Sunday, 18 April 2010

BPO without a twang

Manila Bulletin

I had occasion to listen to Mr. Fred Ayala, Chairman of the Business Processing Association Philippines, address a group of young, highly motivated professionals about the prospects of the BPO Industry in the next decade or so. Mr. Ayala also heads the group of companies engaged in IT-related services of the Ayala group and is one of the most knowledgeable Filipino executives about this fast growing industry that in 2008 already earned for the Philippines over $6 billion. In 2011, total revenues of the BPO industry will exceed $10 billion and can be employing more than 500,000 highly skilled professionals.

I was glad to learn from Mr. Ayala that my optimistic forecast of a 20% growth in 2010 is actually not optimistic enough. The industry is confident in attaining a 26% growth this year, accelerating to 27% next year. This is one of the sectors that make me bullish about the Philippine economy in the coming three to five years, as the emerging markets recover from the Great Depression. Even if the advanced countries suffer a double-dip recession, I am not worried that the BPO sector will suffer a slowdown. In fact, as was demonstrated in 2009—the worst year of the crisis--companies in the developed countries tend to outsource more of their business process activities when times are bad. To be competitive, they actually do a lot more outsourcing than in good times. That explains why in 2009 in which most industries where having a hard time just growing, the Philippine BPO industry grew at a still hefty 20%.

Mr. Ayala enumerated the most exhaustive list of competitive advantages the Philippines has in this sector I have every heard. It has a very scalable talent pool, being the third largest English speaking country in the world and the twelfth most populous country with a more than 90 million people and a work force of some 36 million. It has a US-patterned educational system, with 400,000 college graduates annually, 28% in business and accountancy and 21% in engineering and IT. Its literacy rate is above-average for a developing economy at 93%. It has strong cultural affinity with the West, especially with the U.S. since it was the only sizeable colony of the U.S (1898 to 1946). There are 1.4 million Filipino immigrants in the U.S., the third largest immigrant group. Especially among the youth, American pop culture is pervasive ("They get it"). Filipinos are very service-oriented, being warm and patient ("They answer the phone with a smile.") There is a cultural bias against conflict. Filipinos have a high degree of empathy, always eager to please and not to disappoint. As regards communications skills, most of them have a neutral accent, acceptable to American and British customers. They are familiar with U.S. slang and accents and have natural rapport building skills. Attrition rates are relatively low compared to its main competitor, India (less than 50% in the Philippines compared to more than 100% in India). Unlike India, there are few other growth sectors competing for talent.

Among university graduates, there is generally still a positive perception of BPO careers not limited to fresh college graduates.

Among the strictly economic advantages, cost competitiveness shines out: labor costs for English speaking professionals are among the lowest in the world. All-in costs are also among the lowest in the world. The telecom infrastructure is among the best in Southeast Asia, thanks to the deregulation move that started in the mid-1990s. The cost of bandwidth has dropped over 85% in the last five years (from $14K in 2001 to less than $1.5K for E1 lines to U.S. Real estate is abundant and low-cost in alternative urban areas. There will be 1.1 million sq.m. in new supply in 2009 to 2010 of which less than 10% is committed. BPO enterprises are given four to eight years tax holiday, after which the tax rate is at 15%. There is a strong partnership between the Government and the private sector. In total revenues, the Philippines is catching up with India: $4.1 billion in 2008 vs. $4.8 billion in India.

Leading global corporations have positive experiences with BPO workers in the Philippines. Among them are Dell, JP Morgan, Citi and outsourcers like Accenture, IBM, Teletech, Convergys.

In the ensuing discussion after the talk of Mr. Ayala, questions were raised about the long-term sustainability of the BPO sector in the Philippines. One major threat is the possibility that this sector may follow the path of the electronics and semiconductor industry that has failed to go higher-value production, prompting the likes of Intel and other companies to transfer their operations to lower-cost places like China and Vietnam. The voice-oriented sector (contact centers) accounts for 67.6% of the total exports. The other sectors Back-office/KPO (non-voice) account for 13.6%; IT (software development, application maintenance) for 9.9%; engineering and design processes for 3.8%; transcription (non-voice) for 3.0%; animation for 2.0% and game development for 0.5%. There must be a conscious effort of industry leaders to expand the non-voice sectors to prepare for the day when millions of Chinese and other Asians can match the English-speaking proficiency of Filipinos. I personally think that the Philippine BPO sector based on voice has at least another 20 years of continuous double-digit growth, after which there will be a decline. By that time, we should be ready to move up to the higher-value services like accounting, research, legal documentation, medical transcription, animation, engineering and design processes. We have to continue improving the quality of our university graduates who will be working in these non-voice fields. As quickly as possible, we should give more importance to "BPO without a twang."

In the meantime, let us capitalize on our competitive advantages in contact centers. As discussed with Mr. Ayala, we must find ways of having a very close cooperation between academic institutions and the BPO Industry in training teachers who can improve the English proficiency of university graduates who do not make the grade the first time they take the test. In order to lower the attrition rate, it may be advisable to recruit more people from vocational or technical courses, especially those that attract the children of the poor households. Graduates of two-year vocational schools may stay longer in contact centers because they may have fewer alternative employment opportunities as compared with university graduates. The officials of the BPO Association may suggest to the TESDA curricular offerings in selected technical or vocational schools that can focus on training call center workers. I suggested to Mr. Ayala to study how to transfer to the BPO industry the well-tested approach of the Dualtech School in training electromechanical workers. Under the Dualtech system, there is very close cooperation between the school and industry. The students already work for specific companies as they are still being trained in the classroom. The term "dual" precisely refers to the simultaneous exposure to classroom instruction and actual work experience in a factory.

For comments, my email address is


  1. If what Mr. Ayala said was true, then this concern should definitely be dealt immediately. The appropriate government agencies should be working side-by-side with the private sector that deals with BPO to lessen the chances of making the same mistakes from the past. The sooner we act, the better our chances of avoiding disaster.

  2. Hi,

    Awesome post about the BPO jobs....Thank you for your nice post...