Can little Sri Lanka compete on the global BPO stage?
I recently visited Sri Lanka, three years on from the end of a separatist civil war, and the country is mending itself and gearing up to get a piece of the BPO pie. Sitting in the shadow of the monster that is the Indian BPO industry, with its nearly 900,000 employees and $16 billion of exports I wondered what lessons they could learn from their Indian (and indeed Philippine) counterparts.
The 2008-09 global financial crisis and recession exposed Sri Lanka’s economic vulnerabilities and nearly caused a balance of payments crisis. Growth slowed to 3.5 per cent in 2009. Economic activity rebounded strongly with the end of the war and an IMF agreement, resulting in two straight years of high growth in 2010 and 2011. Per capita income of $5,600 on a purchasing power parity basis is among the highest in the region. There are some issues that will need to be checked, like inflation which rose to 9.3 per cent in the month of June 2012 (5.8 per cent on an annual average basis). Given what is currently going on in Europe, that is not a bad position to be in.
Sri Lanka continues to experience strong economic growth, driven by large-scale reconstruction and development projects. The government still struggles with high debt interest payments, a bloated civil service, and historically high budget deficits. However recent reforms to the tax code have resulted in higher revenue and lower budget deficits in recent years. There is a plan on the table on economic cooperation between China and Sri Lanka, which will only help to create more awareness of what the ‘new’ Sri Lanka has to offer. This is a relationship that goes back some 1,600 years.
To put ‘new’ Sri Lanka in perspective we need to look at what’s happening in India, the Philippines and also China. Needless to say Sri Lanka can never compete against the sheer size and scale of India and the Philippines, but it can carve out a BPO niche where it has skills and expertise.
I asked Arun Jethamalani, Managing Director, ValueNotes – one of the leading BPO analysts in India – if India is headed at the right direction?
“Although the Philippines has emerged as the preferred destination in voice-based BPO due to the accent advantage, the sheer size and weight of domain knowledge required for IT applications, infrastructure management, technology help desk, and other hot new areas like mobility, cloud, etc. will make it hard for the Philippines to catch up to India in these areas. The number of trained programmers and ‘techies’, both entering the market and who already have experience, is much larger in India, and it provides India a sustainable advantage. This same advantage holds true in many non-voice and high-end knowledge process outsourcing activities like analytics, legal, or market research.”
The rise of BPO in the Philippines has been nothing short of amazing. The very first calls were taken in 1997, and by the year 2000 they had about 25,000 people earning a living from BPO. That’s when I first heard about their BPO sector. We were doing call centre research and we had to double-check the statistics to confirm the sudden surge in the size of their call centres. Today, the Philippines’ BPO sector employs about 640,000 people and enjoys revenues of $11 billion, about five per cent of the country’s GDP.
Mr Jethamalani went on to say: “The Philippines BPO sector will grow and might gain market share in some areas. Some of the companies in the Philippines will compete with their Indian and global counterparts. But overall, in the outsourcing arena, they will not find it as easy to catch up as they have in voice-based BPO. China, in fact, is a much bigger competitor, especially in technology-driven segments.”
The main reason for the success of the Philippine call centres is that workers speak English with a relatively neutral (US) accent and are familiar with American idioms – which is exactly what their American customers want. Of these, many have taken to complaining bitterly about Indian accents (which no amount of “voice neutralisation” coaching seems to have overcome).
Companies looking to crack the Australian market in particular and to be successful in handling voice-related work at least, will need a ‘Culture Training’ program which goes beyond simple voice and accent assimilation. FooBoo is in the process of developing a program that addresses this gap. If you want to know more or have some ideas about what should be involved in such a program, then drop me a line.
Phil Fersht, the CEO of US analyst HfS Research, in a recent blog said: “The industry known as ‘outsourcing’ is currently under its greatest-ever attack. Worryingly, for the business and IT services industry, we are all now caught in the crossfire. This is quickly developing into an attack on ‘outsourcing’ that is going mainstream, where many pundits and voters, not familiar with the complexities of global business, are jumping on the bandwagon.“
He went on to say: “The President (Obama) should be bemoaning the fact that US labour costs are far too high and the country is not currently blessed with millions of people in urban or rural concentrations who are prepared to take on lower-level white collar jobs at $25-40K per annum. He should be bemoaning the fact that the US education system isn’t producing hordes of graduates qualified in ABAP programming that can compete with the Indian factory model. He should be bemoaning the fact that the eight per cent of the US workforce currently unemployed aren’t filling the jobs that are being ‘shipped overseas’. Our data already shows that most US business would love to move work to onshore locations, and would be prepared to make much less significant cost savings, if it was available.”
In this context India is planning to rebrand BPO and the question is: will that effort work for India? “The objective of re-branding by Indian BPO firms is to attract specialised talent and to alter global perception of the term “BPO”. Said Mr Jethamalani. “This initiative will help them in their current move to ‘higher value’ service offerings that require domain expertise and the ability to provide analytics and insights to their clients.”
The challenge for the Philippines’ BPO industry is that it is overly committed to the USA and then over-represented in voice. As I like to call it, flying around on one wing. Having empty facilities during the day that are crying out to be utilised is a big issue for the operators in the Philippines.
The big question is whether the Philippine BPO industry, having conquered the contact centre market, can now move up the value chain. To keep growing rapidly – and profitably – it needs to capture some of the more sophisticated higher value back-office jobs.
There is a trend in India that all integrated BPOs are doing pretty well, compared to standalone BPOs. TCS has reported 33 per cent incremental revenue from BPO, Infosys reported 24 per cent incremental revenue from BPO while WNS posted topline and bottom line losses and also fired its CFO in India. The question is: what are the reasons behind this?
Value Notes’ Jethamalani again: “Some of the leading IT companies have decades-long relationships with Fortune 500 companies. They have big budgets and the ability to have conversations with the senior management of their larger clients gives them an advantage in securing integrated IT and BPO projects.”
India has a nicely balanced spread of service lines, with 42 per cent in customer care, 22 per cent in F&A, 18 per cent in knowledge service and 14 per cent in vertical-specific BPO services. In contrast the Philippines has 69 per cent of its service lines in voice BPO, 20 per cent in non-voice BPO and 11 per cent in IT/ESO.
“Technology is increasingly emerging as a crucial differentiator in how business processes are outsourced,” said Jethamalani. “For instance, e-discovery in Legal Process Outsourcing (LPO) is not possible without technology, customer service is moving to the cloud, and Big Data and Analytics requires IT expertise coupled with ability to manage massive volumes of data. This gives integrated IT-BPOs an edge over pure-play BPOs. “
It’s always important to think ahead and think about emerging trends in BPO. Mr. Jethamalani continues: “A couple of emerging trends in BPO over the next few years are: a greater integration of business analytics with main stream BPO, e.g. a boost in outsourcing of claims processing by healthcare insurers due to the recent ruling from the US Supreme Court; and expansion of delivery centres in tier-2, tier-3 cities and onshore locations.
This is supported by The Sauce’s recent BPO research in Australia, ‘The Australian BPO Report 2012” which examined the outsourcing motives of major Australian organizations and government departments. IBM and Fuji Xerox supported the report. It found that the fastest growing segment of outsourcing was printing and document management, which under pins the move to Big Data. This was closely following by HR outsourcing and then marketing and online marketing. The driver behind the online growth is the rise and rise of social media and major corporates are really struggling to get their heads around the phenomena and are crying out for support.
Which brings us neatly back to Sri Lanka. I believe that there is a place for Sri Lanka if they can learn from the big guys and not rush in. They can only ever be a small player; however once they find their niche, I think we will find them establishing themselves as an important BPO ‘business colony’.