Tuesday, 20 July 2010

Making global investment easier

Written by John Mangun
Outside the Box
Business Mirror

It can be difficult to understand the reality of the world today. We are flooded with information, but too much of that information is contradictory and biased.

It is actually no different here in the Philippines, as the media attempt to simply plug the Philippines into the global situation without looking deeper to understand the reality.

An example. The $4-trillion global-outsourcing business is going to be stagnant in 2010. The call-center business alone is estimated at $1 trillion per year. From that fact, it would be easy to draw conclusions about the Philippine outsourcing industry, primarily that business is going to suffer here. But that conclusion would be wrong. The Philippine industry will grow by 20 percent at the minimum in 2010.

An article from the international financial press lists India first and China second in outsourcing-industry revenue. Those numbers are distorted also, since a large portion of China’s “outsourcing” business is domestic not international. Chinese companies outsource much of their customer service to other domestic firms.

While it is true that the global call-center business is not growing like in the past decade, the Philippines sector is looking at a boom year, with call-center companies scrambling both to open new sites and attract qualified employees. Speaking of employees, which company is the largest private employer in the Philippines? Philippine Long Distance Telephone? San Miguel Corp.? Shoemart?

The largest private employer in the Philippines is Convergys Philippines, a call-center operation. And in 2010, Convergys will expand its work force by nearly 20 percent, while increasing operations at five of its existing 12 call- center locations.

It is important for people to know the truth, the specific truth, rather than to rely on broad and often incorrect generalizations about the economic world.

Nigeria, a relatively new outsourcing player, is building an economic plan for the country, called Vision 20-20-20, based heavily on outsourcing. Read this from AllAfrica.com: “Vision 20-20-20 is the whole set of Nigeria government strategy to position Nigeria economy to be a world-class economy and world power by 2020. Of this whole set of strategy; the role of outsourcing is enormous and critical to the success and realization of vision 20-20-20 goals. To ensure that Nigeria becomes a potential emerging destination of outsourcing, there is a need for the federal government to establish Nigeria Outsourcing Agency.”

Another emerging participant is Egypt. “At the first European Outsourcing Association Awards held earlier this month in Brussels, Egypt was awarded the title of Offshoring Destination of the Year.”

Egypt built a business center 20 minutes from the capital Cairo, primarily to service the needs of prominent multinational and local companies in the field of telecommunications and information technologies. Started in 2003, Cairo’s “Smart Village” caters to IT service companies; the thrust now is to attract multinational call-center operations. The key to Smart Village is that it is designed as a contained business park, with residential and commercial facilities, as well as all appropriate government agencies, to service the global companies setting up shop there.

Look at a typical Philippine call-center account. This account has 500 tax-paying employees earning at least P15,000 a month. The account remits a minimum of $3 million to P4 million per year into the Philippines to pay for rent, power, salaries and the like. But, of course, Philippine call centers are certainly not the solution to the country’s economic problems.

The point, though, is that the government has not focused a master plan even on the outsourcing business that is so important. A project similar to Egypt’s Smart Village could have been in operation long ago, with all the necessary infrastructure, including low-cost employee housing and other support facilities. Instead, these global companies doing business here are forced to roam the provinces looking for locations with adequate infrastructure. One call-center company actually flies prospective employees in from all parts of the Philippines to work in Manila. Other companies pay large bonuses to get employees from Manila to work at their provincial locations. All of this is wasteful and unproductive, and will eventually make the Philippines less competitive.

The Asian Institute of Management recently said, “the government must remove focus on the grant of incentives as investors are more interested on the ease of doing business in the country,” and that is exactly right.

Financial incentives are important, but they are only one of several factors that are essential. In a mere seven years, over 120 companies have relocated to Smart Village, employing 28,000. Within five years, 500 firms will set up, giving jobs to 100,000. Smart Village’s vision is very simple. “To offer a hassle-free business environment.”

The Philippine government must start thinking like private enterprise, instead of like government-policy “experts.” “What do private companies need?” rather than “How can government benefit?” Properly managed, the government can do almost anything. It’s the government!

Government support for the Philippine outsourcing industry has been disorganized and piecemeal through the years. There is not any Master forwarding thinking plan. Too much of the success of our outsourcing business has been in spite of the government, and not because of the government.

Two proposals should be implemented immediately to make this business a little more hassle-free. Employees should have reduced or eliminated income tax on nighttime differential wages as an incentive to work in the dark. Financial incentives should be provided to transportation companies that provide safe and convenient transportation for call-center employees who must travel at night, including setting up transport hubs in the metropolis.

The Philippines is a positive to profit and take advantage of the global economic situation. This will happen when the government creates a specific economic vision, and not just another feel-good nonproductive political statement.

E-mail comments to mangun@gmail.com. PSE stock-market information and technical analysis tools provided by CitisecOnline.com Inc.

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