The Philippines: An Important Offshore Player
Introduction
With an English literacy rate of 97 percent, a vast and educated workforce, and an affinity to US culture, the Philippines has come to be an attractive destination for the business process outsourcing industry. Its emergence into the industry rose steadily and as of 2005, the country remains an important offshore player with revenues close to 3 billion USD.
It has long been known that the Philippines possesses great advantages when put up against other offshore hotspots. Though the country is often compared to India as other offshore destinations are, the competition will remain a challenge, which the Philippines is definitely willing to undertake. It is inevitable that the Philippines encompasses certain strengths, weaknesses, opportunities, and threats which are a vital source of knowledge in assessing its overall attractiveness as an IT and BPO offshore destination.
Strengths |
Weaknesses |
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Opportunities |
Threats |
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Strengths
English Proficiency
The Philippines with regard to its level of English proficiency has always been set apart from other English-speaking nations. Characterized by the Gartner group as world-class, the level of English proficiency is the Philippines’ primary advantage. With good reason, the Philippines is ranked the third largest English speaking nation with a literacy rate of 98 percent including the fact that 72 percent of the population is fluent. With regard to this aspect, the Philippines is put above any other offshore destination including India. The Filipino people have unmatched verbal skills of clarity, understandability, as well as comprehension. Understanding American idiomatic expressions are significant advantages brought about by its affinity to U.S. culture and the fact that English is the medium of instruction from primary schooling to post-graduate levels. The Philippines also possesses an advantage over India due to a neutral and American-like accent that is easy to understand.
Cultural Affinity
Due to Philippine history as a former colony of the United States, and the process of “Americanization” until this day, the Philippines remains a close and important ally of the United States. As is known, cross-cultural differences pose as a major factor when companies consider going offshore. Filipinos have a natural ability to work with Americans and are often praised by U.S. enterprises for the ease of transition and for the lower upfront investment normally required for cultural and language training. Being immersed and influenced by American culture for over 100 years, Filipinos are used to dealing with Americans and are thereby familiar with professional work ethics, American norms and organizational culture, and understanding as well as usage of idiomatic expressions.
Highly Skilled and Service Oriented Workforce
The Filipino people have been found to be naturally inclined to technology, computer science and programming, as well as the arts. Its workforce is not only technically proficient but had early on achieved the desired level of expertise sought after by U.S. enterprises. As Philippines business processes are patterned after the U.S. model, its workforce has an advantage in industry-specific knowledge. Known also for their artistic capabilities, Filipinos are adept at multimedia and graphic design popularized by its talent in producing Japanese animation.
A significant attribute of the Filipino is his hospitable nature. This innate aspect ricochets into becoming a service-oriented worker. Since time immemorial, the Filipino people have been known for providing extensive service as teachers, nurses and doctors, performing artists and entertainers. These characteristics, combined with their industry-specific knowledge, make the Filipino people diamonds amongst rocks.
Government Support
It was generally perceived that the Philippines lacked in government support. This misconception was retracted with the onset of global awareness. Mindful of the opportunities that the business process outsourcing industry has to offer as well as the advantage and capabilities of the Filipino people, the Philippine government had long put forth several policies proving its continued favor. With regard to technology-enabled service industries, the government has already taken an active role in working with the private sector. The E-Commerce Council was formed to be the governing body in updating national strategies for the IT and communications industry. Special economic zones including benefits for foreign investors such as income tax holidays, and duty-free imports are already in practice; a result of the governments’ support for the industry.
With the increasing awareness of the Philippines’ advantage, President Arroyo continues to harness the potential of the Filipino people. An example of this was the PGMA-TWSP. In October of 2006, the President launched the “Training for Work Scholarship Program.” With the help of the Technical Educational Skills Development Authority, locally known as TESDA, the program aims to generate more candidates for employment. Using an assessment tool called Pro-Speak, potential candidates are tested. Candidates who successfully pass the examination are referred to BPO firms, whereas those rated as near hires will be provided with a PHP 5,000 coupon equivalent to 100 training hours at accredited training centers.
Infrastructure
Benefited by the American colonial era, the Philippines is home to a rock-solid telecom infrastructure only third in Asia after Japan and Singapore. Sufficient zoning results to the majority of commercial businesses in the metropolitan Manila, and advantage in ensuring minimal business interruptions.
Weaknesses
Limited Experience
It is no secret that the Philippines is relatively new in the outsourcing industry compared to India’s record of more than ten years of experience. However, the Philippines shows expertise in the industry-specific knowledge required thereby possessing a great foundation for long-term development and success in the industry. Combined with its advantage in U.S. cultural affinity and unmatched language proficiency, the Philippines is well on its way to achieving greater heights in the ITO and BPO industries.
Migration of Workforce
It is true that since the Marcos Administration’s campaign for development diplomacy, a certain percentage of the potential workforce had migrated. If however one were to look into the history of the matter, former President Marcos initially intended for Overseas Filipino workers to be used as a stop-gap measure to fill the lapse in the economic crisis. The brain drain phenomenon is a global concern that the current government intends to address. This is shown in its enforcement of Republic Act 9225: The Dual Citizenship Law. In a recent study on return migration it was found that the majority of Filipinos in the United States had returned to the Philippines once they had found an opportunity to. With the continued rise of the BPO industry, this weakness can soon be retracted and the Philippines will have the opportunity to tap into the Filipino overseas-trained pool.
Ability to Scale
With the emergence of other countries as offshore destination targets, the Philippines’ relative size and ability to scale we be a cause for concern. With a population of approximately 80 million, compared to China’s estimated 1.2 billion, the Philippines will have to gain an even more significant advantage, which can be attained by producing skilled middle managers. In addition, if the Philippines continues to train and produce higher-value services, it will have a distinct advantage that can easily be weighed out upon considering quality over quantity.
Lack of global awareness
Though the Philippines has made a considerable mark in the outsourcing industries, the global community still lacks in awareness for the distinct advantages of outsourcing to the Philippines, which sets it apart a considerable amount from other current and upcoming offshore destinations. Global awareness will be a vital factor in the pace of market growth.
Opportunities
Business Continuity Planning
Global awareness of the Philippines as a prime outsourcing destination can be further enhanced by process of business continuity planning. The strategy is used by Western firms who aim to minimize geopolitical and environmental risks. By outsourcing to several destinations the risks are scattered and thus minimized. The Philippines can surely be a benefactor of this.
Overseas-trained Talent Pool
Considered a weakness or disadvantage that a certain amount of the potential workforce is going overseas, many have forgotten that there too exists a potential for them to return. Returnees are mostly educated and experienced due to their work in Western countries primarily in the United States. Filipinos like most Asians have a strong sense of patriotism and upon returning to the Philippines could contribute greatly in the demand for experienced management in the industries. With the enforcement of the Dual Citizenship Law, the Philippine government is indeed encouraging Filipinos abroad to return to the Philippines.
Higher-value Service
The talent found in the Philippine workforce is very evident, and can indeed be used as yet another advantage in providing higher-value services. With its unique trait of US-patterned business processes, the Philippines has the opportunity to provide exact services found and results achieved in on- or near-shore destinations.
Retaining Intellectual Property
The Philippines’ artistic capabilities was first realized when Japanese firms started outsourcing its animation needs to Filipino designers. The industry also expanded to servicing the US film industry. Today, some of the most prominent service providers for animation are based in the Philippines - another aspect which sets the country apart from other offshore destinations. Thus it will be a significant opportunity for the Philippines to address intellectual property ownership of the rights to animation characters.
Threats
Overshadowed by India
India’s already developed industry and continued boasting of its experience puts the country in continuous spotlight. The Philippines’ remains threatened by India especially in its pace of growth in global awareness and market share. With India’s continued wage increase however, it is inevitable that firms outsourcing to India will search for other options- a window of opportunity for the Philippines.
Emergence of other Competitors
Along with India, is the fast emergence of other offshore destinations coming into play. The Philippines is bound to face competition form other offshore destinations with significantly larger labor pools such as China. Immediate focus and continued development of Philippine advantages will pose as a vital role in capitalizing on the offshore advantage.
Perception of Political Instability
A significant impediment to the Philippines’ racing growth in the industry is the perception of political instability. With the events following the September 11th attack, the issue of terrorism became one of, if not the primary concern of the international community. With press reports about terrorist activities in the Philippine region of Mindanao, the country’s image especially with regard to geopolitical risks were thought to be unfavorable. Clients as well as numerous enterprises conducting business in the Philippines however, consistently report that business in all aspects remains unaffected by these issues. Though the region of Mindanao is some 600 miles south of the Metro Manila area, the government is answering global concerns effectively. Hand-in-hand with the International Islamic Community, the Philippine government is succeeding in minimizing the unnecessary tension caused by the domestic conflict as well as reinforcing national security.
Conclusion
The Philippines will definitely continue to play a significant role in the competitive arena of Information Technology and Business Process Outsourcing Industries. There are definitely factors to consider when assessing offshore destinations. This study however is a testament to the many distinct advantages that the Philippines possesses, giving it a great leverage over other offshore destinations. With an extreme amount of potential, it will not be surprising if the Philippines moves to being at the forefront of the business process outsourcing industry. Government support in the form of added program implementation and amplified diplomatic relations will be an indispensable factor in escalating global awareness and presence of the Philippines in the industry.