Wednesday, February 07, 2007

The New Economy is here in the Philippines!

“Subcontracting as many noncore activities as possible is a central element of the new economy. We live in an age of outsourcing. Firms seem to be subcontracting an ever-expanding set of activities, ranging from product design to assembly, from research and development to marketing, distribution and after-sales service. Some firms have gone so far as to become ‘virtual’ manufacturers, owning designs for many products but making almost nothing themselves."

Financial Times, 31 July 2001, as quoted in Sandor Boyson (2006), “Eras of Enterprise Globalization: From Vertical Integration to Virtualization and Beyond.”

ANALYSTS say the inclusion of the SPI Technologies into the Global Services 100 “signals the arrival of an entirely new set of nations providing software and IT services” in the globally expanding outsourcing industry. At the surface, that only one locally owned outsourcing company made it to the list despite the double-digit growth of the cyberservices industry in the last five years seems to make the story less impressive.

What that story doesn’t say is that many of those on the list—24/7 Customer, Accenture, Affiliated Computer Services, Capgemini, Client Logic, Convergis, Headstrong, IBM, NCO, to name a few—are actually doing business here. That should indicate the Philippines is actually getting to be a major player in the business. In fact, NeoIT, a consulting outfit specializing in business process outsourcing, observes in its latest report that the Philippines, together with Russia, is fast catching up with India in the business, particularly in areas like voice services, finance accounting and information technology. It’s something that the country should nurture and be proud of and, certainly, bringing back the prominence of English in the schools, media, offices, corporate world and the social sectors is among the best ways to ensure the cyberservices sector’s continuing growth.

It’s unfortunate, however, that many decision makers and gatekeepers in the country’s politics, economy, educational system, media, labor unions, and other social institutions don’t seem to have any clear appreciation of this exciting industry yet. Just about a year ago, leaders of some left-leaning unions denounced call center work as “dead-end jobs” and “air-conditioned sweat shops.” Others seem to think that BPO jobs are likely just a fad, like the ubiquitous gulaman and sago stalls that used to dot the street corners. More so because—as the Americans are losing jobs to Indians, Chinese and Filipinos—their legislators are likely to craft laws that would prevent the offshoring of some economic activities to places like ours. The cyberservices industry has been growing close to 50 percent per year in the last five years and it seems to be too good to be true for others. These are the reasons perhaps why important initiatives like the restoration of English as the medium of instruction and even the privately initiated programs like the “English is Cool” campaign don’t seem to get traction. Try watching primetime TV and all one can see are inane melodramas featuring lousy actors spewing out horrible Tagalog lines. Yes, we’ve mangled language so badly that on top of ungrammatical English we have fabricated Tagalog words like “ka-pulisan” and “ka-obispohan” (to refer to the police force and the bishops’ bloc).

What many of us have failed to appreciate is that outsourcing is the logical outcome of the on-going enterprise globalization and therefore we haven’t seen the best of it yet. It’s a part of the natural historical progression kicked off by the continuing breakthroughs in logistics and information technology that we can only afford to ignore at our peril.

Right up to the ’80s, companies resorted to “vertical integration” to achieve economies of scale and capture markets. Car companies like Ford, for instance, owned rubber plantations in the Third World; owned railways, testing laboratories, sawmills, schools, hospitals, airplane hangars, warehouses, radio rooms, and even cemeteries for employees to ensure the continued flow of materials. To bring the goods to the market, they have intermodal transport systems (lorries, locomotives, and ships and ports) that operated seamlessly on a global scale.

By the late ’80s, most of the companies that employed vertical integration couldn’t cope with the onslaught of Japanese companies like Toyota that were employing just-in-time and network-oriented business structures. As the Information Revolution raged and the real-time supply chain management systems matured since the mid-90s, more and more companies realized they could actually make greater profits by outsourcing their “noncore” activities to other firms in India, China and the Philippines that could do these better, faster, at cheaper rates. That’s how the country’s outsourcing industry came to be and many are surprised by its rapid growth. We started to feel their presence only in the last five years and yet it’s now a US$3-billion-a-year service export industry.

There is also this old notion that equates wealth and progress with farms and nature being plowed to produce surplus, of factories mass-producing tangible goods for sale to all corners of the globe. The services sector is considered “intangible” and therefore was not seen as a possible driver of economic growth and progress. But India has proven that with its U$23- billion annual revenue in BPO exports, cyberservices could actually be a major source of growth. In fact analysts say it’s the major reason for its rise as a regional economic power in Asia.Without neglecting its farms and factories, the Philippines could do no less. India and China have been so successful in this business for their own good, such that many global players are looking at the Philippines as an alternative site for offshoring to reduce risk. Philippine decision makers should therefore take advantage of this trend and develop strategies to maximize the gains. And certainly, the industry, the government and the academic institutions should really sit down together to work this strategy out. This is a rare opportunity that we simply cannot afford to pass.

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