edified by Pag-Asa's behavior, NDIC-PNB offered the company a much bigger loan with excellent terms. In a surprising decision, Kiko passed on the offer, telling the bankers that other fledgling manufacturing companies needed the loan more badly.

In the martial law years, Pag-asa was affected by the uneven playing field brought about by crony capitalism. When the debt crisis exploded in the 1980s and the country subsequently convulsed in the wake of Ninoy Aquino's assassination and the economy eventually collapsed, Pag-asa relied on its core values to survive. It persevered, remained prudent, and kept an eye on its accounts. The people worked harder, going house to house in residential areas with ongoing construction.

The presidency of Corazon Aquino restored hope for Philippine industry. But the debt overhang and the series of coups d'etat prevented the incipient economic boom from being sustained. Subsequently, the Asian financial crisis hit the Fidel Ramos administration. But more crises awaited. Joseph Estrada's administration fell, and political controversy hounded the Gloria Macapagal Arroyo regime. All these dashed business optimism and investor confidence.

Then came the unplanned presidency of Noynoy Aquino in 2010. Good governance and reforms have become the new standard. Pag-asa and Philippine business in general have benefited from this refreshing wind of change. Yet, threats against achieving sustained inclusive growth abound: High energy costs and a looming power shortage; smuggling and unfair competition; airport and seaport congestion; inadequate roads, poor public transport, and traffic jams; bureaucratic inefficiency and corruption. All these must be addressed. The government has a crucial role in leading the way to creating favorable conditions for Philippine industry and agriculture to thrive and prosper. Somehow this time, everyone hopes that change will prevail.

Pag-asa remains committed to serving Philippine development. May Pag-asa's experience and lessons serve to inspire other Philippine companies to meet the challenges in the country's next 50 years of development.

Filomeno S. Sta Ana III coordinates the Action for Economic Reforms a public interest organization that conducts policy analysis and advocacy on key economic issues.