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Outsource magazine: thought-leadership and outsourcing strategy | August 24, 2017

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Outsource Magazine

You’re likely to be hearing quite a lot about the Philippines over the coming months. That’s at least in part because the Business Processing Association of the Philippines (BPAP), the Filipino Department of Trade and Industry, and the British and European Chambers of Commerce have joined forces to create a project called Team Europe in order to raise the profile of the country’s BPO and IT-enabled services industry.

The new Team Europe organisation is planning to launch in November, focusing its marketing strategy on the UK, as well as Australia and Canada. This will include launching a dedicated website and ensuring that delegations attend and speak at conferences and events in Europe.

Mitch Locsin, executive director of BPAP, explains the rationale: “We’re currently very US-centric, with about 85 percent of our business coming from there. So in terms of risk mitigation and increasing diversity, we need to focus on the UK, and a bit on Australia and Canada, as they are the main countries where English is spoken.” By 2010, the aim is to generate about 60 percent of revenues from the US and the remaining 40 percent from the rest of the world, with the UK accounting for a large chunk of that.

Close ties with the US
The country’s close historical ties with the United States result from it having been a US territory from 1898 until July 1946, when it obtained its independence, and from the continued presence of US army and navy bases in the country.

This influence, in turn, ensured that, under the 1987 constitution, both Tagalog and English were recognised as being the official languages of the country. The latter acts as the lingua franca and is the preferred language for secondary and tertiary education, however, which means that most educated Filipinos speak English fluently, albeit with a US accent.

The Filipino BPO and IT-enabled services market, meanwhile, was valued at $3.5 billion last year and is expected to more than triple in size to $12.2 billion by 2010, according to projections from BPAP – an industry body that was created in 2004 out of the merger of the Contact Federation Philippines and Outsource Philippines to provide a single point of customer contact.

Ambitious targets
About 237,175 staff are currently employed by the industry, mainly in the capital Manila, but this figure is also predicted to increase to 920,764 within three years if BPAP succeeds in the goal of boosting its four percent global market share to 10 percent – the equivalent of $13 billion.

The drivers behind this growth, the organisation believes, will be the opening up of the UK market and the expansion of existing back-office business processing services. Services currently range from handling the administration of financial and human resources tasks to undertaking sourcing, procurement and disaster recovery activities. The sector generated revenues of $288 million in 2006. This is forecast to grow to $2.4 billion by 2010.

Additional areas in which the Philippines has expertise include medical and legal transcription, engineering design, software development and animation. But the most valuable sector by far is voice-based customer care services. In 2006, this area was worth some $2.3 billion and BPAP anticipates that it will generate a huge $5.3 billion in three years’ time.

Locsin says: “We’re considered a good number two after India and a new trend that’s been happening over the last eight months is that most of the tier-one Indian companies, such as Infosys, are seeing the quality of our services in terms of voice operations, English and a proficient labour pool and are setting up operations here.”

Attracting more customers
He indicates that about 60 percent of services in the country are offered by third-party providers, about 10 percent are indigenous suppliers and the rest are companies that have set up shared service centres or have a direct presence. “We’d like to attract more customers wanting to move their services offshore,” Locsin adds.

Existing third-party providers include Convergys, Sitel, Accenture and IBM, while HSBC, Shell, Procter & Gamble and Deutsche Bank number among the captives.

So what is the appeal of the Philippines as a potential destination and why might UK companies be persuaded to consider it as an option? According to Tony Bruno, who heads up Limebridge’s operations in Hong Kong, China and the Philippines, one of the key reasons is that the country has a very service-oriented culture. Limebridge is a global customer management consultancy and implementation services provider. “Culturally, Filipino people are very attuned to providing good service and the quality of English spoken is very high in the main cities. In my opinion, it has a better quality of English than India and it’s not as strongly accented,” he says.

But he also believes that the levels of service offered by call centres are higher than elsewhere, and adds: “While India has a better reputation for technical support, I, personally, would use the Philippines for any customer service application or element of non-regulated selling.”

Colin Jowett, programme manager for support at Emerson Process Management’s Oracle programme management office, agrees. The US-based company, which provides process control equipment for the chemical, oil refining, food processing, pulp and paper industries, had outsourced the IT helpdesk for its enterprise resource planning system and desktops to Merlin Information Systems about eight years ago.

When the decision was taken to expand the service elsewhere across the group, Merlin suggested setting up a site in the Philippines and staffing it 24×7 to keep costs down, while at the same time retaining management and disaster recovery functions in the UK.

But Matthew Clarke, Merlin’s director for Asia Pacific, dismisses fears about political unrest and instability. He points out that such activity is confined to a small area in the far south of the archipelago, which means that “it doesn’t disrupt the business world round here”.

Playing down unrest
Jowett is equally convinced. “We didn’t have any concerns because we were setting up our own operations there too and we were already starting to see the benefits coming through to the company in other areas,” he says. Such benefits include the fact that Filipino people have “good customer-facing attitudes and are very pleasant to work with. Also their accents tend to be more understandable than other Asian countries and they’ll put in additional hours without being asked or it being expected so you tend to get better support,” he says.

The company is currently lodging about 12,000 helpdesk tickets a month with its Filipino service desk, but, unlike elsewhere, Jowett points out that shift workers are prepared to work nightshifts rather than late shifts, which is “another aspect that is useful”.

Moreover, he indicates that “as long as things are managed correctly”, the Philippines is more cost-effective than alternative destinations, with services “probably costing us about a third of what they would cost onshore”.

But there are downsides to this location. “It’s necessary to have face-to-face time with the teams that are supporting you and from anywhere in Europe or the Americas, it’s a long way and will take a one- or twoweek trip to do it,” Jowett explains.

Time difference challenge
The time difference can likewise pose challenges because “if you want to talk to managers directly on the phone or using videoconferencing, there’s only a limited window when you’re working with different shifts, which is a disadvantage”.

Other situations to bear in mind are that, if potential job candidates are invited to attend a second interview, “it’s expected at that point that they’ll get the job”, which can make for an awkward situation if they don’t. There is also a strong cultural leaning towards looking after staff, which means that executives have to be prepared to join company or group functions or outings or risk making personnel feel snubbed.

Indian advantage ebbs
Another company that has chosen to set up in the Philippines is IT services provider LogicaCMG. It already has operations in India that, according to Mahesh Desai, director of strategy and business development at the company, are “attaining some level of critical mass”. He says this led the company to start thinking about which area of Asia Pacific it could move to next to tap the opportunities there – not least because of escalating wage inflation in India.

“It’s getting quite high now coupled with the fact that if you don’t pay people what they want, you start to lose them so attrition is a big issue,” Desai says, adding the warning that while many UK companies go to India believing that they will see cost savings of between 30 to 40 percent, this is “starting to dissipate, although it varies from service to service. But it’s beginning to impact on the bottom line and so people are starting to look for alternatives”.

After considering China, LogicaCMG decided against it because “the maturity of the marketplace in terms of services and resources aren’t where we’d like them to be. Also for Europe, market acceptance is an issue as is language and the dynamics relating to intellectual property protection come into play.”

The Philippines, on the other hand, was considered attractive because of its US connections and English language capabilities. It also has mature levels of expertise in areas such as SAP-based enterprise applications and human resources BPO, which were important to the company.

Therefore, the firm decided to add the location to its global shared services centre, which also includes staff from Birmingham, Wales, Portugal and India. “It was an absolute walk in the park to set up operations there compared with other countries. There’s a lot of support from the government and we’ve been very happy with the people that we’ve recruited. They have the right skills levels and another thing that’s very important – they’re very proactive,” Desai says

Proactive personnel
For example, he indicates that employees in India tend to be very process-driven, which means that “you tell people what to do and they do it by following process, which is a huge advantage”. But in the Philippines, personnel are “very quick to turn round and say you could do this better and this is best practice elsewhere. So they are more active in making suggestions for ways to improve the company, which is great”.

Nonetheless, Limebridge’s Tony Bruno does not believe that the country is likely to take over the offshore outsourcing world anytime soon. “The Philippines is a much smaller country and I don’t expect it to take over from India. But it does provide organisations with options for labour arbitrage, and enables them to reduce risk by spreading it a bit more so I do expect it to increase in importance.”

Case study: Perot Systems move in
Among the companies expanding their presence in the Philppines is Perot Systems, the Dallas-based company founded by American billionaire Ross Perot, whose Manila operations provide back-office services to US-based clients in the healthcare sector.The firm plans to expand services from claims processing to IT outsourcing to complement its offerings in the US and India. By year end, the firm should be employing 400 workers – a 100 percent increase on the year.

The company has three delivery centres in India, including one in Chennai, which handles healthcare services, including claims processing and other ‘hospital-to-insurance’ processes. This is the model that the Manilla centre will replicate.

Meanwhile, JP Morgan plans to build a back-office workforce of 5,000 in the Philippines over the next two years. The bank will develop credit card and treasury services in the Philippines.


The Philippines at a glance
Population: 91.0 million
Area: 300,000 sq. km (116,000 sq. miles) but 95 percent of this is formed by the 11 larger islands, on which 95 percent of the people live.
Capital: Manila.
Language: Tagalog is the national language. There are over 100 regional dialects. The Philippines is the world’s third-largest English-speaking country next to the United States and the United Kingdom.
Religion: Christian, with a small percentage of Muslims and Buddhists.
Time Zone: GMT +8 hours; EST +13 hours, adjusted to daylight savings time in summer.
Currency: Peso (P), composed of 100 centavos; and peso notes available in denominations of 5, 10, 20, 50, 100, 500 and 1,000. Average inflation is expected to rise to 4 percent in 2008 from 3.0 percent this year.
GDP Growth: The median analyst forecast is for gross domestic product (GDP) to rise by seven percent in 2007, the highest annual growth since 1976 when the economy expanded 8.8 percent. Growth is expected to slow slightly to 6.5 percent in 2008. The Philippines economy grew 5.4 percent in 2006.
Major companies: already operating in the Philippines are AIG, AOL, Barnes & Noble, Chevron, Citigroup, Dell, HP, HSBC, IBM, Intel, JPMorgan Chase, Motorola, Procter & Gamble, Siemens AG and Trend Micro. According to a study by McKinsey, there are at least 120 outsourcing companies in the country.
BPO market: Notable BPO vendors include Accenture, Convergys, Logica CMG and Unisys. Industry associations include the BPO Services Association (BSA/U) and Business Processing Association of the Philippines (BPA/P). The BPO boom in the Philippines is currently led by demand for offshore call centres. The Philippines raked in offshore service generating revenues of $2.1 billion in 2006, placing third behind India and China and slightly ahead of Malaysia. That’s up 62 percent over the $1.3 billion it gained in 2004, and a huge increase from the start of the decade when the outsourcing industry in Manila employed just 2,400 people and the industry had revenues of merely $24 million.

Originally published in outsource issue 13, Winter 2007 p34

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