Bullish on BPO but . . .

LAST week, while touring the country’s so-called cyber corridor, President Gloria Macapagal Arroyo bragged that she would be turning over to her successor a $7 billion call center industry that is second only to India globally.

The BPO industry is capable of elevating the Philippines to First World status, she said.

I’ve been hearing this talk of achieving First World status ever since GMA assumed the Presidency from Joseph Ejer-cito Estrada.

The so-called First World countries are those with advanced economies, those with high GDPs (Gross Domestic Product), high per capita income, and advanced industrialization.

Another factor that can be used for measuring First World status is the Human Development Index or HDI. Created by the United Nations Development Program, the HDI goes beyond GDP to a broader assessment of a country’s well-being. The HDI assesses our standard of living, literacy and life expectancy
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The Philippines ranked 105th among 181 countries in the UNDP’s HDI Report of 2009. That puts us somewhere in the middle, or in the “medium human development” category.

Personally, I think what matters more than the label “First World” is reducing poverty in the country significantly, and generating employment and capital for startup businesses, so Filipinos can enjoy a decent living right here at home.

Can and does the BPO sector help in this regard? Yes, surely. Does it help significantly enough? Well, some would disagree with GMA.

For instance, the World Bank considers the boom in the BPO sector a failure on the part of the government to develop sectors that would have been effective in reducing poverty in the country.

In its East Asia Update, the World Bank said that while the services sector in the Philippines is larger than say China or Indonesia, the growth is not significantly inclusive considering that one of the biggest components of the services sector—the BPO industry—focuses only on employing educated and skilled individuals.

World Bank-Philippines chief economist Eric LeBorgne said the government should invest more in improving the country’s business climate, infrastructure, education and fiscal consolidation.

The BPO boom masks the underinvestment in sectors like industry or agriculture. Public investment for infrastructure like agriculture and transportation is lacking, the WB report said.

The BPO boom also masks the high underemployment and low productivity among employees in urban areas.

Policies need to be pursued to facilitate the emergence of other higher value-added and high-productivity services and manufacturing, the WB said.

Employees in the BPO sector belong to families who cannot be considered poor or near poor, the WB added.  BPO employees only contribute to poverty reduction indirectly through tax collection.

Also, overall the local BPO industry employs only about one percent of the country’s total workforce. It is aiming to clinch at least 10 percent of the global outsourcing revenues and employ one million people by 2012.

The WB noted however that recruitment has been a serious problem in the BPO sector. For every 100 applicants, only a small percentage can readily be hired and most applicants need to be trained in English or technical matters.

“The education level of these applicants does not make them readily trained for BPO sectors. The government needs to improve the quality of the education system,” LeBorgne said.

GMA mentioned that, indeed, a lot needs to be done for the country to catch up with India, the number one BPO destination globally, with around $9 billion generated annually. Certainly, education is one of the things that needs to be improved.

There’s really no time to lose, because other countries are catching up. There are new emerging offshoring destinations whose governments are implementing aggressive programs and incentives to entice more investments in their IT-related sectors, a global study of PricewaterhouseCoopers showed.
We are talking about China, and other countries in Eastern Europe and Latin America, which have various support programs to gain higher shares in the global offshoring business.

PricewaterhouseCoopers said these emerging destinations are now starting to take away more BPO clients and investments from the large multinational US- and India-based firms.

“This growing competition among countries, cities and providers has transformed the outsourcing industry into a global race for market share. It has reached national policymaking agenda as governments provide incentives to attract outsour-cing businesses,” said PWC Philippines chairman and senior partner Judith Lopez in their latest survey.

China, for example, designated 20 cities as outsourcing hubs to attract more international investments and has provided them with tax breaks, labor-hour systems and employment subsidies.

Because of this, Lopez said, more and more US and European companies are outsourcing software and IT services to Chinese service providers.

Aside from tax breaks, Lopez said investors are looking for relaxed regulations, cheap labor cost and low rent.

While the Philippines is still working on improving its incentives schemes for the BPO industry, I don’t think we could ever go as “cheap” as China without violating the country’s labor laws.

What we could do is improve on our one competitive advantage, our highly trained English speakers. But remember, the Chinese are fast learning English as well. –ERNEST F. HERRERA, Manila Times

ernestboyherrera@yahoo.com