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    Southeast Asia
     May 10, 2006
Help wanted for Philippines outsourcing
By David Llorito

MANILA - Has outsourcing to the Philippines already hit a human-resource barrier? There are growing indications that something may be amiss in the country's fastest-growing industry.

Never before has Philippine labor had such negotiating power. Call center recruits are now being offered signing bonuses before they start work. Employees are given bonuses for finding new recruits - more often than not poached from other call centers.

Still, call center managers complain about the lack of workers who are able to speak American English. For the Philippines, which suffers perennially from crushingly high unemployment



rates, currently at 8% according to a recent official survey, unmet labor demand is a new and unfamiliar problem.

The explosive growth of business process outsourcing (BPO) has plugged the economy of the Philippines into the global services industry, raising high new hopes about the country's economic prospects. Just 10 years ago, economic analysts and pundits concurred that the future of the predominantly agrarian economy lay in exporting fruit, seafood, garments, low-end electronics, and people.

Nowadays, Filipino workers are increasingly doing the information technology enabled services (ITES) once held by low or middle-income-earning Americans, landing jobs in everything from accounting, payroll processing, credit-card administration, revenue management, database management, supply-chain management, and business intelligence to long-distance warehouse and inventory management.

Since 2000, outsourcing companies have sprouted like mushrooms throughout major Philippine cities, including Manila, Clark (the former US military base in Pampanga province), Cebu, Dumaguete and Davao, catering largely to US firms seeking cheap labor to handle so-called "cyberservices", including customer care, back-office processing, data transcription and other information-technology-related services.

Less-known urban centers, such as Iloilo Bacolod, Lipa, Naga, Tacloban and Subic, have more recently become BPO hot spots as multinational demand for cheap, English-language services grows. In five years, outsourcing has emerged as one of the Philippines' top job generators and foreign currency earners, second only to merchandise and labor exports.

Until now, it seemed as though the sky was the limit. Mitchell Locsin, executive director of the Business Processing Association Philippines (BPA/P), an umbrella organization of ITES firms in the Philippines, said that the industry currently employed around 245,000 people, 68% of which work at call centers.

In 2005, the industry's total revenues reached US$2.4 billion, almost double the previous year's $1.5 billion, he said, optimistically estimating that this year's outsourcing revenues would jump to $3.6 billion.

"The Philippines has barely scratched the surface of the huge outsourcing market in the United States," contended Locsin, estimating that at current growth rates the outsourcing industry would employ over a million people and generate revenues of $13 billion by 2010.

Shallow labor pool
But if these projections are to be met, outsourcers will have to find ways to bridge a huge emerging labor supply gap. Damian Mapa, commissioner of the Commission for Information and Communications Technology (CITC), a government body, estimated that from 2006 to 2010, the outsourcing industry may suffer a recruitment shortfall of 273,000 English speakers - potentially a large enough gap to drive multinational companies to other offshore destinations, such as emerging economies in Eastern Europe.

Nowhere is this problem more acute than in Philippines-based call centers, which the CITC estimates will account for 55% of the skilled labor shortfall. Industry leaders say the hiring growth rate last year was particularly low at 2-4% due to a lack of skilled applicants. For every new hire, industry leaders say they receive about five "near-hires", or applicants who must undergo extensive training in oral English and keyboarding before they meet minimum job requirements.

The future of the industry is clearly at stake. "ITES or cyberservices are certainly the future of the Philippines," said Henry Schumacher, executive director of the European Chamber of Commerce in the Philippines. "But that will not work unless you have English as a communicating base, and we have seen over the last maybe 10 years that the English speaking capability [of Filipinos] has declined. English was always one of the [Philippines'] competitive advantages."

Danilo Cruz, under secretary of the government's Department of Labor and Employment, added, "We used to be the third-largest English-speaking nation, but call centers and medical transcription firms have failed to hire 100,000 [workers] they expected to employ in 2005."

Carol Dominguez, president and chief executive officer of the John Clements Consultants, a human resources and executive search consulting company, described the emerging skilled labor shortage as a "national emergency".

It may come as a surprise that spoken English is actually in decline in the Philippines, given that the country is a former American colony known for its enthusiastic embrace of US fast food and pop culture. Manila-based experts said that many factors had contributed to the recent national decline in English language proficiency.

Schumacher, who has lived in the Philippines for more than three decades, points to several factors, namely the widespread use of "Taglish", a mongrel mix of the local Tagalog dialect and English, on television and in advertising, as well as the widespread notion that English is somehow an "elitist" language.

Politicians are also to blame. After the 1986 "people power" revolution that toppled dictator Ferdinand Marcos, nationalistic framers of the new 1987 constitution mandated the use of Filipino or Tagalog as the main medium of instruction in schools in a drive to promote a sense of "Filipino identity".

However, English has remained the language of business and trade for the Philippines' export-geared economy. Nowadays, Filipinos' widespread use of "Taglish" often perplexes their international business partners, including Norwegian shipping company managers, who say that they often cross linguistic wires when speaking with their Filipino ship crews. (Filipinos currently account for about 25% of the global supply of seafarers.)

Brain drain
Has the Philippines reached the limit of its absorptive capacity for outsourcing? In 2000, there were only four call centers in the country, employing 2,400 call-center agents. At the end of 2005, there were at least 105 call centers with over 112,000 workers, representing a 60% per annum growth surge.

According to Dan Sebastian Reyes, chief executive officer of Clientlogic, a call-center firm, that's a growth record that not even India, which currently employs 350,000 call-center agents but is now facing similar human resource restraints, has been able to replicate.

Significantly, the frenetic growth of the Philippines' outsourcing industry coincided with an unfortunate concomitant trend: the brain-drain of skilled professionals to higher paying countries. From the 1970s to the 1990s, the bulk of Filipino labor exports were composed of low-skilled workers, mostly construction workers, domestic helpers, and entertainers.

By 2000, however, officials from the Philippine Overseas Employment Administration (POEA), a government agency managing the placement of overseas Filipino workers, recorded a rising tide of fleeing skilled workers and professionals, including doctors, nurses, engineers, information technology professionals and banking professionals, among others. In other words, precisely the types of workers outsourcing companies would most like to hire.

The growing scarcity of English speakers has alarmed the Philippines-based outsourcing community, which executives say they began to notice shortages as early as 2003. Many of these companies have since established training programs at private universities and human resource consulting companies that train potential recruits.

For instance, outsourcer FuturePerfect is helping Mapua Institute of Technology, one of the leading engineering and technology schools in Manila, to develop their English language curriculum and retrain their English instructors. IBM-Daksh, a business process outsourcing services provider, is providing voice and accent training for students at the Asia-Pacific College, a business college based in Makati.

John Clements Consulting, meanwhile, has tied up with the state-owned Technical Education and Skills Development Authority (Tesda) to train so-called "near-hires" in several remote regions of the Philippines. According to Dominguez, John Clements' CEO, this has led to a 60% absorption rate of students trained in the program.

Sensing the potential loss in one of the few bright spots in the Philippines' economy, the national government has also started to throw money at the problem. President Gloria Macapagal-Arroyo recently earmarked P500 million ($9.8 million) for outsourcing industry training. As a part of that scheme, students interested in outsourcing jobs are given vouchers that may be used for tuition at government-accredited human resources institutions.

Locsin, head of the BPA/P outsourcing trade group, claimed that government and private efforts had already started to address the problem. Perhaps predictably, he played down the labor shortage, chalking it up to media hype. "I've met with several call centers lately, and they told me their hiring rate of fresh graduates who walk in to apply is now significantly higher at 8-10%," said Locsin. "Last year, it was 2-4%. Things are improving."

He noted that many big multinational firms, including Chevron, Shell, JP Morgan, Dell, IBM Daksh, Safeway, American Online, Manulife and Siemens, to name a few, last year all increased their outsourcing presence in the Philippines. "In the first four months of this year, about 14 more companies are coming in, two of them call centers, and the rest back-office processing," Locsin said.

"That's a good sign because you don't really need very, very good English speakers, but rather [individuals] with technical backgrounds and good written English, which we have an adequate supply [of]."

That may not be exactly how big multinational companies view the situation, particularly as other global English-speaking countries vie for a share of outsourcing contracts. As the Philippines reaches ever-deeper into its pool of semi-skilled labor - hype or no hype - the viability of its fastest-growing industry is still very much in doubt.

David Llorito is a researcher at the BusinessMirror, a Manila-based daily newspaper. He has more than a decade of experience in socioeconomic research, policy analysis and business-economy journalism in the Philippines.

(Copyright 2006 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing .)


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