BUSIN E S S

BRIEF ING
The Philippines’ Potential
Although challenges exist, major companies are
locating IT-enabled services in this maturing market

AUGUST 2008 | Global co nsulting : Transfo rming businesses wo r l dwid e

CO N T E N T S Ex ec utive S ummary
1 
1 Metro
Introduction:
Manila Good people Workforce
Advances inplanning — the
information process ofhave
technology analyzing andcorporations
enabled forecasting the
to talent
support

2 Pioneering to
are harder find already
– islands needed
a wide range of business processes in locations historically considered for
to execute a business strategy — is quickly becoming a priority
2 discovered
New path to productivity companies of the
unfeasible in all sizes. The
eyes of more
many frequent executives.
corporate use of the term “talent”
Business alone
leaders
2 Occupancy
3 New awareness
and infrastructure
reaches c-suite offers evidence of the growing awareness of the competitive value
today however, are increasingly adopting the world’s emerging markets provided
by
as knowledge
platforms toworkers.
supportThe following
a wide range briefing offersactivities
of corporate a look at ranging
the newfrom
wave
2
4 Government
Market workforce
– business
risks relations
of workforce planning and how new technology is enabling companies
basic data entry to innovative research and development. Locations that to
3 Labor
make location
are being decisions
solicited that support
for investment long-term
typically offerlabor — and productivity
the intersection of low-to-
3 Risk — objectives.
moderate operating costs, desirable talent market, an acceptable business
4 Cost climate, and tolerable risk profile. In the last five years, there has been
4 Education and English language rapid adoption of locations across Asia, Central and Eastern Europe, Latin
5 Conclusion America and North Africa, and the trend is expected to continue.
The Philippines is an example of a country that has demonstrated its
Cushman & Wakefield, Inc.
51 West 52nd Street potential as a location capable of supporting information technology
New Yor k, NY 10019-6178
Tel (212) 841-7500 enabled services. While the location has a set of investment risks that
www.cushmanwakefield.com include natural disaster risk and legacy of political turmoil, the benefits
of the Philippines are considered to offset the risks. Below we provide
a discussion of some of the investment considerations associated with
Cushman & Wakefield, Inc.
Introduction: Good foreign
51 West 52nd Street people directare harder
investment to find
in the Philippines.
New Yor k, NY 10019-6178
Tel (212) 841-7500
There is no question
www.cushmanwakefield.com that real talent is getting hard to find and that some sectors are faced with a growing
shortage of skilled and educated workers. To compound matters, a retiring boomer generation is expected to
leave business and the economies of many countries in the hands of a generation with smaller numbers.
Changes Manila
Metro in worker demographics and attitudes are also presenting new challenges. Younger workers for
example are making lifestyle choices a greater priority by first selecting where they want to live and then
seeking
Metro Manila
a job nearby.
is the primary
A recent destination
study by The
for foreign
Segmentation
investment
Company,
within athe
division
Philippines.
of Yankelovich,
The area finds that
two-thirds
incorporatesofboth
college-educated
the capital area 25-to-34
of Manilayear
andolds
thewill
metromake
area“where”
that encompasses
they wantit.
toIn
live
total,
theirit first
covers
priority.
As
636well,
square
a report
metersinwith
the Harvard
a total population
Business Review
of 9.9 million
found (2007).
that knowledge
Of the almost
workers
10 million
are verypeople,
likely to move
from
7.9 million
job to actively
job withparticipate
little regardin the
for tenure
work force.
and company
The economy
loyalty.
of Metro Manila is growing at a
substantial
Clearly, ifrate,
youratcompetitive
7.12 percent, stake
withdepends
GDP standing
on the quality
at $414and
billion
productivity
in 2007. of your workers, then a
strategy is essential to create a culture that addresses changing expectations and to locate in places where

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The Philippines is Metro Manila has five major sub-markets: Makati Central Business District, Ortigas Center, Bonifacio
already home to Global City, Eastwood City, and Alabang Business Center. Makati is the primary location for foreign
a notable list of direct investment and the most heavily populated by foreign operations.
foreign operations.
Scattered across
the capital’s skyline Pioneering – Islands Already Discovered
are prominent
buildings of leading The Philippines is already home to a notable list of foreign operations. Scattered across the capital’s
corporations skyline are prominent buildings of leading corporations supporting shared services and call/contact
supporting shared centers. Some well-known names include HSBC, Deutsche Bank, JP Morgan, Convergys, Cytel, Ventus,
services and call/ Siemens, Dell, Procter & Gamble, Accenture, Hewlett-Packard, J&J, Unilever, Shell, Chevron, IBM
contact centers. Services, CitiGroup, and AIG. Additionally, investment in this sector is growing and the number of
foreign operations is expected to continue to increase over the next five years.

Occupancy and Infrastructure

Real estate vacancy is low in Metro Manila at this time. However, a significant amount of new
product will be delivered this year and in 2009, which is expected to alleviate the supply shortage.
The physical infrastructure supporting investment is considered adequate-to-good. With regard to
telecommunications, PLDT is the legacy and dominant telecommunications provider for the entire
country. The company maintains a robust and redundant telecommunications network, and offers state-
of-the-art infrastructure and services to customers. PLDT is in the process of improving and expanding
upon its current international capacity and wireless capability in the market.
There is an extensive road/highway system in Metro Manila, but roads are congested and commute
times can be long for even short distances within the city. Air
access, however, is good, with daily connecting flights from the
US to the Philippines as well as two direct flights from LAX and
SFO (by Philippine Airlines).

Government – Business Relations

The Government provides a “One-Stop Shop” for setting up

a business in the Philippines. The process is reportedly easy
with assistance offered in such areas as business licensing and
registration. Some 11 procedures, which can be completed in about
48 days, must be followed to establish a business.

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The Philippines generally scores low on measures of flexibility and efficiency (government efficiency,
legal system, corruption, ease of compliance, etc). Exiting or withdrawing a business from the
Philippines can be arduous. It takes approximately 5.7 years to withdraw business operations and the
country is ranked 147 out of 175 for ease of closing a business (World Bank Group 2007). Government
corruption is considered high and bureaucracy reportedly is among the top-five challenges of doing
business in the Philippines (World Economic Forum 2007). Additionally, contract enforcement can be
difficult, given that the legal system is not known to be expedient or easy to navigate.
Labor laws tend to Labor laws tend to favor businesses. There is flexibility with respect to hiring/firing workers and the
favor businesses. laws include provisions for overtime pay, night differentials, retirement pay, maternity/paternity benefits,
There is flexibility holiday pay, and other industry standard benefits. Union presence, while allowed by the government, is
with respect low. The number of strikes for 2006 was low (12 strikes involving 1,415 workers).
to hiring/firing
workers and
the laws include Labor
provisions for
overtime pay, Functioning in a manner similar to global markets, sustainability of the labor market is directly tied to a
night differentials, company’s image in the market and is dependent on its HR model and compensation package relative to
retirement pay, competing operations. Leading companies in the ITES sector are expected to create some 40,000 new jobs in
maternity/paternity
the next two years, and turnover is likely to increase as a result, in particular, for Tier II and Tier III employers.
benefits, holiday
The outlook for finance and accounting analysts is neutral to positive. While demand is expected to increase,
pay, and other
the number of graduates entering the work force each year is expected to be adequate. The outlook for
industry standard
Customer Service Representatives (CSR) and sales representatives is not as positive, however. Turnover tends
benefits.
to be higher for these employees because customer service/sales positions are seen as a “stepping stone” to other
employment opportunities. Additionally, turnover for a night shift tends to be higher than a day shift. This
is an increasing challenge for BPO operations
supporting the United States (as the time
difference requires night shifts). The outlook
for IT analysts is neutral to positive. Turnover
tends to be low for these positions but many
professionals leave the Philippines to pursue
employment in other countries.

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Risk

The Philippines are considered a moderate-to-high risk location for investment. The most notable
areas are political risk (history of political turmoil) and natural disaster risk (location prone to seismic
and cyclonic activity). However, these risks are not considered barriers to entry by many of the world’s
leading multi-national companies and/or outsourcers who seek a desirable labor market and a low-
operating cost structure for their operations.

Cost

From a global perspective, the operating cost structure in the Philippines is low. Important components
of the cost structure for ITES operations in any location are labor, real estate and telecommunications,
as described below for the Metro Manila area:

Labor: Annual labor costs are comprised of a 13-month salary, benefits uplift, and allowances.
The average benefits uplift in Metro Manila is about 40 percent. In addition, many companies also
provide a monthly allowance to each employee. Allowances can range from the provision of personal
computers to cash stipends. A competitive fully-burdened annual wage for a finance and accounting or
IT analyst is approximately US$11,500 (assuming an exchange rate of US$1=Pesos$43). CSR wages are
significantly lower.

Real Estate: Assuming a lease of an existing facility, occupancy

costs are approximately US$30-34 per square foot per annum
(for prime Grade A space in Makati). This cost is about
30 percent lower in Fort Bonafacio and some 45 percent lower
everywhere else in Manila. A typical build-out cost averages
about US$50 per square foot.

Telecommunications: The average cost for an E1 line to the

U.S. is approximately US$2,000 per month and approximately
US$35,000 per month for a 10MB connection.

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Education and English Language

Regardless of tier, The education system in Metro Manila is divided between private and public education. In general,
all universities private education tends to have better academic programs than public education. However, it is
report that important to note that there are several public universities that produce top candidates for employment.
100 percent of There are approximately 29 universities in the Metro Manila area, producing about 176,000 graduates each
their students year. Top tier universities include Ateneo University, De La Salle University, University of Santo Tomas, and
have competency the University of the Philippines. Regardless of tier, all universities report that 100 percent of their students
in English upon have competency in English upon graduation. There may, however, be a difference in the level of competency
graduation, however between top tier universities and second/third tier universities in terms of English language skills.
a difference in
English-language
competancy levels Conclusion
exists between
institutions.
The Philippines offer a positive operating environment for ITES investment from both a cost and
business climate perspective. And while the Philippines do not present a risk-free option, the location
has merit for ITES operations. From a sub-market perspective, Metro Manila is the leading location for
investment, as it offers the largest labor and business populations in the country. However, there are
several additional sub-markets in the Philippines that could support ITES operations, albeit they may be
better suited for a second or third facility rather than the first investment in the market.

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ABOUT THE GLOBAL CONSULTING GROUP For more information about this briefing,
please contact:
Cushman & Wakefield’s Global Consulting Group provides services that
are unique in the commercial real estate services industry. Comprised Matthew Jackson
of business and real estate consulting professionals with technical Senior Managing Director
expertise across numerous specialty practices, Global Consulting Global Consulting Group
designs real estate platforms for clients that enable better business Cushman & Wakefield of Virginia & Maryland, Inc.
performance and productivity, increasing revenues and reducing costs. 1600 Tysons Blvd, Suite 400
McLean, VA 22102
Tel: 571.215.5118
For more information about the Global Consulting Group, matt.jackson@cushwake.com
please contact:
Matthew Highfield
Andrew Ratner Managing Principal
Executive Managing Director Global Consulting Group
Global Consulting Group Cushman & Wakefield of Minnesota, Inc
213.629.6562 33 South 6th Street, Suite 4135
andrew.ratner@cushwake.com Minneapolis, MN 55402
Tel: 612.659.1738
Matt.Highfield@cushwake.com

Shannon Curley
Consultant
Cushman & Wakefield of Virginia & Maryland, Inc.
1600 Tysons Blvd, Suite 400
McLean, VA 22102
Tel: 703.847.2721
Shannon.Curley@cushwake.com

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