IT – BPO sector in the Philippines: A policy analysis using Punctuated Equilibrium Theory

A research proposal by: Alon, Jon Polo & Mariano, Arnold

AB-Political Science

Submitted to: Dr. Ador R. Torneo and Gladstone Cuarteros

Submitted on: December 13, 2016

Political Science Department
Abstract
A developing country needs to produce industries of which it will make us of to
strengthen its production and economy. The Philippines have undergone an import substitute
industrialization to an export oriented industrialization. However, it must be noted that the
Philippines remains an agricultural country of which its resources is being used for exportation
and that human capital is now the driving force of the economy. First anomaly of which the
country have used as means to stabilize the economy, being able to withstand the various global
economic crises is the proliferation of the Overseas Filipino Workers, and now we are seeing a
new player that is steadfast in overcoming the overseas remittances by its revenue and
employment generation, and that is the Information Technology – Business Process
Outsourcing(IT-BPO) sector. The study is to utilize a Punctuated Equilibrium Theory of which
is to make use of a policy analysis of the policy processes that have undergone which led to the
proliferation of the IT-BPO sector. The study will scrutinize the economic policies undertaken
by the government, the political actors at play and the political conditions that have existed.
Chapter 1: Introduction
Background of the study
A developing country is more or less in need of producing industries upon which it can use
to stand up on its own. On the ever globalizing world whereby divisions of countries and markets
are being seen to becoming blurred are all but imminent in the succeeding years of the incumbent
economic order. The further liberalization of the economy has eliminated a good deal of
protectionist policies meant to protect the resources of a particular country both its natural and
human resources. It is all but logical that developing countries most especially those who were
colonized or heavily ravaged during the World Wars had to find ways to strengthen their economy
which should lead in the future for industrialization, which is a characteristic that all first world
countries enjoy and are of similarity. There have been countries successful in providing industries
to its economy even though they lack the natural resources that other developing countries
enjoy. A case would be Singapore, and it's very open economy.

The Philippines is a case wherein an export oriented industrialization (EOI) which is

basically a trade and economic policy meant to speed up industrialization by exporting goods that
are abundant in its area to attain advantage in the world market, have been in the struggle in
producing industries for manufacture upon which it can make use of its own rich natural resources
and abundant labor force to strengthen its economies own legs, however the manufacturing
industries has been in stagnant for years and that most recently the Agricultural sector has been
only contributing 9% in the share of the economy. The country boasts its natural resources in the
ocean by having an estimated 640,000 square miles of territorial waters wherein at least 65 species
of the 2,400 available species in Filipino waters have solid commercial value, an Estimated 21.5
billion metric tons of metal deposits(11th in richest in Nickel across the world) and 19.3 billion
metric tons of nonmetal minerals, and vast agricultural lands. One can only but think why despite
the rich mineral resources of the country that the Philippines did not produce steel industries which
could have augmented the economy similar to neighboring countries like Japan, South Korea,
Indonesia, Thailand, Vietnam and Malaysia among others.

The policies of EOI were firstly introduced during the Marcos regime wherein its administration
have consulted with IMF experts together with the country’s technocrats in their interest in
liberalizing the economy and imposing an EOI policy. Since the post-war era, sugar plantations
were one of the main crop exports of the country in the vast agricultural haciendas. The continuous
exportation of raw materials, did not necessarily provided incentive to produce industries upon
which local jobs can be made, thus the sector of OFWs were made to ensure jobs for the locals,
and fulfil the demand of labor in growing economies particularly from the west.

The Philippines started out as one of the largest source of Overseas Filipino workers
(OFW) from Asia. Between 1980 and 1990, the net international emigration from the country was
540,000 according to the world bank (Bulato et al., 1989). But now, according to the Philippine
Statistics Authority (PSA)(2015), the number of OFWs are not at an estimate of 2.4 million in
2015. This is a remarkable jump considering that under the framework of EOI, the concept of
industrialization being hastened should have produced at least in a few years ago an inverse
relationship between the number of OFWs and the growing economy, since it should have been
providing industries to achieve the goal of industrialization. It has come to the point that OFWs
are now being treated as a unique economic sector, one that absorbs an increasing proportion of
the labor force and one that is being hailed as the “modern day heroes” within the Filipino
perspective due to its ability to provide stability in the economy by providing large sums of
remittances from abroad.

In line with the increasing trend in labor exportation, the Information Technology - Business
Process Outsourcing (IT-BPO) sector has also been growing, and in fact proved to be the fastest
growing sector in the country (Espina, 2015). During the 2000s, the IT - BPO was only
contributing to the country’s GDP at around 0.075%, and rose quickly in 2012 for contributing
5.4% of the country’s total GDP. in 2016, The BPO industry is projected to generate 1.3M new
jobs. This number is said to rival the GDP contribution of the OFWs. This increasing trend
together with the number of OFWs are matter of further inquiry for it raise questions whether
industrialization, under the framework of EOI would be put into light. The “BPO industry not a
key sector in terms of stimulating production in other sectors of the Philippine
economy”(Magtibay-Ramos, et al. 2007), which is inline with the thoughts regarding the path of
Philippine industrialization in relation to its current economic trajectory in the highlighting human
resources. This also calls into question the policies of past administration ever since the EOI was
implemented. Despite years of its implementation, progress in industrializing the Philippines have
been met with minimal results.

Research problem

Considering that the current biggest contributing force to the Philippine economy is that of the
OFW remittances, one could observe that now, there is a growing policy shift towards the
strengthening of the IT-BPO industry. The trends have seen exponential growth in the sector both
in producing employment and contributing to the economy. It is now forseen and predicted that it
will soon overcome the OFW remittances and become the country’s main producing revenue in
the economy (Gonzales, 2016). Considering that the country have undertaken an EOI approach in
industrializing the Philippines, which most of our Asian neighbors have also used, it must be
scrutinize why the policies of the government have shifted towards the sector of the IT-BPO
despite that it only utilizes human resources, and does not provide significant growth (Magtibay-
Ramos, et al., 2007) in the country’s industrial production hence of creating more industries that
would make utilization of domestic resources. The paper aims (1) To find out what were the
policies that led to the proliferation of the IT-BPO sector. (2) Why the economic policies have
shifted towards the said sector (3) and how did the policy process produced such policy change

Significance of the Study

The research intends to explain the policy processes that may have contributed to the
proliferation of the BPO sector. The literature have not exactly pinpointed why the specifically
the BPO sector have grown whereas other industries within the country have better potentials. It
is significant to explain the policy shift of the government to determine the different factors that
have contributed amongst political actors to put the spotlight in policies that have helped the said
sector. It must be noted that the study is a policy analysis on the policy processes that have
occurred and linking the political background in the production of the said policy changes
 By examining the various policies undertaken by the government, the researcher can
provide explanation to why the government have undertaken it and to explain the prior political
conditions that can be attributed to the policies undertaken. It must be noted that, despite the
growing trend of the said sector, other industries within the country that have greater potentials is
not being put into the agenda of policy making. And now that the impending policy shift of the
United States government towards a more protectionist economy would mean a negative impact
towards the IT-BPO sector. It is only timely to scrutinize an economic sector which its future is
uncertain most especially the current shifts happening in the international community towards a
more protectionist policy led by the leading actor of globalization, the USA.

Scope of the study

The study will only be looking at the economic policies, the political actors, and political
environment. This will be a policy analysis which would mean that it would make use of document
analysis and key informant interviews of certain government and BPO sector personnels only
based in Manila. The theory that would be used is called Punctuated Equilibrium Theory (PET)
which would be utilized in determining the manifested policies (i.e. Presidential decrees, laws
etc). Also the timeframe of the study would be 1995 - 2016.

Definition of terms

Policy Image - a policy communities that share ideas about the policy at hand,

Policy Venue - Policy venues which basically means institutional arenas wherein decisions on an
issue can be taken.

Policy punctuations - A significant change in the political system such as the altering of the
socioeconomic conditions, and political conditions. This would also include the drastic shift of
policy agenda.
Chapter 2: Review of Related Literature
The rise of the BPO industry can perhaps be attributed from the shift to an ISI to an EOI. The lack
of industrial growth and the ‘de-agriculturalization’ of the Philippines (Ofreneo, 2015), have
produce the side effect of what is the current economic phenomenon, next to the Overseas Filipino
Workers, called the BPO industry. The paper posits that the design of the EOI was damaging to
the domestic industrial sector, for it ignored the potential leadership of the growing industrial
sector, this can also be seen in the analysis in Sicat’s work (2009) depicting that the “that existing
labor laws tend to harm Philippine owned domestic enterprises most heavily compared to foreign
investors in the country.”. This is a feature that can be considered a breakaway from how Asian
NICs have conducted their own EOI, which they had given priority to export and domestic
industries. The liberalization and opening up of the economy while being biased towards foreign
capital, has also been seen in the boom of Indian BPO industry, and argued by scholars that such
nature of globalization is producing economies that are interlinked towards one another (Kuruvilla
& Ranganathan, 2008; Mcfarland, 2009).

One thing to keep of note was how adversarial the labor-management relations are in the industrial
sectors of the Philippines. A case study within the Philippines has shown how a change in policy
goals to contain costs resulted in fracturing unions and decline in labor standards (Kuruvilla, 1996).
This is further reinforced with studies found by Ofreneo (2013) and Erickson, Kuruvilla, Ofreneo,
& Ortiz (2001) that both agree on how the formal or industrial sectors are focusing on “flexibility”
on the former while the latter goes further on this with numerical flexibility such as reducing
headcounts through various means such as layoffs, retrenchments, subcontracting labor only
contracting, and casualization, all of which has severely affected the labor movement and plight
of many individual workers. All of these can motivate people to search employment elsewhere
with such opposition they would have faced here.

The perceived role of outsourcing has mainly been there to provide services that are more
routine, less complex or less interactive, and are usually outsourced to countries that offer lower
wages but higher institutional quality and greater cultural proximity. (Liu & Scholnic, 2011). The
idea of lower costs can also be seen from SMEs that offshores “technical and administrative
services” to countries that offer lower costs (Gregorio & Thomas, 2008). The need to lower costs
have provided incentives for countries to produce this BPO avenue to generate jobs, and indeed,
in the future, in the Philippines, it is targeted to surpass employment potentialities of the OFW
(Magtibay-Ramos & Felipe, 2007). However, considering that the country is still not an
industrialized state, Magtibay-Ramos and Felipe also posits that it does not stimulate the economy
for domestic production thus citing the importance of the BPO industry in Job generation. In
another paper by them (Magtibay-Ramos & Felipe, 2008), they further explained that it does not
stimulate domestic production due to “BPO sector has very low intersectoral linkages, meaning
the the BPO sector has very minimal interaction with the rest of the economy” and that the growth
of the BPO will not be exactly similar to that of India where Knowledge Based outsourcing (KPO)
is not the front of their BPO industry, because the growth of the BPO is accounted for the rapid
increase of Contact centres. There is a seeming bias towards the call centre sector, thus the growth,
as similar to India, however theirs is a bias towards the software and telecommunications, thus the
KPO (Kuruvilla, 2008)
For all the growth and success the BPO industry have attained worldwide, it is important to note
that it too has its own problems and challenges that it has to face. Working conditions within BPO
industry can be stressful to the employees. Role stagnation, feeling that their work is not adequately
acknowledged, alienation from social life and extra-organizational work due to the demands of
their job may lead to resignations (Srivastav, A. 2008). This is further reinforced with the studies
found by Sen Gupta, S., & Gupta, A. (2008) in which they found that low perceived value and
monotonous work of their jobs created a cycle of attrition where mounting dissatisfaction of their
work would lead to inefficiency, which would then lead to failure to meet job requirements which
would then lead to quitting, resulting in lowering the perceived value of working on BPO which
then restart the cycle. This shows that working on BPO has its own set of problems to its workers
just like any other industry. Another challenge that the BPO industry has to face was how it's first
impression must be a success. A study has found that outsourcing history plays a significant role
in deciding future endeavors in outsourcing activity (Gewald & Dibbern 2009). Finally, there is
the fact that competition from other countries will start to arrive as the BPO industry grows with
their own BPO centres as a study was found that India must take steps to stay relevant in the BPO
industry and keep its own BPO sector going (Sharma, 2014).
Chapter 3: Theoretical Framework

Restatement of the Problem

The philippines, in its shift towards an Export Oriented industrialization (EOI) scheme was
suppose to develop its manufacturing industry to reap the benefits of its natural resource but it
instead led the Philippines to a service-led economy, such as the OFW or the Business Process
Outsourcing (BPO) sector. The shift from an Import Substitution Industrialization (ISI) to an
Export Oriented Industrialization (EOI) that have liberalized the economy was not properly
handled by the Philippines which led to the stagnation and deterioration of the local producing
industry (Ofreneo, 2015). Moreover, there is the fact that such a shift to EOI strategy has also
changed industrial relations and human relations (IR/HR) policy goals to one of cost containment
and union suppression. The shift in IR/HR policy goals has led to the declination of wages, labor
standards, and weaken unions to keep labor cost low for foreign investors (Kuruvilla, 1996). The
study furthers that the lack of technological upgrades for industrial advancement in the EOI
program taken by the Philippines led to the perpetuation of the then existing assembly lines, which
became contrary to the kind of EOI program that countries like South Korea, Malaysia and
singapore which, for an example, advanced the electronics processing and value-adding products
due to providing efforts in the increase of technological and skill innovation (ADB,2003). There
are still gaps however, mainly on how these findings actually translate to the proliferation of the
BPO sector and the political actors involved in shaping these policies.

Theoretical Framework

The framework that would be used for this policy analysis is called a Punctuated
Equilibrium Theory (PET) developed by Jones & Baumgartner (2012) which is a means in
analyzing the policies that have been undertaken by the government.

The PET is a theory of policy dynamics which gives focus to the mechanisms that lead to
either policy change or policy continuity. It would then join several other explicitly dynamical
theories oriented toward understanding the change in the political environment of which will take
effect in the continuity or change of a policy by scrutinizing a specific or set of related mechanism
responsible for such policy change or continuation. The theory attempts to explain an observation
which is that political processes generally are seen as having stability and increments, but
occasionally there comes major changes in policy creation. The theory put into observation the
policy process into two elements, (1) issue definition and (2) agenda setting. As these issues are
put into public discourse in various ways together with the rise and fall of certain public agenda,
existing policies can be either reinforced or questioned. And such reinforcement can only produce
minimal change to the existing policy, but the questioning of it at the fundamental level creates
opportunities for major change in policy results. The focus of the theory is the interaction of
political institutions, interest mobilization, and rational decision makers in a certain period of time
which encompasses that particular policy regime.
 The theory goes that at certain points in time when there is major change in the political
system (i.e. socioeconomic, institutional, constitutional, cultural etc) of a particular country the
theory calls this Policy Punctuation. The end result may be either a policy change and/or change
in institutional arrangements, thus setting a new equilibrium wherein it would be set for policy
evaluation. The new institutional arrangements produce a new period of stability. There are two
interacting main forces that interact with each other regarding a Policy Punctuation (1) Policy
image or a policy communities that share ideas about the policy at hand, and (2) Policy venues
which basically means institutional arenas wherein decisions on an issue can be taken. These two
forces interact with each other in a sense that policy change happens when a new policy image
finds receptive ground in a new policy venue, which will then leave behind the old policy venue
for the new one. As long as the policy image remains in a particular policy venue, and the problem
still persists then incrementalism will also persist. Through a stage of Policy Stasis, meaning that
there is a lack of attention for it, and that the policy image is uncontested. Also, in a Policy Stasis,
there is incrementalism, and if the existing policy image brings consensus with other competing
narratives then there is stability and no change in the policy image. However if there is a
breakdown of consensus then there will be a new policy image that will gain popular support hence
there is instability policy punctuations happen.

The key assumptions of the PET are (1) individuals have limited ability to process
information which means that similar issues are processed together rather than by individually
(2) That the government can only look at particular issues one by one and not all of them
simultaneously.

Visual representation

As shown in figure 1 which is depicted as a fishbone diagram, there are two main stages
of policy punctuations, Policy stasis as can be seen from the left most part of the diagram, and the
interaction of Policy Image and Policy Venue as shown in the middle part of the diagram. The
Policy Stasis is shown as having a fishbone leading to “increments” which basically means bandaid
solutions provided by the government, and that there is a monopoly of a particular policy image
on the narrative of a certain issue. Together with that, the interaction of the policy image and
policy venue must have three main premises wherein there would be an interaction between the
two main forces, (1) dissatisfaction which means that there is a growing discontent with the current
policy image that propagates the increments, (2) Lack of consensus meaning that the current policy
image is having a breakdown of consensus with a growing oppositional narrative (3) Mobilization
which means that there is now a material force that contents with the policy image. If the
opposition grew in support then that would create a new policy image and acquisition of the policy
venue thus there is policy change hence policy punctuation.
Chapter 4: Methodology
Overview
The BPO industry has been a rising success within the Philippines for quite some time. Where
other industries such as manufacturing sector languish and grow stagnant, the service sector such
as the OFW and most notably, the BPO has grown tremendously. The researchers aim to figure
out if the economic policies that has been established over the years have contributed to the rise of
the BPO industry and see how exactly these policies affect the industry. To do this, the researchers
will be using a mostly qualitative approach in finding the answer, using the Punctuated Equilibrium
Theory to analyze the policy processes undertaken by the government and use it to explain the
policy change that led to the policies for the BPO sector. The answer will be validated through a
key informant interview with the appropriate experts both in the government and in the BPO
industry.

Data Needed

Economic Policies - This is the primary data that the researchers will be searching and analyzing
for the purposes of this research. Studying these policies will reveal whether or not these policies
actually contribute to the rise of the BPO industry. If they do contribute to its success, it will also
reveal how exactly do they contribute to these successes.

Number of firms, employees, and contribution to the GDP - These are the indicators given to
account for the rise of the BPO industry. As these numbers grow, so does the successes of the
industry. These numbers will be divided by presidential administration and will be compared to
the economic policies that was put in place by each administration to see if if they have any effect
and how they are affected.

Interviews from key informants - Once all of the data is analyzed and findings are gathered, this
data will validate whether or not the researcher’s findings are true. The people in charge of both
the government and the BPO industry will be the judge on whether the policies put in place give
rise to the BPO industry.

Data Collection Procedures

The primary data to be collected in this research would be the economic policies that is central to
the topic. To that end, the economic policies to be collected will be divided by presidential
administrations starting at the year of 1995, where various economic liberalization have occurred
which paved the way for BPO to take its first steps in the Philippines. Most of the economic
policies are expected to be found through various, credible means such as official documents or
government websites. The data needed to measure the “rise” of the BPO industry, such as their
number of firms, employees, and contribution to the GDP, will be collected either from official
documents to be requested to BPO itself or through other various, crerdible means such as
their official websites or any available databases.
Data to be gathered
Economic Policies according to Administrations BPO Status

Fidel Ramos Administration Number of Firms:

(1992 – 1998) Number of Employees:
Economic Policies: Contribution to the GDP:

Joseph Estrada Administration Number of Firms:

(1998 – 2001) Number of Employees:
Economic Policies: Contribution to the GDP:

Gloria Macapagal Arroyo Administration Number of Firms:

(2001 – 2010) Number of Employees:
Economic Policies: Contribution to the GDP:

Benigno Aquino III Administration Number of Firms:

(2010 – 2016) Number of Employees:
Economic Policies: Contribution to the GDP:

Rodrigo Duterte Administration Number of Firms:

(2016 – Present) Number of Employees:
Economic Policies: Contribution to the GDP:

Finally, when all of the data is collected and analyzed to produce the findings, it will have to be
validated through key informant interview with those in charge of both in government and in the
BPO industry.

Research Instruments

Official Documents - It can be safe to say that policies can credibly be found among official
documents within government offices. It is from official documents that data that is needed to
measure the rise of BPO within their respective property.

Credible Websites and Databases - Other than official documents that may be procured in their
respective offices, policies and other necessary data can be acquired through the internet through
their official websites and databases they may have available in public.

Key informant Interview Guide - This instrument will be vital in validating the findings of the
researchers. This guide cannot be created until the analysis of the data is complete to compile the
findings as the guide questions for the key informants depends largely on the results as it will be
the key informants themselves who will validate the findings due to their expertise on the manner.
Ideally, it would be best to get an interview with Ramon M. Lopez who is the secretary, department
of Trade and Industry on the government side. Towards the BPO, Danilo Sebastian 'Dan' L. Reyes
seems to be the perfect fit, being one of the pioneers of the IT-BPO industry and has over 25 years
of experience in his line of work.
Analytical Techniques

Document Review - This is the first technique to be used after gathering the raw data among the
policies. The document review will separate among the official documents and other such data
among the raw data from those that are relevant and irrelevant. Once processed, it will then proceed
to the next analytical method.

Punctuated Equilibrium Theory - Usage of the theory to analyze the policy processes that have
been taken before the policy changes. This may result with a various policy punctuations or policy
stabilities which would depend on the data gathered.

Key informant Interview - Once the findings has been made in the PET, the KII will be validating
the findings by presenting them towards the necessary officials on both the government and the
BPO industry. As it was said before, it would be ideal to get an interview with Ramon M. Lopez
who is the secretary, department of Trade and Industry on the government side. Towards the BPO,
Danilo Sebastian 'Dan' L. Reyes seems to be the perfect fit, being one of the pioneers of the IT-
BPO industry and has over 25 years of experience in his line of work.
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