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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