A recently concluded XMG Global Offshoring Leadership Study revealed that Davao City in the Mindanao Region of the Philippines will be a viable alternative site 3 years from now. The study predicts that organizations that are formulating the technology and procedural solutions to integrate a large manpower base into their global delivery centers will be at the forefront of the offshoring and outsourcing industry as the labor arbitrage model continues. This result is part of an ongoing study conducted between January to March 2008, which focuses on forecasting the global demand for offshoring and outsourcing services and the site optimization of emerging cities. Among the emerging alternative offshoring cities cited in the study were Montevideo, Uruguay; Jakarta, Indonesia; and Casablanca, Morocco.
Despite periods of turmoil in the Mindanao Region, outsourcing vendors and captives who participated in the study are very bullish about Davao City primarily due to the area’s larger population of untapped qualified resources compared to Cebu City in the Visayas Region north of Mindanao. The study highlighted that competition in Cebu City is nearing saturation as the talent ramp-up continues.
Among others, the study highlighted the population of Davao City as considerably higher than other Tier-2 offshoring cities globally. In the Philippine context, Davao City’s population is 71% higher than Cebu City, 499% larger than Olongapo-Subic City 333% higher than Angeles-Clark City and 340% larger than Baguio City. The city’s estimated workforce is twice of Cebu, 9 times of Subic and 7 times of Clark and 6 times of Baguio. This has not even taken to account the manpower pool at the nearby cities and provinces of Davao City.
According to the study, Davao City has various educational institutions annually yielding a higher number of IT and BPO qualified graduates than Subic, Clark and Baguio by 689%, 278% and 40% respectively.
Telecom facilities, transportation networks and public transport systems are already in place in Davao City. However, XMG indicated there is a need to further improve and modernize these services; otherwise, business continuity and disaster recovery plans will go unfulfilled. In addition, the existence of a public transport system in Davao City is noteworthy yet still needs improvement in order to expand locators’ recruitment reach and the transportation of people from various points in and out of the city.
Overall, the attractiveness of Davao City is greatly affected by the negative perception about the Mindanao region as a whole. On February 2008, a travel advisory was released by US Consular Affairs warning their citizens on the risk of traveling in Central, Western and Southern part of Mindanao due to security and safety reasons, which includes terrorism.
According to XMG Researcher Camille Lumbang “Although these travel warnings are empirically grounded from actual hostile incidents in Mindanao, it should be emphasized that these are only isolated incidents from specific areas. There is a challenge then to substantiate and prove that such occurrences do not pose a general security threat for Davao City.”
Lumbang added, “There is a crying need for both the government and private sector to act together in improving the overall imagery of Davao City to attract ICT locators, which are seen to improve Davao’s economy”. Lumbang continues to say, “The negative perception on the Mindanao region has caused massive repercussions to Davao’s image as a potential offshoring site to date.”
Citing previous years 2007 XMG Offshoring Risk and Infrastructure Index Reports, Davao City has been upgraded to a level C2 rating from its previous level D standing as the city emerges as a viable site for captive and outsourcing services. “While there are still a number of geopolitical, geophysical and infrastructure challenges, the large untapped manpower base in Davao City will give its allure and ‘staying power’ as a viable site in the years to come”. The report continues to add, “Potential locators in Davao City must have a heightened awareness and should conduct their own formal and internal risks analysis rather than reacting to headlines about specific regions under consideration such as the problems happening in other parts of Mindanao”.
“Compared to other cities in the south, Davao City is very promising and it is seen to be the next generation city that would benefit large captives provided that risk issues are addressed properly”, concludes Lumbang.