The Philippines Competitive Advantage: IT Services Hub of Asia

Five years ago, the Philippines, through the Department of Trade and Industry, began its “Make IT Philippines” campaign and packaged the country as “E-Services Hub of Asia.”

 

The Philippines is one of the most aggressive country players in targeting the outsourcing market in USA, Europe and neighboring Asian countries. Its positive track record in back-office services was used in marketing the country – unleashing a best kept secret.

 

Worldwide spending on BPO services is expected to grow to US$1.2 trillion in 2006, according to International Data Corp. Estimated revenue in Philippines today is pegged at US$2.3 billion. We are more than ever challenged by international competition. As globalization and the borderless economy emerge, the battle for the foreign investment cake and outsourced projects are fierce.

 

From trade missions to outsourcing exhibitions, the Philippines wave the flag in Asia, Europe, and USA to announce the Philippines outsourcing pitch.

 

As a country, we are strategically located and our time zone allows a 24 hour work shift compliment to Western countries with its 13 to 15 hours time zone difference. We are accessible by air within four hours to any Asia capital such as Japan, Korea, and Singapore. Companies that have partners or location in the Philippines can maintain round-the-clock work progress. The country is very democratic and most liberal in terms of press freedom in Asia.

 

Telecommunications Infrastructure

The liberalization of the Philippines’ telecommunications infrastructure paved the way for affordable cost of Internet access and similar facilities. E1 connections are available from the US to the Philippines at US$2,000 per month. There are at present 11 international carriers, 5 nationwide cellular operators, 5 nationwide long distance providers. The country has a capacity of 10 million phone lines where 3.5 million of such is in use. Cellular phone subscribers increased to 33 million from 9 million in 2002. To add, the Philippines was dubbed as the SMS text messaging capital of the world whose volume of messages remains one of the highest in the world.

 

Digital microwave radio system, digital fiber optic network, broadband network is also laid out to cover almost every major city in the country.

 

Human resource

The most important asset that the Philippines has to showcase to the rest of the world is its people and being the 3rd largest English-speaking country in the world. The educational system of the country was set up by the Americans when the Philippines was still a colony from 1898 up to 1945. From entering kindergarden to college, the medium of educational instruction is American english. This resulted to the Filipinos excellent grasp of the English language that has remained the medium of instruction from pre-school up to post-graduate universtiy.

 

More than 95% of Filipinos are Catholic and is the only Catholic dominated country in Asia. Filipinos value college education highly and is considered as an important legacy that a parent can give to children. Our Spanish and Asian upbringing makes the Filipino naturally hospitable, caring, peaceful, and with a patient temperament.

 

The country produces 380,000 college graduates a year. Around 70,000 thousand are in the information and communications technology field and around 105,000 in IT-enabled accounting and finance field. The educational institutions in the country are striving to remain updated with the latest technologies in order to produce competent workforce.

 

The Filipino worker is a seeker of job security and puts high importance to career growth. Has excellent work ethic – loyal, polite, and respectful to its superiors. They are flexible in working hours and views responsibility as an opportunity to acquire knowledge and skills.
Outsourcing Record

 

More than 8,000 companies have been outsourcing knowledge based work to the Philippines such as America Online, Andersen Consulting, Barnes and Noble, Caltex, Citibank, Fluor Daniel, Manulife, Morgan Stanley, Northwest Airlines, Procter and Gamble, People Support, to name a few.

 

The country has always been utilized as well for business process outsourcing where you’ll find companies doing litigation support, travel services, insurance processing, scholarly publishing, financial services content conversion, loan processing, and other shared services, to companies such as Elsevier Science, Blackwell Science, Microsoft, Nature Publishing, Lexis-Nexis, AIG, International Red Cross, AlItalia, Great Plains Software, Fujitsu, Accenture, Headstrong, NEC, Simteria, Trend Micro Labs, Sea Land, among others.

Creative cartoon and animation work are also done in the Philippines from major studios such as Hanna Barbera, Disney, Cartoon Network, Toei, Dreamworks, Pixar, and Warner Brothers. Some popular animation work done in the Philippines includes Flinstones, Atlantis, The Incredibles, Dragon Ball Z, Iron Giant, Lilo & Stitch, among others.

 

Contact or call center sector is currently the fastest growing sector in the country employing nearly 80,000 personnel. Its estimated target revenue in 2005 is US$1 billion from US$800 million in 2004. Some of the big names in this sector are PeopleSupport, Convergys, Sykes, eTeleCare, among others.

 

Incentives
The government also has various initiatives and incentives to attract US companies to put their offshore offices in the country. Cost of operating business in the Philippines can contribute 35% to 50% cost savings compared to US business operations cost. Although doing business in the country may not necessarily be the cheapest in the world, but offers high quality resource that can be relied upon. Expatriates also finds the Philippines quality of life to be very attractive where at present, more than 100,000 of them are living here.

 

Value of labor in the Philippines is not the cheapest in the region but with the Filipino’s inherent cultural advantage, it has become the preferred choice. Software developers with 1 to 3 years experience are paid from US$300 to US$700 per month. Call center operators are paid from US$200 to US$700 per month excluding incentives.

 

The Department of Trade and Industry I.T. Business Plan identified six priority areas and niches for promotion that includes contact centers, business process outsourcing, software development, animation, medical transcription, and engineering design.

 

To spark its growth, the Investments Priorities Program (IPP) of the government was revised to cover IT and IT-enabled services and ICT support services located either outside of Metro Manila or in identified I.T. hubs. Incentives are regularly reviewed and updated to encourage the flow of foreign and domestic investment in the country.

 

Incentives include: 3 to 6-years income tax holiday (ITH) for IT projects; tax and duty exemption on imported capital equipment; tax credit on the purchased component of locally-produced equipment; additional deduction on labor expense and infrastructure works; net operating loss carry over; accelerated depreciation; deferred imposition of 2% minimum corporate income tax; and investment/reinvestment tax allowance.

For service exporters, ecozone/freeport enterprises: 4 to 8 years income tax holiday (ITH); special 5% tax rate after the lapse of ITH; tax and duty exemption on imported capital equipment; unrestricted use of consigned equipment; additional deduction for training expenses; deduction for labor expenses; exemption from wharfage dues and any export tax, duty impost and fees; permanent resident status for foreign investors and immediate family; employment of foreign nationals; and simplified custom procedures; exemption from 10% input VAT on allowable local purchase of goods and services.

 

For regional operating headquarters: only 10% tax payment on taxable income; exemption from contractor’s tax; exemption from local licenses, fees, dues and imports or any other local taxes and burden except from real property tax; and tax and duty-free importation of training materials and equipment without prior BOI approval.

 

Legislation
The country also has an E-Commerce Law or Republic Act 8792 that will protect the interest of outsourcers and I.T. foreign investors in ensuring that there’s a legislation that they can fall back on, in case there’ll be legal disputes. Furthermore, the law has been tested and was used to successfully convict a hacker lately.

 

At present, numerous guidelines are being developed to further provide clarification on the scope of the E-Commerce Law. At the same time, government agencies are mandated to implement e-commerce and to issue guidelines, after proper public consultation, to facilitate the delivery of frontline services using e-commerce.

 

On the right track
The emphasis right now is to push all outsourcing players in the country to fulfill and deliver the requirements they committed to their clients. The more success stories, the higher probability for us to get sustained investments and projects in the country.