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The end of cheap prices

The current rice crisis gripping Asia and the United States has led experts to declare that the era of cheap food is over. That seems to apply as well in the low-cost IT labor sector, particularly in the electronics manufacturing, in the Philippines.
Written by Joel D. Pinaroc, Contributor and  Melvin G. Calimag, Contributor

The current rice crisis gripping Asia and the United States has led experts to declare that the era of cheap food is over. That seems to apply as well in the low-cost IT labor sector, particularly in the electronics manufacturing, in the Philippines.

Chipmaker Intel’s recent decision to pull out of the Philippines within the year and transfer its test and assembly operations to Vietnam underscores this harsh reality. You can’t have a more symbolic example than that. Yes, we still have a vibrant BPO industry composed mostly of call centers that take advantage of the cheap labor provided by the country’s young population.

But how long can the Philippines hold up this sector? I have this dreadful feeling that it’s going to vanish as quickly as it appeared a few years back. If that happens, and that’s not entirely impossible, the country is certain to plummet into a calamity--unless, of course, the government has a back-up plan, which I doubt it will have.

For the longest time and perhaps also a way of comforting itself, the Philippines has been fond of saying that it is the world’s third largest English-speaking country after the US and the United Kingdom. That, my dear countrymen, is no longer true--if it was indeed true at a certain point in time. India has claimed that title, and China is poised to follow India in that category as well.

So, as a country, what do we do next? One word: prepare. While the Philippines has no control of multinational firms moving their factories to low-cost countries like Vietnam and China, it can determine its destiny by innovating and moving up the value-chain. My favorite model for this is Taiwan, which acted fast enough when it realized that it could no longer compete with China in the ultra-cheap labor market.

Innovation is such a vague concept that a lot of people don’t actually grasp it. I myself don’t fully understand it. In fact, the IBM conference which I recently attended in Los Angeles, California had "innovation" as a major theme, but the top guy in charge of this strategy admitted it's not an easy thing to explain.

But Nick Donofrio, IBM's top innovation strategist, did say that innovation is all about change. If you don’t adapt, you become extinct like the dinosaurs. What Charles Darwin said about the Theory of Evolution is also true for the competitive IT marketplace. It's the same thing-–change, adapt, evolve.

Just before I went for my US trip, I was able to attend an informal gathering of the Philippine Software Industry Association (PSIA) in Makati City. It featured open source software guru Winston Damarillo because his company, Morph Labs, sponsored the event. Damarillo, whose companies have invaded and are flourishing in the U.S., had some interesting things to say on how the country can climb up the value ladder.

Filipinos, he said, have shown that it can compete in the software market with very little investments, as shown by the success of his firms. Open source technology, he stressed, has allowed nations like the Philippines to efficiently create high-value software products that cannot be easily transported to another country where labor cost is dirt cheap.

It's time to heed this call. Intel's pull-out is a wake-up call.

Rigodon Update

Two Filipino IT veterans, who left their long-held jobs almost simultaneously late last year, have again resigned from their posts after staying with their respective companies for only a few months.

Jino Alvarez, who served as a top official of Epson Philippines for almost a decade, has quit his job as general manager for IT products of Samsung Philippines. He's now working for Neo, a local assembler of laptop computers.

Alvarez hooked up with the local Samsung subsidiary late last year after resigning unexpectedly from Epson Philippines. He said he received a "good offer" from Samsung but left the company last April.

An industry old hand, Dan Viray, has also relinquished his position as regional director at Indian IT firm aurionPro Solutions to take up a newly created post as vice president for financial systems at technology conglomerate IP-Converge.

Like Alvarez, Viray resigned from his job as sales director of Sun Microsystems Philippines also late last year. Before Sun, he worked as country manager for Software AG.

Another grizzled IT executive, Bernard Yu, has also left his job at Infomann Philippines and is now about to link up with another IT firm. Previous to Infomann, Yu served the longest stint as country manager of Oracle Philippines for 10 years.

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