Sunday, December 25, 2005

Prospects of Business Process Outsourcing in the Philippines

(In the last few weeks, I did a little research on business process outsourcing in the Philippines for my newspaper, The BusinessMirror. Let me share you some of the results. Comments are welcome.)

Nine o’clock night time is probably when most city dwellers are safely home with their families after a day’s toil. For Marky Rondeal (23), Jewel Gumiran (25), and Lariza Cruz (27), however, the day has just begun. They are call center agents of Client Logic based in Emerald Avenue in Ortigas, answering calls from Americans several thousand miles away, helping them with their daily concerns ranging from payable bills and technical problems regarding electronic gadgets, attending to their queries as well as complaints about products and services until six in the morning the following day. For these efforts, they get a net of P16,000 (US$291) each month, an amount that includes night differentials as well as rice and transportation allowances.

“When I applied for this job, it’s all about the big pay. Now I know that by doing this, I actually help people. That makes me feel good,” says Rondeal. He said he used to work as computer technician after finishing a vocational training from AMA Computer College with a monthly take of P6,000 (US$109). After learning that call centers pay better, he quit and went on to join Client Logic. He has no regrets. Besides the “big pay,” he feels he is now a better man, a confident professional who “knows how to talk to people and help solve their problems.”

For P8,000 (US$145) a month, Gumiran used to tell radio listeners about vehicular traffic during rush hours. Now she is getting a higher pay that affords her more money to buy milk and diapers for her two-year old son, new clothes for herself, and occasional dine-outs with friends. She said she lives with her mom because she still can’t go it all alone financially but feels that her life has improved since she started doing call center since 2003.

“We [call center agents] can buy more things than those who do day jobs. We could meet our needs or finance our lives,” she said. She hopes that her application to be become a trainer will get the nod of her bosses soon. “I expect to stay in this business for long.”

For her part, Cruz—a former high school biology teacher—says she is saving a significant part of her pay for graduate studies, probably an MBA. “I have to save up for that.”

Outsourcing mushrooms
Numbering around 106 companies and still counting, call centers are among the fastest growing segment of a new industry in the Philippines called the “business process outsourcing.” According to Mitchell Locsin, president of the Business Processing Association Philippines (BPA/P), this rising industry includes voice outsourcing or call centers call centers and non-voice including software development, animation, medical transcription, engineering design, and back office processing and shared services. Locsin says that BPO is expected to generate about US$ 2 billion this year, owing to a double digit growth in investments in many of these sectors. Investments in call centers alone have been rising at an average of 70 percent each year since the last five years.

Locsin could not exactly trace the historical origins of these business sectors, but he said that the entire industry became prominent in the last five years. His organization BPA/P was organized only two years ago at the urging of then Trade and Industry secretary, now senator, Mar Roxas to ensure the industry’s sustainability.

“It’s hard to say when BPO started but the boom was felt since 2000,” says Locsin. “However, we have companies that have been here since 96. Hanna Barbera [an animation company] is here since the last 20 years. Chevron was here since 96 but 2000 was the year when the industry’s growth really accelerated.”

Jeanette S. Carillo, assistant chief of the information and communications technology division of the Board of Investments (BOI) says the BPO industry, also called “information technology and information technology-enabled services (ITES), now employs about 141,762 people, of which 80,000 are into call centers. Carillo expects the BPO jobs to expand to reach 640,157 by the year 2010. From P12 billion this year, Carillo also expects investments into the sector to reach P44.7 billion by 2010. She expects the industry’s export revenues to reach US$6.4 billion from this year’s US$2 billion.

Great labor pool
People attribute the sudden emergence of the BPO industry to several factors.

Ramon Isberto, head of the public affairs group of the Philippine Long Distance Telephone Company (PLDT) and Smart Communications says the rapid expansion of BPO could be explained by the greater availability of broadband services all over the country. Besides PLDT and Smart, the Ayala Group through Globe Telecom has been rolling out fast broadband as well as Wi-Fi services in major cities in response to growing demand for high-speed Internet connectivity thus making its easier for investors to set-up BPO operations.

By February, Dell Computer—a US$54 billion global technology company—will start its own call center operations in the Mall of Asia in Pasay to serve its American clients. Dagoberto Quintana, vice president of Dell International Services who oversees Dell’s 30 call centers across the United States, Asia, and Europe says his firm will hire 700 call center agents for its Philippine operations.

“Like anyone else we are interested where there is a great labor pool and a competitive market. The Philippines is one of those locations,” says Quintana. “We look forward for excellent English skills, we look for people that are customer-centric in their thinking, and can provide great customer service and we look for folks that can do problem solving. We do analysis all over the world all the time and this is a good location to add to our global network.”

Danilo Sebastian Reyes, country manager of the ClientLogic, another global outsourcing firm, further explains: “Customer service is one of our niches because Filipinos are really customer service-oriented. In the call center, we have a distinct advantage. We are not far behind in technical support because we have capable and able graduates in computer science and engineering. Definitely, we are also strong on the back office processing because we have lots of accounting graduates that are required for types of work that include accounting, auditing, and insurance.”

ClientLogic’s BPO operations spans the globe particularly in the US, Asia, and Africa. Besides Ortigas, ClientLogic also has call center operations in Baguio. Caroline Go, the firm’s employee and corporate relations manager, says ClientLogic will soon go into the fast-growing medical transcription business.

Recently, neoIT, a California-based outsourcing and IT consulting firm which has recently set up shop here in the Philippines at the Pacific Star Building (Gil Puyat, Makati) tried to quantify the attractiveness of various countries for BPO services in paper entitled “Mapping Offshore Markets Update 2005.” The study considered several variables in their ranking namely financial benefit (e.g. cost advantage including labor cost); service maturity (e.g. competency of suppliers, industry size); people (e.g. labor pool and skill, language proficiency, educational system); infrastructure (e.g. ICT and physical infrastructure); and catalyst (e.g. government support, geopolitical environment, culture, time zone). The results: India came at the top and the Philippines came a close second. Other top ten countries include Poland, Ireland, Canada, Mexico, Czech Republic, Malaysia, China, and Hungary.

Transforming the urban landscape
If BPO industry is changing the lives of people like Marky Rondeal and Jewel Gumiran, the BPO business has started to change the urban landscape as well as the Philippine economy.

Several years ago, places like Emerald Avenue in Ortigas, Paseo de Roxas and Ayala Avenue in Makati, the Gil Puyat corner Ayala also in Makati; and the Alabang-Zapote Road are practically dead after the office workers left for home. These days, these places are teeming with people, mostly in their 20s and 30s, who are going to their night shifts. These places are night time oases for taxi drivers who usually get more money ferrying in and out call center workers.

Ortigas area is an interesting case. Besides ClientLogic, this place is also home to famous BPO companies like Ambergris, Contact Point, Convergys, Cylynx, ePacific Global Contact, HelloPNI, Influent, NuComm Intenational, HelloCorp, TelePhilippines, and Vertex. These days, the streets in the said place never sleeps as many restaurants, cafes like Figaro and Starbucks, convenience stores (e.g. Mini Stop and Seven Eleven) and fastfood stores like Jollibee are open 24 hours each day to cater to the needs to call center agents.

The same scene could be observed in Eastwood Cyberpark in Libis, Quezon City. East wood is hosts to outsourcing operations of Citibank, IBM, Trend Micro, Canon, TOEI Animation, eTelecare, Air Relay, Call Asia, and Customer Contact Center. Areas like the Northgate Cyberzone along Alabang-Zapote Road, and the Forth Bonifacio Global City are now teeming with night time economic activities.

“It’s a very exciting industry,” says ClientLogic’s Reyes. “I see a lot of potentials particularly in the job opportunity part of it. We are looking at a factor of ten: for one job that we create we affect ten others like food services, transportation, real estate, among many others. We are actually getting a lot benefits from it.”

Cielito Habito, economics professor and director of the Ateneo Center for Economic Research and Development based in Quezon City says that the economic impact of the BPO industry so far has been reflected in two ways.

First, this is reflected in the impressive performance of the communications and transportation sub-sector. In the last two years, this sub-sector has been growing mostly double digit rates, thus also buttressing the entire services sector. Compared to the erratic performances of the agricultural and the industry sectors, the services sector has been consistently buoyant, growing close to or more than 7 percent. The second effect—he said—is in employment that translates to higher consumption and therefore higher demand for products and services in the local economy.

Spending power
Recently, BusinessMirror had a group interview with about a dozen call center agents of Ambergris Solutions in Ortigas. When asked what they do with their pay every fifteen days, many of answered “spend.”

Indeed, estimates by BusinessMirror shows that—assuming an average pay P15,000 a month—the combined payroll of all the BPOs in the Philippines could translated to at least P2 billion pesos a month or P25 billion a year going into circulation. This money goes to purchases of food stuff, drinks, cigarettes, clothes, cellular phones, shoes, fashion accessories, toiletries and personal care products. When asked what are their aspirations in life, most of them say they want “a better life,” “a stable family,” and continuing climb up the outsourcing or business career ladder. That why many of them say they save some of their monthly take home money for the “rainy days” as well as for “graduate studies,” preferably MBA.

“Saving for a better life” does not sound like an aspiration of sons and daughters of the rich and the middle class who are supposedly the ones who can speak better English. “That’s because most of us do really come from the C or even the D class,” says Ellen (27) a computer science graduate from STI Colleges. “The really rich ones don’t stay for long. They can’t seem to adjust to the pressures of the job. Besides, they don’t need the money. They are here because their parents want them to have a job—any job.”

“In fact, many of us here are breadwinners,” adds Catherine (26) a physical therapy graduate from Arellano University.

Hollow and shallow?
Still, Habito says the outsourcing still fits his theory of the Philippine economy being “narrow, hollow, and shallow,” because the industry has “limited links with the rest of the economy” and are concentrated in metropolitan Manila. Nevertheless, he concedes that many outsourcing firms are fast expanding into the regions like Cebu, Dumaguete, Davao City, and Cagayan de Oro City.

As for industry leaders, that expansion is accelerating geographically and across outsourcing sub-sectors. For instance, Ambergris Solutions—currently employing 3,000 working at its three sites in Ortigas (i.e., Discovery Suites and Raffles Corporate Center) and Market! Market! at the Fort Bonifacio Global City—for instance is set to hire at least 300 more people to man its non-voice outsourcing projects next year to serve clients in the US, Australia, and other parts of the Asia-Pacific Region.

“We’re looking on all kind of work—software development, insurance, technical support, chat, email, all kinds of work,” says Rajiv M. Dhand, Ambergris’ director of operations, stressing that they are likely to work with global companies that are in the Fortune 500 list. “It’s a natural extension of this kind of work because if you realized most of the seats are utilized at night. So if you can use those seats even in the daytime, it’s much more [profitable] for the company.”

Isberto of Smart and PLDT says that because of greater availability of broadband, investors could now enhance their presence in the Philippines by complimenting their call center operations with non-voice outsourcing, specifically medical transcription, back office operations and shared services, engineering and architectural design, litigation support, and animation. This kind of business, Isberto said, does not require workers who know how to speak fluent English. All they need—he said—are some technical backgrounds as well as basic skills in written English.

Indeed, these kinds of services wouldn’t find difficulties getting recruiting technical people as there are many lawyers, accountants, architects, engineers, commerce graduates, medical technologists, nurses, doctors, and computer programmers who are either jobless or underemployed. Each year, the Philippine educational system produces more than 400,000 graduates, 60 percent (244,000) of whom comes from business administration and related courses, engineering and technology, fine and applied arts, law and jurisprudence, mathematics and computer science, medical and allied professions, and natural science. These are the types of skills that needed to man the growing non-voice BPO that is emerging.

Scratching the surface
Many BPO executives say the BPO has barely scratched the surface. Dhand says the outsourcing business in India has become saturated and, hence, he expects more clients to opt for the Philippines.

“It’s [going] to zoom or take off. It’s because we have just 10 percent of the cost of the same work that is being done in the US. India and the Philippines are the only places where this work is financially and resource viable,” claims Dhand. “As of now India is kind of saturating because there is so much of these BPOs and call center work happening over there.”

Dhand adds: “So the next logical choice is definitely the Philippines because (a) India is saturating and (b) from a base company plan perspective any big company who has a site in India definitely wants to have a back up site somewhere else in this region and Philippines is the next logical choice. Similarly those who have a base here, their logical choice for a [back up] site would be India.”

It’s a strategy that is being done by Dell with its network of call centers all over the US, Canada, El Salvador, Panama, India, and now the Philippines. It’s the same approach being done by ClientLogic whose operations include 55 facilities throughout the US, Austria, Canada, France, Germany, India, Ireland, Morocco, Netherlands, Panama, Poland, United Kingdom, and the Philippines.
“I don’t see the Philippines competing with them because for big companies they want to mitigate the risk so rather than putting it in one place they would rather split it up so in the event that something happen in one country then it can be done by another country,” says Client Logic’s Reyes.


Anonymous said...

A very nice and informative post Dave. You're really one great journalist-researcher.

Do you in any way have any data how much the outsourcing rates are compared to the principal country's actual rates when those jobs are done there?

Am interested to know as this might help me to decide how I will quote fees in a possible outsourcing job. From my research before last week's interview, I found out that the regular rates of that possible work nature was USD 70-110 per page, one week to 10 days completion. I was asked how much would I charge. I felt it unwise to quote prices right away, so I said they show me first a sample and I will give them my rates based on my calculations how long will it take me to finish it. They promised to email me a sample soon. Hopefully, they'll do.


Dave Llorito said...

Dear Louise: Really don't know the specifics, honest. That's one gap in that report. but according to that indian expat manager of ambergris, local prices or costs is usually just a tenth of that of the US. Im not sure that will help you but that's the only one i've got right now.

Anonymous said...

A tenth! Gosh, that is too low compared to the standard rates am currently earning doing my usual stuff. I was expecting it to be at least a third.

Thanks for the information. The best that I can do then is negotiate if they really are that interested in my services.

Dave Llorito said...

a tenth yes, that is why we are "competitive"-- efficient and cheap. but remember that guy was probaly talking about call centers since he is a call center guy. the rates in other outsourcing business might be different. in don't know. maybe you may try doing some more google work.

Janette Toral said...

Great research work!

Dave Llorito said...

thank you. thanks for dropping by.

Anonymous said...

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business process outsourcing said...

Business Process Outsourcing is fast growing in the Philippines that help many Filipinos and event boost our economy.