Do Filipinos Care About Online Privacy?
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According to a 2008 Nielsen survey, more important to Filipinos than online privacy is being part of an “in crowd.” Thus, perhaps unsurprisingly social networking sites account for about 60% of all internet use among 30 million Filipinos who use the internet regularly. Filipinos will try all the social websites, although Facebook appears to be the most popular at the moment. According to Danilo Mojica of Smart Communications, Filipinos comprise of 20% of the total Facebook population. They will also post on YouTube with apparently no care for privacy issues because it gives them their 5 minutes of fame
In spite of a recent uproar all across the globe about the privacy issues surrounding Facebook, Filipinos appear to be unaffected. Of the 2010 estimated figures published by Techie.com.ph on the 8.4 million Filipinos using Facebook, 70% say they don’t care about their profile being seen by people they don’t know, and will continue to use Facebook. They also have no concept of what it means to “opt out or opt in.”
In 2009, a popular young Filipina actress came out on YouTube with a sex tape made by her partner, and posted by a friend of the partner. The video went viral and all privacy issues flew out the door. Everyone wanted to see the video, and there were even CD copies made and sold on the sidewalks of Manila. This isn’t the first sex video case in the Philippines, and no doubt, it will not be the last. A year later, a court dismissed the actress’ invasion of privacy suit for lack of merit. Has it changed the perception about online privacy among Filipinos? Unfortunately, it barely made a dent.
Internet banking, on the other hand, is just beginning to show some muscle. When it comes to money, Filipinos are generally wary of trusting others, and are even more nervous about internet banking. Accordingly, the use of ATMs and mobile phones are their preferred methods of keeping track of their bank accounts. Compared to other Asian neighbors, the Philippines lags way behind in online banking. According to Joe Nguyen, VP of comScore Southeast Asia, the Philippines ranks among the countries with the most potential for growth in online banking because usage is relatively low based on the nation’s population.
Nonetheless, even with the nonchalant attitude of most Filipinos for shared data, a Data Privacy Bill was approved on third and final reading last March 29, 2011. It is now making its way to Congress to be passed as a law. This piece of groundbreaking legislature prevents the disclosure of personal data without written and clear consent from the consumer. Moreover, it sets limitations for the use of data even with the consent of the consumer, and requires that the data be protected from third parties, and destroyed soon after being used.
For instance, if a website requires that the name and address of a person wanting to register as a subscriber is required for verification, as soon as the information has been verified as legitimate, it should be disposed of immediately. In addition, any company that collects personal data from internet users must report any unauthorized breach in their electronic data files to the Commission on Information and Technology (CICT). This is an agency which is part of the executive branch of the Philippine government aimed at developing and promoting the country as a global ICT service provider. Failure to report any incident could result in fines of as much as PHP 5 million or USD 119,000 for every violation.
Furthermore, fines of up to PHP 2 million or USD $47,600 will be imposed on anyone, commercial or individual entities that abuses the privacy of a person, such as using personal data for purposes other than what was originally agreed upon by the consumer and website. For example, sharing of mailing lists with ad agencies containing names and phone numbers of subscribers is very rampant in the country. The new law will change all these.
This will be the first milestone privacy law to be passed in the Philippines, and should safeguard the millions of naive Filipinos using the internet. Without this law, even the Philippine government can sell any information they accumulate from the users of government-run websites.
In 2000, a destructive virus was released online, later to be known as the “I Love You” bug and coming from the Philippines. It caused major disruptions in email systems worldwide with costs escalating to an estimated $10 billion in revenue loss and lost data. The source came from a Filipino IT student, Onel de Guzman, who created it as part of his thesis proposal with focus specifically on stealing passwords. Obviously, the thesis proposal was rejected, but the virus still found its way to the internet. The incident marked the Philippines infamous introduction onto the world stage of cyber crime.
The government has responded appropriately. In response to the “I Love You” fiasco, the first Philippine e-commerce law was passed, Republic Act 8792. Fashioned after the United Nations Commission on International Trade Law (UNCITRAL) on Electronic Commerce, it punishes unauthorized access and intellectual property infringement with a fine of Philippine Peso P100,000 (roughly, USD$ 2,365), and mandatory imprisonment between 6 to 36 months for every offense. However, the law has not stopped cyber crime in the Philippines.
In May 2006, a Filipino call center agent was found guilty of hacking into the company he worked for and stealing credit card details. He was able to make online purchases worth more than $2,000 through illegal means. He served a 2-year prison sentence and had to pay over $5,000 in fines. In 2008, the first case of cyber crime filed at the Department of Justice occurred when Vibelle Manufacturing Corporation, the local licensee for US brand, Jergens skin care products, accused one of its chemists of stealing company secrets from their computers. The case was resolved a year later. Although details of the settlement was held by the courts, the license of the chemist was permanently revoked.
In 2009, several more bills were introduced to address Internet-related crime. House Bill No. 190 addresses the spread of sex videos and defines cyber crime as punishable with fines and imprisonment of up to PHP 800,000. Senate Bill 3177, also known as the 2009 Cybercrime Prevention Act stipulates fines of up to half a million pesos (roughly
USD$ 21,200), and Senate Bill 751 calls for restricting access to adult sites and violence. These bills have captured considerable media attention and increased awareness of cyber crime and its prevention.
There are isolated cases of reported cyber crime with around 30 cases still pending. However, this is no indication of the extent of online crimes in the Philippines. Many incidents are left unreported because it threatens a business, and could disrupt consumer confidence. Quite a number of cases wherein computer security has been compromised come from internal threats. In other words, access to the data is at arm’s reach. As such, reporting such incidence would be disastrous for local businesses because it implies a company’s lack of security measures for online transactions.
Such was the 2001 case with the Thames International Business School where employees stole proprietary data and intellectual property infringement. Damages are estimated to cost about US$3 million. The court case is still ongoing, demonstrating that the wheels of justice can move very slowly in these matters.
Filipinos are generally not hackers or crackers, and have a healthy respect for the rights and privacy of others. Their main problem is still economics. Poverty and lack of resources encourages them to hack into accounts to gain free access to the internet. In other words, there is a Robin Hood mentality that certain things in life should be free, and one of those is internet usage.
The other end of the Filipino attitude towards online security is an egotistic one. Computer hacking is a matter of pride and contest. Filipino hackers and crackers give each other merit badges for being able to get into a system. Rarely does it go any further than the front door. The thrill is found in the 5 minutes of fame and attention they get.
According to internet engineering expert, Miguel Paraz of Inter.net, there are hundreds of Filipino hackers, “but few are technically adept as their Russian or Eastern European counterparts.”
After the Enron scandal in 2002, the Securities and Exchange Commission (SEC) introduced a new regulating law known as the Sarbanes-Oxley (SOX) Act for all publicly listed U.S. companies. SOX aims to protect investors and the general public from unethical business practices through more stringent financial reporting rules. The additional requirement is the annual Internal Control Report, supported by quarterly reviews and checked by an external audit firm.
U.S. companies planning to outsource part of their compliance workload will still have to police their service provider, whether it be from India, China, the Philippines or Malaysia. Any problems with SOX compliance will ultimately fall on shoulders of the CEO. Furthermore, with the SEC mandatory 5-year storage of financial documents, the CEO will also have to take full responsibility for any information security breach. In addition, there is always the possibility of SEC demanding financial reports within 48 hours under the SOX Act.
Outsourcing firms have to be familiar with SOX compliance and SAS 70 if they want to be relevant to the industry. No public U.S. company today will be willing to sign up with an F&A outsourcing company that cannot deliver solid internal controls. Thus, there must be a process of identifying, duplicating, storing, and recovering data as the need arises.
Currently, there is the false misinterpretation floating around that an IT outsourcing company is not affected by the SOX Act. The reality is, IT systems generate data for finance and accounting, so it is part and parcel of every audit. For instance, if the software used by an IT outsourcing firm fails to include essential internal controls, then the F & A data produced is incomplete, and therefore potentially in violation of the terms of the SOX Act.
In India, there is no national regulation that requires outsourcing companies to comply with SOX or SAS. In 1995, many US companies started outsourcing their finance functions to India because of the considerable lower cost. When SOX was enforced, many of these companies had to work on becoming SOX compliant, with Hewitt Associates leading the pack as a payroll and benefit SOX compliance vendor.
Aside from this, the concern over information security had to be addressed. IT security does not just revolve around the threat of a security breach during the delivery of information to the outsourcing company, but also the concern about inadequate monitoring of security systems and disaster recovery processes.
China is particularly prepared to handle SOX compliance needs because they have their own version, which is the C-SOX or Chinese-Sox. This was implemented in 2008, initially for government and foreign listed China-owned companies. C-SOX is sponsored by China SEC, Ministry of Finance, National Audit Office, China Insurance Regulatory Commission, and the China Banking Regulatory Commission. China has taken it one step further with its Whistleblower Mechanism. This is another safeguard to provide protection against corrupt business practices, and to reinforce internal IT security. Japan also has its own version known as the J-SOX, also implemented in 2008. Both countries have patterned their financial compliance requirements after that of the United States.
The Philippines is similar to India with minimum SEC infrastructure in place. However, outsourcing companies specializing in finance and accounting like Sison, Corillo, Parone & Co. (SCP & Co.) have set the groundwork for SOX compliance. Other companies that have foreign clients trusting them to handle their SOX compliance reports are Accenture; Alas, Oplas and Company (Member of RSM International); and IBM Daksh which is a wholly owned subsidiary of US IBM.
Clearly SOX compliance is not a problem with many outsourcing companies. Many of them offer sophisticated SOX compliance and SAS Type II services at very competitive pricing with superior security measures. However, as one F&A solutions expert for IBM, Cody Chenault says, “ (the) client company retains the ultimate responsibility for meeting compliance mandates.”
Can Vietnam Outclass The Philippines in IT Outsourcing?
Five years ago, this was a question that would never have been asked because IT outsourcing was cornered by India and China. Today, Vietnam and the Philippines have taken great strides in meeting the challenges needed to make them competitive in the outsourcing market. Strangely it would see, it happened just in the nick of time because China has announced new taxes, and India has opted to move up the ladder in IT outsourcing, preferring to host high-end paying contracts.
The advantages of Vietnam as an IT outsourcing alternative includes the growing English and French- speaking work force population of 65 million under the age of 65. Also, the monthly wages averages USD $55 a month in the cities of Ho Chi Minh and Hanoi, which is a mere drop in the bucket compared to U.S. wages. In relation to this, the cost of living is low. On the part of the government, there are efforts to attract foreign investment with tax incentives like 0 percent for the first 3 years of operations, and a discounted 50% for the next 5 years. The cost of land and import tax are low, while export taxes are waived for foreign trading firms.
Vietnam’s infrastructure has been going strong with new fiber optics cabling, wireless internet connection, and improved telecommunications. Unfortunately, considering the starting point of the 2011 IT infrastructure plan, Vietnam still has a long way to go before being able to come up to par with the rest of Asia’s booming economies. That being said, economic growth last year was pegged at 6.8%, but inflation was 9.19%, going as high as 11.75% in December 2010.
What does all these mean? In brief, the growth is Vietnam as a desirable location for investors is improving, but not fast enough. Corruption, inflation, internet security, and infrastructure remains high priority issues. As far as internet activities are concerned, the 2000 figures show a 0.3% usage that grew to 27% in 2010. There are 5 major internet providers now operating in Vietnam, Viettel which is a military-run firm, VNPT, EVN Telecom, SPT, and Netnam. The current plan is to improve cyber infrastructure to entice IT outsourcing firms. With a US$42 million budget, the country also aims to fight cyber crimes, prompted by the recent hacking attacks against the government news website.
Foreign firms like HP, IBM, Infosys, Global Cybersoft, and Intel, which have already invested heavily in Vietnam have had to deal with the intense regulation and monitoring by the Vietnamese government on internet activities. Regardless, between 1995 to 2008, over 300 IT projects worth US$2 Billion have been awarded to companies in Vietnam. Records show a staggering 10,000 licensed companies open to IT outsourcing, but only a third of these companies are operational. In addition, 70% of these companies have an average of 10 employees with poor capital funding. As a result, several IT outsourcing firms have turned to using third parties to capitalize on Vietnam’s cheap human resources like Fuji, Hitachi, Accenture, Cisco, Microsoft, NEC, Oracle, Toshiba, Sony, and Unisys.
All of them including Yahoo, Google, and Microsoft are required to toe the Vietnamese line. Facebook has been banned entirely for security reasons. Other concerns would be the high rental rates for real estate and commercial properties, quality of education, and employee retention.
Still on the downside, Vietnam still has to improve its educational system wherein more than 40% of its graduates, while being literate, have no formal on-the-job training whatsoever. This means that any company planning to set up shop will have to provide skills training, among others. According to a study done by a research firm in the U.K., Young Lives, a Vietnamese school averages only 33 weeks of schooling in a year, and a school day is about 6 hours only, with even shorter days outside of the major cities. Moreover, the government only provides free education up to grade school level.
The study further emphasizes that these figures were based on city schools, not provincial schools, which has an even shorter daily schedule. In sharp comparison, the Philippines has an 8-hour school day for 40 weeks of the year, and free education is offered through to high school. This would explain why most of the companies moving to Vietnam are in the business of apparel and manufacturing, which is labor intensive, but not skill intensive.
In the Philippines, there is a wealth of Western orientation among Filipino skilled IT workers that is essentially absent among the Vietnamese. Many of the local senior managers in the Philippines have studied in the United States or Europe during the years in which Vietnam was isolated from the West. This global perspective is often conducive to creativity in IT disciplines such as software development, graphic design, and computer animation. For example, Marvel Comics has been hiring Filipino artists to create their pages. Unknown to many, the 2006 3D animated film, “Hoodwinked” was created by a local animation studio in the Philippines under American supervision. Other popular animated films that had creative teams with Filipino digital artists are Chicken Little, Iron Giant, and Stuart Little.
Unfortunately, both countries suffer from similar corrupt systems in government and private practice. Vietnam remains a communist country with compromised ideals that lean towards economic growth, while the Philippines, which adopts the democratic form of government, still struggles with an ineffective government leadership, although its 2010 GDP enjoyed a 7% growth. Regardless, both countries are doing exceptionally well considering their drawbacks, and both are expected to be the future hot spots in IT outsourcing.
Malaysia has been tagged as the rookie of the IT outsourcing business in Asia, coming third place to India and the Philippines. Much of this has to do with the fact that many foreign companies have set up shop in Malaysia, buoyed by the first class facilities and improved economy. There are approximately 250 call centers and 130 SSO companies fully operational after successfully relocating to Malaysia.
No doubt Malaysia is fast tracking its outsourcing industry through its government’s program known as the Multimedia Super Corridor (MSC). This program offers tax breaks, first class facilities, high speed internet, and travel conveniences. Plus, it has pinpointed a specific 15 by 50 km area that includes the popular Cyberjaya as the outsourcing and business hub for foreign and local companies.
As a Shared Services & Outsourcing (SSO) hub, Malaysia now plays host to multinational firms like HP, IBM, Nokia, BMW, HSBC, DHL, Shell, and Intel, among others.
HP moved to a 25 ha property in Cyberjaya and another in Petaling Jaya just outside Kuala Lumpur. HP plans to focus its IT outsourcing efforts on applications development, hardware support, contracts, and finance support. Shell also has a support office in Cyberjaya for its IT development and engineering functions, as well as desktop ad hardware support for all its global offices.
DHL’s Cyberjaya facility is one of the company’s three main global offices and manages the company’s Asia Pacific‘s IT operations. Affiliated Computer Services (ACS) which is a major outsourcing company opened shop in 2006. It now employs over 700 IT specialists to cater to desktop and network engineering functions, application management, human resources services, customer care, and mainframe support.
Other reasons why outsourcing is booming in Malaysia is that, like the Philippines, outsourcing firms have access to large pools of English and Chinese speakers. Indeed, almost 90% of the population can speak English. The nation’s diverse culture is over 50% Malay, almost 24% Chinese, 7% Indian, and the rest are indigenous.
On the other hand, the Malaysian infrastructure and start -up costs are relatively lower than those in Europe or the United States, but still higher than in the Philippines.
Compared to the Philippines, the economy of Malaysia is more stable and the quality of life is very attractive. In the Philippines, there is the out flux of talent seeking higher wages and a better life overseas. This is what they have termed as “brain drain” which has been depleting human resources. The Philippine government is not actively stopping this because of the huge earnings from overseas remittances. From January to November 2010 alone, remittances reached $17.1 billion. The opposite is true with Malaysia with many of its citizens seeking education abroad, and then returning to Malaysia to work and settle down.
There is just one thorn in the Malaysian outsourcing package which still allows the Philippines and India to maintain its rankings. This is the issue of IT security. According to David Rutchik of Pace Harmon, one of the top outsourcing advisory firm in SF and Washington, “respect for the rule of law … is a big deal.” The Guardian paper of the United Kingdom also mentions that hackers from Muslim countries targeting Western companies is increasing rapidly. Malaysia, being predominantly Muslim, has to deal with this growing concern. Last year, several websites that have criticized the Malaysian government had to face DDoS attacks on their websites, such as what happened with Malaysia Today and the website of Anwar Ibrahim. Whether or not these DDoS atacks were instigated by the Malaysian government or entities sympathetic to the government remains to be seen.
Is The Philippines In The Running For LPO Services?
Legal Process Outsourcing (LPO) in the Philippines is considered to be a babe in the woods. This is in spite of the fact that the BPO industry in the country is currently the fastest growing industry with the highest potential for growth and employment.
Nevertheless, there are several law firms in the Philippines that have put up an LPO division, or concentrated on offering LPO services as their main line of business. The bulk of the LPO services would be in storage, research, document writing and review, drafting of pleadings and briefs, and management of litigation information, in particular data which are required under the 2006 e-discovery laws in the U.S.
With the English speaking Philippine lawyers, low labor costs, as well as a legal system fashioned after U.S., Islamic, and Roman Civil Law, the country is in a very good position to provide more than adequate legal support to companies from all over the world.
Unlike most countries, the Philippines is a intriguing combination of different cultures and mind-sets. Towards the South-West of the Philippines, you have the strong Muslim influence dating as far back as the 16th century; while the rest of the country are Roman Catholic. Under the Philippine legal system, the Philippine Commission Act of 1915 allowed for the modification of laws if the parties involved were Muslims. As recent as two years ago, the Philippine government began to recognize Muslim holidays as national holidays. In most metro cities all around the country, there are now more Muslims migrating from the Autonomous Region of Muslim Mindanao in search of better income opportunities, resulting in more extensive education, awareness, and co-existence between the Islam and Roman civil laws.
LPO Manila
Founded in 2008 and nestled in the midst of the Makati business and financial district, LPO Manila was set up by corporate and tax lawyers, Clint and Peaches Aranas. They have experience working with global clients prior to putting up LPO Manila. Their LPO Manila network of lawyers include legal professionals from Australia, Hong Kong, and the United States. They offer litigation services, general paralegal services, and corporate legal assistance.
Infosys LPO
Infosys Technologies is an Indian BPO company that decided to set up shop in the Philippines, offering BPO and LPO services. They cited as their reasons for expansion being the large talent pool of English-speaking professionals, and lawyers from Manila who are more in tune with the U.S. legal system. The local education and training is geared towards the U.S. legal system, having a legal structure that has been patterned after that in the United States, and formed by American lawyers.
K&C LPO
K&C LPO is a collaboration between an American outsourcing expert and a Philippine lawyer. They are also situated in the heart of the Makati business district, and offer legal services like transcription, research, and writing. Their LPO office is an offshoot of their Kittelson & Carpo Consulting Firm, which mainly caters to foreign firms setting up shop in the Philippines.
It is expected that more law firms will start an LPO division considering the potential for growth is extremely promising and lucrative. With India as the closest competitor for LPO accounts, it is turning into a battle of pricing. India and the Philippines are within similar price range of US$30 to $100 for legal work, depending on the amount involved. However, whereas India has a firm foothold on LPO services, the Philippines is still trying to establish itself. As such, with local LPO companies in Manila, it is possible to negotiate a price within a few percent points.
The Advent of Enterprise Cloud Computing in the Philippines
Of the few PHP companies that are active in cloud computing, Philippine Long Distance Telephone Company (PLDT) and NetSuite are currently taking the lead. PLDT launched their AppFarm cloud computing services just last 2010, and being the current leader in telecommunications, they have the benefit of an extensive customer base.
The initial services being offered by AppFarm are limited to document management and managed web security. A client is required to choose between public or private cloud computing services. Being self-contained, the private cloud computing service will have its own SQL server database, a Windows O/S, the applications for document management, and liberty to use any browser.
PLDT is expected to expand its services to include platform development. The AppFarm cloud computing solution is being offered as a subscription and bundled with other PLDT services like internet connection and networking services.
Another provider of enterprise cloud computing solutions is NetSuite Inc One World PH, which is a part of the global company, NetSuite Inc. Their roster of clients include some of biggest business names in Philippines like fast food conglomerate, Jollibee; top TV company, ABS-CBN; MOTECH Automotive Education Center Inc; and car rental company, Diamond Fleet Management System.
Last year, their company employed about 300 people, and they plan to expand to 600 this 2011. With over 400,000 new jobs in government endorsed and approved outsourcing and business-process projects expected to open up this year, NetSuite sees a huge opportunity to hone in on more entrepreneurs from SMEs to large corporations in this year alone.
The feedback from their clients have been an upswing in operations and a significant decrease in their operational costs and capital investments. In the case of fast food chain, Jollibee which has 1,800 stores located around Asia and North America, NetSuite reduced their need to manage IT teams.
Multi-media and TV giant network, ABS-CBN is able to react swiftly with NetSuite in managing its TV shows and concerts that are held regularly in Asia, Middle East, United States, and Europe.
NetSuite is also the provider of a cloud computing solution to the Philippine government’s drive to increase tax revenue. A customized version of their software is being used by the Bureau of Internal Revenue to manage data export, reporting, and tax compliance.
NetSuite claims to be the only cloud computing company in the Philippines that offers SaaS business software that can be customized for any company size. As for security concerns about cloud computing, this is what NetSuite and PLDT say: NetSuite Manila CEO, Zach Nelson states that “NetSuite has a secure data center and a strong backup center.” He further says that the company undergoes system tests periodically to ensure an error-free system.
PLDT, on the other hand, has assured that all data under the public cloud computing service uses SSL protection and multiple PLDT locations to back up the data collected. Only authorized employees with login authorization and an encrypted password can gain data access.