beyondbrics

Ask Filipinos why their country is less prosperous than its neighbours, and they often point to its history – jokingly described as 400 years in a Spanish convent and 50 years in Hollywood. But that odd cultural heritage has economic uses, especially when it comes to call centres.

For the first time, Philippine call centres are expected to have higher revenues than their Indian counterparts – suggesting that young Filipinos’ enthusiasm for US movies, music and basketball is not a waste of time after all. The country’s call centres will generate $5.7bn this year, compared to India’s $5.5bn, according to analysis group Everest Research.

The Philippines’ entire business process outsourcing (BPO) industry remains far smaller than India’s: revenues are $9bn, behind India’s $70bn. It employs just over 520,000 people, while India’s employs 2.2m.

But on “voice-based services”, namely call centres, the Philippines is in the lead. It has around 350,000 employees, while India has only 330,000, says industry group Business Process Association of the Philippines (BPAP), citing Everest Research’s numbers.

That reflects the Philippines’ advantages: a large base of English-speaking college graduates and close cultural affinity with the US, its former colonial ruler and the biggest market for offshore call centres.

Put simply, the familiarity with US pop culture is a competitive advantage. Call centre trainers say new hires in India need several weeks of accent neutralisation and are sometimes asked to watch music television. In contrast, Filipinos are exposed to MTV from their teenage years, if not before.

Call centre agents add that, when engaging US callers in smalltalk, it helps to know who’s winning in the NBA. The Philippines has no shortage of basketball fans, as Kobe Bryant has found out on tours to the country (see picture).

Do labour costs also point in the Philippines favour? IBM says so in its Annual Report on Global Location trends, published in October 2010:

The Philippines offers a similarly attractive business environment for international business support functions as India, but has not had the same labor cost increases as have occurred in various Indian ‘hot spots’ in recent years.

According to the BPAP, the industry lobby, the Philippines is cheaper than China, if not always India. It estimates direct operating costs (salaries, training, attrition costs plus equipment and telecoms) at $15-16,000 per employee per year in the Philippines, compared to $14-17,000 in India, $16-17,000 in China, $20-25,000 in eastern Europe and $21-23,000 in Mexico. Philippine costs are 60 per cent below the US’s and 75-77 per cent below the UK’s.

Leading outsourcing companies in the Philippines include Teletech, Convergys, People Support, Accenture and IBM Daksh. HSBC, Deutsche Bank and other multinationals have also set up internal back office operations in the country. And local companies are getting in on the act – the country’s leading phone company, Philippine Long Distance Telephone, has set up a BPO unit that has acquired smaller players.

As companies in rich countries continue to outsource more business processes, the BPAP says that the Philippines’ industry could almost triple from $9bn to $25bn in six years, while the workforce could grow from just over half a million to 1.3m in the same period. That would make the sector a major plank for the economy – equivalent to semiconductor exports, which will total around $28bn this year, and remittances from overseas Filipino workers, around $18bn.

However, for the Philippines to sustain its outsourcing growth, it needs more talent. The country produces 430,000 college graduates a year, but most are considered unsuitable for outsourcing. On average, call centres reject 90-95 per cent of applicants because of inadequate communication and technical skills.

Hollywood can only do so much. Philippine colleges and universities, especially those owned by big business groups, must do their share.

Related reading:
India: outsourcing, outsourcing, beyondbrics (Dec. 2)
An economic honeymoon in the Philippines, beyondbrics (Nov. 25)