The Philippines: Low cost, but higher risk

Computerworld - It's Tuesday morning at 8:30. The five members of a project team at Ondeo Nalco Co. in Naperville, Ill., assemble in a conference room around the speakerphone while business-side project manager John Ostberg dials up their software development counterparts half a world away.
It's 8:30 Tuesday night in Manila. After a marathon day, programmers Fermin de los Angeles, Ben John Parado and Joey Riosa of outsourcing consultancy Headstrong Corp. take the call and rehash the day's events.
Ostberg and his team know the faces behind the speaker. The three Filipino programmers spent two months in Naperville getting to know their counterparts and the project. Their English is flawless, but to guard against misinterpretations, a Filipino project manager makes sure that instructions are understood and that business plans are packaged into specific tasks for the Manila team.
For almost a year, this outsourcing arrangement has run smoothly for the water treatment, chemicals and services company. After jointly developing its business intelligence warehouse with Fairfax, Va.-based Headstrong, Ondeo Nalco's project team figured it could scale back and let offshore programmers make smaller enhancements to the system. It enlisted Headstrong's development team in the Philippines initially to save money -- with little concern for location, Ostberg recalls. But he has since found the island nation to be good for offshore work.
"After India, the Philippines is probably the second most popular destination when it comes to pure offshore outsourcing," says Atul Vashistha, CEO of NeoIT Inc., an offshore outsourcing advisory firm in San Ramon, Calif. With a $1 billion outsourcing industry, the country is known for its applications development and maintenance, contact centers, business process outsourcing and content conversion.
Vashistha credits the Philippines' popularity to its English proficiency, a highly skilled workforce (380,000 college graduates annually), a developing telecommunications infrastructure and low cost. An experienced programmer earns $6,000 to $12,000 a year, he says. But there's still a shortage of experienced program managers to oversee projects.
Meta Group Inc. researchers rank the Philippines behind other Asia-Pacific countries such as Singapore because of its political instability and lack of native IT companies, according to Howard Rubin, Meta Group's executive vice president.
For most of the past decade, the Philippines has been dealing with militant Muslim insurgents. "It has a destabilizing effect on the nation's ability to attract and sustain foreign capital investment, and thus poses serious threats to the economy," Meta Group reports.
NeoIT's Vashistha insists that the threat is limited to the Philippines' southern islands and hasn't affected IT work in Manila. But he acknowledges that companies should "make sure they have solid business continuity and disaster recovery plans."
A research report by Tech-Economy.org in Palo Alto, Calif., sums up the situation this way: "With its large English-speaking base, the Philippines would be a logical location for the development of software, but the industry is underdeveloped."
The Philippines needs more software engineers and software development companies. The report says there are about 10,000 software programmers nationwide and only 30 companies focusing on software development. By contrast, "the geographically small Ireland, with a population 20 times smaller than the Philippines, has more than 800 indigenous software development enterprises, 26 times more than the Philippines," the report says.
To foster more local IT companies, President Gloria Macapagal-Arroyo, who came to power in January 2001, leads a task force on stimulating the development of Philippine IT and companies in the business process outsourcing field. Companies that set up IT business parks enjoy a six-year tax holiday that includes exemptions from government fees, licenses and export taxes. Today, native outsourcing vendors in the Philippines include Software Ventures International Corp., SPI Technologies Inc. and Innodata Corp.
At Ondeo Nalco, the biggest challenges so far have been the time difference and some system security concerns early on that took a month to rectify.
"There's a perception that if you're going to open up your network to anybody on the other side of the world, you have to be extra secure because of the danger that they'll be contaminated by connections into their network," explains Paul Gould, IT group leader for global development. So Ondeo Nalco and Headstrong spent a month deciding which ports would be opened in the firewall, what level of access people needed to do their jobs and what could be done in the U.S. vs. overseas.
Northwest Airlines Corp. began outsourcing to the Philippines five years ago to augment staffing in its applications development and applications maintenance areas, as well as to cover temporary peaks in development demand. The St. Paul, Minn.-based airline manages cultural differences through close communication, on-site presence from the vendor and regular visits by U.S.-based employees to the facility in the Philippines.
"We find our offshore colleagues to be highly educated and process-focused," says Mary Stanik, a Northwest Airlines spokeswoman.
"Our experience has taught us to expect quality development at lower hourly rates, but with higher management overhead," Stanik adds. "The offshore relationships have offered quicker access to critical skills -- quicker than hiring and training."
Collett is a freelance writer in Sterling, Va. Contact her at stcollett@aol.com.