Introduction
Well, hello everyone! In recent years, the Philippines economy has been experiencing an impressive growth rate of an average of 6%. Companies such as Amazon, Accenture, and American Express prefer doing business in the Philippines instead of China, India, and Thailand. This may come as a surprise to many.
In this case study, we will find out how the philippines is growing so rapidly and what the challenges are.
History
Let me take you back to 1898, when the US defeated Spain in the Spanish-American War and took control of the Philippines into its own hands. The Philippines is located in the South China Sea, one of the most important routes for global trade, as it accounts for 22% of total global trade, and the US knew the importance of the Philippines strategic location. So the US decided to make the Philippines a trading hub. But it requires a lot of investment to build infrastructure. US sponsored infrastructure projects like hospitals, roads, bridges, schools, etc. The education system was intentionally designed to instill American values, resulting in the dominance of English as the primary language in the Philippines.
On July 4, 1946, the Philippines became an independent nation as they signed a treaty in Manila with the US. Come back to 2024. The US has many military bases in the Philippines. The history between the US and the Philippines is long and close, and their political and economic interests are connected in many ways.
Strength
Now, let’s look at the outsourcing business in the Philippines and why it is crucial for the economy. Information technology and business process management generate revenue of $29.5 billion and contribute 7% of the country’s GDP. IT and BPM are also the largest employers, generating 1.44 million jobs. Companies like Google, Microsoft, Accenture, etc. prefer the Philippines over China, India, and Thailand. Well, it’s not just because of cheap labor. Filipinos excel in knowledge-based fields like back office operations, call centers, and creative fields like marketing. When these skilled workers linked their English proficiency with positive work ethics, they made the Philippines the perfect location for global businesses seeking qualified professionals.
But India also offers skilled workers, cheap labor, and more proficient English speakers, then why the Philippines? The answer is security concerns. These global businesses are concerned about data breaches. In recent years, India has had many scandals. One example is Wipro, an IT company that experienced a data security incident for a long time when a hacker group from another country hacked their system. They were secretly searching for ways to attack Wipro’s customers. In February 2024, someone leaked a bunch of information from a Chinese cybersecurity company, I-Soon. This company works for the Chinese government to help them spy on other countries. The leak revealed the hacking tools and how they targeted governments, organizations, and social media platforms.
The Philippines is also one of the largest shipbuilders in the world. The Philippines exports its ships to Japan, Germany, Liberia, etc. Austal, a major international shipbuilder and defense contractor, also has operations in the Philippines. Filipino workers in the shipbuilding sector are able to compete in the international market.
The Philippines is also one of the major exporters of electronic items in Southeast Asia. The country manufactures many high-tech electronic items, including semiconductors, electronic components, consumer electronics, and mobile phones. The strategic location of the Philippines is like the cherry on the cake; several big cities such as Tokyo, Beijing, Singapore, and Bangkok are all within 10 hours of flight. The country is also located close to the Malacca Strait, the busiest shipping route globally.
Challenges
But even after having so many advantages, such as strategic location and skilled workers, there are still many issues that need to be solved.
Widespread corruption is one of the most serious issues in the Philippines. In 2023, it was ranked 115 out of 130 countries in the Corruption Perceptions Index. There are so many examples of corruption, such as graft, bribery, nepotism, extortion, tax evasion, vote-buying racketeering, and many more. Let me give you an example: in May 2024, a court employee from Pasay City was caught accepting a 6 million peso bribe. The employee confessed that he was acting on the instructions of presiding judge Albert T. Cansino’s to give favorable judgment in a civil case. The corruption in the judicial system prevents global companies from investing in the Philippines.
Inequality: The Philippines is a growing economy, but there is lack of fair wealth distribution. A small number of people hold most of the wealth. Even though poverty has decreased over time, there is still a huge gap between the rich and the poor. There are some areas in the country that are richer than others, such as Manila. But living condition in big cities is not better; this makes people leave the country, and the Philippines cannot afford for talented workers to leave the country when the economy is growing at a significant rate.
The Philippines has also had conflict with China over the South China Sea. China knows the importance of the South China Sea for global trade and wants control over it. If China wins the fight with the Philippines and other countries, then it will be able to dig out natural resources from the sea. China can also block the trade route in case of disputes with other countries, and it will shoot up the prices of goods as the supply of goods will decline.
According to analysts, the future of back office work, call centers, customer service, and logistic management will be heavily influenced by AI.
Conclusion
The Philippines is a growing economy with a strong IT and outsourcing industry. However, corruption, inequality, and conflict with China pose challenges. The workforce in the Philippines also needs to adapt to AI. That’s all for now! I hope you found this case study valuable. Let me know if you have any questions in the comments below.
References
https://en.m.wikipedia.org/wiki/Territorial_disputes_in_the_South_China_Sea
https://www.tradeimex.in/blogs/top-electronic-exports-of-the-philippines
https://en.m.wikipedia.org/wiki/Corruption_in_the_Philippines
https://unity-connect.com/our-resources/blog/examples-of-outsourcing-companies-in-the-philippines/
Link to my other case study:
https://geocrit.com/japans-lost-decades/