A Mighty River Of Well-Paying Jobs?

Outsourcing could give the Philippines economy a big boost, but there are major obstacles to overcome

As a Filipina nursing school graduate, Deng Perez has seen nearly all of her classmates emigrate to high-paying jobs in Europe, the Middle East, and North America. Perez always expected she would follow them abroad. But three years ago, she found a way to stay in the Philippines and earn a decent living: The 26-year-old started transcribing dictation of clinical diagnoses by U.S. doctors. Perez has since been promoted and now trains others. "This industry is an alternative for people who otherwise would have to go overseas," she says.

The industry, of course, is outsourcing. The sector now employs some 40,000 Filipinos, a number that has been doubling every year. By the end of 2005, outsourcing jobs in the Philippines are expected to total 100,000. The industry has been a lifesaver for nurses like Perez and for thousands of accountants, engineers, and others. They provide back-office services to multinational corporations, doing everything from giving Americans directory assistance to examining documents subpoenaed in litigation surrounding the collapse of Enron Corp.

Like India, the Philippines has discovered it can profit from corporations cutting costs worldwide. Last year, call centers and other forms of business-process outsourcing, or BPO, generated $500 million in revenues, double the amount of the year before, according to the Philippine Trade & Industry Dept. This year, the country is expected to earn some $800 million. That's still not huge for a $78 billion economy, and it pales in comparison with the $7.6 billion that Filipinos working overseas sent home last year. But with economic growth expected to fall a half-point or more from last year's 4.5%, this rapidly expanding industry is an important driver of the economy. Today, unemployment stands at more than 10%, and some 8 million Filipinos -- almost 10% of the population -- are forced to live and work abroad.

LOST IN TRANSLATION. But if outsourcing is a bright spot in the Philippine economy, it's one that could use some buffing. Most of the services are aimed at the U.S. market, where companies appreciate the English-language skills of Filipinos. That facility, though, is far from universal. Even graduates of schools that teach in English rather than Filipino can have difficulty holding a simple conversation in English, let alone giving technical advice on operating a PC or a power-plant turbine. Also, the industry's rapid growth soon could be constrained by a shortage of qualified workers in Manila. So some outsourcers are casting a wider net across the archipelago in their search for qualified employees. A half-dozen have already moved to Cebu, the country's second-largest city.

Turnover is a problem, too. Initially, as many as half the workers on some teams at AIG Business Processing Services Inc., a unit of the big U.S. insurer, quit in their first year. Some were poached by rivals; others didn't like working nights. AIG has managed to cut turnover in its 400-person shop to a more manageable 15% by setting its sights lower, says local services chief Neil Elias. Instead of recruiting the top grads from the best schools, AIG now looks for candidates with less impressive credentials who are more likely to stick around. "We need to get people who are going to be satisfied with the kind of work we're offering," Elias says.

Competition with India also may hamper the sector. That country of 1 billion, considered synonymous with outsourcing, churns out more than 2 million English speakers from its universities every year. The Philippines, by contrast, has 82 million residents and graduates 380,000 English speakers annually. India's vaunted technology universities mint new engineering, math, and computer-science graduates at a rate of 622,000 per year. Philippine schools turn out far more accountants than engineers. "At the higher levels, we don't have the depth of technical skill that India has, but in accounting and back-office work, we can be strong," says Jim Ayala, executive vice-president of developer Ayala Land Inc.

INTERNATIONAL VISIBILITY. Filipino officials recognize the importance of outsourcing and are doing what they can to give it a boost. Call-center and BPO operations anywhere in the country can apply for tax breaks once reserved for companies located in specific areas. Universities offer call-center courses that include accent neutralization and tidbits of Americana such as the correct pronunciation of Tucson. They're also working to improve the sector's international visibility. While India's success has been helped by the efforts of Nasscom, an industry association that promotes the country's outsourcers, the Philippines has three such organizations that rarely cooperate. Although there has been discussion of merging the groups, the Philippines needs to do more to promote itself.

One reason: Outsourcing leads to greater opportunities. As more foreign companies hire Filipinos to answer their phones, entrepreneurs get more ambitious. Perez' employer, SPI Technologies Inc., started out doing data entry for U.S. clients and is now a 4,000-person operation that handles medical transcription and legal research and produces 300 scientific journals, from copyediting to layout. Now, SPI wants to expand its BPO arm into financial services. "We're always trying to think of other tasks that can be outsourced," says SPI President Ernest Cu.

Any jobs he can bring will be welcome. To see why, just visit SPI's headquarters, located in a concrete building surrounded by shantytowns near Manila's airport. While the tropical sun bakes the tarmac, it's 24 degrees C inside the clean, comfortable offices. "This is a better opportunity than my parents ever had," says 26-year-old Josephine Cinco, who studied dentistry but earns nearly $600 monthly at SPI copyediting English-language scientific journals for Dutch publisher Reed Elsevier.

Such positions also have an important democratizing effect in a country where plum jobs were reserved for the alumni of the best colleges, where standards of English are highest. Now, students from lesser schools are getting a chance to master the international language of business -- and getting a shot at better jobs. "That's a great equalizer for this country," says Gregory Domingo, under secretary for investment at the Trade & Industry Dept. More jobs. Better pay. Growing opportunities in one's own country. Outsourcing may have U.S. politicians shouting insults at each other, but in the poor, troubled Philippines, it represents renewed hope.

By David Rocks, with Girlie Linao, in Manila

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