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.