Jekyll & Hyde

Michael Alan Hamlin

Posted on August 16, 2006

Competitive advantage is a fragile state

A contributor to the free online encyclopedia Wikipedia says the classic novella, The Strange Case of Dr. Jekyll and Mr. Hyde, “is known for its vivid portrayal of the psychopathology of a split personality; in mainstream culture the very phrase ‘Jekyll and Hyde’ has come to signify wild or polar behavior.” An anonymous reviewer on The Literature Network writes, “Right and Wrong. Joy and Despair. Good and Evil. ‘Jekyll and Hyde’ is a magnificent story that takes the reader to the very edge of madness.”

I once suggested that the Philippines is a schizophrenic nation, characterized by vast social conflicts and political contradictions. To some degree, all nations share this quality. But the Philippines is a particularly poignant – and tragic – example of a conflicted state that denies itself the potential of which it is capable. And nowhere is that more apparent than in the Philippine Congress, and its efforts to promote yet concurrently undermine the nation’s global competitiveness.

To illustrate, consider the fast-growing contact center industry. A new report by research firm Frost & Sullivan suggests that over the next seven years this business process outsourcing (BPO) sector will grow more than 30% annually, and generate revenues of $5.6 billion by 2012. If Frost & Sullivan is correct, contact centers alone will employ 341,000 employees. Like other similar surveys, this one suggests that low cost and the skilled Filipino workforce are the principal drivers of success.

Industry practitioners appear to support these conclusions. Last week, IntelliRisk Management Corporation president Vikas Kapoor reportedly said that the “Philippines has the absolute competitive advantage” compared to other countries competing for BPO investment. “In the call center business, the Philippines has the lowest cost in the world, the highest quality of service, and the lowest employee attrition rate,” he enthused.

Some in the Philippine Congress take the delicate character of these competitive advantages seriously, and are working to help maintain them. In part because the ability to communicate well in English is so central to the Philippines’ attractiveness to BPO services providers, House of Representatives deputy majority leader Eduardo R. Gullas is encouraging the business sector to leverage tax incentives under the “Adopt-a-School” program to support “revival of the English language” in schools.

Gullas is the author of Republic Act 8525, which established the Adopt-a-School program. According to a statement recently released by his office, firms that contribute to enhancing English-language instruction standards in the form of faculty training, construction and upgrading of schools, provision of textbooks and other materials, and the modernization of instructional technologies may deduct an amount equal to 150 percent of that assistance from gross taxable income.

The Philippines’ neighbors have long offered attractive incentives for education. Thanks to Gullas, the Philippines may be catching up. Gullas is supporting Philippine competitiveness in another important way, too. He is the principal sponsor of a bill reinstating English as the medium of instruction in schools. A colleague in the House, congressman Luis R. Villafuerte, recently said that he and other lawmakers are “absolutely determined” to reintroduce English as the mandatory language of instruction in all levels by passing the bill.

The work of Gullas and Villafuerte demonstrates the Dr. Jekyll personality of the Philippines. Good work is being done to bring the Philippines to the forefront of development by making it internationally competitive. Then there is the Mr. Hyde side of the national personality, which seems intent on undoing the contributions to national competitiveness championed by Dr. Jekyll, driving us to the very edge of madness.

I refer, of course, to Senate Bill 2411, principally authored by Ways & Means chairman Ralph G. Recto. If passed, the bill will reportedly eliminate the Investments Priority Plan (IPP) and the Board of Investment, limit investment incentives to enterprises located in 30 poor provinces, implement protectionist hurdles for investors providing services and goods to the domestic market, and impose value-added tax on imported raw materials. The Department of Finance backs the bill, which it believes will increase government revenues by reducing incentives.

In fact, the opposite result is likely. To use the contact center example, costs are on the rise, and emerging low-cost competitors will soon undermine the Philippines’ cost advantage. Ironically, these competitors for investment leverage incentives because they will hasten that process. Contact centers already invested here and contemplating re-investment will weigh the relative advantages and disadvantages offered by the Philippines and its competitors. Equally devastating will be the message Senate Bill 2411 sends to prospective investors who value a business-friendly government.

Absolute competitive advantage is a fragile state. It can be here today, and gone tomorrow. And Dr. Jekyll can either nurture and sustain it, or Mr. Hyde can undermine and destroy it.

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