By Emmanuel Jose Yujuico
The worst fears regarding the election of Donald J. Trump as American president were embodied in his January 20 inauguration speech when he mentioned that “[w]e must protect our borders from the ravages of other countries making our products, stealing our companies and destroying our jobs. Protection will lead to great prosperity and strength.” For the Philippines’s fast-growing business-process outsourcing (BPO) industry, such statements are obvious cause for alarm. Although there have always been exceptions in practice, the United States has generally advanced trade as a means for promoting world development in the post-World War Two era.
In rhetoric at least, Trump makes a break from his predecessors. Instead of viewing trade as a positive-sum game where all participants gain from voluntary exchange (liberal perspective), he views it as a zero-sum game where an increasingly large trade deficit means one country is losing more growth and jobs (mercantilist perspective). To remedy this situation, the “loser” from this unfair exchange—the US in Trump’s reckoning—should use protectionist measures. To liberals, the US moving production of goods and services overseas makes sense insofar as costs are higher as befitting its status as a highly industrialized nation. To mercantilists, however, the US has been “taken advantage” of by others through unfair practices like artificially depressing production costs, violating intellectual property rights and weakening currencies.
However, saying and doing are two different things. To analyze the real risk to Philippine outsourcing from Trump’s administration, consider the following equation:
[Risk] = [Probability] x [Impact]
Trump has been outspoken about countries the US runs very large trade deficits with. In decreasing order, the top 4 are China (-$347 billion in 2016), Japan (-$68.9 billion), Germany (-$64.87 billion) and Mexico (-$63.2 billion). Insofar as these deficits are largely due to trade in goods, you would expect Trump’s protectionist policies to target those instead of services, which BPOs engage in. By comparison, America’s trade deficit with the Philippines is a relatively inconsequential -$1.78 billion, making it a far smaller target. Moreover, Trump’s emphasis on goods-manufacturing, instead of services, is mirrored by administration officials. In their “Trump Economic Plan”, National Trade Council Director Peter Navarro and Commerce Secretary Wilbur Ross downplay service sector jobs as lower-paying.
During the elections, the Communications Workers of America (CWA) actually endorsed Hillary Clinton. It has lobbied for protectionist measures against offshoring call centers, such as having operators identify their country of origin and transfer calls to American operators if demanded by American customers. While the CWA has not approached Trump yet, it may still happen in the future. However, we can be fairly certain that Philippine BPOs pale in significance as a trade target relative to China, Mexico and so forth, lowering the probability for discriminatory action.
Yet, it’s probably unwise to discount Trump’s threat to Philippine BPOs on the basis of relatively low probability alone. Stock prices of all sorts of companies—especially manufacturing concerns—have been adversely affected by Trump admonishing them on Twitter for sending jobs abroad. It’s certainly conceivable that this kind of verbal intervention may make American firms warier of outsourcing BPO jobs in the future.
Hence, lessening the impact of discriminatory American policies on Philippine BPOs deserves consideration. In a 2010 BPO industry survey, the Bangko Sentral ng Pilipinas noted that 71.8 percent of all foreign investment came from the US, rendering the industry’s fortunes closely tied to the overall US economy. Such a high level of dependence on America increases the impact of adverse policies on the Philippines. Before Trump, the industry’s emphasis has been on upskilling the services offered by BPOs following the path of India: Although one may begin with lower-skilled, lower-paid activities, such as telemarketing and customer support, progression should follow toward higher-skilled, higher-paid ones, such as accountancy and computer-aided design.
While the logic of upskilling remains sound, Trump’s election may underline the more pressing need for geographic diversification. That is, Philippine BPOs should not rely so much on continued American patronage. After all, the first thing you learn in business school is the related notion of portfolio diversification. Already, there is some interest in broadening the customer base of the Philippine BPOs to other, more developed English-speaking nations, especially the likes of Australia, New Zealand and Singapore. Longer-term, however, fluency in English will only take the industry so far. Now is as good a time as any to begin investigating measures to broaden the language skills of BPO workers to make it possible to serve other countries with similarly high labor costs and unfavorable
demographics.
Consider such countries in our own region. To be sure, learning Nihongo, Hangul, Cantonese and Hokkien to serve the likes of Japan, South Korea, Hong Kong and Taiwan is difficult. However, there is obviously an upper limit to the number of Anglophone customers. Indeed, the Trump administration may curtail market access to the largest of these, the American market. The logic of learning other languages to broaden the capabilities of Philippine BPOs is straightforward and makes economic sense, especially in the age of Trump. How to incorporate language training—during secondary, tertiary or job-specific training—gains long-term relevance in this regard. Still, the downside of inaction is clear: leaving an important Philippine growth industry quite vulnerable to the whims of an unpredictable American president.