NEW DELHI: The
Philippines is set to overtake
India as the world's back office for voice-based customer support and sales this year, as firms such as Cisco,
HSBC,
T-Mobile and BT Plc shift work to the nation to avoid India's high staff turnover, and build an alternate support hub.
Better affinity with the American culture, lack of competing industries for skilled workforce, higher tax incentives and an overall strategy to derisk from a pure India-based call centre model are among top reasons for this shift.
Of India's total BPO exports, nearly 45% comes from voice-based work, which is expected to be around $5.58 billion this year. However, the Philippines BPO industry will post almost $5.70 billion of pure voice-based revenues in 2010, higher than its bigger
outsourcing rival, research firm Everest and the Business Process Association of Philippines (BPAP) say.
"In standalone voice business, the Philippines will undoubtedly beat India this year to become the call centre capital of the world," says Nikhil Rajpal, partner, Everest Research India .
Companies such as Cisco and BT are increasingly outsourcing handling of customer queries and support to cheaper locations, including the Philippines. Every time a user of, say, Cisco's router dials a toll-free customer support number, his call gets diverted to a customer support executive sitting in
Manila who is paid less than a quarter of what it would cost to hire somebody with similar profile in the US.
Experts point out that at this pace, the Philippines can even overtake India's $12.4-billion BPO industry in five years. The $9.5-billion Philippines O&O (offshoring & outsourcing) industry grew at a compounded 27.6% in the last two years.
Philippines ties to US a big draw
On the other hand, India's BPO industry has showed a CAGR of 11.92% in the last two years. Going by exactly the same rate of growth over the next few years, India will lose to the Philippines before 2015. "We will grow at least by 20% annually in BPO exports over the next five years," says Oscar Sanez, the man spearheading the BPO association of Philippines. "But we don't take India as a competitor, as there is business in the market for everybody," Mr Sanez adds.
Companies such as
HCL Technologies are already seeing the writing on the wall. "We have already lost to the Philippines in voice BPO. If India doesn't wake up now, we may lose to
China and other markets in outsourcing too in coming years," Vineet Nayar, CEO and vice-chairman of HCL, said in a townhall meet with his employees last month.
Cognizant, which counts JP Morgan and AstraZeneca among its top customers, established a call centre in Manila last month and says staff attrition in the Philippines is less than half of what call centres in Indian face. "Low attrition rates of 15-25% in contact centres in the Philippines is another advantage, given that the corresponding number in more mature destinations like India can be as high as 40-80% for voice-based processes," says R Chandrasekaran, president & MD (global delivery) of Cognizant.
IT-BPO enterprises in the Philippines enjoy 100% tax exemption for up to 8 years. Even upon the expiry of the tax holiday, the nation only levies a 5% special tax on gross income while exempting BPO firms from all other taxes. "The country provides cost benefits on the counts of infrastructure, operational expenses and business continuity," Chandrasekaran adds.
Analysts say India's loss of voice-based work can't be reversed, at least not in the short term. "At best, we can play the catch-up game now," says Avinash Vashishtha, CEO of Tholons, an offshore advisory firm. "If you can find me a foreign client who wants to consider India as a location for customer service business, hats off to you. We've been telling the government to improve voice skills, but now it's too late," he says.
The Philippines' stronger cultural ties and understanding of American consumers is one of the top reasons. The US, which controls 65% of the world outsourcing market, had colonised the Philippines post the Treaty of
Paris in 1898. The Philippines was ceded to the US from Spain for $20 million. Even after the archipelago gained independence in 1946, the US continued to have a military base there and the Philippines became a strong ally.
"Most speak English and most Filipino women want to marry Americans and many families have a large base in Philippines," says Vashishtha. Spain, which ruled the Philippines earlier, also gives the nation a Spanish language capability. "The other factor is choice of an alternate cheap location, as costs are similar in both nations. Call centre is a critical work and no company wants to put its eggs in one basket. But the Philippines may not win from India in UK-bound work, where India has much more cultural affinity," adds Sid Pai, partner, TPI.
However, UK customers have also started drifting to the Philippines now, primarily because of better call quality. British telecom operator T-Mobile outsources to WNS Philippines, which has hired 1,200 people in Cubao and Eastwood City.
"The Philippines has been recognised as the third-largest English-speaking nation in the world with a high literacy rate of 94%. We believe that 10% of WNS' workforce (of 19,000) would be based in the Philippines over the next few years," says WNS CEO
Keshav Murugesh. Nasscom, however, is hoping that India will regain the lost ground. "The country enjoys cultural proximity to the US. But ultimately the revenues will come back to Indian firms, as it is largely the Indian BPOs which have adopted a long-term strategy to offshore voice work to the Philippines. The high-end, transaction-oriented work is being retained in India," a Nasscom spokesperson added.
Almost all Indian BPO majors have opened large centres in BPO hotspots like Metro Manila, Cebu City, Davo and Angeles. EXL has a centre in Pasay with over 800 employees. But the challenge remains ramp-up. "We have started talent training programmes. The government is giving its full support," says Sanez. And companies are hiring in thousands.
IBM and Accenture are estimated to have over 20,000 people in the nation.
Convergys this year announced plans to hire about 3,000 people around Manila, while Sitel plans to hire 4,000. Aegis also acquired a Philippines BPO PeopleSupport for $250 million in 2008.
"The growth in BPO (industry) is also partly because India's GDP is growing at a faster rate, and people have other options like the services sector (banks, telecom, insurance) which are attracting the youth, in contrast to the Philippines which has none of these major attractions," explains Sanez. In 2009, Filipino GDP grew at 1% compared to India's 7.4%.
"Many centres in Metro Manila and Cebu City are experiencing growth of over 40% in sales and headcount. HSBC, JP Morgan, Accenture and IBM, all large firms, are witnessing tremendous growth," adds Rajpal of Everest.
"US-based clients ask for the Philippines as a destination. However, the processes that get outsourced to the Philippines are now not just limited to voice but other high-end processes spread across domain-specific back office, medical, legal and financial accounting work," says Rohit Kapoor, president and CEO, EXL Service.
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