Survey reveals fragile IT-BPO ecosystem
While the talent gap represents the biggest single threat to the fast-growing IT-BPO industry, the rising cost of doing business, quality of telecom infrastructure, and consistency in the administration of investment incentives are all major factors determining the viability of the industry, according to the results of an industry survey. Because so much attention is focused on the critical talent issues, other factors that fundamentally impact the industry may not get the attention they deserve.
The survey was commissioned by the Business Processing Association of the Philippines (BPAP) and Outsource2Philippines (O2P) as the last in a series of quarterly surveys conducted this year. Respondents also identified the Philippines’ “country brand” and regulatory environment as at least “significantly important” factors that can enhance or undermine the attractiveness of the industry to investors.
When it comes to the rising cost of doing business, respondents chiefly pointed to the impact of the Philippines’ strengthening currency. Foremost among tier-two risk factors in the view of respondents were antiquated labor law and susceptibility to natural calamity. The Philippines’ 1974, Marcos-era labor code is sadly outdated, but political imperatives make it difficult to modernize. The typhoon-prone Philippines has shown it can deal with natural calamities, but their regularity can cause investors’ hearts to stop.
Despite those risk factors, respondents believe the Philippines is a much safer bet than its two largest competitors when it comes to investing in IT-BPO operations. IT-BPO executives participating in the survey agree by a margin of almost 75% that investing in the Philippines is less risky or much less risky than investing in China. Over half of respondents said the same thing when compared to India.
What determines perception of risk? Personal experience, anecdotal evidence, and news reports obviously play a role. So do reports and forecasts by expert analysts, according to respondents. But it is the public-sector analysts’ perspectives that carry the most weight. Respondents said overwhelmingly that The World Bank is more influential than private-sector analysts when it comes to swaying investors. Among private-sector analysts, Gartner came out on top. Gartner conducts a large annual conference that attracts many of its IT-BPO clients, contributing to its influence.
Close to 90% of respondents say that analysts’ reports influence investor perception, and almost 60% say they do so substantially or very substantially. That explains the big fees private-sector analysts receive for their opinions. That goodwill extends to the BPAP-O2P surveys, according to respondents. More than 60% said that the quarterly surveys have significant impact on country image and investment decisions.
Which makes respondent perception of government support for the industry an interesting question. Respondents were in broad agreement that key departments of the Philippine government have been responsive to the needs of the industry. But they singled out the Philippine Economic Zone Authority (PEZA), which administers investment incentives for the IT-BPO and other industries. PEZA has a reputation for professional, transparent administration of incentives, and that perspective showed up in the survey results.
Perhaps that’s why respondents want more government. Slightly over 80% said they believe the Philippines should have a full Department of Information and Communications Technology. Despite controversy among Internet users and media particularly, respondents also felt that recent legislation meant to strengthen the industry—protecting data privacy and criminalizing cybercrime—were received positively by the industry.
Respondents represented a broad range of sectors. Most work in firms with less than 500 employees, but close to 25% are employed by firms with 1,000 to more than 15,000 employees. Despite the inevitable threats to any industry, respondents are overwhelmingly optimistic, with about 50% anticipating growth between six percent and 25% over the next 12 months. Almost no one said their firm would not grow or contract during that period.
The industry remains tightly bound to the U.S. market, however, which some analysts view as a substantial risk factor. More than 70% of respondents identified the U.S. as a principal market, although many have made significant inroads closer to home. About 60% of respondents said that Asia is now an important market for their firms. Only about 35% said the EU is a major market.
IT-BPO executives are optimistic, but practical. These survey results show that respondents believe conditions exist that will enable the industry to continue to grow and prosper. But they also show that executives understand that all that could change suddenly. The Philippine peso may continue to strengthen, squeezing margins. If investment incentives are “rationalized” as some legislators threaten, the impact on costs could be substantial.
Like all ecosystems, the one that determines the future of IT-BPO is both vibrant, and fragile. And it’s important to protect it.
(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at email@example.com and follow him on Twitter, Facebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)