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Philippines challenging as a new offshore location

David Mitchell | Aug. 22, 2008
Despite a number of different initiatives that have been announced recently there are still major challenges to be faced.

The Philippines is trying to position itself as the next major global outsourcing destination, in competition with the major outsourcing powers of India and China. Despite a number of different initiatives that have been announced recently there are still major challenges to be faced.

Ovum logoThere needs to be major investment in the education system in the Philippines, to deal with the anticipated skills shortfall

The Philippines has set out major ambitions in the global outsourcing industry, aiming to have annual revenues of $1213 billion by 2010, according to presentations this week by the CEO of the Business Processing Association of the Philippines Oscar Sanez. As part of that growth the industry will need to find an estimated 420,000 additional workers, to serve the anticipated growth of contracts.

Of course, there will be expansion of the basic call centre operations that do not have high skill requirements. However, there are also ambitions to grow medical and legal transcription services, engineering services and other higher-value outsourcing tasks. For all of the outsourcing activities there are skill requirements for language, IT, management and customer service and the various elements of the Philippine education system need to respond positively here. However, the more specialist skills, and the sheer number of different specialist skills that will be needed, are likely to be more difficult to produce without significant support and investment from government in secondary, tertiary and vocational education.

This support will be much more readily provided if the proposed Department on Information and Communication Technology (DICT) in the Philippines is created, with a remit to increase the level of effectiveness of policy development in the country as has been suggested recently.

Smaller economies in emerging markets need to have focus, and avoid competing with larger economies on cost alone

If DICT is created it should rally the ICT economy around a maximum of four capability areas, aiming to create high-value businesses rather than commodity outsourcing capabilities. The reason for the exhortation that the Philippines needs to focus is two-fold. Firstly, the country is not large enough to compete against India and China on the basis of scale, and so the country needs carefully to select its battles. Secondly, focus brings the ability to charge premium rates, for skills that are rarer. This means the Philippines can avoid being dragged into a low-wage, low-investment spiral.

To date one focus area in the Philippines has been the development of software-as-a-service (SaaS) businesses, including companies such as Morph Labs. A further hotspot of SaaS activity is developing at one of the technology parks in the Philippines.


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