Why a bit of paranoia about Philippine outsourcing is a good thing

SAN FRANCISCO — Fear of an outsourcing backlash in the United States became more pronounced last week with President Obama’s state of the nation address.

The president called for lifting a U.S. economy “weakened by outsourcing,” which has naturally fuelled worries that the Philippine business processing outsourcing industry is about to take a hit from a U.S. pull back.

Are these worries valid? Yes — and no.

Yes, because the pressure to deal with the U.S. unemployment crisis is mounting. The crisis has been particularly severe for young people. “Generation Jobless,” a Wall Street Journal article back in November called them.

But it’s also unlikely that US companies will suddenly  and radically pull back its IT outsourcing operations from countries like the Philippines.

A key reason can be summed up in one figure: 6,000 — as in $6,000. That’s roughly the yearly pay of an entry level Filipino BPO employee — which is roughly what many entry-level and mid-tier U.S. IT employees make in a month.

The cost advantage for U.S. companies is simply so huge, especially in an increasingly competitive global economy, that they aren’t likely to give that up just like that.

Still, a bit of paranoia is good. That’s because the world economy is also still changing.

Anything can happen.

In fact, paranoia was partly a factor for the mind-boggling growth of the industry in the Philippines.

As one Filipino executive explained to me, U.S. companies became more interested in the Philippines in the early 2000s as a result of political tensions between India, then the world’s undisputed BPO center, and Pakistan.

Fear of war between the two countries prompted American firms to look for alternatives —  and the Philippines was right there ready to fill that need.

The industry has grown tremendously. It has offered economic opportunities to young Filipinos who no longer have to go overseas to find a job that pays well.

There have been serious concerns about the social impact of the outsourcing boom, including the fact that a generation of young Filipinos now work at night and sleep in the day.

Still, it’s hard to argue with the opportunities the boom has created. The questions now are: How long can it be sustained? And in what direction should the country’s business and political leaders take it?

This is where a bit of paranoia is good. This is where the country’s leaders should be thinking 10, 20, 30 and even more years ahead about what to do with the gains from the BPO boom, and how to anticipate potential pitfalls.

For example, the BPO industry has grown so rapidly, it has been forced to turn to young, inexperienced Filipinos to take on management roles.

That’s a problem. An emerging industry needs experienced managers. But the demand is so great the industry has somehow managed to push forward.

And there’s this: the country now has a small, growing army of managers developing expertise and knowledge about an important global industry.

With the right incentives and opportunities, they may then use all these experiences and knowledge to create their own companies, not just in IT, but maybe even in other industries.

That will take time, but the potential is there.

But once again, a great deal of forward thinking is needed to make this work. And so many things can derail that momentum.

Just as the threat of war in Central Asia gave the Philippines an opening in the BPO industry, political turmoil can just as easily cause serious headaches for the industry.

That’s why  peace talks with rebel groups are critical, and why the seemingly endless power elite circus in the country, if it gets out of control, can be potentially disastrous.

A deteriorating education system can also quickly erode the advantages the Philippines enjoyed in competing in an increasingly global IT industry. The concerns raised by civil society about the social costs of the boom should also not be ignored.

Yep, a bit of paranoia helps. We can learn that lesson from other countries.

In fact, it was a heavy dose of paranoia that helped turn the United States into an economic and IT  powerhouse.

In his speech, President Obama talked about supporting “the same kind of research and innovation that led to the computer chip and the Internet, to new American jobs and new American industries.”

What he didn’t mention is that paranoia also played a role in those technological advances.

This year marks the 55th anniversary of the first Sputnik launch in 1957, which propelled the Soviet Union ahead of the U.S. in the battle for technological supremacy during the Cold War.

Stunned by the Soviet leap to outer space, the U.S. responded by rallying the country’s best scientists and engineers and creating DARPA — the Defense Advanced Research Projects Agency.

Their mission: to try all kinds of crazy research in hopes of making sure the U.S. maintained its technological edge against the Soviets.

Many of DARPA’s research focused on military technology, such as the M-16 and sophisticated bombing systems that have wreaked havoc on other countries.

But DARPA also led to inventions that have become useful and valuable to the world at large. One is GPS, or  global positioning system. DARPA is most famous for propelling the huge advances in space exploration, capped by the Apollo missions when the U.S. became the first country to send people to the moon.

But another breakthrough at first didn’t get much attention: the Internet.

The Internet began as an effort by academics and engineers to get computers — which back then meant huge machines the size of refrigerators —  to talk to each other. For decades, only nerds and geeks were aware of, or were interested in, this research.

But then a quarter of a century later, the picture changed.

In 1991, the Internet, now recast as a the World Wide Web, sparked a revolution that one could argue was even more explosive than sending a man to the moon.

In fact, in an ironic twist, that revolution, rooted in American paranoia, paved the way for countries like the Philippines to build a new vibrant IT industry.

But the revolution isn’t over. The world economy is still evolving.

And it’s simply smart for Philippine business and political leaders to be just a tad paranoid about what they should do next to make sure the country doesn’t get left behind.

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