Philippines catches recovery wave
By Jennee Grace U Rubrico
MANILA - As the global economy shifts from crisis to recovery, the business
processing outsourcing (BPO) industry is sparking new demand and buoying
employment and investment in the Philippines, where it is one of the country's
most important industries.
BPO firms in the Philippines are hiring new personnel on expectations of strong
business growth from the United States and Europe. Convergys Corp, an American
customer support service provider that operates 12 sites across the country,
says it plans to expand its 20,000 workforce by 6,000 employees this year.
Stream Global Services, another BPO firm, says it plans to add 5,000 workers
this year.
With the pick-up in hiring, property consultant Colliers
International Philippines expects BPO firms quickly to take up oversupply in
office space and spur new building. In the third quarter of last year, office
space vacancy rates ran at 11.6% in Metro Manila, according to industry
estimates.
Ayala Land, the country's largest property developer, has said it plans to
build more BPO complexes in Pampanga and Davao City and a new technology hub in
Iloilo City similar to the 37.5-hectare Technohub that now houses BPO centers
and back-office operations for banks and other service sector firms in Quezon
City.
Revenue growth in the Philippines' BPO sector, which averaged around 40%
annually between 2002 and 2007, slowed to around half that pace in the wake of
the global economic crisis. The overall sector accounted for 3.5% of the
country's gross domestic product in 2008 and generated US$7.2 billion in
revenues last year, up by 19% year on year.
The government says it expects BPO revenues to hit $9 billion this year;
industry representatives estimate revenues will reach $12 billion and employ
700,000 workers in the Philippines by 2011. The sector employed 442,000 workers
as of the end of 2009.
With its English-speaking population and cultural affinity with the United
States - the world's biggest off-shoring client - the Philippines accounts for
between 7% and 15% of the global BPO market. The country lags only India, which
accounts for between 35%-50% of the global market.
Traditional call centers still account for the largest portion of the
Philippines' BPO revenues, amounting to $5 billion last year, or 69% of the
industry's total take. That segment's growth, however, has recently been
outpaced by newer, non-voice services.
Computer game development posted a 50% rise in revenues last year, while the
sector known as knowledge process outsourcing (KPO), which offer higher-value
services than the likes of call centers, grew by 35% to $1.1 billion. Other
non-voice segments also have room for growth: transcription revenues grew by 3%
to $186 million, while IT design and animation held steady at $228 million and
$120 million respectively.
"The back-office and KPO sector has been growing at a faster rate than the
voice-based sector and we believe this trend will continue," said Gigi Virata,
information and research director of the Business Process Association of the
Philippines (BPAP), a trade organization. "In the next four or five years, we
may see the voice and non-voice sectors at about the same size in the
Philippines," she predicted.
That said, some analysts believe local companies may be overestimating how
strongly the industry will bounce back. In the United States, an important
source of business, high unemployment has become a political issue and there is
a risk that populist segments of the US Congress may attempt to legislate
against shipping potential domestic jobs off-shore.
BPO industry groups have scaled back some of their previously optimistic growth
targets. In a roadmap for 2010 drafted three years ago, the industry had aimed
to hit the $12 billion revenue and 1 million worker mark this year.
The targets were calculated on the assumption, undermined by the global
economic crisis, that industry revenues would grow by a constant 40% from 2008
to 2010. The projection also failed to take into account productivity and
efficiency gains accomplished through economies of scale.
"In 2007, it was estimated that more than 900,000 employees would be needed to
generate $12 billion in revenues. This is no longer the case - we can reach
this revenue level with about 700,000 employees," Virata said. "We will however
have the capacity to employ one million Filipinos in this industry within the
next five years."
Still, Philippine BPOs face challenges from shifting industry trends. European
firms' growing participation in the outsourcing and off-shoring industry
(O&O) is starting to tilt the competitive scales in favor of locations
where English is not necessarily the dominant language - as it is in India and
the Philippines.
Consulting firm AT Kearney noted that while US companies at present account for
70% of offshore outsourcing spending, Europe is now becoming a more aggressive
player in the market. Philippine BPO firms have yet to penetrate non-English
speaking Europe on a wide scale, but industry players have been taking steps to
tap those potentially lucrative markets.
BPAP officials said the industry is wooing other English-language speaking
countries such as Australia, New Zealand and the United Kingdom, as well as
countries in the Middle East where English is widely used.
That expansion, some analysts say, will require Philippine BPO firms to enhance
their competitive edge. In AT Kearney's O&O ranking for 2009, the
Philippines ranked as the world's seventh most attractive off-shoring site,
ranking below India, China, Malaysia, Thailand, Indonesia and Egypt.
The Center for Research and Communication Foundation (CRCF), a research
organization based in the Philippines, identifies the lack of BPO professionals
as the country's main competitiveness stumbling block. The CRCF has urged the
government to address the deteriorating levels of education in relation to
language proficiency, computer skills, critical thinking, analytics and problem
solving.
Others say the industry and government need to do more to promote the
Philippines as a BPO destination by streamlining legislation and regulation,
improving infrastructure and helping to enhance operational excellence.
"Emerging markets like Vietnam, Malaysia, Thailand, Egypt and even Mauritius
and Sri Lanka have done a great job in positively showcasing their countries as
investment destinations," said BPAP chief executive Oscar Sanez. "The
Philippine government has been very slow in this respect."
Jennee Grace U Rubrico has been a journalist for over 10 years.
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