http://outsourceportfolio.com the definitive outsourcing industry mouthpiece has come up with yet another research report that outlines the growth of Philippines as an increasingly attractive alternative to India as not only a call center and BPO destination but increasingly as an KPO hub According to the report the Philippines has a 103 million English speakers (including 11 million living abroad), and its long spells of American and Spanish rule have made it extremely westernized and that much more appealing as an outsourcing destination.
It is expected that the BPO sector in the Philippines will see healthy growth at 26% in the current year taking the industry revenue to US$9 billion from last year's US$ 7.3 billion. That apart the employment generated would rise from 550000 to 600000 in the same period. Of the total revenue voice related work accounted for US$5 billion in 2009 while back office or non voice contributed US$1.1 billion.
The report further quotes that according to a survey 52% of respondents found, outsourcing to the Philippines safer than out sourcing to India, while 31% thought the risks were equal. However increasing corruption and a tight labor market were bugbears for 21 and 23% respectively of the respondents. There were plans to increase employment by up to 50% in the coming year. What is significant is that 81% respondents found KPOS to be a high growth prospect, even though 54% of them felt that inadequate supply of trained manpower was a significant impediment.
To put things in perspective however the report points out that the rate of growth of the BPO industry in the Philippines has remained constant at 15% over the past three years. The emergence of new markets for the BPO industry has actually seen the businesses of the traditional strongholds like India, China, Canada, Ireland and the Philippines see shrinkage. India which accounts for 40% of the global call center market earns revenue of US$11 billion to that of US $6.8 billion of the Philippines at 15% global market share.
In so far as the industry structure is concerned most medium to large sized call center and BPO firms like Accenture, AEGIS PeopleSupport, Convergys, eTelecare, Genpact, Sitel, Sykes and Teletech have a presence in the Philippines as have many MNCs with shared service model of operations. These include AIG, Citigroup, Dell, Deutsche Bank, Genpact, Hewlett Packard, HSBC, IBM, Manulife, Safeway and Thomson Reuters. Notably many of these firms employ in excess of 10000 people across different locations.
There are a growing number of homegrown call centers and BPOs competing with the best in the world. Some of the important ones are ePLDT Ventus- owns and controls a slew of IT and outsourcing firms like Vocativ Systems, Parlance Systems, SPi Global Solutions, Infocom Technologies, and Digital Paradise Thailand; IPVG- a publicly listed company on the Philippine Stock Exchange, it controls or has major investment stakes in IP services, internet security, on-line gaming, mobile solutions and BPO companies such as IP-Converge, IP E-Game Ventures, IPCCO, Prolexic, and Influent; Live IT Solutions- holding company of Ayala Corporation Philippines' leading conglomerate; and Paxys- an investment holding company controlled by Malaysian tycoon, Ananda Krishnan .
The mergers and acquisitions scene is fairly robust in the Philippines as evidenced by frenetic activity among outsourcing related firms. Deals between firms like Integreon and Grail Research, eTelecare Global Solutions and Stream Global Services Inc., Ageis BPO and People Support Inc., and so on are indicative of this trend. The Philippines government on its part does its best to support the IT and outsourcing industry through its bodies, Board of Investments and Philippine Economic Authority (PEZA). Some of the incentives offered are income-tax holidays. incentives under the Philippine Build-Operate-Transfer Law (BOT Law), essential off-site infrastructure facilities. option to pay a special 5% gross income tax instead of all national and local taxes, permanent resident status for foreign investors and their immediate family members, employment of foreign nationals and assistance in the promotion of economic zones.
However investors are wary regarding certain pending legislations like the rationalization of incentives, as well as the more palatable one which involves the creation of a Department of Information and Communications Technology (DICT). These are likely to be decided upon after the May Elections. In so far as the legal system of the Philippines is concerned it' an amalgamation of Spanish law and US common law. Additionally in Muslim areas Islamic law is followed.
There is a tendency for policies to be nationalistic, favoring local products, labor and raw materials. This dampens the international investment climate. A particular bone of contention is the Philippine Labor Code which prohibits the termination of employees' services in most circumstances. In particular, for the outsourcing industry Article 130 of the Labor Code which outlines a night work prohibition for women employees is a major sore point. It is not surprising therefore that the Philippines has long performed poorly when rated on various competitive criteria.
The Philippines' record in Intellectual Property Protection leaves much to be desired. In fact
at the end of 2009, the Philippines remained on the US Trade Representative's (USTR) watch list for piracy while Washington-based International Intellectual Property Alliance (IIPA) noted that not much had changed in terms of punishing infringers. Further according to the International Property Rights Index by the Property Rights Alliance, the Philippines ranked 74th (together with Tanzania and the Dominican Republic) overall out of 115 countries surveyed to India's 46 and China's 68. That notwithstanding outsourcers themselves has little to worry about in terms of actually theft of intellectual property or data by their employees. As a matter of fact, there has yet to be a major publicized incident involving the lost of intellectual property in the country's outsourcing industry.
Philippines infrastructure is largely constrained by its geography the country being an archipelago. However, there is a high concentration of mobile phone users in the country. The country is ranked 85th (between Serbia and Morocco) in the World Economic Forum's Networked Readiness Index for 2008-2009.
However the USP of the Philippines has always been its purported third largest English speaking populace in the world. But even in this there seems to be an apparent decline on account of falling education standards. That apart there is a major shortage of trained technical manpower in the country on account of export of man power and high attrition rates. Therefore the possibility of the Philippines becoming a major IT player like India seems quite unlikely.
In so far as the wages in the Philippines IT industry are concerned the country is quite competitive. Data from the Philippine National Wages and Productivity Commission show that the Philippines is ranked seventh out of 13 economies in the region in terms of having the lowest minimum wage with workers in the National Capital Region (NCR) of Manila earning a daily minimum wage of Php382 or US$8.09. This compares favorably with wages in the countries where the work is being outsourced from. In fact according to the Wall Street Journal the average entry level BPO salary in the Philippines is US$3,858 while the average annual salary for IT professionals is US$10,730. The Philippine currency Peso has been quite stable lately and is likely to remain so in the immediate future. Largely on account of their cultural affinity with the US, the Philippines has become the call center destination of choice for voice based processes taking away large chunks of business from India in the process. Philippines at present is a country of moderate high risk of business given its impending elections. That apart the fact that is quite susceptible to natural disasters like typhoons, earthquakes, volcanic eruptions and floods is also a factor.
All in all to its credit it has to be concluded that the Philippines has been able to get top position in voice based outsourcing and gain a strong foothold in the BPO industry, as well as the KPO sector in spite of its many disadvantages. In fact the very fact that it is being talked about in the same light as India speaks volumes about the gains made by it. However for it to consolidate and grow its position and not regress the country has to watch out for the following- the standard of English, brain drain, natural disasters, and political stability.
Source: IndiaPRWire
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