On Thursday the Asian Journal posted an editorial on our favorite subject — outsourcing to the Philippines. Here's my take.
The article, entitled Calling (From) Manila by Arie Y. Lewin and Vinay Couto, appeared in the Editorial section in Thursday's Asian Wall Street Journal. As they see it, the Philippines is a case study for outsourcing growth relatively unfulfilled. There is no doubt they do have a point, yet I suspect that some of the spectacular growth in the Philippines remains undocumented and misunderstood back home in North America.
I'm glad to see their observations of the benefits of locating here. The 90% growth rate last year (valued at $1.7 billion) is fueled by:
- an affinity with North American culture engendered by 50 years of U.S. colonial involvement
- early and efficient telecommunications deregulation (thank you President Ramos)
- high literacy rates, 93% in the Philippines vs. 60% in India
- low average attrition rates, 40% vs. 60% in India
These advances are notably confined to the voice or teleservices sector. One notable exception is SPi's growth under the keen leadership of Ernest Cu, which should be the model for BPO development here in the Philippines.
And this is where I begin to diverge. Messrs Lewin and Couto correctly indicate the sheer volume of college graduates (400,000 in the Philippines and 2 million in India and China each) places the RP in a very secondary position to each of these population giants/emerging economic powerhouses. Leaving aside the relative quality of those graduates for the moment, the heart of the issue is that the Philippines does not really need to win in the same way those countries with newly formed middle-classes; geographic, cultural, and economic dissimilitude; and newly emergent capitalist structures must.
The issue of talent availability is compounded in their view by the lack of requisite enterprise operations to incubate management skilled at running large facilities. There is some truth to broader question of management talent, but for the reason furnished later in their discussion: the Filipino Diaspora. The real culprit is the loss of talent to attractive and more lucrative offshore work (offshore in the sense of the Arab Emirates, North America, Europe, and elsewhere in Asia). The other culprit is the BPO industry's approach to professional development, which is governed by an inherently pyramidal structure wherein ascension is arduous and lengthy.
Additional barriers to BPO growth are identified in the form of scale (again). Due to a small population relative to China and India, Multinational investment in things like "manufacturing, sales, and marketing" for domestic markets retard visibility and growth for offshore markets. Stability and corruption and bureaucracy are further impediments to an explosion of our bigger Asian brothers.
The prescription offered is pretty familiar to those embedded in the BPO scene here in the Philippines:
- stem brain-drain due to departure of skilled talent
- more incentives for foreign business
- create a NASSCOM-like entity to speak to with a clear and unified voice to our overseas markets
Lastly, the article leaves us with the possibility that the Philippines could emerge as an "offshoring center in its own right."
There is no doubt that we as an industry will need to become more effective at retaining talent that finds a more attractive environment outside of the Philippines. This is a complex issue that meshes with aspects of national culture, aspiration, and governmental failure as much as it is a function of better incentive packages and corporate culture.
The current set of incentives granted under the Philippine Economic Zone Authority are strong enough to justify moving operations to the RP (although someone really ought to do something about their website and the appalling instant coffee served at meetings). There are aspects of business that are challenging for an enterprise to contend with ranging from the payroll taxes and the general irritation of bureaucratic interaction, but these are universal issues in my estimation like taxes and governments anywhere.
While a unified voice for the BPO industry here would be a welcome respite form the various entities embroiled in internecine struggles to assume industry leadership, I'm convinced a NASSCOM entity would be impossible here at this late stage. In the meantime outfits like Convergys have over 5,000 agents, People Support announced plans to build a 25 story building for expansion, and Teletech is growing like a demon with 10,000 seats in play or under development.
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