Issues on the Philippines’ Information and Communications Technology (ICT) Competitiveness – Comprehensive Study Notes

• ICT has evolved from basic record-keeping to a strategicIntroduction, economy-wide general-purpose technology.

  • Supports entire value chain: backward link to materials science, forward link to custom product configuration and new information products (e.g., digital payment modes).

  • National productivity now argued to depend on the breadth and depth of ICT use (Kraemer & Dedrick, 2001).

• Traditional Philippine niche services: software/applications development, network engineering, maintenance, call centers, medical & legal transcription, animation, diverse BPO activities.

• 2004 A.T. Kearney report lists the Philippines among the world’s 25 most attractive ICT destinations, prompting this paper’s objectives:

  • Identify local ICT-based service niches.

  • Assess their competitiveness.

  • Specify support mechanisms to deepen competitive advantage.

ICT-Based Services in the Philippines

ITECC Classification

• ICT-Services: tasks needing deep knowledge of programming, networks, operating systems.

  • Projected growth ≈ $8\%$ per year (next 4 yrs).

• ICT-Enabled Services: labor-intensive tasks delivered over telecom networks/Internet (e.g., BPO).

  • Projected growth ≈ $12\%$ per year.

• Global demand for ICT-based services has more than doubled in 5 yrs; main markets: US $54\%$, Europe $32\%$.

Software Development

• 20-year-old industry; ~$300$ development houses.

• Product/service categories:

  • General Applications, Custom Vertical Apps, Development Platforms, Tools, OS, Utilities.

  • Life-cycle services: analysis/design → prototyping → coding/testing → QA → customization/consultancy → installation/maintenance → training.

• Export markets: North America, Europe, Japan, Asia-Pacific.

• 2003 tax contribution: $P22.75\text{ billion}$ (≈ $9.6\%$ of PH net-income taxes).

• India remains global leader due to larger pool of low-cost, highly-skilled programmers.

Animation

• 18-year history; first major studio: Burbank Animations (1983).

• Techniques: traditional celluloid, 2D, 3D, CGI, motion capture.

• Current constraint: 13 of 15 studios mostly 2D-only; global demand shifting to 3D/CGI.

• Major users: education & entertainment; growing demand from e-commerce, web, mobile, advertising.

• Global market forecast: $US\,16\text{ B} \to 50\text{ B}$ by 2004-2005 (≈ $25\%$ CAGR).

• PH value proposition: artistry, creativity, cultural nuance interpretation.

• Untapped sub-niche: game development.

Call Centers (Contact Centers)

• A BPO subtype focused on sales, marketing, customer care.

• Global value $US\,73\text{ B}$; expected CAGR $24\%$ (IDC).

• PH status (2004): $72$ centers, $67{,}000$ agents; majority are US subsidiaries; concentration in Metro Manila.

• Evolution: from e-mail support ➜ full multichannel interaction (travel, finance, education, B2C, B2B).

• Service matrix (Table 1):

  • Outbound: Telemarketing, Sales verification, Collections, Reactivation, Loyalty.

  • Inbound: Customer service, Order entry/fulfilment, Help desk, Payment auth, Complaints, Billing.

Medical & Legal Transcription

• Converts physicians’/lawyers’ dictation to electronic records.

• Market size $US\,10\text{–}16\text{ B}$; CAGR $20\%$.

• Only $47\%$ outsourced; US hospitals’ new standards may trigger demand (6,700 hospitals still to comply).

• PH advantages: ESL proficiency; familiarity with US medical standards.

• MTIA (2000) caution: $83\%$ of hospitals unlikely to offshore within 2 yrs; $12\%$ will keep current outsourcing level.

Business Process Outsourcing (Gartner model)

• Definition: delegation of IT-intensive processes to external provider that owns/administers them based on KPIs.

• Four service clusters (Table 2):

  1. Supply Chain (warehouse mgmt, logistics, direct procurement).

  2. Operations (R&D, contract mfg, analytics, QC).

  3. Business Admin (finance, HR, billing, indirect procurement, payment svc).

  4. Sales & Marketing (customer acquisition, care, retention, extension).

• Existing PH exports: animation, transcription; rising dominance of call centers & broader BPO.

Determining the Philippine Niche

• Contact centers & BPO targeted mainly at US/Europe; potential in Chinese-speaking markets (≈ $35\%$ of Filipinos have Chinese ancestry).

• Assessment tool: A.T. Kearney 2004 Offshore Location Attractiveness Index.

  • Weights: Financial $40\%$, People $30\%$, Business Environment $30\%$.

• Overall PH rank: 6/25 (behind India, China, Malaysia, Czech Rep., Singapore).

  • Financial Structure: 3rd

  • People Skills & Availability: 11th

  • Business Environment: 22nd

Offshore Attractiveness Metrics (Table 3 synopsis)

• Financial: wages, infra cost, travel cost, tax/regulation, corruption, FX volatility.

• People: existing IT/BPO scale, quality rankings, labor-force size, education, language, attrition.

• Business Env.: macro stability, bureaucracy, govt ICT support, telco/IT infra, cultural adaptability, IP security, piracy.

Detailed Findings per Category

Financial Structure

• Average annual ICT wage: PH $US\,2{,}900$ vs India $2{,}400$ vs China $2{,}000$.

• Salary Survey (PHP, 2003):

  • IT Manager $33{,}900$ (all industries) / $67{,}000$ (transport & comm).

  • Systems Analyst $21{,}600$ / $39{,}000$.

  • Programmer $16{,}500$ / $26{,}000$.

  • Database Admin $22{,}900$ / $31{,}000$.

  • Network Spec. $21{,}000$ / $27{,}000$.

  • Computer Tech $10{,}000$ / $16{,}000$.

• Investor incentives:

  1. $4\text{–}8$-yr Income Tax Holiday.

  2. Post-ITH special $5\%$ tax on gross income (park locators).

  3. Duty-free capital equipment (parks).

  4. Unrestricted consigned equipment.

  5. Labor-expense deduction up to $50\%$.

  6. Training-expense deduction up to $150\%$.

  7. Wharfage-dues exemption.

  8. Employment of foreign nationals.

• Drags on score: corruption cost, exchange-rate fluctuations; PH ranked 2nd most corrupt out of 102 (ADB, 2004).

People Skills & Availability

• Strengths: low attrition ($10\text{–}15\%$), American-style English, $\approx72\%$ population ESL-fluent, large annual graduate pool:

  • 380{,}000$college grads/yr —$100{,}000$in business,$50\text{–}70{,}000$in CS/IT/Math.</p></li></ul></li><li><p>Verbal clarity superior to India/Ireland (Gartner 2002).</p></li><li><p>Weaknesses:</p><ul><li><p>Smaller population than India/China.</p></li><li><p>Low ICT usage:$21.7$computers per$1{,}000$people (ratio$1{:}46$), vs Malaysia$126$, HK$386.6$.</p></li><li><p>In schools:$77{,}400$PCs for$20\text{ M}$students ⇒$1$PC/$250$students.</p></li><li><p>Internet access costly (×2 HK, ×4 Malaysia).</p></li><li><p>Only$5\% of call-center applicants & 14\%$of nurse applicants pass required English tests.</p></li><li><p>Call centers lure top graduates into perceived “dead-end” roles.</p></li></ul></li></ul><h4 id="d28e46f6-cfa2-4be1-ade0-11d3b4e37387" data-toc-id="d28e46f6-cfa2-4be1-ade0-11d3b4e37387" collapsed="false" seolevelmigrated="true">Business Environment</h4><ul><li><p>Overall rank 22nd; only above Turkey, Vietnam, Russia.</p></li><li><p>Components examined below.</p></li></ul><h3 id="5d376c4e-32d1-47f2-a161-2650fb6d6886" data-toc-id="5d376c4e-32d1-47f2-a161-2650fb6d6886" collapsed="false" seolevelmigrated="true">Infrastructure Snapshot</h3><h4 id="93e28f9c-29b6-44e2-a3bf-72d45b989d5c" data-toc-id="93e28f9c-29b6-44e2-a3bf-72d45b989d5c" collapsed="false" seolevelmigrated="true">Telecommunications</h4><ul><li><p>Landline density:$2.01$/$100$(1995) →$9.12$(1999) →$8.07$(2003).</p><ul><li><p>2003:$6.9\text{ M}$available lines, only$3.8\text{ M} subscribed.

  • Factors: affordability & mobile substitution.

• Mobile boom: subscribers 1.73\text{ M}$(1998) →$15.20\text{ M}$(2003).</p><ul><li><p>Penetration:$19.13$subs/$100$persons (≡$82.1\%$of all telco subs).</p></li><li><p>SMS dominance: PH generates ≈$10\%$of world SMS; prepaid promos enable$\approx8$SMS for price of one voice call.</p></li></ul></li><li><p>Telecom challenges (IDC): high service/equipment/PC cost; revenue concentrated in few business districts; fragmented interests among stakeholders.</p></li></ul><h4 id="8e4856a2-fe4c-442a-9462-e95cc0cb0845" data-toc-id="8e4856a2-fe4c-442a-9462-e95cc0cb0845" collapsed="false" seolevelmigrated="true">Computer Systems / Internet</h4><ul><li><p>Estimated PCs in use:$2.2\text{ M}$⇒$2.77$PCs/$100$Filipinos.</p><ul><li><p>Distribution: businesses$69\%$, households$13\%$, gov’t$10\%$, schools$6\%$.</p></li></ul></li><li><p>ISPs (2003):$53$, total subs$800{,}000$(dial-up$675{,}000$, broadband$125{,}000$).</p></li><li><p>IDC: low PC penetration, not ISP count, is primary Internet barrier.</p></li></ul><h4 id="669bd4ec-4336-4dbe-b32f-49024b23f872" data-toc-id="669bd4ec-4336-4dbe-b32f-49024b23f872" collapsed="false" seolevelmigrated="true">Electricity</h4><ul><li><p>Installed capacity$12{,}694$MW; average demand$7{,}869$MW.</p></li><li><p>Excess capacity leads to <strong>PPCA</strong> cost pass-through; April 2002 avg household bill$P1{,}220$, PPCA portion$P650$.</p></li><li><p>Pre-2002: 2nd most expensive power in Asia; after PPCA reduction, still 6th.</p></li><li><p>2001’s most profitable PH firm: Mirant PH (net income$P8.5\text{ B}).

Recommendations & Strategic Implications

Financial Structure

• Implement WB 9-point anti-corruption agenda:

  1. Deregulate/reform policies.

  2. Campaign-finance reform.

  3. Public oversight.

  4. Transparent budget processes.

  5. Civil-service meritocracy.

  6. Targeted dept/agency cleansing.

  7. Stronger sanctions.

  8. Private-sector partnerships.

  9. Judicial reform.

• Leverage ICT for e-governance & G2C transactions to enhance transparency.

• Tackle high electricity & telecom cost via regulatory reforms and infrastructure expansion beyond Metro Manila.

People Skills & Availability

• Forge stronger industry–academe linkages on curriculum, competency standards, OJT, apprenticeships.

• Mandate inclusion of discipline-specific software (CAD/CAM, animation suites, ERP, simulation) in syllabi; integrate into licensure exams.

• Launch teacher up-skilling for ICT pedagogy.

• Create specialized high schools/vocational centers inside industrial & IT parks; invite existing colleges to set up extensions.

• Enforce English-medium instruction while exploring Mandarin curricula to tap Chinese BPO demand.

• Undertake National Manpower Planning covering future ICT skill needs.

Business Environment

• Ensure strict enforcement of IP, Optical Media & E-commerce laws; supplement with national bulk-licensing negotiations to cut software costs.

• Update Government Information Systems Plan, provide uniform toolsets to LGUs to lower license expenditure and raise e-gov usage.

• Develop new ICT economic zones outside Metro Manila with integrated plans for LGU, academe, labor market.

• Aggressively market PH potential through trade missions, expos, public information campaigns; mobilize media for ICT literacy.

Numerical & Statistical Highlights (LaTeX)

• Computer penetration: \frac{21.7}{1000}$(national),$\frac{1}{250}$(students).</p></li><li><p>Landline density trend:$2.01 \to 9.12 \to 8.07$per$100$people (1995-2003).</p></li><li><p>Mobile phone penetration:$\frac{15.2\text{ M}}{79.5\text{ M}} \approx 19.13\%$.</p></li><li><p>Excess power capacity:$12{,}694\text{ MW} - 7{,}869\text{ MW} = 4{,}825\text{ MW}$.</p></li><li><p>Call-center global growth projection:$73\text{ B} \times (1+0.24)^n$where$n$= years.</p></li><li><p>Animation market jump:$16\text{ B} \to 50\text{ B}$implies$\approx 212\%$$ rise within 2 yrs.