The looming talent crunch for knowledge process outsourcing

ASK the executives from the country’s leading knowledge process outsourcing (KPO) companies and they will tell you the Philippines will soon suffer a serious talent crunch.

Give it three or four years, said one KPO executive, and we will feel the pain of that talent scarcity, unless the universities, educational system, industry and the government could sit down together and develop a modus vivendi to address the challenge.

Too bad because KPO is where the future of the country’s fast-growing business process outsourcing (BPO) lies. And its continuing growth would determine the extent to which the country could hold on to its talents, many of whom are being pirated for jobs in Singapore, the United States, London, the Bahamas, and even the Gulf states.

KPO is Integreon Managed Solutions—owned by the Ayala family—doing market research, risk analysis, business plans for global investment companies, legal firms and investment houses. KPO is Thomsom Philippines doing bond and equity research, perception studies, loans and project finance and facilitating investment deals and providing financial analysis to Fortune 500 companies. And it’s about Deutsche Knowledge Services providing high-end accounting and financial services for Deutsche Bank Group Worldwide.

It is a high value-added form of outsourcing that employs high-end skills, expertise and judgment. We are talking here about hot-shot MBAs, software engineers, accountants, management engineering experts and mathematicians doing a lot of think work.

This is in contrast to most BPOs where workers simply follow detailed processes and procedures determined by firms and companies in the United States.

Right now industry sources say there are probably around 5,000 people engaged in KPO. But this number is rising. Thomson Philippines’s staff, for instance, is expected to grow by 10 percent this year. Integreon is set to open a 250-seat KPO in Makati. And there’s another KPO that is hiring people at the rate of 50 talents a month.

Many more are hiring. The problem is that talents these days are getting scarce. It’s a roadblock the country should remove if KPO is to attain its full potential. The scarcity of talents is due to several reasons.

First, there is an ongoing war for talent these days. The country’s labor market has totally globalized such that it’s a lot easier for other countries to lure talents off the Philippine soil. These days, an accountant with four years experience and good knowledge of SAP, one of the leading business software that competes with Oracle, could command as much as a seven-digit salary. The Singaporeans, however, are willing to pay double that amount.

What makes it hard to keep them here is that such talents are being sought by headhunters for the big accounting firms like Deloitte Touche Tohmatsu, Ersnt and Young, KPMG and Price Waterhouse. These four are willing to pay top dollar including family relocation to places like New York, London, the Bahamas and other financial centers of the world. And it’s so easy for local talents to leave because they are usually just in their mid-twenties, many of whom are unmarried and therefore excited by the high adventure of working in the world’s financial centers and global cities.

Second, the country’s educational institutions are increasingly lagging behind the requirements of the business community. For instance, KPOs are in dire need of people with specific skills in enterprise resource planning, process mapping engineering, financial markets, process control, international financial reporting system, Oracle, SAP, and the Sarbanes-Oxley financial and accounting disclosure system.

Yet most accounting graduates are simply taught the generic accounting principles and skills that are increasingly becoming obsolete. The same is true in many other technical professions like engineering.

And the third reason is that some educational institutions are resisting change and innovation being proposed by the industry. They are just too risk-averse to invest in new curricula, facilities and equipment.

One KPO executive, for instance, noted that the state schools like the University of the Philippines are suspicious of the industry’s efforts to introduce reforms in the curriculum, as its Board of Regents feel such changes would constitute “violation of academic freedom.”

In fact, many schools, even until now, think that the problem of KPOs as well as BPOs in general are the private sector’s problem and not of the university system, whose mission is to provide “holistic” and general education to the young.

Of course, universities like Ateneo and La Salle are supposedly responding to the industry’s needs, but these two universities alone cannot redress the talent scarcity. The entire educational system must pull in weight if only to maximize the economy’s gains and spread the benefits of job opportunities fostered by outsourcing.

It’s no exaggeration to say that the future of this country is at stake in the timely redressing of this problem. As it is, we’ve missed so many boats and we can’t afford to miss the opportunity to be a major KPO player in the world.

We missed the opportunity in agrarian revolution by dilly-dallying with the implementation of the agrarian reform law that created uncertainties, thus driving away potential investments in farms. We missed an export-led revolution in the ’80s and the ’90s, catalyzed by flows of Japanese and Taiwanese investments, by shielding the manufacturing sector with dirigiste policies.

And now, we could miss the services revolution if we dilly-dally with our response to the growing opportunities offered by outsourcing.

We always think India whenever we hear the word “outsourcing.” The truth is that Ireland pioneered in outsourcing and sophisticated financial services long before India did, and is now among the countries with the highest per capita incomes ($48,604), next only to Luxembourg ($80,000), Norway ($64,000), Iceland ($52,000), and Switzerland ($50,000).

Some economists are smirking about a services-driven growth, but India followed the same path and has grown at 7 percent to 10 percent a year in the last decade.

Now, the Philippines has a crack at a similar chance and one wonders why policymakers and the educational system are not moving heaven and earth to ensure that our initial success in outsourcing is sustained.

Of course, we don’t have to abandon our farms and factories; we just have to put in place certain initiatives like upgrading the education system to make the services sector competitive. These same policies can actually enhance the global competitiveness of the rest of the economy.

Right now, policymakers in both public and private sectors are content to say the BPO and KPO sectors are growing at 50 percent a year. Had we taken care of the problems in the educational system, these sectors, according to industry experts, could have been growing by 100 percent to 200 percent, thus cutting the rate of joblessness. (An earlier version of this was prepared as editorial for BusinessMirror, 27 March 2007)