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English Skill Makes Philippines Global Outsourcing Target
By Brad Frischkorn

The Republic of the Philippines: doorway to the world? Companies with global aspirations -- especially IT and computer software firms – appear to think so, as they increasingly line up to hire engineers in the top-ranked business English-speaking nation.

The Philippines has emerged as the No. 1 outsourcing country in recent years, largely thanks to its strong language abilities, cheap labor costs, and relative political stability. The combination has helped the country’s economy to grow at an annualized 7.0% in the second quarter of 2016, the fastest expansion in three years, and the second-fastest rate in Asia, next to China’s. Annual GDP has averaged 3.61% since 1982.

“The economy is steadily growing – to the point that it’s no longer a secret,” says Monchito Ibrahim, Deputy Executive Director of the Philippine government’s Information and Communications Technology Office at a recent June Tokyo technology expo. Together with the Philippine Software Industry Association (PSIA), the country spares little in the way of promotional effort, representing 18 IT and software services firms at the fair.

“A lot of Japanese companies –- especially in IT – are expanding internationally, and they need to have their user interfaces reworked into English, the international language,” adds Mr. Ibrahim, noting that wages average 75% less than in the U.S. for the same position.

The country’s total software industry is worth about $1.1 billion, employing 60,000 engineers and technicians – one of the largest such pools in the region. At least $100 million worth of business is serviced by either Japanese-owned or -affiliated Philippine-based firms. Mr. Ibrahim puts per annum growth at 10% to 15%.

The IT/software outsourcing industry is a dynamic component of the trend in total business process outsourcing (BPO), which has shown a dramatic shift in preference for the Philippines in recent years -- largely at the expense of India.

A mid-2014 report by the Associated Chambers of Commerce and Industry in India (ASSOCHAM) drew attention to sharp losses of up to 70% in outsourcing market shares -- principally in call center and related services -- due to rising domestic costs.

In the coming decade, India could lose up to $30 billion worth of foreign exchange earnings to the Philippines, it said.

Better English skills appear to be contributing to the trend. ASSOCHAM cited that em-ployees in the Philippines speak English fluently with a neutral accent, something Indian personnel lack. Pearson English Business Solutions, a global trainer for outsourcing firms, has consistently ranked the Philippines among the strongest nations in relative global business English proficiency over the past several years, leading the likes of Norway and the Netherlands.

Meanwhile, recent political developments in the Philippines that have drawn international attention may also bolster the nation’s outsourcing appeal. President-elect Rodrigo Duterte appears to be moving on his campaign vow to crush crime and corruption, and has sanctioned the killing of drug traffickers in a bid to wipe out the narcotics trade.

Goldman Sachs concluded that Duterte’s mandate to boost infrastructure spending, cut red tape for business and invest more in farming could lift the country’s potential growth rate.

“We have our own version of Donald Trump in Duterte, so to speak,” says Mr. Ibrahim. “But Duterte’s mandate is clear and more immediate. Fewer drugs and less violence should only be better for business. The Japanese component of the outsourcing market in particular could triple over the next 10 years.”

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Manila's Makati district

“A lot of Japanese companies –- especially in IT –- are expanding internationally, and they need to have their user interfaces reworked into English, the international language." -- Monchito Ibrahim

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