(STAR) By Eden Estopace - IT matters to the economy.

In a presentation to the media recently, Seow Hiong Goh, director for software policy in Asia of the Business Software Alliance (BSA), said a stronger IT industry leads to greater contribution to the country’s gross domestic product (GDP), more job opportunities, higher living standards, and faster economic and social progress.

But what factors enable IT industries to become strong and competitive? What enables an economy to develop competitive IT firms?

“When we look at industry competitiveness, we look at what you produce rather than what you use,” Goh said. This includes a comprehensive look into factors such as the overall business environment, IT infrastructure, human capital, legal environment, research and development (R&D) environment and support for the IT industry.

A landmark study conducted by the Economic Intelligence Unit (EIU) for the BSA gauged the level of IT competitiveness of 64 countries by assessing key enablers that make possible for economies to have stronger IT sectors.

Based on the study titled “The means to compete: Benchmarking IT industry competitiveness,” the EIU developed the IT industry competitive index which compared 64 countries in terms of IT performance, specifically in hardware, software and services.

“Understanding the relative performance of IT industries across different countries is a complex task. The success of an industry rests on the aggregate performance of the firms within it,” the report said.

While the report’s key findings are expected — such as the United States having the most positive environment for IT firms in the world, and the US, Japan and South Korea topping the IT competitiveness index — some findings on the Philippine IT industry pulled in some surprises.

Under the category of overall business environment, Goh said the Philippines is attractive to international companies and even scored higher than India and China. The Philippines garnered a score of 68, compared to India’s 60 and China’s 47.

Ease of doing business and relaxed attitude to foreign ownership made the Philippines attractive to international hardware and software manufacturers from the US, Japan, South Korea, and Taiwan, Goh said. The country was also viewed as a lower cost alternative to India in the call center business.

In the area of IT infrastructure, which factored in indicators as market spending for IT, computers per 100 people, broadband per 100 people and secure Internet servers per 100 people, the Philippines is also ahead of India with a score of 2.2 as against the latter’s 0.5.

In the legal environment, the Philippines’ score of 51.5 percent was also above India’s 48.

Meanwhile, for government support — measured by access to mid-term finance, e-government strategy, government spending and policy on sector development — the Philippines was on par with India, both having the same score of 54.

This is not to say, however, that all is well with the local IT industry.

The Philippines ranked only 11th in the EIU Competitive Index in the Asia-Pacific, and 47th in the global ranking.

Hardware and software output per industry employee or labor productivity is pegged only at $16,897 compared to India’s $39,033 and China’s $136,506.

Goh said that while there is a vibrant call center industry — which grew from 2,400 seats in 2000, generating $24 million in revenues, to 200,000 seats in 120 business process outsourcing (BPO) centers, posting $3.8 billion in revenues — there is a lack of critical mass of human capital for the Filipino IT force to become more competitive.

The Philippines, he explained, remains a voice-based center compared to India, which has climbed up fast in the BPO value chain. He added that the Philippines’ output is predominantly low-end, from junior and mid-level IT skills. The country, he added, also produces few experts and there is a flight of talent to the US.

“The government can fund incentives for encouraging the highly skilled to remain in the Philippines and must allot funds to develop talent at home,” Goh said.

Spending on R&D is likewise low, pegged at only 0.15 percent of GDP in 2006. Additionally, the private sector’s R&D expenditure is also relatively low.

While laws are in place and the Philippines actually scored slightly higher than India in this regard, the study noted that law enforcement is complicated and involves too many agencies.

“Proceedings for resolving cases are slow and litigants tend to settle out of court, preventing punishment of violators,” Goh said in his presentation.

Overall, many things need to be done to make the local IT industry competitive enough vis-à-vis those in other Asia-Pacific countries.

It was also pointed out that it may help to lower charges for transmission, switching and local distribution as Internet penetration was only 5.4 per 100 people in 2006. PC ownership is also low at 46 per 1,000 people and the limiting factor is the low spending power of the population.

Goh said the Philippines has a lot to learn from other Asian countries, particularly those in the top tier of the IT index such as Japan, South Korea, Taiwan, and Singapore. These countries, he said, develop products that are of very high value.

The report stressed that a “domestic industry’s growth potential rests on the existence of favorable conditions in several interrelated areas such as the quality of the IT and communications infrastructure, the supply of local talent, the R&D environment, the legal regime, and the overall business environment.”

BSA sponsored the study to provide better information to governments and policymakers and enable better policies and strategies that would ultimately benefit the industry.

The BSA, according to Goh, hopes that the countries included in the study would use the data to improve their performance in the different benchmarks and eventually strengthen IT innovation.

Chief News Editor: Sol Jose Vanzi

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