Software industry needs more government support

Software development used to be the top activity in the country’s computer sector. In the early 90s, industry players and government officials alike pointed to the huge export potential that software would bring. But the lack of cooperation and coordination between the software industry and the government has kept the industry from realizing its promise.

One nagging problem is the lack of accurate and current data about the industry itself, a prerequisite not only for planning but also for a global marketing campaign to promote Philippine software houses. To date, government officials complain that the industry, through the Philippine Software Association (PSA), has not cooperated in providing baseline industry facts and figures.

For their part, PSA officers say they have tried to survey local software companies to establish new industry data, but most respondents do not want their colleagues to know what or how well they are doing in the offshore development market.

The most current data that one can scrape together about the industry is a list of the 36 software development houses registered with the Board of Investments (BOI). Their estimated revenues last year came to $115 million. In 2004, these companies are expected to bring in $268 million. But the BOI list covers only those companies that have applied for investment incentives, and does not represent the entire software development industry.

Meanwhile, the PSA has tried to reinvigorate its ranks and has regrouped under a new name, Philippine Software Industry Association (PSIA), to include not just software developers, but all interested software vendors, both local and multinational.

"PSA was formed in the late 80s and since then the industry has evolved a million times. The new PSIA wants to be representative of the industry as it is today and opens the membership to everyone in the software business," says Fermin Taruc, a PSIA director and president of Jupiter Systems, which develops business software for domestic and international markets.

Taruc says the expanded membership should help provide easier access to industry data through greater cooperation among members.

Difficulties

Competition from India and China looms large over the local industry, especially now that government support seems to be shifting away from software development and toward IT-enabled services and business process outsourcing.

But successful local software developers deny that the growing interest in call centers in the country will cause the software industry to fall by the wayside.

"I must admit that software development is not an ‘easy sell’ compared to other ‘easily quantified’ businesses like call centers. Software development is an engineering discipline, and it requires someone with an appreciation for engineering processes to properly represent what can be done in the Philippines," says Joey Gurango, Microsoft Great Plains regional director for products and services.

Gurango’s authority to speak for the local software industry is rooted in the success of his former software house, MatchData, which was bought by Great Plains a few years back. Today, as Microsoft Great Plains, the Manila office devotes 75 percent of its operations to software development for worldwide distribution.

Gurango urges the government, which is making bullish pronouncements about IT, to do more to support local software developers.

"I think the surge in Philippine-based back office service companies is a reflection of a growing global trend for outsourcing such services. But we need to continue promoting our software development capabilities because it is at the top of the global IT industry food chain. A thriving software development industry in the Philippines will spawn many other ‘feeder’ industries in a manner that call centers never will," adds Gurango.

Taruc agrees. "From a cash flow perspective, call centers and other IT services may have faster returns. But we should not forget that developmental efforts over the long term could prove to be more effective. Examples are investments in infrastructure or education. In the first few years, they entail cash out. But these are necessary initiatives that need to be started to ascertain the long-term viability of a company, if not of the country."

Like Gurango, Taruc also believes that the Philippine software industry’s potentials and resources are still not being promoted properly. "What the government and the private sector can do together is sustain their (promotional) effort. Similar to what India did: they have a grand plan and follow-through commitment," he says.

But there are bigger things other than promotion that Ernest Cu, chairman and CEO of SPI Technologies Inc., wants the government to address. In particular, he points to labor laws pertaining to permanent employment as something not exactly conducive to IT-based projects.

"I think certain labor laws need to be amended if we are to be competitive with India and China. India is already looking at reforms in terms of the rules for permanent employment. A lot of these things we do today are campaign- or project-based, so permanent employment may be an issue," Cu explains.

Although he believes the government is doing promotional work for the local IT industry in general, Cu says it is not enough to depend on. "I’m glad (the support is) there, but I wouldn’t just depend on the government to bring my clients to me. The attitude we’ve taken is if they are here to help, we’ll take their help. If not, then we will grow on our own."

Meanwhile, Gurango is optimistic that the Philippines is not really that far behind India.

"At least, not yet. But there is a window of opportunity that is closing pretty fast. If we don’t firmly establish the Philippines on top of the global software development value chain within the next three years, then India or China will take that top spot," he says.

Cu says local companies can compete side-by-side with India in certain niches. But he acknowledges that India always comes first and the Philippines a distant second in the minds of companies that want to outsource. "There’s so much attention focused on India today and I don’t know if that is something we can replicate today. But certainly we have proven that quality-wise and scale-wise for projects, we can match ourselves pound for pound, dollar for dollar with India today," Cu adds.

Opportunities

As competition mounts, Gurango says local software developers should increase their expertise in emerging technology platforms and zero in on developing software products and services with growing regional or global demand.

Jupiter Systems is proof that a Filipino software house can excel in marketing in the Asian market. At present, the company is developing standard country versions of its ERP software called ERIC for the three major foreign markets – China, Thailand and Indonesia – that have been identified as the company’s key points for its offshore expansion strategy. Jupiter also has clients in Hong Kong and Singapore, says Ross Eades, regional product director of Infrontier, a wholly owned subsidiary of Hong Kong-based First Pacific Company Ltd. and a reseller of ERIC.

Taruc says a highly Western orientation makes businesses in the Philippines more adaptable to "the best from the West in the form of technologies and best practices." But by virtue of being Asian, Filipino software developers, he adds, know exactly how to do certain things the Asian way.

In a global scope, Gurango says opportunities continue to increase. "Right now, for example, there is a burgeoning demand for high-performance applications that run ‘in the cloud’ of the Web. Five years ago, this market segment was practically non-existent. The Philippines is uniquely positioned to take a leadership role in this area," he adds.

But the biggest thing going for the Philippine software industry remains the availability of a large pool of IT professionals. Unfortunately, the country is losing many of the best and the brightest to more developed countries. This has been a perennial issue with no sure solution. In the meantime, Gurango suggests that the government focus on two things: improve and increase its promotional efforts to publicize the country’s software capabilities, products and services targeted at the developed markets; and provide incentives to the educational sector, as well as to individual IT professionals to improve on three critical skill areas – project and process management, software engineering and design, and technology entrepreneurship.