Page last updated at 11:43 Asia/Manila, Tuesday, 14 March 2017 PH
After studying closely the IT-BPM sector over at least the last ten years, I am not worried a bit that a Trump presidency poses any danger to the sustainability of this sector that by 2018 can be the largest foreign exchange earner for the Philippines, surpassing the remittances from Filipino overseas workers. In road shows to twelve U.S. cities over a period of three years, arranged by former Philippine Ambassador to the U.S. Jose Cuisia, Jr., I heard time and again from U.S. business executives that Philippine IT-BPM workers have significantly helped them to compete in the global market by bringing down the costs of business processing and shared services. That is why they completely ignored the oft-repeated threat of President Barack Obama “to bring back jobs to the U.S.” There is no reason why they will treat the same posturing of President-elect Donald Trump any differently. The only way that they can protect their bottom line in a slow growing economy is to bring down their costs of operations.
Helped especially by the late Jesus (Gigi) Zulueta, who founded ZMG-Ward Howell and was the most prominent Filipino among the executive search CEOs in the ASEAN region—our team was able to present incontrovertible data showing that it would be counterproductive for any political leader in the U.S. to prevent U.S. corporations from outsourcing business processing and knowledge processing services to a country like the Philippines with a young, growing, and English-speaking population. I can still vividly see the Power Point Presentation of Gigi describing the Philippine Talent Pool: More than 500,000 college graduates yearly; in accounting services alone, there is an addition of more than 7,000 CPAs yearly; proficiency in English and ease of learning other languages because of the multilingual culture of the Philippines; affinity with Western (especially U.S.) culture that facilitates interaction with Western customers; highly trainable and cost-effective; and high level of commitment and loyalty. Very striking was the comparison he presented of the labor costs for English voice outsourcing. Among the Tier 2 cities of the U.S. the cost of a call center agent is $70,000 to 72,000 annually compared to $15,000 to 16,000 in Manila (and even lower in such second-tier cities as Dumaguete, Iloilo, Baguio, etc.). Only Delhi has a lower cost of $14,000 to 15,000. These were figures from 2010 to 2012. Since inflation in the Philippines has been very low over the last few years, the cost differentials would not have changed significantly.
It is a no-brainer: no company in the U.S. would decide to bring back jobs to American shores if it wants to maintain its competitiveness. Donald Trump would still have enough business sense not to apply draconian measures to force U.S. corporations to do what is clearly against common sense. Besides, the U.S. President would have enough advisers among his fellow Republicans who would have the interest of American business at heart. Finally, the more friendly relationship that is expected between President Duterte and President-elect Trump could convince the latter to avoid harming the Philippine economy by applying extreme protectionist measures, which not even his Democratic predecessor Barack Obama was able to pull off, despite threats to the contrary. If at all, the protectionist measures will apply to manufacturing industries that will be pressured to relocate from China to the U.S. Those unemployed in the U.S. are more fitted to manufacturing jobs than to services, which require human relations skills in which Filipinos have a competitive advantage. In fact, the special skills of Filipino professionals in English pronunciation and their non-confrontational and friendly demeanor explained why the Philippines surpassed India (with a population ten times that of the Philippines) in customer interaction services more than a decade ago.
Whatever the political noise coming from either the Duterte or Trump Administration, we should not lose sleep over the future of the IT-BPM sector. I strongly support the optimism of the Information Technology and Business Processing Association of the Philippines (IBPAP) which recently has projected the industry to grow in the next six years by an annual rate of 9.2% so that by the end of the Duterte Administration in 2022, the sector will be earning close to $40 billion, accounting for 15.5% of the global market (from 12.6% in 2016). The growth in the coming years would represent a slow down from the 17% annual increase in the last six years, considering that growth will be on a larger base and that the global economy will be grappling with recessionary forces, especially in the EU and Japan. In fact, in my opinion, the U.S. can still suffer another recession if the Trump Administration turns overly protectionist. Slower growth in the U.S. will actually put more pressure on U.S. corporations, both large and small, to cut down costs by outsourcing more of their business processes and shared services. The Philippine IT-BPM sector benefits both ways: whether bullish or bearish, the U.S. economy will increase its demand for Philippine IT-related services.
In 2016, Voice BPO accounts for about 66% of total revenue from the sector. This segment will grow less fast than non-voice services so that by 2022, non-voice will account for 42% of the total. The future of the industry is in Knowledge Process Outsourcing as voice-oriented services will be threatened by increased automation and the practice of millennials to obtain information directly from non-voice digital sources. The fastest growing segment is Health Information Management and Care which is growing at an annual rate of 32%, followed by Information Technology Outsourcing (IT0) which is growing at 20% annually. The structure of the work force (currently at 1.15 million) will also be shifting towards more highly skilled professionals as the industry climbs the value chain. By 2022, the total employed in the sector is estimated to be at 1.8 million. The IBPAP projection indicates that some 73% of the workforce will be engaged in medium and high-level skilled jobs in 2022 from just 53% in 2016. Low-skilled workers will account for only 27% by 2022 (from about 50% in 2016). Thanks to a very pro-active stance being taken by the IBPAP in working with the recently inaugurated K to 12 curriculum in secondary schools of the Philippines, the low-skilled workers (like call center agents) can be more cost-effectively and efficiently produced from among the graduates of senior high school (Grades 11 and 12). The economy can avoid the waste of using college graduates (such as nurses, accountants, lawyers, etc.) in these low-skilled jobs. (To be continued)