Be close to the trees, but don’t miss the forest.

This posting will confirm [and build on an earlier one] that I dipped my toes in the “call center” industry per my promise to a friend (who runs an enterprise.)

At the end of a two-day business review, I shared my impressions, “Be close to the trees, but don’t miss the forest.” Long story short, I challenged the team to “double the business.” Several weeks ago, I shared with them a GPS model – to guide them in their planning session: Where are you; Where do you want to be; How will you get there?

I had asked for the character of the nut that the team had to crack, especially the target market and its size and the best-in-class competition – the superiority they demonstrate, from the product architecture to the length and breadth of the customer experience.

Present in the review was an American, their representative in the US, who shared with the Filipino crew the fine-grained realities of the business on the ground. He did his homework.

For example, 84% of outsourcing deals come from the United States. That 66% of US companies with 50 or more employees outsource, against 29% of those with less than 50. And Deloitte anticipates the BPO sector to reach $212 billion in 2023, a 19% increase over 2019.

Because 71% of Americans think outsourcing harms the US economy, it is not surprising that there are 287,938 BPO service businesses in the US as of 2023, an increase of 3.7% from 2022. 60% of organizations turn to outsource for app development. [That is something the industry must keep an eye on and gear themselves to satisfy.]

Small businesses that can’t afford US-based providers seek “strong problem-solving skills” in choosing an outsourced team overseas. [In other words, there is more to BPO than answering calls.] Noteworthy, India is the most attractive country for outsourcing business services; the Philippines ranks in the top 10. [Still, despite its dominance in the IT-BPO industry, India must pursue manufacturing given its population size that is several folds that of Ireland and Israel, the two most prominent IT-BPO players after India, and consequently its alarming poverty rate. Manufacturing’s multiplier effect on the economy is more significant than the service industry because of the sub-industries it spawns. Unsurprisingly, India welcomes Apple’s plans to transfer 25% of its iPhone production from China to India.]

The average salary for a Filipino software developer is just $7,174, or 10% of the average American software developer. On the other hand, over 1 Million outsourced jobs are in danger due to automation. [That is something that Philippine BPOs must overcome by being proactive, moving up the value chain, and designing their product architecture accordingly.]

The bottom line for the Philippines: 8% of the Philippines’ GDP comes from BPO.

Question: Do I think my BPO friends can double their revenues, and why have I challenged them? I do; the team with the American representative agreed, and that is how they crafted their plans. For example, which clients present the most significant potential, and what product portfolio must they develop, recognizing that innovation and global competitiveness are the metrics?

Let’s hold it right there.

Since 84% of outsourcing comes from the US, they must be the focus. And note that their projected aggregate revenues would increase by 19% from 2019 to 2023. How come I challenged my friends to raise their sales projections by a hundred percent? Because the growth in the US – and over $21 trillion economy – outsourcing reflects the expansion of its GDP, i.e., a 6% growth is on the high side.

But Philippine enterprises – like our economy – are still minuscule. The only way for them to thrive globally is to scale up.

Yet, scaling up is not in our lexicon. And it comes from our caste system where [the concept of] “scale” is beyond Juan de la Cruz and is the privilege of the hierarchy – as in an oligarchy. See below; our worldview is between “privilege and entitlement.”

Andrew Masigan wrote, “As of mid-2022, the Philippine IT-BPO industry employed 1.43 million Filipinos and generated $29.1 billion in revenues. Compare this against the trifecta of knowledge superpowers – India, Ireland, and Israel, who realized $194 billion, $69 billion, and $44 billion in revenues in 2021, respectively.”

In other words, if we double Philippine BPO revenues, we will be up to roughly $60 billion. And we will be celebrating because of our sacred 6%-7% GDP growth metric. And Philippine enterprises, including the BPO industry, are tapping into that mindset. In other words, enough of the orthodoxy. Our economic managers, legislators, and think tanks must toss that mindset.

Why? We are no different from Laos, which delivered the exact numbers — 6%-7% GDP growth — over a decade, and we are still in the cellar.

Enter Mr. Ramon Ang and the BOI. They represent a new driving force — to scale up the Philippine economy — which we haven’t had for a longest time. And our job is to exploit it consistent with the force field theory in managing change — which is familiar to blog readers. As necessary is, to address the restraining forces expounded in this posting and by the blog for the last 14 years.

Here’s a quote from an earlier posting: Consider: BOI reported adopting the Pareto principle to focus on “big ticket” items. That was after Mr. Ramon Ang shared his Bulacan initiative, which would generate $200 billion in export revenues beyond the Bulacan airport — and negate the advantage of our neighbors. And as the blog raised, we can include agribusiness under the Bulacan umbrella.

Those are multifaceted challenges. And recall the elements of cognitive development. Beyond binary thinking, there is multiplicity and relativism — the imperative of context.

The bottom line: How do we pull them all together? Beyond the restrictive economic provisions of the Constitution, we have countless sets and subsets to align and harmonize. And it goes back to overcoming binary thinking. 

Consider: $200 billion in export revenues would be over 50% of the Philippine GDP. In other words, raising GDP by 50% will require a significant increase in energy needs. But because of economies of scale, we should be able to invest in power generation, for example.

Let’s hold it right there. 

We cannot hold to the sacredness of the 6%-7% GDP growth metric if we want to be ahead of the curve in energy development. That’s why the blog never tires of distinguishing (a) logical yet linear and incremental thinking and (b) forward, lateral and creative thinking. And that is why the Ang initiative must be a driving force in our journey from poverty to prosperity, as well as the shift in the BOI direction. And note that I challenged my BPO friends to double their business.

Can we toss Pinoy hubris?

Here’s a news item from BusinessWorld, 26th Jan 2023, “ECCP President Lars Wittig said that the group is expecting “billions of dollars” worth of foreign direct investment into industries like renewable energy (RE). The ECCP said the investment would come because of the Department of Energy’s green light to relax foreign ownership caps in RE, as outlined in Department Circular No. 2022-11-0034, as well as the amendments to the Foreign Investment Act, Retail Trade Liberalization Act, and Public Service Act.”

What is the context if we are to craft a robust economy? We must move beyond binary thinking, exploit multiplicity, and become a first-world economy. That is where we want to be.

For example, we cannot claim excellence in human resources because we speak English, and the service industry drives our economy. UP and Ateneo, our two top schools, have been left in the dust by their counterparts in the region. That we have a young population doesn’t give us a leg up. The demographic plus we think we own is a fallacy, given the staggering levels of poverty and hunger. What we must learn and claim is dynamism. We don’t want the world to keep leaving us behind.

Said differently, we must pursue the sectors of the economy, be it agriculture, manufacturing, or service, knowing full well that whatever industry we focus on must generate the equivalent of the vital few. And that means we deliver against the metrics of innovation and global competitiveness. We don’t have to be the “manufacturing hub” of the world. But we want to be a first-world economy.

That is how we must prioritize the industries and businesses that can deliver export revenues of $200 billion. For example, we can double the BPO revenues to $60 billion. In agriculture, we must teach our farmers the pursuit of the “common good” and replicate the Vietnam Food Association. In manufacturing, we must toss the current PEZA export zones model that reveals our crab mentality. We must craft investment incentives to mirror our neighbors’ efforts. Pareto. Pareto. Pareto.

It takes a village, and the Philippine elite and chattering classes could be the nucleus to lead this multifaceted challenge.

But then, can the economic managers, legislators, and think tanks update their respective portfolios and show the way?”

The good news is that the BOI appears to have shifted directions. From toiling figuring out the scores of industry road maps that never flew off the ground, they are now looking at “big ticket” items. And that is why the blog never tires of speaking to Samsung Vietnam.

Sadly, we can’t overcome binary thinking. We celebrated the OFW phenomenon because we assumed we couldn’t be in manufacturing. In the meantime, our neighbors, one after the other, had the opposite perspective and, one by one became Asian Tiger. 

Why? They are way beyond binary thinking and into multiplicity and relativism, which they translated as “begging for Western money and technology.”

But we’re still stuck at logical yet linear and incremental thinking. We don’t have this, and we don’t have that. We have corruption. We have no infrastructure.

Said differently, dynamism is not in our DNA. And it comes from our worldview between “privilege and entitlement.” 

Consider: We are parochial and insular. We value hierarchy and paternalism and rely on political patronage and oligarchy; ours is a culture of impunity.

Unsurprisingly, we cannot internalize that we are a subset of this dynamic universe in constant motion and expansion.

I was a regional manager at my old Fortune 500 company when these neighbors were doing their thing. They stepped up infrastructure initiatives and tapped Western money and technology to leapfrog industrialization.

Yet I was chosen as regional manager over my Asian peers because we Filipinos were more sophisticated in business and industry than our neighbors. Recall that I was indolent as a student. But I have been exposed to modern business in the Philippines through five different sectors.

Sadly, we didn’t demonstrate their dynamism. But they’re not perfect. 

Here’s a 23rd Jan article in The Economist about Vietnam: “With stricter accounting, corrupt officials have no interest in implementing capital-investment projects because they can’t “eat” from them. Even some honest officials are so scandal-averse that they won’t approve projects. The effect shows up in investment statistics.

“The disbursement rate of state capital investment—the share of the government’s planned spending on roads and the like —fell from around 70% in 2011-14 to about 50% in 2019. After a post-covid jump, last year it dropped to 58%.

“Officials are afraid of any responsibility, giving signatures or preparing public documents for projects. The resultant snarl-up is evident even in tax collection. Several foreign residents report being unable to pay their taxes. The relevant officials worried that they might be held responsible for collecting the wrong amount.

“The logjam is slowing desperately needed infrastructure projects. The nationwide North-South Expressway remains a patchwork. Ho Chi Minh City’s promised metro has yet to open a decade after work on it began. That will not jeopardize Vietnam’s growth in the short term. It was estimated at 7.5% in 2022 and to top 6% this year.”

But then, Vietnam has its pluses. “Vietnam is liberalizing its economy to welcome foreign industry. In 2015 the government opened 50 industries to foreign competition and slashed regulation in hundreds more. Last year, it sold a majority stake in the biggest state-owned brewer, Sabeco, to a foreign firm. Vietnam's enthusiasm for free-trade deals has made it especially alluring to foreign investors. It is a founding member of the “Trans-Pacific Partnership,” a multilateral trade agreement that includes Australia, Canada, and Japan. It is due to sign a trade pact with the European Union soon. The deal signed with South Korea in 2015 has made it South Korea’s fourth-biggest trading partner.” [“Why Samsung of South Korea is the biggest firm in Vietnam,” The Economist, 12th Apr 2018]

Be close to the trees but don’t miss the forest.

How? We must very quickly overcome Pinoy hubris. We don’t know it all. We must learn it all, say, from our neighbors. Take dynamism. We are the laughingstock of the region. Hubris can’t be in our consciousness.

Gising bayan!