Offshoring island

Share

There's much more to be found on the sunny Philippine island of Cebu these days than idyllic beaches, its famous whole roast pig delicacy, and kitschy baskets and other local handicrafts. There's a whole lot of business processing going on-call centres, accounting grunt work and other office tasks that can now be located in whatever jurisdiction on Earth is cheapest. Cebu, with its new telecommunications infrastructure and universities that produce a steady stream of hard-working, English-speaking graduates, was named the No. 1 emerging global outsourcing destination of 2009 by Tholons, an international consulting firm. JPMorgan Chase and Bombardier are already there, and so are dozens of other multinationals.

All of this makes Cebu a very good place to start searching for answers to some crucial global economic questions: Is outsourcing creating significant economic progress in those destinations, or merely exploiting cheap labour? The more you poke around Cebu itself, and the more corporate executives explain why they have to outsource and go offshore, the more it seems like the shift in jobs isn't just inevitable; it's also beneficial for just about everyone concerned.

The employees of multinationals in Cebu certainly don't look like huddled masses. Cebu City, the capital of the central Philippine province, has a population of 2.5 million, and many corporations have located in a new business park that was built on an abandoned airfield. Employees who do accounting and back-office work for overseas companies earn up to $5,000 (all currency in U.S. dollars) a year, roughly three times what local companies pay workers. Before or after shifts, they mill around on sidewalks outside their offices, or hang out at the Jollibee burger joint or the Coffee Bean & Tea Leaf, many of them talking on cellphones. And many have the means to support siblings in school.

Cebu isn't the only outsourcing and offshoring destination in the Philippines, but its modern technology, educated work force and living costs that compare favourably to the nation's capital, Manila, have made it one of the most popular ones. Over all, the country now has an estimated 15% of the world's business process outsourcing. In a nation of 90 million, where 42% of the population is between the ages of 15 and 39 (many just entering the work force), the sector has provided much needed full-time employment for about 400,000 Filipinos. Estimates suggest the sector has revenues of $9.5 billion a year.

Is outsourcing costing jobs in North America and Western Europe? Some, yes. In 2008, Montreal-based Bombardier, which does business in 60 countries, started to outsource its back-office accounting functions in two locations: Romania and the Philippines. As described in a recent online ad for 28 job openings in Cebu, those functions include taking care of "general ledger, accounts receivable, cash management, hedging, cost accounting and accounts payable" for "internal customers." No experience is necessary, but required skills include fluency in English, Spanish, French or Swedish. At the moment, Bombardier Transportation has 60 employees in Cebu.

Heiner Spannuth, the Berlin-based communications director for Bombardier Transportation, concedes that up to 15 Canadian jobs in the company's finance department will disappear because of the consolidation. The company, he says, "continually adjusts its activities in response to its competitive environment and the economic climate. This allows BT to compete in a world market by having a better cost structure." Translation: We have to match or better our competitors on just about every cost item, and they're outsourcing too.

If that motive is not enough, consider the alternatives. Withholding jobs from Filipinos or the citizens of any other emerging country that want the work is not going to win Bombardier or any other developed-world multinational any more business. Nor will trying to hang on to jobs for which North Americans and Western Europeans no longer have a significant comparative advantage in education and skills. A recent study by the Centre for Outsourcing Research and Education bolsters those arguments. An overwhelming 70% of the Canadian companies that participated said they intend to increase outsourcing. Yet, after analyzing employment data and industry patterns, the study concluded that, over all, "offshoring has no effect on employment in Canadian industries."

Even if the multinationals were determined to exploit the locals in Cebu, it's unlikely they could get away with anything outrageous for long. Ethical funds and other activist groups now monitor corporations around the globe, and savvy executives know that. Bombardier's Spannuth says that health care and education are two issues the company may address in Cebu after they consult with their workforce there. The big corporations from overseas don't bring just jobs to town-they also bring the scrutiny of some of their harshest critics.