Philippine Outsourcing:
Facing the Challenges of Labor Supply
by Paul Catiang
Based on a presentation by Nora Terrado

The Philippine branch of the Canadian Chamber of Commerce recently held an ICT Leaders Forum Presentation, in which Headstrong Country Manager Nora Terrado gave a talk on how to capitalize on the Philippines’ advantages as an offshore location for IT and BP outsourcing services.

Ms. Terrado began by citing findings of neoIT, an advisor in global sourcing. As an offshore location, the Philippines ranks second to India with respect to IT services exports and BPO exports. It is also one of the primary preferred locations when it comes to BPO transaction processing, BPO contact centers, and IT application and maintenance support, and is a secondary preferred location for IT application development.

The Philippines also ranked second to India as an attractive offshore location, based on the A.T. Kearny Offshore Location Attractiveness Index, published in 2004. Kearny’s Offshore Location Attractiveness Factors are: favorable cost structure; promising human resource capabilities; a large English-speaking population; a government working to improve image and overall business environment for the BPO industry; investment perks; and available infrastructure.

With respect to the local labor supply, there are several challenges facing the Philippines as an offshore location. Preferred offshore vendors are expected to maintain a talent management system that improves the quality of recruits, maintains continuous people development, and reduces the attrition rate—no small feat, given the high turnover rate in some sectors of the BPO industry.

According to CHED reports, the Philippines produces roughly 400,000 graduates a year, about 105,000 of which hold business-related degrees, with engineering and technology following with 42,000 graduates, tailed by 32,000 graduates holding math- and IT-related degrees. These graduates, if employed in any IT or BP job, will need to be trained in the industry standards set by their employers. Once employed, employers must address retooling and retention and other HR concerns.

Ms. Terrado cited a recent survey, entitled “RP IT Workers Remain Happy Despite Low Pay,” published in July 2005 by the Computer World, which shed some light on what motivates IT workers in the Philippines. Firstly, they perceive that their salaries are not worth their performance, although they acknowledge that low salary increases are better than no increase at all, and that annual small pay increases are still favorable, if not expected. Filipino IT professionals also realize that IT salaries are higher than what is offered by other industries.

Ms. Terrado, who has 15 years IT industry experience, observes that IT employees stay happy because of the clear career path and growth of their line of work. This involves regular skills training and exposure to cutting-edge technology. Some of them derive satisfaction from helping their companies run efficiently, while others are content with the job security they have.

On the other hand, many IT employers, like Headstrong Philippines, are always looking for good talents who can take responsibility and identify strongly with their business goals. They also prize flexibility in employees who can switch to new roles and tasks as needed. This adaptability comes in handy during retraining, ensuring that these professionals can easily apply their training. Lastly, IT employers need workers who can coach and lead others and manage teams. The many people employed by the ITO and BPO industries need capable and nurturing middle managers who can help scale the business and its people.

Specific to the ITO, the other concern from the labor side is the eroding enrollment in IT courses. This in turn affects the number of intakes into the industry, such that graduates in other courses would always need more extensive retraining upon being employed. More than communication skills, Ms. Terrado thinks employers must work on building the confidence and assertiveness level of the fresh graduates.

The time allotted for retraining could be reduced if the university curricula are more aligned to industry needs, making it easier to train people for management positions and assuring graduates with greater depth of technical expertise. This will, however, require more qualified and industry-immersed educators.

One of the greater challenges to overcome is the exodus of skilled professionals who could otherwise have a fulfilling career in the country in general and in outsourced IT services in particular. This includes teachers who are looking for greener pastures in other industries, locally if not abroad.

Factors affecting attrition in the industry includes the search for better pay and better career opportunities. It is a general misconception that the ITO/BPO industry does not provide a clear career path for its employees. Employers must work towards creating career development plans for their people, especially for their best talents. The lack of a human touch or a sense of community within an organization is also a cause of attrition. Many ITO and BPO companies in the Philippines are working on creating a nurturing environment. Filipinos pursuing a dream of going abroad also contribute to the turnover rate in this industry.

Building on this, Ms. Terrado suggests industry-academe partnerships. The industry provides career advocacy, and retraining and retooling programs for existing professionals, giving them a clear career path and opportunities for personal and professional growth.

The academe provides industry-centric curricula, and specialized vocational courses. This will greatly reduce the in-house training period most ITO/BPO workers undergo before being regularized. An enhanced educational system aligned to IT would increase technological and computer literacy, and revising these curricula at least every two years based on industry feedback ensures that students are kept up-to-date on technological developments and innovations.

Both institutions will develop partnerships, allocate funds for faculty training, provide industry internships, administer standard and common testing, and develop bridge programs.

The industry also has the challenge of attracting and retaining manpower, equipping the workforce, and developing industry standards and certifications. Constant retraining and retooling is equally needed, which will eventually lead to developing a pipeline of qualified leaders and managers. This will ultimately create a flexible, predictive, and anticipatory staffing model that will allow the industry to cater to any demand.

Some take-aways from Ms. Terrado’s talk: The Philippines is already in the mindshare of the offshore outsourcing buyers. The Philippines is working on getting better organized, focusing on key niches and building & relentlessly defending its core competence.