Payments, martial law hampering Mindanao outsourcing growth

DAVAO CITY — The growth of technology start-ups and the overall outsourcing industry in Davao is being hampered by payment system problems and the martial law in force in the Philippines’ southern islands.

“Small technology companies here are utilizing Paypal and it’s a total disaster as we have to go through multiple layers of denial from banks. Paypal points fingers and the worst case scenario is it will freeze your account,” US-Philippines Commerce & Industry Agency (USPCIA) Vice-President Rick Von Pfeil told Businessworld in an interview during the recently-concluded Livelihood Exchange 2018 and Innovation Summit held in the city.

Mr. Von Pfeil facilitated the business matching activity between Davao start-ups and US companies during the event.

“Americans don’t use Paypal anymore,” he added, citing at least three local projects that were delayed because of the system.

The easiest way to get paid for outsourced services, he said, is through bank transfers and credit cards.

Mr. Von Pfeil said US firms are keen on Davao City as their next destination for business process outsourcing (BPO), software development, and other technology-related services as they recognize the huge pool of talent available not just for call center operations.

“Most US companies will think about India first and then Ukraine for outsourcing, but now they are looking at the Philippines, including Davao, as another potential destination,” he said.

“Filipino developers are more expensive than Indian developers but US companies are willing to pay more money because of factors like good customer service and good grasp of the English language,” he added.

He also said that young entrepreneurs of start-up companies should tap the “pretty strong ” business chambers in the country for networking and opportunities.

MARTIAL LAW

Meanwhile, Leechiu Property Consultants said the declaration of martial law has affected BPO expansion plans in Davao City as well as Cagayan de Oro City.

The firm’s chief executive officer, David T. Leechiu, said the impact is largely due to negative perceptions and travel restrictions, particularly for BPOs with foreign executives and clients.

“The big issue about ML is that if you’re a foreigner... under ML they cannot travel,” said Mr. Leechiu, who is also currently serving his second term in the Information Technology and Business Processing Association of the Philippines’ (IBPAP) Board of Trustees.

“I understand the government also needing to keep ML in place... but we also need to understand the cost of that policy. But I have been appealing to government many times to lift martial law at least in Davao City and Cagayan de Oro City because that has put a stop to all BPO expansions,” he said.

“We saw Davao as the second largest market after Cebu and now that disappeared... they (BPO companies) haven’t pulled out, which is very good. (But) They can go so much bigger here and they want to, but they cannot,” he added.

He said between 2012 and 2017, the BPO sector alone has developed from “zero to close to 25,000” seats, but the growth has stopped since.

“There’s one company that expanded 500 seats in the first year of ML, but after that no more, unlike in many parts of the Philippines,” he said.

ICT-Davao President Samuel R. Matunog, on the other hand, said while meetings with potential new BPO locators and clients have declined significantly, companies who are already in the city are actually expanding.

“I am not aware of a new BPO locator opening shop in Davao this year. However, those who are already in Davao are ramping up recruitment, and in fact, our major challenge is talent poaching and irregular recruitment activities,” he said.

Nonetheless, the head of the region’s umbrella group for the information and communication technology sector, said it would be good if the security situation can be addressed by government through “measures short of martial law.”

President Rodrigo R. Duterte declared martial law in Mindanao on May 23, 2017 during the siege of Marawi City by Islamic State-inspired extremist groups. The declaration has been extended twice, with the second ending on Dec. 31.

Authorities said last week that Mr. Duterte is awaiting the recommendation of the military and the police on whether to seek another extension from Congress.