Saturday, 15 September 2007

Ten Letters (2)

SERVICE industries are a peculiar lot.

Unlike manufacturing organizations — with their factories, equipment and stacks of inventory — many service-orientated companies have little by way of “hard” assets.

Take a restaurant, for example. Among the things of tangible value would be the furniture, kitchen equipment, some pieces of décor and possibly the building itself in which it is located. Apart from these, the refrigerator will probably contain a few days worth of food ingredients, but not much more really.

Clearly, as the Little Prince would no doubt have observed, what is of value in a restaurant business “is invisible to the eye.”

Call centers are even more spartan — just huge, open floor areas with lots of desks, computers and banks of telephones. Okay, maybe the air conditioners would be worth something, but I think you get the point by now.

In elaborating on his theory of competitive advantage, the eminent Har-vard management guru Michael Porter cites “intensive capital requirements” as one of the major barriers to enter any industry.

Automotive manufacturing, for example, is one such sector. Since it requires large capital investment which are often unavailable to would-be start-ups, those already in the sector are afforded some sort of protection from competition, at least for some time until potential entrants find a way to either raise funds, or do things differently that would require lower capital investment.

In many service businesses, “intensive capital requirements” is usually not a major barrier to entry. Almost anyone can start a restaurant, and for that matter, entering the call centre business does not seem to be such a difficult proposition. Whether the ventures succeed or not is an entirely different proposition.

As a country, we have chosen to hitch our future on the provision of services to the world. Nursing and BPO are two of our biggest revenue earners at the moment — and if we believe all the hype that surrounds them — will remain so for the foreseeable future.

As we have pointed out, this subjects us to potentially stiff competition from rival countries who wish to do the same things we are doing. And because services do not require a lot of investment, it will not be that easy for us to defend our position.

Take the case of the domestic service (domestic helper) sector, for example.

Indonesians, Sri Lankans and Africans, have undercut the going rates for our countrymen in the lucrative markets of the Middle East. As a result, these countries have managed to take a large share of our erstwhile monopoly in the region.

Nursing and business process outsourcing will not be exempt from the competitive pressures that the domestic service sector experienced. Even today, nurses from India, Sri Lanka, and South Africa continue to flock in large numbers to the same countries where our countrymen are headed, e.g. the United States and the United Kingdom.

BPO businesses likewise face stiff competition, especially from India, where the call center revolution first started.

And yet, we cannot escape the great responsibility of making sure that these service sectors survive and thrive amidst the growing foreign competition.

The lives of thousands of our countrymen, and the fortunes of thousands of others who depend on them, demand no less.

NOTE: Warmest greetings to my beloved wife, Cynthia Marie Arguelles Batuhan, who celebrates her birthday on Sept. 20.

Published in the Sun Star Daily, Saturday, September 15, 2007 (

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