Obama’s ‘insourcing’ highlights risks of relying on BPOs

MANILA, Philippines—The recent pronouncement by US President Barack Obama to bring outsourcing jobs back to the US highlights the dangers of relying on business process outsourcing (BPO), and on foreign economies in general, for Filipino jobs. Even if it is still unclear if Obama’s proposed “insourcing” legislation will pass, the vulnerability of the sector and the government’s misplaced attention to this is increasingly apparent.

The “insourcing” initiative has been dismissed either as mere election-related rhetoric or in any case as unlikely to prosper against corporate lobbying, such as by the Business Processing Association of the Philippines (BPAP). But the initiative is just another example of adverse trends facing the sector and more of this are likely to emerge as the crisis in the US and the rest of the world worsens in the coming years.

Government and industry estimates for the BPO are of 1.3 million jobs and US$25 billion in revenues in 2016. These are unlikely and it will be recalled that the original BPO “Roadmap to 2010” target was for 1.0 million jobs and US$12 billion in revenues in 2010 – of which only 525,000 jobs and US$8.9 billion materialized.

As it is, the growth of the BPO sector is already slowing slightly in terms of jobs and revenues. The 21.9 percent growth in BPAP-reported jobs in the sector in 2011, to an estimated 640,000, was slightly slower than the 24.1 percent growth in 2010. Similarly the 22.5 percent reported growth in revenues, to some US$10.9 billion, was slightly slower than the 25.3 percent growth in 2010.

The slowing global and, in particular, US economy appears to have affected the sector’s performance despite the country reportedly having nudged India out as the world’s leading BPO center. The World Bank has previously estimated global economic growth to have fallen to 2.7 percent in 2011 from 4.1 percent in 2010 and US economic growth from to 1.7 percent (2011) from 3.0 percent (2010). Developments in the US economy are particularly relevant because the latest Bangko Sentral ng Pilipinas (BSP) data notes that the US accounts for 72 percent of foreign investment and 80 percent of BPO service exports.

It can for instance be noted that the trend in the deployment of Filipino nurses to the US dropped from 649 in 2008 to just 85 in 2010. In his campaign for the US presidency, President Obama campaigned for prioritizing American nurses over migrants declaring: ““The notion that we would have to import nurses makes absolutely no sense.” Recently, the Democrats’ House Bill 1933 reviving temporary visas for registered nurses was approved by Congress. Among others the bill limits the number of H1-C temporary registered nurse visas to 300 per year from a previous quota of 500 annually.

The government has so far budgeted at least P575 million in subsidies for private foreign BPO investors consisting of trainings, curriculum and teacher development, career marketing and scholarships through TESDA and CHED. These funds are more productively spent supporting Filipino industry, science and technology than for a sector that is such a small part of the economy and by its nature will never give much value-added. The BPO sector is barely integrated into the local economy outside of its relatively few jobs and so does not stimulate or encourage domestic production.

IBON Foundation, Inc. is an independent development institution established in 1978 that provides research, education, publications, information work and advocacy support on socioeconomic issues.