Mong Palatino

blogging about the philippine left and southeast asian politics since 2004

About

@mongster is a manila-based activist, former philippine legislator, and blogger/analyst of asia-pacific affairs.

Dim prospects for Philippine BPO sector
The Philippines’ business process outsourcing sector has been a major contributor to the country’s economy in terms of revenues and job generation. There are more than 600 BPO companies operating in the Philippines which employ almost 400,000 young workers. Last year, the industry generated US$6.1 billion in revenues.
The local BPO sector aims to create 100,000 new jobs this year. It plans to raise US$12 billion in revenues. The government is also confident that the industry will be able to employ one million Filipinos next year.
These optimistic targets may have to be revised in light of the global financial crisis. Since 65 percent of BPO services in the Philippines is exported to the United States, the government should take into account the worsening economic situation in that country. As consumer spending continues to decline in the developed world, various U.S. companies struggling with reduced profits might postpone or cancel plans to outsource some of their business activities.
There are already negative indicators which reflect the many challenges confronting the local BPO industry. For instance, annual BPO investments, which have been rising since 2002, declined for the first time last year as reported by the Philippine Economic Zone Authority.
A major real estate broker complained of decreasing demand for office units from BPO firms. Last year the demand for BPO office space dropped from 250,000 units to 140,000 units. This weaker demand for office space in Metro Manila’s central business district affected rental rates which declined to 30 percent from 35 percent last year.
Lower BPO investment may also be attributed to the failure of the Philippines to retain its appeal as an ideal BPO investment site. While the Philippines remains one of the best locations for BPO investment in the world, it has been surpassed by neighboring countries in terms of offering a better business environment, financial attractiveness, and availability of skilled workers. The Philippines fared lower than Malaysia, Thailand and Indonesia in the 2009 A.T. Kearney Global Services Location Index.
Investors are complaining that electricity rates in the Philippines are now the highest in Asia, even higher than Japan’s. High incidences of corruption and bribery also affect the business climate in the country. The Philippines ranked poorly in the 2008 Corruption Perception Index of Transparency International.
Doing business in the country is more difficult compared to other countries in the region. It takes about 58 days to start a business in the Philippines as compared to only 33 days in Thailand, 24 days in Malaysia, and 50 days in Vietnam. It takes at least 177 days to apply for a business license in the Philippines as compared to only 102 days in
Singapore.
Despite the overall positive impact of the BPO sector to the economy, the Asian Development Bank has discovered that the BPO industry “has low intersectoral linkages or has little interaction with the rest of the (Philippine) economy.” Since most of the output of BPO firms is exported to other countries, the bank notes that the BPO industry “is not a major factor in stimulating production in other sectors of the economy.”
This author is undecided whether to cheer or sneer the report that the Philippines continues to attract BPO investment, because it offers one of the lowest compensation costs in the world. The same report reveals that office rental rates, Internet and broadband costs are also more affordable in the country.
Should we celebrate the fact that Filipino BPO workers are among the lowest paid in the world? Should we identify this as an indicator of the country’s improving performance in the global competitiveness index? Or should we instead assert that the low compensation of Filipino BPO workers is a form of labor exploitation?
Evaluating the prospects of the local BPO sector should include the concrete impact of the global financial crisis in the country. This is crucial to determine the extent of education and business reforms needed to attract more BPO investments. Implementing too many adjustments in the country’s educational and labor laws to address the manpower needs of BPO firms may not be needed anymore if the BPO sector is expected to face a slump this year.
The BPO sector may be a consistent provider of jobs and revenues but it should be ready to accept that prospects for the industry may not be as rosy in the past years.
Related articles:
Call center: Boon or bane?
Hello Philippines: Call Center Industry
The Philippines’ business process outsourcing sector has been a major contributor to the country’s economy in terms of revenues and job generation. There are more than 600 BPO companies operating in the Philippines which employ almost 400,000 young workers. Last year, the industry generated US$6.1 billion in revenues.
The local BPO sector aims to create 100,000 new jobs this year. It plans to raise US$12 billion in revenues. The government is also confident that the industry will be able to employ one million Filipinos next year.
These optimistic targets may have to be revised in light of the global financial crisis. Since 65 percent of BPO services in the Philippines is exported to the United States, the government should take into account the worsening economic situation in that country. As consumer spending continues to decline in the developed world, various U.S. companies struggling with reduced profits might postpone or cancel plans to outsource some of their business activities.
There are already negative indicators which reflect the many challenges confronting the local BPO industry. For instance, annual BPO investments, which have been rising since 2002, declined for the first time last year as reported by the Philippine Economic Zone Authority.
A major real estate broker complained of decreasing demand for office units from BPO firms. Last year the demand for BPO office space dropped from 250,000 units to 140,000 units. This weaker demand for office space in Metro Manila’s central business district affected rental rates which declined to 30 percent from 35 percent last year.
Lower BPO investment may also be attributed to the failure of the Philippines to retain its appeal as an ideal BPO investment site. While the Philippines remains one of the best locations for BPO investment in the world, it has been surpassed by neighboring countries in terms of offering a better business environment, financial attractiveness, and availability of skilled workers. The Philippines fared lower than Malaysia, Thailand and Indonesia in the 2009 A.T. Kearney Global Services Location Index.
Investors are complaining that electricity rates in the Philippines are now the highest in Asia, even higher than Japan’s. High incidences of corruption and bribery also affect the business climate in the country. The Philippines ranked poorly in the 2008 Corruption Perception Index of Transparency International.
Doing business in the country is more difficult compared to other countries in the region. It takes about 58 days to start a business in the Philippines as compared to only 33 days in Thailand, 24 days in Malaysia, and 50 days in Vietnam. It takes at least 177 days to apply for a business license in the Philippines as compared to only 102 days in Singapore.
Despite the overall positive impact of the BPO sector to the economy, the Asian Development Bank has discovered that the BPO industry “has low intersectoral linkages or has little interaction with the rest of the (Philippine) economy.” Since most of the output of BPO firms is exported to other countries, the bank notes that the BPO industry “is not a major factor in stimulating production in other sectors of the economy.”
This author is undecided whether to cheer or sneer the report that the Philippines continues to attract BPO investment, because it offers one of the lowest compensation costs in the world. The same report reveals that office rental rates, Internet and broadband costs are also more affordable in the country.
Should we celebrate the fact that Filipino BPO workers are among the lowest paid in the world? Should we identify this as an indicator of the country’s improving performance in the global competitiveness index? Or should we instead assert that the low compensation of Filipino BPO workers is a form of labor exploitation?
Evaluating the prospects of the local BPO sector should include the concrete impact of the global financial crisis in the country. This is crucial to determine the extent of education and business reforms needed to attract more BPO investments. Implementing too many adjustments in the country’s educational and labor laws to address the manpower needs of BPO firms may not be needed anymore if the BPO sector is expected to face a slump this year.
The BPO sector may be a consistent provider of jobs and revenues but it should be ready to accept that prospects for the industry may not be as rosy in the past years.
Related articles:

2 Responses to “Dim prospects for Philippine BPO sector”

  1. Hmm..
    1.what’s the current projections of economic recovery for the U.S.
    2. Job creation ot higher wages? Is their even a debate at all?
    3. Macroeconomic legislation to improve competitiveness.
    4. wage comparisons to other countries..

    FreeSince09

  2. I thought Id share a quote with you from U.G. Krishnamurti that pertains to your blog, please dont take offense. You assume that there is such a thing as truth, you assume that there is such a thing as reality (ultimate or otherwise) – it is that assumption that is creating the problem, the suffering for you.

    outsource to the Philippines

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