Thursday, 14 May 2009

Philippine BPO posting strong growth

The Sunrise Industry
Adam Jones
OBG Editorial Manager
Business Mirror
http://www.businessmirror.com.ph/home/perspective/10220-the-sunrise-industry.html

“Logic suggests that when economic pressure is high there should be increased demand for low-cost outsourcing, but in this instance the pressure appears to be too great. Not only have decision-making processes been slowed as a result of economic uncertainty, but enormous job losses have led to the resurgence of protectionism.”

Attaining the forecasted 20-percent to 30-percent growth would normally be quite an achievement for any industry; however, the aspirations of the sector laid out by the Business Processing Association of the Philippines (BPAP) were significantly higher and have certainly been dealt a significant blow recently. In November 2007 the BPAP, in collaboration with McKinsey & Company Global Consultants, published “Roadmap 2010”—a comprehensive, highly ambitious three-year plan to double the industry’s worldwide market share from 5 percent to 10 percent. Reaching this goal meant maintaining at least 40-percent growth from 2008 to 2010.

In 2006 McKinsey consultants estimated a global addressable outsourcing market of $450 billion, of which only 10 percent to 12 percent had been penetrated. Prospects for the Philippines were considerable and recessionary economies in the Americas and Europe should have forced more companies to outsource. Logic suggests that when economic pressure is high there should be increased demand for low-cost outsourcing, but in this instance the pressure appears to be too great. Not only have decision-making processes been slowed as a result of economic uncertainty, but enormous job losses have led to the resurgence of protectionism. These factors, combined with the collapse of the financial community, have, in turn, slowed growth in the outsourcing industry. Nevertheless, prospects remain bright for the long-term future of this young sector.

Ray Anthony Roxas-Chua III, the secretary of the Commission on Information and Communications Technology, recently stated to OBG that, “The year 2009 will surely test the resiliency of the BPO sector in the Philippines. Growth has been hindered by delays in decision-making among major firms, as well as rising economic protectionism in recessionary economies. On the other hand, quite a few firms will now have to seriously consider outsourcing simply because of their bottom lines. While we might not experience the same level of growth as in the past, we still anticipate a strong growth of 20 percent to 30 percent.”

The advantages that the Philippines maintains over competitors regionally and globally are quite clear today. With the third-largest English-speaking population in the world, the Philippines holds a significant lead over most of its competitors. Those countries that do boast of large English-speaking populations, such as South Africa, are not able to compete on a cost and/or quality basis with the Philippines. The country produces well over 400,000 graduates per year who are well equipped to perform a multitude of tasks. Low wages, operating costs and a customer-service-oriented culture all contribute to round out the Philippines as an ideal outsourcing destination.

The first decade in the life cycle of the BPO industry has focused primarily on the realm of voice services, such as contact centers (otherwise known as call centers). In fact, call centers in the Philippines jumped from four sites in 1999 to 280 sites in 2008, while in 2007 some 70 percent of the BPO work force was employed in a call center, generating 75 percent of the industry’s revenues. The impressive 50-percent growth figures achieved during the five years prior to the global economic crisis were primarily on the back of voice services. Today, maintaining the high growth figures is requiring a greater degree of sophistication, with a new frontier emerging to propel further industry expansion as a result.

Diversification in the BPO industry has come via the development of nonvoice services. These typically specialize in higher-returns office operations, such as legal, accounting, animation and medical-transcription services, and generally require a more skilled work force, which the country continues to produce in large numbers. In fact, many of the country’s educated accountants, nurses and engineers have been forced to seek employment outside of the country due to limited domestic job opportunities. The growing demand for nonvoice services means at least some of those overseas foreign workers may find adequate employment domestically. Increasing numbers of multinationals are also attracted to the Philippines in order to set up internal back-office operations.

According to Oscar Sanez, the CEO of BPAP, “The one advantage we have with nonvoice activities is that our universities are even more prepared to train graduates in these BPO functions compared with the generalist functions we hire for the voice sector. The voice sector requires supplemental intensive training courses, particularly in language proficiency and accent neutralization.”

He later added, commenting on the geographic widening of the industry, “While many young people come to Manila to work, we also know the city only produces 25 percent of the county’s university graduates. In the meantime, the telecoms infrastructure in the country’s ‘Next Wave Cities’ is now on a par with Manila, driven by the Cyber Corridor project [north-south fiber-optic network].”

Although the development of the BPO industry in the Philippines has centered on the Greater Metro Manila area for the majority of its brief existence, the spotlight is now shifting to what Sanez and the BPAP are labeling as the Next Wave Cities. These second-tier cities now offer a sufficient supply of quality labor, as well as adequate infrastructure to support the sector. Cities such as Cebu, Davao and Baguio have emerged not only as reliable alternatives to Manila, but in many instances preferred locations due to their notable cost competitiveness.

While the Philippines’ sunrise industry may fall short of achieving the lofty goals it set out for itself before the mounting effects of the US-led economic downturn, it is still arguably the premier outsourcing destination in the world based on quality, value and variety of services. When the outsourcing sector eventually meets the targets set by the BPAP in 2007, possibly in 2011 or 2012 instead of 2010, most experts predict the industry will contribute 8 percent to 10 percent of the country’s GDP. Quite an achievement for an industry still in its infancy. n

While the majority of industries are struggling to cope with the effects of the ongoing global economic downturn, the Philippines’ business-process outsourcing (BPO) sector is expected to post 20-percent to 30-percent growth in 2009. Although this is far short of the near-50-percent increase the industry enjoyed throughout 2004 to 2007, it will certainly play a major role in keeping the Filipino economy afloat during what is proving to be a challenging year.

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