By Debbie A. Uy
Published in The Mindanao Insider,
January 26, 2009
From her ninth floor office in a Davao City business park, Ellen Garcia knows how the global financial crisis is affecting family and friends abroad. “My uncle in the US says it’s really bad in America. I know of people in Japan and Dubai who have lost their jobs,” she says.
Fortunately for her, her work as an executive at a call center offers relative job security, especially at a time when the industry expects more foreign clients looking to outsource to cut costs.
Garcia, who works at an outbound call center, says their company is not adjusting their sales quota. The company even plans to expand their seats from the current 150 to 300 next year.
Another company, an IT solutions firm that now employs more than 100, is planning to hire 50 more by January, says its chief operating officer Eric Manalastas.
Predicts Manalastas, “There will be more clients who will relocate from India to the Philippines especially after what happened in Mumbai and because of India’s political instability.”
The BPO industry believes the effects of the global financial crisis are more than offset by the increased number of foreign clients who want to cut costs. Labor is significantly cheaper in the Philippines. A call center employee here averages P10, 000-15,000 a month compared to $2,500 for Americans.
“The recession is an opportunity for the IT business process outsourcing (BPO) industry,” says Bert Barriga, Jr., vice president of the ICT Davao group. “But we don’t want to make it look like we’re rubbing it in to companies who are having difficulties. Rather, we would like to help by giving them options to cut costs.”
The Philippines is now the third outsourcing destination in the world next to India and Canada. In 2007 the country’s BPO industry generated $4.875 billion in revenues and almost 300,000 jobs. Last year the industry grew 30 to 35 percent, lower than 2007’s 45 percent. The industry expects a “cautious” growth in 2009 of 35 percent.
The local business industry hopes that with more clients outsourcing to the Philippines, they will choose Davao.
“I see the negative effect of the crisis more on Manila-based call centers,” says Lou Pasawa, city director of the Department of Trade and Industry. “Their sales may reduce, so they will cut costs. It will make them go to Davao, where salary and rent are cheaper. The crisis will be positive for BPOs outside Manila.”
There is big room for growth. Of the country’s total BPO activity, 80 percent is in the National Capital Region. Data from the Business Process Association of the Philippines shows only 1.2 percent of BPO workers in Mindanao, where 0.9 percent are in Davao region and 0.3 percent in Northern Mindanao.
Davao City is the fastest growing ICT hub in Mindanao. An industry study recently named it the fourth best emerging site for BPOs. Davao ranked high in infrastructure, cost, and talent.
There are now 57 BPO companies in Davao. These call centers, non-voice services, IT outsourcing to knowledge process outsourcing, occupying almost 20,000 square meters of land. The industry employs 3,000 workers, a 56 percent increase from 2006.
Manalastas predicts the local BPO industry to keep on growing for the next three to four years. More than 30,000 sq. meters of real estate are still available for BPO companies.
But contributing only one percent to the total national BPO workforce, “we’re still way below,” says Barriga of ICT Davao. “We have so much to work on. The good news is that Davao has more potential talents. We are not yet over our capacity, unlike Makati which has absorbed much of the available talent in NCR. They are relying on talents from outside.”
That includes Davao City, where starting BPO workers get an average of P10,000 a month compared to P15,000 in Manila.
But we are losing Davao agents to Cebu and Manila where they are lured by the higher pay, says Garcia.
It is a fact Davao outsourcing companies will more readily admit to: They are more afraid of talent scarcity than the recession.
The fear is not for lack of manpower: Davao City produces 15,000 graduates a year. But the absorption rate of applicants to BPO companies is just 22 percent, according to ICT Davao.
Talent is crucial, says Barriga, because “supply and quality of talent will determine our growth.”
Says Garcia, of at least 50 applicants every day only two or three pass their final interviews for training. “The more urgent problem at this point is where to get qualified people,” she says.
BPO players cite applicants’ lack of English proficiency and high-level technical skills as major problems. Companies have their own training programs but these mean additional cost and time.
Some think it’s a matter of confidence. Joji Ilagan Bian, who owns a call center and schools that offer month-long call center finishing courses, says, “Davaoeños are scared they don’t have the skills. They just lack exposure and training. Compared to other regional speakers, we don’t have accent to begin with.”
For all their optimism, BPOs are already feeling the effects of the global financial crisis.
Manalastas of the IT solutions company says some foreign clients ask for extended credit terms from 15 to 30 days, or renegotiate pricing up to 20 to 30 percent lower. Some request shorter-term contracts.
“We had to review which market we are concentrating on. As much as possible, we prefer those outside the financial industry,” he says. Majority of their clients are foreign companies from Canada, US, New Zealand, Australia, and Europe, while the rest are Philippine-based.
Garcia says it’s now harder for their call center to sell to American consumers. Their clients and target consumers and businesses are all based in the US.
“Fewer people are interested,” she says. “If you sell them DSL, they will say, ‘I’m even selling my computer.’” Sales of accounting and financial services have not grown “because there’s less for Americans to manage,” she adds. “They’d rather manage their money on their own.”
“The initial effect will be increase in number of clients because they will cut costs,” she says. “But what if consumers and businesses we call don’t make appointments or buy products? No appointments and sales for our clients, no pay for us. We will lose clients. If no one gets the products and services of BPO companies, what will happen to us?”
She says their company is preparing by choosing people well. “We do not maintain people who do not produce. We are a performance-based company and have daily and monthly quotas. If the agent does not reach the quota, we drop them from work. So we are able to trim our staff and still maintain or exceed the productivity level,” she says.
The BPO industry goal by 2010 is to generate $12 billion in revenues and one million jobs. Of that, Davao expects to contribute 1,500 more jobs, says Barriga.
“A million jobs in 2010 may be difficult to reach if we focus on just voice service. That is why we are promoting a shift to high-value services. Even if it’s difficult to reach, it doesn’t mean we should stop trying,” he says.
Should the financial crisis direly affect BPO companies in Davao, the impact to the community will not be felt as deeply as in Manila.
“The BPO industry’s impact to the local economy is hard to gauge in terms of revenue,” says Pasawa of DTI. “Call centers here are mostly branches of Manila offices. Sales are computed not in Davao but in Manila or where the clients and customers are based.”
The benefits to Davao come indirectly through jobs generated, the salary in circulation that will be spent, operating costs, and rent. “The city will directly benefit from taxes on business operations like real estate. But it’s not the BPO paying the taxes. It’s the local land owner,” says Pasawa.
“Impact of BPO to the community?” asks Barriga. “Not much, which in these times is both good and bad.”