Innovation and Learning In the Services Economy

January 2, 2007

Without a doubt, we live in a knowledge society and managing the country’s intellectual assets has assumed greater importance. This applies not only to those who live in developed countries but also to people in developing countries whose services sector has become a more preponderant component of their Gross Domestic Product (GDP). This observation holds true for the Philippines as well. Interestingly, the country’s services sector has outpaced the agriculture and industry sectors way back in the mid-80s. If we are to go by the natural industrialization process of an economy, it can be argued that a country has reached an “advanced” stage of development once its services sector has more than outstripped the combined output of the agriculture and industry sectors.

Per CIA World Factbook, the estimated 2005 GDP share of services sector for the Philippines is 53%, way above that of Indonesia (40.8%), Thailand (46%), and Malaysia (43.6%) and pushing towards the Singapore level (66.1%). The Philippines appears to have consistently increased its activity in the services sector over the past two decades as this sector’s share went up from 47% in 1997. One should note that most developed countries currently have their GDP services sector share at or above 70%, with the agriculture hitting a meagre 1% to 2%.

No doubt this trend is going to improve further. The question though is: Has our economy really advanced to the level of a developed economy based on the impact of the services sector on the GDP? I personally believe that we are still way off from the hallmark of a service-oriented developed economy despite the statistics. After all, we only need to look at the breakdown of these data to find out the real score. The agriculture has registered output improvement in recent years, but the sector still lacks effective post-harvest storage and handling systems. Farm-to-market logistics network is relatively low. On the other hand, the country has seen a diaspora of manufacturing firms to other southeast Asian countries as a result of global competition and rationalization strategies or in response to continuing search for better manufacturing base. Presumably, the lackluster performance of these two sectors plus the natural attraction of white-collar jobs conspired to put more Filipinos in the services sector. As a result, more male and female Filipino workers migrated to this sector based upon World Bank statistics. Between 1990-92 and 2000-04, the corresponding ratios of male and female workers in the services sector moved up from 29% to 37% and 55% to 63%, respectively. The female working population in the services sector is understandable as more men still remain in the agriculture and manufacturing activities.

While agriculture and industry may not be the country’s competitive edge, it seems that our national niching strategy lies in the area of service-related activities. This leaves us with the question as to whether we have the right policy framework and incentives for a sustainable development and competitive posture for the services industries. Does the country have a comprehensive skills and capacity build-up program for all segments of society that should result in greater competitiveness? And by comprehesive, we mean private, academe and government enterprises doing their respective plans and programs to pursue this knowledge and know-how upgrade.

If we believe that innovation is the primary driver that ensures the country’s competitiveness and life-long learning process should permeate all classes of society to carry out specific efforts at innovation, then all the stakeholders of this country (administration, policymakers, business leaders, and educators) should seek to deploy relevant education and training programs that deepen and widen the stock of skills and capacity of the country as a whole in areas where we can be truly competitive. For example, we have in recent years seen our edge in business process outsourcing (call center, medical/legal transcription, logistics management, backroom processing, etc.), but developments in this area have largely been market driven. Indeed, there is nothing wrong with this. However, a government support and push towards deployment of BPO activities in the provinces has been rather scanty. To complement private initiative, TESDA and DOST should develop the environment in specific regional centers where world-class skills required by BPO can be introduced to local residents in terms of public and private sector collaboration. Other actors such as DOTC, private telecom firms, and investors can in turn synchronize their move into those centers as they are able to tap the right skills with relative ease.

Again, we have to approach this effort aware of the tremendous opportunities that globalization is offering us. While the initial success seen in this country has been brought about largely by individual efforts of foreign firms wishing to tap into the natural talent and skills of Filipinos at BPO, it is about time that we get our acts together. A national system of innovation has to be defined and promulgated, from where specific policies, plans and strategies cascade and are brought to bear as a positive impact on the service industries concerned. A strong feature of such system should give recognition to Filipino entrepreneurs, say, in the area of BPO or even medical tourism, particularly to those who subscribe to the importance of service quality and innovation. Such recognition may take the form of easier access to capital, subsidized training programs, and fiscal incentives.

Lest we be misunderstood, the Philippine system of innovation should not be confined to the services sector alone and should, in fact, cover a deliberate support to introducing innovation in the agriculture and industy sectors. The government’s OTOP (one-town, one-product) promotion is a move in the right direction. But this activity should be consistent with our national system of innovation, the respective regional systems of innovation, and the provincial or municipal system of innovation. For example, a province or town may be encouraged to cultivate specific crops that would yield high dollar income potential, when processed from the farm itself and exported abroad- and not competing with but instead complementary to other OTOPs. Innovation aspects come in different forms in this case: e.g. GMO-type cultivation in a corporative environment, biotech processing for active ingredients or final products, etc.

Whatever efforts we take to place our services sector at a more competitive level, the same should not be pursued at the expense of the two other sectors. One thing is clear: we know our handle lies in the services sector. Skills and capacity upgrade in this sector should spawn similar activities in the two other sectors.

2 Responses to “Innovation and Learning In the Services Economy”

  1. Paolo A. Marfori Says:

    Lately, BPO has been booming in our country. It has generated a new line of work that has appealed financially to both students and fresh college graduates, thus involving a greater portion of the population to take part in the services sector and ultimately contributing to the overall GDP of the country. With this, we are seeing a sudden influx of foreign-owned BPO companies and a few local ones. For instance for call-centres there are the big players in the market such as Convergys and Epixtar, which have consistently expanded in the past years.
    Now the problem I see lies in the way this type of new service sector is spreading. Much like previous nationally lucrative forms of income in exporting furniture and nata-de-coco, BPO in the country may follow the same sad fate. Since BPO is of economic interest for a country desperately in need of a panacea to the crippling agricultural and industrial sectors, the eventual comprehensive interdiction of policymakers in exploiting the revenues to be gained in allowing an overdose of BPO companies may spur complacency, rashness, and incompetence in the ranks of policymakers themselves. The “fast buck” mentality or short-term planning has since been a bane to the country’s overall condition. I’m predicting that sooner or later the services sector will become over-saturated with BPO where quality over quantity would be the name of the game once again. We need not wait for the BPO service sector to reach its peak of revenue generation for us to innovate. By that time we would be left behind in being the favoured market for BPO. As early as we see the signs of a promising new category in the services sector, it would be wise to look beyond the profits and instead aim at “skills and capacity upgrade” as a form of long-term revenue generation for the Philippines.


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