PITON Survey Reveals Steady Growth in PH Offshore Transaction Processing Outsourcing Service Providers

Surveys help reveal the pulse of the Philippine BPO industry. Growth, while gradual, continues unabated.

PITON recently completed its first quarter survey of those in front lines of the outsourcing industry, offering new insights into sector trends and projections.

Each quarter, PITON’s advisors and approximately 20 other offshore transaction processing outsourcing service providers from the country answer our questions on the BPO market on a proprietary and confidential basis.

PH BPO Sector: An Analysis

Here are some of PITON’s key findings.

Market Demand. The demand for offshore transaction processing outsourcing service providers remains healthy, but has shown a decline in recent months.

But it is recovering – attaining a 20% climb, and we can say that corporate desire to purchase remains largely undiminished. Forty percent of PITON’s advisors cited market demand as “increasing,” compared with 59 percent of other firms.

HRO Leads Market Demand. In the first quarter, HRO was the strongest area. This year’s first quarter was no different. HRO providers validated the same advisor observations, with 92 percent citing payroll and 69 percent citing benefits as being in great demand.

BPO Sales Cycles. In the company’s own experience, the average length of the sales cycle is nine to 12 months, starting with lead generation and qualification and ending with a signed contract. However, sales-cycle lengths vary significantly by deal, depending on process areas, the clients involved, and whether sourcing advisors were involved.

In the first quarter, 30 percent of PITON’s advisors cited that the sales cycle for offshore transaction processing outsourcing service providers was lengthening. In addition, the number of advisors citing “shortening sales cycles” declined for the fourth consecutive quarter.

While PITON advisors see the sales cycle lengthening, 30 percent of these contact firms cited last quarter’s sales cycle as shortening, the highest level of citations over the past four quarters in the country.

This discrepancy can be explained by multiple factors.

First, BPO enterprises are being highly selective on the deals they are pursuing and electing to “no bid” at unprecedented rates.

Second, these offshore transaction processing outsourcing service providers are targeting opportunities that are slightly smaller in scope and have more definitive close dates.

Third, a small subset of PITON’s clients has lengthened negotiations due to a lack of transition capacity and resource shortage from their preferred PH providers.

Offshore Hot Spots. Seventy-five percent of advisors and 84 percent of offshore transaction processing outsourcing service providers cited countries in Asia like the Philippines as the preferred multi-shore location, followed by Central/Eastern Europe (58 and 59 percent, respectively); Central/South America/Caribbean (41 and 31 percent, respectively).

Pricing. The pricing in the quarter was considered stable by 70 percent of advisors, while 20 percent cited pricing as more favorable.

This pricing development has allowed corporations to be less reliant on dropping their prices to win contracts. This pricing equilibrium between the buyer and firms is healthy for the industry as a whole.

Contract Profitability and Return on Invested Capital. The financial health of these companies appears to be stabilizing. Consolidation has certainly helped, as has a more diligent pursuit selection.

Virtually every service provider cited profitability in the country as steady or improving, marking the first time that this has occurred since the surveys were introduced a few years back.

In the quarter, 65 percent of offshore transaction processing outsourcing service providers said their contract portfolios would reach profitability in 12 to 24 months, and a significant percentage stated they would break even in less than 12 months. More than 70 percent reported a return on invested capital of 10 to 20 percent.

To learn more about our industry-specific BPO capabilities please contact us by calling +1-310-844-7805 or by filling out our inquiry form. We look forward to hearing from you.