Will the sunrise industry banish the sunset?

by Atty. Alex B. Cabrera (The Philippine Star), Mar 25, 2018

We were blindsided, in a way, because we did not know how the US will do it. The US, which accounts for as much as 70 percent of BPO (including call centers) revenue in the country, is whipping up laws and policies, encouraging behavior, and even raising ethical issues to discourage outsourcing outside the US.

There is the US Tax Reform Law that lowered US income tax to 21 percent. This law is a tricky one. The US tax law remained intricate, and some of its provisions now possibly run counter to commitments to the World Trade Organization (WTO). For example, there is, as US tax experts would call it, an “implicit tariff” on imported services. When a big company (with gross revenue of $500 million) or any of its related companies would import services from outside the US, they would need to pay tax of about 10 percent of the cost of that service.

You may say 10 percent is nothing because labor cost in the US can be four or five times more than a day’s wage in the Philippines. But then the rent here is not cheap, technology costs are also high, and training costs are much higher compared to spending for those with American English as their native tongue. The necessary markup on the services also comprises the transfer price subject to the implicit tariff. What a cruel punishment to US firms that globalized to expand and to stay competitive. And not to mention, what a cruel handicap to impose on one of our strongest industries.

Then there is this bill reintroduced in the US Congress that proposes to disqualify those who outsource jobs overseas from US grants and government-guaranteed loans. The worst damage being, that US companies that outsource will impliedly, albeit officially, be vilified. I understand the Philippines and India lobbied against this or a similar bill in 2013 and were heard. But Trump is the antithesis of Obama, and “America first” is now the enemy of globalization.

Then there are articles and commentaries in US media, and lots in social media, that are trumped-up sentiments or misinformation against companies that subcontract offshore, where these companies allegedly pay wages which, by US standards, are below living conditions.

A call center agent in the US is slightly paid better than a factory worker in the US. So a factory worker, if qualified, would gladly trade his sweaty job for a higher-paying and more comfortable call center/BPO job if there were opportunities. These internal opportunities created when jobs go back to the US can be inappropropriately raised as ethical issues for firms that resist in doing so.

In bringing back call center jobs to add to the US’s own booming outsourcing industry, the US either doesn’t care if their unemployment shoots up if artificial intelligence (AI) eventually takes over (at least for the call center jobs), or the US is confident that it can provide the unemployed welfare, which will not be helped by their now lower income tax collections.
Back here at home, there is more trouble for the industry. The incentives for the BPO industry are being substantially reduced, some even removed, under the TRAIN (Tax Reform for Acceleration and Inclusion) packages. The government bets that for the foreign investor, it’s not the fiscal incentives but the Philippine talent pool that is the go-to.

Helping our sunshine industry or not via incentives deserves a second look. The US developments must be really understood before our own legislation is passed. Will other countries that outsource (UK, Canada and Australia) follow the US example? Maybe not, but maybe. Will everything revert back after Trump? Maybe, or maybe not.

Cliché but a meaningful one: the world does not revolve for us. Our sunshine industry that employs about 1.3 million of our people still deserves the help they can get from fiscal incentives, which is some kind of defense from the US initiatives. But that is obviously not enough. As the region is moving more to a knowledge economy, more parts of this still-phenomenal industry should accelerate towards truly becoming the center of excellence, move up the value chain, and deliver on the more complex scope of the work. This will also fend off effects of automation which, I believe, could not in the near future substitute work that requires agile human brainpower. We also need to keep one up over rising BPO hotspots like Indonesia.

I can’t argue with the premise that what got us here won’t get us there – to be competitive in the future. Silicon Valley tech pioneer Mr. Dado Banatao said the academe should teach better math and applied science. Maybe the industry itself can help train, hone, and release to the country their best in the lot to become what they were meant to be in their respective professions. An industry that produces great minds and innovative spirits, even just a few among its many, is a model that may get us there.