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Fri, Mar 08, 2002 - Page 19 News List

Philippines taking steps to become the Mexico of Asia

Manila is betting that when Japan realizes the magnitude of its shortage of labor, companies there will want to outsource more

By William Pesek Jr  /  BLOOMBERG , MANILA

It is, in the annals of advertising, an intriguing campaign: "Welcome to the Philippines, the Mexico of Asia." You won't find that slogan on billboards, but you'll hear much about it making the rounds in the Philippine capital.

Officials have done their homework and seen the pivotal role Mexico's abundance of cheap labor plays in the US. They want to do the same thing for Asia's biggest economy.

"What Mexico is to the US, we could be that to Japan," Philippine Finance Minister Jose Isidro Camacho says in an interview. "As Japan undergoes its restructuring, the Philippines could really play an important role because there's a lot of complementarity between us."

Immigrants have played an especially vital role in the US over the last decade. Foreign workers boosted the labor force, allowing companies to expand and profit even as the number of available native workers shrank. Mexicans and others filled the voids.

If US jobs had gone unfilled, businesses couldn't have grown and achieved high rates of productivity in the 1990s. This would've led to slower growth, stagnant corporate profits and a less vibrant stock market. Could the Dow have risen above 10,000 without workers to keep the economy growing? Japan might consider doing the same. Demographics is one of the biggest long-term challenges facing the world's second-biggest economy. Japan's rapidly aging population means that it will experience an extreme labor shortage. At the same time, Japan's high standard of living means that even with deflation and recession, companies are paying lofty salaries.

Enter the Philippines, a nation whose No. 1 export is cheap and skilled workers. In places like Frankfurt, Hong Kong, London, New York, Riyadh and Singapore, as many as 10 percent of the nation's 77 million are already working and sending money back here to support families. These overseas remittances add up to several billion dollars, lending considerable support to the local economy.

President Gloria Macapagal Arroyo's government thinks Japan is the next frontier. Not only do Japanese companies need new sources of physical workers, but also new ways of trimming costs.

Filipinos could help Japan in both respects, by exporting workers and providing outsourcing operations domestically.

Japanese banks, for example, could save bundles letting Filipinos in Manila handle back-office operations and data processing. Japanese hospitals and health and insurance organizations also could avoid staffing challenges -- and high costs -- by outsourcing many non-critical functions to Philippine companies.

The Philippine strategy is, at its core, an attempt to emulate India's success. Years ago, India realized the profit potential of its service economy. The nation's large English-speaking and skilled population provided the perfect resources to build a vibrant outsourcing business for capital-intensive back-office operations.

"When people think of IT, they think of Bangalore, but not the Philippines," Camacho explains. "We're working to change this."

Globalization has driven the trend, especially in India's case. Its clogged ports and spotty transportation networks were punishing the nation's traditional industries. Yet information-technology firms found they were immune from those problems, needing only high-speed phone lines to keep their virtual shipping lanes open. Marquee-caliber companies such as General Electric Co and British Airways Plc wasted no time in signing outsourcing deals.

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