Over the last two decades, Business Process Outsourcing has emerged as a vital practice for organizations in almost every sector in an economy. This is primarily due to the competitive advantages it provides to organizations in terms of effective cost control structures, scalability, optimization of operations and development of core competencies. This was facilitated by rapid advances in low-cost technology, better communication facilities as well as increasing westernization of key regions in Asia, which were identified as the primary outsourcing destination for western countries.
By the early 21st century, India became the preferred destination for Business Process Outsourcing and was exporting a large array of services including data processing, software development, analytics, financial services and contact centre services. In 2005, USA was the largest importer of BPO services from India followed by Western European countries contributing shares of 66% and 20% to India’s BPO export revenues respectively. Among the services exported, one of the most sought-after services was voice service through the establishment of call centres. Companies engaged in this area of the BPO industry provide real-time customer support, technical support and telemarketing services for their clients. India has firmly established itself as the preferred location for setting up of customer care centres for organizations, and until recently, has held a virtual monopoly over the global call centre market.
Over the past 5 years, however, India has witnessed immense competition in the call centre market from a much smaller South-East Asian nation – Philippines. Organizations are gradually shifting bases to Philippines due to a number of factors. In fact, projected revenues from call centre operations in 2010 for Philippines are $5.7 billion, higher than the corresponding figure of $5.5 billion for India. “Ten years down the line, the Philippines may be a hotter destination,” said Sanjeev Bhatia, who oversees international operations for Wipro BPO. This reflects the increasing cause for concern for organizations in the Indian BPO services space, which are now looking for competitive strategies to fend off competition from Philippines.
The economy of Philippines bears a number of similarities to the Indian economy. From being a primarily agrarian economy, the country now depends more on the services sector for GDP growth. The services sector contributes to approximately 55% of the GDP of Philippines as per 2009 estimates. Of this, the BPO sector alone contributes 4.5%, and the country is being aggressively promoted to investors as the call-centre capital of the world by the government. These efforts are being led by the Department of Trade and Industry, and are part of the nation’s long term Information and Communication Technology roadmap. Also, Philippines is the second-largest employer of people in the BPO sector after India. As of 2008, contact centres accounted for 31% of the total number of companies comprising the BPO industry in Philippines. By 2010, the industry had achieved a CAGR of 38% over a period of five years, indicating a large amount of investment in the industry.
The criteria used to judge a country’s appeal as an outsourcing location can be broadly classified as economic, social and cultural, political and technological factors.
Cost effectiveness – While considering the cost effectiveness of a location, the three main factors that count are wages, infrastructure costs and currency exchange rates. Labour costs typically comprise up to 60% of the total cost in a call centre as primary investment is in human resources. India has scored well on all the three factors in the past but its cost effectiveness has been falling in the recent years due to rising wage rates and appreciation of the Indian rupee against the US Dollar.Like India, Philippines has benefitted tremendously from average wage rates which are over 50% lower than those prevalent in countries such as the US or the UK.
Labour – In terms of labour volume, India is much larger than Philippines. It produces the largest number of English speaking graduates among developing nations. Philippines also has a highly skilled labour force in terms of English speaking graduates. Both India and Philippines are unique in the sense that they are the only two developing countries with a current working-age population of over 60% which is expected to remain above 60% by 2050. However, when it comes to managerial positions, Philippines faces scarcity of talent since its BPO industry is much smaller as compared to the Indian industry. One of the biggest problems faced by the BPO industry in the two countries is high attrition rates. Philippines has witnessed lower attrition rates (approximately 33%) as compared to India (upto 40%), which is mainly due to less competition for skilled human resources from other sectors like business processing and IT.
Macro-economic environment – India is emerging as one of the strong, self-sustaining economies of the world. Philippines, on the other hand, has undergone a recent transformation to become an industrialised economy supported by manufacturing and services sectors instead of agriculture. Therefore, the macro-economic environment of India is more stable and mature.
Social & Cultural Factors
Language – Language has been a critical factor in helping companies choose Philippines for offshoring contact centres over other nations such as India and China. Philippines is the third largest English speaking country in the world, with American English being the preferred language among a large number of Filipino youths. With USA being the largest importer of call centre services in the world, companies have capitalised on a high literacy rate of 94% and American English fluency level of 75% to set up customer care and support centres in Philippines. India, on the other hand, has British English speaking population.
Cultural Compatibility – Philippines was under the control of the United States between 1898 – 1935, and since then the US has left its cultural stamp on the nation. The country also follows the American education system and has experienced arguably the highest degree of westernization among Asian countries, and the neutral accent of Filipinos along with familiarity with American culture gives them an edge over India.
Education – Although Philippines has a much higher literacy rate, India has a higher Information Technology skills index of 8.59 compared to 7.44 for Philippines (a rating given out of 10 with 10 as the highest score). India’s educational institutions are famous for producing technically sound people while Philippines’ arts education programs produce well-rounded people more suited for communications work and hence the BPO industry.
Political & Legal Factors
Government Support – Ever since liberalisation, the Indian Government has supported the services industry by giving tax holidays and allocating Special Economic Zones to it. The Philippines government emulated India by setting up Special Economic Zones and creating a fast approval process for infrastructure projects. Hence, both the countries have supportive governments which have introduced BPO industry friendly policies. Apart from policies, comparison of Indian and Philippines governments in terms of transparency, red-tapism and corruption reveals that India is rated much higher than Philippines resulting in a more conducive business environment in India.
Telecom & Internet Connectivity – In Philippines, world class telecommunication and networking infrastructure have enabled companies to set up call centre operations quickly and efficiently. On the other hand, India does not have a liberalised telecom policy yet, leading to higher bandwidth tariffs.
Data Security & privacy – Indian companies give adequate importance to data security and process quality. They have adopted international quality standards like ISO, making them attractive to global clients. The government has also helped by strengthening the regulatory framework for data security. However, this is not the case in Philippines.
As per Gartner’s report on the “Top 10 locations for offshore services in Asia Pacific in 2010”, India still continues to dominate the BPO services sector, and there are no major indications of this trend changing. Revenues from outsourcing amount to $70 billion in India, as compared to $9 billion for Philippines, and it is only in the contact centre space that India is beginning to lag behind the latter. A major worrying trend is that of Indian companies themselves shifting voice operations to Philippines. For example, Wipro BPO has set up a centre in the city of Cebu where it employs 4000 people, as compared to 3000 in India. This can be countered by ensuring that sufficient initiatives are taken to develop the skill levels of call centre executives in India. The trend of Philippines turning into a global call centre hub may have a significant short term impact on the Indian BPO sector, but the long term sustainability of India’s superiority in this sector is definitely not in question yet.