By Jerry E. Durant
2011 was a banner year for the Philippines BPO sector. The Philippines became the number one global provider of voice-supported services and number two global provider of non-voice-supported services, and the non-profit BPO trade association Business Process Association of the Philippines (BPAP) has set a goal of $25 billion goals annual BPO earnings by 2016. Is this goal attainable? Let’s look at some of the high points of and challenges facing the Philippines BPO sector.
The Philippines Shares Many BPO Traits with India
India is universally recognized as a global leader in providing BPO services, and the Philippines actually shares many of the same traits as India, including:
- Strong support organization (BPAP) and active annual events to discuss real strategic and operating issues;
- Government support that helps to encourage foreign service engagements;
- Sufficient workforce and resource development necessary to sustain credible delivery capabilities; and,
- Social values that are closely aligned with Western interests.
Pros and Cons of BPO in the Philippines
At a recent event sponsored by the Asia CEO Forum in Makati, Philippines, economist Dr. Bernie Villegas said many companies that have established relationships in the Philippines have been quite pleased and supportive of their business relationships, characterizing BPO providers in the Philippines as friendly, accommodating, educated, forward-thinking and dedicated.
However, not everything is perfect with the BPO sector in the Philippines. Dr. Villegas also pointed out that the Philippines BPO industry has the following challenges ahead:
• Corruption;
• Red tape and bureaucracy;
• Inefficient infrastructures;
• High rate of poverty; and,
• Vulnerable to natural calamities.
On a positive note, efforts are underway to address all of these issues, but dramatic social change takes time and requires a shift in norms. To safely breach this period of change, BPO clients need to both have honest awareness of and take precautionary attention to minimizing the impact from these potential negative factors. In addition, the Philippines has taken action to address intellectual property rights, strengthening security both physically and logically, and is starting to loosen restrictions on foreign enterprise investment.
These are all positive steps, but to achieve a reduction in corruption, red tape and bureaucracy, efforts need to be taken to enforce measures like these. In similar fashion there are some strong reasons why the Philippines has become a desired BPO destination, including:
• Stable democracy;
• Strong macroeconomic fundamentals;
• Labor peace;
• Educated, young, and English-speaking labor force;
• Strategic geographic location;
• High rate of savings due to OFW remittances;
• Low rate of dependence on petroleum;
• One of the best performing stock markets in the world; and,
• One of the emerging markets.
The value of these conditions is so strong that Indian, Chinese and Korean companies have established offices or operating relationships in the Philippines to take advantage of these strengths and to utilize the brand. These are business-savvy countries which pride themselves in sound and rational decisions, they see the obvious are exploiting it now.
Questions Remain
In looking ahead, the decision for foreign BPO buyers to outsource to the Philippines is much lower risk than one would find in many other potential destinations. However, it’s not without questions that surround the future vision and capacity of the Philippines. These questions include:
- What metamorphic states might they need to pass through?
- Will they simply remain a BPO dominant player only or they expand their service reach into information technology (ITO), knowledge processing services (KPO) or other niche service areas?
- Is there ample ability to transition from lower revenue generating service found in BPO?
- How much needs to be done governmentally and how much can be done from within the industry?
- What steps need to be taken to counteract complacency and remain firmly in a lead position?
- Will legislative initiatives such as reducing foreign investment barriers, especially in education, be implemented in a timeframe that will not jeopardize market momentum?
- Can the Philippine shift from an Overseas Foreign Worker (OFW) mentality to one in which intellectual capital is retained within the country? And,
- Will improvements in poverty numbers lead to wage inflation that will jeopardize market position?
A Look Ahead – Opportunities and Challenges
While the success of the Philippines BPO industry is based on quality customer delivery, thus creating a difficult competitive hurdle to overcome, it’s not infallible. Conditions change and as quickly as success has been achieved it can be lost virtually overnight. Over-reliance in one form of outsourcing or the sector as a whole does not promote a sound economic policy for the Philippines or any other aspiring nation.
In today’s competitive and rapidly changing marketplace, BPO providers cannot use a nationalistic mindset. Resources outside of the Philippines will need to be used to better understand buyer markets and global trends. This means that trusted sources must be used that are more than identifiable by brand but ones that can respond to goals in a non-prescriptive fashion.
In conclusion, 2011 was a monumental year for BPO in the Philippines, but it simply reflects a market achievement. The challenge ahead is to shift from market follower to leader, to overcome local conditions and to aspire beyond the present array of services.
Each year’s challenges become more acutely felt by Philippines BPO providers. With solid cash reserves for capital investment, the overwhelming domestic need is challenged by the necessity for outsourcing enterprise to make foreign investment.
Will the Philippines become a true global thinker, or will it remain steeped in nationalistic behavior? Can other countries utilize the Philippines’ success story as a guide, or will they come to realize that their economic success be driven by their own unique set of circumstances? The key to ongoing Philippine success and sustainability will rest firmly in the hands both business leaders and government decision-makers.
Jerry Durant is Chairman Emeritus of IIOM.
