In his January 2010 State of the Union address, US President Barack Obama sternly stated that his administration plans to slash tax breaks for US firms that ship jobs overseas and instead give those tax breaks to firms that create jobs for Americans. This statement from the US president will undoubtedly have an impact on the business process outsourcing (BPO) and knowledge process outsourcing (KPO) industries, as well as the information and communication technology (ICT) industry of countries outside the United States. President Obama’s statement is aimed at encouraging US companies to create jobs within the country and hire locals instead of outsourcing core and non-core services abroad – a practice that fuels BPO, KPO and ICT industries in many other countries.
The US administration estimates that around seven million jobs were lost over two years in the country, and that firms transferring jobs to BPO destinations had played a big role in this event. However, the president admits this program will neither solve nor compensate for the number of jobs lost in the United States. The US president highlights the fact that a tenth of the American population is unemployed. He reasons out that bringing back jobs that companies outsource in destinations outside the country will help fuel the American economy.
Analysts, however, are saying that the real reason behind this program is the president’s desire to fix his declining popularity among his countrymen and peers. They are saying that he needs to cover up the string of election losses for the democrats and show that he is not a leader who cannot deliver his promises to the American people – promises he made back when he was still campaigning. Whatever his reasons are for establishing this program, BPO, KPO and ICT firms in the Philippines believe that President Obama’s anti-offshore outsourcing plans might affect the Philippine BPO industry only minimally.
For booming economies that are dependent on their BPO, KPO and ICT industries such as the Philippines, this anti-outsourcing program might have an impact on these sectors’ growth. The extent of the impact of Obama’s program to the business and knowledge process outsourcing industries are still unknown though. Several ICT, BPO and KPO firms say that they need to reassess their business target and plans for the succeeding years. These companies, however, are not that much worried about the effect of President Obama’s plans on the local outsourcing industry despite the US being the Philippines’ biggest market. Currently, 80% of the country’s business and knowledge process outsourcing accounts come from the United States, 90% of which are voice accounts. KPO and BPO firms are still projecting a double-digit growth in terms of employment and revenues this year. The Philippine BPO industry alone is targeting a 26% growth in 2010 to outdo its 20% revenue growth the preceding year. If the program does affect the Philippines’ KPO, BPO and ICT industries, then local companies will probably opt to look for more non-US clients. Presently, there are KPO companies that also cater to the healthcare space in both the US and the UK. Philippine firms can reassess their target market to sustain the BPO, KPO and ICT growth.
Obama’s outsourcing policy will definitely affect the business and knowledge process outsourcing industries in the Philippines and in other destinations; however, the US administration should also prepare for the program’s effects on American firms. Analysts are saying that costs for US firms will increase by 50% if they opt to outsource their jobs to destinations such as India and the Philippines, but employing local workers will not be cost-effective for these firms.
ICT research and advisory firm, XMG Global Inc., confirms these statements. In a comment about the anti-outsourcing program of the US administration, the firm said that “the US’ aging workforce, its ongoing shortage of IT and BPO skilled workers and unavoidable high operating cost will continue to make offshoring a worthy option.” XMG Global Inc. further noted that because companies desire to be globally competitive, they will still continue to outsource offshore because it stands as a viable business strategy. Business Processing Association of the Philippines (BPAP) executive director, Martin Antonio Crisostomo, stated that the incentives and tax perks being offered by the US government to firms cannot possibly outweigh these firms’ savings when they choose to outsource in the Philippines. He reasons that outsourcing helped many US businesses survive amid the global financial crisis last year.
As long as BPO and knowledge process outsourcing companies deliver quality performance and cost savings, American firms will prefer to take their business to offshore BPO and KPO destinations like the Philippines.