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Philippine Business Magazine: Volume 11 No. 2 - Updates

Offshore outsourcing of US Firms
under raps

Offshore outsourcing of jobs is becoming a political issue in the US. The heated election-year debates are causing knee-jerk reactions from local, state, and federal legislatures in the US in an attempt to control the perceived migration of jobs to cheap overseas destinations including the Philippines. Current pending bills at US state levels, mostly advocated by Democrats, would try to restrict US firms from moving jobs to foreign countries. Earlier, the US Senate voted to bar companies from outsourcing work done for the federal government. But top Republicans and business-friendly Democrats fear such reactions could end up harming a US economy dependent on foreign trade.

The success of far-shore outsourcing of jobs is driven by the economic downturn in recent years. Prior to that, concerns about effective data protection and political instability restrained the growth in these locations. However, the relentless pressure on cost reductions and financial performance during the recession overcame these objections. Lower telecommunication costs and the innovative use of technologies such as voice over internet protocol paled next to the economic impact of lower agent salaries and benefit costs in offshore outsourcing destinations.

Feeling the political pressure from Congress over the loss of US tech jobs to offshore workers, a leading advocacy organization comprised exclusively of information technology CEOs has timely released a report stressing the need to keep international doors open so that domestic companies can remain competitive. In its report, the Computer Systems Policy Project (CSPP) included preliminary policy recommendations for Congress to consider. “Economic downturns and security issues spur impulses to protect specific sectors and markets and limit international trade and collaboration,” the report stated. “Yet these measures often backfire. Countries that resort to protectionism end up hampering innovation and crippling their industries, which leads to lower economic growth and, ultimately, higher unemployment.” In effect, the IT trade group’s report cautioned politicians against interfering with the current trend in offshore outsourcing.

The group also noted that under the current economic climate, customers of US tech companies are pressuring vendors to reduce costs, offer more products and reduce the time it takes to get products to the market. The report argued that, “US companies operate abroad to be close to global customers, both geographically and culturally, and to meet round-the-clock expectations for customer service.”

Signals

By reining in spending and raising more revenues, the government kept the fiscal deficit in check in the first quarter. The fiscal deficit reached P56.8 billion, 3.5% below the programmed ceiling and year ago shortfall of P58.9 billion. Revenues of P152.6 billion surpassed the P151.3 billion target and P136.3 billion year ago performance. The Bureau of Internal Revenue collected almost P99.0 billion, 10.1% over last year’s P89.9 billion collection, but 2.1% short of its P101.1 billion target. The Bureau of Customs collected P29.2 billion, overperforming against its P24.8 billion target and the year ago performance of P26.7 billion.

Despite election uncertainties, combined investments approved by the Board of Investments (BOI) and the Philippine Economic Zone Authority (PEZA) soared 1,072.0% in the first quarter to P129.9 billion from P11.1 billion in the same quarter a year ago. Driven by investments in utilities, approved BOI investments grew 1,334.4% to P108.0 billion from P7.5 billion. On the other hand, new projects approved by PEZA rose 515.6% to P21.9 billion from P3.6 billion. New investments in information technology projects in PEZA sites increased 89.4% to P2.6 billion from P1.4 billion.

Manufacturing production volume grew flat in February despite the impact of campaign spending. The election season drove output growth in publishing/printing, expanding 36.8%, and paper and paper products, increasing 19.7%. Output of machinery excluding electrical also gained 26.3%; beverage, 13.0%; and rubber products, 10.3%. On the other hand, output declined in leather products, by 92.4%; transport equipment, 23.8%; cement, 20.1%; tobacco 17.3%; nonmetallic mineral products, 13.3%; and food manufacturing, 9.8%. Meanwhile, the value of manufacturing output rose 4.8% on account of the depreciating exchange rate, which made imported raw materials more costly.

Following seasonal behavior, the average peso-dollar rate strengthened 0.7% to P55.904/US$ in April from P56.303/US$ in March. The Philippine currency reached a three-month high of P55.62/US$ last April 13 as overseas Filipino workers began releasing previously held remittances. Investors likewise viewed as positive Calpers decision to retain its investments in the country. Survey indications of President Arroyo’s victory in the May polls also eased uncertainties in the foreign exchange and stock markets. At end-April, the peso-dollar rate slipped back past the P56.00/US$ level, albeit 0.2% stronger when compared to the end-March rate of P56.175/US$.

The average occupancy rate of hotels in Metro Manila in the first two months improved to 70.5% from 62.2% in the same period a year ago, reflecting a rise in the number of bookings, live-in seminars, influx of foreign and local guests, and conventions. Occupancy rates in de luxe accredited hotels in Metro Manila increased to 74.3% from 65.2%; in first class hotels, to 65.8% from 60.4%; in standard hotels, to 65.0% from 58.4%; and in economy hotels, to 63.1% from 54.4%.

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