By Riza T. Olchondra, Agence France Presse, Philippine Daily Inquirer
November 14, 2008
MANILA, Philippines—Business outsourcing may not be the most glamorous industry in the world but it is one of the few bright lights amid the doom and gloom of the global financial crisis.
The two countries which have benefited the most from outsourcing—India and the Philippines—expect to see some initial pain from the financial turmoil but the industry is confident it will ride out the storm.
In the Philippines, the business process outsourcing(BPO) industry expects growth this year of between 35 and 40 percent on revenues of around $7 billion.
Rick Santos, the Philippine country chair for global property services company CB Richard Ellis, said the crisis would “actually drive more BPO business to the Philippines.”
“You will see many more companies having to go offshore just to survive,” Santos said.
He said he expects about 502,000 square meters (5.4 million square feet) of Philippine office space to be leased this year, up 52 percent from 2007.
“We are part of the solution, not part of the problem,” Oscar Sanez, chief executive of the Business Processing Association of the Philippines, said in a recent interview.
1 million workers by 2010
The BPO sector expects annual growth of around 40 percent with revenues hitting $12 billion by 2010 and employing 1 million people compared with 300,000 this year.
In India, where the industry generates some $40 billion in annual export revenues, the story is much the same although it admits that it could expect some initial pain.
The sector traditionally views bad times as offering opportunities as Western companies cut costs by moving work to cheaper destinations offshore.
India leads the world when it comes to outsourcing with more than half the global business while the Philippines is a distant second with around 10 percent.
Both countries place a great deal of importance on the sector as its growth creates jobs and much-needed revenue.
India and the Philippines are the preferred destinations for European and American banks and IT companies for outsourcing their back room and call center operations due to the highly educated work force and English-speaking skills in both countries.
Sanez said that despite the financial turmoil, he was confident the BPO industry in the Philippines would continue to see growth.
“Judging from the investor meetings we’ve been having recently our clients will want to ramp up their outsourcing activities in order to accelerate cost savings,” he said.
“The Philippines is in a very strategic position due to its strong and successful experience with BPO, particularly with large American and British multinationals giving it a high level of credibility and trust especially in critical times.”
Sanez conceded that in the short term there could be a “bit of distraction” due to management and ownership realignments in the banking sector.
“But this should not affect outsourcing operations as these are critical functions, especially those that connect with customers,” he said.
Some 85 percent of the BPO business in the Philippines is in banking and comes mainly from the United States.
In India, the BPO industry expects there will be a short to medium term impact on the sector as much of its business is IT-related.
Some of the pain from the bankruptcy of Wall Street giant Lehman Brothers, the sale of Merrill Lynch and the US government's bailout of insurance giant AIG -- all ravaged by credit woes -- is already being felt, according to industry sources.
But it's still very much a mixed picture in India where companies are at best "cautious" on the outlook for the sector and not peering too far into the future because they say that all the dominoes have yet to fall.
The main industry body said it will look at its sales forecast for this financial year to March 31, 2009, in December -- and says it may be revising expectations downward.
But it's not looking any further forward than the current year in number terms, it said.
Sales growth could fall below 20 percent this year from 28 percent last year while decisions on new projects have come to a virtual halt, said Som Mittal, head of the National Association of Software and ServicesCompanies (Nasscom).
"New projects are always the first to feel the hit," said Mittal.
He said sales growth has slowed but added: "Companies are hiring from university campuses for the next quarter," although the frenetic pace has slowed.
"We've got to pay attention to other parts of the world like Japan and the Middle East," said Mittal. "There is no way we can rely so heavily on the US."
Some 60 percent of India's outsourcing work comes from the US and 30 percent from Europe with the rest of the world contributing just 10 percent.
However, Indian firms doing legal outsourcing work are experiencing a mini-boom as a result of the financial turmoil with US bankruptcies, mergers and acquisitions growing by the day and demand growing for help with litigation.
Legal work in India costs a tenth of what US lawyers charge.
Sanez also believes there are many industries outside the banking sector that can be tapped for new business.
“Industries like construction, food, retail and distribution, high tech, heavy industries and the pharmaceutical sectors have yet to be tapped,” he said.
In the fiscal year ending mid-2008, the Philippines generated $4 billion in revenue from the BPO business, slightly behind the $4.7 billion posted by India.
Besides a skilled and educated work force, low cost and good telecommunications infrastructure are among the attractions of the Philippines, according to Canada-based Info-Tech Research Group.
“The continuing upsurge of call centers in the Philippines is attributed to high-quality service delivered by educated English-speaking agents with accents similar to their North American callers,” said Howard Kiewe, senior research analyst with Info-Tech Research Group.
Enterprises that have opened call centers in the country include Dell, Citibank, AOL, HSBC, Convergys, Sykes and Telus.
Most of these enterprises are continuing to expand their offshore call centers despite the economic troubles in North America, said Kiewe’s research note “Contact Center Offshoring: Philippines, the Next Big Destination?” It was published in September.
The Info-Tech Research Group, which has offices in Toronto and in London, said its study was based on data from field research in the Philippines that included site visits and interviews with contact center executives, their workers and industry leaders.