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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