10 May 11 Philippines – gaining in voice BPO

The Philippines has been a destination of choice for business process outsourcing (BPO) services, particularly voice-based outsourcing services. A recent study on global locations trends by IBM indicated that the Philippines had bypassed other offshoring destinations to become the top destination for shared services and BPO.

The AT Kearney Global Services Locations Index for 2011 ranked the Philippines at number 9, two points lower than its ranking in 2009. The Index, however, does acknowledge the country’s leading position in contact centre services. It still lags behind India in terms of other BPO services, mostly the non-voice services and IT services. According to a recent report by the Everest Group, the Philippines will have earned USD 5.7 billion (2010) for contact centre services alone from the major outsourcing countries such as the US, Europe and Australia.

The overall BPO business has also seen exponential growth, with a reported CAGR of about 27% in the last couple of years. Voice services or contact centre services have contributed a large chunk of these revenues over the years. The report also states that the BPO industry employs about 530,000 people. The chart below gives the growth in revenues of the Philippines BPO industry over the last five years.
phillipines bpo.gif

There are a number of factors that lead to the growth of services in the Philippines. The critical factors are discussed in this article.

Cultural affinity to the West
The Philippines, with a population of about 99 million, makes for an attractive offshoring destination for mainly two reasons. Having been under Spanish rule and then a US colony, the culture and the society bears resemblance to the American culture.  Also, the legal system is based on the lines of the Spanish and American models. Secondly, the country is believed to be the third largest English speaking country in the world, with the government and business using English as a means of communication. Thirdly, literacy levels are high. As per US government statistics, functional literacy in 2008 for age group 10 to 64 was 86.4%.

Cost advantages

BPO services out of the Philippines also present significant cost savings. It is estimated that a BPO worker’s salary would be about 14-20% of his/her US counterpart, while a senior resource would only account for about 25-30%. Similarly, the contact centre business also provides for similar benefits.

The other avenue for cost savings is in the cost of infrastructure and telecom, both of which are considered very reasonable.

Government incentives
The Philippines government has recognized the potential of the BPO sector. It has given industry impetus in the form of incentives, both fiscal and non-fiscal, for setting up outsourcing units in the country. The Philippine Export Zone Authority (PEZA) give companies setting up operation within the PEZA zone incentives which include tax breaks and significantly reduced tax. Companies can also file for more government incentives given by the Board of Investments (BOI) in the Philippines.

The government has also made efforts to develop some centres such as Makati, Manila, and Cebu as outsourcing hubs.

Presence of multinational as well as India based BPOs
The country is recognized as a viable destination for setting up delivery centres. Multinational outsourcing service providers such as IBM and Accenture have large delivery centres in the country. Some of the largest BPO companies such as Convergys, Sitel, Sykes, Telus also have significant operations. Convergys, one of the largest BPOs in the country, has about 20,000 people in 20 odd locations. Sykes has about 11,000 people, while Telus International has about 8,000 employees in the Philippines. The India centric IT and BPO companies such as Infosys, Wipro, Tata Consultancy Services (TCS), Firstsource and Genpact have delivery operations in the Philippines. Currently, most of their delivery centres are concentrating on providing voice based services.

Factors limiting growth of BPO services
As most experts acknowledge, scalability is an issue that will hinder the growth of the BPO industry. While there are lot of efforts from the government as well as the business side to encourage training and education in this sector, the number of university graduates per year is only 410,000 (as per UNESCO). Graduates formed about 8.4% of the population on 2009. Compare this to the 3.1 million graduates produced in India every year. The Business Processing Association of the Philippines (BPAP) estimates that there are nearly 150,000 graduates from business-related programs, while another 100,000 are from engineering or information technology (IT) programs. With expected revenues of $25 billion in 2016, the demand for resources will also increase.

The second factor is the political stability of the government. While there is a democratic government in power, the political parties are not mature and there is reported uncertainty. However, as mentioned earlier, the government has provided for a lot of tax incentives for the growth of BPO in the country.

Overall, while the Philippines continues to surge ahead in the BPO business, there is also a need to move beyond voice based services. At present, the country may lead in terms of contact centre offshoring, but the business of outsourcing and offshoring has moved up the value chain. There needs to be focused effort to increase non-voice processes as well. Instead of competing with India, the country is well positioned to develop into a supporting destination for India.

ValueNotes Research
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