With the Philippines continually betting on revenues and jobs from the global outsourcing market, forecasting a growth rate for this year of 20 to 30 percent, the country then needs to refocus its promotion direction to new markets like Europe - especially with its main client, the United States, increasing protectionist moves.
On May 4th, U.S. President Obama announced his plans to end tax breaks for US firms expanding overseas as part of fixing a broken tax system saying that it aims to save American taxpayers $210 billion over the next ten years and to generate more jobs in the country. The announcement caused concerns for American multinational firms whose major competitive strategy is to outsource. Both the Business Processing Association of the Philippines (BPAP) and India Inc. dismissed this threat.
BusinessWeek reported that major US financial firms such as Citigroup Inc. (NYSE:C) with 60 percent of its workforce abroad and JPMorgan Chase & Co. (NYSE:JPM) with 10 percent of its workforce in Asia have hired employees abroad not for tax deferrals but because of lower cost of competitive labor. Commission on Information and Communications Technology (CICT) commissioner Ibrahim told the Times that companies will continue to move jobs to places where they can be done “cheaper, better and faster” like the Philippines. The commissioner also mentioned that CICT has anticipated this US move and have started focusing their promotions to new markets like Europe where demand is high.
New Market Outsourcing Demand
Labor Sourcing Adviser TPI Managing Director Aitchison noted that Europe has shown an increase in outsourcing activities in the past 4 years. In 2004, it has accounted for 49 percent of major outsourcing contracts worldwide. He emphasized that Europe has realized that outsourcing is the key to remain competitive on a global scale. In 2004 alone, UK signed a total of €11.5 billion outsourcing contracts. Moreover, German companies awarded €7 billion of outsourcing contracts in 2005. In 2007, Europe signed outsourcing deals which amounted to $40.9 billion which was even higher than Americas $26.6 billion.
Predictions are strong that with the tough times, more European countries will outsource. BBC also reported that 30 percent of European companies intend to outsource some of its operation. Furthermore, Gartner forecast that IT outsourcing in Europe will reach $90.9 billion in 2009.
European Firms Outsourcing in the Philippines
With the Philippines’ years of tested credibility in offering high quality service at competitive rates through outsourcing, several major European companies have already started to outsource in the country. German giant powerhouse Siemens AG (SI) has outsourced 40 Service Desk/Technical Support jobs to the Philippines as early as 2005 growing it to 900 employees in 2007.
Royal Dutch Shell plc (NYSE:RDS.A) has its back office accounting and finance work in the Philippines, starting with 50 employees in 2004 and expanding to around 1,100 in 2007. Swedish Telecom provider Ericsson Telecommunications, Inc. (NASDAQ:ERIC) set-up Ericsson Shared Service in 2002 to service its offices in Southeast Asia, Americas, Europe, Africa and Middle East accounting needs. International Danish shipping company Maersk A/S hired 200 more people in last year increasing its workforce here to 1,200 to finance and accounting, IS processes and logistics services.
Looking at the this seemingly high demand for outsourcing in Europe, the Philippine BPO might have a good chance in hitting its US$ 7 billion dollars target and creating 100,000 new jobs by tapping into the European market and getting a slice of it. The Philippine Outsourcing industry can use strategies like joining trade fairs and investing in further manpower training to give them leverage.
Disclosure: No positions
Author: Chris V.