With Barack Obama’s impending ascent to being the 44th President of the Unites States of America, a dark cloud looms and threatens to blot out the “sunshine” industry the Philippines has been exploiting over the past decade.
In his website launched as a primer on his policies as President-elect, aptly named Change.Gov, Obama has outlined his views with regards to sending jobs overseas, outside American shores:
- End Tax Breaks for Companies that Send Jobs Overseas: Barack Obama and Joe Biden believe that companies should not get billions of dollars in tax deductions for moving their operations overseas. Obama and Biden will also fight to ensure that public contracts are awarded to companies that are committed to American workers.
- Reward Companies that Support American Workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the US; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military. [Change.Gov]
The implications are therefore daunting. The Philippines may lose big given that the US is most likely its the biggest customer for business process outsourcing.
Business Process Outsourcing is, of course, not limited to call centers. While call centers were the primary “spark” that started the industry’s wild-fire spread (and remains to be its largest sector), other services are offered by Filipino outsourcing, including animation, software development, finance, logistics, accounting, and even legal services.
The positive effects of the growth of this sector is likewise far-reaching. When talent was brought to near-exhaustion in Manila, the industry was able to expand to other urban centers like Cebu and Davao, but services soon also rose in areas like Clark, Baguio, Bacolod, Iloilo, and Cagayan de Oro. Its expansion has allowed the Philippines to capture 20% of the English-speaking market ([PDF] as of 2004). It has allowed the Philippines to be third behind India and China, respectively, in terms of contact service outsourcing at least.
However, with this market now threatened by a major shift in US economic policy, it is of utmost importance that the local industry 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.
So how do we respond? Personally I believe that the local BPO industry will benefit from the following:
- Seek new markets — While the US may be its largest customer, the Philippines will benefit from focusing on other similar English speaking markets, including but not limited to Canada, Australia, and the United Kingdom. The Philippines may be able to benefit as well from learning new language markets (e.g., Japan or Chinese speaking countries), but this would probably be an uphill battle considering the learning curves involved.
- Competitive pricing — India leads the Philippines when it comes to outsourcing, but they are constantly plagued by increasing salary levels and high attrition rates that are making their services more expensive. It may be difficult to compete with our Chinese competitors, but Filipino companies can take advantage of the skilled-labor problems of India to their advantage.
- Focus on skills, not just language — The Philippines boasts of its fluent English speaking workforce, but its advantage should not be limited there. Local skills, talent, and innovation should be developed further to create a labor pool that is not only adept at slang and twang, but is likewise genuinely competent at their work. This will open opportunities which would not limit it to th English-speaking or US market.
- Move the focus away from outsourcing and towards creating products with value — This is particularly true for the software development and animation industries. The dependence on outsourcing revenue limits software developers, for instance, to making software as designed and specified by their foreign clients and counterparts. Instead of following the Indian outsourcing model, Filipinos should instead explore the Israeli software product model, wherein they create web-based or shrink-wrapped products (similar to, say, Google and Microsoft, but not similar in scale) that can earn them revenue. If Filipinos manage to create software products that are truly innovative, the profit margins for this type of development would prove to be much, much higher than that of the corresponding outsourcing model (admittedly, the risks involved would likewise be higher).
I’m sure the Philippine BPO industry can think of more creative ways to be able to adapt and respond to the ever changing global economic climate. Unfortunately, Obama’s policy shift once more underscores just how dependent the Philippines is on the United States. Successfully responding to this challenge will hopefully lead to less dependence on one big customer, and perhaps even develop internal markets so that we won’t be at the mercy of foreign investment and trade.
Popularity: 2% [?]
jon,
1. Obama’s policy means for a stronger America. A stronger America ironically makes for better global economy so i’m all for it. a stronger American economy easily translates to money to buy goods and services from countries like the Philippines.
2. Outsourcing isn’t a new thing. Companies have been outsourcing since the 70s.
3. Outsourcing really would depend on each company— money talks. what makes things work for them. Sometimes it makes sense, others no. people outsource all the time.
As for what the outsourcing industry needs to do, you got good points there. it is a competitive world out there. i can sum it up in two words what our industries need to do, not just BPOs: “grow up”.
cocoy,
Indeed, grow up.
I fear that we are merely repeating the mistakes of the previous generation, e.g., developing businesses dependent on the American market for too much of our revenue so much so that it seems that we owe our lives to them.
That cycle must stop. We must be able to carve our niche with the global economy in mind, not the US.
We should distinguish the two types of outsourcing.
One is in-house and the other one thru a third party vendor.
What is the difference between between the in-house and the third party vendor?
The first is still considered a part of the mother company…while the second is already a different business organization.
The first type uses its own resources to start and operate the BPO in the other country while the second gets its capitalization from the new corporation which stockholders may come from the host country.
Most of the BPOs in the Philippines are third-party vendor types…that is BPOs are managed by independent groups.
Taxation-wise, there is a different implication.
I wonder how it is going to be implemented.
The government has always been very protective of its workers.
When the IT people from India, China and Philippines were being recruited by the top IT corporations by the thousands so much so that the labor accreditation was waived, the US government was alarmed.
So they charged 500 dollars for every foreign IT sponsored to work in the US. The money goes to the education fund of locals who were perceived to be displaced by the foreign hiring.
The hiring slowed down and some companies decided to outsource their businesses instead of long wait for the hirees to come.
The reason that could be given by the businesses to justify the outsourcing is the lack of skilled people to do the job in the US.
For call center jobs… repetitive work does not attract the locals. The outsourcers find the people in the developing countries more motivated to work and enhance their competence.
Do you know that before this call center outsourcing some US companies were using the prison inmates as their telemarketers because they can not attract employees?
what he may not be aware of is that one of the reasons of these corporations moving their operations in other countries aside from cheap labor of course is the labor union factor. i do not know how he will deal with that.
many food processing plants do not attract locals so that poor immigrants and the undocumented are the ones hired by companies. There are seasons when temporary workers are hired from neigboring countries to augment the labor supply.
this is a case of unemployment not due to lack of opportunities but more on the preference of the US workers.
To add, the biggest labor union backed up Obama.
now he’s talking with the business giants for advice, let us watch how he will shift from a slogan campaigner to a president-elect faced with realities.
Cat,
Indeed we have yet to see how these policies will evolve from campaign rhetoric, to manifesto, to law. Nonetheless our local businesses must respond swiftly to these iterations of that law so as to leverage themselves to the best advantage. I’m sure many of them know what they are doing, but I’m still hoping that we will not be as US-dependent as we are right now.
I didn’t know the bit about “hiring prisoners”. I guess that is something that will assure local call center agents! :P
Cat,
i think people mistake business process outsourcing to simply being limited to sending work to a foreign company.
sorry to nitpick, but it isn’t outsourcing if you just hand it over to your internal staff/do it in-house. *out* is never *in* outsourcing is you hand the job to a third party, whether that third party resides in your country or outside of it.
for example you *outsource* when you get a hosting company to run, manage, maintain and protect your email server. you do it because you’re a small-medium company and it would be cheaper to hire someone to do the job for you than hire a full time staff, maintain electricity and cooling for the servers, not to mention defend the server from attacks.
a local t-shirt company can also outsource when they can’t meet demand. send half their production run to be manufactured by someone else. they’ll only do that if on top of having someone else finish the production run, they’ll still make money.
Apple on the other hand hired manufacturing firms in china to manufacture and assemble their gear. they got a lot of bad press for their manufacturers who used under-aged employees on the ipod line. are they still outsourcing manufacturing? you know what, i don’t know where their unibody plant it. but i think their ipod line is still predominantly manufactured by Chinese plants.
that’s one of many reasons, but chiefly i think it *could be* cheaper to let someone else do it. cheap doesn’t always translate to fewer *actual* $$$. outsourcing is first and foremost, a business decision.
higher cost of pay in their home countries mean they have to pay a local there equivalent for example to two foreign workers. as a business, which would you choose?
pay and well, education plays a factor, to a degree i agree with you.
again, as i said, outsourcing is a business decision.
i think President Obama is well aware of the practical realities of governance.
the local BPO community like all businesses must stay competitive.
“what’s good in america is good for other country”
true but America is not in good shape. Basic Factors that will affect our BPO’s
1. US consumer confidence
2. Unemployment rate at almost 7%.
3. Nobama’s policies.
Financial crisis moves from Wall Street to mall
US consumers are the end users of most BPO services. When confidence are low, the demand of services and products are also low, there will be an oversupply of labor at our end. ( you know what’s next). Obama maybe will make it worst for the world. He is healthcare and welfare for all but only for the American people and the Fil-Am pinoys. The rest of the world will probably wait for another Republican party’s welfare for the world. Obama may also further lower the visa qoutas for skilled workers at 65,000/year. The Indians are already begging and writing letters to Obama to reverse their worries but Obama is too happy being the first Black President. ( big deal)
In the Philippines, many nurses may have to wait for their visas as the world will compete for an even lower qoutas. Remember Clinton’s retrogression on Visas? expect the same policy.
The Fil-Am pinoy who supported Obama may have forgotten the Philippines. Thanks to JCC, Bencard and ME for our Republican votes. You can always count on us.. :)
It’s the economy.
leytenian
Who said that? Did I say that?
Yes, thanks to you three Filipinos can continue to be American lapdogs, and nothing else. Look where that policy has gotten the country. So much progress ;)
Jon,
common now..:) China needs security for its oil investment in Iraq. :) Why would Obama pull troops in IRAQ. Who will pay US debt to China without the concept of networking ( allies ). What about Exxon and BP ( Iraq Privatization)? A little history of OIL demand.
The United States, China, and the race for oil security
The other Republican policies of globalization and Trade Liberalisation will be more attractive to the rest of the world. :)
leytenian,
Only time will tell, I guess. No point on nitpicking on the man who is yet to have power. His Republican predecessor (who led us all to this deep pile of shit, if I may point out) is still boss, after all.
Jon, you are right. Barack Hussein Obama will shut down all BPO companies in the Philippines.
Also, Mr. Obama will destroy not only RP-US foreign relations but also diplomatic relationship with other countries. He’s a chavinist, xenophobic neoliberal American.
Puta Obama!!!
^ Wow. The rest of the world *likes* Obama. He grew up in Southeast Asia and Hawaii. His father was Kenyan. Xenophobic?
Rutgerus,
Please substantiate your assertions at least with premises. We don’t want brain farts here, we want the whole shitpile.
In the software development world we call this FUD. Fear Uncertainty and Doubt. Useless fodder unless proven correct.
Cocoy,
I should have used the word offshoring.
When Obama was talking about companies that send jobs overseas, he is not merely talking about BPOs but businesses which transfer some of its business functions in other countries.
When I say in house…I am referring to those which finance, manage and control the whole operations.
The BPOs are US vendors. They contract business functions and offshore or send the businesses to
other countries.
So Obama is referring to those two types.
outsourcing when discussed refers more to offshoring of the business processes on a more permanent basis that’s why some use it interchangeably. Since Obama was talking more about businesses going to other countries and jon was talking about software outsourcing, I thought I made it clear that I am talking about both.
traditionally what you are referring to is called sub-contracting which means the same but your example is on a less permanent basis. You do it only when orders are not met by the production capacity. What Jon and I are talking about is outsourcing on a more permanent basis and are more applicable on the back and front office activities of a business organization.
is this more applicable on ASP, application service provider (ASP)?
I thank you for the clarification because many also associate BPOs to telemarketers and call centers when they aren’t.
US economy crises is effecting Philippines a lot. If OBAMA is going to stop outsourcing then many employees will lose their job.
@business process outsourcing
Please tell us something that we DON’T know.
Obama was elected because he looks good and speaks well, unless someone knocks some economics sense, his presidency will be a disaster. He got his votes on feel good politics. The big and long term picture is outsourcing benefits everyone. America’s success did not diminish when we started buying Japanese cars in the 70s. We have had a very good economy up until a year ago and it was certainly not outsourcing that effected it.
Finally, most Filipinos would be appauled at what Obama beleives in. He supports the most hanious forms of abortion, he thinks we can negotiate with terrorist, and thinks Christian value are listening to a preacher who utters hate.