India's success in climbing the value-added chain has been tied in with its success in software development. Indian outsourcing service providers have had ample opportunity to collaborate with local software developers, to develop the applications that are needed to support outsourcing operations. In fact, India's software development firms are themselves taking the lead in taking the country's outsourcing industry into higher value-added activity, by diversifying into this sector. Thanks to an Internet boom and Y2K spending in 1999 and 2000, the larger Indian software companies have accumulated large cash piles, which means they have the financial firepower to invest in new business areas. More importantly, these software companies can leverage on their existing client relationships, in marketing their outsourcing services. The Philippines is far behind on these counts. For the next few years at least, the Philippines will find it a lot easier to punch and pinch India in the lower- and mid-levels.

Many-sided jewel

It is not only the availability of a large-pool of university-educated, English-speaking, relatively low-waged workers that give the Philippines the oomph on the world stage. "Our graduates are highly-motivated to undertake such jobs as well," says Mendoza-Vianzon This partly stems from the present anaemic economic environment in the country. The Philippines produces about 350,000 graduates every year, many of whom know that their chances of landing a job that fits in nicely with their academic training are slim. "This is a key reason why many well-qualified Filipinos are motivated to take up jobs as call centre agents and in other types of BPO-related work," Mendoza-Vianzon explains. In the U.S., for example, a high percentage of call centre agents are school graduates or part timers, and, as a result, are likely to lack a strong foundation to provide customers with, say, proficient technical support on the telephone. In addition, because of the low esteem that such work carries here, they are less inclined to be motivated to upgrade their skills or put in that extra effort to satisfy customer aspirations.

On the other hand, in the Philippines--as well as in India--the job of a call centre agent or backend office accountant is a job-of-choice for many graduates. So, right at the start, these graduates are not only better educated than their U.S. competitors, they are, at the same time, more motivated to attain the prescribed quality standards that their employers require.

The sluggish local economy has helped improve the Philippines' cost competitiveness in other ways as well. "Weak demand for office space has depressed rents, even in Manila's prime areas," says Mendoza-Vianzon. Landlords are even offering one-year free rental as long as tenants sign up. "Office space that was going for 800 pesos/m2 (US$15) in Manila's prime locations a year ago, are now going for 600 pesos (US$11.2)."

Other factors that work to the advantage of the Philippines is its reliable telecom infrastructure, which is better than India's. In addition, telecom rates are lower than India's--all this thanks to the liberalisation that started in the mid-nineties. The cost of a dedicated T-1 telephone line between the U.S. and the Philippines has dropped to US$8,000 a month from US$30,000, a few years ago. "I have even heard of companies paying as little as US$6,000," says Roxas. But India's telecom market has been deregulating rapidly over the past one-year and the government has recognised that the modernisation of this sector is critical to the nation's long-term competitiveness. In short, this is an edge that the Philippines will not be able to bank on for too long.