40 Million Jobs Up for Grabs

Alan Blinder, Princeton economics professor and former vice-chairman of the U.S. Federal Reserve, has provided updated estimates of how many of the 140 million jobs in the world's largest economy could be offshored.

Hold your chair -- his new estimate is that between 30-40 million jobs (22-29 percent) could move outside of the country, versus about 1 percent of U.S. jobs today. Blinder is not saying that that many jobs will go to poorer countries; the actual figure will for sure be lower. But it shows the potential bonanza awaiting developing countries, and the massive disruption that could hit the American labor force.

In a recent paper (Blinder, 2006), I argued that the migration of service sector jobs from the United States and other rich countries to other (mostly poorer) nations, while a minor phenomenon to date, is likely to become a major one in the coming decades—perhaps extensive enough to constitute a “new industrial revolution.” While the movement of manufacturing jobs abroad is a decades-old story, the phenomenon of service sector offshoring is a relatively new wrinkle that has been enabled by two majordevelopments of fairly recent vintage: stunning advances in computerized telecommunications technology (e.g., the Internet), and the entry of several “new” countries (principally India and China) into the global economy since the 1990s, and especially in this decade.

We've already seen what has happened in China, which has become the workshop of the world because its manufacturing costs are a fraction of those in the U.S. or Europe. In the process whole industries have been hollowed out.

Blinder points out in an earlier paper that the potential for American service jobs moving abroad is greater. The same cost differential that drove manufacturers to locate in China will drive service companies to locate in developing Asia; just look at this example: U.S. minimum wage of US$5.15 an hour is what a worker in the Philippines earns in a day. In other words, the migration of service jobs out of the U.S. to the rest of the world is just beginning.

But I believe that service-sector offshoring will eventually exceed manufacturing-sector offshoring by a hefty margin—for three main reasons. The first is simple arithmetic: There are vastly more service jobs than manufacturing jobs in the United States (and in other rich countries). Second, the technological advances that have made service-sector offshoring possible will continue and accelerate, so the range of services that can be moved offshore will increase ineluctably. Third, the number of, e.g., Indian and Chinese workers capableof performing service jobs offshore seems certain to grow, perhaps exponentially.

The scarier part for Americans is this: Binder has argued in this paper that education will not be the bullwark against a job going to a lower-cost place.

For example, it is easy to offshore working in a call center, typing transcripts, writing computer code, and reading X-rays. The first two require little education; the last two require quite a lot. On the other hand, it is either impossible or very difficult to offshore janitorial services, working in a fast-food restaurant, college teaching, and open-heart surgery. Again, the first two occupations require little or no education, while the last two require a great deal. There seems to be little or no correlation between educational requirements (the old concern) and how “offshorable” jobs are (the new one).

Support for PeopleSupport

Is it time to buy PeopleSupport, now that concerns about its loss of client Vonage ($14 million of revenue in 2006) led to a steep drop in its stock price? Or is it time to hang up on Chairman, CEO, and President Lance Rosenzweig?

Tasha Subedar's posting on Seeking Alpha has this:

Further, PeopleSupport sports a pristine Balance Sheet with $140.5 million in cash / securities (~5.75 per share) and no long term debt. This provides the Company with the much needed gun-powder to make investments in infrastructure as well as to make opportunistic acquisitions to broaden and complement its current capabilities and service offerings.

With its 38% drop, I believe that expectations have reset, and this results in the potential for tremendous upside. Note, also, that PeopleSupport would make a very attractive acquisition candidate for some of the larger BPO / Contact Center players, especially after last Friday's drop.

Fundamentally the long-term growth story has not changed a bit since PeopleSupport priced its secondary offering at $20 per share in November, 2006. BPO is here to stay and PeopleSupport represents one of the brightest prospects to continue to ride this strong secular growth theme.

Over at the Motley Fool, Rich Smith has this:

I must admit -- after reading those comments, I'm starting to get interested in PeopleSupport myself. Despite disappointing analysts with its fourth-quarter earnings and Q1 2007 guidance, the firm is growing its revenues rapidly, already
generates free cash flow, and has 41% of its market cap backed up with cash in the bank. Combine these strong fundamentals with a business sitting squarely in the middle of a long-term trend towards outsourcing in an increasingly "flat" world, and PeopleSupport looks like a strong contrarian pick to this Fool.

And finally, here's Frank Lara at 24/7 Wall Street:

Cry-babying aside, outsourcing is going to keep happening, so it's time for us to make some money off of the companies raking in the cash. PeopleSupport is a Business Process Outsourcing (BPO) provider - they reduce costs, improve performance and increase revenues for their customers with the majority of their services being performed in the Philippines. They brought in $62M in revenue for 2005 and $110M in 2006. PSPT is making a nice little profit, $22.8M in net income for 2005 and $14M. Their stock is trading near its 52-week low at under $12 a share and just fell from the $20's a few weeks ago.

Read PSPT's discussion on its latest quarterly earnings here.

ETEL Makes the Call

eTelecare Global had a decent debut on the U.S. stock market, climbing from its IPO price .

Shares of eTelecare Global Solutions Inc. (Ticker symbol: ETEL), a Philippines-based outsourcing firm, rose as much as 16 percent in their U.S. stock market debut on Wednesday, bolstered by prospects for continued growth for the offshore business process outsourcing industry.

Despite a declining broader market dampened by tensions with Iran and concern about the U.S. housing market, the company's American depositary shares opened up 2 percent at $13.75 before climbing to $15.75 in late-morning trading on the Nasdaq. Shares later returned some of the early gains, slipping to $14.80.

"This is a major business with big clients," said Francis Gaskins, president of IPO Desktop, an independent research firm based in Los Angeles. "Two other companies already opened the door for IPOs in the outsourcing business and this one is trading at a discount compared to its competitors."

While less spectacular than the 2006 IPOs of Indian competitors, it was good given the state of the U.S. markets, as one observer noted.

The company on Wednesday priced 5.5 million American depositary shares at $13.50 a share, raising $72 million with underwriters Morgan Stanley, Deutsche Bank Securities and Robert W. Baird.

The IPO opened at $13.75 and rose about 8% to end its first day of trades at $14.55.
"eTelcare is trading very nicely after a small initial premium," said Scott Sweet of IPO Boutique. "This is especially notable given the overall weakness in all the markets, and the geopolitical events that are contributing some anxiety to the traders."

Several BPOs have grown by acquiring other shops (i.e. ePLDT's SPI) in a bid to bulk up fast. Now that it has a new form of currency to exchange for other companies, what will ETEL be buying?

PeopleSupport, Take 2

PeopleSupport (PSPT) is busy adding capacity, after a stellar year when the BPO led many of its competitors in the growth league. This March, though, its stock was hit hard after it lost a major customer, Vonage.


Here's the number of seats they plan to have by the end of the year (the 3rd country option not yet finalized).

Location______2006_____2007______ Change
Manila________3,450_____ 4,050______ +600
Cebu_________1,700______2,300 ______+600
Baguio___________0______1,000_____+1,000
Costa Rica______400________400_________0
3rd Country_______0_______500______+500
Total_________5,500_____8,250_____+2,750


Download the presentation here.

For the hundreds of thousands of graduates from Philippine colleges who speak English well, it's all good news.

Managing Employees

Where would you rather be a manager: in the U.S. or the Philippines? See this tidbit from Investor's Business Daily on the upcoming IPO of eTelecare (ticker symbol: ETEL).

Like other BPOs, eTelecare suffers from a high employee attrition rate. Among workers who completed the training program, 6.7% leave every month in the U.S. branch and 1.7% in the Philippines. The ability to attract and retain qualified people is especially crucial for eTelecare since the quality of service is its main selling point.

The BPO business is highly competitive, and new players continue to spring up. Since cost-cutting is the main reason for their existence, there's always pressure on margins. The competition also extends to the search for workers, who are in a position to demand higher wages as their number of potential employers goes up.

The article suggests ETEL will do well:

Last year two BPOs, WNS Holdings (WNS) and ExlService, (EXLS) pulled off successful initial public offerings. Both of them are Indian. ETelecare will test Wall Street's interest in a slightly different model, based on offering higher-end, more sophisticated telephone services. The firm does this not only through its choice of country, but through its approach to training, managing and quantifying employee performance.
"Although business processing outsourcing is not a new concept, eTelecare Global Solutions . . . has changed the methodology and dynamics of this type of business," wrote Scott Sweet, principal researcher in IPO Boutique, in a report on the company.

Just don't mind the error in the description of Alfredo Ayala, which confuses him with Jaime Zobel de Ayala:

THE MANAGEMENT
Alfredo Ayala, Chairman
He's been chairman since 2000 and was CEO from 2004 to 2006. Currently, he heads Ayala Corp., a holding company with investments in various businesses, and is CEO of Ayala Corp. subsidiary LiveIt Solutions. He holds an MBA from Harvard Business School.

Text CC Engine, Take 2

Economists at the Asian Development Bank nuanced their view on the Philippines.

"The Philippines has to learn how to walk on two legs," ADB economist Jesus Felipe told a briefing to release the bank's Asian Development Outlook 2007, referring to the need for the country to build a strong industrial base to support the economy.

He said while the services sector has been a major driver of economic growth in recent years, the Philippines cannot simply bypass industrialization. He noted that countries such as China and South Korea grew quickly because they increased industry's share of economic output and employment.

"It is highly unlikely that the advent of BPO services signals a paradigm shift that will put the Philippine economy on a higher trajectory," the ADB said.

Most revenue in the Philippine BPO sector comes from call center operations, with only 13% coming from information technology-related work, compared to 70% in India.

PeopleSupport

Here's what's happening on the microeconomic front. PeopleSupport (Nasdaq symbol: PSPT), one of the BPO stalwarts driving the economic expansion, has 7,500 employees in the Philippines. How fast is its business growing? Check out their 2006 earnings report:

For the full year 2006, PeopleSupport reported record revenues of $110.1 million, an increase of 77% from $62.1 million reported for the full year 2005.

The fourth quarter of 2006 was its best ever:

Revenue in the fourth quarter of 2006 was a record $31.0 million, an increase of 82% from the $17.0 million reported in the fourth quarter of 2005.

Of course, such rapid growth can't be sustained. The company expects its growth rate to moderate to about 27%-31% in 2007 (full-year revenue of $140 million to $144.5 million).

Here's the thing that other industries would kill for. The growth constraint on PeopleSupport, like all the other BPOs in the country, isn't its product line up or the presence of fierce competitors. It's simply not being able to find enough qualified personnel. That's the kind of situation many managers, and business owners, would like: growth held back not by market demand, but by operations.

Text CC Engine

The Asian Development Bank released recently its annual opus on the region's economic outlook. For the Philippines, the ADB expects GDP growth to accelerate to 5.7% in 2008, from a forecast of 5.4% in 2007 and the actual 5.4% achieved in 2006.

One line to note. The ADB says that for 2006:

Transport and communications, finance, and private services, including business process outsourcing and other information technology-enabled services, led the way in the services sector, which grew by 6.3% and accounted for 3 percentage points of total GDP growth.

Let's translate that. What the economists are saying is that the engine of the current economic expansion is "Text-CC" combine: the vibrant domestic telecommunications industry that's made the Philippines the text capital of the world, and those call centers sprouting like mushrooms in every major city.

What's holding back the economy from doing "Eight in o-Eight?"

Inadequate investment is the main factor that has curtailed growth and employment. The medium-term targets, for example, were based on investment picking up at double-digit annual rates in 2006–2010 to reach 28% of GDP by 2010, almost twice the current level.

In agriculture, which accounts for 36% of employment, investment has been weak because of factors that include farmers’ poor access to credit and support services, expensive inputs, high costs of transport, and the incomplete land reform program.

In manufacturing, sampled firms in a 2003 survey of the investment climate cited as the major constraints: macroeconomic instability (at that time) and uncertainty in economic policies; inadequate infrastructure services, especially of power and transport; and corruption and the costs of complying with regulations, especially related to customs, trade, and labor markets.

The Hotel Indicator

Have you noticed that it's getting harder to get good rates at the good hotels, not just in Manila but in Southeast Asia's other capitals, such as Singapore, Bangkok, and Kuala Lumpur?

Here's Ayala putting up more hotels in the country's main business district. It's about time.

Property giant Ayala Land Inc. of the Philippines signed a joint venture agreement with Kingdom Hotel Investments of Saudi Arabia to develop a $153 million luxury hotel complex in the financial district of Makati City in the Philippines.

In a disclosure to the Philippine Stock Exchange, ALI said the project involves the construction of a 330-room Fairmont Hotel, a 30-suite Raffles Hotel and 189 Raffles-branded private residences in a 7,377-square-meter property in Makati.

Kingdom Hotel is a hotel and resort investment company chaired by Saudi Prince Alwaleed bin Talal Abdulaziz Alsaud. The prince also has the majority controlling stake in the company.

Kearney Ranks

First the good news for BPOers, not just those in the Philippines but also in the rest of Asia.

The wage cost advantage of offshore locations for office services is set to last for another 20 years, says the latest annual survey by global management consulting firm A.T. Kearney. Even though wages in offshore locations for services, such as IT, business processes and call centers, have started to rise, they will remain cheaper for the foreseeable future under the most aggressive projections of wage inflation and currency appreciation in developing countries.

But for Team Philippines, which slipped to eighth in the rankings of 50 countries as BPO locations, there's already a bright, neon-colored warning.

The findings also send a message to policy-makers in both developed and developing countries: The key to maintaining and enhancing long-term competitiveness lies in skills development, infrastructure investment and the regulatory environment, not in attempts to control wages. Virtually every country in the Index, even those that fell in the rankings, improved their absolute score in the last year — confirming that competition is intensifying, and simply maintaining current performance levels is no longer sufficient to attract and retain the world's fast-growing remote services business.

The theme remains the same: it's still early days for the BPO industry in the Philippines. Yet while the team has yet to peak, it's prudent to introduce some paranoia about competition. Whether BPO remains an engine of growth for the economy, or putters out in five years' time as other locations step up their game, hinges on the decisions being made today as we go from the amateur ranks to the pro leagues.

Dowload the study here.

A Phone for Every Filipino

Remember the early 1990s, when the country had less than 2 million telephone lines, and the then monopoly PLDT had to be kicked dragging and screaming into a competitive landscape?

Opening up the telecommunications industry was the best thing that could have happened to PLDT, and to the entire country. Today, thanks to explosive growth in cellular phone use, PLDT, with a market cap of 430 billion pesos, is the most valuable company in the Philippines. Today, businesses that could not operate are now thriving, thanks to communications made so much easier with one out of every two Filipinos owning a phone.

Think what would have happened if the industry was not liberalized. Think how much more expensive would bandwidth be today if competition was not introduced. Think how many other industries in the Philippines are ripe for competition.

We are reaping the benefits of decisions made more than a decade ago. The forecast is for 45 million cellular phone subscribers this year. Considering that half the population are minors, it may well be that we will reach saturation point this year.

The National Telecommunications Commission (NTC) said Sunday the May elections and the rosy Philippine economic outlook this year will help boost mobile phone subscriber growth.

Edgardo Cabarios, director NTC's Common Carriers Authorization Division said, the regulator projected an additional five million subscribers for a total of 45 million this year. He, however, said that the growth might not be faster than last year, which grew about 15 percent.

Data from Smart Communications Inc. and Globe Telecom showed that the number of subscribers reached about 40 million last year from 34.78 million in 2005. Smart and Pilipino Telephone Corp has a total of 24.2 million subscribers, while Globe and Touch Mobile subscribers stood at 15.7 million.

Note that the article doesn't even mention Sun Cellular, which has more than a million subscribers. It just shows that the telecommunications industry is a duopoly, but let's leave that to another discussion.

The telecom reforms did not just set the groundwork for the cellular phone industry. The bright star of the Philippine economy, the BPO industry, is dependent on good telecommunications. Here's the take of AT Kearney in its survey of 40 countries for off-shoring.

Nevertheless, the Philippines remains one of the lowest wage locations in the Index and now offers the lowest telecom costs of any country in the Index.

The Other Ayala

When a company goes public, the amount of disclosure available to outsiders is amazing. And what becomes plain to see for all is the wealth created, the culmination of many years of hard work.

Recall that eTelecare's planned offering would price each share at about $6.25 to $7.25. Even at the low end of the range, there will be some happy campers, judging by the list of shareholders in the prospectus.

While Derek Holley, a founder of the firm, will have good stories to tell his Kellogg MBA classmates, what with his 7.5 million shares, for the Pinoy community the interesting listing is that of Alfredo Ayala, president of the Business Processing Association of the Philippines.

Alfredo Ayala (9) 5,756,852

(9) Includes 4,899,348 shares held by Newbridge International Investment Ltd. Mr. Ayala disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Also includes 857,500 shares subject to options that are immediately exercisable.

Silicon Valley continues to thrive as newly minted technology millionaires plow money into start ups, driving even more innovation and entrepreneurship. Will the BPO wealth now being created find its way back into the Philippines to build even more businesses?

ETEL: Playing the BPO Boom

eTelecare Global Solutions Inc., one of the largest BPOs operating in the Philippines, just revealed plans to sell shares in the U.S. via an American Depositary Share program. The BPO will sell 5.5 million American depositary shares, each representing two of its actual shares, at US$12.50-$14.50 per ADS. Morgan Stanley and Deutsche Bank are handling the sale, in effect its IPO, which would be followed by a listing on the Philippine Stock Exchange.

After the ADS sale, the company will have 55.366 million shares outstanding. At the top end of the price range, this baby would have a market value of $401m, or about 2x revenue or 33x last year's net.

Want to find out more about a company with close to 10,000 employees and a revenue base that has doubled in only two years? Want to find out at the microeconomic level what kind of companies are driving the Philippine macroeconomy? Prospectus here.

We are a leading provider of business process outsourcing, or BPO, services focusing on the complex, voice-based segment of customer care services delivered from both onshore and offshore locations. We provide a range of services including technical support, financial advisory services, warranty support, customer service, sales, customer retention and marketing surveys and research.

Our services are delivered from four delivery centers in the Philippines and seven delivery centers in the United States, with approximately 6,800 employees in the Philippines and approximately 3,000 employees in the United States as of December 31, 2006.

Our largest clients in terms of revenue for the year ended December 31, 2006 were American Express Company, AOL LLC, Cingular Wireless LLC, Dell Inc., Intuit Inc., Sprint Nextel Corporation and Vonage Holdings Corp., together representing approximately 91% of our revenue. For the year ended December 31, 2006, our revenue was $195.1 million, our income from operations as a percentage of our revenue, which we refer to as our operating margin, was 9.9% and our net income was $12.2 million. For the year ended December 31, 2005,
our revenue was $152.2 million, our operating margin was 2.7% and our net loss was $1.8 million.

Freedom and Democracy

Today's entry is a diversion from the usual topics in this blog, but nonetheless important in the grand scheme of things. Just for the heck of it, those two words are the title of this entry. This is no soliloquy on human rights or paean to liberty, just a simple exercise in freedom of expression. Wired says not all are so fortunate.

It's also a trade-off that Yahoo is not alone in making. To comply with government requirements, Google's China search engine blocks access to sites the government deems objectionable. Microsoft launched its Chinese blogging service in 2005 with filters that prohibited sensitive words such as freedom and democracy in blog titles. And Cisco supplies internet backbone equipment the Chinese government uses in the so-called Great Firewall that shields citizens from websites about Tibet and the Tiananmen Square massacre.

The "CNN Effect" Discount

Here's the term that captures what many frustrated Filipinos feel: the CNN Effect. Bad news about the country is highlighted, good news ignored. For every story about Jollibee beating McDonald's, there are 10 stories about Muslim insurgents. If what columnist William Pesek of Bloomberg has captured is accurate, then overall investor sentiment is still negative. That, for patient contrarians and believers in cycles, is always a bullish sign.

Some things haven't changed. While the Philippine Stock Exchange Index is up more than 7 percent this year, Philippine shares are still trading at price-to-earnings ratios well below the regional average. That's odd when you consider the country is targeting growth of 6.1 percent to 6.7 percent this year, after a 5.4 percent expansion last year.

``It's a turnaround story, and it's not clear the message is getting out,'' Vivian Yuchengco, chair of the Philippine Association of Securities Brokers and Dealers, Inc., said in Cebu last week. ``Maybe it's still the `CNN Effect.'''

When things go awry in the Philippines -- terrorist bombings, businesspeople kidnapped, journalists killed, floods -- the international media arrive in force to report the news. When things are going well in this nation of 91 million people, the world's biggest news organizations seem less interested.

The latter is occurring at this very moment. Even as the Philippines grows at a healthy pace and important progress is made toward narrowing its budget deficit, investors aren't rushing this way. The stock market also remains quite volatile; it lost nearly 8 percent after a slump in Chinese shares triggered a global rout last month.

In some ways, this is a region-wide phenomenon. Bad memories die hard, and that's certainly the case since the 1997-1998 Asian crisis. While investors are rediscovering Asia, the quickness with which many began doubting the region's outlook after China's stock plunge suggests much skepticism remains.

Just remember: don't ignore CNN, or the international media. What you need to watch out for is when CNN starts gushing about how wonderful a country the Philippines is, or when Time magazine puts a Filipino entrepreneur on its cover, instead of Communist rebels.

Corruption Perceptions: It's All Emotions

There's a survey out by the Political and Economic Risk Consultancy ranking countries in Asia from least to most corrupt.

"The Philippines has the distinction of being perceived in the worst light this year," Perc said after polling almost 1,500 expatriate business executives in 13 countries and territories across the region in January and February.

In a grading system with zero as the best possible score and 10 the worst, the Philippines got 9.40, down sharply from its grade of 7.80 last year. Indonesia was deemed Asia's most corrupt country in 2006. . . .

China and Vietnam bettered their scores, but Perc said the improved perception was because corruption was not being discussed openly in the Communist-ruled countries.

Note the last line. It implies countries with state-controlled media will be perceived as less corrupt, because the press won't reflect the true conditions. And there's a corollary -- countries with free-reigning presses may overstate the extent of corruption, since media are usually anti-authoritarian and tend to accent the negative.

But aren't businessmen smart enough to sift through what's true and what's glossed over? Should they even pay attention to corruption perceptions when their business is business?

Eight in O-Eight

You'd have to go back to the post-war years, when the country was busy rebuilding from the devastation of all-out warfare versus the Japanese, to see a Philippine economy expanding at a hefty clip. Southeast Asian neighbors Malaysia, Singapore, Thailand and Vietnam have all put together several years of high-growth, high-output expansions that put them on the investment map. Is it the time of the Philippines, once the most vibrant economy in the region, to join the Asian Tiger club?

Philippine Leader Unveils "Plan, 7, 8, 9" To Spur Growth
March 4, 2007 11:18 a.m. EST

Komfie Manalo - All Headline News Correspondent

Manila, Philippines (AHN) - Philippine President Gloria Macapagal-Arroyo unveiled on Sunday her ambitious "Plan 7, 8, 9" which is expected to spur economic growth for the next three years and her new economic policy direction of "8 by '08," or achieving eight blessings of a strong economy by 2008.

Growth Forecasts

One of the great past times is to see who will prove to be too bullish or too bearish. Most professional economists in the past few years have been proven to be too dismal, with economic growth outperforming their start-of-the year predictions. So let's put it on record what people are saying today about 2007. Let's return to it a year from now....

From the Manila Times:

UBS Investment Bank expects the Philippine economy to post faster growth this year despite the weakness in exports earnings.

It sees the country’s gross domestic product growing at 5.8 percent this year from 5.4 percent fueled by domestic consumption.

In a related development, the Philippine Institute and Development Study (PIDS) has concluded the government will likely miss its economic growth target this year owing to weak manufacturing sector and election-related delay in public infrastructure projects.

Josef T. Yap, PIDS president, has also projected that GDP would grow 5.8 percent in 2007, three percentages below the government’s lower-end forecast. The government targets a 6.1-percent to 6.7-percent GDP growth this year.

The BC Age for VCs in the Philippines

If you're designing a tiger economy, the ecosystem to fuel high-octane growth must have a whole range of animals. One of the species you want to have are VCs. No, not Vietcongs -- venture capitalists. They who build companies on a concept. They who are willing to pour capital into fledgling industries with uncertain futures in the hopes of a big payout. They who prefer the 3-point shot to the easy layup. They who eat risk for breakfast, and who look upon failed businesses as a badge of honor. Different they are: What corporate chieftain will risk his honor, his prestige, his career, backing projects that may fail?

Businessweek highlights how far the Philippines is from developing a vibrant VC sector. But we all have to start somewhere.....

If you're an investor thinking of putting some money into research and development in Asia, you're probably going to look at China and India, maybe Vietnam. It's unlikely you're considering the Philippines. The country is known for its call centers, and the semiconductors which make up 70% of its exports, thanks to factories like Intel's (INTC) semiconductor packaging plant. But the Philippines isn't exactly a hotbed of innovative startups and entrepreneurs.

Dennis Posadas is trying to change that. A 40-year-old electrical engineer and alumnus of the University of the Philippines, Posadas spent 14 years working in the semiconductor industry — for Analog Devices (ADI) and Intel. In 2005 he left his job as a technology business analyst for Intel and joined the Ayala Foundation, the philanthropic arm of Ayala Corp. (AYYLF), one of the largest conglomerates in the Philippines.

Ayala Land, one of the group's companies, has started building a $120 million science park on the Metro Manila campus of the University of the Philippines, with the first buildings due to be finished by the end of the year. Posadas is offering his expertise to help nurture the development of entrepreneurial companies there. Ayala and the university now operate one high-tech business incubator for local startup companies, and have plans to open more.

Plus 375 Jobs

American software company Lawson is making a huge shift. It will more than double the number of employees in the Philippines, where labor is so much cheaper compared to rates in the U.S. The company, according to Pioneer Press, employs 3,600 people worldwide, and it will soon have almost a fifth of those working in the tropics, rather than cold, cold Minnesota.

St. Paul-based Lawson Software will be transferring between 325 and 375 technical and research-and-development jobs from offices in the United States and Europe to the Philippines, where it has created a technical support center in Manila.

The jobs will be transferred over an 18-month period, ending in 2008. . . . But the shift will benefit the Philippines, where Lawson had a minimal presence just a year ago. It now has 250 employees there, and that number will grow as Lawson makes Manila a third research-and-development center, along with St. Paul and Stockholm, Blake said.

Moving software-development jobs overseas has been a longstanding trend in the industry, and Lawson chose the Philippines because better-known centers of software offshore outsourcing like India have become overpriced, Blake said.

Many of the jobs that technical staff used to have to do on-site, such as installing and fixing business software, can now be done remotely, and those are the kinds of jobs that are moving to Manila, Blake said.

Here's StarTribune.com's take on the move:

Not only are salaries in Manila a fraction of those in St. Paul, where Lawson has its headquarters, they're lower than those in India, where many U.S. companies have outsourced their technology work and where Lawson has outsourced about 100 jobs, the company said.

"India is getting to the point where it's beginning to price itself out of the market," said Terry Blake, a spokesman for Lawson, which develops corporate software for enterprises as diverse as health care, financial services and government. That makes locating employees in the Philippines "very attractive."

Manila will become one of three centers where Lawson does software research and development and provides over-the-phone technical assistance. The other two centers are in St. Paul and Stockholm, Sweden, the former headquarters of Intentia, which Lawson acquired last year for $480 million.

Smart Infinity and Smart Security

In this capital city of 12 million people, if you hang around long enough, it's guaranteed that Corporate Philippines will create a funny situation for you.

I had a meeting at the Ayala Ave. headquarters of Smart, the mobile phone company that's driving the profitability of the most profitable entity in the country. Smart's security procedure, a relic of some bygone era, is to badge you. They require you to log in with your name, address, purpose, time of visit, and signature, and present an ID in exchange for a visitor's tag. It's not only Smart that does this. Almost every other building in Makati badges, even in this age of cheap surveillance cameras. All this on the assumption that anyone intent on committing a crime at your business would fill up the sign-in sheet honestly and present a legitimate ID.

I had with me my Smart Infinity card. So for ID, I presented this blue card, embossed with my name, which signifies I am a valued client. In the parlance of the industry, I am a "high ARPU"subscriber, spending more than US$100 a month on my phone bill. The card supposedly entitles me to VIP treatment and to "experience service at its finest."

What did the person manning the security counter do?

She rejected my card.

The BPO-KPO-F&A Wave

Check out these tidbits from a press release highlighting the bright future of the Philippines' BPO industry. If BPO is not yet part of your acronym soup, add F&A and KPO to the mix.

In a marked convergence and uniformity of opinion, leading industry experts and observers note the role that the Philippines will play in the next wave of “offshore” outsourcing and its attractive positioning for growth in higher-value BPO sectors.

Comments Avinash Vashistha, CEO of Tholons: “The Philippines’ leadership in voice- based BPO is well-known. However, its potential for non-voice-based BPO services in Finance and Accounting, Legal and Healthcare is still underappreciated and underdeveloped. In the years ahead, we see the Philippines emerging in these areas. We also see other cities aside from Manila emerging as BPO delivery centers. These trends will help elevate and further solidify the Philippines' position as a global leader in Services Globalization.”

Bull Market Health Check 2007

In July this year will be the 10th Year Anniversary of the Asian Crisis. While historians will debate the exact start date, many peg it to July 2, when Thailand devalued the baht, setting off a wave of speculative attacks that sank currencies throughout East Asia. Economies soon followed.

We all know the cyclical nature of economies and markets. When a crash occurs, it takes years for people to forget the trauma of losses. But after sufficient time, animal spirits return, and the balance between the contending forces of capital preservation versus capital appreciation turns to favor the risk takers. Today, how many remember the countless names of bankrupt companies or shuttered banks that hogged the headlines in the tumultous years of the late 1990s?

Today, we are in the midst of a bull market in the Philippines. Have we built up the excesses that inevitably occur in any expansion, excesses that destabilize the economy and ultimately makes it vulnerable to any shock? This week, the stock market index plunged 7.9 percent in one day, after a wave of selling coursed through markets throughout the world, though it quickly recovered the next day. Is that a sign we've entered ursine territory, or is it merely a pause that refreshes?

The evidence on the ground is that fundamentals are sound. Real, end-user demand in the real estate market, the epicenter of earlier speculative excesses, remains strong. More than 8 million Filipinos live abroad, monthly sending home billions that keeps household spending buoyant. And at this stage, there's still an element of conservativism ruling corporate boardrooms; many of those who got burned in 1998 (when the consequences of the 1997 currency collapses came home to roost) remember, so they are loathe to bet the farm.

The conclusion: very little lactic acid in this bull's legs.

Quotes to Remember

Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.

-- Margaret Mead

Correction does much, but encouragement does more.
-- Johann Wolfgang von Goethe

Catching the wave

When you seen an industry booming, you always ask: how long will the good times roll?

The acronym to know when it comes to the Philippines is BPO, for business process outsourcing. The term encompasses the traditional call center, where companies telemarket their servcies, handle customer inquiries, and solve billing disputes. BPO also includes industries such as legal/medical transcription, cartoon animation, engineering design, and publishing.

In the Philippines, watching the stream of BPO corporate announcements and counting the amount of call center openings in major dailies, it feels like the Southeast Asian country has just caught the early part of an outsourcing tsunami that will fundamentally alter its economy and fuel a powerful multi-year expansion.

Take this piece of news. Dell, the world's largest PC maker until its hiccups last year, just expanded its presence in the country. Mind you, this is a company that responded to complaints from customers who could not understand Indian accents by promising not to route tech-support calls to the subcontinent.

American computer maker Dell Inc. opened its second customer call center in the Philippines Thursday (March 1), bringing the number of local employees to 2,600, a company official said.
"We’re growing quite rapidly," Dick Hunter, Dell’s vice president for customer experience, told a news conference.
He said the company plans to hire about 100 people per month until it reaches the target of about 2,600 employees.
"Our expansion is evidence of the quality and talent of professionals here in the Philippines," he said.
Dell’s customer contact network includes more than 25 locations globally.

What should the Philippines thank for this industry where employment has shot up 10-fold to 200,000 in less than five years, and is forecast to create another 800,000 jobs by 2011? As a former American colony, it has the cultural affinity with the U.S. Proof? Basketball, not football (for Americans in the audience: soccer), is the most popular sport in the country. And it has an educational system (though deteriorating) that each year produces more graduates than jobs, so that means lack of labor won't be a constraint.

What will sustain this long boom? Continuing pressure in the U.S. to cut costs; and the "word-of-mouth" spreading among consultants, multinationals, and the whole BPO ecosystem that THIS is the place to be.

Dell's press release: "With its English-savvy population, about 100 similar facilities in place and 650,000 students, the Philippines is fast becoming the contact center location of choice in Southeast Asia."