Oxford Business Group

BPO’s rising potential

Posted on April 20, 2012

Rising revenues and job creation, backed by new investments, are highlighting the surging growth in the Philippines’ business process outsourcing (BPO) sector.

On March 20, the World Bank said in its Philippines quarterly update that the BPO industry is expected to create 100,000 jobs in 2012 alone. The number of employees in the sector had already risen to 610,000 in 2011 from just 100,000 in 2004.

US bank Wells Fargo further boosted confidence in the BPO sector in the same month by revealing that it had chosen the country for a $2-billion BPO operations center. Wells Fargo Philippines Solutions will employ some 126,000 and set up operations in Manila’s 14-hectare McKinley Hill Cyberpark, which already hosts centers for firms that include Accenture, Hewlett-Packard and Thomson Reuters.

Ernesto Herrera, a former senator, said the entry of the US’ second largest bank “reinforces the Philippines’ reputation as an exceptional global center for labor-intensive and information technology-enabled outsourcing services.”

Herrera told local media recently that in 2011 the industry saw $11 billion in revenues and that the Business Processing Association of the Philippines (BPAP) expects this figure to jump 18% to $13 billion this year. Industry profits have risen sharply from $3 billion in 2008, with the World Bank predicting they will hit $50 billion by 2020.

Government officials are aware, however, that to ensure this continued growth, the BPO segment will need to diversify from voice-only services, such as call centers, into current growth markets, such as research and analytics for the legal, health care and financial industries.

While call centers tap into the country’s English-language skills, research company Everest Group estimates that non-voice services will account for 90% of the global BPO market, which is expected to be worth $220 billion-$280 billion in 2012. In the Philippines, non-voice business in 2011 accounted for just over a fifth of total BPO revenues, despite employing a third of the work force, according to a Reuters report in March.

In this regard, progress towards broader BPO development can be seen in the recent entrance of several foreign banks into the market. Trade Secretary Gregory L. Domingo told the media at the annual Philippine Economic Briefing in March that up to five foreign banks are looking to the Philippines for non-voice, back-office operations.

“The government recognizes that investments in non-voice are more sustainable, because these operations are very difficult to pull out,” said Domingo, adding that while accounts handled by call centres are mostly based on short-lived marketing campaigns, outsourced non-voice operations are usually for technical tasks that are indispensable to the primary activities and output of a company.

The drive for non-voice services also addresses two concerns hanging over the BPO sector’s future in the Philippines: local education levels and creeping “protectionism” in the West.

In December 2011, a bill was tabled in the US House of Representatives that sought to make companies that move call center operations abroad ineligible for all federal grants for the next five years. Following this move, Indian software industry body Nasscom dubbed the bill “protectionist.” The bill would also require call center staff to disclose their location to US consumers, who would be given the right to be routed to a US-based call center upon request.

There are also concerns that local graduates lack the skills to compete globally in the new market, with Manila estimating that only 5%-8% of university graduates are ready for employment in the BPO recruitment market upon completing their studies.

“The challenge is to be able to supply the human resources to support the industry, both from the entry level to middle managers and executives,” said Domingo.

Recognizing this shortfall, last month the Technical Education and Skills Development Authority (TESDA) called for schools, universities and technical vocational institutions to offer more BPO courses, particularly for non-voice skills.

Joel Villanueva, the director-general of TESDA, said key areas of focus will be financial accounting, engineering and design, health-related services and creative digital arts, such as animation.

Meanwhile, noting the sector’s growth, BPO firms are seeking further government incentives, such as extending the duration of income tax holidays from six to eight years. This will help to ensure the country attracts IT and BPO projects, the Information and Communications Technology Office (ICTO) and BPAP said in March.

Alejandro Melchor, the deputy executive director of ICTO, said: “Now is the time to place more incentives on the table, as potential BPO businesses are looking toward the Philippines.”

These incentives would encourage more private companies to capitalize on the recent surge in BPO growth, and increasing investment in training and education would ensure the Philippines maintains its lead against regional rivals.

Charles Colon is the OBG’s editorial manager in the Philippines.