From City Center to Provincial Periphery:
How Outsourcing Can Spread to Philippine Provinces
By Paul Catiang

This article is based on a presentation given by Tully Moss, President of the Magellan Alliance, on April 25, 2007, at the Mandarin Oriental. His topic was the future of outsourcing in the Philippines.

Of Mice and Movement
There are many variations on the story of the town mouse and the country mouse dating all the way back to Aesop, but the story is almost always the same: the country mouse gets a visitor in the form of his more metropolitan cousin, the town mouse, who is dissatisfied with the country mouse’s poor country fare of bacon and beans. He invites his provincial cousin to the town, where they dine on fine food—cakes and ale—but are chased off by dogs. The country mouse runs back to his hometown with this parting shot: "Better beans and bacon in peace than cakes and ale in fear."

In today’s world, crisscrossed by fiber-optic lines and the flight paths of commercial airlines, a kind of decentralization is taking place. The differences between town mice and country mice are slowly dissolving into each other. The phenomenon of global outsourcing is evidence of this dissolution, where non-core business processes—human resources, finance & accounting, payroll—sat side-by-side with their parent companies’ core competencies, now make up the core business of outsourcing firms. The West, once the center of global economic trends, now finds its business dispersed all over the globe, thereby rendering the world flat once more.

The same applies to business process outsourcing in the Philippines. While most BPO operations are in the National Capital Region, several more are opening in the provinces. John Clements has worked constantly to make the Philippines a more viable outsourcing destination, both by marketing the country’s capabilities abroad and by encouraging local academic and government institutions to enhance the capabilities of the talent pool and to improve the country’s infrastructure. Now, John Clements, with the aid of Tully Moss, President of the Magellan Alliance, has just finished a study of the Philippine provinces with regard to their viability as outsourcing destinations. While Metro Manila—the National Capital Region—remains the hub of outsourcing in the country, the provinces have talent pools that still haven’t been tapped. Most professionals from the provinces go to Metro Manila or to other countries to find employment; outsourcing gives them the opportunity to work in their own hometowns and at the relatively higher pay scale the BPO industry offers.

The Hub of Activity
In many ways, Metro Manila is still the center of outsourcing potential in the Philippines. First of all, the country’s top universities are found in the metro: the University of the Philippines—both Quezon City and Manila campuses, the Ateneo de Manila University, and the De La Salle University, as well as several notable universities like the University of Sto. Tomas, the Far Eastern University, and the Mapua Institute of Technology, among others. These universities, along with many others, produced 103,299 graduates in the previous academic year.

Second, Metro Manila already plays host to several outsourcing operations, and the capital has already adapted to this new development. Outsourcing-oriented training programs abound in the capital, offered by both the private sector and by government, and even the academe has participated in the development of these programs.

Third, Outsourcing in Metro Manila has pervaded Filipino society enough to the point that a subculture of outsourcing professionals has sprung up nearly overnight. Most Metro Manila residents are familiar enough with the night shifts and the callers generally associated with such work to the point that outsourcing has been featured in a few local movies and a handful of pop songs.

This does not, however, mean that outsourcing is only thriving in the capital. Several Philippine regions have begun to show promise as BPO destinations, gradually bringing business from the country’s center to the periphery.

Education in the Provinces
The aforementioned top universities in Metro Manila also have campuses all over the country. The University of the Philippines, for example, has campuses in Baguio, Los Baños in the CALABARZON, the Visayas, and Mindanao, aside from offering distance education through its Open University. The official title of Jesuit institutions of higher learning in the Philippines, the Ateneo maintains campuses in provincial city capitals, namely in Cagayan, Davao, Naga, and Zamboanga. Established by the De La Salle Brothers in 1911, the De La Salle University has, over the years, grown to 18 institutions with campuses in the CALABARZON, the Visayas and Mindanao. The University of San Carlos, Siliman University, and Bicol University are only some of the many higher learning institutions all over the country.

From among the three main geographical regions of the Philippines, Luzon is producing the largest number of graduates. From among these universities, the Philippine government has identified several institutions as centers of excellence and development, and most of them are found in Luzon. According to statistics from the Professional Regulation Commission (PRC) and the Commission on Higher Education (CHEd) show that Luzon is also the location of four of the five best performing schools in terms of licensure examinations (the University of the Philippines-Diliman, the University of Sto. Tomas, St. Louis Univesrity, and the University of the Philippines-Los Baños).

In the previous academic year, each of the provinces produce somewhere around 13,000 up to over 35,000 graduates, with this number slowly growing each year.

Cities in the Philippines with the Greatest BPO Potential
In its study with Tully Moss, John Clements has identified the top cities for education in the Philippines. While the National Capital Region still produces the most graduates, others are gradually catching up: Baguio, San Fernando in La Union, Angeles City, Davao, Naga, Iloilo, Cebu, and Cagayan de Oro.

Mr. Moss and John Clements have compiled and analyzed data and have developed a formula to get a rough cut of the potential BPO workforce in an area. The formula accounts for four sources of workers: direct hires of recent college graduates; trained near-hires among recent college graduates; local shifters from other lines of work; and migrants from the surrounding region (including both workers and recent college graduates). The formula assumes the following:

Using this formula, the study has identified a few cities whose capacity for sustaining BPO operations has been underutilized. These cities are San Fernando in La Union, Naga, Baguio, Cebu, and the Clark Freeport Zone.

A set of criteria has also been developed to assess potential BPO locations as to their potential attractiveness. The first group of criteria is in human resources, which includes language, managerial talent, scalability, and the competitiveness of the environment. The next group of criteria deals with infrastructure, assessing the telecommunications, electricity, the availability of A-level commercial space, and the ease and speed of access to hotels and airports. A potential location is also assessed with regard to its exposure to natural catastrophes, which in the Philippines’ case comes in the form of seasonal monsoons. Local government support comes last.

With these criteria in mind, several Philippine cities were assessed and ranked thusly:

1.   Cebu
2.   NCR
3.   Clark
4.   Baguio
5.   CALBARZON
6.   Davao
7.   Cagayan de Oro
8.   Bacolod
9.   San Fernando (La Union)
10.  Iloilo
11.  Tarlac
12.  Subic
13.  Naga
14.  Cabanatuan
15.  Dumaguete
16.  Dagupan
17.  Malolos

National and Provincial Initiatives
The Philippines’ potential as a BPO location is a vision shared by several provinces, some of which have already taken steps toward marketing their capabilities to foreign investors, cultivating their local talent pools, and developing their infrastructure.

The Camarines Sur Information Technology Park
Camarines Sur, for one, has recently experienced a surge in growth, mostly through the efforts of Governor Luis Raymund Villafuerte. His initiatives have spurred several new developments in Camarines Sur, beginning with the Camarines Sur Information Technology Park. This facility has the distinction of being the first IT Park that is owned and managed by a local government unit in the Philippines. Aside from other objectives, the IT Park aims to augment the training provided by Camarines Sur’s six universities and 32 colleges. Among these institutions are three prominent universities: the Ateneo de Naga, the University of Nueva Caceres, and the Universidad de Santa Isabel.

The Camarines Sur IT Park offers English Proficiency Training, and has produced over 1,500 graduates in 2006. This number is projected to more than double in 2007. The facility also has a Japanese Language Learning Center, which aims to develop language skills in Nihongo and encourage Japanese investors to bring their business to the Philippines.

The Animation Training Center likewise taps into the creativity of Filipino talent, and has produced approximately 100 skilled animators in 2006.

Lastly, the facility also houses the Camarines Sur Medical Transcription Center, which boasts of a 99 percent accuracy rate, and is operated by the provincial government.

The Cebu Educational Development Foundation for Information Technology
In the Visayas region, the Cebu Educational Development Foundation for Information Technology (CEDF-IT), a consortium of industry, academe, government and NGOs, seeks to increase the quantity and improve the quality of professionals in the Information and Communications Technology and IT-Enabled Services Industry through proactive intervention in the HR development sector.

CEDF-IT has several flagship programs in place just to follow their mandate. The foundation’s IT Teachers Academy serves as the venue, means, and catalyst for promoting and sustaining the culture of excellence in IT teaching. The Professional Certification and Training Center ensures quality and competence in ICT professionals, responding to the needs of local and global industry. CEDF-IT also conducts human resources surveys and monitors HR practices to generate a set of baseline data on the supply side to develop Cebu as a supplier of IT skills for the ICT industry. These are only some of the CEDF-IT programs in place that make Cebu a more viable BPO destination.

The Philippine Cyberservices Corridor
The biggest initiative of them all is the Philippine Cyberservices Corridor, a plan that is being pursued by the government of the Philippines to create interconnected centers of technology-related services that are spread out all over the country. Services include business process outsourcing, medical transcription, and the like. It is part of the ten-point agenda of President Gloria Macapagal-Arroyo and is one of the five "super-regions" outlined in her 2006 State of the Nation Address. The corridor will stretch 600 miles from Baguio in the north to the Zamboanga in the south. The corridor is served by a ten-billion-dollar high-bandwidth fiber-optic backbone and digital network. This initiative is expected to generate one million jobs, which in turn will create a new middle class and spur regional development from Baguio to Zamboanga.

Painting the Bigger Picture
If one were to paint the Philippines’ outsourcing picture, the canvas would look like the painter has focused more on the National Capital Region. Automatically thinking that Metro Manila is a viable BPO location in the country is easy; what John Clements and several other organizations have been doing is to show that the capital is not the only viable location. Through these efforts, both local entrepreneurs and solons and foreign investors’ eyes are drawn to other places on the canvas. What these areas still lack in brushstrokes—so to speak—they make up for in potential. This is potential that can be seen in the number of graduates produced by these regions each year, the growing infrastructure, and the strong support both from the government, support that ranges from local government units all the way up to the Office of the President.

In keeping with the spirit of decentralization fostered by global outsourcing, the BPO industry will spread to where the talent is abundant and where the government cultivates its growth.

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* The exact percentages of these assumptions are confidential.