US ‘insourcing’ trend a cause for Philippine concern

Economists warned on Monday that the Philippines’ outsourcing sector should develop and market higher-value services to cope with the United States’ moves to “insource” more jobs, which could signal a long-term curb in demand for outsourcing services.

That is, unless Manila-based companies differentiate their services from those that can be obtained in the US and from other outsourcing destinations such as India.

About 70 percent of business process outsourcing (BPO) firms in the Philippines rely heavily on US clients, although demand for outsourcing jobs is growing in Europe and Australia.

Since BPO firms, knowledge process outsourcing companies, and similar entities contribute greatly to employment and foreign exchange earnings, US insourcing “could lead to a decline in both (jobs and dollar revenue),” Dr. Cid L. Terosa of the University of Asia and the Pacific said via text message.

To cope, the Philippines can venture into higher-value added outsourcing activities. “Cost competitiveness and higher efficiency will be key to maintaining current business,” Terosa said.

“There is no immediate threat in the short term but such inward-looking measures may affect the growth of BPOs in the future,” Dr. Benjamin E. Diokno of the UP School of Economics said via text message.

Diokno said that it is not clear whether the proposal in the US Congress to remove tax incentives to outsourcing companies apply to all or only to new BPO investments.

“In any event, US firms have to figure out whether it is still worthwhile to outsource abroad should the tax incentives be withdrawn,” Diokno said.

The National Economic and Development Authority has not issued a preliminary impact assessment as it continues to monitor developments on the proposed “insourcing” in the US.

Industry group Business Processing Association of the Philippines (BPAP) also said it was “vigilantly monitoring” developments on proposed US measures.

BPAP executive director Martin Crisostomo said in a phone interview that the group’s member-companies hope to continue to give US clients cost competitiveness so they can grow and create more jobs at home.

“In a free and mature global market we believe that, as private enterprises assess best economic solutions to drive competitiveness and consumer value, global market forces will prevail,” Crisostomo added via e-mail. “We are hopeful that those companies that have benefited from IT-BPO services can relay to the policy makers in the US that outsourcing will be more helpful to the economy.”

The US Bureau of Labor Statistics said in a report posted on its website that non-farm payroll employment rose by 200,000 in December, and the unemployment rate, at 8.5 percent, continued to trend down.

Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining. Over the 12 months of 2011, the bureau said, nonfarm payroll employment rose by 1.6 million.

Industry estimates that global demand for outsourcing services would triple to a range of about $250 billion to $256 billion by 2016 from the $125-billion-to-130-billion market in 2010.