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BPA/P Roadmap 2010
By Paul Catiang
This article is based on a presentation given by Oscar Sañez, President of the Business Processing Association of the Philippines (BPA/P), at a John Clements business forum on October 23, 2007.
“Offshoring and outsourcing is a large and growing industry with the Philippines among the top three country players today,” said Oscar Sañez, President of the Business Processing Association of the Philippines, at a John Clements-sponsored business forum at the Manila Golf Club. He continued to say that there is unparalleled opportunity to grow the country’s share from 5 percent of the global market in 2006 to 10 percent by 2010, with growth from US$ 3.3 billion to US$ 13 billion in revenues—a full 8 percent of GDP. The O&O workforce is expected to grow from 235,000 to 900,000 direct jobs—10 percent of jobs created in the Philippines. The industry’s growth comes with other economic benefits: increased tax revenue and skill development for Filipino professionals, for starters.
This sudden influx of opportunity in the country, however, highlights the need for some way of controlling and maximizing these prospects. Does the Philippines have a talent pool ready to fill the ever-increasing job requirements of offshoring and outsourcing? What is the business environment doing to encourage and support O&O companies? Are there cities outside of Metro Manila ready with the infrastructure to host these O&O companies?
BPA/P’s Team 2010 has developed a roadmap for the industry as whole, to chart out its path and name the goals the industry has to achieve by that year. The team presents a global picture of the supply and the demand within global O&O. According to Mr. Sañez, the demand is that only 11 percent of global addressable market is currently captured. With O&O becoming more reliable in the eyes of organizations needing those services, offshoring is now moving away from labor arbitrage to tapping global talent. Organizations are looking for new processes and services to offshore, like engineering services, R&D, and so on. New source markets are also emerging; North Asia is one such market.
On the supply side, one looks at the countries hosting growing O&O industries. India, a pioneering country in this industry, is already facing tremendous pressure on talent and infrastructure, with rising salaries and attrition levels, quality issues in voice-based services, and infrastructure bottlenecks. For the time being, competitors are still behind India in BPO and IT services, with some emerging industries in China, Vietnam, and South Africa. The Philippines has a distinct advantage on the supply side, due to its English-speaking population and several fast-growth, high skill-based slivers, like in F&A and Animation.
Without active assistance from BPA/P and other O&O associations, the industry in the Philippines is projected to have a baseline growth rate of 15 percent, which amounts to 4 percent of the market share by 2010. At its current rate, however, the industry continues to hold at 6 percent of the market, with 25 percent growth. BPA/P aims higher, for 40 percent growth and 10 percent market share by 2010—worth US$ 13 billion.
Taking this slice of the pie will generate 600,000 new jobs, with an additional 1.2 to 1.5 million indirect jobs. Real estate is expected to grow by 174 percent, with 2.6 million square meters taken up by the industry. Telecommunications revenues are also expected to soar by 283 percent, or US$ 460 million. All these are the goals set for 2010.
To achieve these goals, BPA/P’s Team 2010 has named six key issues which it aims to address:
Suitable and abundant talent
The team has projected that the industry needs to recruit over one million new people into the industry to reach the 10 percent market share goal. A significant percentage of top talent will be needed in emerging areas outbound to other markets, such as nurses, engineers, and accountants. The industry should also address the mismatch in location density between providers and labor to tap into smaller labor pools; this also serves as a good reason to cultivate next wave cities as O&O locations.
Operational performance
Emerging wage pressures reflect accelerating growth and a lack of transparency on wages; the team sees a need to curb these rising costs. Also, salaries appear to be growing faster than billing rates, making it necessary to enforce operational excellence, scale and migration to high-value services.
Quality infrastructure
Availability is also emerging as major issue, as Metro Manila rental space can only reach 68 percent of the revenue target. Given market uncertainty, facilities are now only being built on commitment, which in turn slows time-to-market. Rental rates are also rising sharply in Makati Central Business District, giving a greater sense of urgency to developing next wave cities.
Conducive business environment
The industry needs to ensure that the current incentive regime continues to sustain competitiveness. Since most locators are concentrated in NCR, other cities may not be O&O-ready. BPA/P is likewise under-resourced, making its job of developing infrastructure for next wave cities more difficult. However, with good investor support in the pre-investment phase, there is potential to improve during the execution phase.
Risk management
Lastly, the team aims to address persistent issues around critical risk factors that affect investors’ decision to locate in the Philippines, like IP protection and data privacy.
Of the above key issues, the team sees four broad themes: Talent, Next Wave Cities, the Business Environment, and the team’s role in helping the industry achieve its goal of 10 percent market share by 2010.
Talent
One million additional recruits are needed by 2010 if the Philippines is to achieve its aspirations. The team states this in no uncertain terms. To increase talent flow to the O&O industry, five key levers need to be pulled.
Availability – The Lack of funding and perceived low pay-out on education are resulting in high fallout rates. According to the Department of Education and the Commission on Higher Education, only one of every seven students who start Grade One finishes college.
Suitability – A large proportion of applicants do not meet the skill requirements of the O&O industry, from the English language requirements to problem-solving skills.
Willingness – Most young professionals and students are misinformed on the nature of and the opportunities available in O&O. Perceptions of call center work and a general lack of transparency in the career path enforce the belief that O&O offers only dead-end jobs. This is further emphasized by the industry’s lack of social recognition as a viable career.
Accessibility – The industry is currently concentrating on Metro Manila as a prime location, as it has around 25 percent of the country’s graduates, but also houses around 80 percent of BPO employment.
Stickiness – The industry has a high exit rate—approximately 18 percent annually, mostly due to screening errors during recruiting, which let in individuals who have a difficult time staying with their jobs.
The team has also conceptualized five thematic programs to draw an additional 290,000 to 560,000 recruits.
First, a comprehensive assessment and training program must be developed for tertiary-degree graduates and university drop-outs with minimum two years’ tertiary education. This will better prepare them for the requirements of the industry.
Second, the team wants to improve people’s awareness of career opportunities in O&O, again targeting tertiary-degree graduates, and university drop-outs with minimum two years’ tertiary education. An additional target demographic here are career shifters, looking for employment in O&O.
Tapping alternative talent pools is also an option, like non-traditional pools which include college drop-outs with less that two years tertiary education, high school graduates who do not enroll in college, housewives, and retirees. Non-Metro Manila graduates make up another pool.
Fourth, the team aims to improve the ability to fund training programs for drop-outs with less than 2 years tertiary education and high school graduates who do not enroll in college.
Fifth, the team encourages focusing on responsive curriculum changes, which will target high school graduates.
These five thematic programs, if fully successful, will take the industry close to its 2010 aspirations. These programs will provide both skill training and on-job experience applicable to any employment.
The team also has a Talent Management Partnerships program to pilot initiatives, which will have several added values: a single point of contact for testing of initiatives; a funding vehicle in the form of the BPA/P Educational Trust, sourcing from government, and tax-deductible sourcing from the industry. The Talent Management Partnerships program will also capture best practices, distribute development costs, conduct concurrent pilots, and serve as a critical channel for scaling up select programs.
The Talent Management Partnerships program has activities that include creating a constant pipeline of ideas; developing talent initiatives as needed; monitoring results and support implementation; and driving the scaling of best initiatives and key channel for roll-out.
Business Environment
The Philippines’ business environment is one of the key buy factors in the O&O investment decision, according to BPA/P’s Team 2010. To contextualize it, studies show that the business environment has a large impact in both attracting as well as retaining investments, and that it is a critical barometer for gauging investment risk. Countries like India and China have taken significant steps in improving their respective business environment.
The team names the key elements of the Philippines’ business environment: financial incentives given by the government to attract offshore investments in O&O; investment support, like single-window clearance and other processes to facilitate investments and setup; risk perception, which includes political risks, security risks, intellectual property rights concerns, and data protection risks; industry support in the form of overall national and local government policies and proactiveness towards the industry.
There are also initiatives directed towards improving the business environment and which address key issues. These issues include a lack of institutional framework during set-up; a weak risk perception; and mixed messages on government support. BPA/P has chosen three key areas on which to focus their efforts.
First, the area of public policy can be amended to protect current the incentive regime, simplify the incentive process and expedite data protection regulation. Promoting the Philippines as a destination is the second area of focus. A risk survey of the country can reassure investors of the Philippines’ security as a destination, and enforcing the Year of Information Security will serve as further proof of the country’s conviction in tightening its security processes. Third, BPA/P intends on working on investor support through certifying set-up advisors certification, creating a portal and a helpdesk for the association, and initiating an operational excellence program.
Aside from focusing on the abovementioned areas, BPA/P is also proposing a working group to sustain the efforts for
addressing these business environment issues. The Business Environment Working Group will coordinate its efforts in five directions.
With regard to the industry, the working group will provide an insider perspective on whether proposed business environment initiatives will deliver desired results. It will also sponsor various BPA/P programs and contribute information and influence to further adopted initiatives.
The group will also name BPA/P Ambassadors and External Relationship Managers to proactively engage with key
O&O influencers, lend a voice representing the O&O industry nationally and internationally, and position the Philippine O&O industry’s views and interests.
It will also act in concert with the government to safeguard current investment incentives, support the O&O industry in creating favorable regulatory framework, and internally lobby for needed policy changes.
Certified Set-up Advisors are also on the Working Group’s agenda; they will provide end-to-end quality assurance for investors setting up operations in the Philippines and assist investors with government approvals.
On the legal end, the Working Group will provide end-to-end quality assurance for investors setting up operations in the Philippines and will assist investors with government approvals.
Next Wave Cities
Industry concentration in Metro Manila can drive up labor and rental costs, eroding the Philippines’ competitive advantage. In the past two years alone, office lease rates have grown by 350 percent to around PhP 1,000 per square meter per month, after a steady average of 5 percent from 2002 to 2005.
BPA/P aims to provide services that would encourage development of Next Wave Cities. The association plans on working with investors and locators, real estate developers, utility providers, colleges and universities, the national government, and local government units to gain a bird’s-eye view of the relative readiness of Philippine cities to host O&O operations.
This inquiry will look for the gaps in a city’s infrastructure, any specific expertise it may have, its current O&O operators, and so on. In addition, BPA/P will also assess the various outsourcing slivers currently existing in the Philippines and which ones have a natural fit for the country.
Eventually, every city considered for hosting O&O operations will be rated according to BPA/P Scorecard, a system which rates cities according to their readiness to supply talent, infrastructure, and a suitable business environment for outsourcing companies. For example, the scorecard includes the number of graduates and non-graduates living in a given city, living within 50 kilometers from the city, and so on. Accredited schools and programs are also taken note of, as well as the existing infrastructure, the costs, and the business environment.
In Conclusion
Offshoring and outsourcing still holds a lot of promise for the Philippines, which is one of the top three country players today. BPA/P’s strategy involves addressing the three key themes—talent, the business environment, and next wave cities—with a clear set of initiatives and an institutional framework that will sustain the momentum built up in previous years. BPA/P’s Roadmap 2010 aims to leverage the Philippines’ intrinsic strengths in voice services, data transcription and simple back-office processes, consolidate its position in these areas, position the country in the adjacencies of customer care and other voice processes, and eventually move up the value chain, building a reputation for operational excellence.
Sources:
Interviews
The Department of Education
Commission on Higher Education
McKinsey Global Institute
Business Processing Association of the Philippines, team analysis
Asian Development Bank Statistical Database
Colliers International Research
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