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COOPERATION

Republic of the Philippines

COOPERATION Republic of the Philippines

Federal Republic

of

Germany

Project No. 01.2467.7-001.00 Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP)

Development for Sustainable Employment Program (SMEDSEP) Subsector Analysis of the Information Technology Industry in

Subsector Analysis of the Information Technology Industry in Cebu

November 2004

Sustainable Employment Program (SMEDSEP) Subsector Analysis of the Information Technology Industry in Cebu November 2004
Sustainable Employment Program (SMEDSEP) Subsector Analysis of the Information Technology Industry in Cebu November 2004

Prepared Written by:

Marian Boquiren, SDCAsia, Inc. Consultant mb@sdcasia.ph | www.sdcasia.ph

/

Published by:

The Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP) A DTI-TESDA-GTZ Program 10th Floor, German Development Center,

PDCP Bank Centre Building, V.A. Rufino cor. L.P. Leviste Streets, Salcedo Village, Makati City

www.smedsep.ph

Ms. Martina Vahlhaus, Program Manager

| smedsep@mozcom.com

Printed on:

November 2004 - Makati City, Philippines

Subsector Analysis of the Information Technology Industry in Cebu

November 2004

FOREWORD The Philippines' recognition of Information Technology as a significant economic driver is very much
FOREWORD
The Philippines' recognition of Information Technology as a significant economic driver is very much
embedded in such state policies as the Medium-Term Philippine Development Plan (MTPDP), the
Department of Trade and Industry's (DTI) revenue streams, and the Technical Education and Skills
Development Authority's (TESDA) priority sectors, among others.
As such, the Subsector Analysis of the Information Technology Industry in Cebu, an outcome of
the Small and Medium Enterprise Development for Sustainable Employment Program (SMEDSEP)*, is
definitely a welcome addition to the publications on the current situation of the sector nationwide and/or
in specific IT hubs. The study analyses the Information Technology (IT) sector in the province of Cebu in
the Visayas including the software, IT-enabled services, internet café, and hardware sub sectors
focusing on the industry structure, value chains, constraints for development and possible interventions
within the Program. With the findings of the study on hand, planners and managers of development,
whether they come from the government, the private sector and/or the Program will now be in a much
better position to identify and eventually implement, together with the IT sector players in Cebu, the
relevant interventions that would contribute to enhancing the sector's competitiveness and capacity for
employment generation.
The Program would like to acknowledge the invaluable assistance extended by the Strategic
Development Cooperation Asia (SDCAsia) consultants, in particular, Ms. Marian Boquiren, in the design,
conduct and documentation of the sub-sector study that saw its completion stage in the production of
this report. Acknowledgment is also due to the different IT players in Cebu representing the software, IT-
enabled services, internet cafés, and hardware sub-sectors, who unselfishly served as key informants
and/or participants in the various focus group discussions and validation workshops conducted as part of
the Program's sub-sector assessment initiative. Finally, the dedicated and hard-working Program
counterparts in the regional and provincial DTI and TESDA offices are likewise acknowledged for their
excellent cooperation and support. To each of these ones go our deep appreciation and thanks.
SMEDSEP
November 2004
*SMEDSEP is a technical cooperation program between the Republic of the Philippines and the Federal
Republic of Germany being implemented jointly by the German Technical Cooperation (GTZ) for the
German side and the Department of Trade and Industry (DTI) and the Technical Education and Skills
Development Authority (TESDA) for the Philippine side.
3
The Philippines Cebu 4
The Philippines
Cebu
4
CONTENTS FOREWORD 3 ACRONYMS 6 EXECUTIVE SUMMARY 9 A. THE CEBU IT SECTOR 9 B.
CONTENTS
FOREWORD
3
ACRONYMS
6
EXECUTIVE SUMMARY
9
A. THE CEBU IT SECTOR
9
B. POLICY AND RELATED ISSUES
10
C. SOFTWARE SUBSECTOR
10
D. IT-ENABLED SERVICES
12
E. INTERNET CAFÉS
14
F. HARDWARE
15
CHAPTER 1: INTRODUCTION
16
SECTION 1: OBJECTIVES OF THE STUDY
SECTION 2: SCOPE AND METHODOLOGY
16
16
CHAPTER 2: THE CEBU I.T. SECTOR
19
SECTION 1: SECTOR OVERVIEW
SECTION 2: INTERNATIONAL COMPETITORS
SECTION 3: HUMAN RESOURCES
SECTION 4: INFRASTRUCTURE
SECTION 5: POLICY AND OTHER RELATED ISSUES
19
22
23
27
28
CHAPTER 3: THE SOFTWARE SUB-SECTOR
33
SECTION 1: INDUSTRY STRUCTURE
SECTION 2: VALUE CHAIN
SECTION 3: HUMAN RESOURCES
SECTION 4: CONSTRAINTS
SECTION 5: PROPOSED BDS/TVET INTERVENTIONS
SECTION 6: PRIORITIZATION OF INTERVENTIONS NEEDED
33
37
40
43
46
49
CHAPTER 4: THE IT-ENABLED SERVICES SUBSECTOR
51
SECTION 1: INDUSTRY STRUCTURE
SECTION 2: VALUE CHAIN
SECTION 3: HUMAN RESOURCES
SECTION 4: CONSTRAINTS
SECTION 5: PROPOSED BDS / TVET INTERVENTIONS
SECTION 6: PRIORITIZATION OF INTERVENTIONS NEEDED
51
55
58
60
61
62
CHAPTER 5: INTERNET CAFE
63
SECTION 1: INDUSTRY STRUCTURE
SECTION 2: VALUE CHAIN
SECTION 3: HUMAN RESOURCES
SECTION 4: CONSTRAINTS
SECTION 5: PROPOSED BDS/TVET INTERVENTIONS
SECTION 6: PRIORITIZATION OF INTERVENTIONS NEEDED
63
65
66
66
68
69
CHAPTER 6: THE HARDWARE SUBSECTOR
70
SECTION 1: INDUSTRY STRUCTURE
SECTION 2: VALUE CHAIN
SECTION 3: HUMAN RESOURCES
SECTION 4: CONSTRAINTS AND POTENTIAL INTERVENTIONS
SECTION 5: PRIORITIZATION OF INTERVENTIONS NEEDED
70
72
73
73
62
ANNEXES
75
ANNEX A: IT SERVICES CATEGORIES
ANNEX B: BUSINESS PROCESS OUTSOURCING
ANNEX C: CONTACT CENTER: TECHNOLOGICAL SYSTEMS
ANNEX D: MEDICAL TRANSCRIPTION PROCESS
ANNEX E: BPO DESTINATION CRITICAL FACTORS
ANNEX F: KEY INFORMANTS
76
77
78
79
80
81
REFERENCES
82
5
ACRONYMS ASP Application Service Provider BSCS Bachelor of Science in Computer Science BSIM Bachelor of
ACRONYMS
ASP
Application Service Provider
BSCS Bachelor of Science in Computer Science
BSIM Bachelor of Science in Information Management
BSIT Bachelor of Science in Information Technology
BAS
BOI
BDS
BPO
BPP
CMM
Broadband Access Service
Board of Investment
Business Development Services
Business Process Outsourcing
Business Process Philippines
Capability Maturity Model
CMMI Capability Maturity Model Integrated
CMMS Capability Maturity Model for Software
CEDF-IT Cebu Educational Development Foundation for Information Technology
CIPC Cebu Investment Promotions Center
CPVDC Cebu Property Ventures and Development Corporation
CITE Center for Industrial and Technological Enterprise
CITEM
CVISN
CCNA
CCNP
CHED
Center for International Trade Expositions and Missions
Central Visayas Information Sharing Network
Cisco Certified Network Associate
Cisco Certified Network Professional
Commission on Higher Education
CPQI Continuous Productivity and Quality Improvement
COPC Customer Outsourcing Performance Center
DDTVET Demand-Driven Technical and Vocational Education and Training
DOST Department of Science and Technology
DTQ Direct-to-Quality
ECCP European Chamber of Commerce of the Philippines
EML
FGD
Extensible Markup Language
Focus Group Discussions
GOIT Government Organization for Information Technology
HR Human Resource
HTML Hyper Text Markup Language
ICT Information and Communication Technology
ITECC Information Technology and Electronic Commerce Council
ITAP Information Technology Association of the Philippines
ITFP Information Technology Foundation of the Philippines
ITES
Information Technology-Enabled Services
6
IPO ISO Initial Public Offering International Organization for Standardization JITSE Japanese IT Standards Exam MTA
IPO
ISO
Initial Public Offering
International Organization for Standardization
JITSE Japanese IT Standards Exam
MTA Medical Transcription Academy Inc.
MOA
MNC
Memorandum of Agreement
Multi-National Company
NCCFOO National Computer Center Field Operations Office
NICP National ICT Certification Program
OBM Own Brand Manufacturing
PAQTVET Philippine-Australia Quality Technology Vocational Education and Training
PC Personal Computer
PCCI Philippine Chamber of Commerce and Industry
PEZA Philippine Economic Zone Authority
PREDGIN Philippine Research Education and Government Information Network
PSE Philippine Stock Exchange
PSIS Philippine Summit on the Information Society
RDC Regional Development Council
SMEDSEP Small Medium Enterprise Development for Sustainable Employment Program
SME
Small Medium Enterprises
SQL Structured Query Language
TVET Technical and Vocational Education and Training
TESDA Technical Education and Skills Development Authority
UML Unified Modeling Language
USAID United States Agency for International Development
VC
Venture Capital
VCTIIT Virtual Center for Technology Innovation in Information Technology
VOIP Voice-Over-Internet Protocol
7
8
8
EXECUTIVE SUMMARY A. THE CEBU IT SECTOR Cebu was declared as an Information Technology (IT)
EXECUTIVE SUMMARY
A. THE CEBU IT SECTOR
Cebu was declared as an Information Technology (IT) hub in December last year. It is currently being
positioned to become the country's IT hub outside of Manila particularly for software and e-services. The
following are the 4 dominant subsectors: a) software; b) IT-enabled services; c) internet café; and d)
hardware. To date, number of Filipino-owned IT companies is less than 100. The internet café subsector
has the highest population estimated at 500 enterprises consisting primarily of micro enterprises. There
is limited synergy between the different subsectors except for the hardware industry, which provides the
computer and other peripherals to Filipino-owned companies. The software companies are sometimes
tapped by hardware companies to set-up the systems for their clients.
ESTIMATED NUMBER OF IT COMPANIES IN CEBU
Filipino Owned
Industry Group
Informal Businesses
Companies
Multinationals / Joint
Venture
Software
265
50+
IT-enabled services
5 to 10
15 to 20
Warp zone outsourcers
Hardware
320
100+
Internet Cafe
500
To date, statistics on employment of IT companies remain hazy. Basic problem is the lack of a
comprehensive list of IT companies in Cebu.
53 companies covered in the Cebu Educational Development Foundation for Information Technology
(CEDF-IT) survey reported employing a total 842 workers. 70% of the 842 are employed in 10
companies. The range in number of employees is wide --- from 2 to as many as 238 or an average of 16
per company. Direct employment of Cebu IT locators in the Philippine Economic Zone Authority (PEZA)
is at 950 as of July 2004.
DIRECT EMPLOYMENT OF CEBU IT LOCATORS IN PEZA
Period
Average Direct Employment
January to December 2003
307
January to July 2004
950
Source: PEZA, 2004
A 19% increase in IT manpower is projected over the next two years --- with the 10 known biggest
employers planning to increase by an average of 18%, and all the others by some 22%.
Main problem of the industry is the lack or shrinking pool of qualified manpower. Surveys including the
recently conducted human resource (HR) survey by CEDF-IT indicate that number of graduates of IT and
allied courses is on an increasing trend. However, the problem that cuts across all subsectors is that
many of the graduates do not have the necessary qualifications required by the industry.
9
EMPLOYMENT FORECAST IN CEBU IT SECTOR 2003 2004 2005 2006 2007 2008 Categories Base 20%
EMPLOYMENT FORECAST IN CEBU IT SECTOR
2003
2004
2005
2006
2007
2008
Categories
Base
20%
30%
40%
50%
50%
Software Development
1,000
1,200
1,560
2,184
3,276
4,914
Engineering Design
800
960
1,248
1,747
2,621
3,931
Services
Other e-Services
8,000
9,600
12,480
17,472
26,208
39,312
Source: CEDF-IT ICT HR Survey
B. POLICY AND RELATED ISSUES
The regulatory environment does impact the ability of local entrepreneurs to establish companies and
compete in the IT market. Likewise, policies also affect the region's ability to attract investors. Rated by
the highest number of participants during the validation workshop to be the most important intervention
is the review and enhancement of policies related to accessing capital. Among the policy measures
being suggested to improve access to capital are the following:
1. Improving the listing conditions of the Philippine Stock Exchange (PSE) and extending trading hours.
2. Strict implementation of the Initial Public Offering (IPO) requirement for Board of Investment (BOI)
registered IT initiatives.
3. Improving the venture capital (VC) and angel environment by developing an incubator network and
providing incentives for VCs, such as Regional Headquarters incentives or government counterpart
funds.
4. Create a special window for IT companies in government financial institutions
POLICY AND RELATED ISSUES
Menu of Proposed Interventions:
Policy and Related Issues
Number of Votes
'Most Relevant'
Improving access to capital via improved policy measures
7
Attracting new capital: incentives for investors
2
Intellectual property rights
Data protection and network security vendor/supplier concern
Validity and enforceability of electronic transactions
C. SOFTWARE SUBSECTOR
Per DTI records, there are 25 registered Filipino-owned software companies and of which 16 are
members of the recently formed software association. These companies are usually family-owned
enterprises. Majority of the local software houses are micro and small-scale enterprises. The
multinational companies (MNCs), mostly US/Japan subsidiaries, are primarily off-shore development
centers for their parent companies.
10
The freelance programmers usually operate individually and would have 2 to 3 long term clients
The freelance programmers usually operate individually and would have 2 to 3 long term clients
(maintenance). There is a high level of informality in this particular level, since entry barriers are very
weak, either by the technological side or by the investment requirements.
Vertical linkages and trust relationships in the subsector are quite strong especially between client and
software houses. However, horizontal linkages are almost non-existent. Local companies rarely work
with freelance programmers. Likewise, it is very rare for a multinational to subcontract part of the work to
a local company.
Three of the Filipino owned companies are moving into own brand "productized services" (products that
are sold as services). Products are concentrated on business solutions and information/application
software systems. Majority of the Filipino owned companies and freelance entities are concentrating on
offering software customization and installation services.
Only 2 out of the 25 Filipino owned companies cater to the export market. These are also the same
companies who have set-up offices in Metro Manila and have clients in key cities in Mindanao and the
Visayas. The remaining 23 companies are serving mainly the Cebu market.
Local companies generally generate clients through direct marketing and referral. Cebu has yet to
strengthen its image in the international market. Current thrust of the government promotion program is
to invite foreign software companies to set-up in the Philippines.
Some initiatives have also been made in promoting Cebu-based software companies in the international
market via trade fair participation and selling missions. Export marketing initiatives at the company level
include the following: a) quarterly visits to their main export market to establish and consolidate their
presence as well as generate new client; b) strategic alliance/joint venture arrangement with 1st and 2nd
tier distributors; c) trade fair participation; and d) website promotion. Industry players and analysts
believe that the best way for companies to establish their presence in the international market is to set-
up a marketing office in the target market itself.
The following are the main constraints of the subsector:
1. High cost to implement and acquire internationally recognized process and quality certification such
as the Capability Maturity Model (CMM) and International Organization for Standardization (ISO).
2. Lack of enabling environment for start-up companies --- nurturing of technology ideas into commercial
successes
3. Lack of cooperation culture among companies/ potential for work sharing not fully developed
4. Lack of entrepreneurial and management skills
5. Lack of awareness in local market on use and benefits of ICT (Price vis-à-vis perceived values - low
willingness to invest)
6. Need for onshore presence to facilitate marketing
7. Lack of export market info/product-market knowledge
8. Lack of properly and technically equipped software professionals
9. Low supply of higher-level managers, e.g. project managers
10.Difficulties to retain employees/ problems on poaching
11. High cost involved in getting professional certification
12.Lack of venture capital/ Lack of access to low-cost capital
11
The following are the menu of proposed BDS/DDTVET interventions for the software sector: SOFTWARE SUBSECTOR
The following are the menu of proposed BDS/DDTVET interventions for the software sector:
SOFTWARE SUBSECTOR
Menu of Proposed BDS/DDTVET Interventions
Number of Votes
'Most Relevant'
Venture capital linkage services
3
Market development services
8
Subcontractors and suppliers accreditation system
Competency-based skills training via technical schools and other training
providers
14
Enterprise-based training
Organizational development
Incubator facility/Research and Development (R&D) Facility
Capability Maturity Model Integration (CMMI) certification
5
BDS/DDTVET awareness campaign
3
Competency based skills training via technical schools was voted or selected by the highest number of
participants during the Validation Workshop to be most relevant and responsive to their needs. This was
followed by market development services, CMMI certification, TVET/BDS awareness campaign, and
venture capital linkage services. Given that there are ongoing programs aimed at addressing the gaps in
the TVET IT supply, further analysis would have to be made on specific intervention niches for the
program. Possible areas of intervention would be on: a) stimulation and strengthening of demand and
purchase of vocational training through focused marketing campaigns; b) product development and/or
revitalization with a focus on matching market requirements and standards; and c) development of
delivery, payment, and financial sustainability schemes.
D. IT-ENABLED SERVICES
IT-enabled services (ITES) involve a business modality that is entirely dependent on the Internet and
other information technologies for conducting the business, but which only requires basic knowledge
about information technology itself. In other words, employees have to know how to use computers, but
need not have an in-depth understanding on how they work.
The number of call centers operating in Cebu has grown from zero in September 2003 to nine as of June
2004. Almost all of the multinational call centers located in Manila have either set up or are already in
the process of setting up shop in Cebu. Some of them have even bypassed Manila entirely and have
established operations in Cebu directly.
Multinationals and foreign-owned companies dominate the Cebu ITES industry. There are only about 5 to
10 registered Filipino owned companies. There are also quite a big number of freelance and informal
enterprises doing some business process outsourcing work, multimedia design, animation, etc. To date,
there are no data available on the informal sector and it is quite difficult to track them.
The structure for ITES is characterized by the following models:
a. Informal sector Small foreign company client. These are usually home-based operators who have
set up a few workstations in their homes and discreetly processing payroll and some accounting
functions for some small companies in Japan or doing some medical transcription for a clinic in the
United States. They keep a low profile; maintain lean and mean operations with very minimal
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overhead costs. To date, there are no statistical data about this group. They are not
overhead costs. To date, there are no statistical data about this group. They are not registered and
they do not pay taxes. Business transactions are made directly with the foreign client.
b. Multinationals/Foreign Companies Brokers/Marketing subsidiary/Parent Company. Players in the
Cebu ITES are mainly multinationals/foreign-owned companies with majority in the contact center
business. These companies either have their mother companies in the US or wherever they seek
business and/or are operating several marketing offices.
c. Filipino-owned registered companies Broker/Agent. It is estimated that there are about 5 Filipino
owned companies in Cebu with all of them in the medical transcription business. 2 are in the medium
scale while the rest are micro enterprises. For Filipino companies and new entrants, the cost of
maintaining an independent network of offices is typically not an option. This has given birth to an
alternative outsourcing model - the third party broker. These "eServices solution providers" typically
establish relationships with multiple offshore providers, and then channel work to these firms as they
acquire business. These solution providers tend to have a deep knowledge of the outsourcing
business, as well as extensive business networks that they utilize to secure new contracts. This
model represents the most common ways in which Filipino owned ITES companies in Cebu entered
into their outsourcing relationship.
d. Cebu-based Business Process Outsourcing (BPO) company client. This represents the purest
form of outsourcing in that the contractual relationship is between the foreign client and the provider
with no intervening offices or third party firms. The outsourcing costs of this model are generally
lower. However, this only happens for small transactions (between an informal enterprise and small
foreign company) and among established multinationals. This is not a viable model for new entrants
into the outsourcing field because of the element of trust as well as the remoteness of the providers
from the markets. Most US companies enter into their outsourcing relationships through a US-based
company.
The following are the constraints identified by the industry players particularly the contact centers and
medical transcription companies:
1. Informal operations of a large number of players
2. Need for onshore presence to facilitate marketing
3. Lack of export market info/product-market knowledge
4. Shortage of English proficient workforce (both oral and written)
5. Only limited number of participants to training courses due to perceived high costs
Participants during the validation workshop indicated that strengthening of current training programs and
review/enhancement of school curricula are the priority interventions needed by the industry in the short
and medium-term perspectives. Below is the menu of proposed interventions:
IT ENABLED SERVICES
Menu of proposed BDS / DDTVET interventions
Number of Votes
'Most Relevant'
Awareness campaign on BPO job opportunities
Strengthening of current training program initiatives
6
School Curriculum Review and Re-Alignment
6
Market development BDS
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E. INTERNET CAFÉS There are about 500 internet café operators in Cebu and of which
E.
INTERNET CAFÉS
There are about 500 internet café operators in Cebu and of which 240 are members of the Internet Café
Association of Cebu. It is estimated that there are about 300,000 internet café users in Cebu. About
80% to 90% of the clientele are students. As such, many of the internet cafes are located near the
schools.
When Internet cafés first started sprouting in 1996, the business was very successful and lucrative. But
now, with so many cafes in existence in Cebu, about three Internet cafés close down every month.
Demographically, Cebu has more Internet cafes than any other city by density. Compared to Metro
Manila, it is littered far more with cyber-cafes per 100 people. Fierce competition, however, is working
against the internet café business as the situation continues to bring prices down. Thus, the tension in
the market is creating a culture of commercial anxiety as stores lining the city’s boulevards and alleys
are always on guard —— worried that customers might switch to the neighboring shop at the slightest
price drop. This, in effect, is making customer loyalty an alien term in Cebu. Internet café users are
only loyal to the shop that offers the lowest price. Competition is primarily based on price and location.
A typical internet café would have 10 to 15 computers with one or two attendants. Majority of the
internet cafes are micro scale. Similar to other micro enterprises, the owner handles most of the tasks
and is assisted by one or two attendants. Many of the internet café operators had no previous computer
and enterprise management background. Daily gross income ranges from PhP 1,500 to 3,000.
Many of the so-called neighbourhood Internet cafes are mainly game centers, where majority of the
computers are not Internet-connected but dedicated to running games. Internet cafes near the schools
also offer desktop services such as printing and scanning. On the side, they also sell pre-paid phone
and Internet cards. Others have expanded into selling of food and school supplies. Other internet cafes
are also into the assembly of hardware and computer maintenance services. A few have offered simple
training courses in collaboration with the government.
Main constraints of the industry are the following:
1. The need to upgrade management skills as well as operations system efficiency
2. Lack of product differentiation
3. Difficulties to move up vertically/value-added services
4. The need to build a wider client base
5. Unfair competition from unregistered internet café — lower overhead costs/no taxes
6. Lack of technical skills for maintenance and troubleshooting tasks, network installation – high
maintenance costs
7. High cost of components and licensed software/ online games
The industry also sees the opportunity to increase their income if they would be allowed to offer voice
over internet protocol (VOIP) based services.
14
Product development was voted to be the most important intervention for the internet café group.
Product development was voted to be the most important intervention for the internet café group.
This was followed by market development services. Below is the menu of proposed BDS/DDTVET
interventions:
Menu of Proposed BDS/DDTVET Interventions
Number of Votes
'Most Relevant'
Organizational development
1
Technical and entrepreneurial capability buildup
1
Product development
5
Market development
2
F. HARDWARE
Computer hardware comprises: data processing equipment (computers), peripherals and networking
products. It must be noted here that “manufacture,” in the context of the Cebu computer hardware
industry, refers primarily to the following:
- Assembly of computers with imported components by Filipino owned companies and freelance
technicians/assemblers
- Manufacture of peripherals by MNCs
The personal computer (PC) segment primarily consists of the following:
- Multinational brands (Dell, Compaq, Toshiba, etc.)
- Branded assemblers (Filipino companies)
- Unbranded assemblers (Informal sector; micro shops)
- Surplus computers from Korea and Japan
PCs sold to local clients are mainly assembled locally. There are about 30 Filipino companies in Cebu
who are engaged in the assembly of computers. Almost all of them have their own retail outlets.
Components are sourced out mainly from Manila-based importers. Horizontal linkages between MNCs
and Filipino assemblers and retailers are almost non-existent. Likewise, locators in the Asiatown IT
Park source their computers outside of Cebu.
Distributors of HP, Epson, Intel, and other similar products provide marketing support to retailers such
as: a) collateral materials; b) promotional activities; c) incentives for every unit sold (e.g., Intel) which
retailer-assembler can use for own promotional activities of his/her choice. From time to time,
distributors also conduct marketing seminars.
Among the Filipino-owned companies, the major problem faced is the low profit margins from PCs
and peripherals. Given that prices are fairly standardized, the only way for companies to improve
profit margins is to avoid waste and/or reduce costs. Towards this end, the following are the
proposed interventions:
Menu of Proposed BDS/DDTVET Interventions
Number of Votes
'Most Relevant'
Continuous productivity and quality improvement (CPQI)
2
Technical and technological competence build-up
15
CHAPTER 1: INTRODUCTION SECTION 1: OBJECTIVES OF THE STUDY The SMEDSEP Program is an integrated
CHAPTER 1:
INTRODUCTION
SECTION 1:
OBJECTIVES OF THE STUDY
The SMEDSEP Program is an integrated approach for the development of the private sector in the
Philippines with a regional focus on the Visayas. The program comprises of four components namely:
1. SME Policy/Enabling Environment for SMEs
2. Business Development Services (BDS) for SMEs
3. Access to Financial Services for SMEs
4. Demand-driven training programs for the workforce
Using the Subsector Business Service (SBS) approach to enterprise development, SME stakeholders of
Cebu identified Information Technology (IT) as the pilot subsector based on the assessment that it has
the highest potentials for income and employment generation. The next step is the subsector analysis
in order to gain a greater understanding of the market players, their roles, and interrelationships in the IT
sector.
The objectives of the subsector analysis are to:
• Identify final sales markets and market segments
• Identify market channels and trends within the IT subsector
• Identify the primary players of the IT subsector, their roles, and interrelationships
• Create the IT subsector maps/value chain that describes the above
• Identify constraints of the subsector and opportunities for growth of the sector
• Identify business services/DDTVET interventions that can address the IT sector constraints
SECTION 2:
SCOPE AND METHODOLOGY
A. SCOPE OF WORK
The report has been prepared in close consultation with key players, both public and private, involve in
the IT sector in Cebu. The research is qualitative rather than quantitative.
16
A mission was conducted by Katja Legien sometime in May 2004 during which parameters of
A mission was conducted by Katja Legien sometime in May 2004 during which parameters of the
subsector study were defined. The scope of work covered in this study includes:
1. An overview of the IT sector
2. A snapshot profile of the 4 subsectors in terms of:
• Industry structure
• Value chain
• Human resources
3. Identification per subsector of the following:
• Constraints
• Current initiatives to address constraints
• Potential solutions
4. Recommendations on BDS/DDTVET interventions per subsector based on analysis of constraints
Beyond the scope of SDCAsia's assignment is an analysis of the recommendations vis-à-vis supply of
BDS and TVET in the market. Likewise, the report does not cover quantitative analysis of demand as
well as identification of specific features and contents of recommended BDS and TVET products. Also,
given the small sample size as identified and determined by the SMEDSEP program, the report makes
no claims of statistical relevance and relied mainly on available secondary data, which is hazy at the
moment given the infant status of the sector.
Terms of Reference is presented in Annex F.
B. METHODOLOGY
1. Data gathering and validation were conducted via the following activities:
a. Interview of key informants consisting of the following:
CATEGORIES
NO.
Software
5
Hardware
2
IT enabled services
5
Internet cafe
2
Chamber
1
Training providers
3
Government agencies
3
Infrastructure providers
3
b. Focus group discussions per subsector
Unfortunately, there were only 2 ITES companies who participated in the FGD while only 1
company attend the Hardware FGD.
17
c. Secondary data research This involved the gathering and/or review of the following: • Past
c. Secondary data research
This involved the gathering and/or review of the following:
Past and on-going studies on the IT sector (Philippines and competitor countries,
key markets for the Philippines)
Newspaper articles/press releases
2.
Data analysis
Constraints and interventions were identified and further elaborated based on iterative and inductive
analysis of responses during the interviews and focus group discussions primarily from the following
perspectives:
• Context of interviewees and focus group discussion participants
• Third-party observations (e.g., chambers, IT park developer, training providers, government
agencies) were important for suggesting important issues to explore and for substantiating
the results of the company interviews
• Experiences of other competitor countries such as India, Thailand, Malaysia, and Vietnam
• Trends in key IT markets
• Past assessment studies of the Philippine IT Sector
18
CHAPTER 2: THE CEBU I.T. SECTOR SECTION 1: SECTOR OVERVIEW A. CEBU AS AN IT
CHAPTER 2:
THE CEBU I.T. SECTOR
SECTION 1:
SECTOR OVERVIEW
A. CEBU AS AN IT HUB
• Cebu was declared as an Information Technology (IT) hub in December last year. It is currently being
positioned to become the country's IT hub outside of Manila particularly for software and e-services. It
boasts of having more than 200 foreign direct investors, 13 of which are engaged in the IT business.
In the recently conducted Human Resource survey by the Cebu Educational Development
Foundation for Information Technology (CEDF-IT), industry players cited the following advantages of
Cebu:
Advantages of Cebu as Perceived by IT Players
Perceived Advantages of Cebu
% No. of Respondents
Conducive overall business environment
94%
Availability of Human Resources
87%
Good IT Schools/Programs
39%
Good Economy
28%
Government Support
19%
• Cebu's pool of IT talent and its modern technology infrastructure make it the second largest IT
outsourcing destination in the country. However, during the recent months, lack of qualified
manpower threatens the Cebu's outsourcing industry. According to Mr. Rene Almendras, president of
cyberpark developer Cebu Property Ventures and Development Corporation, Cebu has lost potential
investors to Cyberjaya in Malaysia because there are not qualified human resources in the region.
Lease rates in Cyberjaya, a 7,000 acre IT zone, are far more expensive than in Cebu but IT
multinationals chose it over Cebu because of the available pool of Malaysian manpower.
• Cebu also recognizes the need to lower hiring costs and living costs vis-à-vis other IT hubs in
Southeast Asia (Singapore, Kuala Lumpur, Manila, Bangkok, Penang, Jakarta, Bandung, and Ho Chi
Minh City).
B. DOMINANT SUBSECTORS
• The following are the 4 dominant subsectors: a) software; b) IT-enabled services; c) internet café; and
d) hardware. To date, number of Filipino-owned IT and IT enabled companies outside of internet
cafes is less than 100. The internet café industry has the highest population estimated at 500
enterprises consisting primarily of micro enterprises. There is limited synergy between the different
subsectors except for the hardware industry, which provides the computer and other peripherals to
Filipino-owned companies. The software companies are sometimes tapped by hardware companies
to set-up the systems for their clients.
19
• In a competitiveness study of the IT industry in Cebu conducted by University of
• In a competitiveness study of the IT industry in Cebu conducted by University of San Carlos research
director, Victorina Zosa, she underlined Metro Cebu's immense potential for development in four
areas, namely: computer graphics, software development, multimedia, and computer-aided design.
• The Cebu IT sector primarily consist of three categories: a) the informal sector or the freelancers; b)
the registered Filipino owned companies, majority of which are micro and small scale enterprises;
and c) the multinationals, which provide the greater percentage of the employment and, to date, the
base of " Cebu as an IT hub". In general, multinationals have little or almost no transactions with the
local companies. To date, only one Filipino company is known to have been tapped as a
subcontractor to a foreign-owned company.
• From the interviews, it appears that there are more informal businesses than registered Filipino
owned companies. Many of the players are loose alliances formed by people belonging to a network
of freelance practitioners for specific projects. They find work via the Internet or through an informal
network of friends and associates based in other countries. Payments are usually done through
mechanisms used by overseas Filipino workers.
• Each of the subsectors except for the IT-enabled services, which primarily consist of foreign owned
companies, has their own Cebu-based associations.
SNAPSHOT PROFILE OF THE SUBSECTORS
SUBSECTOR
# OF COMPANIES
KEY CHARACTERISTICS
Software
25
registered Filipino
owned companies
Primarily domestic market with only two catering to export
market; bias towards application software services over
products
4
multinational
Offshore development centers for parent companies
corporations
50+ freelance
programmers
Customized application software programming services for
local clients
Hardware
30
assemblers with retail
shops
Assembly and retail of computers and peripherals for Cebu
market
100+ freelancers without
shops
Home-based service technicians who do assembly and retail
from time to time
IT-enabled
10
call centers
services
Foreign owned primarily US owned companies/MNCs
Comprise bulk of registered BPOs in Cebu
5
medical transcription
Filipino owned companies; 1 medium size and the rest are
micro with 3-5 seats
2
animation companies
Foreign owned
Engineering design, (3
companies); BPO back
office (2 companies),
CAD/CAM, e-commerce
(10 companies)
Many operate as home-based businesses catering to foreign
clients
Majority of the registered companies are foreign-owned.
Warp zone outsourcers
(freelance)
Internet Cafes
About 500 internet cafes
Majority are micro scale with 10 to 15 computers; the relatively
big ones are Netopia franchise
20
C. MARKETS • Majority of the Filipino owned IT companies are oriented to the local
C. MARKETS
• Majority of the Filipino owned IT companies are oriented to the local market. The local market for IT
includes government, financial and educational institutions, hotels, supermarkets and retail outlets,
and multinational businesses. The Cebu market for IT services is not yet that well-developed. In
general, there is still the problem of perceived value and benefits vis-à-vis cost which may be
overcome by an extensive awareness and information campaign.
• The few Filipino owned companies with export market orientation work on outsourcing projects for
Japan and the United States. Multinationals are geared to the international market.
• Foreign markets include:
Japanese Market. Majority of companies with Japan as main market are Japanese subsidiaries. The
subsidiaries are strongly controlled by their Japanese mother-companies and have just few local ties
in the Cebu economy. They get their clients through their mother-company and/or marketing teams
in Japan.
U.S. Market. Many of the contact centers have the United States as their market. The software
products and services that are produced for the U.S. market can predominantly be classified as
advanced, and consist mostly of internet/multimedia and web-development.
European Market. Only a very few of the IT companies in Cebu have business relations with the
European clients, in the form of web development and internet/multimedia. This is due to the fact
that the European market is still very unfamiliar with Philippine based IT companies, and vice versa.
• Export sales of Cebu IT PEZA locators
PERIOD
EXPORT SALES IN US$
January to December 2003
5.014
million
January to July 2004
5.242
million
Source: PEZA, August 2004 data
• CITEM's annual e-Services exhibit serves as an important venue for IT vendors interested to develop
strategic partnerships with other service providers meet new prospects and develop new business
relationships. This provides a great opportunity for companies to generate awareness of services and
expertise among a very large group of key local and players. Attendance of international players,
however, is still very limited.
• Filipino owned companies who have successfully penetrated the export market have invested in
establishing a local presence in the overseas markets through quarterly visits, set-up of joint venture
companies, and forging international alliances. Unfortunately, though, many of the Filipino owned
companies would have difficulties in doing this on their own due to information and resource
constraints.
According to the chief technology officer of Zzubo, Joel Martinez, while it is true that prospective clients
seek offshore IT vendors that offer cost effective quality services they prefer providers who have partners
abroad that they can rely on and do business with. As such, by forging international alliances and
establishing on-site offices, companies can build trust with existing and prospective customers much
faster. Zzubo has expanded its business in the US and Hong Kong offering e-commerce Internet
applications and medical transcription and technology support services. At present, the company
employs over 200 IT professionals and has completed projects for such global corporations such as
VineLand Online, IBM South America, Motorola, Dupont Specialty Chemicals, and SCD Hong Kong.
21
D. EMPLOYMENT • To date, statistics on employment of IT companies remain hazy. Basic problem
D. EMPLOYMENT
• To date, statistics on employment of IT companies remain hazy. Basic problem is the lack of a
comprehensive list of IT companies in Cebu.
• 53 companies covered in the CEDF-IT survey reported employing a total 842 workers. 70% of the 842
are employed in 10 companies. The range in number of employees is wide --- from 2 to as many as
238 or an average of 16 per company. As per the same survey, staff level employees total 657, 84%
of which are in positions requiring a BS degree.
• Direct employment of Cebu IT locators in PEZA
PERIOD
AVERAGE DIRECT EMPLOYMENT
January to December 2003
307
January to July 2004
950
Source: PEZA, 2004
• From the same CEDF-IT survey, over 50% of the companies plan to increase their IT staff in the next
two years. Average projected increase per company is 38%.
In totality, this translates to a 19% increase in IT manpower over the next two years --- with the 10
known biggest employers planning to increase by an average of 18%, and all the others by some 22%.
EMPLOYMENT FORECAST IN CEBU IT SECTOR
2003
2004
2005
2006
2007
2008
Categories
Base
20%
30%
40%
50%
50%
Software Development
1,000
1,200
1,560
2,184
3,276
4,914
Engineering Design
800
960
1,248
1,747
2,621
3,931
Services
Other e-Services
8,000
9,600
12,480
17,472
26,208
39,312
Source: CEDF-IT ICT HR Survey
SECTION 2:
INTERNATIONAL COMPETITORS
There is an increasing competition among various countries as each one strive to position themselves to
capture a bigger share of the global market for IT services. The following are the countries that
multinational firms usually tap for their offshore outsourcing needs :
China is fast becoming an important player in the IT global industry. Its large pool of well-trained and,
most importantly, very low-wage work force is considered a threat to countries whose competitive edge
is dependent mainly on labor cost. Physical infrastructure is still weak (i.e., low telephone density and
unreliable lines) relative to its competitors and language barrier is also a major impediment.
Ireland is the leading exporter of packaged software in the world. It boasts of a skilled, highly educated
labor force, excellent supply infrastructure, cost competitive environment, and sophisticated
telecommunications network. It has emerged as the leader in pan-European call centers and also has
22
established backoffice facilities to cater to the needs of firms from the US and Europe.
established backoffice facilities to cater to the needs of firms from the US and Europe. Strong, highly
specialized legions of indigenous software producers have emerged that provide software services such
as program development, consultancy, and technical training.
Israel is very strong in software development, localization, and research and development (R&D). It has
a remarkably large pool of talented engineers and scientists. However, it is geographically distant from
major markets in North America and Asia, and its economic integration with Europe is limited. The other
types of e-services that they provide include database management software, systems management
applications, etc.
India is the Philippines' closest competitor in providing IT-enabled services to major markets such as
the US, Europe, and Asia. It boasts of highly-skilled, English speaking work force and very low labor
costs. Like the Philippines, India is strategically located with a 12-hour time zone difference with the
United States. A number of Indian "netrepreneurs" who made it big in Silicon Valley are now bringing
businesses back home thus contributing to the growth of the IT services sector in the country.
Malaysia's competitive edge among its Asian neighbors is its Multimedia Super Corridor 5. Malaysia's
niche areas include software development, multimedia/interactive communication development, web
development and e-commerce applications, content management, and systems integration. Its small
workforce is highly skilled but language remains a barrier.
Singapore has the most advanced telecommunications infrastructure in the Asian region. Export of
high value-added, knowledge-based services has now become Singapore's largest industry in terms of
employment and foreign revenues. The country is focusing much of its efforts on new growth areas such
as e-commerce application software and services (e.g. web applications, customization web design),
content hosting and development, and embedded software in information appliances and smart devices.
The island-state is fast approaching its goal of being an "intelligent island" by the year 2010. Singapore
has highly-trained IT professionals but its relatively high wages threatens their competitive position from
that of neighboring low wage countries.
SECTION 3:
HUMAN RESOURCES
A. SUPPLY AND DEMAND
• The worldwide market for IT services can be subdivided into two categories: a) IT Professional/
Technical services, which require hard core technical knowledge and skills, and b) IT-enabled
services, which require skills that are not technology-heavy but rather entail the application of
information technology. Please refer to Annex A for breakdown of the two categories.
• CEDF-IT data shows that from among the 18 schools with IT courses, over 7,000 have been
graduated during the past years and with about 3,500 more expected to graduate this school year.
Cebu schools graduated 1,920 bachelor courses on computer science and related fields in 2002,
1,551 graduates in 2003, and 2,217 graduates in 2004. The 2004 figure represents 43-percent growth
over the baseline of 2001. In addition, there were 628 graduates of associates degree in 2002, 934
associates in 2003 and 1,278 associates in 2004. Among the bachelors degrees, the biggest
component in 2004 were computer science (742 graduates), Computer Engineering (605 graduates)
and IT (721 graduates).
• Surveys including the recently conducted HR survey by CEDF-IT indicate that number of graduates of
IT and allied courses is on an increasing trend. However, the problem that cuts across all subsectors
is that many of the graduates do not have the necessary qualifications required by the industry.
23
For example, of the 2,200 estimated number of graduates in IT bachelor courses in 2004,
For example, of the 2,200 estimated number of graduates in IT bachelor courses in 2004, only about
100 to 300 of the graduates (about 4.5% to 14%) were appropriately employed as software
developers, with industry recognition that they need little or no additional training. Contact centers,
like eTelecare, has an average employment rate ranging from 2% to 5% of those who apply.
According to Pam Wu, human resource director of eTelecare, call centers hire people with above-
average communication, problem solving and decision-making skills. In general, they are very careful
of hiring only the skilled and qualified ones. Call centers hire workers for different positions, like travel
agents, customer care specialists and technical support.
• Based on the CEDF-IT ICT HR Survey, the following are the unmatched and most sought after IT
skills:
UNMATCHED IT SKILLS
.Net and other Microsoft
Technologies
Visual Basic
C/C++
Messaging Solution
Linux and Linux-based
software
HTML and General web
pages
Network protocols &
equipment
Multi-media presentations
SQL Database
Multi-media
communications, Video
Conferencing
Groupwares
technologies
• A report prepared by the IWG indicates a similar nationwide situation with regards to the graduates of
ICT TVET courses. Many of them are either unemployed or are employed in low-paying jobs in other
sectors.
• It is estimated that about 51% of private technical institutions throughout the country offer IT and
allied courses. Likewise, 80% of TVET enrollments are in ICT. Dominant TVET ICT offerings are in: a)
office/user applications; b) programming; c) networking; and d) hardware. Consultations conducted
by the IWG team with some of the major technical institutions revealed that design of training
programs are determined by respective marketing departments rather than being based on an
accurate assessment of the job and skill needs of the ICT industry in the local area.
• There is also an observed declining competency in English, Math, and Science among graduates.
Teacher competencies in core subjects are low, e.g. about 8% for physics; 24% for chemistry; 40%
for math; 60% for English.
• All subsectors are constrained by the low supply of higher-level managers, e.g. project or relationship
managers, necessary for higher value-added services. Retention and poaching of employees are also
among the problems faced by the industry.
• IT companies provide training to their employees. For many of the Filipino-owned companies, the
usual practice is for new employees to undergo on-the-job training for 6 months. Two of the Filipino
owned companies have their own training schools. Among multinationals, it is a combination of
formal training via their human resource development (HRD) Units --- with the support of external
consultants --- and apprenticeship.
• The challenge for Cebu-based academe and universities is to develop graduates with an adequate
balance of "hard" and "soft" skills, while simultaneously maintaining a curriculum or program that will
address current and future global IT skill set requirements.
B.
CERTIFICATION
• IT Certification is one area that Cebu and the Philippines, in general, are lagging behind. As of July
2002, there were only 1,588 Microsoft Certified Professionals nationwide. While the Cisco Certified
24
Professionals throughout the country have so far reached only 666 as of October 2002. For
Professionals throughout the country have so far reached only 666 as of October 2002. For the
Japanese IT Standard Examination (JITSE), current track record shows that only 44 out of the 726
takers passed the test.
• JITSE has been recognized by the Philippine government as a national standard for the IT industry
and is seen as having potential to be used as a certification tool for a wide range of IT skill areas.
• Until 2001, TESDA conducted its own competency assessment and certification programs in four IT
occupations. However, this was discontinued in response to the concern raised by industry as to its
quality and relevance especially that there exist already a range of industry recognized certification
programs.
• With many of the TVET students coming from low and medium-low income families, the cost involved
in acquiring a vendor certification is another constraint.
C. INITIATIVES TO ADDRESS HR GAPS
• At the tertiary level of education, the Commission on Higher Education (CHED) issued the Revised
Policies and Standards for Information Technology Education through CHED Memorandum Order No.
25 last July 2001. It laid down the requirements for facilities, faculty qualifications and the basic core
and major subjects of the IT courses. It conferred three (3) degrees that might be pursued by college
students. These are the Bachelors Degrees on Computer Science (BSCS), Information Technology
(BSIT) and Information Management (BSIM). The Commission also developed the Medium-Term
Higher Education Development and Investment Plan covering the period 2001-2004. It provides the
policy framework and defines the programs that will enable the higher education subsector to fulfill its
role in the development of the country's human resource in the context of globalization and the
emerging knowledge-based economy.
• The 2002 Basic Education Curriculum was implemented starting School Year 2002-2003. It focuses
on 5 major learning areas. English, Science, Mathematics and Filipino are given the most number of
minutes per week. The goal of basic education is to provide the school age population and young
adults with skills, knowledge, and values to become caring, self-reliant, productive and patriotic
citizens.
• The Virtual Center for Technology Innovation in Information Technology (VCTI-IT) is a flagship project
of the Department of Science and Technology leading in the development of the country's IT human
resource. The project aims to elevate the levels of competency of IT professionals and educators.
Consistent with the IT21 Agenda, specifically to turn the Philippines into an Asian hub of software
development and training, the VCTI-IT:
a. Conducts subsidized IT trainings in Java, XML, UML, MS-Visual Basic, MS-Windows 2000
Professional, Cisco, Software Engineering, Project Management and other IT Topics
b. Helps individuals get certified in leading international IT certification programs
c. Helps promote and implement internationally recognized IT standards such as the Capacity
Maturity Method (CMM) and Japan Information Technology Standard Examination (JITSE)
d. Conducts baseline studies on the Local Software Engineering Activities and on the IT
manpower demand and supply in the country.
25
• TESDA's major initiatives towards improving the quality and outreach of TVET IT offerings consist
• TESDA's major initiatives towards improving the quality and outreach of TVET IT offerings consist of
the following:
- Conduct of an extensive HRD study to: a) determine priority T skills requirements; b) assess
the quality of IT programs --- curricula, equipment, facilities, and faculty/trainor
qualifications; c) assess the effectiveness of the IT program in terms of absorption of
graduates; and d) determine schemes adopted by TVET institutions and extent of industry
linkages to facilitate employment of graduates
- Exploration of use of web as an instructional medium for teaching TVET courses
- IT occupational mapping including the resultant career pathing and the portability of
competencies
- Registration of training programs being offered by IT public and private training
institutions to ensure quality graduates needed by the local and international IT
labor markets. A study conducted by the IWG indicated that almost all IT programs
submitted to TESDA provincial offices result in program registration being
issued. TESDA's registration procedures do not require training providers to give
evidence to local industry demand and support for programs submitted for
registration.
- Capability build-up program for private institutions offering operator, craftsman, and
technician training courses
- Purposive training program for IT trainors
• TESDA, in partnership with Information Technology Foundation of the Philippines (ITFP), is currently
implementing the Philippine Australia Quality Technology Vocational Education and Training
(PAQTVET) project Phase II. ITFP is an umbrella organization of both the private and government
sectors involved in the development of the Philippine IT industry.
The project has three focus areas: a) establishment of industry partnership; b) drafting of the National
Qualifications Framework; and c) development of the National Assessment and Curriculum Guides
and Exemplars. Program activities are directed towards the following objectives: a) identification of
industry skill requirements; b) assure availability of high quality TVET products; c) assure availability
of high quality TVET processes; and d) develop a culture of commitment to meeting priorities and
standards.
• One of the institutions that have been consistent in contributing to the vision of Cebu becoming a
major IT hub for the last three years is CEDF-IT. The organization's mission is to recognize human
resource as a key area of intervention in order to realize the abovementioned vision. Thus, it is
focused on addressing issues like teachers training, curriculum standardization and industry-
academe-government linkage.
• Launching of the National ICT Certification Program last May 2004 during the Philippine Summit on
the Information Society (PSIS). A Memorandum of Agreement (MOA) was signed among the IT
Association of the Philippines and the certification providers, namely: Sun Microsystems, Microsoft
Philippines, Inc., Oracle Philippines, Cisco Systems, SAP Philippines, ePLDT, Japanese IT Standard
Examination Philippines Foundation and Peoplesupport Philippines, Inc., in support of the NICP. Per
the MOA, the certification providers will provide a discount on their Certification examinations.
Meantime, government agencies, such as CHED and TESDA signed a Memorandum of
Understanding with the private sector, namely: IT Foundation of the Philippines (ITFP), IT Association
of the Philippines (ITAP), Philippine Chamber of Commerce and Industry (PCCI), and CEDF-IT to
undertake the NICP.
Many of activities to jumpstart the NICP are scheduled in September 2004. Among these include the
conduct of the NICP plenary sessions, offering of certification exams at a discounted rate,
26
recognition of top successful examinees, commendation of the schools with the most number of successful
recognition of top successful examinees, commendation of the schools with the most number of
successful examinees, and acknowledgment of the NICP partners.
• A Microsoft Laboratory for Cebu was formally opened to serve as the venue for various certification
exams and numerous training events ensuring the professional competency of Information
Technology (IT) graduates and practitioners. Microsoft, in cooperation with Philippine Business for
Social Progress (PBSP), formally turned over to CEDF-IT the IT Teachers Laboratory, which is
located at Asiatown I.T. Park in Lahug.
• Philippine Long Distance Telephone Company (PLDT) recently signed an agreement with CEDF-IT to
pursue an extensive Research and Development (R and D) based curriculum among the schools
offering I.T. related courses. It is hoped that educational institutions, via CEDF-IT, would take
advantage of the PLDT Innovation Laboratory (Innolab) to explore R and D based IT curriculum to
produce high quality graduates in the next few years.
• Another initiative from the private sector is the Cisco Networking Academy program aimed at
training students and in-transition workers to design, build and maintain computer networks.
Students are prepared for industry-standard certifications such as Cisco Certified Network Associate
(CCNA), and Cisco Certified Network Professional (CCNP). The networking academy program was
launched in 1998 in the Philippines. Today, there are now over 140 academies in the Philippines, with
more than 22,000 students enrolled. All eight IT curricula have been rolled out across the country.
The schools operate independently but are authorized to use Cisco-provided materials. Cisco assists
in evaluating the results of the teaching.
• Cebu also gets institutional support from DOST-initiated projects such as the Central Visayas
Information Sharing Network (CVISNET), Philippine Research, Education and Government
Information Network (PREGINET), and E-Governance.
CVISNET, an internet-based network of 100 government agencies, 20 NGOs and 12 colleges and
universities in the region, provides a common network exchange point and develops websites and
databases through the internet or intranet to its member agencies and institutions. The project was
initiated by DOST, the Regional Development Council (RDC) and Government Organization for IT
(GOIT) regional offices.
PREGINET, meanwhile, is a nationwide broadband network for research and education institutions
involved in the development and demonstration of new technology, services, and applications with
connectivity to international research and education network. The network can also be used for other
purposes such as videoconferencing, e-commerce, telemedicine, distance education, and disaster
monitoring.
E-governance, spearheaded by DOST's National Computer Center Field Operations Office (NCC-
FOO), has put in place systems to enable the region's local government units to improve their quality
of public service through the use of IT resources.
SECTION 4:
INFRASTRUCTURE
• Cebu has one information technology park, the Asiatown IT Park. This is the only IT park outside
Luzon. The cyberpark was developed by Cebu Holdings Inc., through its subsidiary Cebu Property
Ventures and Development Corporation (CPVDC). To date, there are 5 locators in the park consisting
of multinational companies.
CPVDC has stepped up technical infrastructure at Asiatown to meet requirements for high-speed
communication links, access control and optimum networking facilities. Five additional generating
sets were also installed to ensure uninterrupted power supply at the park.
27
• Cebu has sufficient capacity in the domestic broadband network together with international connectivity. It
• Cebu has sufficient capacity in the domestic broadband network together with international
connectivity. It is already linked to new high capacity fiber optic submarine cable systems in the Asia
Pacific and Southeast Asian region with onward connection to bigger high capacity fiber optic
systems to North America, Middle East and Western Europe.
• PLDT is focused on delivering hi-value broadband products and services in Cebu. In the last few
months, the company has strengthened its DSL network within the city, adding more broadband
capacity to meet the growing demands of Cebu businesses.
• GlobeQUEST has established an STM-4 fiber that can carry up to 622 Megabit per second (Mbps) of
data to link the newly-established Cebu gateway and Nasugbu submarine cable landing station so
that customers in the area can directly connect to major countries such as US, Japan, Hongkong,
Singapore, Korea, China, and Taiwan.
GlobeQuest also has equipped each gateway in Metro Manila and Cebu with Broadband Access
Service (BAX). BAX uses the Dense Wavelength Division Multiplexing, a technology by which the
frequencies of light carried on a single pair of optical fiber are subdivided into discrete wavelengths
allowing for greater transmission of data.
• Another positive development is the declining cost of international leased lines. The cost of
international leased lines to the U.S. has been declining significantly due to an over-supply situation
across the Pacific. The declining cost is also due to the deployment of bigger capacity cables.
With the big capacity cable, the minimum unit of investment has gone up from E-1 (2 Mbps) to STM-
1 (63 E-1 or 155 Mbps) at a much lower cost (wholesale). However, inspite of the rapid decline of the
cost of the bandwidth in the new fiber optic system across the Pacific, the price in Cebu and in the
Philippines, in general, may not go down as fast as compared to other developed countries. This is
due to small bandwidth requirements of many small users and the averaging of the cost of
investment over a long service period of several old and new fiber optic systems.
• Cebu has 30 internet service providers and five telecom providers.
SECTION 5:
POLICY AND OTHER RELATED ISSUES
A. IMPROVING CAPITAL ACCESS THROUGH POLICY MEASURES
To improve access to capital, IT companies generally have two options: the Venture Capital (VC), which
is a key success factor to the growth of the IT industry in other countries, and the capital market, which
is the most prudent method of raising capital and distributing ownership in the widest possible manner.
Unfortunately, venture capital is scarce in the Philippines and local IT firms seem to be not interested in
the local exchange and listing elsewhere. Among the reasons cited are the uncompetitive Philippine
Stock Exchange (PSE) conditions and incentives such as:
1. The required minimum capitalization is PhP 100 M vs. 0 in Singapore. The required ROE is 15% for
each of the last three years, whereas Singapore only requires a 3-year operating record. Firm
underwriting is required in the Philippines, whereas it is not required in Singapore. There is an annual
fee of PhP 100,000-500,000, whereas in Singapore it is only 16,000 - 80,000.00.
2. Cost and Time: in Singapore one can register in one day with $3. In the Philippines, it takes 3
months and several thousands of pesos.
28
Among the policy measures being suggested to improve access to capital are the following: 1.
Among the policy measures being suggested to improve access to capital are the following:
1. Improvement of listing conditions of the PSE and extension of trading hours.
2. Strict implementation of IPO requirement for BOI registered IT initiatives.
3. Improving the VC and angel environment by developing an incubator network and providing incentives
for VCs, such as Regional Headquarters incentives or government counterpart funds.
4. Create a special window for IT companies in government financial institutions
B. INCENTIVES TO ATTRACT NEW CAPITAL
The existing package of investment incentives offered by PEZA still has a manufacturing bias, which is
often inappropriate for "new economy" firms :
1. Under the rules, there is a minimum export sales requirement. But, ICT firms, regardless of where
and to whom they sell, are by their nature, global competitors. Also, local sales allow them to build
track records and expertise.
2. Existing ICT firms cannot avail of PEZA incentives unless they can demonstrate additional
investment, demonstrated primarily by the purchase of new, often imported, machinery and
equipment. But, ICT firms can easily increase capacity and capabilities without need of substantial
investments. Their major input is information and new ideas.
3. "Branch" facilities of PEZA-registered ICT enterprises presently are not covered by incentives. But,
ICT enterprises do not need to be physically located in only one location.
The government also recognizes very clearly the need to attract more domestic and foreign investment
in information technology. Towards this end, it has put together a package of incentives in a bid to entice
investments in the sector. The Philippine Economic Zone Authority (PEZA) for example, lists the
following benefits for IT projects locating in IT zones or cyberparks:
• Income tax holiday (4 to 6 years)
• Exemption from import duties on imported machinery, equipment, and raw materials
• Tax deductions in training expenses
• Local sales allowances
• Permanent residence status to foreign investors
• Employment of non resident aliens
Among the IT activities that are covered or can avail of these benefits are:
• Software development and application
• IT-enabled services; e.g. call centers
• Content development for multi-media or internet purposes
• Knowledge-based and computer enabled support services
• Business process outsourcing
• IT research and development
Fiscal incentives offered, however, cannot compete with that offered by other ASEAN countries
particularly for the Business Process Outsourcing services. Amendments to the Omnibus Code have
been proposed to Congress.
29
Attracting new capital can further be facilitated through: 1. Continuously enhancing the package of fiscal
Attracting new capital can further be facilitated through:
1. Continuously enhancing the package of fiscal incentives in relation to that being offered in competing
destinations abroad. In line with the this, the following are proposed:
a. Benchmark current incentives with that of India, Israel and others in order to identify
"compensating incentives" while the amendments to the Omnibus Investments Code are
being pursued.
b. Legislative changes that would make the country's package of investments at par
with that in other countries
c. Evaluate the existing tax regime and propose tax policies on stock options and capital gains
to encourage entrepreneurs and venture capitalists to invest in IT companies
2. Removing the foreign-ownership restrictions for IT firms and amending the BOO/BOT law to include
IT.
3. Streamlining the basic regulatory functions like business registrations and permits.
C. INTELLECTUAL PROPERTY RIGHTS
Strengthening and enforcing Intellectual Property Rights (IPR) is critical because it impacts access to
markets, credibility, and domestic capability to promote software development and other IT related
services. The problem in the Philippines is not a lack of sophisticated intellectual property laws but on
the enforcement of these laws. All forms of intellectual property are more than adequately protected by
existing Philippine laws. However, there is a lack of conscientious implementation of the intellectual
property rights.
Some of the measures that can be taken to facilitate the implementation of the IP law are:
1. Strengthening the Intellectual Property Office
2. Capacity Building for the Judiciary in intellectual property protection
3. Executive Order mandating the migration of government systems to open source platforms for
intellectual property rights and budgetary reasons.
4. Passage of laws, such as the Optical Media Bill, to protect against intellectual property piracy, and
make search and seizure of pirated products easier and more effective.
D. DATA PROTECTION AND NETWORK SECURITY
Policy and laws on privacy and data protection are prerequisites to building consumer and business
trust in the Philippine IT and IT-Enabled Services environment. These policies and laws on privacy are
necessary to ensure that:
1. Government will not unjustifiably monitor communications and transactions between businesses and
consumers
2. Data provided by consumers to merchants or government agencies will not be misused.
30
Parallel to this, definition of a comprehensive policy for data protection and network security should
Parallel to this, definition of a comprehensive policy for data protection and network security should
balance the need to address and comply with requirements in the United States and Europe on the one
hand, and the additional costs and resulting difficulties stringent regulations could pose especially for
small IT companies. In crafting the policy on data protection and network security, the possibility of
marshalling a common ASEAN policy position on this issue should also be explored to provide greater
leverage in discussions with the United States and Europe.
Concern has also been raised, regarding the confidentiality issues over the internet. New regulations in
the future would make it mandatory for 128 bit encryption of patient records being transmitted over the
Internet to uphold security. As per certain reports, legislation will soon be passed in the US that will
require state-of-the-art security to be in place for all transmissions of medical records. US and Europe
have already signed data protection laws and it may be imperative that such laws are introduced in the
Philippines to maintain security and confidentiality.
Finally, both the government and industry have a major stake in protecting critical information
infrastructure. In line with this, there is a need for capacity building programs for law enforcement
agencies, such as the IPO, NBI, PNP to enable them to respond effectively against cybervandals,
cyberthieves and hackers.
E. VALIDITY AND ENFORCEABILITY OF ELECTRONIC TRANSACTIONS
The E-Commerce Act of 2000 explicitly recognizes the validity of digital documents and transactions as
well as electronic signatures. But, the provisions that deal with electronic authentication are not self-
executory. There is a need to strongly support ongoing efforts to draft and issue appropriate
Implementing Rules and Regulations on electronic authentication.
31
32
32
CHAPTER 3: THE SOFTWARE SUB-SECTOR SECTION 1: INDUSTRY STRUCTURE A. PLAYERS AND RELATIONS IN THE
CHAPTER 3:
THE SOFTWARE SUB-SECTOR
SECTION 1:
INDUSTRY STRUCTURE
A. PLAYERS AND RELATIONS IN THE SUBSECTOR
• Players in the subsector include the following:
SUBSECTOR PLAYERS
Infrastracture Providers: PLDT/Globe
ISP Providers: 30 companies
Input Suppliers/ Support
Services
Distributors and resellers of software authoring tools
IT training institutions
Engineering and IT schools
25 registered Filipino-owned companies
4
multinationals
Software companies in
Cebu
2
joint venture companies
Informal sector: 50+ freelance programmers
Parent companies
Value added reseller: A middle-man who combines products and services from
different sources to construct a comprehensive computing plan or environment
2nd tier distributors/
outsourcers working
directly with Philippine-
based companies
Independent Software Vendors: someone who makes software to run only on a
specific piece or hardware or operating system.
Systems Integrator: An individual or company that specializes in building complete
computer systems by putting together components from different vendors. Unlike
software developers, systems integrators typically do not produce any original code.
Instead they enable a company to use off-the-shelf hardware and software packages
to meet the company's computing need.
• A start-up company in the software industry can be established with very little capital investment.
Anyone with a computer and the know-how can begin writing software. As such, in the Cebu software
industry, there are more home-based unregistered freelance programmers than duly registered
companies. In the formal sector, there are two categories of companies based on ownership: a)
Filipino owned software houses; and b) multinationals/subsidiaries.
• Per DTI records, there are 25 registered Filipino-owned software companies and of which 16 are
members of the recently formed software association. These companies are usually family-owned
enterprises. Majority of the local software houses are micro and small-scale enterprises.
33
• The multinational companies, mostly US/Japan subsidiaries, are primarily off-shore development centers for their
• The multinational companies, mostly US/Japan subsidiaries, are primarily off-shore development
centers for their parent companies. For the multinationals and two export oriented Cebu-based
companies, a very important requirement/support facility is high speed data communication link, with
which software units can connect, communicate, and transfer their work to clients all over the world.
• The freelance programmers usually operate individually and would have 2 to 3 long term clients
(maintenance). There is a high level of informality in this particular level, since entry barriers are very
weak, either by the technological side or by the investments requirements. For big projects, they
usually affiliate with a contractor and form part of the project team set-up for that particular tender.
• Vertical linkages and trust relationships in the subsector are quite strong especially between client
and software houses. However, horizontal linkages are almost non-existent. Local companies rarely
work with freelance programmers. Likewise, it is very rare for a multinational to subcontract part of
the work to a local company.
• Local companies also do not work collectively in a project. Collective efforts are usually manifested
only in trade fair participation and in undertakings directly related to the association. Headstrong
Philippines, Inc., a Philippine-based information technology outsourcing firm, urged the local software
industry to pursue more collaborative initiatives if it wants to compete in the global market.
• Software is a buyer-driven value chain as opposed to a producer-driven chain. The buyer at the apex
of the chain plays the critical governing role. In most cases, the clients supply the specifications. In
the past, these rules were largely concerned with meeting basic cost parameters and guaranteeing
supply, but increasingly as the industry became more competitive, the critical success factors came
to include what is known as "QPD" (quality, price, and delivery reliability). More recently, the "rules"
of participation particularly in the export markets have increasingly come to include conformance to
international standards such as ISO9000 (on quality), Capability Maturity Model Integration (CMMI),
vendor certification for IT personnel, etc. Among the local software houses, only one company is
ISO9000 certified. Constraint to certification is the high costs involved.
B.
PRODUCTS/SERVICES
• Three of the Filipino owned companies are moving into own brand "productized services" (products
that are sold as services). Products are concentrated on business solutions and information/
application software systems.
• Majority of the Filipino owned companies are concentrating on offering software customization and
installation services. Many of the local companies rely less on 'frameworks' but focus more on
projects that improve their clients' basic functions (for example, the development of accounting
systems for a client that is still to a degree enterprise dependent). In essence, they are still to a
significant degree operating in a human resource augmentation mode. Generally, though, returns
from services are more guaranteed than from products, which have potentially higher returns at higher
risks. Likewise, local companies lack the resources for product and market development.
• To date, only one local Filipino-owned company is known to have the capabilities to offer engineering
software services. It is also the same company which does both on-shore and off-shore development
contracts (application development outsourcing) for system integrators in Japan.
• Multinational companies or the foreign subsidiaries are into both engineering and application/
information software development services.
C. MARKETS
• Only 2 out of the 25 Filipino owned companies cater to the export market. These are also the same
companies who have set-up offices in Metro Manila and have clients in key cities in Mindanao and
the Visayas. The remaining 23 companies are serving mainly the Cebu market. Clients consist of
government agencies and enterprises in the hotel, retail, banking, and manufacturing sectors.
34
• Local companies generally generate clients through direct marketing and referral. The bigger companies build
• Local companies generally generate clients through direct marketing and referral. The bigger
companies build their presence in the area through sponsorship of events.
• The annual trade fairs organized by the Cebu Chamber of Commerce and CITEM also provide the
software companies opportunities to meet potential clients.
• The domestic market will need a shot in the arm. This will only occur if the IT user base is expanded
especially among businesses. SMEs have difficulties in financing expensive IT purchases, though
this may improve if cheaper enterprise applications are developed by domestic companies.
• Cebu has yet to strengthen its image in the internatonal market. Current thrust of the government
promotion program is to invite foreign software companies to set-up in the Philippines. Some
initiatives have also been made in promoting Cebu-based software companies in the international
market via trade fair participation and selling missions.
• CITEM, a government agency under the Department of Trade and Industry, organizes trade fairs and
trade missions, on a cost-share basis with Filipino-owned ITES companies. The agency acts as the
marketing coordinator for these missions, working with the country's established export councils
overseas to schedule these missions with prospective customers, and providing the appropriate
marketing materials for promoting the country.
• Export marketing initiatives at the company level include the following: a) quarterly visits to their main
export market to establish and consolidate their presence as well as generate new client; b)
strategic alliance/joint venture arrangement with 1st and 2nd tier distributors; c) trade fair
participation; and d) website promotion.
• Industry players and analysts believe that the best way for companies to establish their presence in
the international market is to set-up a marketing office in the target market itself. Many of the India
companies have now started to set-up offices abroad, hire employees abroad, and build management
teams that will help get more business. Other Indian companies get their contracts from third parties.
These contractors charge about $100 per hour.
• Estimated revenue from the Philippine software industry is expected to climb from US$115 M in 2001
to US$268 M in 2004. Cebu and the Philippines, as a whole, can excel in identified niche markets
especially in the maintenance of legacy systems and in wireless applications. Market for the
maintenance of legacy systems is expected to increase since India who is the major player in this
kind of service provision is moving out of the legacy system.
• There are at least 52 firms nationwide currently listed with the Board of Investments and 24 PEZA-
registered providing software development services. Of the 24 registered companies, 3 are located in
Cebu.
35
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SECTION 2: VALUE CHAIN A. DESCRIPTION • Software development spans a set of tasks including
SECTION 2:
VALUE CHAIN
A. DESCRIPTION
• Software development spans a set of tasks including conception, design, specification, code
development, testing, and documentation. In the past decade, most software outsourcing projects
have focused primarily on development and testing from clearly-defined and well-specified
requirements provided by the outsourcing organization. In the more cutting-edge outsourcing
endeavors, which have begun appearing more regularly in recent years, all parties to the project are
involved with all stages, including the design, since it necessarily evolves iteratively with
development, and is therefore much less amenable to formal specification. Software R&D culminates
in a finished program or system.
• In the global value chain structure, the bottom layer is outsourcing, above it is software development,
on top of that is technology development and higher up is networking services and, finally, IT
consulting.
• Cebu companies especially majority of the Filipino owned firms and freelance software practitioners
are very much providers of professional software services where customization, installation, and
maintenance are primary functions. Pricing is usually cost-based (time and materials) as opposed to
value-based.
• One of the methods adopted by the bigger Cebu-based Filipino owned companies for providing
competitive advantages to their clients is through offshore software development. It involves the use of
high speed data communication links which enables clients to monitor the software development on
a minute-by minute basis, ensure quality checks and communicate with the programmers.
• Software is a knowledge industry. It relies on use of ideas and application of technology rather than
physical abilities and the transformation of raw materials or the exploitation of cheap labor. Upgrading
Cebu IT educational infrastructure is critical to success. In India, it is claimed that the software
industry relied on engineering education rather than on computer science.
• Many multinational companies are getting their strategic products developed at their R&D centers in
Cebu and elsewhere in the Philippines. Cebu-based Filipino companies, however, lag far behind in
R&D due to lack of resources and, in many cases also, due to little importance given to product
development activities.
• Huge opportunities lie in such areas as e-commerce, Web-based technologies, convergence
technologies, mobile Internet devices, and application service providers. To take advantage of these
opportunities, the Cebu IT industry must focus continuously on upgrading skills and further
development of services, especially in project execution and management and high-quality, rapid
delivery.
• Offshore development requires tight control and metrics. In other words, quality control and
standardization of processes are essential. In many of the smaller software houses, there is a need
to formally define and establish standards and processes. It is also important for companies to
benchmark their processes against international standards. To date, only one Filipino owned
company has an ISO certification. a focus on quality is a competitive necessity as opposed to a
strategic advantage. Compliance with CMM or ISO would be a step in the right direction
accompanied by a change in the business mind-set.
37
38
38
• One potential catalyst for the industry's growth clearly would be the low cost advantage.
• One potential catalyst for the industry's growth clearly would be the low cost advantage. This
advantage, however, must be sustained through continued productivity and infrastructure
improvement. The rising cost of salaries and the cost of attrition seem to be weakening the cost
advantage. Other important issues include development of brand and viable market positioning,
improvement of the quality of training, and the creation of an ideal regulatory framework.
B. THREAT OF NEW ENTRY
• One barrier to entry that exists in some industries, which is not present in the software industry, is
that of capital requirement. A start-up company in the software industry can be established with very
little capital investment. Because of this low barrier to entry and the potential for quick success,
competition tends to be intense. This also explains the proliferation of freelance programmers or the
informal sector.
• Another common barrier to entry is access to distribution channels. Start-up companies can
overcome this barrier by using alternative methods, such as distributing their product via the Internet
or working with value added resellers (VARs) to combine their product with other software
applications to be sold as a combined product. Experiences of Cebu-based software companies,
however, indicate that distribution via internet is not that effective. Assistance in the effective use of
the internet as a marketing tool may be timely and relevant.
• Economies of scale exist in the software industry. The development of the initial product is the most
expensive part of the process. A significant amount is spent on the development of the first version of
software. This expense is not limited to development only, but also to marketing, and technical
support of the infrastructure needed for this first version. Once a program has been written, the cost
to manufacture it is very low. Subsequent products based on this version are also cheaper to
develop, since the technical infrastructure is already in place. This means that a local software
company who intends to launch its own brand products is competing against established firms that
are already in the "low cost" stage.
• Product differentiation is another barrier that is present in the software industry. Customers often
have loyalty to products developed by established firms. They feel comfortable purchasing products
with established well known brands because of the expectations that the firms would be around in
the future to assist with problems, to provide updates and to develop complementary products. Start-
ups must overcome this customer loyalty to be successful, which could involve expensive marketing
efforts. One way start-ups in other countries have dealt with this barrier has been to offer their
product as "freeware" in an effort to obtain brand recognition.
C. INTENSITY OF RIVALRY AMONG FIRMS
• Another important basic competitive force in the software industry is the rivalry among existing firms.
For example, in mature markets such as business applications, several major players already
dominate the market and attempts to compete against them would be difficult.
• Offering competitive benefits and compensation is a critical factor in recruiting and retaining the type
and quality of labor necessary to develop new products. With the explosive growth of the industry
comes the need for more technical talent.
D. THREAT OF SUBSTITUTE PRODUCTS OR SERVICES
• With technological advances being developed at a fast pace, the software developer has to be
updated and well-informed about products and services being offered in the software and hardware
industries. This will allow the developer to be in a position to respond to new technologies and,
therefore, remain competitive. Current situation indicates that there is a lack of access to information
and to services that would facilitate knowledge and skills upgrading.
39
• The most significant substitutions for the traditional packaged software are occurring with Application Service
• The most significant substitutions for the traditional packaged software are occurring with Application
Service Providers (ASPs). ASPs provide a service to deploy, host, manage and rent access to
software from a centrally managed facility. This market is expected to grow dramatically in the next
few years.
SECTION 3: HUMAN RESOURCES
A. Human Resource Management
• The software industry is based on recruiting qualified and well-trained skilled manpower. Nowadays, it
is becoming more and more difficult for both multinationals and Filipino companies to find well-trained
and reliable professionals. Companies spend considerable resources in training new employees.
Likewise, there is a high attrition rate and incidence of poaching.
• The entry of multinational IT companies has pushed salaries up, which is to the detriment of the
resource constraint local companies. On the positive side, though, the competition has prompted the
more progressive local companies to come up with creative mechanisms, like stock options for their
employees, training and scholarship benefits, etc. in order to recruit and retain better people.
Many of the local companies would require external support in the development of innovative ways to
offer attractive contracts to their employees. Specifically, majority would benefit greatly from a
systemic organizational development process, with human resource development and management
as one of the foci.
• Although it is becoming difficult to find qualified fresh entrants with 0-2 years experience, there is a
wider gap in the availability of manpower with experience in the range of 2 to 5 years, making it
harder to recruit project leaders and managers at the middle-level.
• STI, the largest computer school in the Philippines, takes in some 60,000 new students every year.
But few become programmers. Many end up as data-entry processors. In all, the Philippines turns
out only about 10,000 computer programmers a year. A fifth leaves for the U.S., Hong Kong,
Malaysia and Singapore, where they command up to five times what they get in the Philippines.
• Most companies run in-house training programs for their employees both on hard and soft skills
(technical subjects, project management, Japanese language, etc.)
B. Skills Competencies
• Based on interviews and secondary data review, there are different skills necessary in the software
business
• The skills assessment presented is indicative and based on key informant interviews. No actual
testing has been conducted. The table also illustrates the typical work/projects implemented and
which type of skills are expected to be necessary.
• Interviews indicate that in many of the Filipino owned companies only a small percentage of their
employees possess advance business and technology skills. Likewise, among local companies,
only one software house is known to have the capability to handle engineering software projects.
Higher business and technology skills are needed for future growth of the industry especially if it
aims to be more innovative and to have greater control over intellectual property and its development.
• As can also be seen from the table, project management skills are generally weak to moderate. The
lack of project management skills or 'the missing middle layer' has serious implications on Cebu's
capacity to move up the value chain. Likewise, freelance programmers generally have good technical
skills but lack the soft and entrepreneurial skills.
40
Types of Skills Relevant to the Industry Skills Description Product Development Skills Skills needed to
Types of Skills Relevant to the Industry
Skills
Description
Product Development Skills
Skills needed to develop a software product
Basic technical skills
Coding and programming languages
Learned in codified form but application requires experience (learning by
doing). New skills have to be continually learned over time (e.g., new
programming language or authoring tools)
Fresh graduates generally not updated on new programming language or
authoring tools Ñ- can be attributed also to lack of classroom facilities
Systems skills
Project management, requirements analysis, and systems analysis
Pertain to the ability to break down complex systems and coding tasks into
discrete components
General source of skills: experience
Advanced or high end technical
skills
Mathematical abilities and other fundamental (scientific) knowledge used in
product development activities
Innovative technical skills
These are the creative, interdisciplinary and other technical abilities needed
for new product innovation. These skills and knowledge are not only required
to undertake engineering concept work, but also to understand whether a
new conceptual idea is feasible from a technical point of view.
Business Development Skills
Skills needed to grow and manage a software business
Entrepreneurial skills
Management, marketing, and networking skills to efficiently and effectively
grow the company
Conceptual skills
New products requirements analysis, knowledge of market and customer
needs, innovative and creative abilities
These are skills related to the "big picture" as opposed to technical
conceptualization skills, which focus on the detailing and validation of the big
picture
Indicative Skills Competency Assessment: Cebu Software Companies
Type of Skills
Type of Work
Sufficiency of Skills in
Cebu Industry
Sources of Skills
Universities
SA/BS
Training institutions
Basic technical
ODC
Moderate to strong
Certification
OBD
In-house training
ODC
Systems skills
Weak to moderate
Experience
OBD
Advanced technical skills
SA/BS (skills needed)
ODC
OBD
Weak to moderate
Experience
In-house training
From MNCs/ vendors
From clients
SA/BS
Experience
Entrepreneurial skills
ODC
Moderate
Training institutions
OBD
Conceptual skills
(both business and
technical)
Experience
ODC
Weak to moderate
From MNCs
OBD
From clients
41
Type of Work Type Acronym Description Staff Augmentation / Body Shopping SA/BS Essentially only requiring
Type of Work
Type
Acronym
Description
Staff Augmentation
/ Body Shopping
SA/BS
Essentially only requiring technical skills, although some with advanced
knowledge
On-off shore
Development
ODC
Contract
Firm acts as contractor to an established software producer. The equivalent
to ODC in the manufacturing industry is the "original equipment manufacture
(OEM)" category. Unlike BS, this requires fairly advanced systems skills, an
increasing degree of knowledge of the customer and the ability to undertake
more sophisticated analysis of the customer's requirements
Own brand
OBD
development
The equivalent term in the manufacturing industry is "own brand
manufacturing (OBM)". This requires innovative and independent thinking.
• The table also shows that firms and customers particularly foreign software producers, systems
integrators, value added resellers, etc. are critical in providing additional or advanced skills and
knowledge. Given the limitations of advanced training institutions and constraints of universities,
knowledge of advanced software technologies, products, and platforms can be gained from working
or close collaboration with MNCs and foreign software firms (1st and 2nd tier distributors).
Business development knowledge particularly with regards to the export market may require
constant interaction or locating close to the dominant end-user market. International advisors and
venture capitalists can also provide advice on strategy.
• As part of the move of the Information Technology and Electronic Commerce Council (ITECC) to
further strengthen the ability of Philippine Software Houses to do outsourcing business, a certification
program for Capability Maturity Model (CMM) is being carried out together with some assistance
from the United States Agency for International Development (USAID).
42
SECTION 4: CONSTRAINTS A. ORGANIZATION / MANAGEMENT CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS High cost to
SECTION 4:
CONSTRAINTS
A. ORGANIZATION / MANAGEMENT
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
High cost to implement and acquire
internationally recognized process
and quality certification (CMM, ISO,
etc.)
Certification program for Capability
Maturity Model (CMM) is being
carried out by ITECC with some
assistance from the United States
Agency for International
Development (USAID)
Develop indigenous capacity as
well as innovative support schemes
to facilitate manufacturers'
compliance to these standards.
Facilitate linkage with
organizations/funding agencies that
provide support for CMMI/ISO
compliance
Incentives (from government) to
promote compliance.
Lack of enabling environment for
start-up companies Ñ- nurturing of
technology ideas into commercial
successes
Establishment of IT park, which
facilitates start-up. However, there
is a question of affordability for
Filipino-owned software houses
Incubation center including
matchmaking with other businesses
and funding sources
Promotion of venture capital
Cooperation culture among
companies/ potential for work
sharing not fully developed (for
international expansion)
Set-up of association
Strengthening of association:
organizational development
3rd party to broker/facilitate
agreements
Lack of entrepreneurial and
management skills
Customization of entrepreneurial
and management courses to
software business
Continuous Quality and Productivity
Improvement
Organizational development
43
B. MARKET ACCESS/MARKETING CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS Lack of awareness in local market on
B. MARKET ACCESS/MARKETING
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Lack of awareness in local market
on use and benefits of ICT
Company sponsorship of events
Price vis-à-vis perceived values -
low willingness to invest
Local and national trade fair
participation
Unified campaign on IT use and
benefits among local/domestic
companiess --- campaign on IT-led
business operations and strategy
Incentives to firms of all sizes to
implement standard enterprise
software infrastructure
Need for onshore presence to
facilitate marketing
Quarterly visits to main export
market
Improvement of international
presence
Set-up of joint venture companies
Collective promotion and marketing
anchored on a specific set of
product differentiation factors that
the region can sustain as a
marketing proposal.
Facilitate business linkages
between domestic and international
software companies/distributors
Lack of export market info/product-
market knowledge - requirements,
contacts/trade leads, etc.
Internet
Opportunities/market information
services
Info sharing among peers
Forum for overseas and domestic
companies to explore potentials for
joint ventures, strategic and
marketing alliance, outsourcing
opportunities, etc.
Business seminars in topics such
as marketing techniques, business
laws and legal tips, IPR protection,
new market opportunities, etc.
C. FINANCE
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Lack of venture capital/ Lack of
access to low-cost capital
Promotion of local companies to a
large industry of foreign-based
angel funds and venture capital.
44
D. HUMAN RESOURCES CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS Lack of properly and technically equipped
D. HUMAN RESOURCES
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Lack of properly and technically
equipped software professionals.
Technical training courses are to
some extent divorced from industry
needs and of varying standards.
In-house training
Establishment of CEDF-IT
TESDA: HR mapping, registration
of IT courses, etc.
Lack of professionals/labor force
with high-end software skill sets.
Development and delivery of skills
upgrading courses aligned to
market requirements. Close
collaboration with software
companies/market leaders and
training providers + possible
apprenticeship tie-ups.
PAQTVET II initiatives
High costs/investments for skills
upgrading --- both company and
employees
Upgrading of software technologies
and engineering courses focusing
on practical and hands-on training
and leading to technology specific
professional certificates. Accelerate
the promotion of vendor specific
education in technical schools
Quality assurance - IT courses and
TVET offering
Incentives on training initiatives
undertaken by companies including
those located outside of IT park
Awareness campaign re: need for
continuous upgrading and its
benefits
Exploration on how to make skills
upgrading courses affordable and
accessible to majority
Low supply of higher-level
managers, e.g. project managers,
necessary for higher value-added
services
In-house training
Scholarships from companies
Project management courses
similar to IBM Management Dev.
Training with hands-on training in
MNCs (academe - MNC tie-up)
Integration of advanced marketing
and management courses in TVET
IT courses and in IT degree
courses
Difficulties to retain employees/
problems on poaching
Scholarship scheme
Stock option (but not widely
practiced)
HRM provider to assist companies
in finding innovative contract and
benefit schemes to employees,
team building, OD, etc.
Total Quality Management Program
High cost involved in getting
professional certification
NICP initiatives
Exploration of schemes to make
certification affordable and
accessible (in addition to
discounts)
45
SECTION 5: PROPOSED BDS/TVET INTERVENTIONS A. VENTURE CAPITAL LINKAGE SERVICES Since Cebu's local software houses
SECTION 5:
PROPOSED BDS/TVET INTERVENTIONS
A. VENTURE CAPITAL LINKAGE SERVICES
Since Cebu's local software houses are mainly small and medium enterprises whose resources are
limited, one of the ways to strengthen them is to broaden their access to appropriate financing. Local
companies lack the resources to conduct R and D activities as well as pursue product development and
commercialization/marketing activities. Likewise, financial constraints also prevent companies from
acquiring the necessary certification. The lack of funds to finance a new business/product idea may be
addressed through venture capital. Unfortunately, though, the concept of venture capital has not
developed yet in Cebu. As such, it is proposed that program supports the following:
1. Development of existing and new providers to facilitate venture capital negotiations and transactions
2. Development of service content, delivery mechanism, and financial sustainability schemes
3. Stimulation of demand for venture capital linkage services among software companies in Cebu
Range of services under the Venture Capital Linkage BDS may include the following:
1. Establishment of promotional partnerships with venture capital firms both in the Philippines and
abroad.
2. Evaluation of firms for possible investment including set-up of information and rating/classification
system accessible to potential financiers abroad.
3. Set-up of database of software houses qualified for possible debt or equity financing by private
institutions and the dissemination of this registry to potential angel investors/venture capitalists
4. Organization and coordination of seminars and workshops by various types of financing institutions
to suitable software firms
5. Hosting of investor roadshows to promote pre-qualified ICT firms
B. MARKET DEVELOPMENT SERVICES
It is proposed that program intervention be directed towards strengthening the capability and capacity of
existing marketing companies and intermediaries to deliver the following range of services:
1. Promotion, development and management of database of software firms and freelance programmers
that may be tapped for outsourcing activities. This should be tied up closely with software firms and
freelance accreditation system (see letter C)
2. Off-shore presence to broker services of small and medium software enterprises. Important in this
set-up is the willingness of Cebu firms to work collectively in projects to promote economies of scale
and the accreditation system.
3. Organization of trade and selling missions
4. Facilitate collective participation in international trade fairs
46
5. Coordination and organization of unified marketing campaigns in target export markets anchored on specific
5. Coordination and organization of unified marketing campaigns in target export markets anchored on
specific product differentiation factors that Cebu software firms can promote and sustain as a
marketing proposal.
6. Gathering and monitoring of developments, trends, and needs of the global software market and
making these information available to local software firms
7. Coordination and mobilization of Filipino entrepreneurs abroad particularly those who made it in
Silicon Valley to serve as conduits for marketing local software firms and forging business
relationships with leading foreign software producers and distributors.
8. Organization of forums for overseas and domestic companies to explore potentials for joint ventures,
strategic and marketing alliance, outsourcing opportunities, etc.
9. Information and awareness campaign on the use and benefits of software systems/IT including
promotion of local software houses
C. SUBCONTRACTORS AND SUPPLIERS ACCREDITATION SYSTEM
This BDS product aims to address the need to develop a more responsive supplier chain and strengthen
supply capabilities. Likewise, this may help strengthen horizontal linkages among local firms and
between firms and freelance programmers.
Criteria for accreditation should be tied-up with training programs intended for subcontractors and
suppliers. The accreditation system uses the marketplace as a motivation for suppliers to improve and
upgrade operations.
For the system to work, matchmaking activities should be confined to accredited suppliers and
subcontractors. Likewise, export and domestic software houses should be encouraged to work with
accredited suppliers.
D. COMPETENCY BASED SKILLS TRAINING VIA TECHNICAL SCHOOLS AND
TRAINING PROVIDERS
While Cebu workforce is considered among the most competent in the country, there remains an issue
of producing software professionals who are not industry qualified or certified. In order to have the critical
mass of skilled and certified pool of software professionals, there is a need to focus on competency-
based skills training and vendor-specific education that would lead to technology specific professional
certification. Four-year courses in educational institutions are unable to match the speed at which
technology is evolving and which employers are demanding a highly skilled workforce. Through short
term training and education of technical skills (for initial list of needed skills, refer to discussion on
human resources), Cebu would be provided with a short-term answer in filling gaps in the software labor
force.
To the extent possible, curriculum should also include the teaching of a broad set of soft skills. These
soft skills include communication strength, teamwork, ability to engage in continuous learning and
analytical skills, and project management.
Program interventions may include the following:
1. Promotion of specific skills training and vendor-specific education in technical schools
2. Facilitate linkages between technical schools - training providers - vendors - certification bodies
47
3. Enhance capability of technical schools and their trainors to deliver training services at par
3. Enhance capability of technical schools and their trainors to deliver training services at par with
international standards including regular monitoring and review of curricula/programs to ensure that
these reflect the needs of the IT industry. It is proposed to do the latter in collaboration with CEDF-IT.
4. Facilitate the inclusion of entrepreneurship and project management skills as a requirement for the
Unified TVET Program Registration and Accreditation certification.
5. Support the institutionalization of globally recognized Certification programs for teachers, trainors,
and graduates.
6. Development of delivery and payment schemes to make TVET training and Certification accessible
and affordable to workers and companies
E. ENTERPRISE BASED TRAINING
Given a very dynamic economic environment caused by rapid changes in technology (e.g., new versions
of software authoring tools being produced in shorter cycle times) requires up-to-date skills set which
are constantly being upgraded. The most efficient and quickest way for universities and technical
schools to maintain the global standard is through the establishment of industry - academe/technical
school linkages parallel to strengthening the dual training system and OJT programs. Program support
towards this end may consist of the following:
1. Facilitation of the formalization of on-the-job training programs with leading software companies
2. Establishment of exchange programs between universities/technical school and software companies
for specific skills training
3. Advocacy for incentives to software companies which share their resources (i.e., personnel, course
materials, laboratories, etc.) with IT schools and those which would co-implement a Dual Training
System
Some industry players, however, are wary on whether companies would be willing to open up their
facilities and operations to competitors. This would require an extensive social marketing campaign.
F. ORGANIZATIONAL DEVELOPMENT
This would involve supporting existing organizational development providers in the customization of
organizational development tools to the needs and context of software firms.
G. R&D FACILITIES / INCUBATOR
With the lack of software R&D facilities, it is proposed that program support the development of an
incubator facility preferably within the Asiatown IT Park. The incubator facility would help nurture
technology ideas into commercial successes.
Salient points in the incubation process may include the following:
1. Training and mentoring on business plan preparation
2. Technical assistance in the development of business concept
3. Mentoring and coaching from senior staff/directors in software businesses
4. Practical courses on project management, marketing techniques, legal and business practices,
software process improvement overview, etc.
48
5. Access to marketing and promotion services 6. Matchmaking with other businesses and funding sources
5. Access to marketing and promotion services
6. Matchmaking with other businesses and funding sources
H. CMMI CERTIFICATION
Cebu must adopt accepted world class certification standards for software organizations, if it is to be
competitive in the global marketplace. As such, it is proposed that the program support the widespread
adoption of ISO and CMMI certification standard through the following interventions:
1. Training for CMMI lead assessors
2. Facilitate linkages with ISO providers and certifying agencies
3. Exploration of innovative and affordable payment schemes for ISO and CMMI certification
4. Linkage with other CMMI-focused Asian nations
5. Conduct on awareness and technical seminars on CMMI and ISO
6. Advocacy for fiscal incentives to promote compliance
I. BDS/TVET AWARENESS CAMPAIGN
It is proposed that the program supports the conduct of a consumer awareness program which would
provide potential users the information to select a training institute or training provider conforming to
industry minimum standards. Typically such consumer awareness program may provide knowledge of
selection criteria such as:
• Internationally recognized curriculum
• International vendor certification program
• Existence of a computer lab/Ratio of computer to students
• Internship programs
• List of faculty and their qualifications
Establishment of quality standards criteria and conduct of awareness campaign may be done in
collaboration with CEDF-IT.
SECTION 6:
PRIORITIZATION OF INTERVENTIONS NEEDED
• Competency based skills training via technical schools was voted or selected by the highest number
of participants during the Validation Workshop to be most relevant and responsive to their needs.
This was followed by market development services, CMMI certification, TVET/BDS awareness
campaign, and venture capital linkage services.
49
• Given that there are ongoing programs aimed at addressing the gaps in the TVET
• Given that there are ongoing programs aimed at addressing the gaps in the TVET IT supply, further
analysis would have to be made on specific intervention niches for the program. Possible areas of
intervention would be on the stimulation and strengthening of demand and purchase of vocational
training through focused marketing campaigns and assistance in development of delivery, payment,
and financial sustainability schemes.
MENU OF PROPOSED BDS/DDTVET INTERVENTIONS
NUMBER OF VOTES
'MOST RELEVANT'
Venture capital linkage services
3
Market development services
8
Subcontractors and suppliers accreditation system
Competency-based skills training via technical schools and other training providers
14
Enterprise-based training
Organizational development
Incubator facility/R&D Facility
CMMI certification
5
BDS/DDTVET awareness campaign
3
50
CHAPTER 4: THE IT-ENABLED SERVICES SUBSECTOR SECTION 1: INDUSTRY STRUCTURE A. PLAYERS AND RELATIONS IN
CHAPTER 4:
THE IT-ENABLED SERVICES
SUBSECTOR
SECTION 1:
INDUSTRY STRUCTURE
A. PLAYERS AND RELATIONS IN THE SUBSECTOR
• IT-enabled services involve a business modality that is entirely dependent on the Internet and other
information technologies for conducting the business, but which only require basic knowledge about
information technology itself. In other words, employees need to know how to use computers, but
need not have an in-depth understanding on how they work. The different service categories are
presented in Annex B.
• The number of call centers operating in Cebu has grown from zero in September 2003 to nine as of
June 2004. Almost all of the multinational call centers located in Manila have either set up or are
already in the process of setting up shop in Cebu. Some of them have even bypassed Manila entirely
and have established operations here directly. Western Wats, Teradyne, Page Computer and 88
Floor are among the companies operating in Cebu but have no presence in Manila or anywhere else
in the country.
• Input suppliers of an ITES company would include providers of telecom facilities, internet and other
online information support infrastructure, IT park and other infrastructure, software and hardware
vendors, labor pool/work force, etc.
• For the call center technology, some of the suppliers are the following:
Hardware: Aspect, Clarify, Brightware, Cisco (webline)Convergys, Corepoint, Dialogic, e-Gain,
eShare, Genesysd, Kana (including Silknet), Lucent, Nortel, Quintus, Rockwell, ServiceSoft,
Siemens etc.
Software: AnswerSoft, Brooktrout, Edify, eFusion, Genesys Labs, Geotel, IBM/Lotus, Intecom,
KnowledgeX, Microsoft, Multilink, Nabnasset, Netcentric, Netphone, NetSpeak, Oracle, Paresc,
Scopus, Sitel Corporation, SpanLink, Sun, Teloquent, Vantive, Venturian, Voicetek, Webline etc.
CosmoCom, the leading provider of Contact Center On-Demand™ infrastructure, in collaboration with
ePLDT, the information and communications technology company of the Philippine Long Distance
Telephone Company, has launched a service to provide businesses with a network-based alternative
to conventional premises-based call center technology. The service, the first of its kind in the
Philippines, provides ePLDT with a new source of revenue and gives ePLDT customers access to the
latest in next generation multi-media contact center technology. Because the service is delivered on-
demand from the ePLDT network, customers do not need to invest in capital equipment, embark on
costly integration adventures, or maintain large IT staffs to manage the technology.
• The main components for setting up a Medical Transcription unit include: a) premises/office space;
b) servers; c) computers (with audio capabilities) and pedal machines; d) networking; e) specialized
software; f) medical transcription programs; g) telecom connectivity; and h) transcriptionists.
51
52
52
• The Cebu ITES industry is dominated by multinationals and foreign-owned companies. There are only
• The Cebu ITES industry is dominated by multinationals and foreign-owned companies. There are only
about 5 to 10 registered Filipino owned companies. There are also quite a big number of freelance
and informal enterprises doing some business process outsourcing work, multimedia design,
animation, etc. To date, there are no data available on the informal sector and it is quite difficult to
track them.
• The structure for ITES is characterized by the following models:
a. Informal sector Small foreign company client. These are usually home-based operators
who have set up a few workstations in their homes and discreetly processing payroll and
some accounting functions for some small companies in Japan or doing some medical
transcription for a clinic in the United States. They keep a low profile, maintain lean and
mean operations with very minimal overhead costs. To date, there are no statistical data
about this group. They are not registered and they do not pay taxes. Business transactions
are made directly with the foreign client.
b. Multinationals/Foreign Companies Brokers/Marketing subsidiary/Parent Company.
Players in the Cebu ITES are mainly multinationals/foreign-owned companies with majority
in the contact center business. These companies either have their mother companies in the
US or wherever they seek business and/or are operating several marketing offices. For
example,Tata Consultancy Services, one of the big five Indian firms, has offices in 42 US
cities, 27European cities, 11 Asian cities, and 4 Latin American cities.
c. Filipino-owned registered companies Broker/Agent. It is estimated that there are about 5
Filipino owned companies in Cebu with all of them in the medical transcription business. 2
are in the medium scale while the rest are micro enterprises. For Filipino companies and
new entrants, the cost of maintaining an independent network of offices is typically not an
option. This has given birth to an alternative outsourcing model - the third party broker. These
"eServices solution providers" typically establish relationships with multiple offshore
providers, and then channel work to these firms as they acquire business. These solution
providers tend to have a deep knowledge of the outsourcing business, as well as extensive
business networks that they utilize to secure new contracts. This model represents the
most common ways in which Filipino owned ITES companies in Cebu entered into their
outsourcing relationship.
Outsourcing Advisers, also known as Outsourcing Consultants or Transition Managers are
middlemen, like wholesalers in trade, who accept offshoring jobs from the outsourcers to
sub-contract to the BPO service providers in one or multiple (global) destinations. Such
advisers negotiate the fee with the former and the prices with the latter. Very often they have
their own delivery models and provide quality controllers, who are stationed at the service
providers, to ensure consistent quality of service.
This segment of the market is dominated by major players like Cap Gemini, Accenture,
Exult, EDS, H.P, ACS, IBM, AD Marketing, among others.
d. Cebu-based BPO client. This represents the purest form of outsourcing in that the
contractual relationship is between the foreign client and the provider with no intervening
offices or third party firms. The outsourcing costs of this model are generally lower. However,
this only happens for small transactions (between an informal enterprise and small foreign
company) and among established multinationals. This is not a viable model for new entrants
into the outsourcing field because of the element of trust as well as the remoteness of the
providers from the markets. Most US companies enter into their outsourcing relationships
through a US-based company.
• Medical transcription business by its very nature involved transcribing medical advice of various
types. Therefore, its user base is largely confined to individual doctors, hospitals, special test /
examination clinics, state owned medical centres, medical databases, etc.
53
• Customer industries for call centers are essentially those industries which require customer interface and
• Customer industries for call centers are essentially those industries which require customer interface
and transactions success is based entirely on information availability. These industries include:
airlines, financial institutions, telecom services, IT product companies, tourism and hotel, and other
service industries.
• Clients for the animation companies include companies in film, web, advertising, and education. In
Cebu, there are two foreign-owned animation companies.
• Horizontal linkages are almost non-existent and subcontracting is rarely practiced.
• Last year, players in the local BPO industry nationwide formed Business Process Philippines (BPP).
BPP gathers players in the industry into one umbrella group so that foreign companies planning to
outsource in the Philippines will just have to talk to one group who can answer all their questions.
BPP is a comprehensive group with members from the various foreign business councils and
chambers of commerce as well as the government. Even schools, represented by the Philippine
Association of Private Schools, Colleges, Universities, are part of BPP. BPP has asked them to offer
additional courses on the English language especially designed for the needs of future BPO
companies.
B. MARKETS
• The global BPO market is estimated to grow from US$ 127 bn in 2001 to US$ 234 bn in 2005 and
US$ 310 bn in 2008.
• Demand has more than doubled in 5 years. The US remains as the largest market for BPO
accounting for more than 50% of the market. Europe is the second largest market.
• Contact Federation Philippines, the umbrella organization of the IT and e-services sectors, has
estimated that more than 80% of the clients of Philippine contact centers are based in the US. The
rest are distributed across Europe (primarily the United Kingdom), Australia, and Singapore.
• Among the biggest markets for animation are the United States, Japan, South Korea, Australia,
Canada, and France. These markets are for animation films.
54
• "The demand for MT is also large, similar to that of contact centers, but
• "The demand for MT is also large, similar to that of contact centers, but the key there is an MT
company should have contact with hospitals in the U.S.," said Cebu Investment Promotions Center
(CIPC) deputy center head Alberto Gumarao.
• The worldwide ITES-BPO spending by segment of different categories of BPO services in US$ million
in 2001 and 2006 forecast is as follows:
2001-2006
2001
2006
GROWTH
SEGMENT
RATE
US$ million
%
US$ million
%
%
Human Resources
7,373
2.1
25,555
1.0
246.6
Logistics
140,700
25.7
308,651
19.8
119.4
Purchasing
5,288
1.0
12,185
0.7
130.4
Engineering/R&D
69,798
10.3
123,882
9.8
77.5
Marketing
76,666
9.0
108,340
10.8
41.3
Sales
107,412
13.8
165,736
15.1
54.3
Administration
36,644
4.5
53,396
5.1
45.7
Legal
111,273
13.7
163,962
15.6
47.4
Finance/Accounting
36,356
5.4
64,872
5.1
78.4
Other
120,635
14.4
172,329
16.9
42.9
TOTAL
712,145
100.0
1,198,908
100.0
68.4
Source: IDC / NASSCOM
• From the table, it can be noted that logistic accounted for more that 25% of world ITES-BPO
spending in 2001. While this segment is expected to continue attract the highest spending in 2006,
its dominance is projected to fall but still attract nearly 20% of the total in 2006. The human
resources segment is expected to grow by more than 245% though its share falls from 2% in 2001 to
1% in 2006.
SECTION 2:
VALUE CHAIN
A. CONTACT CENTER
• Contact centers are defined as physical locations where calls are placed or received in high volume
for specific customer activities and are used for number of customer related functions like marketing,
selling, information dispensing, advice, technical support etc. It operates to provide round the clock
and year round service. These centers combine the use of highly effective and empowered company
representatives with a service framework that relies heavily on state-of-the-art communications and
information technologies.
• The size of a call center's operation is measured in terms of the number of seats. A seat is
comprised of a workstation with two or three people alternating in shifts to provide 24-hour a day,
seven-day a week multilingual and multimedia-supported customer service.
55
• The major cost for a firm, outside of labor, is Internet connectivity, so any
• The major cost for a firm, outside of labor, is Internet connectivity, so any measure to reduce
connectivity charges will provide a huge boost to companies seeking to establish a presence in this
market. Other measure include: reducing duties on computer equipment imports, reducing the
business tax rate, and improving basic infrastructure such as electricity.
OPERATING COSTS
60% Labor
30% Telecom
10% Others (training, recruitment, utilities, rental costs)
LABOR
P12,000 to P14,000 or roughly US$1.05-1.22/hour compared to US labor cost of
US$10 to US$14/hour
BANDWIDTH
US$10,000 - 12,000
NO. OF SEATS
COST PER
COUNTRIES
TRANSACTION ($)
2003
2004
Australia
135,000
146,000
2 +
India
96,000
158,000
0.29
Philippines
38,000
54,000
0.52
New Zealand
20,000
40,000
0.37
Thailand
12,000
13,500
2+
Singapore
10,000
10,100
1.15
Hong Kong
10,000
10,700
2.03
Source: Callcentres.net, Australia
• Most of the recent trends in this industry pertain to the technology behind the call routing and
distribution function. Some of these trends that are projected to continue and influence the
operations of call centers are the following :
a. Shift from proprietary to open architectural platforms is rapidly gaining acceptance as is
exemplified by vendors' frequent introductions of PC-based routing and call management
software.
b. A shift toward the "complete package" or "turnkey" solution is boosted by this trend to open
platforms which allows for easier integration with existing systems. The growth in turnkey
solutions is also driven by a high level of customer demand.
c. In addition to the formal call center setup, demand for this industry-standards based, open
architecture is seen by those types of call centers operating in more "non-traditional"
environments. For example: SOHO, virtual call centers, telecommuting, etc.
d. Price decline for products perceived as commodities (due to level of technology and
knowledge sharing).
Besides the above developments, call center technologies are making a rapid shift from mere
stringing together of boxes and wires to, more intelligent and manageable solution. For example,
select companies in India have already developed extremely competitive and technologically
advanced call center solutions based entirely on PC technologies and platforms, and IP
technologies. This helps to reduce the cost of the system and reduces changeover or upgrading
costs for the new technologies as a major portion of technology is derived from software. These are
highly automated call centers.
56
• Operation of a Call Center revolves around serving an existing and potential customer base.
• Operation of a Call Center revolves around serving an existing and potential customer base. This
need translates into providing satisfying and well informed responses to a customer query, or in case
of a potential customer, meeting his expectations with regard to quality and quantity of service. The
difference in services can be made through a number of factors. Some of them are discussed as
below:
Process Integration: The call center service flow should be closely integrated with the process of the
customer for whom this service is being rendered. This translates into easy access to and
presentation of updated information.
Customer Satisfaction: Defined as Direct-to-Quality (DTQ), this is akin to ability to satisfying the
customer's (caller's) query the first time.
Response Time: Goal is to minimize to the extent possible the waiting period and response time for
a query. Contact centers should benchmark performance against some of the best call center
operations in the world.
Quality: Contact centers should aim to achieve quality certification such as ISO 9000 or other
certification applicable to this industry. This includes full COPC-2000 Certification (COPC - Customer
Outsourcing Performance Center). This distinction means that the facility has met the requirements
of all 32 areas described in the COPC-2000 Standard. It thus helps to validate call center's quality
and continuous improvement initiatives. The quality of service rendered by an outsourced call centers
should be equal to or exceed service levels already achieved by the client's in-house call center.
Human Resource Development and Management: Call Center staff should be trained on the client's
business, the role of the call center, nature of potential callers, and service expectations of the client.
There is also a certification for call agents. Likewise, the staff should be constantly trained to help
improve accent and diction capabilities, especially for region being served.
B. MEDICAL TRANSCRIPTION
A
medical transcription is a permanent, legal document that formally states the result of a medical
investigation. It facilitates communication and supports the insurance claims. There are three main
processes involved in Medical Transcription. These include:
Process I. Hospitals are signed up. Doctors are trained in the process and then he/she dictates into
pre-set toll free 800 number in the US. The sound is then stored in the server at the other end of
the 800 number.
a
Process II. The sound is digitized and sent to the offshore outsourcing service centre as a WAVE
file via satellite link. The digitized data is converted back to sound. The trained transcriptionists listen
to the dictation and transcribes.
Process III. Transcribed files are sent out to quality control persons, who listen to the dictation and
check the transcription. Corrections are made if required. Then the transcribed report is transmitted
back to the US as word file.
For detailed description of the process, please see Annex D.
In the beginning, start-ups may find it difficult to directly market their services to hospitals, clinics,
etc. In many instances, Filpino companies work with a broker or forge a tie-up with foreign medical
transcription companies.
In India, venture promoters tie up with a larger medical transcription company in the capacity of an
affiliate during the incubation stage. Likewise, there are big foreign companies like Healthscribe or
Heartland who not only subcontract orders but also help to develop a venture into a self-sustaining
affiliate by providing training and advisory services. These services are offered for a nominal fee.
57
India companies also open offices in major markets, such as USA or Europe, to provide
India companies also open offices in major markets, such as USA or Europe, to provide business
promotion coverage to certain regions / states. An aggressive marketing and sales team / network is
a must in the US, either by having a tie-up with an American Transcription company or setting up
one's own network focusing on cost savings and better turnaround times to clients. One can form a
marketing consortium, also. To ensure quality it is imperative to have ISO approved systems.
• The future looks bright for Medical Transcription as the medical practitioners profession continues to
grow and offer opportunities for growth. However, due to increasing maturity and decreasing
differentiation between service providers, the companies in countries like India are now aiming to
provide value differentiation by developing special features within constant cost bracket.
• It has been constantly said that medical transcription is threatened by speech recognition
technology and formatted electronic records. Though at present, voice recognition software has not
developed to the extent that it is in wide usage in any industry, but as this technology matures,
transcriptionists would be able to use it to increase their personal productivity, rather than
considering it as a threat.
C. ANIMATION
• The animation company interviewed offers services such as pre-production on storyboard, character
design, background design, entertainment/games animation and design, website development,
multimedia marketing, distance learning, and education modules.
• Traditional or 2D animation is hand-drawn with paper and pencil. Computers are used to scan each
frame, which produces a series of movements when played. 3D animation is a computer generated
imagery.
• Per minute, two-dimensional animation is cheaper in the Philippines; 3D - 25 to 30% cheaper
compared with the costs in America.
• Marketing requires onsite presence in target markets.
SECTION 3:
HUMAN RESOURCES
• An unquantifiable attribute of the Filipino labor force is what has been termed its "cultural affinity"
with the United States. As a former protectorate of the U.S. for over forty years, the Filipino culture is
permeated with American attributes - such as language (including colloquialism), entertainment, and
consumer goods and tastes.
• One skill that businesses involving customer interaction require is language proficiency. Call centers,
on-line support, and even transcription services (e.g. for medical notes that are written in poor
handwriting and, thus, require some degree of familiarity with different American scripts to decipher)
all involve differing degrees of language mastery. Call centers are the most demanding in that in
addition to language fluency, employees in this business must speak with an accent that can be
easily understood and that conveys a positive image of the company they are representing. To date,
many of the contact centers in Cebu are experiencing difficulties in recruiting English-proficient
workers. While English is the primary language in demand, outsourcing is growing in Europe and
Asia as well, requiring proficiency in languages such as German and Japanese.
• In response to the shortage of English proficient labor pool, four educational institutions in Cebu have
formed a consortium in collaboration with Contact Center Foundation of the Philippines and agreed to
integrate contact center training in their curriculum. These are the University of Southern Philippines,
University of the Visayas, University of San Carlos, and Cebu Institute of Technology. The target is to
58
meet the annual industry requirement and produce annually at least 4,000 graduates with excellent communication
meet the annual industry requirement and produce annually at least 4,000 graduates with excellent
communication skills starting March 2005.
The consortium is also raising funds to implement a 'study-now-pay-later' plan to attract more
students to the course. This is also in response to the training affordability issue raised by students
and parents. The Cebu City government pledged PhP 1 Million to the consortium.
On top of the integrated course, the consortium also offers other non-formal courses. USP now offers
a 96-hour non-formal course on advanced communication for international e-business, where
homemakers, retirees, and professionals looking for a career shift learn effective communication
skills, telephony skills and etiquette, US history and culture, effective selling skills, and basic
technical skills. Also integrated into the non-formal and integrated courses is psychological
preparedness and counseling to minimize risks of job burnout. The course costs PhP 9,500 but USP
is looking at reducing the number of hours to lower the cost to PhP 5,500, thus, attract more
trainees.
• Contact Centers have their in-house training specifically for orientation of new employees and skills
upgrading of existing employees. Main problem is on the recruitment of a workforce that meets at
least the basic requirements.
• Cebu has one MT school. One module costs around PhP 20,000. A trainee, who needs to complete
all three modules, would need to spend between PhP 60,000 and PhP 70,000. The training fee would
be lesser if the student has taken up courses in medicine, nursing, and other allied fields as there
would be no need to take all the three modules. Feedback is that the training fees are not affordable.
Since MT school also runs an MT business, scholarships are being offered to potential medical
transcriptionists linked to employment contracts.
• Eugenio Gonzales, president of Medical Transcription Academy, Inc. (MTC) --- a Manila-based
transcription school, said very few graduates are familiar with the medical transcription industry. He
further added that many graduates still favor going to a call center company. According to him, the
MT industry needs to do a major awareness grogram. Gonzales noted that among the reasons
graduates stay away from the MT industry is the misconception that MT firms only hire people with
medical backgrounds, such as nurses or biology graduates. Many of the MT courses have integrated
basic subjects on medicine to accommodate enrollees with zero background on medicine.
MTC is eyeing Cebu as another location for one its facilities. The company is focusing on a
franchising scheme for its expansion program.
• Aside from having a good understanding of medical terminology and proficiency in English grammar,
a medical transcriptionist should also learn how to operate transcribing equipment, handle mail,
complete insurance forms, process billing, file materials, operate machines, and make
appointments.
59
SECTION 4: CONSTRAINTS A. ORGANIZATION/MANAGEMENT CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS Informal
SECTION 4:
CONSTRAINTS
A. ORGANIZATION/MANAGEMENT
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Informal operations
Information campaign on the easy
registration procedures as well as
benefits of being a registered entity
B. MARKET ACCESS/MARKETING
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Need for onshore presence to
facilitate marketing
Marketing via brokers
Affiliation with American providers
Collective marketing and
representation by a firm located in
target market
Improvement of international
presence
Facilitate business linkages
between Filipino firms and
outsourcing agents
Lack of export market info/product-
market knowledge - requirements,
contacts/trade leads, etc.
Internet
Opportunities/Market Info services
Info sharing among peers
Forum for overseas and domestic
companies to explore potentials for
joint ventures, strategic and
marketing alliance, outsourcing
opportunities, etc.
Business seminars in topics such
as marketing techniques, business
laws and legal tips, new market
opportunities, etc.
60
C. HUMAN RESOURCES CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS Shortage of English proficient workforce (both
C. HUMAN RESOURCES
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Shortage of English proficient
workforce (both oral and written)
Training courses offered by
consortium
Specialized training courses (e.g.,
call agents, medical transcription
and higher end BPO) in
collaboration with known training
centers for the certificate delivered
to be internationally recognized
Strengthen capability of consortium
to deliver integrated courses.
Facilitate linkages with known
training centers to ensure
certification recognized
internationally.
Pursue re-alignment of school
curricula --- build-up English
proficiency from the very start
Only limited number of participants
to training courses due to
perceived high costs
Study now pay later plan
Awareness campaign of BPO job
opportunities
Scholarship from company
Pre-operations training incentives
for companies
SECTION 5:
PROPOSED BDS / TVET INTERVENTIONS
A. AWARENESS CAMPAIGN ON BPO JOB OPPORTUNITIES
To address shortage of skilled workforce particularly for contact centers and medical transcription as
well as overcome problems on training valuation, an awareness campaign on the job opportunities
offered by the BPO industry is recommended.
1. Road shows in secondary schools and universities to inform students about the potential career
paths in the BPO sectors.
2. Open days in BPO companies for both potential employees and their parents to demystify the BPO
industry
3. Consumer awareness campaign which would provide potential users the information to select a
training institute or training provider conforming to international standards
B. STRENGTHENING OF CURRENT TRAINING PROGRAM INITIATIVES
• It is recommended that program facilitates the linkages and collaboration of existing providers (e.g.,
consortium) with known training centers (in Manila and abroad) to ensure that training courses (e.g.
for call agents) are of international standards and for the certificates to be delivered to be
internationally recognized.
• To significantly increase outreach, it is proposed that technical schools be tapped to conduct dual
training programs for contact center agents and similar positions in collaboration with known training
centers. In many of the contact center destinations, courses for contact center agents follow the dual
approach and consist of about 60% practical work.
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• Skills upgrading for trainors • Likewise, all formal and non-formal courses should be designed
• Skills upgrading for trainors
• Likewise, all formal and non-formal courses should be designed and implemented in collaboration
with the BPO players.
C. REVIEW/RE-ALIGNMENT OF SCHOOL CURRICULUM
• A long-term intervention would be to provide assistance in collaboration with the government and the
education sector in the review and re-design of school curriculum
• Improvement of teachers' capability particularly in math, science, and English --- strengthening and
support to ongoing CEDF-IT program.
C. MARKET DEVELOPMENT BDS
Market development BDS proposed in the software subsector would also be relevant for this industry
provided that there is already a critical mass of Filipino owned companies. Multinationals have their own
marketing network and would not require external support in this aspect.
SECTION 6:
PRIORITIZATION OF INTERVENTIONS NEEDED
• Participants during the validation workshop indicated that strengthening of current training programs
and review/enhancement of school curricula are the priority interventions needed by the industry in
the short and medium-term perspectives.
MENU OF PROPOSED BDS/DDTVET INTERVENTIONS
NUMBER OF VOTES
'MOST RELEVANT'
Awareness campaign on BPO job opportunities
Strengthening of current training program initiatives
6
School Curriculum Review and Re-Alignment
6
Market development BDS
Other Interventions suggested by the sector
Common strategy for the sector
Safety and Security of employees
Establishment of "no nonsense" technical pool
Tracking of Skilled Manpower
Strengthening the role of the chamber
Loan facility for trainees (may be tied up with employers)
Cost of doing business
Taxes on support services also raise cost of doing business
Certification of IT Professionals
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CHAPTER 5: INTERNET CAFE SECTION 1: INDUSTRY STRUCTURE A. PLAYERS AND RELATIONS IN THE SUBSECTOR
CHAPTER 5:
INTERNET CAFE
SECTION 1:
INDUSTRY STRUCTURE
A. PLAYERS AND RELATIONS IN THE SUBSECTOR
• To make the Internet more accessible to the ordinary citizen, the idea of telecentres, more popularly
known as Internet cafes (though very few actually serve coffee), was born. The Internet cafe would
take care of the hardware and connectivity requirements and a user needed only to pay a per-minute
charge for access to the Internet. Typically, in Cebu, this would range from P15 to P60 per hour
depending on the location.
63
• In areas farther from the city, the internet café operator is considered as the
• In areas farther from the city, the internet café operator is considered as the "computer or IT expert"
in the community.
• There are about 500 internet café operators and of which 240 are members of the association.
• It is estimated that there are about 300,000 internet café users in Cebu. About 80% to 90% of the
clientele are students. As such, many of the internet cafes are located near the schools. About a
year or two, a law was passed banning the operations of internet centers within 50 meters from the
school. This was vehemently opposed by the operators. Through advocacy, the implementation of the
law was suspended.
• Daily gross income ranges from PhP 1,500 to 3,000. About a year ago, some initiatives were made
to come up with uniform rates but this did not gain the support of the operators.
• When Internet cafés first started sprouting in 1996, the business was very successful and lucrative.
But now, with so many cafes in existence, in Cebu, about three Internet cafés close down every
month.Demographically, Cebu has more Internet cafes than any other city by density. Compared to
Metro Manila, it is littered far more with cyber-cafes per 100 people. In the Talamban area, where the
science and engineering courses of the University of San Carlos (USC) are offered, the block
adjacent to the school has 20 cyber-cafes pitted one next to the other.
• Fierce competition, however, is working against the internet café business as the situation continues
to bring prices down to the bottom-most levels. Thus, the tension in the market is creating a culture
of commercial anxiety as stores lining the city's boulevards and alleys are always on guard - worried
that customers might switch to the neighboring shop at the slightest drop. That, in effect, is making
customer loyalty an alien term in Cebu. Hobbyists are only loyal to the lowest bidder. Competition is
primarily based on price and location.
• A typical internet café would have 10 to 15 computers with one or two attendants. Majority of the
internet cafes are micro scale. Similar to other micro enterprises, owner handles most of the tasks
and is assisted by one or two attendants. Many of the internet café operators had no previous
computer and enterprise management background.
B.
PRODUCTS/SERVICES
• Many of the so-called neighbourhood Internet cafes are mainly game centers, where majority of the
computers are not Internet-connected but dedicated to running games. In many cafes, the computers
are often segregated; one side (or one room, in the larger cafes) dedicated to computers running
games and another side (or room, usually the smaller one) for Internet-connected computers. Games
are more lucrative than internet access.
• Internet cafes near the schools also offer desktop services such as printing and scanning. On the
side, they also sell pre-paid phone and internet cards. Others have expanded into selling of food and
school supplies.
• Other internet cafes are also into the assembly of hardware and computer maintenance services. A
few have offered simple training courses in collaboration with the government.
• Last year, there was a plan from TESDA to use the internet cafes and their facilities in conducting
the e-learning program.
C. THE ASSOCIATION
• The Internet Café Association of Cebu is a non-profit organization. Main objective of the association
is to ensure that café operators conduct their business based on best practices and agreed set of
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standards based on city ordinance(e.g., no porno, etc.). The association works hand in hand with
standards based on city ordinance(e.g., no porno, etc.). The association works hand in hand with
the Local Government in ensuring compliance of members to city ordinance.
• In the past, association organized training for their members on PC security and assembly. The
training costs were taken from the membership dues. Participation of members to training activities
was on a declining trend starting this year. As such, the organization decided to temporarily stop
their training sessions. However, they still continue to conduct orientation for new members.
• Association also tried to become the 'middlemen' for the online games. However, it was later found
out that their pricing scheme was uncompetitive vis-à-vis distributors' prices.
• They are also now in the process of negotiating with Microsoft for possible distributor arrangement.
The association would also like to pursue hardware assembly and retail selling.
• Association conducts annually the online jamboree as their contribution to promoting the use and
benefits of information technology among school children.
SECTION 2:
VALUE CHAIN
INBOUND
OPERATIONS
MARKETING
SERVICES
LOGISTICS
FIRM INFRA-
POS System, Simple Financial System, Customer Satisfaction
STRUCTURE
HUMAN
RESOURCE
MANAGEMENT
Training for attendants - basic requirement is that they can be trusted and has some
basic math know-how (calculation of fees) ; follow wage laws; owner - oftentimes, no fix
salary and performs various tasks
TECHNOLOGY
R&D
Regular upgrading of computers
Updated in games and software releases
Connectivity technology
Product development
Simple market research
PROCUREMENT
Lowest price; repair and maintenance schedules
Main Activities
Installation and set-
up/ maintenance
Check-up and
testing of software
and hardware
Operations of
equipment
Customer
assistance
Monitoring of usage
Billboards and
signages
Discounted rates/
Extended hours
promo
Word of mouth/
referral
Customer relations
Advance info on
promos to regular
customers
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SECTION 3: HUMAN RESOURCES • Skills necessary to run an internet café can be classified
SECTION 3:
HUMAN RESOURCES
• Skills necessary to run an internet café can be classified as follows:
Basic computer skills
TECHNICAL SKILLS
Basic troubleshooting
PC security
Enterprise Management
Customer Relations and Management
BUSINESS
Marketing
DEVELOPMENT
SKILLS
Strategic Planning
Financial Management
Personnel Development and Management
• Many of owners have no previous experience in managing a business nor in information/ computer
technology. Generally, they lack the soft skills
• Majority of the attendants are former housemaids. Owners provide training in customer relations,
operations of POS, simple calculations, and some basic know-how on customer operations.
SECTION 4:
CONSTRAINTS
A. ORGANIZATION/MANAGEMENT
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
The need to upgrade management
skills as well as operations system
efficiency
Access to POS systems
Training and mentoring services
including benchmarking activities
on: a) administrative and
operations system; b) customer
service; c) product development; d)
financial management systems; e)
continuous quality and productivity
system; and f) marketing.
66
B. MARKET ACCESS/MARKETING CONSTRAINTS CURRENT INITIATIVES POTENTIAL SOLUTIONS Competition based primarily on price
B. MARKET ACCESS/MARKETING
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Competition based primarily on
price and location
Add-on services --- sale of snacks,
etc.
Market research/info on consumer
preferences --- Product and market
dev services
Lack of product differentiation
Promotions/discounted prices
Difficulties to move up
vertically/value-added services
Build up of capability to develop
market niche/differentiation factors
Facilitate linkages with other
providers and organizations that
may be able to effectively use
internet cafes as point of delivery
for services/products.
Explore possibilities of moving up
the value chain
The need to build a wider client
base
Online jamboree --- but primarily
still targeted to students
Collective marketing campaign
targeting SMEs on use of
internet/ICT for business
Unfair competition from
unregistered internet café --- lower
overhead costs/no taxes
Advocacy spearheaded by
association
Campaign on registration and its
benefits
C. HUMAN RESOURCES
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Lack of technical skills for
maintenance and troubleshooting
tasks, network installation - high
maintenance costs
Some training conducted by
association
Short-term basic and advanced
courses on network installation,
computer maintenance, and
troubleshooting customized to IC
needs
D.
INPUTS
CONSTRAINTS
CURRENT INITIATIVES
POTENTIAL SOLUTIONS
Opportunity to offer VOIP based
services
Advocacy to be spearheaded by
association
High cost of components and
licensed software/ online games
Ongoing negotiations with Microsoft
for association to be a reseller
Bulk buying/collective purchase
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SECTION 5: PROPOSED BDS/TVET INTERVENTIONS A. ORGANIZATIONAL DEVELOPMENT This would involve supporting existing
SECTION 5:
PROPOSED BDS/TVET INTERVENTIONS
A. ORGANIZATIONAL DEVELOPMENT
This would involve supporting existing organizational development providers in the customization of
organizational development tools and the continuous productivity and quality improvement program to
the needs and context of internet cafes.
B. TECHNICAL AND ENTREPRENEURIAL CAPABILITY BUILD-UP
Range of training topics would include the following:
Basic computer skills
Basic troubleshooting
TECHNICAL SKILLS
Network installation
PC security
Enterprise Management
Customer Relations and Management
BUSINESS
Marketing
DEVELOPMENT
SKILLS
Strategic Planning
Financial Management
Personnel Development and Management
Aside from development of training modules customized to the needs of the internet café operators, it is
also proposed that the program supports the development of training modality harnessing the strength of
e-learning and group mentoring. This would involve the development of CD-based or internet-based
coursewares on the above topics. However, to facilitate application of knowledge gained from the
courseware, the training modality should also include group mentoring.
C. PRODUCT DEVELOPMENT
1. Program support may be directed towards the following:
2. Facilitation of linkages with other providers and organizations that may be able to effectively use
internet cafes as point of delivery for services/products
3. Assistance in the development of new products
4. Market promotion and development for new products
D. MARKET DEVELOPMENT
This would involve the conduct of awareness campaign targeted to micro and small enterprises without
internet access at their homes or office on the use of internet cafes for their business transactions.
68
SECTION 6: PRIORITIZATION OF INTERVENTIONS NEEDED • Product development was voted to be the most
SECTION 6:
PRIORITIZATION OF INTERVENTIONS NEEDED
• Product development was voted to be the most important intervention for the internet café group. This
was followed by market development services.
MENU OF PROPOSED BDS/DDTVET INTERVENTIONS
NUMBER OF VOTES
'MOST RELEVANT'
Organizational development
1
Technical and entrepreneurial capability buildup
1
Product development
5
Market development
2
OTHER SUGGESTED INTERVENTIONS
Implementation of existing ordinance (#1901)
Involvement of the LGU
Level (equal) playing field in the sector
69
CHAPTER 6: THE HARDWARE SUBSECTOR SECTION 1: INDUSTRY STRUCTURE A. PLAYERS AND RELATIONS • Computer
CHAPTER 6:
THE HARDWARE SUBSECTOR
SECTION 1:
INDUSTRY STRUCTURE
A. PLAYERS AND RELATIONS
• Computer hardware comprises: data processing equipment (computers), peripherals and networking
products. It must be noted here that "manufacture," in the context of the Cebu computer hardware
industry, refers primarily to the following:
- Assembly of computers with imported components by Filipino owned companies and
freelance technicians/assemblers
- Manufacture of peripherals by MNCs
• The PC segment primarily consists of the following:
- Multinational brands (Dell, Compaq, Toshiba, etc.)
- Branded assemblers (Filipino companies)
- Unbranded assemblers (Informal sector; micro shops)
- Surplus computers from Korea and Japan
• PCs sold to local clients are mainly assembled locally. There are about 30 Filipino companies in
Cebu who are engaged in the assembly of computers. Almost all of them have their own retail
outlets.
• Horizontal linkages between MNCs and Filipino assemblers and retailers almost non-existent.
Locators in the Asiatown IT Park source their computers outside of Cebu.
• The growth of the assembled PC market has been spurred by the high cost of complete systems,
which has led to import of components being cheaper than complete systems. The assemblers are,
therefore, able to provide the PCs at a lower price to the consumer. Growth of the organized sector is
being determined therefore purely on the basis of cost. Filipino assemblers and retailers though
indicated that margins are low.
• Sourcing of components is done individually by the companies. The informal enterprises usually
source out their components from the various retail outlets and surplus stores.
• Distributors of HP, Epson, Intel, and other similar products provide marketing support to retailers
such as: a) collateral materials; b) promotional activities; c) incentives for every unit sold (e.g., Intel)
which retailer-assembler can use for own promotional activities of his/her choice. From time to time,
marketing seminars are also conducted by distributors.
70
71
71
B. PRODUCTS/SERVICES • Aside from assembly and sale of computers, peripherals, and similar products, many
B.
PRODUCTS/SERVICES
• Aside from assembly and sale of computers, peripherals, and similar products, many of the Filipino
companies also provide installation and repair services.
C. MARKETS
• Markets consist both of individual buyers and institutional clients. For many of the small Filipino
companies, institutional clients are the more important segments. Retail sales provide them with the
daily cash flow.
• Aside from fierce competition among Cebu-based companies, they also consider Manila-based
retailers as their competitors.
SECTION 2:
VALUE CHAIN
ASSEMBLER - RETAILER
FIRM
INFRASTRUCTURE
Financial Management
In-house Quality Standards
Customer Relations
Inventory control and tracking
Just-in-time delivery
HUMAN
RESOURCE
MANAGEMENT
Recruitment - referral, posting
On-the-job training
Compensation as per Philippine Laws and prevailing market rates
TECHNOLOGY
DEVELOPMENT /
R&D
Supplier Led
Regular updating on PC/component/peripherals trends
Pre-packaged assembly/ innovations done by technicians
PROCUREMENT
Lowest price - good terms - good quality
Has regular suppliers
Long term relationship with distributors governed by legal agreements
Receipt of
Assembly
Display in
Own retail
Service/parts
goods/legal
Packaging
stores/Pick-up
outlet
warranty
documents
Display
from store
Brochure/info
preparation
Selling
Deliveries to
materials
Visual
Installation
clients
Own
MAIN ACTIVITIES
inspection and
brand/label
testing
Direct
Inventory
marketing
entries/coding
Bidding/tender
Storage and
participation
warehousing
Advertisement
AFTER
INBOUND
OPERATIONS
OUTBOUND
MARKETING
SALES
LOGISTICS
SERVICE
72
SECTION 3: HUMAN RESOURCES • Employees in a Filipino assembly-retail company would be composed mainly
SECTION 3:
HUMAN RESOURCES
• Employees in a Filipino assembly-retail company would be composed mainly of technicians and
salespersons. Technicians are generally vocational graduates or at least 2nd year college students of
computer courses. Skills and know-how are upgraded via on the job training provided by company
and their distributors. When specialized skills are needed (e.g., network installation), the companies
have a ready pool of external technical people they can readily tap. Companies are relatively satisfied
with their workforce.
• Don Bosco/CITE has forged apprenticeship arrangements with selected MNCs in Cebu.
SECTION 4:
CONSTRAINTS AND POTENTIAL INTERVENTIONS
A. CONTINUOUS PRODUCTIVITY AND QUALITY IMPROVEMENT
Among the Filipino-owned companies, the major problem faced is the low profit margins from PCs and
peripherals. Given that prices are fairly standardized, the only way for companies to improve profit
margins is to avoid waste and/or reduce costs. Towards this end, it is proposed that SMEDSEP support
be directed to the following: a) customization of the Continuous Productivity and Quality Improvement
services to the needs of the hardware subsector; b) capability build-up of existing providers; c)
development of payment and delivery schemes attractive to both providers and enterprises; and d)
market development campaign
Continuous Productivity ad Quality Improvement aims to encourage entrepreneurs to seek opportunities
to increase efficiency, effectiveness, and quality. It involves pro-active efforts to seek, identify, and
eliminate barriers to improvement and for more efficient operations. Specific objectives of this BDS are:
1. To facilitate improvements in organizational abilities in one or various function areas within the
enterprise that will enable it to significantly increase its productivity as well as transform orientation
from inspector-based to individual worker-based quality control improvements
2. To introduce and facilitate adoption of quality management elements and socially responsible
practices under the ISO and SA8000 standards
3. To facilitate the adoption and implementation of environmental management systems in the context
of business growth and profitability
B. TECHNICAL AND TECHNOLOGICAL COMPETENCE BUILD-UP
This would involve strengthening existing enterprise-led non-formal dualized technical skills training for
existing and potential workers in the hardware industry in terms of training content, certification, and
outreach. Proposed features to be given emphasis are: a) dual training: in-center and in-shop, preferably
with MNCs; b) modular approach to enable workers to register only in courses they need; c) close
monitoring system to ensure that in-center learning are aligned to in-shop tasks and that learning is
translated into performance in practical work situation; d) course contents developed in close
collaboration with the industry; and e) certification testing internationally recognized.
73
SECTION 5: PRIORITIZATION OF INTERVENTIONS NEEDED • From the interviews and the focus group discussions,
SECTION 5:
PRIORITIZATION OF INTERVENTIONS NEEDED
• From the interviews and the focus group discussions, it appears that the hardware subsector
generally feels that their industry is performing quite well. Nevertheless, industry leaders chose the
Continuous Productivity and Quality Improvement chose to be the more relevant intervention for their
subsector.
MENU OF PROPOSED BDS/DDTVET INTERVENTIONS
NUMBER OF VOTES
'MOST RELEVANT'
Continuous productivity and quality improvement (CPQI)
2
Technical and technological competence build-up
OT H E R S U GGE S T E D I N T E R V E N T I ON S
Bonding among key players
Strengthening and intensifying sharing / networking
Inability of some clients to pay (overextended period)
Tap volunteer experts to address concerns on productivity, training, etc.
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ANNEXES 75
ANNEXES
75
ANNEX A: IT SERVICES CATEGORIES IT PROFESSIONAL / TECHNICAL SERVICES IT-ENABLED SERVICES IT Project Management
ANNEX A:
IT SERVICES CATEGORIES
IT PROFESSIONAL / TECHNICAL SERVICES
IT-ENABLED SERVICES
IT Project Management
Business Process Outsourcing
Application Systems Development
Call Centers
Applications Services Provider
Engineering and Design
Web Development and Management
Animation and Content Creation
Database design and development
Knowledge Management
Computer Networking and Data
Market Research
Communications
Finance and Accounting Services
Software Development
Human Resource Services and
Other Administrative Services
ICT Facilities
76
ANNEX B: BUSINESS PROCESS OUTSOURCING 77
ANNEX B:
BUSINESS PROCESS OUTSOURCING
77
ANNEX C: CONTACT CENTER: TECHNOLOGICAL SYSTEMS The technological systems choices of a call center include:
ANNEX C:
CONTACT CENTER: TECHNOLOGICAL SYSTEMS
The technological systems choices of a call center include:
a. Entry options ranging from traditional voice, e-mail, internet forms, web triggered calls, fax and video
b. Desktop tools including knowledge based systems (AI), electronic documentation, new contact
management applications and screen based telephony
c. Resource locations ranging from home agents to centralized or decentralized centers
d. Service options ranging from self-help or assisted services via Internet, voice response units, fax
back systems, and electronic technical support forums. Introducing the right technology will benefit
every component of a call centre including training, staffing, scripting, customer relations, tracking
and reporting etc.
78
ANNEX D: MEDICAL TRANSCRIPTION PROCESS The typical process of Medical Transcription begins with receiving dictation
ANNEX D:
MEDICAL TRANSCRIPTION PROCESS
The typical process of Medical Transcription begins with receiving dictation by tape, digital system or
voice data file. Conventionally, recorded advice was sent through physical means (i.e. a magnetic
media). However, there is steady emergence of a new practice. Using a toll free telephone line, doctors
can call up a designated number and dictate the message which is converted and recorded into a
dedicated server on a real time basis. This helps to save shipping costs and improves productivity
manifold.
The transcribing company connects to this server through a high speed data link (preferably Internet or
ISDN link of 128 kbps or above) and download any fresh dictations left by customer organizations/
doctors. The transcriber company (if different) can start to immediately retrieve messages and transcribe
them. Using ear phones and a foot pedal for start-stop control, transcriptionists are able to hear and
control the speed of audio messages. These messages can be transcribed with the help of a suitable
word processing program/application. A variety of word processing programs may be used as different
forms of transcription/messages may require specific features. An outsourced or outlocated medical
transcription center then sends back these transcribed messages to the hub of medical transcription
network from where it is routed to the concerned doctor/hospital. Most of the words processing
programs used in medical transcription process typically are accompanied by libraries/dictionaries of
medical terminology.
These libraries may also be categorised based on various disciplines. Several dictionaries are
necessary: Medical definitions, medications, medical terms by specialty, laboratory terms, surgical
terms and abbrevations. Specialized word lists are also helpful, and journals and computer networking
are helpful for current information about new medications and terms. Transcription is done more
efficiently with the use of a medical spell checker and an abbreviation system such as PRD or
Smartype, etc.
79
ANNEX E: BPO DESTINATION CRITICAL FACTORS • A.T. Kearny Consulting conducted a country analysis of
ANNEX E:
BPO DESTINATION CRITICAL FACTORS
• A.T. Kearny Consulting conducted a country analysis of offshore BPO destinations. The criteria and
weights in the country analysis used were:
- Costs (40%) - cost of labour and infrastructure, taxation
- Environment (30%) - political and economic risk, cultural compatibility, geographic location,
country infrastructure
- People (30%) - education level, size of labour market, language barriers, retention rate
The score of countries studied on the above criteria of costs, environment and people is summarized in
the table below.
SCORE OF SELECTED OFFSHORE BPO DESTINATION ACCORDING TO A.T. KEARNY
COUNTRY
SCORE
COUNTRY
SCORE
India
7.3
Ireland
5.8
Canada
6.2
Australia
5.7
Brazil
6.1
Czech Republic
5.7
Mexico
6.2
Russia
5.6
Philippines
5.7
China
5.2
Hungary
5.8
• The choice of location of a call centre by overseas MNC's is based on a number of factors and
include:
a. Laws and Regulations.
b. Telecommunication Infrastructure, Technology & Tariffs - India is perceived as technologically
savy but with keen desire to emerge as a country with sound telecommunication
infrastructure. Therefore, technology is an important deciding factor in location decision.
Similarly, tariff is another significant factor. There are also issues of connectivity (to PSTN
etc.) that need to be addressed by the government quickly.
c. Workforce - Companies look to countries that can provide them with work force that is
proficient in English (and possibly other languages); cost effective with disciplined work
culture.
d. Real Estate, Availability and cost of office space.
e. Economic Incentives - These may take the form of grants or tax exemptions, repatriation of
profits, corporate tax on profits generated by call centres, tax treaties etc.
f. Feel-good factor- Companies look for countries where the people are positive, service
minded and friendly.
80
ANNEX F: KEY INFORMANTS SUBSECTOR COMPANY Esprint Software Alliance Internet Software Company Software Primary
ANNEX F:
KEY INFORMANTS
SUBSECTOR
COMPANY
Esprint Software
Alliance Internet Software Company
Software
Primary Software
NEC
BP Solutions
eTelecare
Boom Interactive/JAMP
IT Enabled Services
Northern Medical Transcription
Red Apple Design Studio
Peoples Support
Internet Café Association
Internet Cafe
2 Internet Café Operators (Officers of Association)
President of Hardware Retailers Association
Hardware
Ng Khai Development Corporation
CITE
Providers
CEDF-IT
International School of Medical Transcription
Department of Trade and Industry
Government
CVISNET
TESDA
Chamber
Cebu Chamber of Commerce and Industry
Asiatown IT Park
Infrastructure
PLDT
Mozcom
81
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