2002: A good and bad year for local IT industry

The worst is over. At least this is what major IT players and industry observers in the Philippines are hoping, after surviving 12 very trying months. IT investments were generally down due to the economy’s contractions, but this somehow helped customers better appreciate the true value of IT in their organizations.

The tendency to be obsessed with cost-efficiency during a financial crisis actually helped improve IT spending slightly, says Jajo Quintos, general manager of IBM Phils. But he also notes that the drive for cost-efficiency also made some Philippine companies exchange quality for price and short-term financial gains for longer-term business value and strategic opportunities.

"Philippine companies are using IT to contribute more cost-savings to their operations. This environment will persist through the next year," Quintos says. "Local businesses continued to regard IT as an essential tool for cost-effectiveness. Server consolidation, software upgrading and strategic outsourcing to create operational efficiencies justified internal IT spending."

Despite the difficulties, Quintos believes 2002 still turned out better than 2001 for the industry.

IT demand still remained slow this year partly due to overspending by companies at the height of the Internet fever a few years ago, says Bernard Yu, managing director of Oracle Phils. He adds that those who did so are may be still trying to catch up with their projects and investments before buying anything new.

"But those who have seen the value of their investments or have finished their projects will now be looking at new projects. Companies this year look for good investments and are asking about their return on investment (ROI). In the past, investments were made because it was a good idea to gain a competitive advantage. This year, it’s about ROI and that’s good for the industry when companies see there is value in what they’re buying and they can compare whether they achieve the ROI at the end of the project," Yu says.

Kevin Hou, Microsoft Phils. managing director, says the year has been both challenging and exciting. "We saw increased focus on technology from segments like telecommunications, banking, education and contact centers. On the solutions side, business intelligence and enterprise applications integration are gaining relevance in the local market. As for vendors, it’s been challenging for most as very few are really hiring or growing their headcount consistently," Hou says. 

Light at the end of the tunnel

The first six months of the year were generally characterized as incredibly bad for Philippine IT companies. But things are starting to look up, says Yu, who also serves as director for the Information Technology Association of the Philippines (ITAP), a non-profit, industry-driven association.

"I randomly talk to some people who say things are getting better. Their perceptions are changing so there’s that light of hope that maybe the worst is over. I think we can probably say that things have bottomed out. I don’t think it’s going to be worse than this," says Yu.

Corporate sales were most affected this year unlike consumer sales that actually went up. Yu hopes the first six months of 2003 will see both growing. In particular, he says, the banking industry is a source of hope, just like the telecommunication sector.

Certain factors helped the local IT industry stay afloat.

"One major factor was the realization of businesses that IT is not a mere cost but a means to improve efficiency and competitiveness. This was realized not only in the private sector but in the government and academe as well," says Hou.

If 2002 was tough for vendors, it was a banner year for the IT service sector with call centers and shared services fueling IT spending in infrastructure and people, says Quintos.

Quintos adds that activities in retail, education and agriculture also contributed to growth.

Even disasters like 9/11 helped put pressure on companies to invest in technologies that would ensure business continuity and recovery.

"Business continuity and recovery solutions were pushed by both internal pressures, when businesses realized that their information assets are corporate lifelines and need protection in the light of 9/11, as well as external prescription of regulatory bodies, as when the Bangko Sentral mandated all banks to implement disaster recovery systems," Quintos says.

Hits and misses

IT vendors give the national government credit for helping the industry this year. Hou says there have been strong initiatives and implementation in relation to e-governance, which is especially true as individual agencies try to meet the phased targets of the E-Commerce Law.

Overseas, the government also heightened efforts to promote the country’s competitive niches in call center and back office services. But "image" issues are hurting the country, Quintos points out. He says issues related to peace and security, integrity and efficiency, infrastructure, and population management, among others, can affect investor confidence in the local IT industry.

Looking forward, vendors urge the government to continue with the ICT agenda. "The year 2002 saw a good policy environment for ICT in the country. There should be a continuation of this strategic push with focus on execution in 2003," Quintos says.

Hou says the government should give priority to improving the quality of IT training and protecting intellectual property rights more adequately in 2003.

Yu says the government, too, should spend its IT budget and savings from IT to help the industry recover in 2003.