Medical Fallout

There's always a downside. Here's one view of the human cost not carried on the balance sheets of India's mighty BPO industry.

There's mounting medical evidence that if people are forced to stay up night after night their biorhythms are disrupted and they are liable to pay a cost in terms of both physical and psychological health. Elevated pay isn't sufficient compensation for a heart attack brought on at 30. We can't drive young people into the BPO industry by painting a superficially alluring image of its rewards, then shrug and turn away when they face serious health issues. Experts are concerned that the brewing crisis could undermine India's economic boom, which has been driven to a large extent by the services sector. A study by the Indian Council for Research on International Economic Relations estimated that heart diseases, strokes and diabetes cost India $9 billion in lost productivity in 2005. They forecast this figure to grow to a whopping $200 billion in the next decade, with the IT sector predicted to be among the hardest-hit.

I won't be a pied piper singing the praises of the capitalism system, but the long-term view argues for us to have faith. When an industry's health woes become a big enough problem, the solutions will come. If entrepreneurs have set up bars catering to the graveyard shift workers -- blackened windows to simulate night even though it's noontime -- why can't a whole city be transformed? Interiors of buildings are now made to follow the daylight hours of countries halfway around the globe; why can't the district where the building belongs also follow those same hours? If the human body can't evolve to cope with altered circadian rhythms, why the environment will have to be reshaped. If we all live on borrowed time, why can't we advance that clock +12 hours?

People Say The Price Isn't Right

On the same day that it rejected a cash bid from IPVG Corp. to buy the company for $15 a share, PeopleSupport came out with a bullish forecast, saying it would generate more revenue and earnings than analysts had expected.

LOS ANGELES (AP) -- PeopleSupport Inc., an offshore business process outsourcing provider, said Wednesday it expects its fiscal 2008 profit to beat Wall Street's expectations. The company forecast income between 65 cents and 81 cents per share in 2008, with revenue of $180 million to $190 million. Analysts polled by Thomson Financial predict earnings of 57 cents per share on revenue of $170.8 million.

Not all the pieces of the unfolding drama are visible on the board. The unsolicited IPVG bid, in the parlance of bankers, put PSPT "into play." Now the usual drill in this scenario is to reject the first buyout offer and holdout for more; from the shadows other bidders will emerge. You can be sure that teams from other BPOs are now crunching numbers with their favorite investment bankers to see if they should battle for PSPT and top IPVG's $15/share offer.

In the PSPT's press release, PSPT quoted its independent director Frank Perna as saying, “We have carefully reviewed the proposal and believe it to be inadequate and not to merit further attention. We have also reviewed the strategic plans in place for the Company and believe that the implementation of those plans is the best way to enhance shareholder value at this time."

The translation: we have a price at which we will sell.

Blackstone Flag to Fly in Philippines

A Reuters news story in the NYTimes website says Blackstone Group has bought Intelenet Global Services of India, teaming up with its management in an 80-20 venture. The buyout price was in the region of $200 million.

This marks the first foray in the industry for Blackstone. And such big boys with deep pockets don't usually stop at one deal. Rollup strategy, anyone?

The British bank Barclays and an Indian mortgage firm, the Housing Development Finance Corporation, said separately that they each were selling their holdings in Intelenet, without disclosing the price.

Intelenet plans to expand its operations in Britain and begin services out of the Philippines and Mauritius, said its chief executive, Susir Kumar.

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.

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.