e-Services Philippines 2007: Trends in IT and ITES
By Mylene Isip, Joie Llanillo, Iris Mendiola and Paul Catiang

Each year, the IT and ITES companies of the Philippines gather for the e-Services Philippines Global Sourcing Conference and Exhibition, where the professionals and executives of this industry build relationships, touch base and meet new business partners. Most importantly, however, is that the conference also serves as a venue in which to compare experiences in this constantly-growing field and to map out the industry’s direction for the coming year. In 2007, the conference was held at the EDSA Shangri-La Hotel Manila, on February 15 and 16.

Moving up to Knowledge Process Outsourcing (KPO)
The conference was highlighted by several conference tracks, beginning with case studies on BPO best practices. Ralph Schonenbach, CEO of the Trestle Group, spoke on the global platform for vertical specialization and competence in his talk, Survival of the Focused. He posited that BPO companies who focus on certain specializations will survive the transition of present low-end processes to the higher end of the value chain. This echoes the call for more Knowledge Process Outsourcing (KPO) functions in countries where global sourcing is prominent, like in India and the Philippines.

Kiran Karnik, the President of India’s National Association of Software and Service Companies, also spoke on the subject of Knowledge Process Outsourcing, reiterating that outsourced services need not be limited to low-level and low-margin activities. He likewise presented NASSCOM’s collaborative design for cooperative competition: a synergistic partnership between India—the acknowledged leader in outsourcing—and the Philippines—a fast-emerging hub for global sourcing.

The difference between BPO and KPO professionals was discussed in greater depth by Avinash Vashistha, CEO of Tholons, Inc. He observed that BPO professionals are experts in processes, while KPO professionals have a greater focus on the business aspect. BPO professionals are generally college graduates, and their impact on the industry is low to medium only, given their commoditized, industrialized and largely repetitive activities. KPO, on the other hand, requires people with professional experience in their respective fields; they are expected to provide and deliver customized work, resulting in a higher impact on the industry. Greater customization and industry impact in turn yields higher billing rates, as opposed to the low-to-medium rates usually charged by BPOs. Knowledge Process Outsourcing’s reliance on professional experts also means a lessened reliance on IT and telecoms support, unlike a standard BPO company’s heavy use of the two.

Captive Operations vs. Third-party Suppliers Revisited
Outsourcing companies fall into two categories: captive operations—subsidiaries or companies that take on the non-core functions of their parent companies—and third-party suppliers—companies that offer their services to a selection of clients.

Third-party suppliers have the benefit of being able to fulfill demands quickly and to scale their work easily. Such operations are also adept at managing variations in demands. In addition, the wide variety of clients they service means that they can easily compare client standards and develop industry benchmarks. Corollary to this, third-party outsourcers almost always deliver certified quality services.

Captive operations have control and security on their side; as the operation is part of the parent organization, confidential information remains with the company. This in turn addresses data and content piracy concerns. Lastly, the shared service approach captive operations employ leads to the centralization of certain functions.

The drawbacks of third-party suppliers begin with the issue of data privacy, but do not end there. Managing overheads and aligning processes with internal people are also valid concerns in these operations.

Captive operations have their own concerns to deal with. Such operations require a high startup cost and an up-front investment by the parent company, and most companies are reluctant in this regard, especially if the work volume is low. Demand fulfillment is likewise slow in this type of BPO.

Opportunities in Outsourcing
New services in outsourcing are beginning to be offered in the Philippines. One of these new services is in outsourced publishing services. According to Peter Maguera, the Executive Vice President and COO of SPI, the low complexity of publishing functions leads to a high probability of outsourcing. This includes copy editing, typesetting, graphics and conversion services. Potential offshore publishers will need to prove themselves equal in quality to current onshore providers, reasonable in price, and adequately quick in their processes. They also need to contend with communications through time zones, as well as linguistic and cultural barriers. These concerns, however, are best addressed by capitalizing on the Philippines’ affinity for the English language and for Western culture, as well as further training in the field of publishing.

Design Process Delivery is another field for Philippine outsourcers to expand into; Charles Phelps, Managing Director of Fluor Daniel Philippines, describes the workforce as highly adaptable, enthusiastic, trainable, industrious, fluent in English and willing to work in teams. He also finds the country to be hospitable and friendly, with favorable tax incentives. When it comes to challenges, he cites retention issues, excessive and unpredictable holidays, inflexible labor laws and a continuing demand for benefits. Mr. Phelps also observed a dwindling in qualified talent, both in terms of English fluency and technical skills.

Legal Outsourcing is a steadily-growing sub-sector of the business process outsourcing industry in the Philippines. Harlie Llave, Executive Director of B&M Global Services Manila, cited opportunities in legal and paralegal work, namely litigation support, legislation tracking, trademarks management and maintenance, lease abstraction, legal review of non-critical corporate documents, and corporate secretarial services. Other opportunities also lie in non-core activities like documents processing, research transcription, marketing, and other types of creative work.

Jess Dinglasan, President of ISD Philippines, spoke on the opportunities to be found in Distribution and Logistics. Global outsourcing trends are currently leading to high growth in logistics, manufacturing, and marketing as modern trade drives demand for more sophisticated logistics and marketing solutions. Mr. Dinglasan proposed a new business model based on unbundled distribution and a menu of services that includes virtual manufacturing, export logistics, inventory management, credit and cash management, re-packing merchandise, warehouse delivery, transportation management, and other functions that fall under the broad categories of manufacturing, logistics, and sales and marketing. By offering integrated distribution services, the Philippines can provide international clients with a complete range of services they can choose from.

In conclusion, 2006 saw many changes in the BPO industry in the Philippines, leading to a move towards Knowledge Process Outsourcing and greater diversity in the services that can be outsourced in the country.

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Mylene Isip, Joie Llanillo and Iris Mendiola are consultants for the John Clements division, Staffbuilders Asia, which provides a wide variety of outsourcing services, which include temporary staffing, staff augmentation, outsourced payroll services, courier services and several more.