HOW WILL THE PHILIPPINES MAINTAIN ITS COMPETITIVE POSITION VIS-À-VIS STRONG REGIONAL RIVALS?
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1 HOW WILL THE PHILIPPINES MAINTAIN ITS COMPETITIVE POSITION VIS-À-VIS STRONG REGIONAL RIVALS? 10 TIPS ON HOW THE COUNTRY CAN MAINTAIN ITS BPO LEADERSHIP With Manila currently ranked in second place among leading global BPO locations (just behind Mumbai), and 7 Filipino cities listed in Tholons s leading Global 100 BPO Locations (2013) report, the country is in a strong position to benefit from the surge in activity resulting from strong regional growth. But it will need to maintain and even heighten its focus to maintain its position.
2 This period has been variously termed the Asian Century reflecting the enormous impact Asian economies are having on global markets as the latter recover from the financial meltdown of 2008, and look for opportunities to expand. But Asian markets are not just being driven by growth in sales. India and the Philippines lead the list of locations that offer attractive Business Process Outsourcing support services for back offices, call centres, Global Business Services, and the like. BPO and Offshoring combined mark the Philippines fastest growing sector, nearly doubling since 2006, and hitting $15.3 billion in revenue this year (17% growth over last year, with the same growth percentage predicted this year) and employing nearly a million people, with approximately 120,000 joining the workforce every year. In fact, BPO now brings in nearly three times as much revenue as tourism does, each year. The Philippines main competitor for BPO investment, India, is feeling the heat: D S Rawat, General Secretary of India s Associated Chambers of Commerce and Industry (ASSOCHAM), warned earlier this year that India s BPO industry was losing 70% of all incremental voice and call centre business to competitors like the Philippines. Quoting a new ASSOCHAM-KPMG joint study, Rawat estimated that in the next decade India might lose $30 billion in foreign exchange earnings to the Philippines, which has become the top destination for Indian investors. Indeed, there has been a steady stream of Indian BPO firms opening centres in the Philippines to benefit from the large pool of well-educated, English-speaking, talented and employable graduates. While government incentives embedded in the Investment Priorities Plan (2007) have worked, the country needs to continue sending out the positive message to maintain its position. The Oxford Business Group warns however that while much of the BPO growth is coming from international players building up their Filipino operations, the country s neighbours are clamouring to cash in on the action. The Philippines will have to set itself some stringent targets to remain the location of choice for BPO, with China emerging as a significant rival and Malaysia also raising its BPO profile.
3 HERE ARE 10 POINTS THE PHILIPPINES WILL NEED TO BEAR IN MIND TO STAY AHEAD IN THE BPO RANKINGS: WATCH THOSE RANKINGS! The latest global BPO destinations report by US-based consultancy firm Tholons, lists 7 Filipino cities among the top 100, with two in the top 10. Manila climbed one space in this year s list and now ranks just behind Mumbai, having consistently moved up in the rankings over the past few years. That is the good news. But the Philippines should track who s entering the league tables, too, and target its activities accordingly. Three Chinese cities ranked in the top 20 of Tholons s list last year, and other countries are starting to appear. This is no moment to be caught snoozing. MAKE ENGLISH LANGUAGE A PRIORITY Again and again, the reason the Philippines outranks other (sometimes cheaper and more experienced) destinations is because of the high level and quality of spoken English. Add to that the natural cultural affinity Filipinos have for the US, in particular, and the large numbers of Filipinos working abroad, and you have a strong basis for cultural understanding. That is not something that is easily taught, and may be just the differentiating factor to tip the balance its way, given the trend towards knowledge-based. CONTINUE TO PROMOTE A SKILLED AND EDUCATED WORKFORCE While other countries may offer cheaper resources, almost 30% of graduates in the Philippines are employable, compared to 10% in India, where the training consumes considerable amounts of time, according to an ASSOCHAM report. More specifically, a McKinsey Global Institute study quotes 30% of generalists and 30% of F&A professionals in the Philippines as being suitable for work in a multinational organization, ranking the Philippines higher than countries such as China, India, or Malaysia. For life science professionals, researchers, and analysts, 20% of the Filipino labour pool is considered suitable for global work, again outranking China or India. These statistics imply immediate returns. CARRY ON WITH GOVERNMENT INCENTIVES AND INITIATIVES The launching of the Association of Southeast Asian Nations (ASEAN) Economic Community in 2015 could boost growth in the Philippines BPO sector, as major international firms will be encouraged to optimize and rationalise their operations following the lowering of trade and employment barriers in the region. It is important that the Philippines build on these kinds of initiatives, and keep working at reinforcing the incentives embedded in the 2007 Investment Priorities Plan. In addition, there are specialized programs addressing near-term issues (e.g., near-hire voucher program), and IBPAP is coordinating with the government, particularly the Board of Investments, to promote the country to IT- BPO firms overseas. CONTROL THE PESO The low cost BPO industry is sensitive to currency fluctuations, as an unfavourable shift against a client s native currency can wipe out the cost arbitrage so carefully won. The Filipino BPO industry is being threatened, warns the Business Process Association of the Philippines, by the steadily appreciating local currency, which is eroding the competitiveness of the country s fastest-growing industry. This would be doubly damaging where other Asian countries currencies are falling against the dollar. EXPAND BEYOND CALL CENTRES, AND MARKET TO NEW COUNTRIES The call centre sector today comprises 80% of the total BPO industry in the Philippines, with 80% of the call services provided for the US market. While this is working well, it makes the Philippines vulnerable to any currency or other changes between itself and its main BPO partner. It would be advisable to promote itself both to Asian neighbours, as well as European customers, to dilute its dependency on the US, and benefit from the potential upswing in business in other regions of the world. To this extent, promoting strength in languages other than English will be a plus.
4 INVEST IN GROWTH INDUSTRIES: HEALTH With much of the added value in shared services coming from Centre of Expertise- or Knowledge-type services, the Philippines would do well to invest in upskilling its workforce to support growth industries like Legal and Medical Transcription (driven by changes in US health care). Note, for example, that while in 2003 there were just 9 registered companies providing medical transcription, by 2008 this had increased to 43. MAKE FINANCE & ACCOUNTING YOUR DIFFERENTIATOR The Philippines is becoming a regional and global hub for shared services centre corporate backroom operations, especially for financial services such as accounting and bookkeeping, account maintenance, accounts receivable collection, accounts payable administration, payroll processing, asset management, financial analysis and auditing, management consulting, inventory control and purchasing, expense and revenue reporting, financial reporting, tax reporting, and other finance-related services. BPO work can also expand to financial leasing, credit card administration, factoring and stock brokering, logistics management, and cargo shipment management. By building up knowledge and process expertise specifically for these functions, the Philippines can attract new companies. GROWTH CONTINUES Information Technology Business Process Association of the Philippines (IBPAP) president and chief executive officer Jose Mari Mercado forecasts another 17% rise in IT- BPO revenues this year [2014], much of it driven by the back office space, health care sector, and engineering services. KEEP INVESTING IN QUALITY INFRASTRUCTURE BPO firms require world-class infrastructure to serve their clients. This means telecommunications as well as office buildings, roads, airports, etc. The Philippines, like other countries in the region, still has abundant, low-cost real estate in major urban areas that will cater to the needs of foreign investors. But with countries like Malaysia touting their Digital capability, the Philippines needs to take care to ensure it does not fall out of the spotlight. While the government has said it hopes to see more Filipino BPO centres break into Tholons s top 100 by 2016, more will need to be done to improve infrastructure and promotion to support this. AND FINALLY MAKE A SPLASH WITH INNOVATION The one thing that will drive interest and capture the global market s attention is taking a lead in innovation that supports BPO. This means nurturing technology companies that are developing automating capabilities; encouraging a free-thinking work culture where employees consider creative contribution as an asset, rather than transactional processing; and developing active partnerships with the local BPO industry to ensure universities and learning institutions are providing the right skill sets in graduates. For example, the IBPAP is working with the Technical Education and Skills Development Authority and the Commission on Higher Education to develop programs that will equip graduates with the skills needed in the IT-BPO sector. A small country can have a big impact. Innovation, technology and knowledge will lead the way. Sources: 2013 Top 100 Outsourcing Destinations, Tholons IT and Business Processing Association of the Philippines New York Post: Philippines is the New Capital of Call Centres. Good News Pilipinas. 2 February Retrieved 30 June Manila takes No 3 slot in BPO ranking. Investvine.com Strong peso hurts Philippine call centres. Investvine.com. 27 December Business Processing Association of the Philippines (BPAP) Offshoring and Outsourcing Philippines: Roadmap BPAP: Manila.
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