Philippines: Outsourcing and Economic Growth

2006

Mark Turner

President Arroyo has not been having a good year on the political front. She has been battling political instability, concerted opposition to her proposed constitutional changes and consistently negative approval ratings. But she can perhaps take comfort from the economy's performance. The forecast growth in GDP for 2006 has been revised upwards to 5 per cent and for 2007, 5.3 per cent is predicted. This will mean average annual growth of about 5.5 per cent over President Arroyo's term in office. One welcome result of the growth is a significant reduction in poverty levels, although at 24 per cent the figure is far higher than should be expected from a middle-income country.

When the economic statistics are more closely examined it can be seen that remittances from overseas workers continue to rise while information technology exports have also surged. Another area in which the Philippines has been enjoying considerable growth goes by the alternative names of 'offshoring', 'international outsourcing' or 'business process outsourcing'. These labels cover activities which are undertaken on behalf of foreign companies from rich countries, in the Philippines case especially the USA. The specific activities include call centres, legal and medical transcription services, financial services such as 'backroom' accounting and bookkeeping, animation and software development.

Outsourcing growth has been dramatic especially in the prime activity, call centres. The Department of Trade and Industry statistics show outsourcing sector income to have grown from US$350 million in 2001 to US$1.6 billion in 2004. The high growth rates have been maintained, and in 2006 the outsourcing industry is expected to generate US$3.8 billion in revenues and to employ over 336,000 workers, up a massive 103,000 from 2005. The 2010 target for all outsourcing activities in the Philippines has been set at US$10 billion, a figure which is widely viewed as being realistic in a global outsourcing market which is expected to reach US$180 billion by that year.

But the unexpectedly rapid growth has highlighted a problem, which may hold back the outsourcing boom. The problem is a shortage of suitably qualified recruits, a matter which itself raises questions about the efficacy of the Philippine education system and the continued predilection of Filipinos to go abroad in search of work. The once much-vaunted Philippine education system has come under considerable scrutiny and criticism. English proficiency is a key requirement in call centres and even in other professional areas, but according to a Business World report there is a 'deteriorating aptitude for the language' in Philippine schools, colleges and universities and a declining quality of graduates. The proliferation of educational institutions providing poor quality education has also been identified as a potential obstacle to growth while the education system has been slow to react to the outsourcing industry's needs. The government has moved more swiftly to address the industry's concerns and has allocated US$9.8 million for outsourcing training. However, this only serves to emphasise the overall problems of declining quality in the Philippine education system, a situation if not arrested and reversed will have adverse consequences not only for outsourcing, but for the economy as a whole.

WATCHPOINT: Will the outsourcing industry be able to maintain its rapid rates of growth or will it be held back by skill shortages?

 

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