Posted: September 4, 2012 |  AUTHOR: KEN FOX | CONTACT ME

 

How many of us have been frustrated by call center operators from India who cannot be understood because they use British English or talk from written scripts. Surprisingly, The Philippines, which used to be a U.S. colony, has recently generated more call center workers than India. It’s not because labor is cheaper in The Philippines but because their “neutral” accents are more like American English. They are also more familiar with American idioms. Analysts say The Philippines has helped U.S. businesses respond to complaints from consumers who say their customers cannot understand Indian agents.

India still leads the world in business process outsourcing (BPO) that involves contracting the operations and responsibilities of specific business functions (services) to third party providers. BPO typically includes back office tasks such as: human resource documentation, accounting, software research and programming, legal processing and research, medical and legal transcriptions and graphic design. Some companies in India even offer radiology services for reading x-rays. India still leads in software development. However, The Philippines claims to have 638,000 people working at call centers, generating $11 billion in revenue annually, which accounts for about 5% of the country’s GDP. In contrast, India had only 330,000 call center workers in 2011.

The Philippines is also more attractive than India because of the high number of college graduates who have less job options to choose from. The Philippines has a better utility structure than India, so there are less or no power outages. Therefore, Philippine call center companies spend less on power generators and (diesel) fuel. There is also easy to use public transportation and safer environments for workers, so Philippine companies do not have to bus their employees to work, where India call center companies may have to. The Philippines’ call center growth, in part, reflects investment from the U.S. and even Indian firms. Some examples:
Indian firms such as: Infosys and Wipro have substantial operations.
India’s Tate Consultancy Services announced in early 2011 that it had launched a business processing outsourced operation in Manila, its first in Southeast Asia.
IBM and Accenture are estimated to have more than 20,000 (BPO) employees
JPMorgan Chase now has over 25,000 workers on its payroll
Other U.S. companies with call center or BPO operations in The Philippines include: Convergys and Sitel.

As recently as May 2012 the Asian Development Bank (ADB) extended a grant of $650,000 to the government of The Philippines to help continued growth in the business process outsourcing sector. The grant will fund a three year, three city program to educate college students in the skills needed through a BPO curriculum. Based on the MOU (Memo of Understanding) issued, “the BPO sectors are recognized as the fastest growing source of jobs and revenue in the country.” The BPO sector is also a priority for the Aquino government, which hopes to increase the industry’s revenue to $25 billion by 2016, mainly through the promotion of higher value BPO services.

The Philippines had a favorable 6.4% growth rate in the first quarter 2012, the second highest in the region only to China’s 8.1% .The unemployment rate in the Philippines is estimated to be 7.3% (2011). The projected BPO growth rates can help strengthen the Philippine economy. However, operating in The Philippines has its challenges. A global Competitiveness 2011-2012 Report by the World Economic Forum (WEF) showed the five most problematic factors for doing business in The Philippines, from a list of 15, include:
1. corruption
2. inefficient government bureaucracy
3. inadequate supply of infrastructure
4. policy instability
5. tax regulations

Data from the 2011 Transparency International Corruption Perception Index shows the relative level for The Philippines and other Asian countries:*
Singapore 9.2 China 3.6
Australia 8.8 India 3.1
Japan 8.0 Indonesia 3.0
Taiwan 6.1 Philippines 2.6
South Korea 5.4 Pakistan 2.5
Malaysia 4.3 Russia 2.4

*The scale ranges from zero to ten, where zero indicates a high level and 10 a low level of corruption (the lower the number the higher the perceived corruption).

Based on a perceived “competitive” weakness, the Aquino administration plans to double the country’s infrastructure in the next six years. This includes twenty-two (22) projects such as roads and airports which have been delayed but identified in the PPP (public private partnership) plan. They also claim to take steps to foster a culture of competition, including setting a priority for promoting anti-corruption legislation, reducing the cost of electricity, improving healthcare services, social protection services and encouraging tourism.

Recent political disputes with China over areas in the South China Sea (called West Philippine Sea) have raised two issues that may impact The Philippine economy.

1. China represents one of the largest tourist markets for The Philippines, which expected 4.2 million Chinese tourists in 2012. However, China issued
a travel advisory cautioning or warning their country’s tourists to perhaps look unfavorably on The Philippines due to the dispute in the South China Sea.

2. Since March 2012, some banana export shipments to China have not been allowed entry. China is an important trading partner with The Philippines, representing about 15% of all their exports.

Final Thoughts
If The Philippines can build on their increased call center success and attract and evolve to higher levels of BPO services, they potentially could create a sustainable industry growth sector for the country. However, the government will need to work hard on improving the country’s attractiveness for foreign direct investment (FDI). Ideally, this would reflect less government corruption, more government policy stability, efficiency, fairness in dealing with business and participating in future free trade agreements.

Sources:
1. At the Front of the Back Office, How the Philippines best India in Call Centres, The Economist, June 23, 2012.
2. The Philippines Economic Update, 2011, Business-In-Asia.com
3. BPO biz: Philippines Overtakes India, The Times of India, November 28, 2011
4. P27.3M ADB Grant to Fuel BPO Sector’s Growth, Philippine Daily Enquirer , May 3, 2012

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