PACIFIC REPORT : Cheap--and Smart--Labor : Work force: American firms are turning to Asia for low-wage workers in more highly skilled white-collar fields.

American firms for decades have relied on Asia for cheap labor in relatively low-skilled manufacturing industries such as textiles and electronics assembly.

Today, American firms are still turning to Asia for cheap labor. But now there’s a new twist. U.S. firms, ranging from financial institutions to utilities to manufacturers, are increasingly tapping low-wage Asian workers in more highly skilled white-collar fields such as engineering, animation, computer software development and electronic data entry.

Companies such as telecommunications firm US Sprint and Carolina Power & Light--as well as Japanese giants NEC Corp. and Fujitsu--have gone to the Philippines for some of their computer services needs, finding workers often at a fraction of the cost of comparable American workers. Other countries--including Jamaica, Vietnam, Malaysia, China, India and Ireland--also hope for a piece of the action.

Although this use of “cheap intellectual labor” is still small compared to the use of low-cost manufacturing labor, its continued growth has significant implications for worldwide economic development and competition.

For large U.S. companies, offshore computer services are a cost-efficient way to meet electronic data needs, said Mike Van Horn, president of Pacific Rim Consortium, a consulting firm with offices in San Francisco and San Rafael.

And for some developing Asian nations such as the Philippines, these services are becoming a more important source of jobs, export earnings and economic development, Van Horn said.

“Intellectual services create jobs for those with higher education and have some other possible economic payoffs,” Van Horn said. “Some of those trained in software development may start their own companies 10 to 15 years from now. These employees could become valuable entrepreneurs in the 21st Century.”

Some U.S. companies--knowing how shifting their manufacturing jobs overseas has sparked controversy--are reluctant to talk about their computer servicing contracts with Asian firms.

However, offshore sourcing of computer services has yet to stir American organized labor to a similar degree, partly because it has not led to any significant reduction of existing American jobs, management consultants say.

“This is creation of new jobs in Asia without any parallel (job) loss in the United States,” Van Horn said.

Companies in the Philippines--benefiting from a highly educated work force--are beginning to gain an edge from this globalization of the computer services industry.

Philippine government figures show that registered exports of custom computer software have more than doubled every year since 1986, reaching about $18 million in 1990. However, such sales are hard to track because more of this work is being delivered via satellite and telecommunications cable. In fact, industry insiders say, export sales for 1990 were probably $30 million to $40 million.

Data input operations--the labor-intensive process of typing millions of characters into computers to convert printed matter into electronic databases--generated about $14 million in exports in 1990 for the Philippines, up from an estimated $3 million in 1987, according to industry estimates.

American companies are asking Philippine data entry firms to create electronic product manuals and business records. And, U.S. firms are designing the framework for inventory controls and computer-assisted engineering, asking Filipino companies to complete the development of such software.

The profit potential of the offshore computer service business was clear to Washington SyCip in the early 1980s. SyCip, founder and chairman of SGV Group, a Manila-based accounting and business consulting firm, decided to forge an affiliation with a Western firm that could provide his company the computer technology and expertise necessary to launch a software services operation.

SyCip decided to team with Arthur Andersen & Co., an accounting and business services giant that had already established itself in the computer services field. Andersen acquired SGV in 1985.

Arthur Andersen helped SGV establish a computer services operation and relayed some of its software contracting to the Manila firm. Since then, SGV has helped develop business applications software for such firms as US Sprint and Carolina Power & Light. As a result, the number of SGV employees engaged in software development has grown from 30 in 1986 to about 500.

Meanwhile, many other American firms--including Peoria, Ill.-based heavy equipment builder Caterpillar Inc.--are shopping for computer service contractors and are considering deals with Filipino firms.

SyCip said SGV and other Philippine firms are making gains in software services partly because the island nation has one of the best educated populations in Asia, which makes it easy for the companies to find and train workers.

“The availability of highly educated and skilled people gives us an advantage over other countries,” SyCip explained. “Of course we have English-speaking people--which is important in this field--and (Philippine companies) are able to keep the costs of software services down.”

Indeed, management consultants say, the cost factor--Philippine workers typically earn less than their American counterparts--is a major consideration for U.S. companies in need of various computer services.

“We’ve been seeing more and more of this (offshore) contracting the past three years,” said Brian Kadison, director of business systems consulting for Arthur Andersen in Southern California. “You have to consider the quality of their people and the cost structure. They (Philippine firms) are very cost competitive.”

Typically, programmers and data entry operators earn about 30% to 40% less than Americans in similar positions; but the pay in the Philippines is relatively high by that country’s standards, said Emma Teodoro, president of Philippines Software Assn., a trade group representing 13 Filipino-owned software service firms. When exchange rate differences are added in, an American firm can cut its computer service cost in half by contracting with Philippine companies, Teodoro said.

Labor availability is another factor, Teodoro said.

“Many American companies do not have enough people to handle this work,” she said. “We have the people, and we can take on projects and deliver quickly.”

The Philippines’ ample labor pool is also attracting Japanese companies with computer service needs. Some Japanese computer companies--including NEC Corp. and Fujitsu--have facilities in the Philippines and hire Filipinos to meet some of their software development needs. The Japanese government has determined that there may be an acute shortage of software engineers in Japan unless special measures are taken.

Venture capitalists in the West are beginning to take notice of the explosive growth of the Philippines’ computer services industry and are prowling for some of the action.

For example, Hambrecht & Quist, a San Francisco-based venture capital firm, recently spent about $850,000 to acquire 7% of the PACT Group, a Manila-based software development firm founded by two French nationals. Renault, the French-based auto maker, and Lufthansa Airlines are among the PACT Group’s clients.

The venture capital firm invested in the industry partly because they see great human resource potential in the Philippines, said Ed David, president of Hambrecht & Quist Philippines. “The Philippines is commonly seen as a supplier of cheap labor, but we were quite surprised to find that the country has many highly skilled computer science graduates--and skilled personnel is very important in software development,” David said.

On the other hand, companies involved in data entry contracting do not need employees with computer science study experience. Still, the more successful electronic input operators in the Philippines give their employees extensive training to ensure that Western companies get top-notch work, said Gerardo Borromeo, acting president and general manager of Saztec Philippines Inc., a Manila-based data entry firm that employs about 1,600.

Caterpillar is among the American firms trying to gauge the quality of Saztec’s work. It recently had Saztec create electronic versions of sections of Caterpillar’s spare parts and maintenance catalogue on a pilot basis, said Jeff Hawkinson, a Caterpillar spokesman. Hawkinson said Caterpillar has to find a vendor for its major data entry needs because the company does not have enough employees to handle such tasks.

“It wasn’t a case of (Caterpillar) wanting to out-source and deciding to find a cheap supplier,” Hawkinson said. “Cost is always important, but quality is more important than cost.”