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It's Happening:
The Philippines as Asia's e-Hub
By Michael Alan Hamlin
June 24, 2003
Philippine Trade & Industry secretary
Manuel A. Roxas announced last week that foreign investment rose
35.12 percent in the first quarter compared to last year, to P12.2
billion, or around US$235 million. That number pales compared to
foreign investment in most of the rest of Asia. For instance, foreign
investment in Indonesia probably registered somewhere around US$1
billion for the first quarter, if investment last year is any indication.
But there is reason to celebrate these latest results.
Roxas' top undersecretary, Greg Domingo,
explained why last week. Domingo was speaking to participants at
an e-commerce conference sponsored by BayanTrade, a company that
specializes in e-Procurement and e-Sourcing (Full Disclosure: BayanTrade
is a client of my firm.). "The Philippines is emerging as Asia's
business process outsourcing hub," Domingo proclaimed.
To back his claim, Domingo cited
gains in three e-services sectors: contact centers, BPO, and engineering
and design services. In fact, all three sectors are shades of BPO.
What is commonly called BPO is mostly accounting and other back
office functions. Contact centers have indeed been a real success
story for the Philippines. At present, capacity is growing at better
than 100 percent annually. If fact, 12 new call centers have been
set up - or are in the process of being set up - in the Philippines
in the last 12 months.
Five other calls centers are rapidly
expanding, and they include AOL, Sykes (with three sites and another
in development), PeopleSupport (two sites plus one under development),
and e-Telecare (also two sites plus another in the works). Not only
are these companies leaders in their industries, they provide their
services to some of the best-known brands in the world, including
Delta Airlines, Chevron, American Express, MCI, and Sony.
Among the reasons for strong growth
in call centers - aside from attributes such as highly skilled,
English-speaking people and low costs - is the Department of Trade
& Industry's (DTI) focused marketing efforts, according to Roxas.
Those efforts have focused on e-services, for example, because Roxas
and his team believe that the Philippines has distinctive, exploitable
competitive competencies compared to other countries vigorously
recruiting foreign investors.
In the first quarter, investment
in IT-related services and telecommunications represented in raw
terms about 14 percent, or $32 million, of total investment. That
number appears to belie Roxas' claim of high returns on his department's
focused marketing efforts. However, the purpose of foreign investment,
at its most basic, is to create jobs. And investment in services
is many times more efficient when it comes to creating jobs than
investment in heavy industry, for example.
Some experts claim it is up to six
times more efficient. If that's an accurate estimate, it suggests
that it would take $192 million in investment in heavy industry
to create the same number of jobs that $32 million creates in the
service sector. And there's another advantage. e-services jobs almost
always are higher value added than heavy industry jobs which usually
involve straightforward tasks like assembling automobiles. That
means they pay higher. In fact, a raw call center representative
makes about twice the average starting salary in non-e-service sectors.
That sounds good, but can it be sustained?
Domingo thinks that BPO is the next big growth center, in part because
a number of multinationals are so pleased with their BPO operations
here that anecdotal promotion is beginning to create considerable
positive buzz. For example, Procter & Gamble (P&G) says
its local accountants are "among the best in the world,"
and "the very best in terms of overall performance and in terms
of the depth and array of accounting services offered. They are
number one for the P&G Group Worldwide."
Among the companies operating BPO
centers in the Philippines aside from P&G are Caltex, AIG, Alitalia,
UPS, Maersk, NYK Asiana Airlines, Cypress, and Mitsui.
Engineering and design services offer
other prospects for growth. Like BPO, the Philippines advantage
is being touted by big multinationals already operating here, mostly
from the U.S. and Japan. They include Bechtel, Fluor Daniel, Parsons,
Lear, JGC, Hitachi, Denso, and Yazaki. Fluor Daniel, according to
Domingo, does virtually all of its engineering in the Philippines.
Aside from engineering and design, these companies are also beginning
to use these centers for basic, or core, research and product development
and planning and procurement for major construction projects.
While some may think that even with
these improvements, the Philippines has such a tough, uphill battle
to real prosperity that promoting the country as a hub for anything
is a stretch. But as Domingo points out, a lot has changed in the
last decade in the Philippines. Ten years ago, a mobile phone was
a dream, for instance. Today, there are more than 12 million subscribers
and more SMS messages are sent here every day than any other place
on earth. Ten years ago, there was no Internet access. Today in
urban centers DSL broadband is at least as accessible as it is in
any urban center anywhere. And costs are falling rapidly, and dramatically.
So while it's important to be realistic
about the challenges the Philippines faces, it's also okay to let
a little optimism creep in sometimes, too.
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001), and he is currently
at work on High Visibility: The Making and Marketing of Asian Professionals
into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
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