BPO inflection point

Michael Alan Hamlin

Posted on February 12, 2009

In December last year (“BPO Outlook Positive, But Are We Prepared? ”, December 3, 2008), I wrote that the results of a survey of executives in non-voice business process outsourcing (BPO) sectors were overwhelmingly upbeat on their 2009 prospects despite the increasingly debilitating impact of the global financial crisis. The sense of industry executives participating in the survey was that the crisis could actually stimulate demand for their high-quality but comparably low-cost services.

Since then, millions of jobs have been lost in both developed and developing economies – almost 600,000 last month alone in the United States as unemployment rose to 7.6%. The U.S. Senate began debating a massive so-called stimulus package this week that in whatever form it eventually takes will cost close to a staggering US$1 billion. Meanwhile, government is continuing to close banks – nine have already been shuttered this year. The $700 billion the US government has already poured into insolvent banks through its Troubled Asset Relief Program has failed to get credit flowing again from spooked banks worried about further losses and maintaining capital ratios. (Read a summary of the program here.)

Across Asia, factories are closing, jobs are disappearing, and investors are packing up. Anyone who thought Asia – and the Philippines – would not be affected by the crisis may not be admitting he or she was wrong, but the reality is clear. Although a slowdown in commercial real estate was a given last year in the Philippines, developers now openly admit that commercial lease rates are plummeting. Six months ago, new buildings were being built fully leased; now, construction is on spec, and is slowing. We know for certain that close to 100,000 jobs have been lost, and it is likely that the actual number is much higher. As a result, consumers have cut back sharply on spending.

Have these developments changed the outlook for the BPO industry? To some, the answer is “Yes.” In a report announced late last month, “The Importance of Emerging Non-Voice Capability in the Philippines,” the Everest Research Group said current market conditions are likely to have an adverse effect on BPO industry growth in the Philippines for 12 to 18 months. If that forecast is correct, it means that every principal source of high-paying jobs for Filipinos – export manufacturing, overseas work, and BPO – will be compromised, and we can kiss even 2.2% independent growth projections goodbye.

The Everest report – which is based in part on research conducted by Outsource2Philippines (O2P) and the Business Processing Association of the Philippines (BPA/P) – is far from all doom and gloom, however (Disclosure: I am a director and founder of O2P.). The report’s authors argue that even if growth slows in the short- to mid-term, the long-term prospects for BPO in general and the Philippines in particular are profoundly positive. So profound that Everest says the BPO industry is at an inflection point that will change everything – for the better.

In four years Everest forecasts that the $35 billion BPO market will expand seven times to $280 billion, and that the next wave of opportunity will be in non-voice work. The consulting firm also says that despite some important hurdles, the Philippines – already the second-largest, low-cost BPO center is the world – is increasingly well-positioned to become a prime beneficiary of the demand for outsourced, high-value, non-voice services.

The principal impediment to growth – as the earlier O2P-BPA/P survey demonstrated – is providing an adequate supply of qualified human resources. This is true on two levels. First, at the operational level, the Philippines needs to ensure that educational infrastructure prepares college and university students for high-value services work where analytical skills and judgment play a crucial role in service delivery. O2P and BPA/P, in cooperation with leading educational institutions, are currently conducting a new survey among industry executives meant to identify what skills these institutions need to instill in students to ensure the Philippines is at the winning end of the coming inflection point.

Next, the Philippines needs to improve its capacity to develop middle managers to oversee operations and deliver on commitments to clients. According to the Everest report, the acceptance of BPO jobs as a legitimate, respected career will have positive impact on the Philippines’ capacity to supply these managers. It seems to me that the current global financial crisis will likely increase the number of middle managers working outside the Philippines willing to return home to jobs here.

The jury is still out, it seems, on whether growth of the BPO industry will in fact match or come close to matching last year’s 35%. But even if it doesn’t, as long as potential hurdles are addressed, future prospects will only get brighter.

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