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Responding to Obama’s policy threats to the outsourcing industry

December 11th, 2008 · 3 Comments

Cross-posted from Filipino Voices

With Barack Obama’s impending ascent to being the 44th President of the Unites States of America, a dark cloud looms and threatens to blot out the “sunshine” industry the Philippines has been exploiting over the past decade.

In his website launched as a primer on his policies as President-elect, aptly named Change.Gov, Obama has outlined his views with regards to sending jobs overseas, outside American shores:

  • End Tax Breaks for Companies that Send Jobs Overseas: Barack Obama and Joe Biden believe that companies should not get billions of dollars in tax deductions for moving their operations overseas. Obama and Biden will also fight to ensure that public contracts are awarded to companies that are committed to American workers.
  • Reward Companies that Support American Workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the US; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military. [Change.Gov]

The implications are therefore daunting. The Philippines may lose big given that the US is most likely its the biggest customer for business process outsourcing.

Business Process Outsourcing is, of course, not limited to call centers. While call centers were the primary “spark” that started the industry’s wild-fire spread (and remains to be its largest sector), other services are offered by Filipino outsourcing, including animation, software development, finance, logistics, accounting, and even legal services.

The positive effects of the growth of this sector is likewise far-reaching. When talent was brought to near-exhaustion in Manila, the industry was able to expand to other urban centers like Cebu and Davao, but services soon also rose in areas like Clark, Baguio, Bacolod, Iloilo, and Cagayan de Oro. Its expansion has allowed the Philippines to capture 20% of the English-speaking market ([PDF] as of 2004). It has allowed the Philippines to be third behind India and China, respectively, in terms of contact service outsourcing at least.

However, with this market now threatened by a major shift in US economic policy, it is of utmost importance that the local industry learn to adapt to these threats that may kill off the industry. Needless to say, the threats imminent to us would be similarly threatening to India and China, and it is inevitable that they themselves would respond to these policies once they are enacted into law perhaps in the second or third quarter of 2009, at the earliest.

So how do we respond? Personally I believe that the local BPO industry will benefit from the following:

  • Seek new markets — While the US may be its largest customer, the Philippines will benefit from focusing on other similar English speaking markets, including but not limited to Canada, Australia, and the United Kingdom. The Philippines may be able to benefit as well from learning new language markets (e.g., Japan or Chinese speaking countries), but this would probably be an uphill battle considering the learning curves involved.
  • Competitive pricing — India leads the Philippines when it comes to outsourcing, but they are constantly plagued by increasing salary levels and high attrition rates that are making their services more expensive. It may be difficult to compete with our Chinese competitors, but Filipino companies can take advantage of the skilled-labor problems of India to their advantage.
  • Focus on skills, not just language — The Philippines boasts of its fluent English speaking workforce, but its advantage should not be limited there. Local skills, talent, and innovation should be developed further to create a labor pool that is not only adept at slang and twang, but is likewise genuinely competent at their work. This will open opportunities which would not limit it to th English-speaking or US market.
  • Move the focus away from outsourcing and towards creating products with value — This is particularly true for the software development and animation industries. The dependence on outsourcing revenue limits software developers, for instance, to making software as designed and specified by their foreign clients and counterparts. Instead of following the Indian outsourcing model, Filipinos should instead explore the Israeli software product model, wherein they create web-based or shrink-wrapped products (similar to, say, Google and Microsoft, but not similar in scale) that can earn them revenue. If Filipinos manage to create software products that are truly innovative, the profit margins for this type of development would prove to be much, much higher than that of the corresponding outsourcing model (admittedly, the risks involved would likewise be higher).

I’m sure the Philippine BPO industry can think of more creative ways to be able to adapt and respond to the ever changing global economic climate. Unfortunately, Obama’s policy shift once more underscores just how dependent the Philippines is on the United States. Successfully responding to this challenge will hopefully lead to less dependence on one big customer, and perhaps even develop internal markets so that we won’t be at the mercy of foreign investment and trade.

Tags: Ekonomiya · Industriya · Negosyo · Pulitika

3 responses so far ↓

  • 1 Blogusvox // Dec 13, 2008 at 5:56 pm

    “Move the focus away from outsourcing and towards creating products with value”

    I’m 100% at your side on this one. Software-wise, we have the know-how. Imagination, which we have plenty, is an added bonus.

  • 2 Chino F. // Jan 1, 2009 at 8:57 pm

    If you ask me, we still have a good outsourcing workforce in our home telecommuters. Instead of forcing people to flock to offices, let ‘em work at home. And the government should provide special benefits for those working at home. Why make people cause traffic while jamming towards the offices? Office work is another tool of the corporate slavers. :P

  • 3 Honey // Feb 18, 2009 at 10:57 am

    Obama’s threat on outsourcing companies should be seen as opportunity for the Philippines to get back to industrialization and create more job-producing activities. In that case nothing beats manufacturing. But a radical program of asset and income redistribution should be undertaken as well, like a real agrarian reform, not the CARP (or is it CRAP?). Such measures enlarge the domestic market which local industries can always fall back on during global recessions. Outsourced activities are, by the way, always vulnerable to recessions. By industrializing we should target the creation of industries in which we are competitive, not just in terms of skills but also of technology. Right now our competitiveness is in the form of low wage rates, which in turn depends on a permanent supply of unemployed labor. You can never attain prosperity in this kind of strategy because when the labor supply is almost used up, wages are seen to rise and thus drive foreign investors away to places where labor is cheap. Not a good strategy for economic development.

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