Call centres in the Philippines represent the fastest growing sector and 10% of GDP

One million call centre workers by 2010
Catching up fast with its nearest competitor India, the Philippines expects to employ one million people in business process outsourcing within three years

Could the Philippines double its current impressive share of the $139 billion (£68.3 billion) global business process outsourcing market to 10 per cent by 2010? That’s the target being mooted as the leaders of the country’s fastest growing sector consider what might be achieved over the next few years.

Companies from the United States, Europe and Japan are increasingly looking to the archipelago as the destination of choice for offshore services. The Philippine call centre business is the fastest growing in the world, and catching up fast with the number one provider, India. The industry is growing at a rate of 40 per cent per year, while annual growth in India is 23 per cent.

The Philippine BPO sector aims to generate $5 billion this year, compared to $3.6 billion in 2006. The Business Processing Association of the Philippines (BPA/P), predicts that annual revenues are on course to rise to $12 billion, or about 10 per cent of the country’s GDP, by 2010, while the number of jobs could top one million. “This is a sunrise industry, and it’s still very early in the morning,” says Alfredo Ayala, BPA/P’s Chairman.

The sector has become the fastest growing in the Philippine economy. In 2000, it provided employment for 8,000 people. Today’s figure is 400,000, and industry watchers expect to see the highest growth rate this year in terms of call centre seat numbers.

ALFREDO AYALA Chairman of the Business Processing Association of the Philippines

Office space for BPO operations is at a premium in Manila, and is helping to fuel the property boom. Office rents in the business district of Makati increased by 15-20 per cent last year, and are continuing to rise. Other areas in Metro Manila are following suit. New operations are starting up wherever sufficient space is available. Cebu, the second city, is fast becoming another BPO hub. But call centres are no longer confined to the business and financial districts. They are spreading to regional locations such as Bacolod, Baguio, Cagayan de Oro, Cebu, Davao, Dumaguete, Iloilo and Pampangga – all being developed as BPO centres.

Only India has profited more from the trend for foreign companies to outsource business functions to cheaper locations. Companies that have made the Philippines their preferred destination include some of the world’s biggest names , including AIG, Chevron, Dell, HSBC, Intel, Motorola, Proctor & Gamble and Siemens.

The largest source for BPO and contact centre services for the Philippines is the United States, which accounts for 60 per cent of spending in the global market. The main attractions of the archipelago for outsourcing include the high quality telecommunications infrastructure, low-cost wages and a fast-learning workforce. A high proportion of the population speaks English – the Philippines is the third largest English-speaking country in the world, after the US and the UK. Also, Filipinos communicate in a similar way to Europeans and Americans and adapt easily to using a neutral accent, unlike their Indian counterparts.

Studies have shown that the profit-after-tax margin for a call centre located in the Philippines is typically between 20 per cent and 25 per cent. In the United States or Europe, the margin is typically between 5 per cent and 10 per cent. Staff turnover at Philippine call centres is also much lower than in India.

“The Philippines is uniquely positioned to provide not just cost savings but a very high level of quality, both in analytics and technical competence,” says Mr Ayala. “More importantly, Filipinos are very warm and customer service-oriented. All these things are linked to our culture and it brings a tangible advantage for the customer.”

With the Philippines’ strength in contact centres well-established, the focus is shifting towards growing the higher value-added services, including accounting, legal, human resources and administrative services, animation, medical transcription and software development.

The government has given strong support to the industry, encouraging foreign investment with tax incentives, customs perks and a favourable labour policy. It also cooperates closely with industry groups such as the BPA/P, Contact Centre Association of the Philippines (CCAP), Medical Transcription Industry in the Philippines (MTIAPI), Philippine Software Industry Association (PSIA), and the Animation Council of the Philippines (ACPI).

BPA/A and CCAP have been working with McKinsey and Company on a roadmap to take the industry forward to its goals for 2010. This will include a strategy for recruiting at least 300,000 call centre professionals over the next three years. With no slackening off of demand for services, the need for workers in the industry continues to grow rapidly. Local companies are hiring about 1,000 agents a month as new centres start up and existing ones seek to expand, and new training centres are being established.

Niche market potential

The fastest growing sector in the Philippines’ business outsourcing industry is not call centres – it’s medical transcription. MT generated revenues totalling $75 million last year, and over the next five years the industry is predicted to grow by up to 90 per cent per year.

Most of the business comes from the United States, where there is a growing demand for transcription of medical reports, discharge summaries, chart notes and hospital and clinic reports, but a shortage of qualified medical transcribers to satisfy it.

The Philippines is filling the gap by providing a low-cost and, most importantly, high quality service. Many of its MT operatives have medical backgrounds and are familiar with US medical standards, terminology and practices. Using the latest software and equipment from the US, and operating 24 hours a day, they are able to transcribe 1,000 lines per day with an accuracy rate of 98-99 per cent.

The growth rate for MT is expected to exceed 1,600 per cent up to 2010, and the number of employees to rise to 122,000. Other promising niche areas in the BPO industry include legal transcription, subtitling, billing and coding. By 2010, call centre agents may comprise only a third of all BPO workers, from the present two-thirds.