The Other Side of Midnight

With contact centers leading the way, the Business Process Outsourcing (BPO) industry continues to fulfill its potential as one of this country’s major growth and employment engines in the globalized marketplace.

Complementing contact centers are lesser known but potentially powerful BPO engines that are creating employment, and are driving investments, growth and career building. These engines are taking Starship Philippines on a new course to “The Other Side of Midnight” where revenues are made by the light of day.

The Business Process Association of the Philippines (BPA/P), the industry’s major association, expects BPO industry revenues to almost triple to $12.1 billion by 2010 from the 2006 level of $3.45 billion. In 2006, call centers continued to contribute most of BPO revenues from foreign clients, some 77%.

BPA/P estimates call center revenues at $5.29 billion in 2010, up a huge 97% over three years, but, more significantly, less than 45% of total BPO industry revenues.

The other 55% will be contributed by the other sectors or engines of BPO: Business Processing (Back Office Operations); Medical & Legal Transcription; Software Development and Maintenance; Animation Industry and Engineering Design

Best of all for job seekers is that these sectors—also collectively called “non-voice”—offer wider employment for Filipinos (including middle aged professionals) and that the working hours take place in daylight. For BPO firms, many of which operate contact centers, the rise of daytime BPO maximizes their investments in IT and physical infrastructure.

“The Other Side of Midnight” is on the rise.

BPA/P estimates the industry should grow by some 48% in 2007 to reach revenues of $4.9 billion. By 2010, BPA/P believes outsourcing could be a $12 billion industry employing 900,000 persons.

Consulting firm A.T. Kearney, in a recent ranking of the most desirable global services locations that are competitive for BPO, rated the Philippines fourth in the world behind India, China and Malaysia. The Philippines was outside the top 10 three years ago.

The Philippines generated offshore service revenues of $2.1 billion in 2005, placing third behind India and China and slightly ahead of Malaysia. That's up 62% over the $1.3 billion it gained in 2004, and a huge increase from the start of the decade when BPO employed just 2,400 people and the industry had revenues of merely $24 million.

A.T. Kearney said the Philippines gets high marks for its large, educated talent pool and English language skills, but falls behind some of the other locations in infrastructure.

A natural offshoot of this rapid BPO growth is the increase in the number of jobs on offer to Filipinos. The industry employs 250,000 persons (including call center agents) today. BPA/P's goal is to produce one million jobs in the BPO industry.

BPO rising
The ascendancy of BPO confirms the shift in employment and investments from the cost-effectiveness of call centers to the skills quality and competence of non-voice BPO. This development strengthens the Philippines' position as an emerging global leader in the burgeoning BPO industry.

BPO firms employ people from a wider variety of professions than do contact centers, which need to focus their talent search on Filipinos who, also, can speak with an “English neutral accent.” Non-voice BPO opens its doors to engineers, architects, designers, medical professionals, medical researchers, human resources professionals, lawyers, accountants and animators.

These professionals work in virtual teams to service client needs. And the language they use is, of course, English, the language of world business. In other words, English proficiency is required on the other side of midnight, too.

It is a reality confirmed by BPA/P, which points out that English proficiency is the key to success, as it is required by all six sectors of the industry.

BPO’s growth surge is being fueled not by low-value-added call centers but by higher-end outsourcing such as back office work, medical transcription, legal services, animation, Web design, software development and shared services.

The number of people employed in back office work is expected to jump to 299,000 by 2010 from the present 36,000, a growth rate of 730 percent. BPA/P says Business Processing or Back Office Operations and Medical Transcription are the leading areas of opportunity for employing large numbers of Filipinos.

Medical transcription is experiencing a growth rate expected to top 1,600 % from 2006 until 2010, with employment surging from 7,000 to 122,000. Employment in software development is projected to jump from 16,000 in 2006 to 75,000 in 2010.

BPA/P believes back office services, medical transcription and software development will replace call centers as the high growth BPO sectors. All these sectors will experience faster revenue and employment growth than call centers.

“More companies are coming in from India and the U.S.,” said BPAP Executive Director Mitch Locsin. “Many of these companies will start with voice and move up the value chain.”

He noted that revenues from non-voice BPO services will surpass contact center or voice revenues by 2010.

“Back office services are the next big thing in BPO,” he said. “Our job now is to get Filipino accountants, bookkeepers and engineers to focus on their studies to prepare for the future.”

He said one of Philippine BPO’s biggest challenges is beef up its manpower resources, quality certification and security compliance. Locsin revealed that all these issues are being addressed by BPAP and are in the final stages of implementation.

As for the hot jobs in BPO, Locsin said opportunities abound in Finance & Accounting (F&A) since 28% of Philippine graduates come from Business Administration and related courses.

Opportunities exist in moving up the value chain and doing more high value added services such as Knowledge Process Outsourcing (KPO).

Locsin said BPAP is convinced that English proficiency is the key to success in BPO, as it is required by all sectors of the industry.

“The Philippines can excel in all of the e-Services sectors because of its quality of service that we provide,” he said.

Coming to the Philippines
A few years ago, the Royal Dutch Shell Group determined the creation of a network of Shell shared services centers (SSSCs) in strategic locations across the globe would be key in its efforts to deliver services at competitive costs and standards.

SSSC Manila, a wholly owned subsidiary of Royal Dutch Shell plc, was established in July 2004. It was the fourth SSSC to be established and has over 1,100 employees, the largest in terms of manpower compared to other SSSCs in Glasgow, Guatemala, Kuala Lumpur and Krakow.

SSSC Manila mainly performs back office accounting and finance work exclusively for Shell clients abroad. These clients include Shell companies in the US, Europe (Denmark, Sweden, Norway, Poland, the United Kingdom, the Netherlands) and Asia (Malaysia, Thailand, Australia and the Philippines).

The bulk of finance work provided by SSSC Manila includes hydrocarbon accounting (reconciling fuel movements); accounts payable (or processing of vendor payments); accounts receivables (collections of receivables from both internal and external customers) and general accounting (financial reporting, fixed asset inventory, payroll accounting). Other activities being serviced include master reference data maintenance; contracting and procurement (buying activity). human resources service desk and customer services.

SSSC Manila general manager Noel Paraso said the center proves Filipinos can perform according to the same high standards expected from foreign employees. Paraso noted the continued interest in transferring more work to SSSSC Manila because trust has already been established.

“We make sure the standard of services do not suffer here,” Paraso said. “We ensure successful migration of these processes by putting in place a stringent migration methodology and hiring people with meaningful skills, background and experience; people who are accounting, business, economics, and engineering majors. We also give them very thorough, very focused training”.

OfficeTiger, a U.S. owned printing services firm working out of India, chose the Philippines to provide its legal services outsourcing. It expects to make the Philippines the main center for "pre-media" outsourcing work, including desktop publishing, composition, typesetting and graphic design.

A ranking OfficeTiger manager said design work is an area where Filipinos have and edge. The company has found an incredible depth of design talent in the Philippines, the kind of talent that is hard to come by in Bangalore, Hyderabad or Chennai.

OfficeTiger is looking at its Philippine operations to provide 40% to 50% of its total annual revenue growth over the next three to five years. Its clients include large insurance companies, retailers and publishers of books and directories.

The country’s dominant telecom firm, Philippine Long Distance Telephone Co. (PLDT), took a significant slice of the BPO industry in 2006 by acquiring SPI Technologies, Inc., the second largest dedicated BPO company in the Philippines and the ninth largest independent BPO service provider worldwide, through subsidiary ePLDT, Inc.

SPI operates in 23 locations in North America, Europe and Asia, servicing over 150 customers including Fortune 500 companies. With 6,500 employees worldwide, SPI services these customers onsite, and from facilities in the Philippines, India, US, China and Vietnam.

SPI’s core capabilities include content editorial and production, litigation support coding and electronic data discovery, medical transcription, database structuring and management and transaction processing.

PLDT president Napoleon Nazareno said the addition of SPI into ePLDT will broaden the group’s participation in BPO, which analysts forecast to grow at a compounded annual growth rate of 9.2 % until 2010.

PLDT said SPI will give it excellent opportunities to enhance its North American customer base, broaden its revenue streams, as well as derive potential cost synergies in the marketing and selling of voice-based services in the countries where SPI operates.

ePLDT’s Ventus call-center group consists of Parlance Systems Inc., Vocativ Systems Inc. and ePLDT Ventus Inc. The ePLDT Ventus Group operates six call-center facilities located in the cities of Makati, Taguig, Pasig, Mandaluyong, Quezon and Iloilo, rendering primarily voice-based services to large US-based clients and outsourcers.

BPO firm Sykes, although better known as one of the pioneer call centers, said Filipinos are a great asset. It describes Filipinos as intelligent and hard working and fit nicely within Sykes’ culture of “People Serving People.” Sykes enjoys and are proud of its partnership with Filipinos.

Sykes came to the Philippines in 1997 with just a small number of employees providing technical support through e-mail. It now has more then 10,000 employees across six sites providing customer care through multiple communication channels including chat, e-mail and voice.

Sykes is a family of global businesses delivering BPO services. Sykes is entrusted with the customer care of global brands primarily in Consumer Products & Services, Communications, Financial Services, Technology and Travel & Leisure.

Philippine BPO offerings
Business Processing (Back Office Operations) is one of the hottest job sectors in BPO. In 2006, there were 62 Business Processing firms employing some 36,000 persons. These firms generated revenues of $288 million.

The Philippines now provides some 40 Business Processing Services. Among these services are accounting and bookkeeping; payroll processing; asset management; financial analysis and auditing; inventory control and purchasing; human resources administration; customer management; credit card administration; factoring and stock brokering; revenue management; database management; supply chain management; legal transcription; litigation support; content development; publishing; loan processing; health insurance; sales and marketing; tax reporting; transaction management; sourcing and procurement; logistics; disaster recovery; business intelligence; network management and warehouse and inventory.

Counted among the leading third party providers of Business Processing Services are Accenture, American Data Exchange, SVI Corp, SPI Technologies, DAKSH eServices, The Environments Collaborative, Eximius BPO, Summersault, Inc., Infinit-O BPO, BPO International and BayanTrade Dotcom.

“Captives” or companies with in-house services include AOL, AIG BPSI, Chevron Texaco,HP, HSBC, Procter & Gamble, Flour Daniel, Deutsche Bank, Citibank Crescent Services, Shell Shared Services, Manulife, Alitalia, Watson Wyatt, Emerson, McKinsey & Co., Safeway and Thomson.

Medical transcription (MT), which next to contact centers is the best known BPO sector, remains a prime growth sector and a source of hot jobs for Filipinos. Filipino MT firms are noted internationally for their accuracy (98-99% accuracy rate) and have a swift job turnaround time of 12 to 24 hours.

There are some 100 MT firms employing 7,000 persons. There are also 15 MT schools. MT firms posted revenues of $98 million in 2006.

Key MT firms are eData Services, SPI Technologies, SVI Corporation, Medscribe Asia,
Transkripsyo, Inc., Total Transcription Solutions, Inc., Dictation Source and Pilipinas Data Contracts Corporation.

Legal transcription (LT), although new, offers bright promise since the Philippines’ legal system is patterned after that of the United States, the source of most legal transcription jobs.

There are nine operational LT firms employing 675 lawyers and legal personnel. The sector, which generated $9 million revenues in 2006, has among its key players Quisumbing Torres, SPI Technologies, SVI Corporation, CD Asia, Inc. and Medscribe Asia.

The Philippines had 100 software development companies in 2006 that booked $272 million revenues in 2006.

Among the firms providing software development services are Accenture, Headstrong, Microsoft, IBM Solutions, Jupiter Systems, Oracle, ADTX Solutions, TrendMicro, Gurango, Sun Microsystems, Intel Microelectronics, NEC and RCG Philippines.

Filipino animation continues to be a source of strength in BPO and is the oldest BPO sector (20 years in existence). The country’s 70 animation studios employ 6,500 persons and created revenues of $97 million in 2006.

Local studios consist of Holy Cow! Animation, Artfarm Asia, Digital Exchange, Top Draw Animation, Toei Animation, Top Peg Animation and Creative Studio, Creative Asia, Geebo Digital and Toon City, among others.

The relatively new Engineering Design Industry now consists of 24 companies employing 4,400 full time engineers. These firms reported revenues of $68 million in 2006.

Among these firms are JGC Phils., Fluor Daniel, Bechtel, Tsuneishi, Kajima Corp, Parsons, C & E Corp, EEI Corp, Eichleay Pacific, Inc., Hyundai Engineering, Foster Wheeler, Kellog, Brown & Root and Bouygues Construction.

The Philippines graduates 40,000 engineers every year and there are now some 100,000 licensed engineering professionals. Filipino engineers are prized for their high level of technical expertise in engineering design and practice internationally accepted engineering standards.

Human Capacity Build-up
There is general consensus that the BPO future of the Philippines is bright—at midnight and at midday. Industry players, however, are also fully aware that the opportunities at the horizon will only become reality if government, academe and industry work together in building the human resource.

The Philippine government recognizes the strategic importance of BPO as generators of revenues and employment. President Gloria Arroyo has set aside $10 million in government money to train people for employment in the outsourcing industry. Students and other persons interested in outsourcing jobs are given vouchers that can be used for tuition at vocational schools.

But of greater importance to the industry is its five-year roadmap being drawn up in assistance with international consulting firm McKinsey.

BPA/P president Dan Reyes said the roadmap will identify niche areas in the global marketplace in which the Philippines can be competitive against India and other outsourcing destinations such as China, Malaysia and eastern European countries.

He noted that while BPO is still predominantly call center-driven, both government and the private sector recognize the need to deliver higher-value BPO services such as HR and finance and accounting.

A glimpse of the BPA/P Roadmap 2010 was recently presented by BPA/P CEO Oscar Sañez during the Call Center Conference Exposition 2007. As it is still in its second phase, Sañez said the roadmap will be officially released later this year.

Sañez said the strategy involves not just the BPA/P members but also the local communities, education institutions and local government units to ensure its success.

For the location component, BPA/P will develop a set of products that identify and evaluate areas considered as "next wave" cities where startups and expanding BPOs can build new locations.

The reporting of next wave cities will contain the number of companies already operating in specific cities, telecommunications readiness, physical landscape, available expertise and possible challenges.

For the business environment component, BPA/P intends to enhance perceptions regarding the Philippines as an ideal location for operators. To do so, BPA/P intends to conduct a risk perception survey of locators, build success case studies and launch industry-wide campaigns to address intellectual property and Internet security, among other issues.

Improving the future/lending a helping hand
The European Chamber of Commerce of the Philippines (ECCP) and its IT foundation, the European IT Service Center (EITSC), are committed to human capacity building.

EITSC is an initiative of ECCP, the German Development Cooperation (GTZ) and the Asia-Europe Foundation of the Philippines to bridge the needs of Europe with the IT/BPO capabilities in the Philippines.

EITSC is currently in a partnership with Hanns Seidel Foundation and the European Union on human capacity building. EITSC and Hanns Seidel Foundation with co-funding from the European Union initiated a five-year program that takes a progressive approach to answering the call for more qualified workers in the IT/BPO sector.

Of particular interest to ECCP and EITSC is improving the quality of the college graduates that will be needed to grow BPO.

Last year, some 80 universities and colleges began incorporating open source subjects into their computer science (CS) and information technology (IT)-related courses under an EITSC sponsored program that seeks to help schools develop more employable graduates.

“There is a growing demand for open source, and this program aims to enhance the skills of students in open source systems,” said EITSC manager Dominic Sabado. EITSC is also a partner in the Philippine Open Source Initiative (Positive) program.

Positive is a joint project of the Gesellschaft fuer Technische Zusammenarbeit (a development arm of the German government); Wireless Services Asia (a private European company) and EITSC. Positive encourages local tertiary-level schools with CS or IT-related subjects to download and use free open source course materials developed by six partner schools.

The materials include syllabi, course presentations, laboratory workbooks and exercises and tests developed over six months by the Asia-Pacific Colleges, Angeles University Foundation, Cebu Institute of Technology, Don Bosco Technical College, Mindanao State University Institute of Technology and the Department of Science and Technology Region 7 Open Source Computer and Security Laboratory.

EITSC recently organized a forum with academe and software development companies to initiate the creation of a Dual Training System (DTS) curriculum for software development training.

Last May, EITSC also organized a Summer Enrichment Program in which 72 teachers took part in a train-the-trainer program. Topics covered included communication and English improvement and teaching techniques for teachers; technical and business writing techniques; IT fundamentals & database systems and Operating Systems. A similar activity is set to take place during the upcoming semestral break of schools.

ECCP executive vice president Henry Schumacher noted that international clients are looking for a number of criteria when eyeing an outsourcing business partner. These include proven capabilities in project management and execution, the availability of specific skills and ability to ramp up manpower at short notice, and quality management standards. ‘That’s the reason why we ran a quality management program – ComQual – for 16 software companies during the last two years’, Schumacher added, ‘ a successful program that was co-funded by the European Commission and generated initial contracts from European clients in the amount of US$ 0.5 million.’

He pointed out that ECCP has been continuously engaged in projects aimed at improving the work skill levels of Filipinos. In July, the government welcomed ECCP’s decision to support efforts to address the perennial problem on job and skills mismatch and the efforts of industry and stakeholders to find needed skills.

Labor Secretary Arturo Brion cited ECCP for committing to join public and private collaboration aimed at remedying the job and skill mismatch.

Brion said the ECCP's support would greatly boost the government's efforts to help students and graduates gain entry-level industry requirements through apprenticeship and dual training.

ECCP, through its member-companies, intends to provide college students on-the-job training until they graduate. It also aims to ask other chambers of commerce to partner with schools in training college students.

Brion said ECCP's commitment to help address the skills and job mismatch would fill the gap in the efforts to help students and graduates gain workplace training and entry-level requirements essential in their search for jobs, including those positions classified as hot jobs such as business processing operations.

He noted the ECCP initiative dovetails with the national efforts to facilitate employment and meet industry skills requirements aimed at sustaining the growth of the economy.

BPA/P is keenly aware of the human resources challenges facing BPO. Under the talent development component of its roadmap, Sañez noted that a major problem was mismatch between the location of the potential hires and the center, followed by the problem of top talents such as engineering, accounting and nursing graduates moving to other countries.

He said the talent component strategy should focus on increasing financial aid to students, improve work and study flexibility, launch continuous training campaigns that are relevant to industry requirements, and developing competency tests for students and trainers in schools.

A radical approach to the problem of hiring shortage involves opening up recruitment to non-traditional talents such as high school graduates, college dropouts and housewives, thus the need for strict competency tests.

Gil Genio, CEO of Innove Communications, subsidiary of Globe Telecom, believes addressing resource challenges such as talent and process maturity is one of three ways by which the Philippines can expand its share in the global BPO market. The other two ways are focusing on infrastructure investments and leveraging on government policies.

Genio said Asia could account for 10% of the total ITES market ($18 billion in the U.S. alone), with the Philippines taking five percent.