Industry Research : Philippines Lifted by Outsourcing Boom
A phone call from the U.S. related to a broken home computer, a magazine subscription or an insurance claim is typically expected to be routed to a call center in Bangalore or Mumbai.
Increasingly, that call may also end up in Manila.
The Philippines’ fast-growing business-process outsourcing industry has turned the Asian nation into a major center for off-shored information tech services. The country recently passed India as the world’s top outsourcing destination, according to a report by the services arm of International Business Machines which has a major presence in the country.
The outsourcing industry has become a major driver of employment growth, highlighted by the presence of major IT services companies such as IBM, Accenture and Convergys.
However, that growth has come at a cost, as the industry and the Philippines struggles with social issues among young workers who sleep during the day and work at night — and for whom happy hour is 6 a.m.
"Ten years ago, we had maybe about 25,000 people in the industry," said Jose Mari Mercado, business development director at Convergys in the Philippines, who said that number reached about half a million last year.
"The interest in the Philippines has really grown tremendously in the last five years," he added.
While business outsourcing is typically associated with call centers, the industry actually covers a range of IT services, including customer relations, human resources, accounting and even more specific functions, such as mortgage processing.
In 2010, the Philippines’ IT and business process outsourcing grew 26% to $8.9 billion, according to the Business Processing Association of the Philippines. Workers and professionals employed by the industry grew by 24%, the industry association said.
Globally, outsourcing is expected to grow at an annual rate of 5.3%, reaching $191 billion in 2015, according to an IDC report.
"The BPO services landscape has crossed the chasm and is now poised to significantly impact the efficiency of a customer’s operations," analyst Mukesh Dialani said in a statement.
Last month, Standard & Poor’s issued a neutral outlook on the overall IT consulting and services, citing "an elevated level of caution on spending on IT services that were more discretionary in nature." But S&P, citing data, also pointed to "pockets of strength" including projected growth in business outsourcing.
Like India, the Philippines steadily emerged as an outsourcing center due largely to an educated, English-speaking workforce, a legacy of its colonial past. The Philippines was a colony of the United States in the first half of the 20th century.
India initially became the choice destination given its higher profile in the tech industry. But Mercado of Convergys said the Philippines steadily caught up as corporations, many of them based in the U.S. and covering a range of industries, grew more familiar with its capabilities.
"They meet the people and they get to talk to agents and suddenly they realize these guys not only speak English, but they know American culture — they know what the U.S. is like," he said.
Benedict Hernandez, a senior executive at Accenture in the Philippines, also cited an international development that helped draw more attention to the Philippines: tensions between India and Pakistan in the early 2000s.
"What we saw around that time speeded conversation on our client side on doing work in the Philippines," he said. "I think people woke up and said, ‘What if something happens and we’re heavily invested in one geography?’"
Convergys now has roughly 25,000 employees in the Philippines, mostly in Manila, but also in other cities such as Cebu and Bacolod in the central part of the archipelago.
The Cincinnati, Ohio-based company is focused mainly on customer relations, offering call center support for companies in different industries, including telecommunications and publishing.
Another major player, Accenture, offers a broader range of services, such as handling finance and accounting of big companies, as well as processing health insurance claims. Accenture has more than 20,000 employees in the Philippines.
At an Accenture facility in the bustling Eastwood district of Metro Manila, employees set up and run the software applications of a telecommunications company, including the systems used for billing and taking orders from customers.
At another facility, called Cybergate, an Accenture team remotely manages a pharmaceutical company’s finance and accounting operations. Another team designs, tests and conducts high-level trouble shooting for another company’s telecommunications system.
"We’re able to provide labor arbitrage for them," said manager Sherwin Isip, referring to the labor cost savings for outsourcing clients.
Starting salaries for Filipino employees at call centers are roughly 40% higher than other workers in the country, Mercado of Convergys said. That translates to roughly $5,000 to $6,000 a year. Technology professionals get paid more.
Lack of experience
With the attractive pay by local standards, the Philippine outsourcing industry, in roughly a decade, has changed the country’s employment landscape, especially among young Filipinos.
Because outsourcing is still a young industry with a young workforce, finding experienced and talented managers has been a challenge.
"This is a nascent industry," said Marife Zamora, Convergys’s managing director for the Asia Pacific. "It only started 10 years ago. So if you’re looking for your operations management resources with the depth of knowledge and experience, you will not get a 20-year veteran."
Lito Tayag, country managing director for Accenture in the Philippines, said, "The growth that we need would require more people to manage that growth."
"But because it’s a relatively young and relatively small industry -- at least relative to India -- we don’t have enough of those leaders to actually grow at the level we want to grow," he added.
It also took time for outsourcing to be understood and accepted by society as a whole. Mercado of Convergys said some agents said their parents would tell them, "I sent you to college and you’re becoming a telephone operator."
Other issues have plagued the industry, including concerns about sexually transmitted diseases among call center workers and their highly-unusual working hours.
"We basically live in Central, Eastern or Pacific time depending on the account," Donna Sales, a call center worker, said. "So while the whole Metro Manila is awake, we’re asleep. And while they sleep, we work."
Effects of the job
Restaurants and shops have sprouted in areas where outsourcing centers are located to cater to the night owl work force. Some restaurants even offer happy hour drinks at six in the morning.
"Because that is six o’clock in the evening in their body clocks," Mercado of Covergys said. "And we had to help the hotels understand this."
Sales, the call center worker, said it "was pretty strange at the start to start drinking at maybe 5 a.m. or 6 a.m."
"When everybody is starting to wake up, that’s when you’re starting to wind down," she said. "There wasn’t a lot of drinking places for that. Now there are a lot. … And they know that with the stress and the nature of the job people from this particular industry like to drink after work."
Beyond the quirky lifestyle and odd work hours, Jeffrey Sallaz, a sociology professor at the University of Arizona who has been studying the call center industry in the Philippines, said a big question is the industry’s long-term impact on other professions and professional needs in the country.
"A key issue is where that human capital is being diverted from," he said, adding that the Filipinos drawn to the outsourcing field are "educated, professional workers doing narrow, specialized tasks for these big corporations."
Sallaz worked as a call center employee for about a year as part of his academic work. He described the work as "repetitive, stressful, boring, unhealthy, in the sense that you’re sitting in a chair, drinking soft drinks and starting at a computer screen."
But he did cite one apparently positive impact of the industry. In a country where young college graduates typically leave the country to find higher-paying work, the outsourcing industry has given them another option.
"It may be one of the un-anticipated and unintended consequences of the industry is to keep the educated workforce in the country, people who would be trying to go abroad ten years ago."
Hernandez of Accenture affirmed this point, saying, "We’ve created a viable option of if you want to earn a lot and have a very good career you don’t have to leave the country."
"To me, that is a social plus, to keep them here versus they have to leave their families because they have a better income," he added.
Posted by Veronica Silva Cusi, news correspondent
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