Davao City makes it to the Philippines’ 2008 Top 10 IT-BPO Outsourcing Destinations

Davao City has added another distinction to its cap by ranking 4th in the Philippine 2008 Top 10 Next Wave Cities for ITO-BPO Destinations. Conferred by the Commission on Information & Communications Technology (CICT) and the Business Processing Association of the Philippines (BPAP) last 3 December 2008 at the BPO Summit of the Philippines at Crowne Plaza Galleria in Ortigas Center, Pasig, this Award should put to rest the speculation that the city is not ready to host multiple IT-BPO locators/investors.

The CICT and BPAP scored no less than thirty-one (31) ICT-ready locations in the Philippine Cyber-Corridor and their performance in four (4) major areas to include talent, infrastructure, cost and business environment.

Davao City bested 4 other Mindanao ICT locations by scoring well in the areas of talent and infrastructure. The depth of Davao City’s manpower pool is on account of the presence of 42 colleges and universities, which yield about 15,000+ tertiary graduates annually. Complementing the city’s performance in the talent area is the presence of major telecommunication providers, increasing number of upcoming BPO real estate, accessibility by air & land, among others.

The local IT-BPO stakeholders led by ICT Davao Inc and its private and public sector partners welcome the challenge of increasing the city’s competitiveness for attracting ICT locators and investments by working on improving performance in the area of business environment and risk management. “We need to act together in improving the overall imagery of Davao City as a safe IT-BPO destination by providing substantive evidence to counter the negative perception on the Mindanao region. By so doing, we can continue to attract more ICT investments, create more jobs and improve Davao City’s economy,” says Wit Holganza, current president of ICT Davao Inc.

The ten locations that made it to the top next-wave cities for IT-BPO are:

1. Metro Laguna
2. Metro Cavite
3. Iloilo City
4. Davao City
5. Bacolod City
6. Angeles – Clark – Mabalacat
7. Baliuag – Marilao – Meycauayan
8. Cagayan de Oro City
9. Malolos / Calumpit
10. Lipa City

Abreeza will be a multi-use commercial center that will house a mall, entertainment areas (including natural open spaces, comprising about 20% of the total project area), and locations reserved specifically for business-process outsourcing (BPO) operations. In fact, there are two buildings planned solely for BPO companies, according to the representatives of Ayala Land.

The first building is scheduled to be completed by the fourth quarter of 2009 and will have a total gross leasable area of 10,000 sqm. While ALI has not yet signed any particular BPO firm for Abreeza, they do have existing locators in their IT parks and buildings in Metro Manila and Cebu.

At the press conference following the groundbreaking rites Tuesday last week, ALI President Jaime I. Ayala explained that they do maintain a loyal group of BPO locators who may very well be expected to follow them to Davao once the facilities are in place. He further expounded that this was the case in the Ayala IT Park in Cebu City.

The groundbreaking of this much-awaited development, which is a joint venture between ALI and Anflocor, is a very clear and resounding signal of strong investor confidence in Davao City. The ALI executives expressed their approval of the region’s peace-and-order situation, as well as of the overall favorable business climate in the Philippine South. Hence their preparedness to sink in up to Php5 billion in the Abreeza project.

During the press conference, which was held at the Pearl Farm Marina in Lanang, ALI and Anflocor decision-makers made themselves available for interview by local media, as well as by a couple of bloggers – Ria Jose and yours truly. Sidebar: I am glad that more and more business entities are now recognizing the usefulness of blogs as an effective communications medium.

Being an active member of the city’s IT industry as well, I was particularly interested in the ICT component of Abreeza. Upon introducing the existence of organized ICT groups in Davao, both presidents of ALI and Anflocor immediately expressed an interest in interfacing with the Association of Solution Integrators in Davao (ASID) and ICT Davao Inc.

ASID is the organization of software development houses and companies offering software-based solutions. ICT Davao is the umbrella group of all ICT-related non-profit organizations in the city (of which ASID is a founding member). I act as the executive director of ASID.

It is indeed beneficial for Davao to be the investment destination of more foreign BPO companies that will locate in Abreeza. On the other hand, it is my hope that this Ayala development will also spell success for the local ICT industry of Davao.

Judging by the keen interest and enthusiasm of the ALI executives when they inquired into ASID and ICT Davao, I’m convinced that Abreeza will be able to contribute directly to the progress of Davao’s IT sector.

Already, Ayala Businesscapes representatives, as well as Anflocor President Alexander Valoria, have communicated their intent to participate in Davao’s IT associations. Their contributions are certainly very welcome!

Microsoft and Apple have both had their mobile platforms out in the market for the longest time now: Windows Mobile (which had its earlier manifestation as Windows CE) and Apple’s "i" series (iPod, iPhone). But it’s only now that the market has grown to a considerable — and lucrative — scale. This time, there are other aggressive players out in the battlefield: BlackBerry and Google’s Android (which has yet to make a clear showing), among others. Let’s not forget Symbian, by the way.

What form could this new war take? What would the battles be?

One thing seems evident: the ones with huge resources are bringing out the big guns, which, in the world of technology and development, takes the form of venture capital. For example, Google announced in November 2007 that it was seeding a $10-million fund for developers who would take up their challenge: to develop applications on top of Android. Kleiner Perkins Caufield & Byers, a financial organization that backs technology entrepreneurs, announced last March the launch of a $100-million fund for developers of iPhone-specific applications.

Other similar moves are expected to follow, like the rumored $150-million BlackBerry Fund. In the past, applications developers came up with a sound idea first, and the venture capitalists followed. Now it seems the tables have turned — perhaps this is due to the intense competition in the IT arena.

The Philippines is known as the SMS capital of the world, isn’t it? Beyond that, the use of mobile applications has steadily been growing locally. Development-wise, we are not lagging either. Take a look at this online repository of Windows Mobile applications developed by Filipinos: Airfagev.com.

Clearly, there is a market for mobile in the Philippines. So where are the angel investors who are willing to put up the capital for our talented Filipinos? Our developers do need the financial help in order to hit it big, not only in the local scene but in the global as well.

In line with this, I believe it is high time our government gives more than lip service towards supporting our IT industry. Politicians have lately been touting the role of IT in the country’s development… but what concrete steps have been taken? The highest government body that oversees our progress in the IT industry still remains a commission, the Commission on Information and Communications Technology (CICT).

CICT was created two years ago to address the growing IT concerns nationwide, but it was supposed to be an interim arrangement, wherein it would be upgraded to a full Cabinet-level department. That has not happened yet.

The CICT, in its present mandate, is only an advisory body. It has no true powers of programs implementation. But in the event that it becomes the Department of ICT, it will have the jurisdiction and the necessary wherewithal to implement development and support programs for Filipino IT companies.

The moment is now. Let’s not allow ourselves to miss the train.

Ed Villaver, Vice-President and General Manager of Damosa Land, confirmed recently that the Anflocor Group is entering into a joint venture with Ayala Land Inc. for the establishment of a 10-hectare business complex in Bajada. The property is located on JP Laurel Ave., near Victoria Plaza and Bo. Obrero. Villaver estimates that groundbreaking will commence middle of this year.

This development, according to Villaver, will not merely be an IT economic zone. It will be a “multi-use facility that will eventually house business process outsourcing operators,” as well as Manila-based franchises. A mid-sized hotel is reportedly in the works as well.

Meantime, Anflocor’s current project, the Damosa Business Center, is nearing completion. Situated right beside the existing IT Park in Lanang, this upcoming commercial building will be suited for software development outfits, telecoms providers, research & development firms, and the like. The 3-storey Damosa Business Center is scheduled to be inaugurated in April 2008.

All over the city, the construction of more commercial and residential buildings is underway. While these are not directly related to IT, they are complementary to the efforts of various sectors in promoting the city as an ideal IT investment destination.

Villaver says he welcomes these real estate projects, as well as the entry of other property developers that are targeting information technology services. He says that these will spur the local economy and provide more jobs to Davao’s growing number of IT graduates.

Blue-chip property developers SM and Robinsons are reportedly keen on Davao City and are also planning to operate economic zones geared towards IT and IT-enabled services.

One sure way to showcase your success is to treat yourself to a Honda. Check this out: Honda launches VCM 643. If you’re looking for that appealing and technologically superior vehicle, go for a Honda!

The Davao Light & Power Co. is even an awardee for being one of the best power companies in the Philippines.

But now, in the past couple of weeks there have been 4 or 5 power outages that I’ve noticed. Just before I started writing this article there was no power in the Matina area. Electricity went dead around 2o’clock in the afternoon, and came back on almost half an hour later. What is the reason behind this? Is Davao Light upgrading their systems? Or am I being overly optimistic?

Or is it that Davao — possibly Mindanao — is experiencing a serious shortage of power supply?

It’s obvious, but I’d like to emphasize this: power is a resource that we need to be constant. It’s what drives and sustains economic development. Without a steady availability of electric power, it becomes frustratingly costly to run businesses. Communication is slowed down… business processes are hindered… and yet, expenses skyrocket when power supply is not an assured thing.

Let’s not even go into the damage brownouts cause to household appliances…

How will Davao be able to encourage more high-value businesses to be established if this is the case? How will we attract more investments to come in if we cannot properly assure potential investors of steady and reliable power? What’s more worrisome is that, big-ticket investors are not easily assuaged: more than adequate power, they seem to want to be assured that there is an excess supply of power.

Look around Davao City — scores of construction projects are in the works. Take note of the increasing volume of vehicles now plying our streets. These are clear indications of development. But is this sustainable? And for how long?

Without the necessary and, at the least, adequate infrastructure (electric power being one of the most important of them), Davao City will not be able to maintain this forward movement as much as we expect.

PhilNITS is engaged in the development of high-tech skills. Japan is in dire need of highly-skilled skilled personnel. Hence the bullish outlook of Davao City as an I.T. center by Japanese companies and government agenices. But we must not be overly optimistic.

This renewed industrial interest in Davao City (dormant ever since the heyday of abaca plantations) is not necessarily driven by the presence of a robust I.T. industry here. It is fueled rather by Japan’s own requirements. According to the Japan External Trade Organization (JETRO), their country is in need of 150,000 I.T. engineers annually. The inability to address this has finally allowed Asian countries with strong I.T. industries to receive offshore projects from Japan, especially China, India and Vietnam. It was published in a report that the Philippines receives less than half of what Vietnam gets in terms of outsourced projects for software development and animation.

Hopefully this will change. Metro Manila and Cebu technology providers have already started to gain more ground towards where Vietnam is now. Davao I.T. companies have yet to get a first engagement. But with the growing interest in the city, soon we just might realize a first and a quick second, third and so on. That is, if we can sustain this growth and development that the Japanese see in us.

Recently, SpiceWorx, a Makati-based consulting firm, visited Davao officially for the first time. Each year, SpiceWorx is retained by JETRO to accomplish research into the Philippine I.T. industry on their behalf. Beginning next year, SpiceWorx’s annual report will include Davao City. This report is written in both English and Japanese, thus it has tremendous reach and influence.

It’s safe to assume that Davao’s I.T. industry will very soon witness an influx of inquiries and feelers from Japan. Hopefully, it won’t be all about manpower supply. In order for our industry to experience sustained growth, we need high-value investments to come in: the establishment of foreign-funded software development houses, for one, and the entry of outsourced projects.

But there are still a number of issues that might hinder our ability to successfully synergize with our Japanese counterparts, as well as penetrate the Japanese market. Foremost of this is the availability of I.T. manpower, both present and future. Do we have enough now? Are we going to have a sustained supply of software programmers, graphics designers, animators, systems engineers, etc. in the coming years?

I’ll be discussing the other industry issues in succeeding posts. In the meantime, what are your thoughts on this? Is Davao prepared to accommodate Japan’s burgeoning I.T. requirements?

PhilNITS-Davao is basically a training and review center for the benefit of Davao- and Mindanao-based I.T. professionals who plan to take the aforementioned exams. It is located at the 5th floor of Mintrade building on Monteverde Ave. It is where the Department of Trade & Industry (DTI) – Region 11 has its offices. Furthermore, according to Ms Maricor Akol, president of PhilNITS Foundation, the training center — which is, for one, equipped with top-of-the-line computers provided by Fujitsu — may also be used for seminars and workshops on skills building for SMEs. This is in line with the DTI’s thrust in developing the local I.T. industry by enhancing the technological know-how among Davao’s SMEs. The DTI, hand-in-hand with the ICT Industry Cluster of the Regional Development Council – Region 11, will be coming up with a series of training modules in order to achieve this goal.

What are the benefits of a PhilNITS certification?

To the individual I.T. professional who passes the FE or SW exam, the most immediate and perhaps most weighty is the availability of high-level employment. Passers of the exams will find themselves in huge demand by large technology corporations such as Fujitsu and NEC. In Japan alone, where these exams originated, there is a yearly requirement of 150,000 I.T. engineers. While they can recruit up to about 100,000 in-country, Ms Akol reports that the 50,000-man difference has to be sourced outside. PhilNITS has taken it upon itself to strive to supply a large chunk of this human resource deficit in Japan. Most Japanese I.T. corporations will hire only those who have passed at least the FE exam.

It was very uplifting what JETRO Executive Director Yasutomi Ota said during the PhilNITS-Davao press conference: He revealed that, according to the Japanese Chamber of Commerce in Manila, Japanese industries are eager to hire Filipino I.T. engineers. Mr Ota said that Japanese I.T. firms are thus anticipating the increase in the number of Filipinos who will pass the PhilNITS certification exams. The Japan External Trade Organization – Manila Office is one of the heavyweight supporters of PhilNITS.

While it will be advantageous for Filipino I.T. professionals to know Nihongo, it is in fact our English proficiency that is our edge. According to Hon. Toru Nakayama, a senior Japanese government official who graced the PhilNITS-Davao inauguration, Japanese I.T. companies see the value of Filipinos in the former’s efforts to compete in the American and European markets. Mr Nakayama is the Director of the Ministry of Economy, Trade & Industry of Japan.

Holders of PhilNITS certification can expect to be employed not only by companies in Japan. The I.T. exams originally created and administered by Japan are now recognized by, and implemented in, the following countries: China, India, Malaysia, Mongolia, Myanmar, Singapore, South Korea, Taiwan, Thailand and Vietnam. In 2003, PhilNITS and similar organizations in these countries have all congregated to form the I.T. Professional Examination Council (ITPEC). Council members now have mutual certification recognition agreements with the Japan I.T. Engineers Examination Center (JITEC). And, this has resulted in the wide acceptance of the I.T. exams.

I.T. industry watchers should not view this new development in light of the proverbial ‘brain drain’ problem. The reason I say this is that, having the PhilNITS certification here will actually be a boon to the local industry. The increase of PhilNITS-certified I.T. professionals will certainly amount to Davao and the Philippines being recognized as a viable investment destination for I.T. businesses. While it is a great probability that PhilNITS-certified Dabawenyos will migrate to Japan (or other countries) for higher-paying jobs, others may decide to stay on as masters of their own domains. Equipped with an internationally-recognized proof of proficiency, what’s to stop PhilNITS-certified Dabawenyos from establishing their own I.T. firms?

Such I.T. firms could proceed to become successful outsourcing outfits. Based in Davao, these companies could very well accept, say, Japanese service contracts, and therefore ultimately contribute to the development of our local I.T. industry. They could then provide gainful employment to other Dabawenyos, who could, in turn, prepare for their own PhilNITS certification. This is the favorable cycle being envisioned by the PhilNITS Foundation and its supporters. And once we have achieved critical mass — a sizable number of exam takers and passers — Davao will surely come under the radar of foreign I.T. investors.

The PhilNITS Davao Branch is a joint undertaking of the PhilNITS Foundation Inc. and DTI – Region 11, and is being supported locally by the ICT Industry Cluster – RDC11. For the first year of its operations, the branch will be headed up by Mr Shinichiro Kato, JETRO Expert and VP-Finance of the PhilNITS Foundation.

Recently, PhilEXIM executives held an orientation seminar in Davao City for the benefit of SMEs, particularly small- and medium-sized I.T. enterprises (SMITEs). As does the DTI, PhilEXIM now has a mandate to focus on the development of the country’s I.T. industry. Before anything else, let me just say that the seminar was more than mere talk. The PhilEXIM executives, led by none other than one of the vice-presidents, were all set to start working with Davao companies.

PhilEXIM is the government’s answer to the years-long clamor by SMEs for affordable and accessible funding windows. Commercial loans from the country’s banks are simply prohibitive and are thus impractical for, say, startup I.T. companies in Davao. Stringent collateral requirements and high interest rates are two of the almost insurmountable challenges facing SMITEs to avail of bank loans. But with PhilEXIM in the picture, SMITEs now have a more feasible alternative for their financing needs.

PhilEXIM concentrates its activities on the export sector exclusively. Direct exporters, as well as indirect exporters — those who act as suppliers of raw materials and services to direct exporters — are able to avail of PhilEXIM’s loan products. I.T. companies, especially those who are in the thick of business process outsourcing and software development, are considered eligible.

To give you a quick idea of how big a business opportunity this is for SMITEs, PhilEXIM’s current interest rates are between 8.5 to 9.5% per annum. The following text is taken from the seminar presentation:

Under the (Short-Term Direct Lending) program, PhilEXIM grants short-term loans, purchases export bills and extends any form of receivable financing to small- and medium-sized exporters to finance their preshipment working capital and postshipment financing requirements.

Let’s drill further down into this Short-Term Program. It is comprised of two types: a Revolving Line of credit, and a Transaction Loan. The former involves a one-year (renewable) credit line with a maximum limit of Php 20 million. Each disbursement must be supported by a promissory note, and will have a maximum tenor of 180 days.

The Transaction Loan type, which also carries the same loan upper limit, might not be suitable for I.T. companies. It is more attuned to the financing needs of exporters of tangible goods.

A Medium- and Long-Term Direct Lending program exists as well. This carries a maximum loan size of Php 40 million. Here’s another quote:

This program provides medium- and long-term loans to small- and medium-sized exporters to finance acquisition of fixed assets, expansion, modernization of production techniques, improvement of production capacity and permanent working capital. Purchase of land / project site is allowed provided only 50% of the loan is used for such purpose.

PhilEXIM is not a bank, but is affiliated with LandBank and the Development Bank of the Philippines. There are also also more than a dozen commercial banks that participate in its programs.

Aside from low interest rates, PhilEXIM has been directed by the government that loan applications must not be denied solely for lack of collateral. It is not my aim here to expound on PhilEXIM loan application requirements, but suffice it to say for now that SMEs will find them very accessible and feasible.

While we may be disappointed — to say the least — in the perceived overall performance of this administration, I daresay it is fulfilling some of its mandate through PhilEXIM. I believe that the activities of PhilEXIM will spell the success of our SME sector. With that, ultimately, we will see a tremendous boost to the national economy.

Unfortunately, PhilEXIM does not yet have a presence in Davao City. Its Visayas and Mindanao operations are currently being managed out of Cebu. But with e-mail and mobile phones, this shouldn’t really be such a big hurdle. The Cebu-based officer-in-charge, Mr. Alex Arabis, has indicated that any request for them to come down for business transactions will be positively received. And with the assistance of DTI-Region 11, access to PhilEXIM will be a cinch.

Furthermore, PhilEXIM is looking to accredit loan-granting conduits in Davao (and other areas). Such conduit could be a non-profit organization. I will discuss this further in another installment. In the meantime, I will welcome any inquiries from I.T. companies or industry associations regarding PhilEXIM’s loan products. Feel free to contact me via this contact form.

What immediately drove out the butterflies was the Rotarians’ apparent interest in my subject matter. I had thought it would be difficult for me to inspire enthusiasm among a group of “traditional” industrialists. But I was mistaken. After all, they did invite me specifically to talk about Davao’s information technology industry. The interaction after my presentation was lively, and it was clear that the advances our I.T. industry has made have reached the ears of Davao’s industry leaders.

I focused the discussion on the present state of the local I.T. industry. After providing a brief history (we trace the start of the I.T . industry’s growth spurt back to 1996), I delved into what the industry’s movers and shakers have been accomplishing thus far. I did admit that Davao’s I.T. portfolio is still very thin — but that the problem is not in quality or capability, but in numbers, in capacity. And so I enjoined the Rotarians to consider investing in information technology businesses. While we welcome external investments, the point I hope I was able to drive was that local investments in I.T. are vital.

After the Rotary Davao meeting, I was able to connect with a few of the members for potential I.T. projects. This is what I do: endeavoring to bring Davao’s I.T. products and services to the marketplace. The principle that I abide by is this: Davao’s I.T. offerings are world-class. And the goal is to further strengthen the local I.T. industry in order for it to become the city’s second largest contributor to the local economy. (The first is, of course, agriculture.)

Today I am scheduled to deliver a similar talk to the Rotary Club of East Davao (the Sun•Star Davao publisher’s home club). It’s fulfilling that I’m able to bring the I.T. industry’s message to the city’s Rotarians. I hope that this effort will soon translate to more Davao companies coming online, and thus join the world of digitally-connected businesses. Local acceptance, I believe, is what will spur the growth of the local I.T. industry.

Happy Independence Day! Mabuhay ang Pilipino!!!

Chua was welcomed by Wit Holganza, school administrator of MTC Academy and founding president of Transcription Alliance of Davao Inc (TADI). Holganza reports that Chua considers Davao as having 3 plus points: a significant pool of human capital; the city’s accessibility in terms of air routes; and, lower power rates compared to Iloilo’s.

Transkripsyo is apparently also looking at Iloilo City as another possible investment site. Then again, it might not even be a toss-up, relates Holganza. If feasible, Chua said that his company might in fact locate in both cities. Transkripsyo is planning on opening an initial spread of 20 seats, and possibly transferring half of their operations outside Metro Manila in the near future.

Let’s examine this sudden increase in BPO locators in Davao more closely, though. Does this signify that we are now really prepared for the influx of bigger I.T. / ITES investments? Are all necessary facilities and allied services already in place? This might not be the case in reality. In recent articles I have pointed out some weaknesses in our city’s development planning, especially in our purported I.T. Parks. Those issues aren’t resolved yet.

Chua observes that this growing interest in Davao and other regional I.T. hubs is driven not necessarily by their preparedness, but by the weakening dollar. Remember, BPOs are essentially exporters. It might be that these call centers and medical transcription companies are relocating to regional hubs in order to cut their losses — hence the concern for power rates. Of course Davao, Iloilo and other I.T. hub aspirants can offer cheaper lease and rental rates as well.

So, the strengthening of the peso against the dollar may be good for us now. But this cannot possibly last: eventually the currencies will stabilize. And when industry recovers from its effects, we will probably lose our sudden advantage — IF we do not secure our position.

How? We give ICT Davao, the representative organization of Davao’s I.T. industry, a set of teeth. It’s a mobile and young group that has the capacity to adapt. It has leadership potential. But, it does not yet have any authority to set the course for Davao I.T. It cannot yet interface directly with the local government, much less influence it. (Easier said than done, I know. But somebody’s gotta put a finger on the button!)

Another way of ensuring that our BPO locator numbers continue to rise, even beyond the grace of a weak dollar, is a success story. Or several. Holganza says that the 40+ member-companies of the MTIAPI are at present on a wait-and-see mode. That is, if Transkripsyo locates to Davao and decides to stay for good due to fiscal viability, we might see more of MTIAPI companies here in the foreseeable future.

Ergo, in order to address immediate concerns in I.T. / ITES investment management, a consolidated and collaborative effort by industry, academe and government is urgently called for. Imagine this scenario: An I.T. firm wants to locate to Davao, and sends representatives here. Whomever they contact here will know to which agency or office they should be referred right away. Whatever requirements this company might have will be met within a reasonable period. They need office space? Our answer: ‘How large?’ We’ll even anticipate that they’ll need a leased line to the U.S., and a 24-hour standby generator that can power an entire high-tech building (which they most probably won’t use because our power company is super reliable). They need manpower? Our schools interface directly with industry, so fielding graduates won’t be a problem….

Utopia? I hope not, because this situation is supposed to be within reach if we are to truthfully call ourselves an honest-to-goodness I.T. hub.