(During this interview, what struck me about Vicente Paterno was how he seemed to be enjoying retirement. I couldn't help but think that when I grow old, I want to be just as peaceful and contented as he is.)
The year he turned 55, Vicente Paterno underwent the big transformation from technocrat to entrepreneur. This change would allow him to redefine Philippine retailing.
The year was 1980, and Paterno had just decided to leave government after an extended stay, first as Board of Investments head (he replaced Cesar Virata when the latter moved on to become prime minister) and then as trade minister. "Too old to join the corporate world, but too young to take it easy," Paterno thought of setting up his own business. Fortuitously, his close friend and brother-in-law, Jose Pardo, was also set to quit Bancom, one of the largest investment banks at that time. It was a good opportunity to work together. Paterno's and Pardo's criteria in choosing a business were fairly simple. First, the business had to have no links with the government, whether in the form of licenses or loans. Two, it had to be in a format that was unique and new to the Philippine market. Lastly, it had to benefit from Western technology. In the end, there were just two options-agriculture or retailing. They opted for the latter.
Filling the Retail Gap
Back then, convenience stores were unknown in the country. The retail scene was not keeping up with the changing needs and lifestyles of Filipino consumers, who had to make do with what the neighborhood sari-sari store had to offer. Paterno recognized the gap and decided to bring the convenience store concept to the Philippines. In 1982, Paterno's Philippine Seven Corporation signed a license agreement with Southland Corporation, which granted him the franchise to open 7-Eleven stores in the country. With no more than P5 million in capital (the exchange rate was P14/US$), the company prepared to open two stores.
It turned out to be the worst time to open the stores. Not long after they did, opposition leader Benigno Aquino Jr. was assassinated, throwing the Philippine economy into chaos. By then, another friend, Jorge Araneta, had joined Paterno and Pardo. "We assessed the situation, but we had already gone so far. We had reached the point of no return," recalls Paterno. Unfortunately, the fledgling company was very short on capital and had to expand out of profits. Two stores, however, were not enough to generate the needed funds, so it was a Catch-22 situation.
The company struggled on until after the EDSA Revolution, when consumer spending and investor sentiment improved. The group then struck an agreement with Philamlife. The latter agreed to build stores to be run by the Paterno group in exchange for rental fees and a percentage of sales.
Even then, the business's viability remained under question, so Paterno and Pardo called on other friends, among them, Manuel Agustines of Ramcar, Benjamin de Leon of National Life, Alfred Ramos of National Bookstore, and Dante Santos of Philacor. With the additional funding, 7-Eleven stores slowly branched out to more consumers across the metropolis.
Turning the Corner
It was a slow, steady ride for the company. After it opened its eighth store, Philippine Seven turned the corner. Philamlife became an equity investor, after which the company, now a real estate and an operating firm, went on expansion mode.
In 1998, the company, with 100 stores to its name, tapped the capital markets for additional funding via an initial public offering of its shares. A bond component also allowed it to secure foreign funding.
It was a good time for the business and for Paterno, but all the success was brought into proper focus with the discovery that Paterno had cancer. "Cancer brings you to terms with your mortality," he says. "I realized I had to prepare, to put things in order." Although he emerged victorious in the fight against the disease, he made sure that Philippine Seven was slowly weaned away from him. "I told myself, Paterno, you're 75, it's not fair anymore. I could keel over anytime and I had no succession plan."
Taiwanese Partners
Paterno saw an opportunity in the then-proposed Foreign Investments Law. The law allowed foreign ownership of less than 51% in retailing under certain conditions. "This was 1999, and I could already see it coming," he says. Towards the end of that year, Paterno went to Taiwan to meet with 7-Eleven officers and offer them a 30% stake in Philippine Seven. "I told them we needed new company management, new technology." 7-Eleven Taiwan, however, wanted more than that, and in August the next year, tendered an offer for 50.4% of the company. Some of the equity partners cashed out, but Paterno and the founding shareholders decided to stay on for the joint venture with 7-Eleven Taiwan.
7-Eleven Taiwan brought more robust systems and its retailing culture to the Philippine franchise, all of which would contribute to the continued strength of the stores even in the face of stiff competition from other convenience store chains. The assimilation was so thorough that after five years of Taiwanese management, the reins were again turned over to the Filipino partners, this time, to Paterno's son Victor, who became company president. Paterno, meanwhile, stayed on as chairman, for a sense of continuity. As of September 2005, there were 256 7-Eleven stores nationwide.
"The idea of localization was timely," relates Paterno, noting that "morale went up." The cultural differences between the Filipino employees and the Taiwanese management could have prevented the optimization of employee morale. Nevertheless, Paterno says the entry of the Taiwanese partners was necessary. "We had grown from a very small operation. We were a small company for 10 to 15 years, but we needed change," he explains.
Life Decisions
Paterno reveals that the most difficult decision he had made was the one to quit Meralco to join the government. A government job meant getting just a third of his Meralco salary and giving up all the other perks. He could have also taken a World Bank posting in Washington, but "we had to make a decision for our children. What was it that the children would have wanted us to do? We wanted them raised here, but we also wanted them to have a foreign education to keep their options open. If we leave, we would be giving up on the Philippines."
Now, with the children all grown and the stint in government and business over, Paterno is a contented man. He has told his son Victor that "I won't do anything for the company unless you ask me" and is happy with going to store inaugurations and joining monthly performance reviews. At 80, his happiness now revolves around photography. There is, of course, the livelihood program that he runs in Mindanao for small businesses. He still speaks proudly of the time he won the Management Association of the Philippines award for integrity with the late Jaime Ongpin, one of his closest friends, and of the Foreign Investments Law, which he authored. "Even Nathaniel Santiago [one of the Philippine Left's leading personalities] said it was okay," says Paterno.
Of course, he also remembers his frustrations as a legislator and as a citizen. But all in all, he is happy with his life's decisions. Sums up Paterno, "I don't think that there were major decisions that were wrong in their time. You are what you are, the situation is what it is."
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