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THE PHILIPPINE OUTSOURCING BOOM ABOUT TO BREAK Arcenas, Patricia Anne R. trishaannearcenas@gmail.

com College of Computer Studies Bachelor of Science in Information and Communications Technology Management De Guzman, Louise Therese Y. College of Computer Studies Bachelor of Science in Information and Communications Technology Management Tan, Christopher U. College of Computer Studies Bachelor of Science in Information and Communications Technology Management Wu, Ting Ru College of Computer Studies Bachelor of Science in Information and Communications Technology Management ABSTRACT This paper examines the changes that may occur during the overhauling of the American recession and its effect on the Philippine outsourcing industry. By examining these present and pressing economic problems and struggles we will be able to get a clearer view of the road ahead and the road to take. During and for this research, data has been collected from archives, interviews, and newspapers and published reports. This research paper challenges the argument that the Philippine Outsourcing industry is booming despite the recession. This research aims to clarify that the Philippines can 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 Philippine outsourcing services: we must be cautious and keep the industry alive in spite the many deaths in the economy. 1. INTRODUCTION The Outsourcing industry has been bountifully blooming in the Philippines for the past decade. More recently, the Philippines was recognized as “the premiere global destination for IT services” [1]. The Philippines is positioned 2nd only to India as the largest supplier of BPO workforce from previously being ranked in third during 2006 [1]. Moreover the Philippines was recently cited as the number one outsourcing destination of 2007 by the National Outsourcing Association of the United Kingdom [1]. This current recognition of the Philippines as a premiere BPO provider adds to the country’s global competitive edge and gives the Philippines a great position in the global market. But then times now are much different from last year and the year before. We are no amidst a global recession. Countries from left and right are threatened of a recession: Japan, Germany, Singapore and the United States to name a few. A lot of multinational companies are currently laying off workers and avoiding any nonimmediate expenses. Of the first expenses to sacrifice is most often Information Technology expenditure, for these are merely add-ons to a functioning business. The company must first survive the economic meltdown before any other costs are to be spent. According to Rosario Bella Guzman, in her article in the financial crunch, “Global Recession, Local Crisis”, “The Philippine economy will be affected by the global recession through its three aspects: It is significantly linked to the US economy and other foreign economies; it has basic weaknesses and vulnerabilities; and it is a “client” of globalization” The US economy will definitely slow down, which will reduce Philippine exports to the United States and cut down US investments in the country. The US slowdown will put strong downward pressure on all the economies it relates with, including Europe, Japan, China and other East Asian countries [7]. So in the midst of a global recession, everything is growing more competitive. There are less and less of resources to go around. People and companies alike are avoiding unnecessary expenditures. Thus there are less

customers to put money in the economy. The stock markets are down and so is the purchasing power of the middle class. Everybody is saving money for a rainy day, hence adding to the friction to the slowing economy. But then, what is the Philippines doing to counteract or survive in this global recession? The Philippine Outsourcing Industry if it is properly taken care of. What will happen if the new American administration counteracts their company’s tendencies to outsource? The new president is already planning and strategizing to take actions to bring back the jobs home to America. Life is not getting easier in the Philippines, more and 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 fall down? 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 country denies its people the right to be associated with trust. For a country to be dubbed the most corrupt in Asia is not just a statement true for its leaders but it is a stereotype that trickles down to every citizen of that nation. Corruption makes it hard to do business because businessmen relate the attributes of the leaders to its members—it stains the reputation of the country and the innocent citizens. So what now? In a business that relies heavily on trust—the existence of corruption in the Philippines has acted as major discouragement. 2.0 PRESSING ISSUES CONCERNING THE PHILIPPINE OUTSOURCING INDUSTRY 2.1 Shifts in American Trade Policies The phenomenon that has made offshore outsourcing a popular and effective solution has made it a threat to the struggling US economy. The implications are therefore daunting. The Philippine outsourcing industry relies heavily on foreign customers, a large chunk of which is American. Moreover the demand for outsourcing is dropping in the United States and advanced economies in Europe, which account for about 17 percent and 14 percent, respectively of Philippine export earnings [8]. Continuing to play the antioutsourcing card, Democrat presidential front-runner Barack Obama on Wednesday said while America cannot "shy away" from globalization, it would have to take measures to ensure that jobs are not shipped overseas [8]. And here’s the catch: the US recession is a reality and the actions that the current American administration is taking to counter the recession in their country might mean

an inclination to lessen or diminish offshore outsourcing. President Gloria Macapagal Arroyo acknowledged that the recession in the United States could derail the growth projected for the Philippine economy during this 2009. So, with the Philippine outsourcing industry now threatened by a major shift in US economic policy, it is of utmost importance that the local companies learn to adapt to these threats that may kill off the industry. Needless to say, the threats imminent to us would be similarly threatening to India and China, and it is inevitable that they themselves would respond to these policies once they are enacted into law perhaps in the second or third quarter of 2009, at the earliest []. With the current surprises and changes in the US economy and administration, one is led to expect great changes in the US trade and economic policies specifically towards Asia, and generally towards the world. Though it is disturbing to bear in mind that a one country can be so dependent on the decisions of another, but then, this is a reality for the Philippines. The Philippines has varying degrees 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 these countries—so there will be a cascading effect through various countries [7]. Most of the customers of Philippine outsourcing firms are from Multinational companies founded and bounded in the United States of America. Moreover as Asia emerges as a super power in the outsourcing industry, this has 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 to change all that-- Barrack Obama. Therefore, newly elected president Barrack Obama's blatant expression of his inclination to generate more jobs in the United States through rewarding non-off shoring companies and penalize companies who outsource, is in fact a threat to the stability of the Philippine Outsourcing Industry Barrack Obama has already expressed and signaled many changes in the US trade and economic policies. Amid all the jubilation that has widely greeted the historic election of America's first African-American President, not a few in the developing world are worried or at the very least, temper their celebration with some apprehension [2]. The fear stems from President-elect Barack Obama's many campaign statements that vowed to "bring the jobs back home" for American workers [2]. Foreign relations and domestic economic police have been declared by Obama as the topmost items in his administration’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 already affected nearly two-thirds of chief financial officers at technology businesses [3]. Another 19 percent report no interest in additional outsourcing [3]. The CFOs say that they'll outsource services or manufacturing this year, but more plan to outsource in the U.S. rather than abroad. An annual survey by accounting and consulting firm BDO Seidman LLP showed that 22 percent say the United States is the outsourcing destination they are most likely to consider in 2009, compared to 16 percent for China and 13 percent for India. The Philippines didn’t even make the top of the list [3]. 2.2 Philippines Sustainability The global crisis continues to take its toll on Filipinos, as the Department of Labor and Employment (DOLE) announced on Wednesday that as of this week, 40,191 workers have been laid off. Plus, the number of retrenched Filipinos working abroad has reached 5,700, the department added [4]. According to the National Statistics Office: The unemployment rate in January 2008 was estimated at 7.4 percent. Among the regions, the NCR had the highest unemployment rate. It registered a 2-digit unemployment rate of 12.5 percent. Males had higher unemployment rate of 7.8 percent compared to females at 6.7 percent. For every ten unemployed, five (49.6%) were in the age group 15-24 years, while three were in the age group 25-34. Around 39.0 percent of the unemployed had attained college level and 33.5 percent were high school graduates. More pressingly, experts are still not convinced over the long-term viability of the BPO industry. According to a recent study conducted by the Philippine Institute for Development Studies, the sustainability of this outsource industry is in doubt. Intermittent threats to physical security still continue to discourage BPO investors [11]. Industry experts in Philippines have pointed out to the country's high electricity rates that could deter the BPO companies from carrying out their operations. These BPO companies are mostly dependent on uninterrupted power supply for their computers, servers and other network equipments. As most of the BPO companies operate on twenty-four hours a day and seven days a week, it might be a concern for them [11]. BPO industry all over the world is struggling to sustain the demand of quality workforce both in executive and managerial sector. BPO giants like India and Philippines are struggling to produce the managers that can give a sustainable lead to this industry and can also

withstand 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: the report states that local BPO industry in Philippines has leadership issues [12]. The discussed report was produced by DDI by collaborating with the Business Processing Association of the Philippines (BPAP) [12]. It was stated in the report that “Managers of different departments are not satisfied with the programs run by HR professionals and the HR professionals report that others are not accountable for their work and commitment.” Moreover, these relative grudges often mar the growth of the sector and it is quite obvious that BPO sector in Philippines seems to suffer from the same issue [12].

2.3 Political Turn-offs One of the factors that potential customers in the outsourcing industry look at is the political and economic stability of a country. The Philippines has neither, that is why it is a challenge to market the country with the most corrupt president and the deteriorating administration. The culture and system of the Philippines is also something that holds the outsourcing industry back and keeps it from reaching its potential. The heavily bureaucracy and aristocracy in the Filipino way of doing things are too much of a hassles and a turn-off to understand. There is too much corruption and petty theft going on the country that is making is hard to take seriously. The on going ZTE scandal is an example of how the political situation in the Philippines can pause progress. The Jun-Lozada case is a showcase of how issues as simple as getting a broadband connection can be grow into a largescale corruption issue. This poses as a threat because the unstable political situation in the Philippines is frankly a turnoff to foreign investors. The Philippines’ corrupted government is a burden to progress especially to the BPO industry, what country would like to trade to corrupted people? According to Rodolfo (2005), “the Philippines has a fluid political environment. Potential investors including those in BPO services are worried about the political issues in the country, such as graft and corruption, criminality and threats to physical security” The Philippines came out on top (or depending on your perspective, the bottom) of a perception survey, conducted by Political & Economic Risk Consultancy (PERC), which ranked it as the most corrupt among thirteen nations in Asia [9]. More pressing is that, the Philippines is the third most corrupt nation in Asia and is ranked 11th among the countries with the worst corruption cases in the

world, according to an ABS-CBN report quoting a study conducted by Transparency International, a global anticorruption coalition [5]. In another survey conducted, the philippines is again, dubbed as the most corrupt. And in this time of current global financial crisis, any turn-off is a major deterrent to do and succeed in the world economy. Another thing to note is that: The Philippines replaced Indonesia as the country with “the distinction of being perceived in the worst light this year,” the Hong Kong-based Political and Economic Risk Consultancy said Tuesday in a summary of its survey that was made available to Agence France Presse (AFP) [10]. In a grading system with zero as the best possible score and 10 the worst, the Philippines got 9.40, worsening sharply from its grade of 7.80 last year.It was stated that: to the question "To what extent is corruption a deterrent to your willingness to invest and expand your business?" the Philippines scored 8.50, with 10 reflecting "a major deterrent” [6]. Local corruption monitors confirm that graft and bribery in the Philippines remain rampant. Corruption has penetrated every level of government, from the Bureau of Customs down to the traffic police officers who pull over motorists to demand bribes. Nearly $2 billion dollars, or roughly 13 percent of the Philippines' annual budget, is lost to corruption in the country each year, according to the United Nations Development Program [6]. 3.0 CONCLUSION 3.1 Summary Asian companies are now uneasy about the new American trade stance. Some economists predict that the new American administration will lean heavily towards protecting American jobs in trade agreements. Our current economic situation and the global economic meltdown is now a challenge for the Philippines to face. Will we rise above the situation or fall down like the rest? Generally this should be viewed as an opportunity that is forcefully presented. The world is the Philippines’ to milk, and take on—the country and its leaders must make sure that internally, as a country we are prepared for the world. The country must fight the good fight because investors and businessmen avoid the Philippines not because of lack in ability but because of the lack of characters of its ‘people’ and leaders 3.2 Further Research The group suggests that the year of 2009 and beyond should be properly documented and analyzed. The United States is currently experience their worst economic downturn since

the great depression, and sad to say—the Philippines is affected by it, like most countries are. The year 2009 will be an interesting one. The recession is just gaining pace and we have yet to feel its power and impact. Surely, the year will be a sight to see—whatever happens one thing is for sure, this year will not be an easy year but everything will continue. It won’t be the end of the world but it can mean the end of many businesses. But with death comes life and new technologies, countries, industries will emerge through the span of the recession—let’s hope to God that the Philippines join in the economic race. 3.3 Recommendations There was once a man, whose goal in life was to truly know one thing. This man continued to ask and quest for knowledge. He questioned every declarative sentence, every assurance was deemed inaccurate and every certainty he made uncertain. This man proved to himself that he knows nothing but assured himself that he wants to know one thing. And by doing so he became the wisest man without his knowledge. This man was Socrates. The morale of the story is that people should always continue to search for knowledge. Regardless of one’s position, may one be a clerk or a president; one should always foster the values of continuous learning. This is a value that should be imparted from one student to another, from one citizen to another, from one investor to the next, from one employee to the rest, from the current management to the next. The group recommends that more research be done in connecting the Obama administration with its stands in outsourcing and alike. Moreover, the country—as a business unit must be united, helps each other and make sure that the outsourcing industry in the Philippines survives. The industry can look for other customers and clients that are outside the United States. The country could offer more incentives to investors who are willing to do business here. And in the light of all the corruption and political turmoil, the outsourcing industry in general must prove to potential investors that we are a nation above its leaders. That at least out businessmen can be trusted.

REFERENCES: [1] n.a, “40% increase in BPO industry eyed,” Sun.Star Breaking News,,, n.a, February 12, 2008. [2] Cielito Habito, “An Obama presidency bad for our economy,” Inquirer, Inquirer, ?article_id=171191. N.a., November 11, 2008. [3] Bernice Camille V. Bauzon, “Number of layoffs up, Labor says”, The Manila, op_stories/20090305top2.html. March 5, 2009 [4] n.a. “Responding to Obama’s Policy threats to the outsourcing industry.” Ang Kape Ni Lattex. N.a. n.a [5] Corvera, A. (September 19, 2003). RPis 3rd Most Corrupt Country in Asia – Study. Retrieved on October 30, 2008 from the world wide web: [6] Bonabente, C. (March 14, 2007). RP ‘most corrupt’ in Asia – PERC: ‘It’s bad and has been bad all along’. Retrieved on October 30, 2008 from the world wide web: rticle.php?article_id=54661. [7] Guzman, B. (November 1, 2008). Global Recession, Local Crisis. The Financial Crunch. Retrieved on October 30, 2008 from the world wide web: iew.php?db=1&article=20081101-169734 [8] Michelle Remo, Abigail L. Ho. (March 12, 2009). “BSP sees ’09 trade gap at S10.7B, up 41%” Retrieved on October 30, 2008 from the world wide web: 0312-193652/BSP-sees-09-trade-gap-at-107B-up-41 [9] Johnson, K. (n.a.). The Philippines: The Most Corrupt Country in Asia? Retrieved on October 30, 2008 from the world wide web: [10] Bonabente, C. (March 14, 2007). RP ‘most corrupt’ in Asia – PERC: ‘It’s bad and has been bad all along’. Retrieved on October 30, 2008 from the world wide web: rticle.php?article_id=54661 [11] n.a. (May 23, 2006). Sustainability Issues in the

Philippine BPO Industry. Retrieved on October 30, 2008 from the world wide web: [12] n.a. September 18, 2008. “The Philippine Suffers from leadership issues in the BPO industry.” Retrieved on October 30, 2008 from the world wide web: