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The Philippine Outsourcing boom about to break - Arcenas, De Guzman, Tan, Wu

The Philippine Outsourcing boom about to break - Arcenas, De Guzman, Tan, Wu

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Published by: otsipotsi on Mar 31, 2009
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09/30/2014

 
THE PHILIPPINE OUTSOURCING BOOM ABOUT TO BREAK 
 Arcenas, Patricia Anne R.trishaannearcenas@gmail.com
College of Computer StudiesBachelor of Science in Information and Communications Technology Management
  De Guzman, Louise Therese Y.louiseydeguzman@gmail.com
College of Computer StudiesBachelor of Science in Information and Communications Technology Management
Tan, Christopher U.Tan.christopheruy@gmail.com
College of Computer Studies
 
Bachelor of Science in Information and Communications Technology Management
 Wu, Ting Ruwu.ting.ru@gmail.com
College of Computer StudiesBachelor of Science in Information and Communications Technology Management
ABSTRACT
This paper examines the changes that may occur during theoverhauling of the American recession and its effect on thePhilippine outsourcing industry. By examining these presentand pressing economic problems and struggles we will beable to get a clearer view of the road ahead and the road totake. During and for this research, data has been collectedfrom archives, interviews, and newspapers and publishedreports. This research paper challenges the argument that thePhilippine Outsourcing industry is booming despite therecession. This research aims to clarify that the Philippinescan lose its lead if the country does not play its cards right.The US economy is leaning into protectionism while other countries have been emerging as substitutes to Philippineoutsourcing services: we must be cautious and keep theindustry alive in spite the many deaths in the economy.
1. INTRODUCTION
The Outsourcing industry has been bountifully blooming inthe Philippines for the past decade. More recently, thePhilippines was recognized as “the premiere globaldestination for IT services” [1]. The Philippines is positioned 2
nd
only to India as the largest supplier of BPOworkforce from previously being ranked in third during2006 [1]. Moreover the Philippines was recently cited as thenumber one outsourcing destination of 2007 by the NationalOutsourcing Association of the United Kingdom [1]. Thiscurrent recognition of the Philippines as a premiere BPO provider adds to the country’s global competitive edge andgives the Philippines a great position in the global market.But then times now are much different from lastyear and the year before. We are no amidst a globalrecession. Countries from left and right are threatened of arecession: Japan, Germany, Singapore and the United Statesto name a few. A lot of multinational companies arecurrently laying off workers and avoiding any non-immediate expenses. Of the first expenses to sacrifice ismost often Information Technology expenditure, for theseare merely add-ons to a functioning business. The companymust first survive the economic meltdown before any other costs are to be spent.According to Rosario Bella Guzman, in her articlein the financial crunch, “Global Recession, Local Crisis”,“The Philippine economy will be affected by the globalrecession through its three aspects: It is significantly linkedto the US economy and other foreign economies; it has basicweaknesses and vulnerabilities; and it is a “client” of globalization” The US economy will definitely slow down,which will reduce Philippine exports to the United Statesand cut down US investments in the country. The USslowdown will put strong downward pressure on all theeconomies it relates with, including Europe, Japan, Chinaand other East Asian countries [7].So in the midst of a global recession, everything isgrowing more competitive. There are less and less of resources to go around. People and companies alike areavoiding unnecessary expenditures. Thus there are less
 
customers to put money in the economy. The stock marketsare down and so is the purchasing power of the middle class.Everybody is saving money for a rainy day, hence adding tothe friction to the slowing economy.But then, what is the Philippines doing tocounteract or survive in this global recession? ThePhilippine Outsourcing Industry if it is properly taken careof. What will happen if the new American administrationcounteracts their company’s tendencies to outsource? Thenew president is already planning and strategizing to takeactions to bring back the jobs home to America.Life is not getting easier in the Philippines, moreand more Filipinos are out of school and a great number of the population is in financial turmoil, below poverty level.The question here is that: is the Philippine outsourcing boom sustainable? Or will it fall down as the people falldown?Corruption is a major deterrent in business.Corruption in government is a greater turn-off to businessmen than they are to voters. Corruption in a countrydenies its people the right to be associated with trust. For acountry to be dubbed the most corrupt in Asia is not just astatement true for its leaders but it is a stereotype thattrickles down to every citizen of that nation. Corruptionmakes it hard to do business because businessmen relate theattributes of the leaders to its members—it stains thereputation of the country and the innocent citizens. So whatnow? In a business that relies heavily on trust—theexistence of corruption in the Philippines has acted as major discouragement.
2.0 PRESSING ISSUES CONCERNING THEPHILIPPINE OUTSOURCING INDUSTRY2.1 Shifts in American Trade Policies
The phenomenon that has made offshore outsourcing a popular and effective solution has made it a threat to thestruggling US economy. The implications are thereforedaunting. The Philippine outsourcing industry relies heavilyon foreign customers, a large chunk of which is American.Moreover the demand for outsourcing is dropping in theUnited States and advanced economies in Europe, whichaccount for about 17 percent and 14 percent, respectively of Philippine export earnings [8]. Continuing to play the anti-outsourcing card, Democrat presidential front-runner Barack Obama on Wednesday said while America cannot "shyaway" from globalization, it would have to take measures toensure that jobs are not shipped overseas [8].And here’s the catch: the US recession is a realityand the actions that the current American administration istaking to counter the recession in their country might meanan inclination to lessen or diminish offshore outsourcing.President Gloria Macapagal Arroyo acknowledged that therecession in the United States could derail the growth projected for the Philippine economy during this 2009.So, with the Philippine outsourcing industry nowthreatened by a major shift in US economic policy, it is of utmost importance that the local companies learn to adapt tothese threats that may kill off the industry. Needless to say,the threats imminent to us would be similarly threatening toIndia and China, and it is inevitable that they themselveswould respond to these policies once they are enacted intolaw perhaps in the second or third quarter of 2009, at theearliest [].With the current surprises and changes in the USeconomy and administration, one is led to expect greatchanges in the US trade and economic policies specificallytowards Asia, and generally towards the world. Though it isdisturbing to bear in mind that a one country can be sodependent on the decisions of another, but then, this is areality for the Philippines. The Philippines has varyingdegrees of economic dependence on these other countries— Europe, Japan, China and other East Asian countries-- 90 percent of its total foreign trade and investment is with thesecountries—so there will be a cascading effect throughvarious countries [7].Most of the customers of Philippine outsourcingfirms are from Multinational companies founded and bounded in the United States of America. Moreover as Asiaemerges as a super power in the outsourcing industry, thishas become a threat to the US economy. More and more jobs are being offered in developing countries and less are being made available to Americans. Now, one man plans tochange all that-- Barrack Obama. Therefore, newly elected president Barrack Obama's blatant expression of hisinclination to generate more jobs in the United Statesthrough rewarding non-off shoring companies and penalizecompanies who outsource, is in fact a threat to the stabilityof the Philippine Outsourcing IndustryBarrack Obama has already expressed and signaledmany changes in the US trade and economic policies. Amidall the jubilation that has widely greeted the historic electionof America's first African-American President, not a few inthe developing world are worried or at the very least, temper their celebration with some apprehension [2]. The fear stemsfrom President-elect Barack Obama's many campaignstatements that vowed to "bring the jobs back home" for American workers [2].Foreign relations and domestic economic policehave been declared by Obama as the topmost items in hisadministration’s agenda of change but with the US economy
 
in the middle of recession, his main focus will be to bring back the bacon home before turning his attention abroad.The new American administration has alreadyaffected nearly two-thirds of chief financial officers attechnology businesses [3]. Another 19 percent report nointerest in additional outsourcing [3]. The CFOs say thatthey'll outsource services or manufacturing this year, butmore plan to outsource in the U.S. rather than abroad. Anannual survey by accounting and consulting firm BDOSeidman LLP showed that 22 percent say the United Statesis the outsourcing destination they are most likely toconsider in 2009, compared to 16 percent for China and 13 percent for India. The Philippines didn’t even make the topof the list [3].
2.2 Philippines Sustainability
The global crisis continues to take its toll on Filipinos, as theDepartment of Labor and Employment (DOLE) announcedon Wednesday that as of this week, 40,191 workers have been laid off. Plus, the number of retrenched Filipinosworking abroad has reached 5,700, the department added[4]. According to the National Statistics Office: Theunemployment rate in January 2008 was estimated at 7.4 percent. Among the regions, the NCR had the highestunemployment rate. It registered a 2-digit unemploymentrate of 12.5 percent. Males had higher unemployment rate of 7.8 percent compared to females at 6.7 percent. For everyten unemployed, five (49.6%) were in the age group 15-24years, while three were in the age group 25-34. Around 39.0 percent of the unemployed had attained college level and33.5 percent were high school graduates.More pressingly, experts are still not convincedover the long-term viability of the BPO industry. Accordingto a recent study conducted by the Philippine Institute for Development Studies, the sustainability of this outsourceindustry is in doubt. Intermittent threats to physical securitystill continue to discourage BPO investors [11].Industry experts in Philippines have pointed out tothe country's high electricity rates that could deter the BPOcompanies from carrying out their operations. These BPOcompanies are mostly dependent on uninterrupted power supply for their computers, servers and other network equipments. As most of the BPO companies operate ontwenty-four hours a day and seven days a week, it might bea concern for them [11].BPO industry all over the world is struggling tosustain the demand of quality workforce both in executiveand managerial sector. BPO giants like India andPhilippines are struggling to produce the managers that cangive a sustainable lead to this industry and can alsowithstand the demands of the growth. In this issue, a report published by a firm, Development Dimensions International(DDI), gives an insight as to what Philippines is feeling: thereport states that local BPO industry in Philippines hasleadership issues [12].The discussed report was produced by DDI bycollaborating with the Business Processing Association of the Philippines (BPAP) [12]. It was stated in the report that“Managers of different departments are not satisfied withthe programs run by HR professionals and the HR  professionals report that others are not accountable for their work and commitment.” Moreover, these relative grudgesoften mar the growth of the sector and it is quite obviousthat BPO sector in Philippines seems to suffer from thesame issue [12].
2.3 Political Turn-offs
One of the factors that potential customers in theoutsourcing industry look at is the political and economicstability of a country. The Philippines has neither, that iswhy it is a challenge to market the country with the mostcorrupt president and the deteriorating administration. Theculture and system of the Philippines is also something thatholds the outsourcing industry back and keeps it fromreaching its potential. The heavily bureaucracy andaristocracy in the Filipino way of doing things are too muchof a hassles and a turn-off to understand. There is too muchcorruption and petty theft going on the country that ismaking is hard to take seriously.The on going ZTE scandal is an example of howthe political situation in the Philippines can pause progress.The Jun-Lozada case is a showcase of how issues as simpleas getting a broadband connection can be grow into a large-scale corruption issue. This poses as a threat because theunstable political situation in the Philippines is frankly aturnoff to foreign investors. The Philippines’ corruptedgovernment is a burden to progress especially to the BPOindustry, what country would like to trade to corrupted people? According to Rodolfo (2005), “the Philippines has afluid political environment. Potential investors includingthose in BPO services are worried about the political issuesin the country, such as graft and corruption, criminality andthreats to physical security”The Philippines came out on top (or depending onyour perspective, the bottom) of a perception survey,conducted by Political & Economic Risk Consultancy(PERC), which ranked it as the most corrupt among thirteennations in Asia [9]. More pressing is that, the Philippines isthe third most corrupt nation in Asia and is ranked 11thamong the countries with the worst corruption cases in the

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