PH is top choice for ‘offshoring’
Study notes emergence of competing locationsBy Doris C. Dumlao
Philippine Daily Inquirer
THE PHILIPPINES, India and China are the top three global shoring locations for corporations based on the number of jobs created in shared service centers, call centers and technical support centers from 2008 to 2011, according to a new report from global real estate adviser Jones Lang LaSalle.
The Philippines attracted 115 projects during that period, creating more than 72,000 jobs; India attracted 105 projects with 64,370 jobs and China, 56 projects with 25,455 jobs, said the JLL report “Onshore, Nearshore, Offshore: Still Unsure?” released last week.
The other top locations and the number of jobs created were: 4. United Kingdom (22,304); 5. United States (18,594); 6. Brazil (13,964); 7. Poland (13,476); 8. Mexico (11,515); 9. Romania (11,438), and 10. Costa Rica (8,878).
The JLL study said the changing global economic landscape was affecting corporate strategy and location decision-making. “The threat of recession, political uncertainty and rise of global emerging nations are causing international corporations to re-assess their location strategy. Companies are increasingly selecting from three ‘shoring’ options: onshore, offshore and near-shore,” it said.
Commenting on the decision companies faced, Ian Mackenzie, head of solutions development for JLL in Asia Pacific said: “A longer term focus on improving business productivity, operational efficiency and future scalability is now driving corporate real estate decision-making, rather than straight cost-savings in the short term. Corporations are undertaking comprehensive and early initial business case-and-option analysis” in designing their location strategies.
“For Asia Pacific-based corporations, a growing number are seeking the cost and productivity benefits associated with shoring, often sticking to offshoring or near-shoring options within the region. At the same time, in order for emerging nations such as India, Philippines, China and Malaysia to attract greater foreign direct investments (FDI), greater transparency is needed as well as access to quality labor and better location options,” he added.
Lylah Fronda, associate director for markets of JLL Philippines, added: “We see first-hand that the Philippines continues to be the preferred choice for offshoring. A highly skilled English-speaking population, coupled with a responsive real estate market with the right infrastructure creates a perfect mix for companies that understand the efficiency of going abroad for many business processes and call center operations.”
As to real estate conditions, the cost of offshoring operations in Manila was estimated by the study at $222 a square meter a year, more expensive than $187 in Bangalore or even $189 in Kuala Lumpur. But this was cheaper than the $300 in Mexico City, $606 in Sao Paolo or $372 in Buenos Aires.
The overall vacancy rate in the Philippines was estimated at 3.6 percent, suggesting less choice of office space compared to other typical offshoring destinations. In Bangalore, for instance, the vacancy rate was estimated at 7.7 percent while in Mexico and Sao Paolo, the rates were 13 percent and 11.9 percent. Buenos Aires’ rate was closer to that of the Philippines at 4.2 percent.
Meanwhile, the study noted that onshoring in mature markets was one trend that had re-emerged in recent months with a clear increase in strategic analysis and activity, particularly in the United States.
“Rebalancing within mature economies, as well as weakening currencies and growing availability of skilled labor, have led to a growth in the attractiveness of onshore locations. Locating business functions and supply chains onshore means companies can be closer to their customers, reducing supply chain complexity and risk and potentially allowing greater responsiveness to changes in demand,” the study said.
The study said paradoxically, the same logic of being close to the customer was also driving offshoring activity. “For international companies, particularly those in the pharmaceutical, and FMCG (fast-moving consumer goods) sector, seeking to align business functions and supply chains to high-growth emerging markets, an agile offshore location strategy can be a critical point of entry into a major market,” the study said.