What's Holding the Philippines Back

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    The McKinsey Quarterly has published one of the better reports about the Philippines as an offshoring destination. “Attracting more offshoring to the Philippines.”

    According to the article, the country generated $1.7 billion with its “offshore services” in 2003 and currently employs about 100,000 people in call centers. A higher percentage of the Philippines’ population, according to the story, has earned a college degree than India. Plus, it enjoys a cultural and language affinity with the US.

    So what holds it back from becoming the destination of choice for services beyond call center work? According to the article’s authors, it has “the poorest risk profile” of any of the countries evaluated in an offshoring study. This is a legacy it says, of “natural disasters, security threats, and data theft,” as well as a dearth of service providers. It also “suffers from strict labor laws, high levels of corruption, and a surfeit of bureaucracy.”

    Another obstacle cited: Direct flights from the US are also apparently hard to come by. However, I did a quick check on Travelocity. A roundtrip flight on Dec. 8, 2006 from Los Angeles to Manila, returning on Dec. 16, costs $1,339 on Delta Air Lines and takes 18 hours and 45 minutes (departure at about 11 a.m.), with one stop in Seoul. If that didn't suit, there were six other flights available on that day. A roundtrip flight to Bangalore costs $3,362 on Air India, departs at 7 in the evenings, takes 25 hours and 45 minutes, and requires two stops — one in Frankfurt and one in Bombay. There were just three flights available on that day. (Just for comparison’s sake, I checked another flight to Bangalore for Jan. 9, returning Jan. 20. That one, on British Airways, cost $1,637, had one stop — in London — and lasted only 22 hours and 10 minutes. But still, the cost was higher and the flight time longer. And for that day there were only four other flights available.) So perhaps McKinsey has this one wrong.

    “Management talent” is a rarity in the Philippines as well, “partly because its offshoring industry is still in the early stages of development” and partly because returning Filipinos tend to come home with non-managerial work experience.

    Also, the Philippines suffers from some of the highest electricity and telecommunications prices. Special zones have been set up that address infrastructure issues, but the report says more could be done.

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