A Sunrise Industry Shines Brightly
An update on the BPO industry in the Philippines
By Karen B. Bitagun
Once just a mini-industry with a handful of companies in the 1990s, the country’s business process outsourcing industry has swollen to all of 605 companies, and counting. It has the potential to generate 1.1 million new jobs and US$12.2 billion in revenue by end-2010. And this is no empty promise—the industry has proven its ability to sustain double-digit growth since its boom began in 2000. In 2005, this sunrise industry—which encompasses contact centers or call centers, back office operations, medical and legal transcription, software development and maintenance, animation, and engineering design—raked in a cumulative US$2.2 billion in revenue to spur the economy’s services sector. The contact center subindustry, in particular, contributed 76% of the revenue.
The Filipino Advantage
The BPO industry’s success in the Philippines, the world’s third top destination of outsourcing activities in 2004, lies in the Filipino’s competitive advantages. Aside from the basic requirements of English proficiency, relatively cheap labor, a young and talented workforce, and a world-class telecommunications infrastructure, the “Filipino” personality spells a large part of the difference.
“Our affinity with American culture is one, but the x-factor really is the Filipino personality,” points out Business Processing Association of the Philippines (BPA/P) executive director Mitch Locsin. “We have a neutral accent that makes every customer feel the Filipino hospitality. Customers don’t get that similar service from other countries. We are also helpful and very accommodating. And our innate compassion simply gets conveyed to the other party on the line.”
Industry Boosters
Bouyant about the country’s potential to become the BPO hub in the Asia-Pacific region, members of the industry and the government have been keen to pursue programs that will attract more investments and increase the pool of employees for the fast-growing industry. For instance, the BPA/P and the Department of Trade and Industry have been conducting roadshows and missions abroad for the industry.
Locsin reports that the BPA/P has had exploratory talks with the National Association of Software and Service Companies, India’s arm for information and communications technology, for a possible partnership. “To tell you frankly, India’s ICT roadmap is about five years ahead of what we currently have, so we have a long way to go if we really want to be the hub. But India does not see us as a foe. They are even willing to lend us a hand in establishing an ICT roadmap.”
For the government’s part, the Board of Investments and the Philippine Economic Zone Authority offer tax holidays and incentives for interested BPO investors. President Gloria Macapagal-Arroyo’s medium-term infrastructure program calls for the formation of a Cyber Corridor, and the government has also given the Technical Education and Skills Development Authority a P500 million budget for skills training and scholarships for the development of the labor pool. However, much work still has to be done to put in place rules that will ensure data privacy and security. This responsibility falls on the lap of the Commission on Information and Communications Technology.
Stumbling Blocks
Despite the rosy picture for the BPO industry, a number of factors threaten the outlook. One concern is the deteriorating quality of English-speaking among our workers. According to the Department of Education, only 7 of 100 high-school students have mastery in English. If this ratio is not improved fast enough, the quality of students entering college, and eventually the workforce, will likewise deteriorate.
Costly electricity rates also turn off investors. The Philippines has the second most-expensive electricity rate in the ASEAN region (only Cambodia has higher rates). Power rates are a main concern because BPO companies operate 24/7. However, companies are able to save on overhead expenses during off-peak hours when electricity rates are cheaper through the time-of-use scheme of local power distributors.
“Interestingly,” says Locsin, “political stability is not much of a concern. Investors don’t ask, ‘How’s the political climate?’ Instead they ask, ‘How’s the human capital?’” However, while the Philippine political environment has not turned away investors, data security and corporate governance concerns are matters that investors take seriously and which the country should immediately address.
Knowledge Process Outsourcing
Looking forward, the contact center business is expected to reach a plateau in the next five years. Other reach a subsectors are expected to step up, however, and expand their share of the BPO pie. The trend is to build on the high-end work of BPOs. From routine business processes, BPOs are seen to shift towards providing more analytical and knowledge-based services, or what it being touted as knowledge process outsourcing. KPO services include such non-voice or back office operations as market research and analysis, intellectual property management, and finance and accounting research.
About 28% of the country’s college graduates have business administration and related degrees. “In three years, finance and accounting, human resources, and insurance courses will be a hit. We have the best accountants in the world and I don’t see why we won’t flourish in that field,” explains Locsin. It is estimated that the demand for qualified finance and accounting employees for BPO firms will outstrip supply by 2008, with the shortage hitting almost 25,000 employees by 2010.
Medium-Term Outlook
“In the medium term, there will still be growth in the BPO industry, but at a slower pace. The companies already operating in the country will not flee but will instead expand,” predicts Locsin. While the Asia-Pacific region accounts for 11% of the total world market for BPO, much of the European market is still largely untapped. The expansion will see BPO firms moving beyond Metro Manila, Baguio, Clark in Pampanga, Cebu, Dumaguete, and Davao to such cities as Subic, Lipa, Legaspi, Naga, Tacloban, Iloilo, Bacolod, and Cagayan de Oro.
The BPO industry has not only generated new investments and employment for the country, it has also given Filipinos the opportunity to prove their innate worth and serve the global market. If the government and private sector are able to anticipate and adjust to emerging global trends, the Philippines could certainly establish its position as one of the world’s primary BPO hubs.
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