Philippines tries to edge out India for U.S. outsourcing jobs

For investors in the US, the economic wobbles of recent months could spell the onslaught of a recession. But from his skyscraper office in downtown Manila, Danilo Sebastian Reyes, the president of Sitel, a business process outsourcing (BPO) firm that employs some 2,000 people in the Philippines, sees the beginning of boom time.

As fuel and food costs continue to soar, forcing corporate cutbacks, more American businesses are looking to save by outsourcing portions of their business abroad. "For the last three months, there's been an accelerated number of companies that have decided to go into the Philippines," says Mr. Reyes.

That means more overseas workers from India to Poland will be fielding calls for Citibank credit card customers or remotely managing Hewlett Packard's human resources tasks. The Philippines, with some of the highest literacy rates and cheapest wages in Asia, is positioning itself to capture 10 percent of the world's back office work by 2010, which analysts predict will balloon to a $130 billion industry.

Shifting overseas could be a win-win, saving American companies 20 to 40 percent off their bottom line and creating as many as 600,000 new jobs for Filipinos, according to estimates by the Asian Development Bank (ADB).

Corporate giants like America Online and Texas Instruments have been shifting call centers and other back office functions to the Philippines since 2001.

The BPO market has grown by nearly 50 percent a year in the past three years alone, generating nearly $5 billion in revenue last year. That's still only a fraction of the business that India – the global market leader – captures.

But the Philippines is catching up, and today employs some 320,000 people in the sector, where starting salaries average $5,500 a year. That amount is a far cry from the $30,000 an American employee might make, but it's double the national average in the Philippines, according to the ADB.

The outsourcing boom is welcome news for the Philippines, whose economy is otherwise in need of a boost. Last month, the International Monetary Fund (IMF) downgraded the country's economic growth forecast for 2008 to 5.2 percent from 5.8 percent, saying the global economic downturn and rising consumer costs will push inflation into the double digits in coming months. Unemployment, meanwhile, rose to 8 percent in April, up from 7.4 percent in January.

Responding to the IMF, the Central Bank of the Philippines recently cited the BPO market as an economic engine that can keep the country's growth on target. The BPO market's strength, analysts say, highlights efficient partnerships between the public and private sector.

For example, the government has worked closely with private industry to nurture growth, creating scholarships for college graduates to entice them into the market and allocating $500 million for infrastructure that will effectively sprout whole new cities and suburbs in a 600-mile-long 'CyberServices Corridor' throughout the country.

Many are questioning, however, whether the US economic downturn will benefit the Philippines only so much before it starts to hurt.

So far this year, US employers have already cut 80,000 jobs. The US economic slowdown has had a negative impact on the Philippines, which is the US's largest trading partner. Fewer Americans with money to spend means Filipino exports have slumped by 11 percent in the first four months of the year.

Still, Astro Del Castillo, a financial analyst, sees a bright future ahead for the BPO market. He contends that while Filipino exports might be affected, outsourcing will withstand the blows to the US economy.

"Our exposure to the US is around 17 to 20 percent of our exports. It's not much ... really," says Mr. Castillo. Many American companies have asked him to pencil out the potential savings to be made by outsourcing to the Philippines. "They're interested. It's a cost-cutting measure for them," he adds.

Others are less optimistic. As Donald Felbaum, the treasurer of the American Chamber of Commerce of the Philippines in Manila, puts it: "The short term is good for the Philippines. In the long term, if this continues, all budgeting would be affected."