U.S. companies are increasingly taking advantage of technology offshoring in countries like the Philippines. Find out what it means for the country’s economy.
Key takeaways:
- Technology offshoring helps companies save money and increase efficiencies, but it also can lead to job displacement.
- The Philippines became a go-to offshoring resource in the early 1990s, and now hosts more than 1,000 BPO companies.
- Over 1 million Filipinos are now employed by BPO companies.
Technology offshoring has emerged as a pivotal force in global economic development, with one study finding that offshoring increases local productivity and capital investment in the U.S.
Offshoring has profoundly influenced the job market in many countries. The Philippines, with its strategic geographical location, skilled workforce, and favorable business environment, has become a significant player in the realm of offshoring. The practice still brings controversy, however, especially amid concerns around job displacement and the potential erosion of local industries.
This article discusses the impact of technology offshoring on job creation in the Philippines, both its positive and negative effects, the historical context and current state, and insights about the intricate relationship between technology offshoring and job creation.
Understanding the pros and cons of technology offshoring
Technology offshoring is the practice of companies outsourcing technological and information-based services to offshore destinations. U.S. companies partner with international organizations to delegate certain business tasks related to their tech infrastructure, like software or support. This enables them to tap into specialized skills they may not otherwise have access to, which enhances their competitiveness.
Additional benefits of technology offshoring include:
- Improving the quality of services and products
- Increasing efficiencies and speed to market
- Reducing costs and conserving profits
- Freeing up time to focus on core business concerns
Many argue that the drawbacks are still significant, though. There is job displacement to worry about when jobs are sent offshore. There can also be major communication challenges and language barriers, and sensitive information may be put at risk when shared with foreign entities.
Technology offshoring in the Philippines
The Philippines has emerged as a favored destination for technology offshoring, driven by a skilled and English-proficient workforce, competitive labor costs, and a supportive regulatory environment. The history of technology offshoring in the Philippines can be traced back to the early 1990s, when multinational corporations began setting up offshore service centers. Frank Holz started the first contact center in the country – Accenture Global Resource Center – in 1992.
Today, the country stands as a global hub for various outsourcing services, including customer support, software development, and digital marketing. Recent data shows that the business process outsourcing (BPO) industry in the Philippines contributes almost $30 billion to the economy annually, and that there are more than 1,000 BPO companies in the country.
Job creation in the Philippines
Job creation is a foundation of economic growth, fostering a stable and prosperous society. In the Philippine context, robust job creation is vital for alleviating poverty, reducing inequality, and sustaining economic progress.
But the country faces challenges such as a rapidly growing population and a mismatch between the skills demanded by the job market and those possessed by the workforce. One report from the International Labour Organization found that threats to Philippine economic growth include:
- The rise of global protectionism
- Reshoring threats
- The socioeconomic impact of COVID-19
The study also found that issues such as low-paid work, low productivity, excessive working hours, precarious work, and underemployment were still deficits for the country’s labor market.
The impact of technology offshoring on job creation
Technology offshoring has a dual impact on job creation in the Philippines. It has contributed significantly to employment growth by creating job opportunities in the outsourcing industry, for example. This has helped absorb a substantial portion of the labor force and boosted the economy. On the other hand, concerns arise over the potential displacement of domestic jobs, particularly in industries susceptible to offshoring.
Some of the business processes most affected by technology offshoring include call centers, back-office operations, and software development. These sectors have experienced substantial growth due to offshoring, but there are instances of local job losses – especially in industries that compete directly with offshore services.
The future of technology offshoring and job creation in the Philippines
The potential for technology offshoring in the Philippines is significant as technology continues to advance and global connectivity improves. Some 1.3 million Filipinos are employed by the many BPO companies in the country, and the nation’s adaptability and skilled workforce position it to continue attracting offshoring investments.
Policymakers and stakeholders must address the challenges posed by job displacement and work toward upskilling the domestic workforce to ensure a balanced and equitable job market, however. The future of job creation in the Philippines is intertwined with the evolution of technology offshoring. Embracing a proactive approach to workforce development, fostering innovation, and nurturing local industries are essential strategies to mitigate potential negative impacts.
Technology offshoring can serve as a catalyst for job creation if paired with initiatives that enhance local competitiveness and support industries vulnerable to offshoring. This will help Filipino workers and the BPOs that rely on them to see continued success.
Approaching technology offshoring the right way
The effects of technology offshoring on the job market in the Philippines are complex and multifaceted. It has undeniably contributed to job creation and economic growth, but also raised concerns about job displacement and industry viability.
Understanding these dynamics and considering potential solutions means stakeholders can harness the benefits of technology offshoring while safeguarding the interests of the local workforce. By engaging in a purposeful dialogue and proactive planning, the Philippines can harness the transformative potential of technology offshoring, making it a cornerstone of sustainable job creation and economic growth.
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