1
UP Cebu, August 26, 2009
Importance of Technological Collaboration
Between Japan and Philippines in Software Industries
Rentaro Ohmoto
Yui Itaya
Sho Shinohara
Akito Kumata
Mayu Ushida
Hiroki Shibuya
Eri Yokoyama
Esho Seminar 2009
2
Contents
Introduction
Chapter1 Importance of Offshoring in Japanese Information Service Industry
Section1 Definition of Offshoring
Section2 Present Status of Japanese Information Service Industry
Chapter2 Development Process of IT Service Industry in Philippines
Section1 Progress of IT Industry in Philippines
Section2 Importance of IT Service Industry in Philippines
Chapter3 Importance of Japanese Technological Collaboration
Section1 Advantages of Philippines as an Offshoring Center
Section2 Japanese Technological Collaboration in Offshoring Business of Philippines
3
Introduction
Recently offshoring business in Information and Communication Technology
(ICT) industry has spread all over the world. According to the World Investment Report
of UNCTAD, the expanding offshoring business is a “Tradability Revolution” (WIR
[2004]). It has been brought out by separating production and consumption of ICT, in
which production and consumption were used to be done at the same time
In Japan too, offshoring in software industry is quickly spreading. Although
China and India are well-known as the two main countries of offshoring center from
Japan, it is notable to know that Philippines is selected as the third country of
offshoring center next to these two big countries.
There are lots of studies on offshoring of ICT service industry in Japan: such as
Kubo (2000), Sakakibara(2001), Kojima(2006) on Japanese offshoring business in India;
and Kyo(2005), Umezawa(2005) on Japanese offshoring business in China. However,
there are few studies on Japanese offshoring business in Philippines.
This paper focuses on relationship between Japan and Philippines in software
industry. We discuss that Japanese technological collaboration is important not only for
the development of Japanese software industry but also for the development of
Philippines software industry.
This paper is organized as follows. In Chapter 1, we discuss the definition of
offshoring and present status of information service industry in Japan. In Chapter 2, we
discuss the development process and importance of IT service industry in Philippines.
In Chapter 3, we discuss the importance of technological collaboration between Japan
and Philippines in software industries.
4
Chapter 1 Importance of Offshoring for Japanese Information Service Industry
Section 1 Definition of Offshoring
First of all, we would like to clarify the definition of “offshoring”. Offshoring of
services generally means “an organization’s purchases of services from abroad, which
are produced in-house or purchased from other domestic companies previously”. (GAO
[2004])
Table 1.1.1 Offshoring and Outsourcing – Some Definitions
Internalized or Externalized service Production
Internalized Externalized(Outsourcing)
Loca
tion
of S
erv
ice P
rod
uctio
n
Hom
e
Cou
ntry
① production kept in-house at home ③ production outsourced to
third-party service provider
at home
Fore
ign
Cou
ntry
(Offsh
ore
)
② production by foreign affiliate,
e.g.
- Infineo’s centre in Dublin
- DHL’s IT centre in Prague
- British Telecom’s call centers in
Bangalore and Hyderabad
“intra-firm(captive) Offshoring”
④ production outsourced to
third-party provider abroad,
to local company, e.g.
- Bank of America’s outsourcing
of software development to
Infosys in India
to foreign affiliate of another
TNC, e.g.
- A United States company
outsourcing data processing
services to ACS in Ghana
Source: UNCTAD World Investment Report 2004
UNCTAD [2004] defines “Offshoring” and “Outsorcing” in more detail (Table
1.1.1). In Table 1.1.1., the horizontal axis shows whether the service is produced inside
or outside of a company. Vertical axis shows the location (country) where the service is
produced. The number one in this table shows service is produced in house and at home
country. The number two shows procurement from foreign affiliates, which is called
“captive offshoring”. The number three is “outsourcing” which purchases service from a
third-party in home country. The number four is “offshore outsourcing”, which means
purchasing service from foreign third-parties or local companies. For example, Bank of
5
America outsources the software development to Infosys Inc. in India. The difference
between outsourcing and offshoring is that the former is to convert production inside a
company to outside through the market, on the other hand, the latter is limited to
procurement from abroad.
Table 1.1.2 Types of Offshoring Services
Types Contents/Examples
back-office services data input, processing of transactions, document management, etc
customer services call service, online customer service, telemarketing, etc
common services finance and accounting, procurement, information-technology-related
services (IT assistance, maintenance, IT network setting,
development of application software), etc
services for survey
and analysis
survey service, customer analysis, portfolio analysis, claims
settlement, risk management
services for research
and development
services
technological development, development of new products, etc
Original DataAt: McKinsey Global Institute[2003], p.6
Source: Nakamoto and Tamura [2006]
Offshoring has five types of services; back-office services, customer services,
common services (finance and accounting, information-technology-related services),
services for survey and analysis, services for research and development (Table 1.1.2).
The main contents of services have changed year by year. At the beginning, the major
services were labor-intensive data input services or call centers. Then finance,
accounting and information-technology-related services have started to be offshored in
accordance to the expansion of information and communication technology. The main
reasons of recent offshoring explosion are, firstly, the transmission of digitalized
information enabled by lower communications cost brought by technological
developments; secondly, the liberalization of trade and the opening of foreign markets;
and finally an abundant supply of well-educated labors in other countries. (Karin
Hovlin, 2006) Advantages of offshoring are, firstly, strengthening a company’s
competitiveness by reducing labor costs and improving quality and delivery; secondly,
promoting high value-added activities that make a home country more productive; and
finally, enabling host countries which earn profit and foreign exchange to import
advanced products from industrialized countries (UNCTAD, 2004).
6
Section2 Present Status of the Japanese Information Service Industry
In Japan, Information Service Industry is categorized as a part of
Telecommunication Industry. Then it is sub-categorized into three types of businesses;
(1) administrative and subsidiary management division, (2) software industry, and (3)
data processing industry (table 2.1.1). Information Service Industry is a human
resource intensive or knowledge intensive industry. The industry engages in
development of software which is the main part of the Information System, and
construction of the total Information system which involves the hardware and the
networks, offering all kinds of services which use computer networks and consulting
related to informatization.
Table 2.1.1
Source: http://www.kogures.com/hitoshi/webtext/jinzai-servicegyo/index.html
Total sales of Information Service Industry are increasing every year and
reached about 11.2 trillion yen in 2008 (figure 1.2.1). In 2008, software development and
programming accounted for 73% of the total sales of the Information Service Industry
(figure 1.2.2).
7
Figure 1.2.1
Figure 1.2.2
In 2008 Ministry of Economy, Trade and Industry in Japan classified
“embedded software industry” in the software industry as a new business field1. The
embedded software is used in almost all IT machineries (figure 1.2.3). The average
1 Embedded software industry is newly classified as Japanese standard industry
classification 3912 (November 2007 revised: April 2008 executed)
8
annual growth rate of development costs of the embedded software from 2004 to 2008
industry is 10.8 % (figure 1.2.4). And the numbers of its engineers are increasing every
year and reached about 242 thousands in 2008.
Figure 1.2.3
9
Figure 1.2.4
Figure 1.2.5
Currently, there is a serious concern of lacking engineers in Information
Service industry in Japan. The number of engineers seems to be stagnant compared
with high growth of the total sales (figure 1.2.6).
10
Figure 1.2.6
The annual working hours in the Information Service Industry is about 200
hours, which is longer than the average working hours of the whole industry (table
1.2.2). In addition, according to the questionnaire survey conducted by the Information
Technology Promotion Agency (IPA), 75.6% of IT companies recognize the deficiency of
the quantity of talent and 87% of IT companies recognize the lack of quality of the talent
(figure 1.2.7).
Table 1.2.2 Working hours of Information processing industry (2006)
Working hours Overtime work Total working hours
Whole Industry 1683.6 128.4 1812
Service Industry 1680 124.8 1804.8
Software and information
processing service Industry
1798.6 229.3 2027.9
Source: IPA [2007]
11
Figure 1.2.7
These are the main reasons why Japanese IT companies shed light on
offshoring activities. It was estimated that the offshore development costs was about
95.8 billion yen in 2007. However, compared with the total costs of Information Service
Industry, which was 11.9 trillion yen in 2007, the offshore development cost accounts for
only 0.86% of the total. The main purposes of offshore development of Japanese
companies2 are “Reduction of development costs” and “Securing talented person in
abroad” (figure1.2.8). Thus, Japanese companies are looking for IT engineers using
foreign offshore business. It is projected that the scale of the offshore developments will
continue to increase.
2 The questionnaire toward domestic Japanese IT companies
2007, 218 companies of 1096, Collection rate 19.9%
[implementation period From September 10 to September 28,2007 ]
2008, 262 companies of 1100, Collection rate 23.8%
[implementation period From September 18 to October 3,2008 ]
12
Figure 1.2.8
The order value of offshore services has increasing. China and India accounts
for the most of the total order value (figure 1.2.9). In 2007, the offshore order value of
Japanese IT companies in Philippines reached about 4.2 billion yen and placed the third,
following China and India.
13
Figure 1.2.9
Chapter 2 Improvement of IT Service Industry in Philippines
Section 1 Progress of IT Industry in Philippines
In this section we briefly describe the historical development of IT service
industry in Philippines.
Information oriented society in Philippines was started relatively earlier
among ASEAN countries. Despite unstable political situation, IT industry has been
steadily progressed since the Philippines Computer Society was founded in 1967.
Government supporting policy of IT service industry has been strong in Philippines.
Deterioration of semiconductor market in 2001, which was influenced by
falling down of the IT boom in 2000, had contributed to rapid rising of IT service
industry in Philippines. In Philippines, which is called “Silicon Island”, the share of
semiconductor export in total export is quite high. Export of semiconductor is easily
influenced by the fluctuating world demand of semiconductor, which is called “silicon
cycle.” The collapse of IT bubble in 2001 caused 25% decrease of semiconductor exports
from Philippines, from about 20 billion dollars to 14.9 billion dollars.
14
Figure 2.1.1
Then, Philippines government started to promote IT service industry. The
amount of investment in IT service industry has been steadily increased since 2002
(Figure 2.1.2). Average growth rate in IT service industry from 2003 to 2007 was 53 %.
Figure 2.1.2
Most of the Foreign Direct Investment (FDI) in Philippines is permitted by two
15
organizations, i.e., Board of Investment (BOI) and Philippines Economic Zone Authority
(PEZA). PEZA is in charge of investment for exports, while BOI is investment for
domestic market3. Most of the foreign IT related companies are registered at PEZA.
The purposes of PEZA were originally the creation of employment and
development of economy in local society outside of metropolitan region, so that location
of factory was limited in local areas. However, Estrada administration announced a new
statement in 1998: the priority treatment previously given only to manufacturing would
be extended to software industry too. Thus, PEZA opened the way of IT park to
agglomerate software related companies. Major cities, which can easily employ IT
engineers, receive the priority treatment as well as local cities to attract FDI in IT
sector except hardware.
In this process, Eastwood City Cyber Park, which was the first high technology
park specialized in IT by private sector in Philippines, was established in July 1998.
There are 165 IT parks permitted by PEZA up to today. Almost all IT parks are
concentrated in Metro Manila such as Makati City and Quezon City, and in Cebu, the
second metropolitan area. (Figure 2.1.3)
Figure 2.1.3
3 FDI in BOI is also allowed for exports
16
The number of IT related companies registered in PEZA has been increasing
since 2006, especially in Cebu and Quezon City. It has reached 92 companies in 2008.
(Figure 2.1.4) If we look at the number of companies by countries, U.S. companies comes
to the top followed by Japanese companies. (Figure 2.1.5)
Figure2.1.4
Figure 2.1.5
17
The United States has 99.1% share of the total FDI in contact center in 2006,
(Figure 2.1.6). On the other hand, Japan has 75.4% share of the total FDI in software
development in the same year. The presence of Japanese companies is very high in
Philippines software industry.
Figure 2.1.6
Philippines IT service industry has various potential to cover not only
production of hardware but also production of software, graphic, data processing, call
center and so on.
18
Section2 Importance of IT Service Industry in Philippines
In this section we discuss the importance of software industry for developing
countries, and then we discuss the importance of software industry for Philippines.
IT industry is divided broadly into two categories; software and hardware
(Table2.2.1). And IT services consist of software services including software products
and ITES-BPO. Software products and R&D services including embedded software are
also included in software services. Also call centers, IT practical use services such as
customer services, and a software development by offshore outsourcing are classified as
ITES-BPO.
Table 2.2.1
Source: The author
19
Carmel [2003a] regards India as a “Major software exporting nations” and
Philippines as an “Emerging software nations” in his classification of software exporting
nations 4(Table 2.2.2). The software industry both in India and Philippines has
developed depending on its export, although the amount of export is overly different
(Table 2.2.3). Considering the similarities of software industry in Philippines and India,
India’s experience of software industry development is worth to investigate for the
development of software industry in Philippines.
Table 2.2.2 Classification of Software Exporting Nations
Label Nations
Tier1 Major software
exporting nations
Mostly OECD nations such as: USA, Canada, UK,
Germany, France, Belgium, Netherlands, Sweden,
Finland, Japan/ Switzerland, Australia.
Includes entrants from the 1990s: Ireland, Israel
and India.
Tier2 Transition software
exporting nations
Only Russia and China
Tier3 Emerging software
nations
Brazil, Costa Rica, Mexico, Philippines, Malaysia,
Srilanka, Korea, Pakistan, Romania, Bulgaria,
Ukraine, Poland, Czech Republic, Hungary,
others.
Tier4 Infant stage
software exporting
nations
Cuba, El Salvador, Jordan, Egypt, Bangladesh,
Vietnam, Indonesia, Iran, others
Non-Compe
ting
Non-Competing Most of the (smaller, Least developed) countries of
the world.
Source: Carmel (2003a)
4 Thresholds of the tiers in the taxonomy
Maturity Cluster / Critical Mass
(Num. of organizations)
Export Revenues (US$)
Tier 1 >15 years Hundreds >$1 billion
Tier 2 >10 years 100 >$ 200 million
Tier 3 >5 years Tens >$25 million
20
Table 2.2.3 The Production and Export of Software Industry of Major Developing
Countries in 2005 (in hundred million dollars)
Country scale export Ratio of export
Philippines 2.2 1.9 86%
India 230 180 78%
China 477 36 8%
Vietnam 2 0.7 35%
Source: JETRO (2006)
There are various studies on software and ITES-BPO of developing countries.
Heeks [1996] mentions that developing countries have more opportunities of entry into
this market; software industry is more human-capital intensive and it starts more
easily even in a small economic scale.
Carmel [2003b] studies the impact of software industry on National Well Being
in developing countries and Kumar [2005] stresses the bright future perspective of the
development of software industry with ITES industry.
21
Creating jobs and revenues
The service industry in Philippines accounted for 54% of GDP in 2007
(Figure2.2.1). The share of ITES industry’s revenue in service industry has been
increasing and it was 5.6% in 2007 (Table 2.2.4). The share of its employment also has
been expanding and it was 1.82% in 2007 (Table 2.2.5).
Figure 2.2.1
Table 2.2.4 Revenue (in million US dollars)
2004 2005 2006 2007
Service Industry 46,084 55,223 66,494 87,064
ITES Industry 1,475 2,420 3,257 4,875
Percentage of ITES
Industry (%) 3.20 4.38 4.90 5.60
Source: Philippines Statistic Yearbook 2008, JETRO (2008)
Table 2.2.5 Employment (in Thousands)
2004 2005 2006 2007
Service Industry 15,076 15,820 16,125 16,437
ITES Industry 100.5 163.3 235.6 299.2
Percentage of ITES
Industry (%) 0.67 1.03 1.46 1.82
Source: Philippines Statistic Yearbook 2008, JETRO (2008)
22
In all fields of ITES industry in Philippines, contact center ’s revenue is the
biggest followed by software development (Figure 2.2.2). The employment in software
development has been increasing steadily year by year although contact center has the
largest share of employment as well as revenue because software development is more
knowledge-intensive and it needs well-skilled human resources 5(Figure 2.2.3). Contact
center employs lower-waged laborer and its revenue grows more rapidly than software.
Kumar[2005] states that the advantage of ITES industry is to create a big
employment opportunities in the field of knowledge-intensive field in developing
countries.
5 Coward [2002] indicates the difficulty to progress directly the only software
development in developing countries from the difference of features between software
development and other ITES-BPO, considering various advantages of ITES-BPO.
Although ITES-BPO and software development share a common feature to depend on
ICT (Information and Communication Technology), software development is more
knowledge-intensive than the other ITES-BPO. Therefore, a realistic way to progress
high value-added software development is starting from other ITES-BPO and
consequently, it provides a basis of computer program and IT system technology and
contributes to software development.
23
Figure 2.2.2
Figure 2.2.3
24
Spatial agglomeration and regional distribution
ITES industry has special advantages by a formation of cluster. However, these
advantages are different from those of manufacturing because ITES industry hardly
has a supply chain.
Tschang[2005] mentions that ITES industry generally has two linkages in the
cluster. One of them is to generate technological complementarities among ITES sectors.
For example, skills of software development can be utilized to enhance productivity of
other ITES sectors. The other linkage is to create complementarities in the sector. For
instance, small and medium enterprises in software sector sometimes cooperate in a
linkage network to run a project. In addition, large companies such as Accenture
recognize the importance of cooperative work with companies which have an advantage
in local and special field. Large companies would strengthen a connection with local
companies which have a technology complementing their capacity and utilize their
skills from this point of view.
The important factors to create industrial cluster are the use of infrastructures
such as IT parks and the supply of well-skilled human resources. A cluster can be
created in local area when the clusters saturate due to a lack of lands in the
metropolitan region. From July 2007 to October 2008, the number of IT parks and
buildings in Manila Metropolitan region increased from 49 to 70 and the rate of increase
was 43% (Table 2.2.6). On the other hand, the number of IT parks and buildings outside
of the metropolitan region increased from 21 to 40 in the same period and the rate of
increase was 90%. The industrial clusters outside of Manila Metropolitan region were
increased quickly. In addition, the number of operating IT parks and buildings rose
from 39 to 74 during the same period. The rate of increase was 90% that was much
higher than 39% increasing rate of the Manila Metropolitan region (Table 2.2.7).
Business Processing Association Philippines (BPA/P) listed 10 cities6 which are on the
stage of development as “New Wave Cities of The Philippines” apart from Manila
Metropolitan region and Cebu. Software industry in Philippines is very much likely to
be more important in future, by forming further clusters in IT parks and increasing
revenue and employment.
6 The 10 New Wave Cities of the Philippines, as reported by BPA/P
1 Metro Laguna 5 Bacolod 8 Cagayan de Oro
2 Metro Cavite 6 Angeles-Clark-Mabalacat 9 Malolos-Calumit
3 Iloilo 7 Baliuag-Marilao-Meycauayan 10 Lipa
4 Davao
25
Table 2.2.6 PEZA-registered IT Parks / IT Buildings by Region
Location
No. of Operational PEZA Registered IT
Parks/Bldgs
Jul. 2007 Oct. 2008 Increase % Increase
Metro Manila
(MM) 49 70 21 43
Outside MM
Total 21 40 19 90
Outskirts of
MM 2 7 5 25
Other Luzon 1 6 5 500
Cebu 11 14 3 27
Visayas excl.
Cebu 5 9 4 80
Mindanao 2 4 2 100
Total 70 110 40 57
Source: JETRO (2008)
Table 2.2.7 Locators to PEZA-registered IT Parks / IT Buildings by Region
Location
No. of Operational PEZA Registered IT
Parks/Bldgs
Jul. 2007 Oct. 2008 Increase % Increase
Metro Manila
(MM) 226 315 89 39
Outside MM
Total 39 74 35 90
Outskirts of
MM 2 6 4 200
Other Luzon 1 6 5 500
Cebu 29 49 20 69
Visayas excl.
Cebu 5 9 4 80
Mindanao 2 4 2 100
Total 265 389 124 47
Source: JETRO (2008)
26
Chapter3 Importance of Japanese Technological Collaboration in Offshoring Business
Section1 Advantage of Philippines as an Offshoring Center
The previous chapter discussed the process of IT service industry and the
importance of software and software-related service industry in Philippines. In this
section we focus on the reasons why Philippines is chosen as an offshore center for
Japanese IT industry. To find out advantages of Philippines as an offshore center of
Japanese IT companies, we compare Philippines with China and India, and
Vietnam.
In case of India, there is a shift from basic process such as programming to
technical research and development field (Figure 3.1.1). However, the labor cost in
India is quickly rising these days, so that there is a move among IT companies of
developed countries to seek lower labor cost from the perspective of risk hedge.
Average salaries of IT managers are 22,280 dollars in Philippines and 15,470
dollars in Vietnam. These are lower than that of India, so these countries are
attracting attentions (Figure3.1.2).
Figure 3.1.1
Source: IPA [2009]
27
Figure 3.1.2
Source:Mercer, IT pay around the world survey 2007
http://www.mercer.com/pressrelease/details.htm?idContent=1284940
One of strengths of Philippines is that it has more abundant human
resources than Vietnam. The number of software engineers was about 160,000 and
the number of new graduates of IT related department was about 80,000 in 2005
(Table 3.1.1). In addition, there are 86 IT related universities, 643 IT technical
schools, and 400 IT vocational training schools.
Table 3.1.1 Comparison of Human Resource(2005,*2006)
China India Philippines Vietnam
the number
of software
engineers
450,000 1300,000 160,000 35,000
new
graduates of
IT related
department
340,000 240,000(08/20
03)
80,000(03/2005) 9000
the number
of IT related
universities
389(universit
y)
550(software
343(engineeri
ng faculty,
2003)
86university
643 IT technical
school 400 IT
183(include
university,
college, technical
28
technical
school)
vocational
training school
school)
university
advancemen
t rate
10%(2000)
20%(2004)
5.8%
30%
-
Source: Asai [2008]
Under the circumstance of insufficient telecommunication infrastructure,
the economic effects of IT progress could be restricted (JBIC [2000]). Sufficient
telecommunication infrastructure network is essential to disseminate efficiency of
information processing and information networks. The percentages of mobile phone
subscribers and personal computers per 100 people in 2007 were 58.9% and 7.3%
each in Philippines, which is relatively high level among developing countries
(Table 3.1.2). ICT expenditure in Philippines was 5.7% of GDP in 2007, so we can
expect further development of information infrastructure.
Table 3.1.2 ICT Indicators (2007)
Ch
ina
Hon
g
Kon
g
Ind
ia
Ind
on
esi
a
Ma
laysi
a
Ph
ilip
pin
e
s Sin
ga
pore
Th
ail
an
d
Vie
tna
m
Jap
an
Population
(millions)
131
8
7 112
5
226 27 88 5 64 85 128
Urban population
(% of total)
42 100 29 50 69 64 100 33 27 66
Mobile telephone
subscribers
(per 100 people)
41.5
(2)
155.
2
20.8
(4)
36.3
87.9
58.9
(1)
129.
1
123.
9
27.9
(3)
84
Personal computers
(per 100 people)
5.7
(3)
68.6
3.3
(4)
2
23.1
7.3
(2)
74.3
7
9.6
(1)
40.7
Price basket for
mobile telephone
service
($ a month)
3.3
(2)
2.6
2.5
(1)
7.2
5.5
5.3
(3)
3.7
4.3
6.3
(4)
29.6
Price basket for 5.8 25.4 6.6 21.9 9.3 2.2 17.7 7.4 10.4 28.6
29
Internet services
($ a month)
(2)
(3)
(1)
(4)
ICT expenditure
(% of GDP)
7.9
(1)
4.7
5.6
(4)
3.9
6.8
5.7
(3)
6.5
6.1
6.1
(2)
7.2
E-government
readiness index
(0-1,1=most ready)
0.51
(1)
- 0.48
(3
0.33
0.68
0.51
(1)
0.61
0.51
0.44
(4)
0.74
Source: World Bank, ICT at a Glance
One of the advantages of Philippines as an offshoring center is the
performance result of receiving order for Japanese market. Companies in
Philippines have been conducting offshore software development for Japanese
market since 1980’s (Table 3.1.3). Software companies in Vietnam were mostly
established after 2000, so the reliability of Philippine performance is higher than
that of Vietnam (Table3.1.4).
Table 3.1.3 Companies in Philippines which provide software development service
for the Japanese market
bases companies
name
date of
foundati
on
capital type special filed in software
embedd
ed
business
applicati
on
other
s
Nation
al
Capital
Region
Ayala System
Technology,
Inc.
1834 Philippi
ne
T ○ ○
Software
Venteure
International
(SVI)
1986 Philippi
ne
T ○
Headstrong 1987 America
n
T ○ ○ ○
Tsukiden
Software
Group
Philippines
1989 Japanes
e
T ○ ○ ○
Canon 1991 Japanes S ○
30
Information
Technologies
e
J-SYS 1992 Japanes
e
T ○ ○
WeServ 1993 Japanes
e
T ○ ○
Systema
Computer
Solutions
1994 Philippi
ne
T ○ ○
System For
Information
Technology
1997 Japanes
e
T ○
Fujitsu Ten
Solutions
1999 Japanes
e
S ○ ○
Advanced
Synergies
Philippines
2001 Philippi
ne
T ○
BlastAsia 2001 Philippi
ne
T
Allied Telesys
Labs (Phils.)
2001 Japanes
e
S ○ ○
Imperium
Technology
2002 Philippi
ne
T ○ ○
Astra
Philippines
2002 Japanes
e
T ○ ○
Trinity
Software
Philippines
2003 Japanes
e
S ○
Nihon
Software
Outsourcing
Vision
2004 Japanes
e
T ○
Advanced
World
Systems
2005 Japanes
e
T ○ ○ ○
Denso Techno 2005 Japanes S
31
e
Ubiquitous
Technologies
Philippines,I
nc.
2006 Japanes
e
T ○ ○ ○
IT-Tera
Philippines,
Inc.
2006 Japanes
e
T
Blue Eyed
Dragon
Technology
- Philippi
ne
T ○ ○
E-HIME
System
Corporation
- Japanes
e
T ○
Cebu Advanced
World
Systems
1993 Japanes
e
T ○ ○ ○
Cybertech 1998 Japanes
e
S ○ ○
Alliance
Software
2000 Philippi
ne
T ○ ○ ○
N-Pax 2002 Japanes
e
T ○ ○
iCatchIT 2003 America
n
T ○
type legend:S: self support/bases of development T: outsourcing service provider
Source: JETRO [2006]
Table 3.1.4 Japanese software development companies in Vietnam
NE-Vietnam Co., Ltd. 1997 information related software development, market
cultivation in Vietnam
Fujitsu Vietnam Ltd. 1999 sales and services of information and network
equipment, software development
Aureole Information
Technology Inc. 2001 Web-enabled software development
Photron Vietnam 2001 development of software and circuit design
32
Technical Center Co.,
Ltd.
AVASYS Vietnam Co.,
Ltd. 2002 customized development of software
ISB Vietnam Corp. 2003 Software development
C.S. Factory Co., Ltd. 2004 development, manufacturing, and sales of
software, and customer service
Five Star Solutions
Vietnam Ltd. 2004 Software development
Renesas Design Viet
Nam Co., Ltd. 2004
development of semiconductor-related hardware
and software
Technopro Engineering
Vietnam, Inc. 2004 Software development for Japan
NEC Solutions Vietnam
Co., Ltd. 2006
customized development of software, system
integration service, sales of program package and
so on
Sorimachi Vietnam Co.,
Ltd. 2006 Software development
USOL Vietnam Co., Ltd. 2006 Software development
Panasonic R&D Center
Vietnam Co., Ltd. 2007 Research and development, software development
Shinko Vietnam Ltd. 2007 embedded software, design and development of
system LSI
Toshiba Software
Dvelopment (Vietnam)
Co., Ltd.
2007 Software development
Ubiteq Solutions
Vietnam, Ltd. 2007 customized development of software in Vietnam
Source: Toyo Keizai[2009]
33
Moreover, Philippines uses English as the official language and they have
the third highest number of English speaking people. This is one of the strengths of
Philippines (Table1.2.8). In fact, WeServe Co, Ltd., which is a subsidiary of Fujitu
Philippines, is conducting development of application software for Western market.
In addition, Epson Software Development Center Phils., Inc, which is subsidiary of
SEIKO EPSON CORPORATION, was founded in 2004 as a global base of software
development in Philippines. Philippines has different advantages from other
offshore countries as a base of offshore development.
Section2 Japanese Technological Collaboration in Offshoring Business
This section focuses on how Japan collaborates with Philippines in offshoring
business.
The major issues facing offshoring business in Philippines is the difficulty of
securing enough talented personnel (Figure3.2.1). There is a qualitative gap in supply
and demand of human resources. According to JICA Survey, the reasons are (1) a lack of
fundamental and systematic IT education in Philippines, (2) obsolescence of curriculum,
(3) a lack of opportunity for practical education, (4) lower quality of teachers and (5)
obsolescence of equipment (JICA[2009])
Figure3.2.1
34
To fill the gap, Fujistu Philippines,inc (FPI) provides Philippines with
technological collaboration. FPI established the Fujistu Asia Pacific scholarship for Asia
and the Pacific in 1985. In addition, FPI started FPI college scholarship for Philippines
in 1990 to support talented students who are poor but high scored. FPI scholarships are
offered to the Ateneo de Manila University, University of Santo Tomas, University of
Asia and the Pacific, Mapua Institute of Technology, and the Don Bosco Technical
Institute. The scholarship covers the full cost of academic tuition fees, other school fees,
and books. Furthermore, FPI established The International Technology Training
Program in 1998, which was started as software training program to computer
instructor who are teaching at the Ateneo de Manila University and some universities
in the northern part of the Philippines. Three months training is given twice a year.
And there is Philippines IT Human Resource Development Project that is
supported by Japan International Cooperation Agency (JICA) and University of
Philippines (UP). The project aims to create employment and keep sustainable
economic growth in Philippines. It is held in UP Information Technology Training
Center (UP-ITTC) from July 20 in 2004 to July 19 in 2009. A lot of Japanese IT
companies provide Philippines technological collaboration through this program.
In the Fundamental Information Technology Engineer Examination
(PhiNITS-FE), the pass rate of examinees in UP-ITTC makes higher achievement
compared with the general examinees in Philippines (Table3.2.1). Furthermore, In the
Japanese-Language Proficiency Test (JLPT), the pass rate of examinees in UP-ITTC is
relatively higher than total pass rate in Philippines (Table3.2.2). We can say that the
project contributes to filling qualitative gap in IT human resources supply and demand
in Philippines.
Table 3.2.1 Examination Result in PhiNITS-FE
AY2005-2006 AY2006-2007 AY2007-2008 AY2008-2009
Examination
day
August
2006
April
2006
October
2006
April
2007
October
2007
April
2008
Octobe
r
2008
Apri
l
2009
The number
of examinees
in UP-ITTC
24 15 53 37 73 29 68
The number
of successful
examinees in
3 2 3 17 13 3 4
35
UP-ITTC
pass rate in
UP-ITTC( %
)
12.5 13.3 5.7 45.9 17.8 10.3 5.9
The total
number of
Examinees
464 392 666 484 546 534 747
The total
number of
successful
examinees
66 29 88 130 71 30 69
Total pass
rate( %)
14.2 7.4 13.2 26.8 13 5.6 9.2
Source: JICA[2009]
Table 3.2.2 Examination Result in JLPT
Examination
day
December
2005
April
2006
December
2006
April
2007
December
2007
December
2008
Level JLPT 4
JLPT
3
exam
JLPT 4 JLPT 3
exam
JLP
T 4
JLP
T 3
JLP
T 4
JLP
T 3
The number
of examinees
in
UP-ITTC
24 24 59 46 57 2 30 14
The number
of successful
examinees in
UP-ITTC
19 3 55 23 41 2 14 4
Pass rate in
UP-ITTC(%) 79.2 12.5 90.9 50 71.9 100 46.7 28.6
The number
of certified
examines in
23,833 --- 32,658 --- 27,7
67
53,8
06
31,2
27
69,6
05
36
the foreign
country
The
percentage
certified in
the foreign
country(%)
51.4 --- 61.3 --- 51.9 47.4 55.9 57.7
Source: JICA[2009]
Technological transfer from foreign companies is a method to improve
technological skills. Low technological level of IT engineers can not attract enough
FDI. Technological collaboration through these kinds of programs is important not only
for Japanese companies but also for the development of Philippines software industry.
Conclusion
This paper investigated the importance of technological collaboration between
Japan and Philippines in software industries. In Chapter 1, we discussed the definition
of offshoring and present status of information service industry in Japan. In Chapter 2,
we discussed the development process and importance of IT service industry in
Philippines. In Chapter 3, we discussed the advantages of Philippines as an offshoring
center. Also we discussed importance of technological collaboration of Japan to fill the
quality gap of supply and demand in IT human resource. We suggest that Japanese
companies should pay more attention to Philippines software industry and promote the
development of Philippines software industry through Japanese technological
collaboration.
37
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39
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<http://www.stat.go.jp/>
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Philippine Software Industry Association(PSIA)<http://jp.psia.org.ph/>
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World Bank<http://www.worldbank.org/>