Monthly Archives: May 2015

Growing the Australian economy through Outsourcing

This article may be 2 years old, but the opportunity continues to be present today. Get ready Australia, Philippine BPO and other companies in general are coming to help you grow the economy.

From the Sydney Morning Herald

Outsourcing to grow

October 11, 2012
By Christopher Niesche

Outsourcing is usually associated with businesses cutting costs as they struggle to stay afloat, such as when Pacific Brands cut 1850 local jobs and outsourced its manufacturing overseas.

But it can also prove a valuable tool for an expanding company to help it manage its growth.

Known as business process outsourcing, the practice involves a company paying another organisation to carry out a function for it. For instance, rather than having its own pay office, a firm might decide to outsource its payroll function to a specialist.

Services that are typically outsourced include IT software and hardware management, network and server management, property maintenance, transport and logistics, recruitment, training, payroll and document management. It’s likely that many small to medium enterprises are already outsourcing some business processes without ever considering it to be outsourcing, such as legal or accounting services.

David Fincher, a partner in Ernst & Young’s advisory practice, says that outsourcing can bring a range of benefits, including access to new talent, a broader skill base, access to new technology, added flexibility and allowing the company to focus on its core business.

“Organisations should focus on what they’re good at and what they need to be good at. Potentially anything else which isn’t core or differentiating for that organisation could be delivered by someone else,” he says.

An outsourcer will have far more ability to scale and to service a bigger organisation than an in-house operation will.

“If you are a growing business you don’t want your support functions, your non-core functions to grow at the same rate,” says Fincher.

“As you grow you want to take advantage of scale to increase the difference between your revenue and your support costs.”

Fincher says there is no “right or wrong answer” on when a company should consider outsourcing. “But you need to think about the benefits of outsourcing more broadly and the applicability of each of the benefits to your organisation,” he says.

Martin Conboy, president of the Australian Business Process Outsourcing Association, says SMEs can help improve their cash flow by outsourcing the chasing up of outstanding payments. “Other areas that are not core to an SME are marketing and online support, including IT, web design and SEO activities,” he says.

It’s best to consider outsourcing when the business is running smoothly and not to leave the decision until it’s really critical, says Conboy. For instance, with IT outsourcing, a company is better not to wait until its current IT systems are struggling with its workload and so have to make a rushed decision on outsourcing.

The first port of call for a business considering outsourcing should be a trusted advisor, such as an accountant, who will be able to steer them in the right direction, says Conboy.

Business process outsourcing has grown rapidly in recent years and is now seen as a normal part of a company’s operations rather than a radical alternative.

The International Data Corporation (IDC) forecasts global revenues for business process outsourcing to rise from $US147 billion in 2010 to $US191 billion in 2015.

While outsourcing has been increasingly adopted over the past 10 to 15 years, Australia lags behind the rest of the world a little. Just 34 per cent of local companies say outsourcing is a standard practice in their organisation, compared with 60 per cent globally, according to a Deloitte survey last year.

Donal Graham, a Sydney-based partner at Deloitte who leads the firm’s shared services practice, says growing businesses can make good use of outsourcing.

“Medium-sized business sometimes have quite a unique opportunity because if they’re a growing business they very often don’t necessarily have the fixed cost investments in infrastructure or people resources that larger businesses have,” says Graham. “We’ve certainly seen organisations that as they grow, rather than spending a lot of money building bigger technology systems, they’ll actually engage with an outsourcer to provide that.”

An outsourcing relationship is usually enshrined in a contract that will set out the service levels required and key performance indicators.

But Ernst & Young’s David Fincher says that rather than rely on the contract, the two parties should enter into their agreement in the spirit of partnership, rather than seeing it merely as a truncation.

“The contract cannot be the basis on which the relationship is established,” he says.

“The contract is just a legal construct. But if you try to manage a relationship through a contract I guarantee you’ll fail. It becomes the letter of the law rather than solving problems or providing opportunity jointly.”

The challenges of attracting foreign investments to the Philippines

Reading this article just gives you the huge challenges in promoting the Philippines as a preferred investment destination. Despite the abundance of talent and college educated labor, a business culture focused on customer service, and a robust domestic economy fueled partly fueled by overseas remittances by 10 million Filipinos working abroad, there are many things the country has change in order to win over a foreign investor. Let’s hope if the current administration cannot make the needed changes to make it happen, we need to work on finding the right candidate we will elect for the next one. Let the games begin!

From Businessworld Philippines

May 05, 2015

Limited FDI inflows show that the Philippines is uncompetitive

It’s crunch time. ASEAN integration is upon us. We have reasons to rejoice for the potentially large markets and higher investor interests that ASEAN economic integration offers. But the harsh reality is that the Philippines is the least attractive investment destination among the ASEAN-6 economies.

The Aquino administration, in its final year, and the next administration, has to move heaven and earth to drastically reform the Philippine economic landscape.

The World Bank defines Foreign Direct Investment (FDI) as “net inflows of investment to acquire a lasting management interest (10% or more of voting stock) in an enterprise operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of earnings, other long-term capital, and short-term capital as shown in the balance of payments.” Net FDI inflows are new investment less disinvestment.

In 2013, total FDIs as percentage of global output averaged 2.3% while FDIs in East Asia and the Pacific as percentage of their economic output averaged 3.6%. This much higher FDI-to-GDP ratio for Asia and the Pacific compared to the world average reflects the confidence of direct foreign investors on the region’s present and future growth.

Foreign direct investors have voted with their feet. They are attracted by the region’s high and sustained growth.

The Philippines belongs to this fast-growing region. It is part of the ASEAN region that will be integrated by the end of this year. Shouldn’t that be a cause for celebration? The answer should be yes and no.

Yes, the integration will bring about greater interest from direct foreign investors on ASEAN because of the much larger market and the region’s huge investment possibilities.

But no, since the Philippines suffers in comparison with its ASEAN-6 peers. It is the least attractive investment destination of foreign investors. FDIs would rather go to the other ASEAN-6 countries other than the Philippines in order to take advantage of the bigger market.

Past experiences have revealed the preferences of foreign investors. Among ASEAN-6 peers, Singapore is the top choice. In 2013, Singapore’s FDIs was a whopping 21.4% of its GDP.

But the newest member of the ASEAN-6 club, Vietnam, ranked second in terms of its ability to attract foreign direct investors. The Philippines, on the other hand, is stuck at the bottom, with FDIs as percentage of the island republic’s GDP at 1.3%. Foreign investors would rather invest in the other ASEAN-6 economies than in the Philippines. They must know something that the Philippine economic managers are not telling us.

Philippine authorities take pride in the triennial peak in the country’s economic performance, supported by the midterm and presidential elections. Why can’t the Philippine economy grow on a sustainable basis, even without the disruptive, consumption-based, election spending? Put differently, there has to be a more solid bases for sustained economic growth other than election spending every three years.

The moral of the story is clear: success in a competitive world requires hard work. We cannot leave it to chance. Yes, the Philippines is growing, but so are our competitors. And our competitors are many years, even decades, ahead of us. Yet, they don’t rely on national elections to boost their economies.

Let’s get real and fix our broken system. Let us fix our uncompetitive tax system. Part of Singapore’s success is its low corporate and personal income tax system. An ideal tax system is one that does not penalize corporate success and does not become a disincentive to hard work.

In the Philippines, the government takes away about one-third of the corporation’s net profit and one-third of personal income. The tax bases have been virtually untouched for the last 17 years.

Let’s get real and fix our crumbling public infrastructure. The country’s airports and seaports are the most decrepit in this part of the world. The frequent breakdowns of the MRT system are signs of an inept and uncaring administration.

The power system is not only extremely expensive, it is also unreliable. The regulatory framework ought to be revisited. The appropriate role of the government in noncompetitive industries has to be crafted with an eye both on the long-term profitability of the regulated firms and the welfare of the consuming public.

The general consuming public suffers when government regulators end up in the pockets of the regulated.

The restrictive economic provisions in the Philippine Constitution have become anachronistic in today’s fast-changing world. There are limits to foreign equity in the exploration, development and use of natural resources, public utilities, build-operate-transfer projects, operation of deep-sea commercial vessels, and others.

The Philippine Constitution disallows foreigners from owning land and equity in mass media and the practice of professions.

With ASEAN economic integration, these restrictive provisions in the Constitution magnify the Philippines’ unattractiveness as an investment destination.

We need a government that is effective and globally competitive. We need to streamline rules and procedures, making the task of doing business with the government swift, predictable and open. Most procedures should be rules-based rather than discretionary or at the whim and caprices of corrupt and indecisive bureaucrats and government decision-makers.

Realistically, all these needed reforms cannot be accomplished during the waning days of the current administration. This puts the burden on the next President, who should be forward-looking and more committed, adept and willing to undertake the needed reforms.

Benjamin E. Diokno is a former secretary of Budget and Management.

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