University of Leipzig

The Impact of Internal Capabilities and External Linkages in Enhancing the Competitive Advantage of Firms: the Case of the Philippines' IT-Enabled Services Industry

Globalization has enabled the seamless delivery of information technology and business process services across borders, through time zones, and over oceans. It has transformed our world into more of a global village than it has ever been. The demand in offshore destinations for IT-Enabled Services (ITES) is growing exponentially. Investment and consultancy firm McKinsey and Co. forecasts demand for outsourcing services to reach US$180 billion by 2010. Therefore, a fierce race in becoming a leading offshore destination has inevitably been set into play and driven by global competition.

Many countries are now starting to develop their ITES and business process outsourcing (BPO) industries. The market leaders in supplying services at present are India and Canada. However, 2003 witnessed significant growth in services exports in other developing countries such as China, Russia, and the Philippines.

The rapidly globalizing economy has opened a huge door of opportunity for the Philippines in the form of outsourcing. The once laid-back country when it comes to technology is now fast becoming technology-driven and competing side by side with other Asian giants and to the rest of the world. Transactions and money have been pouring into the country like never before and prospects currently look very promising as more and more businesses all over the world embrace the concept of turning over non-core businesses to be more competitive.

Thanks to its strategic location, rich pool of qualified English-speaking professionals, low cost of labor, availability of good telecommunications infrastructure, and boom in e-services, the Philippines is now one of the biggest and bankable names in the business process outsourcing market, particularly in the customer service arena. In fact, the Philippines was voted by IT Executives around the world as one of the Top Four (4) Leaders in the Offshore Outsourcing Market in 2005. The Philippine ITES industry is now a key Service Sector, fuelling investments and new job creation. Anchoring the Philippine economy�s growth, the ITES industry has become one of the country�s sunrise industries.

Indeed, the ITES industry has an opportunity to play a profound role in the Philippine�s economic development directly and indirectly through spillovers. However, with competition on both ends (India and China), the industry needs a very comprehensive strategic mindset and strategy in upgrading its capabilities. To sustain its competitive advantage in the global market, there is a need for the Philippines to develop a group of firms that are strong both in internal capabilities and their external linkages.