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
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.
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
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
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
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
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
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."
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
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
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".
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.
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.
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.
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
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