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IT-BPO dodges a (rubber) bullet

“America isn’t educating enough of our people to get American-based companies to do more of their high-value-added work here,” Robert B. Reich, former US secretary of labor, professor, and syndicated columnist recently opined in explaining why US-based multinationals choose to outsource increasingly value-added work to other countries. In Mr. Reich’s view, America’s outsourcing issues are of its own making.

“Outsourcing is irrelevant,” he continued. “The way to get good jobs back is with a national strategy to make Americans more competitive—retooling our schools, getting more of our young people through college or giving them a first-class technical education, remaking our infrastructure, and thereby guaranteeing that a large share of American’s add significant value to the global economy.”

That’s exactly the same argument we make about the Philippines, except in this case, more than a hundred thousand jobs annually are being created in the Philippines’ IT-BPO industry. The reason? After decades of neglect, the Philippines is retooling its schools, getting more of its people the education they need to live productive lives, remaking—albeit somewhat slowly—its infrastructure, and creating dreams of a better life at home, rather than abroad.

But in this election year, many US politicians choose to threaten the progress emerging economies like India and the Philippines have made in the past decade thanks largely to outsourcing by US multinationals. Much of the debate is focused on manufacturing—Apple has 43,000 US-based employees but outsources work to more than 700,000 workers overseas, Mr. Reich observes—but business services have also been caught up in the debate.

The arguments for and against outsourcing will rage throughout the presidential campaign—which ends in November—although few executives, politicians, or voters believe outsourcing trends can be reversed or even marginally alleviated given global competitive pressures. And if America does resolve the problems Mr. Reich laments, the opportunities a more competitive America would generate would make outsourcing even more irrelevant than it already is from a practical, rather than political, perspective.

Perhaps that’s why few commentators—including myself—in the Philippines noticed when the US Senate recently rejected a controversial bill popular among democrats, organized labor, and the unemployed that sought to make it more difficult for American companies to outsource manufacturing or business process work. Despite support from the White House, Senate republicans filibustered the bill into oblivion.

The Business Processing Association of the Philippines (BPAP) welcomed the rejection of the anti-outsourcing bill in a statement earlier this week. If it had eventually passed both houses and been signed into law, the bill would have eliminated tax breaks for companies outsourcing manufacturing and services jobs to other countries, and provided a 20% tax deduction on costs associated with closing outsourced operations and transferring jobs to the US.

However, at least one senator, Orrin Hatch, R-Utah, claimed that there is no tax break for outsourcing, saying of the “Bring Jobs Home Act,” “It’s devoid of serious content because it is of political rather than economic priorities.” The bill failed to muster the votes required to end the Republican-led filibuster and bring it to a final vote. The vote to end the filibuster was 56-42. Sixty votes were necessary to end the effort to kill the bill.

“Outsourcing business services to the Philippines helps make American companies more competitive and profitable,” said Benedict Hernandez, BPAP president and CEO. “Profitable companies hire more workers, both here, and in the United States.”

Although the debate is contentious with an administration under fire for mismanaging the US economy, numerous studies have shown that outsourcing has little impact on job losses; instead, outsourcing can free up resources to create more jobs at home. “Dartmouth’s Tuck School of Business economist Matthew Slaughter, in a study of the hiring practices of 2,500 US multinationals in 2004, found that for every job outsourced, nearly two new jobs are created in the US,” said Hernandez.

In an earlier study Slaughter found that American jobs created by subsidiaries of foreign multinationals almost doubled over a generation, employing 5.4 million US workers, almost 5% of private-sector employment, and paid them 31% more than American competitors. “Outsourcing is a win-win proposition, and we’re glad to see that both Philippine and American companies and our respective workers will continue to benefit from the opportunities it provides,” Hernandez said.

In 2011, the Philippines’ IT-BPO industry generated more than $11 billion in revenue and employed almost 640,000 Filipinos. By 2016, it is expected to grow to $25 billion in annual revenue and employ 1.3 million, according to an industry road map. (Disclosure: My firm is a client of BPAP, and helped draft the IT-BPO Road Map 2011-2016.) “The Bring Jobs Home” act was a rubber bullet fired at the heart of outsourcing and the global economy for political ends.

Unfortunately, it’s unlikely to be the last.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on TwitterFacebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)