Philippine Software Industry Association Announces “Global Domination” Campaign in E-services 2009 Conference

The Philippine Software Industry Association or PSIA announced its “global domination” campaign last Tuesday at the 9th Philippine e-Services Global Sourcing Conference and Exhibition at the SMX Convention Center in Manila.

The software industry wants to get a piece of the estimated USD 6 billion in revenues in revenue generated by the IT  and IT-enabled outsourcing business in the Philippines, which officials in the country are aiming to double by 2010 to USD 12 billion. This will put the Philippines firmly in the minds of decision makers as a top alternative outsourcing destination to India.

Revenues from outsouring in the Philippines are however dominated largely by outsourced voice services such as call centers and back-office processing services. Outsourced software development and software exports contributed only about 10% of 2008’s revenues, with the PSIA reporting about US$624 million in net earnings in 2008.

This will certainly be a tough challenge, with the current global financial crisis and the competitive market for software services from not only India, but countries like Romania, Brazil, Ireland, Czech Republic, Pakistan, Vietnam and many others.

My take on what area perhaps the Philippines can focus on where it can have an advantage? Open source software. Filipino software development companies (estimated at around 400 nationwide), can capitalize on the growing trend in the use of open source infrastructure such as Linux and open source dynamic languages such as Python, PHP and Ruby on Rails. And in a country where annual software developer salaries are just around USD 7,250, open source software lowers the barrier to entry for many small, innovative, entrepreneurial companies to enter the industry.

Industry experts seem to agree. In a visit last year to the Philippines, Reggie Hutcherson, head of Sun’s technology evangelism group, said that there is a lot of opportunity in learning various open source languages and providing services around it for companies around the world:

“The real challenge for the Filipino developer is learn various open source technologies and use them in heterogeneous environments and provide services to local and foreign companies,”

Meanwhile, David Mitchell, UK-based Ovum’s senior vice president for IT research, said the Philippines needs to focus on niche areas where it can compete better in terms of higher-value services. He said:

Smaller economies in emerging markets need to have focus, and avoid competing with larger economies on cost alone.

He said open source is one such area, citing plans to open new IT parks focusing on developing businesses around open source. He adds:

However, the key will be to ensure that the open source businesses that are created develop high-value assets, rather than developing as low-value services businesses.

There is a danger that too many areas of focus emerge in the Philippine ICT economy, meaning that it will become difficult to gain the depth of skills required to develop globally competitive business that can sustain premium rates–as opposed to the low-rate economy associated with much outsourcing and BPO activity.

One such Philippine company (with venture capital funding) focused on global development services around open source is Exist Labs and sister company Mor.ph–which does SaaS platform hosting using open source  scripting languages such as Ruby on Rails. Another venture (disclosure: that I am involved with) is (non venture-funded) is an ERP software platform with a Web 2.0-ish spin called ComUnionERP.

It remains to be seen whether ventures like these will become successful and if the Philippines can truly create a cohesive and differentiated strategy to create a niche for itself (open source or not). Its clear that it needs a critical mass of players launching a concerted effort to do it. I hope the PSIA can take the lead in doing exactly that.