Can the Philippines become the new regional center for MNCs?

Multinational corporations have located shared services facilities in the Philippines for three reasons, according to a recent study conducted by the Business Processing Association of the Philippines (BPAP) and Hewitt Associates. The number one reason is the talent profile, as survey after survey on the business process outsourcing (BPO) industry tells us. People are at the core of the Philippines’ success.

Incidentally, shared services is a subset of the BPO industry, although many of these firms prefer not to be lumped into the BPO category. Instead, they emphasize that their staff located in the Philippines are an extension of their head offices, noting that employees work directly for the company in full-time positions. They typically report to executives based not in the Philippines but in their world headquarters—except in cases in which global executives live and work in the Philippines.

That’s a development I reported last year. The Hewitt study showed that about 70% of shared services executives in the Philippines report to C-level executives in company headquarters.

The second most frequent reason shared services executives participating in the Hewitt survey gave to explain their decision to locate in the Philippines was infrastructure. By infrastructure, these executives are probably referring to telecom and data infrastructure, which by all accounts is world-class in terms of supporting the operations of the BPO industry. However, during the BPAP-Outsource2Philippines CEO Briefing last week, executives also raised the issue of broadband penetration to private residences.

One executive explained that while he was pleased with the quality of telecom infrastructure supporting his operations, he was considerably less than pleased with the availability of broadband to support the Philippines’ estimated 25-35 million Internet users, about half of whom work in the BPO industry. “We need to be able to communicate with our employees,” the executive said, “and the current state of broadband penetration and reliability” to private residences “doesn’t cut it.”

Telecom executives present for the briefing quickly vowed to address the issue, and thanked executives for the feedback. I’m not sure that the link between employee access to high-speed Internet and the capacity of a telecoms provider to support the BPO industry was clear before. If not, it certainly is now. That’s a message that telecom executives and government regulators should take to heart: Employers want their employees to have access to broadband for business purposes.

The third reason shared services executives chose the Philippines over competing locations for their investment was the favorable business environment. That environment looks to improve even further. At the same briefing last week, Trade and Industry Secretary Gregory L. Domingo told executives, “Government will not interfere” as the industry continues to grow and expand. In fact, he said, “Our role is to remove any obstacles” to growth. Mr. Domingo is already at work delivering on that promise, improving the efficiency of government services with a commitment to provide “good governance across the board.”

Good thing. Competitors for shared services investment are formidable, and include India, Poland, China, Malaysia, and Singapore. There are significant numbers of jobs at stake. Some shared services facilities here have grown to 10,000 employees and more. So far, about 60% of the executives say their companies will continue to scale their operations and add more processes. About 30% will add entirely new functions, and 13% plan to service more locations in their corporate network.

One shared services executive, Guy Mills, senior vice president and general manager for global sourcing at Manulife Financial, believes that the momentum the Philippines has established attracting shared services to the Philippines presents a huge opportunity for the country. Mr. Mills noted that “post 2008 financial crisis, even more MNCs are looking to Asia for growth.”

He suggests that an increased focus on Asia by MNCs means more professional services jobs in the region, including finance and accounting, marketing and communications, legal and compliance, and human resources. Typically, MNCs have located their headquarters in developed urban areas such as Hong Kong, Singapore, and more recently Shanghai. But Mr. Mills asks if that really makes sense.

Hewitt principal Rakesh Malik agreed with Mr. Mills’ assessment that, “Manila is well positioned to siphon-off high-value head office jobs from its wealthy neighbors. Manila has been a leading regional center before… and it can be again,” he concluded. One thing that stood out about the briefing, which included a panel of senior share services executives: These executives have worked in the industry for years, and believe passionately in the Philippines, its people, and their potential. –MICHAEL ALAN HAMLIN, Manila Bulletin

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(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at mahamlin@teamasia.com and follow him on Twitter, @asianpundit; Facebook and LinkedIn, michaelalanhamlin.).