Quelle: CIO, Asia
Watch out India, you have competition. Philippine President Gloria Macapagal-Arroyo was in the U.S. in May, partly to chat about the world's problems with George Bush, but also to speak with local enterprises about the benefits of outsourcing their key business and technology processes to the Philippines.
India is presently the world's leading destination for IT-enabled business process outsourcing (BPO): the lion's share of U.S. outsourcing business goes to this country, says Forbes, a U.S. business magazine. And the U.S. alone accounted for 59 percent of the worldwide spend on outsourcing in 2001, says International Data Corp. (IDC), an IT and telecom consultancy.
The good news for the Philippines is that the global outsourcing business has a long way to go before it hits slowdown. IDC expects this business to grow at an annual compound rate of 11 percent during the next four years. And the Philippines is sharpening its tools to slice off a large portion of this expanding pie, because, says Mar Roxas, the Philippine Secretary of the Department of Trade and Industry, his country has the qualities to become an outsourcing powerhouse: a large pool of English-speaking, moderately-waged skilled professionals, a service-oriented culture and a reliable telecom infrastructure.
The AMERICAN link
The key selling point that the Philippines enjoys over India is its close historical relationship with the U.S. It was an American colony for 50 years and, previous to this, a Spanish one for 400 years. In fact it was the Spaniards who introduced Roman Catholicism to the Philippines, which is the religion of the majority of Filipinos. All this has placed it culturally closer to the U.S. as compared with India. "This exposure has made many Filipinos [fairly] competent in engaging an American in a conversation, because he/she can speak in the American idiom and understand American slang," says Roxas. This, in turn, has given the Filipinos a slight edge over the Indians in providing services to U.S. clients, that require direct customer interaction, such as of the type needed at call centres and in telemarketing. "The success we've had with our telemarketers cold-calling potential American customers is [substantially] attributable to this factor: they can engage the other side in a conversation, explaining the variety of products, leading to a close of sale," says Roxas.
This, however, does not mean that India will be washed out in call centre and telemarketing operations. In fact, the call centre business is India's largest and fastest growing outsourcing segment. But, given the cultural edge that the Filipinos enjoy, they are generally cheaper to train than their Indian competitors. This is partly because Indian agents and telemarketers need to be put through more voice training: their accents are heavier.
But accent and cultural adaptability are not the only ingredients of success. Qualities such as education, domain knowledge and training are key determinants as well, especially for higher-end products and services. India is strong in these areas.
The backend
The Philippines is working hard to attract non-personal outsourcing services as well, such as medical transcription, accounting and tax preparation. "With non-personal BPO services, our strength is derived from the similarity of our practices with the U.S. in areas such as accounting, the legal profession and medicine," says Roxas. "For example, our accounting system matches the U.S.'s Generally Accepted Accounting Principles (GAAP) and our university system is modelled on the U.S. system." All this makes it relatively easy for, say, Filipino clerical workers to transcribe medical information that American doctors dictate into a telephone, which is then checked by Filipino doctors, to make sure it conforms with U.S. standards.
Several multinational firms have already set up backend processing operations in the Philippines. Energy giant Caltex International Pte Ltd and household-product manufacturer Proctor & Gamble Asia Pte Ltd (P&G) are examples. Both have outsourced their global accounting and finance functions to Manila, the capital city. "The Caltex Shared Service Centre (CSSC) employs mainly locals to support Caltex business units worldwide," says Marlene Mendoza-Vianzon, research director, IDC Philippines. "The P&G outsourcing centre serves P&G affiliates in Asia-Pacific and North America." A P&G executive was quoted in Forbes saying that a key reason why his company selected the Philippines was its healthy service-orientated culture. "You [just] can't go to any country and expect them to have that [same] attitude," said Randy Reed, vice president of global business services.
Low- to mid-altitude warfare
The Philippines, however, has long way to go before it can match India in providing high value-added services, such as in advanced medical research and complex financial analysis. This is partly because India produces a far larger number of science and engineering graduates and is one of the few developing countries endowed with institutes of higher learning that are comparable with the higher-echelon Western ones. "The Philippine [BPO] industry has acknowledged that India has climbed ahead of the Philippines in the value-added chain," says Mendoza-Vianzon.
"The Philippines has a participation at various levels of the value chain, but most of it is still at the lower end," adds Roxas. But there are areas where the Filipinos have excelled in providing higher value-added services. Telemarketing financial products and services is one example. "This sort of selling requires a seller to engage in a [sophisticated] conversation that cannot be formulated into a script."
India's success in climbing the value-added chain has been tied in with its success in software development. Indian outsourcing service providers have had ample opportunity to collaborate with local software developers, to develop the applications that are needed to support outsourcing operations. In fact, India's software development firms are themselves taking the lead in taking the country's outsourcing industry into higher value-added activity, by diversifying into this sector. Thanks to an Internet boom and Y2K spending in 1999 and 2000, the larger Indian software companies have accumulated large cash piles, which means they have the financial firepower to invest in new business areas. More importantly, these software companies can leverage on their existing client relationships, in marketing their outsourcing services. The Philippines is far behind on these counts. For the next few years at least, the Philippines will find it a lot easier to punch and pinch India in the lower- and mid-levels.
Many-sided jewel
It is not only the availability of a large-pool of university-educated, English-speaking, relatively low-waged workers that give the Philippines the oomph on the world stage. "Our graduates are highly-motivated to undertake such jobs as well," says Mendoza-Vianzon This partly stems from the present anaemic economic environment in the country. The Philippines produces about 350,000 graduates every year, many of whom know that their chances of landing a job that fits in nicely with their academic training are slim. "This is a key reason why many well-qualified Filipinos are motivated to take up jobs as call centre agents and in other types of BPO-related work," Mendoza-Vianzon explains. In the U.S., for example, a high percentage of call centre agents are school graduates or part timers, and, as a result, are likely to lack a strong foundation to provide customers with, say, proficient technical support on the telephone. In addition, because of the low esteem that such work carries here, they are less inclined to be motivated to upgrade their skills or put in that extra effort to satisfy customer aspirations.
On the other hand, in the Philippines--as well as in India--the job of a call centre agent or backend office accountant is a job-of-choice for many graduates. So, right at the start, these graduates are not only better educated than their U.S. competitors, they are, at the same time, more motivated to attain the prescribed quality standards that their employers require.
The sluggish local economy has helped improve the Philippines' cost competitiveness in other ways as well. "Weak demand for office space has depressed rents, even in Manila's prime areas," says Mendoza-Vianzon. Landlords are even offering one-year free rental as long as tenants sign up. "Office space that was going for 800 pesos/m2 (US$15) in Manila's prime locations a year ago, are now going for 600 pesos (US$11.2)."
Other factors that work to the advantage of the Philippines is its reliable telecom infrastructure, which is better than India's. In addition, telecom rates are lower than India's--all this thanks to the liberalisation that started in the mid-nineties. The cost of a dedicated T-1 telephone line between the U.S. and the Philippines has dropped to US$8,000 a month from US$30,000, a few years ago. "I have even heard of companies paying as little as US$6,000," says Roxas. But India's telecom market has been deregulating rapidly over the past one-year and the government has recognised that the modernisation of this sector is critical to the nation's long-term competitiveness. In short, this is an edge that the Philippines will not be able to bank on for too long.
The Philippine government has also put in fiscal incentives, to lure private sector investors into the BPO business. "The government allows 100 percent foreign ownership and is currently offering four- to eight-year tax holidays, as well as tax and duty exemptions on imported capital, to service providers setting up in the Philippines, hiring local workers," says Mendoza-Vianzon.
The Philippines seems to have scored higher marks on security issues, as well. "Some U.S. medical-transcription firms refuse to outsource work to India on grounds of privacy, despite potential cost savings of up to 50 percent," The Economist, a U.K. magazine, reported more than a year ago. India's leading leading newspaper, The Times of India, reported in mid-June that India was just about to enact a law "to protect unauthorised use of data provided by foreign companies that subcontracted to Indian firms." The Philippines, on the other hand, has already enacted the neccessary data-protection legislation. "To date, we have not encountered any mention of data security issues from the clients of local BPO service providers," says Mendoza-Vianzon.
Many aspirants
Although the Philippines is culturally closer to the West than India is, this does not, however, in any way pave the way for it to turkey shoot its way to the top, even in areas that require direct human interaction. Although the Filipinos have been watching American television for a longer time than the Indians have (India's state-owned broadcasting authority hardly screened foreign shows until the early nineties) and the Philippines has a tradition of exporting service-oriented workers (Filipino nurses are desperately sought after by the world's hospitals), India, nevertheless, has had a head start in exporting outsourcing services. As a result, the Indians have acquired a lot of experience in managing person-to-person relationships with overseas clients.
Ironically, the two countries have been co-operating as well. This is because other competitors are looming on the world stage, such as low-waged English-speaking countries including Sri Lanka, Jamaica and Pakistan. It is this competition that has been pushing the Philippines and India to snuggle up to each other, in some areas. "Several Philippine service providers have struck up strategic partnerships and alliances with Indian companies," says Mendoza-Vianzon. "If a multinational company that already had a strong BPO presence in India was looking for another country to outsource some of its processes, to reduce exposure to India risk, it is the Philippines that is likely to be the next choice of location."