INDUSTRY PROFILES SOFTWARE INDUSTRY

INDUSTRY PROFILES

SOFTWARE INDUSTRY

The cumulative number of establishments in the Philippines registered with the SEC, as engaged in providing IT-related goods and services, grew by 61 percent between the 1996 and 1998. The number nearly doubled from 1,739 companies in1999 to 3,311 in 2002 (Table 1). These establishments are those in the business of providing hardware consultancy, software consultancy, software development, data processing and conversion, database activities, other computer-related activities, and the maintenance and repair of office, accounting and computing machinery. To better understand the establishment classifications, Table 2 presents the descriptions as provided by the 1994 Philippine Standard Industrial Classification (PSIC)⁵.

The number of companies under the software consultancy and development classification grew by almost 300 percent in just three years, from 1999 to 2002. This showing indicates that the software and related IT services sub-sector is a thriving industry, and has attracted a substantial number of players in the business. Similarly, the establishments involved in other computer related services significantly expanded in number, from 65 in 1999 to 852 in 2002. Also, those companies undertaking database activities and data processing and conversion, climbed by 234 percent and 2 percent, respectively. However, the number of establishments under the hardware consultancy category has been cut by 74 percent.

New Investments and Employment

Table 3 presents the levels of new investments and the jobs these created in the IT Services industry, as reported by the Board of Investments (BOI). From 1998 to 2003, the Software and Related IT Services⁶ sub-sector accounted for an average of 52.3 percent of the total BOI registered new investments in the IT Services sector. Software and Related IT Services contributed most to the sector in both 1998 and 1999, with a 100 percent investment share each year, and the least in 2002, at 11.2 percent. The sub-sector registered growth rates of 53 percent, 34 percent, and 38 percent in 1999, 2000, and 2001, respectively. However, the level of new investments slid by 54.4% in 2002 and further declined by 28.5% in 2003.

The total new IT Services investments took a dive in 2002, at PhP5.40 billion, from the PhP10.96 billion figure registered in 2001. On the Call Centers and Related IT Communication Services category, only six projects were recorded in 2001. Though the number of projects rose to twelve (12) in 2002, the top investment value was only worth P481.66 million. This is relatively small compared to the biggest single investment in 2001, valued at PhP1.46 billion. However, the Other IT Services sub-sector experienced the steepest slide in the number of projects registered, from 19 in 2001 to only five (5) in 2002.⁷ The decline further continued in 2003, at P1.42 billion. Like in 2002, lower new investments were experienced in all the three sub-groups.

One of the factors that may have affected the investment decisions in 2002 was the poor performance of the whole ICT sector in 2001. A P7.97 billion loss was posted by the top 500 IT companies during the year, and the loss on sales was one centavo per peso. The loss performance of the industry continued in 2002, though at a lesser extent than in the previous year. As the Annual Sourcebook of the Philippine Information Technology Community reported (IT Resource Philippines, 2003):

Sales of nearly half of the top IT companies dwindled in 2002, while many of the firms took a turn for the worse as they ended the year with negative bottom lines. Both hardware and software spending remained weak as most users took a cautious cost cutting approach. Price competition among vendors continued to restrain revenue growth, while fluctuations in the peso-dollar rate resulted in huge foreign exchange losses for manufacturers and suppliers. Burdened by these unfavorable developments, the IT industry was again caught in a downward spiral in 2002.

The country’s top 500 IT companies registered an aggregate loss during the year of P7.25 billion. A third of the companies experienced excess in expenses over revenues, most of which were the telecommunications and networking, on-line services, and electronic industries.

Table 3 also shows that the total number of jobs created by the software industry in 2003 was estimated by Board of Investments at 515 jobs. Another estimate using data from the four investment promotion agencies puts the new employment in the industry in 2003 at 2,775. Thus it would seem that the BOI’s estimate would only account for nearly 19 percent of the total jobs the industry created in 2003. Call centers created 8,079 jobs, of which BOI registered investments accounted for 3,629 jobs or 44.92%. The other IT services contributed 1,939, 1,824 of which were reported by the BOI. The total new employment generated by new investments in the software, call centers and other IT services summed up to 12,793, and of this, data from the BOI accounted for nearly 47%.

The BOI figures show that the Software and Related IT Services sub-sector has generally created more jobs per million investment than the other IT categories from 1998-2001 (Table 4). In 2000, a million peso investment in Software translated into four (4) employees, while only about one was registered in each of the other categories. The following year, three (3) jobs were provided per million peso investment in the Software and Related IT Services classification, while two people were employed in the Call Center and Related Communication Services sub-sector. On the other hand, it took three (3) million worth of investments to generate an employment in the Other IT Services category.

In 2002 and 2003 respectively, the Call Center and Related IT Communication Services and Other IT Services sub-sectors generated the most employment for every million investment.

It has been pointed out that call centers operate at least two to three shifts a day.⁸ A million peso investments can support about four workstations, each manned by a one person. Given this, the estimates of jobs per million peso investments in Table 4 for the call centers would seem to understate the actual number of jobs that may be created by the new investments. If the additional work shifts are considered, these estimates may be adjusted upwards by a factor of 2 to 2.5. This adjustment would seem to be corroborated by information that in 2003 about twenty thousand graduates in Metro Manila took jobs in the various call centers of the country.

The Philippine Information and Communication Technology (ICT) sector received a total of PhP34.1 billion new investments in 2003. These investments were registered in the four major IPAs, namely, the Philippine Export Zone Authority (PEZA), Board of Investments (BOI), Subic Bay Metropolitan Authority (SBMA), and the Clark Development Corporation (CDC). Of this value, 68.0 percent came from the manufacturing sub-sector; 19.4 percent, from the IT Services⁹; 8.6 percent from the Services; 4.0 percent, from Telecommunications; and a minimal 0.02 percent from Trade.

The IT Services sub-sector recorded a PhP6.6 billion approved new investments during the year (Table 5). The largest amount of new investments was from the Other IT Services¹⁰, at PhP2.6 billion, or 39.2 percent. This is followed closely by the figures from the Call Center and Related Communications Services category, with a 38.2 percent share, and the Software and Related IT Services, at 22.6 percent.

The bulk of new investments in the Software and Related IT Services classification, 70.4 percent, were made by foreigners. This percentage share is more than enough to dictate the investment performance of the category. Of the PhP1.5 billion new investments in 2003, only PhP442.8 million were local. At least two million local investments were registered per million foreign investments during the year.

Foreign investments also had the lion’s share, 92.1 percent, in the new investments in Call Center and Related Communication Services. Conversely, the local investments made up majority, 85.4 percent, of the investments in the Other IT Services group.

IT Human Capital

On the other hand, the number of graduates under the discipline reached 28,231 in 2001 from 21,338 in 1995. This composed 7.3 percent of the new graduates during the year.

I
n addition, enrollment in higher IT and Related Programs had been climbing from AY 1998-1999 to 2001-2002 (Figure 2). The students analyzed had registered in either of the following disciplines: Computer Science, Computer Technology, Information and Computer Science, Computer Applications, Information Management, and Information Technology. A greater part of the graduate students enrolled in the Master’s Level during AY 1998-2002, while twelve people registered in the Doctorate program during the AY 2001-2002.

The total number of enrollees reached 2,579 in AY 2001-2002, a 228.54 percent rise from the 785 figure posted in AY 1998-1999.

According to the Bureau of Exports and Trade Promotions (BETP), the Philippines has over 567,802 IT labor force as of 2002, 99% of which are college graduates. They are described as professionals “proficient in working on mainframes, minicomputers, and microcomputers¹¹”, and who are also known for their “technical and business skills for ICT projects.¹²”

The Philippines also pride itself with high performing I.T. professionals with excellent industry track record¹³.

T
he country ranked 8^th among 47 countries in the Knowledge Jobs¹⁴ category of the 2000 Global New Economy Index ¹⁵ (GNEI). Ranking in this category is determined by the performance of a country based on the following factors: qualified engineers¹⁶, availability of IT skills¹⁷, availability of senior management¹⁸, and higher education enrollment (see Table 7).

According to the analysis made by the Rubin Systems Inc., the Philippines is “a global leader in the Knowledge Jobs category, with an impressive pool of engineers, workers skilled in information technology, and competent managers.” Moreover, “the nation performed well in education, an important component of the Knowledge Jobs category. Education helps create and cultivate the knowledge workers of the next generation, and a good education system is an invaluable asset in the knowledge based New Economy.”

In 2003, the Philippines ranked 12^th in same category of the Global Information Technology Economy Index¹⁹ (GITEI). This index ranks 48 nations based on the results of a composite index comprising 33 factors organized into the same categories that of the GNEI, with the addition of the Visionary Government Category. The Knowledge Jobs category in this index slightly differs with that of the GNEI, with the inclusion of the Science degrees²⁰ and University education²¹ factors in the formula.

T
hese results show that the Philippines has a comparative advantage with regards to the quality of IT professionals in the country. With the increasing number of people engaging in Math and Information Technology Courses, and the relatively high ranking of Filipino IT professionals internationally, the sector shows its potential employment significance to the country.

Meanwhile, the Software and Related IT Services industry has employed an estimated²² 52,110 people in 2002 (Figure 3). This approximation includes employment of establishments engaged in software design and development, systems integration, and IT services such as animation and graphics, CAD/engineering services, and the like. This figure is a 19.17 percent climb from the estimated number in 1999, of 43,727.

Moreover, this 2002 employment composed 9.18 percent of the total IT labor force (567,802) estimated by the BETP during the year.