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.

louiseydeguzman@gmail.com
College of Computer Studies
Bachelor 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 Ru
wu.ting.ru@gmail.com
College of Computer Studies
Bachelor of Science in Information and Communications Technology Management

provider adds to the country’s global competitive edge and

ABSTRACT gives the Philippines a great position in the global market.

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
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 non-
immediate 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 anti-
outsourcing 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 large-
scale 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 anti-
corruption 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.
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