The Philippines – BPO Destination of Choice

Over the years, the BPO sector has grown exponentially, fueled primarily by strong global demands. An increased number of corporations have realized its potential to pave the way for better business performance at significantly lower cost, while maintaining focus on their company’s core competencies. Because of this critical role of BPO, many industry experts are convinced that its growth will be sustained for at least over the next 10 years [Rodolfo, “Sustaining Philippine Advantage in Business Process Outsourcing”].

The phenomenal growth of BPO greatly benefits the Philippines, as one of the most promising BPO destinations in the world. To date, the Philippines has earned tremendous revenues from its five main business and IT service segments: contact centers, medical transcription, animation, application outsourcing (application development, maintenance and management); and business process outsourcing including shared service centers for multinational companies.

Gartner Research identified specific strengths and weaknesses of the Philippines insofar as BPO is concerned; as well as the opportunities and threats it will face in the coming years.

Strengths

The following competitive advantages are the main drivers for the accelerated growth of BPO services in the Philippines; and the primary reasons why more and more companies are drawn to the country for their outsourcing needs:

Close Affinity for U.S. Culture

The Philippines has been exposed to and influenced by U.S. culture for more than a century. Because of this, Filipinos are very familiar with American business practices.

Outsourcing buyers can expect Filipinos to be able to work well with them and assimilate to their professional environment. In fact, according to Gartner, many American clients are impressed with the Filipinos’ interpersonal norms of behavior and their organizational culture.

Enterprises that eye Philippines as their BPO destination can get more savings since they no longer have to invest for cross-cultural and language training, which are otherwise inevitable when outsourcing to BPO destinations that do not have familiarity with U.S. culture.

Attractive to U.S. Expatriates

U.S. Expatriates are usually extremely satisfied with the Philippine workforce. As a result, a lot of them are willing to relocate or work on multi-year assignments, especially in the areas of project management, call center operation and other middle to upper-level management functions. This ease in cultural assimilation, complemented with modern infrastructure and language proficiency make Americans at ease with working with Filipinos and living in their country.

Government Support

If Agriculture used to fuel the Philippine economy, now it’s the IT industry that’s driving it into progress. The government recognized this and in spite of limited resources, has been actively working with private sectors and the academe in addressing issues that impede BPO sector development. At the forefront of this initiative is the Department of Trade and Industry (DTI), who conducts international promotion of the Philippines as an off-shore BPO location; and works closely with the academe in developing courses that would introduce university students to the opportunities surrounding BPO and enhance critical skill-set related to BPO operations. The Local Government Units (LGUs) have also taken a primary role in preparing their constituencies to the employment opportunities offered by BPO sectors.

With this kind of government support, outsourcing buyers are assured that the country has a healthy business environment, one that could spell more success for them.

World-Class English Proficiency

Enterprises that capitalize on BPO to gain global competitiveness must make English proficiency of workers a major consideration when outsourcing. It is important that their offshore workers are able to communicate effectively with their clients and get necessary results from them.

Outsourcing buyers who are considering Philippines as their BPO destination need not worry about this, because 72% of the population is English proficient. The Philippines, being home to the 3rd largest English-speaking country in the world, is regarded as the best choice for BPO, particularly for service areas like call centers. In fact, Gartner characterizes the Philippines’ English proficiency as “world class”, primarily due to the ability of the Filipinos to adopt accents and nomenclature, as well as understand American idiomatic expressions and usage. In addition, their verbal skills are clearer and more understandable to the U.S. buyers than other competitive English-speaking country destinations.

Highly Educated and Skilled Workforce

The main legacy of almost 50 years of being under U.S. protectorate is the country’s public education system. Until recently, English is the medium of instruction from its primary school level up to its post-graduate level. Rodolfo identified this as the primary reason why the country has a high literacy rate. The CIA World Factbook estimates the Philippines’ literacy rate at 95.9%, considered among the highest in Asia.

Of crucial importance to the success of BPO is for a country to have a large population base to be able to meet the soaring demand for outsourcing. Yet a large population base must also be complemented with a strong educational system, which will equip people with the necessary skills-set and capabilities to perform optimally and efficiently in this field.

The Philippines has a large population base, which is complemented with a relatively strong educational system. According to the Commission on Higher Education (CHED), the Philippine public and private university system combined produces 360,000 graduates per year. Among these graduates, 30,000 – 50,000 are technically-proficient, with degrees in computer science and programming. Another 50% of the total graduates have degrees in business administration, mass communication and other courses that are commonly required in BPO operations.

In addition, Gartner states that the country does not only have a vast pool of IT-proficient professionals. It also has a workforce that, with training and experience, can be experts in U.S. business processes such as accounting and human resources; and industry-specific knowledge such as medical terms for transcription. This ready knowledge and skills make them more attuned to specific business processes.

The Philippines’ mass of talented and creative workforce engaged in the entertainment industry makes it the leading destination for animation, especially for specific types of cell animation.

Focused Training

The Philippine government has achieved a way by which both public and private sectors can pool in their resources together to support the growth of the BPO industry, in the form of focused training options. These options are now invigorating the workforce with valuable skills that can accelerate the otherwise lengthy and costly training that outsourcing buyers has yet to provide. For instance, call center academies are now proliferating in the country to provide training to aspiring call center agents. This is such a great advantage to outsourcing buyers since they no longer have to provide these training themselves.

Strong Work Ethic

Filipinos have an excellent work ethic. According to Gartner, U.S. buyers can expect them to work long hours without compromising high productivity level. They are also very loyal and dedicated employees, resulting to low attrition rates.

Consultative and Customer Service Mind set

The Philippine workforce is often cited to have a customer service-oriented culture. This is compatible to service areas like BPO and contact centers, where a high level of customer interaction and problem solving are crucial.

Cost Advantage

More than the quality of manpower, there is a significant offshore advantage in terms of labor cost in the Philippines. Having some of the lowest hourly labor rates in the world is advantageous to outsourcing buyers since they can gain significant savings on operations involving large numbers of full-time counterparts.

Infrastructure

The over-all infrastructure (including power, water, roads, and telecommunications) of the Philippines is favorably comparable to India and China, as it is sufficient enough to warrant no business interruptions.

The Philippines is considered to have a relatively good telecommunications infrastructure, for both voice and data, as compared to other countries in the Asia Pacific region. Rodolfo observes that there is redundant international connectivity including fiber optic cable and satellite communication. This makes a significant amount of trans-Pacific data communication bandwidth easily available. The Department of Trade and Industry (DTI) cited from a local IT and contact center provider that the cost of bandwidth has decreased by 70% over the last four years. In addition, there are a number of international carriers for telecommunications services, a solid competitive landscape for outsourcing buyers.

The Philippine telecoms market, compared to India, also offers lower prices (by 30%-50%), shorter procurement times (3 weeks as opposed to 3 months) and less transmission delay.

Weaknesses

All of the abovementioned competitive edges have put the Philippines in the global IT-map. However, for the country to hold on to its seat, the government must take actions not only to ensure that said advantages are powerful enough to spur more and continuous growth for the BPO services, but also undermine the following weaknesses:

Global Awareness of the “Philippine Advantage”

Unlike India, the Philippines is not clearly and distinctively branded as a competitive BPO destination. Most outsourcing buyers are not well aware of the vast opportunities and competitive advantages they can get from outsourcing some of their business processes to the country. Thus, the government must work closely with commercial vendors to ensure that the Philippines is well-promoted to the global business community as a viable outsourcing option; and its plethora of competitive advantages can work favorably to actualize business goals for outsourcing buyers.

Migration of Workforce

For a country with a high poverty rate, migration is viewed by most as their passport out of poverty and a means to improve the quality of their lives and the lives of their families. The gravity of this situation is already felt by most service providers and enterprises operating in the Philippines. They reported that more than 80% of turnover has reasons relating to employees seeking overseas employment. Currently, the attrition rate is still low at 5% – 10%, but it will eventually be an issue, if not properly addressed.

Lack of National IT-Specific Development Association

One of the primary reasons why India has been successful in arousing global interest in their country as a BPO destination is the presence of an organized body that collects and disseminates information to help prospective buyers in their outsourcing decisions and positions India as the perfect solution to their outsourcing needs.

The Philippines, enduring a low level of global awareness of its advantages in BPO, has to follow suit by organizing a national unified body that will not only oversee all IT and communication activities and set policy directions, but also secure for the country a visible and distinct position in the global BPO industry.

Relative Ability to Scale

The Philippines’ total labor force of 29 million and its close to 360,000 graduates every year (CHED) may not eventually be enough to meet the growing demands for business outsourcing. Thus, to maintain its global competitiveness, it has to produce skilled and capable middle managers to assume more important roles.

Experienced Management Teams

The trend now is for U.S. expatriates to perform key managerial roles. This is because Philippines has insufficient supply of skilled and middle managers who can take on such important roles.

Sales, Marketing and Promotion Skills

No doubt, the country has a lot to offer with regards to BPO. Yet these competitive advantages, when not positioned clearly and distinctively to the right audience through the right channel may just be put to waste.

Opportunities

Gartner plots a viable roadmap for the Philippines to take on in its journey towards becoming the global BPO hub:

Telemarketing and Customer Support Services

The Philippines must find its “niche” in the broad range of BPO service offerings. Since among the U.S. enterprises, there is still not a clear country of choice for various BPO segments such as telemarketing and customer support service sectors, the Philippines can seize this opportunity to create a presence in the global BPO environment and project itself clearly as the preferred destination for these services.

Partner with Global ESPs

According to Industry-Analysts at Gartner Research, new markets can be tapped through organic growth and partnering. Specific vendors in the country can likewise partner with global external service providers to access enterprises in the U.S.

Retain Intellectual Property in Solutions

Another opportunity cited by Gartner (2002) is on intellectual property. The Philippines, although home to the most talented animators, has a workforce that usually works on discrete project-based assignments and augment staff for numerous clients in Japan’s animation industry and U.S. film industry. The chance here is for these skilled animators to own the rights to the animation characters they have brought into life.

Threats

The abovementioned opportunities go with certain issues and threats that the government must proactively address:

Emerging Competition

BPO is a new and budding industry that is expected to flourish within the coming years. There will be more demands for outsourcing services, but just like any other businesses, the BPO industry is attracting more competition. In fact, several Asian countries that have significantly larger labor pools and represent a larger economic force in the world markets are now competing with the Philippines for some BPO related services. This posts a significant threat to the Philippines since many of these countries offer similar advantages of low-cost labor. Thus, to survive in this becoming- a-turbulent BPO environment, the country needs to pursue a BPO service area where it will not be undermined by BPO destinations like India and China. The government must make a logical decision as to the niche markets it will take a leadership role in and which other areas it will simply satisfy the spilled demand and capitalize on the offshore boom.

Perception of Political Instability

According to Rodolfo (2005), the Philippines has a fluid political environment. Potential investors, including those in BPO services are worried about the political issues in the country, such as graft and corruption, criminality, and threats to physical security.

In particular, some international enterprises are wary of engaging in business in the Philippines because of alleged terrorist networks operating in the country. To address this misconception, the government must make an effort to explain that most terrorist activities are concentrated and are limited only to a small island region that is 600 miles south of the Metro Manila area, and quite a number of enterprises conducting business in the Philippines, as well as clients in the United States, consistently attest that the business and commercial climate remains unaffected by these issues.

Lack of Parity in Government Incentives and Tariffs

The electronics manufacturing and assembly industry used to be a major player in the Philippine economy. Several government regulations that were created to provide incentives to this industry have been extended to apply to the IT industry as well. However, these incentives are inferior to some of the incentives available in India. A number of bills pending before the Philippine Congress, which are expected to pass soon are directly focused on the IT industry and can hopefully provide positive and significant changes to the economic incentive.

The implication of SWOT (Strengths, weaknesses, opportunities and threats) analysis to outsourcing buyers is for them to clearly understand how the Philippines is becoming a force to reckon with in the global business process outsourcing.

Many international enterprises realize that with the Philippines’ competitive advantages, such as vast pool of highly qualified and skilled labor with unmatched level of American English proficiency and strong customer service orientation; highly reliable and cost efficient telecommunications infrastructures; and competitive cost structures that make available world class services at significant cost savings, there is no doubt that the country will soon become the global BPO hub. The Philippines, once a cub in business process outsourcing, will eventually grow to become a tiger.

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