Companies in the Philippines’ Business Process Outsourcing (BPO) sector are increasingly optimistic that their businesses will grow substantially in the next 12 months according to the most recent industry survey conducted by Business Processing Association of the Philippines (BPAP) and Outsource2Philippines (O2P). The survey also revealed that the shift to non-voice and more complex services continues to accelerate.
The results of the survey are being revealed today by BPAP and O2P in the second in a 2010 series of regular breakfast briefings for senior executives. As in the case of previous surveys, this one showed that industry has a strategic concern that could undermine an otherwise rosy outlook. That concern is people. As the industry grows, the shortfall in qualified personnel is becoming increasingly critical.
Much of the world remains mired in recession and economic uncertainty, but that appears to be benefitting the BPO industry as North America and EU clients pursue alternatives for lowering costs while maintaining or increasing services standards. For many smaller BPOs, a significant portion of their client base is closer to home in Asia, where economies are growing faster. They are benefitting from relative regional prosperity.
Industry executives are also upbeat over the improved political perspective of the Philippines. Respondents indicated that the smooth conduct of national elections in May was viewed positively by investors and clients, and over 80% said the smooth transition of power from the previous administration to that of Benigno S. Aquino III had a positive effect on investor perception. Only one percent said the transition had less than a somewhat positive effect on perception of the Philippines by investors.
Although the industry believes it enjoyed a cordial relationship with the administration of former president and now congresswoman Gloria Macapagal Arroyo, respondents said they anticipate an even more productive relationship with Mr. Aquino’s government. That positive outlook may have something to do with the regulatory and incentive environment, which respondents view as good, but not necessarily competitive. They appear to be looking to Mr. Aquino’s administration for improvements.
But just how rosy is the outlook, and where do the opportunities lie? To be succinct, the positive perspective is almost profound, with 65% of respondents indicating their companies will grow between six percent and 50% in the next 12 months. Another 15% say their organizations will grow even faster across a range of sectors. Virtually every value-added sector is growing, including IT services, marketing services, engineering services, value-added back-office processes, content services, and medical knowledge process outsourcing services.
Executives will probably be quick to caution that things could still go wrong, nevertheless. Although not a topic of the current survey, competition is on the rise, for one thing. When I asked a prominent investor in financial shared services last week about competition for investment, he cited Central and South America—specifically Costa Rica—Egypt, and some eastern European nations, particularly Poland. He also said China is a threat. Increasing competition is the top one, two, or three concern for about 40% of respondents.
Increasing competition for investment suggests that the Philippines must ensure that its competitive positioning remains strong, signifying that the regulatory and incentive environment should indeed get the administration’s attention. The biggest threat, however, lies within the Philippines and is the people issue. There are two levels of concern. The first has to do with the availability of entry-level personnel, particularly as Philippine BPO moves up the value chain.
The tight labor market for these knowledge workers is the number one or two top risk area for almost half of respondents. Industry executives say it is imperative that they be able to hire more than the 5-10% of applicants that is presently the norm if the industry is to continue growing rapidly. While the availability of qualified workers has been a chronic issue for the industry, the latest survey indicates that concern is intensifying.
Developing and retaining middle managers is the second level of concern. More than half of respondents – 58% – say this is the number one, two or three most important development issue affecting their capacity to grow. As in the case of entry-level workers, concern over the capacity to develop and retain middle managers appears to be intensifying. This concern will only accelerate as the shift to non-voice, complex services accelerates further.
The BPO and shared services industry is in many respects an economic development miracle. It developed because conditions were positive for growth: Good infrastructure, good people, and a reform-minded government that desperately wanted to create jobs. It can continue to be a miracle, but for that to happen both industry and government must work together to address these concerns – while they are addressable.