OffShoring Engineering

As economy gains, outsourcing surges

By Hiawatha Bray, Bostan Globe Staff, 11/2/2003

First in a series

MANILA -- To hear how far and deep the outsourcing of American jobs has traveled, listen to Christian Mancenon in barely accented English take an order over the phone for HBO from a man in Lebanon, Ill. "I'm showing here that you love movies," the 25-year-old Filipino said, while looking at his computer screen in a low-rise building in Makati, Manila's business district. Mancenon and 600 others work for a subsidiary of Philippines Long Distance Telephone Co. that fields customer calls for Dish Network satellite TV of Littleton, Colo.
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Like India, Pakistan, and Russia, the Philippines has a growing share of the world's high-tech jobs that have fled high-cost places, such as Massachusetts and California's Silicon Valley. But even workers filling customer orders, with few skills, have trouble competing with the $300 a month Mancenon is paid in the Philippines, one-fifth of what a worker in the United States would get for doing the same job.

The spread of outsourcing, beyond hard-hit technology workers, is a big reason the US economic recovery so far is a jobless one, and has stayed that way much longer than in previous upturns. A study released recently from the University of California at Berkeley says the country lost more than 1 million white-collar jobs in the 1990s and "hundreds of thousands more since the turn of the century."

Precise data are hard to come by and estimates vary widely, but the UC study says that outsourcing is accelerating. "If you simultaneously read Indian newspapers and US newspapers, you're going to get a good correlation between layoffs here and jobs being created there," said Ashok Deo Bardhan, a researcher for the study. He added that as many as 30,000 jobs were lost to India alone in June, and that 14 million US service jobs are vulnerable.

Lured by lower costs overseas that enable them to increase profits in tough times, companies like Dell Computer Corp., Procter & Gamble Co., American Express Corp., and Citibank employ 20,000 Filipinos to answer their phones. The Philippine government predicts that call center jobs will double over the next year.

Filipinos also are competing for high-tech jobs like software development and engineering, the kind of work US firms have been sending to India. US jobs also are going to Ireland, Russia, China, even Ghana.

Many economists say the lost jobs will be absorbed as the economic expansion lengthens and as baby boomers retire, shrinking the overall US labor force. But the UC study says that unless the US economy pioneers new high-wage industries to employ the displaced workers, they can expect a future of lower pay and a reduced standard of living.

US companies say they have no choice. In a global economy, they say, they must stay competitive with companies that operate in lower-cost countries -- akin to the argument that if one guy does it, everybody has to just to keep alive.

"Clearly, US companies have looked offshore because they have to reduce their operating costs in order to survive," said Rita Cruz, a partner at the consulting firm Accenture, which employs 2,000 Filipino software developers.

Inevitably, that means tougher times for many US workers. Despite a Commerce Department report last week that the economy grew at a 7.2 percent annual rate in the third quarter, the sharpest growth in 19 years, the economy still lost 41,000 more jobs.

One year before the attacks of Sept. 11, 2001, Northwest Airlines employed more than 52,000 workers. By last September, that was down below 39,000. Meantime, the St. Paul, Minn., company employs computer programmers in Manila. Foreign workers "cover commodity tasks, enabling us to shift employees to focus on key innovation areas," said Mary Stanik, an airline spokeswoman.

One school of thought says that over time, Americans will benefit from the higher corporate profits that come from outsourcing. Low-level work will be performed in low-wage countries, saving US employees for more demanding, higher-paying tasks.

Mike Gildea, executive director of the Department for Professional Employees of the AFL-CIO, which represents 4 million white-collar workers, does not believe the explanation that Americans will do better in the long run. "It's a load of crap," he said. "This is exactly what we were told about manufacturing jobs 15 years ago."

In a country as poor as the Philippines, outsourcing is a bonanza. The Philippines is regarded as the Asian tiger that never roared, a promising country that did not achieve the booming economic growth that came to Taiwan, Singapore, or South Korea. The country's 84 million people include a sizable middle class, but according to government statistics, average household income as of 2000 was about $2,600, with a third of all households earning less than $1,000 a year.

But the literacy rate is well over 90 percent. The universities produce 350,000 graduates a year, 50,000 of them engineers, more than the domestic economy can absorb. Most speak English.

Because the Philippines is near the Asian mainland and Australia, and because of longstanding economic and military ties to America, the country has superb telecommunications links. A network of undersea fiber optic cables connects the islands to North America, Asia, Africa, and Europe, providing excellent voice and data communications at low cost.

But decades of corrupt misrule and martial law spoiled the Philippine economy. Once the only hope for educated Filipinos was a plane ticket out. Today, it's a phone or a computer terminal.

Cristina David, a 35-year-old engineer at Software Ventures International in Manila, oversees several software projects for US companies. Like many of her colleagues, she knows how things are done in America. "I worked there for two years," she said. "I felt so lonely, so I had to come back."

And why not? She can do the same work in the Philippines, and although a $4,000 annual salary is sub-poverty in the United States, it lets David live the sweet life in Manila. She drives a Mitsubishi Lancer -- "fully loaded," David said.

In the home David shares with her widowed mother, there is a live-in maid who does all the cooking and cleaning, six days a week, in exchange for room and board and $50 a month. Every December, David and her friends fly to Hong Kong or Thailand for vacation. Software Ventures has been developing software in Manila for nearly 30 years. During that time, said president and CEO Gil Guanio, the company hired and trained about 6,000 people, only to see the best of them immigrate to the US, Canada, or Australia.

Today, the company finds it far easier to keep its 500 software developers at home because opportunity in the United States has dwindled but keeps growing in the Philippines. "The only way to keep what I call the best people," Guanio said, "is to pursue an offshore strategy that brings the work from out of the country into the country."

The strategy has been working as a growing number of US firms have sent programming work to the Philippines. Since 2000, Thomson West, an Eagan, Minn., publishing company, employed Software Ventures for software maintenance and support services. Con-Way Transportation Services, a major trucking firm in Ann Arbor, Mich., has had its older software maintained by Software Ventures since 2001. "It frees our people up to do more cutting-edge stuff," said Con-Way's marketing director, Joe DeLuca.

That's no solace to out-of-work US programmers, who are competing against the likes of Mary Rose Dela Cruz. She has worked for seven years as a software developer for Headstrong Corp., a Fairfax, Va., consulting firm. The company's global development center in Manila employs 150 software developers, tackling projects for US, European, and Asian firms.

Dela Cruz makes about $1,000 a month, a fraction of what an equally skilled American would earn. But in the Philippine economy, she can afford a car and overseas vacations, while providing financial aid to put other members of her family through school.

Most Philippine outsourcing jobs do not go to software engineers. The biggest boom comes in lower-skilled technology work like medical transcription. Consider eData Services, a Manila company that provides an 800 phone number in the United States for doctors to dial in and dictate medical information. The eData workers, all of whom hold a degree related to medical care -- usually nursing or physical therapy -- type it up. Doctors working for eData part time act as editors and check the accuracy of the work. Once it is verified, the transcripts are e-mailed back to doctors' offices in the United States.

At the call center where Mancenon works, the company sends workers through "Amspeak" training courses. The schooling seeks to purge workers' voices of "foreign" accents and familiarize them with the latest American slang.

Nonetheless, despite the training in American English and pop culture, Mancenon estimated that 3 of 10 callers realize they are speaking to someone outside America: "If they ask us if we're American, we proudly say `no.' "

Hiawatha Bray can be reached at bray@globe.com.