The Boon of Business Process Outsourcing (BPO) in the Philippines

Copyright © 2009 by Chester B Cabalza. All Rights Reserved.

I am re-posting this article, which I had written early last year (2008), in view that the business process outsourcing in the Philippines is one of the fastest and boldest income-generating sectors our country must treasure most. Below is my essay posted also at http://chess-bc.blog.friendster.com/:

My younger brother works as a program manager in one of the booming contact centers in Makati. It is prominently known in the Philippines as call center, a version of voice subsector of the sprouting and quite lucrative business process outsourcing (BPO). He was recently awarded as one of the best five performing managers worldwide based from the global poll of the outsourcing company he is associated with. He belongs to a ‘protean’ generation who twists his tongue for a well-versed American accent – who gurgles with bottles of beer early in the morning after work and gulps Starbucks coffee and enjoys puffing his cigarettes to stay alert all night long. Then he sleeps at daytime living like a modern Dracula who anticipates another graveyard to stay alive and kicking.

While my wife who sacrificed the unfriendly schedule of becoming a full-pledged flight attendant and instead shifted to becoming an editor of thick outsourced and imported legal and business contracts from key world cities of North America and Western Europe, was then part of non-voice subsector of the growing BPO. Many of the non-voice subsector includes back office jobs like animation, legal and medical transcription, accounting, digital content, software development, auditing, and engineering design - outsourced by developed countries to young talents in still developing Asian countries like the Philippines, India, and China. Furthermore, they call this as ‘reverse colonialism’ where former colonial lords rely much to the manpower of colonized states who mastered their language and doubled their skills to achieve leverage in a flat world.

Having the rise of globalization on the economic sphere, the BPO has been one of its salient features. Indeed synanymous with the rise of global trade. It is an important employment-generating sector that has been playing through waves of services sector. Reality bites, we are enmeshed in the increasing interconnections of trade and the movement of people, but will our country maintain its historical position as bastion of Asia’s best English speakers?

As Thomas Friedman observes and some other economists like Clemens, Arifa and Gani, some service organizations in higher wage countries are beginning to outsource work at an increasing scale to those countries that have highly skilled labor available at lower charge-out rates like what our country partly experiences at the moment.

While BPO around the world began as early as 1990s, Filipino economists like Magtibay-Ramos, et. al confirm that it was only in the early part of the new millenium that outsourcing opportunities gained ground in the Philippines. From Php2 billion in 2000, investment in the BPO industry, it rose to Php11 billion in 2001, then settled to about Php5-7 billion annually in the next four years. The Philippine BPO sector is projected to provide 7-11 percent of the new jobs for the labor force entrants between 2007 and 2010. Meanwhile, it is also estimated that its total workforce size will reach 500,000 to 600,000 in 2010, which is considerable for a single economic activity.

Apparently, BPO is highly concentrated in mostly urban cities around Makati, Libis Quezon City, Ortigas Center, Alabang, Baguio City, Subic and Clark, and Cebu City. Lately BPO investors realized expansion and plan to tap possible and prospective places from Tuguegarao City and Cabanatuan City in the north to Cagayan de Oro City and Davao City in the south to supply unbeatable talents for the growing worldwide demands.

Before, the Philippines had a strong economy, a well educated English-proficient workforce, strong technical and managerial classes and an apparently thriving industrial sector. Within the Southeast Asian region it was favored by foreign investors. Moreover, it was a parliamentary democracy with a vigorous press and a strong civil society, again pointing to what the rest of ASEAN might become. In 1994, just two and a half decades later, the Philippine economy has only slowly restarted after nearly a decade of regression. Unfortunately, the Philippines have been left behind by its ASEAN neighbors. It now has a lower per capita income and has been shunned by foreign investors who have poured money into other countries in the region.

But ten years after the Asian fiscal crisis, the Philippines has still experienced enormous social and political instability, including insurgency and terrorism. If one characteristic of contemporary ASEAN countries is the presence of a strong state and a weak civil society then the Philippines is the major exception. It has a weak state and a fragmented society. Although the country has been slightly affected by the Asian financial crisis in 1997 and weathered the recent global financial crisis in 2008, it still bears high unemployment and brain drain.

The good news now is, we are on the right track in achieving favorable GDP compared from the past regretful years, should not undermine our strength that we can climb up again to stability. With the highest portfolio investments or ‘hot money’ in 2007 around the ASEAN region and quite improved economic policies, we should not miss this momentum and strive more and work harder.

The playing field is hot and opens leverage for our country. We have a young and dynamic population, educated and technologically savvy for the knowledge economy. Hence, the current growth in BPO sector in the Philippines, that is largely driven by the contact or call center subsector has a large share in total BPO employment and revenue, thus is drawing positive economic climate in the country.

Call centers in general see highest turnover particularly due to the work demands, talent acquisition within the industry in itself and also due to adapting to the work hour expectations.

India cannot be divorced from the topic when it comes to the BPO industry. The emerging economy of India is the role model in this kind of transborder industry. The surge in the BPO sector in India resulted to the well-educated English-speaking students and a group of enterprising local citizens who capitalized on the global shortage of programmers and the high demand for business solutions occurring in the 1990s. Hence, Indian expatriate in the US, especially IT professionals in Silicon Valley, is providing a crucial role in the rapid development of the Indian BPO sector through their investment sectors, partnership with large US software firms which they later on convinced to set up operations in India.

According to one online research in 2007, the Asian contact center market is projected to experience strong growth, with the Philippines and Thailand, both projected to grow at 33 percent. Singapore and Malaysia are both growing at 32 percent, while China is tipped to grow by 22 percent in seat numbers in 2007, a rate that compares with other mature markets in the region such as India.

In terms of compensation among BPO industries in Asia, the Philippines pays in the middle with an entry level call center earning US$5,547 yearly only while an employee with higher expertise level such as team lead earns an average of $9,153 yearly only - offering the US a labor cost savings of over 80 percent. But salary levels in the Philippines is slightly higher than other Asian countries like India and China. On the other hand, Singapore as a high-end BPO destination, pays the highest in the region with an entry level four times higher than what call center agent working in the Philippines is receiving.

In terms of services, India more than China holds lucrative service-oriented investments in Asia particularly the BPO services. The Philippines has more likely specialized on services, thus, economic policies must pave way and shift to a clearer and more competitive stance in securing and improving the impacts of services sector in our economy. We must emulate and if not outpace our neighbors in services sector in BPO, having sufficient intelligent and young talents to supply this emerging demand. On the other hand, the government should take care of these ‘new young heroes’ and ‘home-grown talents’ who are new earners and bourgeoisie.