Monday, March 05, 2007

The "new economy" in our midst

BEST new BPO locator of the year: Dell Philippines. Best midsized BPO company of the year: Leverage Systems Technologies. Most innovative BPO of the year: Transprocure Corp. Fastest-growing BPO company of the year: Teletech. Best BPO employer of the year: Convergys Philippines. And the BPO company of the year: Accenture.

People might be wondering if the brave new world of the “new economy,” a buzzword that has been associated with the information revolution, has reached our shores. We say “yes,” and the companies mentioned above are among the best in our midst, at least for the year 2007.

On Thursday evening the Canadian Chamber of Commerce—in partnership with the Business Processing Association Philippines (BPAP) and other organizations, including this paper—gave out several awards in recognition of their contributions to the economy.

The awards are rightly helping the public become more aware of their contributions because right now this segment of the Philippine economy is giving lots of excitement and promise to young entrepreneurs and workers. It has even started to create a positive impact on other sectors of the economy, including real estate, wholesale and retail, and even food and beverage manufacturing.

Nowhere is its impact more visible than in the property sector. Following the Asian financial crisis, office vacancy rates in the country’s urban centers like Makati and Ortigas went as high as 50 percent. As the “new economy” crept in, office vacancies went down so fast that even property developers were caught nearly napping.

These days, vacancies in prime and grade A office—those really nice and carefully designed office spaces with accreditation from the Philippine Economic Zone Authority—are all of just over 1 percent. That explains the frenetic construction in Makati, as well as in Fort Bonifacio. It’s likely that construction activities will really move faster this year.

If the predictions of its drumbeaters prove true, we are going to see this segment of the economy employing close to a million workers and generating more than $12 billion worth of services exports. At that size, the industry, property consultants say, would require close to 3-million square meters of office spaces. Hence, developers have to rush because if they fail to supply the spaces required by the BPO, the industry might suffer office-space shortages.

Right now, existing supply of offices plus those in the pipeline until 2010 would total 1.6-million square meters. That would mean a shortage of about 1.4-million square meters. It’s a kind of problem this country should be happy to have.

A million workers for the industry might seem too ambitious, but if one looks at the profile of these industries, there are reasons to be optimistic. They are highly labor-intensive. Teletech, for instance, has more than 10,000 employees. Convergys has 11,000. Many others are employing close to these numbers, and the list of companies keeps growing.

We mentioned the winning companies above to highlight how far the Philippines has gone in terms of developing its capabilities in these emerging knowledge-driven industries. The winners came from varied sectors, including software development, procurement-transaction processing, customer care, global management consulting, legal support and publishing, among many other activities. The judges, we have learned, really had a hard time determining the winners, an indication that what we have here in the Philippines are highly competitive and dynamic global players.

It should not be a surprise because way back in 2000, when the Department of Trade and Industry started plotting out measures to attract call centers, there was practically no BPO to speak of, except maybe some animation companies that have been here in the Philippine since the ’80s. Now, estimates from the BPAP indicate that the industry employs about 250,000 people and earns more than $3 billion a year. In 2007, assuming the same frenetic growth it has achieved in the last five years, the industry might yet generate US$4.9 billion.

The term “new economy” emerged in the ’90s as a way to describe the economies of advanced countries that underwent transformation from being industry-led to services-led, driven by information technology. Enthusiasts then thought that with extensive use of information technology, economies would enjoy steady growth and low unemployment. Others came even to declare that the business cycles of boom and bust had ended and that economies, having found Shangri-la, will prosper forever.

That proved illusory with the dot.com bubble in 1995-2000 that saw many technology stocks crashing down to terra firma when it burst. The global recession that followed discredited the “new-economy” prophets. Nevertheless, the term new economy continues to gain currency as global companies took to heart its doctrine that companies should “focus on their core competencies” and outsource the rest through the use of information technology.

In the new economy, profits are supposed to come from company intangibles like brands, intellectual properties, technical capabilities and reputation. Routine functions like back-office operations, manufacturing, and customer care could be outsourced elsewhere, preferably in low-cost locations in the developing countries.

That’s how we came to have all these outsourcing companies in our midst. And their presence is expanding rapidly. It’s new metamorphosis is the knowledge-process outsourcing (KPO) where local MBAs, engineers, and economists perform analytics like risk analysis for global corporations and organizations. And if we continue to play our cards well, we might yet end up duplicating India’s success in this business.

Playing our cards right means that the country should maintain its competitiveness in this sector. There’s no doubt that the private sector is mobilizing their resources to meet the challenge. The Ayalas, for instance, are investing billions putting up the buildings needed by the BPO. The conglomerate is also investing heavily in the industry, especially in KPO. There are indications that Rockwell Land of the Lopezes is also moving in the same direction.

The only kinks so far are in the public sector, where efforts to restore the importance of English in the classrooms through legislation has not been moving. We still haven’t heard of any major initiative to reform and upgrade the country’s education system. We have yet to see how the government is improving the country’s capability in the sciences and mathematics. MalacaƱang, as well as our educators in the private sector, therefore, should look at these issues as soon as possible, so we could sustain the momentum in embracing the new economy.

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