Philippines taking over call-centers, but India looks to retain lead in overall BPO industry

By Ian Bhullar

Jul. 10 – India is traditionally seen as the choice destination for companies looking to outsource English-language call centers. However, the growth of the Philippines’ business process outsourcing (BPO) industry over the past decade is challenging this position, with businesses paying increasing attention to the advantages of Philippines-based call centers.

The island nation’s call center business has seen explosive growth of 25-30 percent per year, compared to India’s 10-15 percent, according to Salil Dani, research director at the Everest Group. Furthermore, the sector employs 400,000 people in the country, outstripping India’s 350,000.

Meanwhile, the Philippines’ overall BPO industry (which incorporates a much wider set of services) has grown from US$350 million in 2001 to over US$11 billion today. At least three factors explain this growth.

First, a history of cultural exchange between the Philippines and the United States has resulted in useful cultural and linguistic overlap. Young Filipinos often learn English from a much earlier age than their Indian counterparts, and a wider set of the population is exposed to American culture.

This suits American consumers, many of whom have long complained of not being able to understand Indian call center staff. Businesses are willing to pay more for this. Although Filipino staff earn an average US$300 per month at entry level, US$50 more than their Indian counterparts, they are received much more positively by service users.

Second, the Philippines’ utility infrastructure is perceived to be superior to that of India. Some companies in Bangalore and Gurgaon, India’s largest outsourcing hubs, must use generators and diesel fuel to ensure a constant supply of energy. Higher quality facilities in the Philippines enable companies to avoid these added expenses.

Third, the Philippines’ government policy has actively sought to foster the growth of this industry. Alongside tax incentives and subsidies, government bodies have organized industry visits to India, simplified the administrative process for companies setting up call centers, allowed individual buildings to be designated special economic zones, and trained 40,000 students in English and communication.

The presence of large, predominantly American, corporations in the Philippines, such as AT&T, JPMorgan Chase, Expedia, the Hershey Company, Proctor and Gamble, IBM and Shell, testifies to the success of these policies.

India, however, retains a strong advantage in overall BPO. Despite the Philippines’ growth in call centers, India’s expertise in other areas trumps the newcomer’s linguistic and cultural advantages. India’s overall outsourcing sector in the past year saw 14.8 percent growth and is expected to cross the US$100 billion mark this year.

The advantage is largely due to India’s long-term experience in “non-voice” outsourcing, which accounts for around 90 percent of worldwide BPO value. Such higher-skilled work includes complex research and analytics for the banking, legal and medical sectors. In this regard, the Philippines still lags behind, with only one-fifth of revenues earned, and one-third of workers employed, operating in these areas.

India is also projected to retain its manpower lead, as it continues to produce 4 million college graduates each year. One of the greatest problems facing the Philippines is producing the people to meet its growth. While demand for outsourcing increases at 20 percent per year, the number of university graduates is increasing by only 3 percent, with only 5-8 percent of those being hirable, according to government data.

Nevertheless, the outlook for the industry in the Philippines is very positive. Favorable policies will continue in line with the government’s current plans to generate BPO revenues of US$25 billion, or 10 percent of GDP, by 2016. Even if the country lacks experience in more complex BPO areas, there is still growth potential in call centers as even Indian firms move their processes eastward.