Donald Trump and the Future of Offshoring in the Philippines

The result of the recently concluded US presidential election is still being felt, even weeks after Donald Trump was declared the winner. Trump’s unexpected win took the world by surprise with people having plenty of mixed emotions about what his presidency would mean not just for the United States but the global implications as well.

The concerns certainly aren’t unfounded either. Despite not taking office yet as of this writing, president-elect Trump’s policies, appointments and opinions already has heads turning, with many questioning their long-term effect on the next four years on both offshoring and outsourcing.

Though a currently touchy issue for most businesses in the Philippines, looking at the bigger picture of what could happen in the next four years will not only bring up to speed what’s been happening but also what effect it has and how it may be felt by other countries.

An Affected Industry

It’s almost no secret that Donald Trump’s platform was based on strengthening domestic policies and employment for millions of Americans. Over the course of his campaign, Trump espoused that he would “Make America great again” and one of those promises included keeping jobs within the country instead of being outsourced to countries like China. Keeping and returning jobs to America has been such a major part of his campaign that it was one of the main issues he focused on during his formal announcement to run for the presidency last year.

So it’s a policy that puts more focus on America. Why do Australian and Philippine businesses need to be concerned? While true, to an extent, Australian businesses would not be majorly affected by this policy, the Philippines and the Filipino people may feel the brunt of it and experience a major setback economically and professionally. We’ve established previously that the BPO industry is a significant contributor to the Philippines’ GDP and Trump’s remarks no doubt have plenty of businesses in the Philippines concerned about their futures and what a Trump presidency will mean for them. Business leaders in the Philippines have also acknowledged that a “weakened” BPO industry could be looming with lesser investments coming from the United States.

Promises Versus Implementation

Meanwhile, the Philippine government has also done their part into assuring local workers who may be affected by the “Trump Effect” that it is still too early to jump to any conclusions. In a statement, Presidential spokesman Ernesto Abella said that the Philippines is in a “wait and see” mode to what Trump may actually do.

Indeed, most experts in the country see Trump’s promises as mostly campaign rhetoric that may have been highlighted in order to entice undecided voters to his side. They are also quick to point out that Donald Trump is always going to have a mind for business, and that the businessman side of him will always look for new investment opportunities, especially with foreign countries. Department of Labor and Employment (DOLE) secretary Silvestre Bello has stressed that investments do not look to the Philippines to be involved in politics. “For them, as long as the climate is there for the conduct of their business, they will stay.”

Looking ahead to 2017

The Trump presidency no doubt has plenty of Philippine businesses spooked, especially those with close ties to American companies. However, by being cautiously optimistic to what could transpire in the next few months, it also shows how resilient they are and are already taking steps to prepare for whatever comes next. While acknowledging the potential setbacks that could happen, the Philippines also knows that other investments from other countries in the BPO industry may help them out in the longer run. 2017 looks to be a particularly exciting year and taking advantage of upcoming trends may also prepare them further. The offshoring and outsourcing industry will continue to be a big part of the country and it’s time for more Australian businesses to recognise the talent and skill that a Filipino staff can do for their company.


The Philippines: The best location for your offshore program

The Philippines has been a major location for offshoring and outsourcing for a very long time. As one of the biggest contributors to the country’s GDP, it is wholly supported by the Philippine government. They’ve even gone to the lengths of setting up particular economic zones in different cities for businesses to receive tax incentives and assistance; Simply put, it’s a great place for businesses to have an offshore program.

Yes, countries like India and Malaysia are just as invested in offshoring and outsourcing as the Philippines is. And sure, they heavily position themselves as the best offshore location for your offshore program but, if you take the time to look at the elements that form a good offshore program, you’ll realise that the Philippines, more specifically, Metro Manila, is the best choice for your business.

Let’s take a closer look at the elements that make it such a great strategic location for your offshore team.

Cultural Influences

As a result of American colonization in the early 20th century, the Philippines has been heavily influenced by western culture. This influence means they are more easily assimilated into your business as they are very westernised. Consider that India and other countries have significant cultural differences which can impact on the success of your offshore program.

English Speakers

Because of the above cultural influences, many Filipinos are well-spoken when it comes to the English language. In fact, the Philippines has one of the highest English literacy rates in Asia at 94%. They are easily understood, meaning they will interact with your local team members and customers easily, reducing the chance of a negative experience.

Location

Getting the location right is vital. With a short, two-hour time difference between The Philippines and Australia, you offshore team will be working at essentially the same time as your local team members. Rosters can be designed to fit with your local team members and customers, making their experience a seamless one. With the breakdown in geographical barriers via advanced digital communication technology, communicating with your offshore team has never been so easy! And, with the reliable and well-developed infrastructure in Metro Manila, you can rest assured that your offshore team will be able to deliver when it counts.

Getting the location right is also important when it comes to accessing the vast talent pool The Philippines has to offer. Choosing well-established metro areas like Makati City or BGC gives your business access to a highly-skilled and engaged workforce. Other countries simply do not have access to the well-educated and highly English literate workforce the Philippines has.

A People Oriented Team

Many companies that have adopted offshoring often say the same thing about their Filipino staff: that they are some of the most personable, engaging and hardworking staff members available. This is because of cultural influences that are uniquely Filipino which are not as obvious in other countries. When dealing with your staff in the Philippines, you will more than likely see their strong commitment to their families. Values of respect, hard work and loyalty are heavily influenced by their personal relationships with their families and these carry over to their professional lives.

Diversify has been fully on board with the Philippines as the most ideal location for your offshoring team. We believe in the country’s ability to provide clients with the quality services and functions that they look for in an offshoring team. We also strive to cultivate an engaging and highly communicative environment so that you not only get the most out of your staff members, but also the best people for the job. If you’re ready to make offshoring part of your business strategy, contact us today.


When should you set up your own facility in the Philippines?

We commonly come across businesses that believe that the easiest and cheapest way to start operations in the Philippines is to lease their own space and set up their own wholly owned facility. Most often, these operations fail to deliver the outcomes the business is looking to achieve around cost savings, productivity and quality. The purpose of this article is to examine the reasons behind most failures.

Management

The main reason most of these startups fail is due to lack of investment. In order to meet your regulatory and management obligations in a Filipino context, you are likely to need at least the following management staff:

  • Office manager
  • Finance manager/officer
  • HR manager
  • Recruiter
  • Office junior (to do all the daily lodgments and running around of which there is a lot)

The appointment of your local office “leader” will probably be your biggest challenge. The best way is to pay an Australian to move there and run your operations – but with the high cost of expat living and the lack of attraction of living in Manila, this is likely to require a package north of AUD$200k. The alternative is to employ a local Filipino but very often this leads to self-interested local decision making which can greatly increase the cost of everything from business purchases through to local salaries.

Access to local knowledge

As with any new venture into a new environment, understanding the lay of the land is a key piece of the puzzle. Access to experienced professional services providers is a key element of the process and it is important to find the right local law firm and accounting firm to work with you. Once you are happy, you then need to engage them on a monthly retainer, as this is the only way that the best local firms will undertake work for you.

Location, location, location!

In the Philippines, there are low and high-cost areas for offshoring, each with unique characteristics related to the specific access to talent they have. In our experience, it is important to be in one of the main business districts in order to attract the best talent and to ensure reliable infrastructure. In these locations, you are entering a lessor’s market and you will find some of the following interesting issues:

  • Standard lease terms include 6 months rent in advance (that is by way of cash – no bank guarantees)
  • You will need to also meet the full cost of the fit out without a contribution from the lessor.
  • Premises are usually handed over as a bare shell (no flooring/ceiling/walls/cabling etc)
  • Fit-out costs are about 75% of what they are in Australia (usually around AUD$650 – $800 PSM)
  • Minimum lease terms are usually 3 years.
  • Rent free/reduced rent periods are very unlikely.

Local detail…

Before you can even lease the premises for your offshoring facility, you will need to establish a local company and to successfully do that you will need a majority of Filipino directors, all of whom must also be shareholders in your company. Typically a company will take around 4 – 6 months to reach the incorporated stage. If your company is substantially owned by an Australian company you may fall under the controlled foreign corporation provisions of the Australian tax legislation and will be subject to increased costs of doing business in the Philippines. You will also need to be mindful of the Australian transfer pricing laws and the Privacy Principles.

In addition, there will be a range of local and National taxes you will be subject to including for business permits, VAT, income tax and withholding tax. Fail to get these right and to attend to your lodgements on time (which can be as frequent as monthly) and you will likely incur stiff penalties.

Culture

Having established a basic operation, now comes the hard part of working out how to best entice people to work for you and motivate and engage them. Cultural differences can be one of the hardest barriers to overcome. Get this right and you may develop a loyal long term productive workforce but get it wrong and you will be plagued by high staff turnover and low productivity.

In Summary

In most cases, we find that organisations that do partner up with a provider intending to eventually establish their own facility, end up continuing to utilise their provider. They eventually realise that the cost of scoping, investigating, setting up and then maintaining and developing their offshore facility are far too great, both financially and time wise.

All in all, if you are planning to have less than 50 staff and are not committed to spending at least 3 years of investment to make your office work, then you will be far better off running with an existing offshoring provider to help you set up your team. Even beyond those numbers the benefits of establishing your own team may be questionable. An experienced offshore provider can:

  • Assist you in setting up without having to think about office fit outs and legislative and accounting issues
  • Provide you with cultural insight into how to manage and grow your team
  • Scale up and down as per your business requirements

Key takeaway

Remember the reasons you are considering offshoring is to achieve cost savings, increase efficiencies and improve service delivery (a few of the more common ones), a poorly considered and executed attempt to implement your own facility offshore will result in all of those base objectives being missed.