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OO RUEHCHI RUEHDT RUEHHM
DE RUEHML #3248/01 2140923
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O 020923Z AUG 06
FM AMEMBASSY MANILA
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2310
RUCPDOC/USDOC WASHDC IMMEDIATE
RUEHZS/ASSOCIATION OF SOUTHEAST ASIAN NATIONS IMMEDIATE
RHHMUNA/HQ USPACOM HONOLULU HI
UNCLAS SECTION 01 OF 02 MANILA 003248
SIPDIS
SIPDIS
DEPT FOR EAP/EX AND EAP/MTS
STATE PASS TO USTR FOR BWEISEL AND DKATZ
USDOC FOR 4430/ITA/MAC/SBERLINGUETTE
USDOC PASS TO USPTO FOR PETER FOWLER
E.O. 12958: N/A
TAGS: ETRD EAGR PREL ETTC EINV KIPR RP
SUBJECT: A/S CHRISTOPHER HILL FOCUSES ON PHILIPPINES GROWTH
POTENTIAL DURING MANILA VISIT
1. Summary. During his visit to Manila on July 31, EAP Assistant
Secretary Christopher Hill gained a firsthand view of advantages and
SIPDIS
challenges to U.S. business investment in the Philippines by touring
two E-services facilities and attending a working lunch with
representatives from U.S. businesses. A/S Hill also discussed the
strong economic relationship between the U.S. and the Philippines
and the importance of strengthening ties in Southeast Asia in a
speech to university students and faculty. End Summary.
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E-Service Industry Booming
--------------------------
2. During a visit to U.S. E-service companies, leading call center
market specialists outlined goals for A/S Hill and Ambassador
Kenney: enlarge total market share from 4% to 10% by 2010; expand
revenues from $1.2 billion to $12 billion; and increase employment
from 100,000 to 500,000. A/S Hill visited ICT Group, a call center
with 3000 employees fielding customer service calls from the United
States, and eData Services, a business process outsourcing (BPO)
operation providing records transcription and software development
to U.S. physicians and hospitals, attorneys, and health insurance
providers. eData Services operates 24/7 with a staff of 300 Filipino
employees.
3. BPO operations have distinct advantages in the Philippines:
lower labor costs are lower than other S.E. Asian competitors; two
fiber optic backbones encircling the country; and an
English-speaking population. However, staff retention and space
limitations are potential barriers to business expansion. To
address these issues and maintain competitive pricing advantages,
many BPOs plan to locate call centers outside Manila and work with
the GRP to provide additional English language training to recruits.
---------------------------------
American Business Representatives
---------------------------------
4. A/S Hill, the Ambassador, and Emboffs met with representatives
from various U.S. businesses over lunch to discuss factors impacting
investment in the RP. Representatives included officials from the
banking, food, energy, e-services, manufacturing, travel, and
pharmaceutical industries. These businesses articulated successes
and challenges in their sectors. On the positive side, the call
center/BPO sector is experiencing significant growth with businesses
expanding operations to provincial areas. The GRP is encouraging
call centers to hire the 30,000 overseas workers returning from
Lebanon, enabling them to remain in the RP. Proposed asset sales in
the energy sector are encouraging. The Philippines is preparing to
privatize the National Power Corporation and Mirant, a U.S.-based
company, is selling its power plants, potentially diversifying
significant investment revenue.
5. The executives described factors that may impede future
investment in the Philippines. Companies in the manufacturing
industry noted a 6% to 7% drop in purchasing power due to higher
taxes, increased fuel and electricity costs, and a stronger peso
that has reduced the value of dollar remittances. Another concern
is the constitutional prohibition on foreign land ownership. (Note:
Constitutional reform, currently under debate, would likely remove
this prohibition.) The education system has declined, with
overcrowded classrooms and the best-qualified teachers seeking
employment in the U.S. and overseas. English fluency has decreased
over the past 20 years, diminishing the pool of qualified employees
for U.S. businesses.
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Philippines' Regional Role
--------------------------
6. A/S Hill spoke to university students and faculty about the
strong relationship between the U.S. and the Philippines and the
importance of working with other countries in the region to
strengthen economic ties and regional security. A/S Hill
underscored the importance of the relationship between the U.S. and
ASEAN, in light of the Philippines hosting the ASEAN Summit this
year. He expanded on regional issues and noted that the
Philippines' successful development of democratic institutions
serves as an example to China. A/S Hill expressed concerns about
Burma and North Korea, describing both as being "out of step" with
the rest of Asia, and emphasizing that multi-lateral approaches will
be necessary when working with these countries. With 5% GDP growth
and good telecommunications, the Philippines is successfully
attracting international investment, but needs to develop its
MANILA 00003248 002 OF 002
infrastructure for greater investment inflows. A/S Hill
acknowledged the contributions of Filipino-Americans to the close
ties between the U.S. and Philippines. While the U.S. will continue
providing assistance with programs such as the Millennium Challenge
Account, A/S Hill said he has confidence in the country's ability to
solve its own internal problems.
7. A/S Hill did not have the opportunity to clear this cable.
KENNEY