Retail Outsourcing in the Philippines

Transcription

1 June 2007 Retail Outsourcing in the Philippines The Philippines is fast becoming a leading center for offshoring. Retail contact centers in particular have been enjoying great success. What can other sectors learn from their growth, and what must the Philippines do to continue to attract business from overseas? This publication contains copyrighted material. Please do not re-use or reprint anything within this document without written consent from Tholons, Inc.

2 Retail Outsourcing in the Philippines The Philippine outsourcing industry has been the recipient of much global attention in recent years. Its viability as an outsourcing alternative beyond India has delivered positive results for many Western businesses that have ventured into the country. Locally, the outsourcing industry has not only contributed much needed FDI (Foreign Direct Investment), but has also provided tens of thousands of jobs. This is significant, considering that the industry barely existed a mere fifteen years ago. Today, new college graduates can choose amongst a plethora of jobs available in the Philippine outsourcing space. Medical transcription for graduates who have acquired a medical background, finance and accounting (F&A) BPO for accounting graduates, and the contact center space welcomes those with marketing, communication, and English majors, to name a few. In this whitepaper, we will discuss one of the front-running sectors in the Philippine BPO scene Contact Center Services, with a discussion focus on one of the higher profile vertical industries currently enjoying and availing of these services in the country - the retail industry. The Philippine BPO Landscape - Industry Overview The total Philippine outsourcing industry is projected by the National Government to generate revenue near the US$ 5 billion dollar mark by end of Further, this fast moving industry is expected to employ an estimated range of 300,000 to 350,000 workers during the same time period. This is quite a significant number when taking into account that previous Government figures pegged the BPO labor pool in 2004 at only 40,000 employees. The BPA/P (Business Processing Association / Philippines) segments industry sectors according to the following broad categories: Contact Center Back Office Processing/Shared Services Medical Transcription Other Data Transcription Animation/Creative Software Development Engineering Design Source: SGV&Co. BPO Industry Bulletin, Aug-2006; BPA/P Tholons 2 of 9

3 The BPA/P, the privately led organization tasked to represent the IT-enabled business sector in the Philippines, then breaks down the processes falling under the Contact Center space. In the Philippine context, the Contact Center industry is typically synonymous with voice-related support processes. These services would include the following customer support functions and processes, and as identified by the BPA/P: Telemarketing Advisory Sales verification Credit and collection Reactivation/Reinstatement Loyalty program Customer service Order entry Inquiries Technical help desk Payment authorization Order taking and fulfillment Complaints Disputes Transcription Requests Electronic eligibility Support Sales Marketing/Lead generating Billing Current industry estimates have identified about 110 Contact Centers operating in the country today with an estimated regular workforce of 80,000 to 90,000 people. Having seen the tremendous growth potential of the BPO industry, and in this case, the Contact Center space, the Philippine Government last year instituted programs to further stimulate and grow the local outsourcing market. Recently, and in coordination with the DTI (Department of Trade and Industry) and the BPA/P, various infrastructural and supply-side initiatives to boost and sustain market growth have been rolled out by the National Government. Near-term projections by the DTI and BPA/P for example, aim for the Contact Center space alone to generate revenues of US$ 5.3 billion by 2010 and employ 330,000 personnel. Essentially, by 2010 the Government intends for the Contact Center segment alone to be as large as the total BPO Outsourcing market of Though these projections may seem aggressive, demand-side figures do in fact justify the potential addressable market. However, in the Philippine scenario, as with other offshored outsourcing destinations, it will often be the supply-side dynamics that ultimately determine whether such projections are determined as feasible or un-attainable. The Philippine Contact Center - Strength From Within Recent growth in the Philippine Contact Center space has been driven by two innate characteristics of the Filipino labor force a high level of competency in the English language and a strong affinity to Western culture, particularly that of the North American region. These two traits are likewise what the country views as its inherent advantages over and above other contact center or BPO customer service destinations. Though the variable of cultural affinity may be lost when looking at a purely operations-cost angle, it is entirely significant in the Philippine context Tholons 3 of 9

4 The fact that private education, mass media, advertising and the largest broadsheets all use English as their primary medium, contribute greatly towards English proficiency and the cultural proximity which US customers are likely to hear from Philippine based contact center agents. Further, an adequate and skilled labor force continues to contribute positively and supply talent demand in the ever expanding contact center industry. Industry and Government estimates project the number of graduates from both universities and technical schools to be in the range of 160,000 in 2007 and 360,000 by These types of graduates, and with respect to the quality of education provided in the country s tertiary educational system, can be considered logical candidates for the contact center space. Most often, rigorous training periods spanning two to three month and consisting of English proficiency and accent reduction (among other technical customer service skills), will be given by operators to new employees. The Retail Sector Among the primary movers within the contact center space is the retail vertical, and in particular, retailers form a variety of consumer products from North America. Many high-profile and Fortune 500 companies are currently in the Philippine taking advantage of the multitude of contact center and customer support service previously mentioned. These service operations are segmented or provided for as two distinct functional groups - captive and third party providers. Captive providers indicate customer support services which primarily serve the internal operations of a particular company. Some of the globally known captives in the Philippines today consist of world renowned companies such as Dell, AOL, JPMorgan, Siemens, IBM, HSBC, AIG, Microsoft, Expedia.com, Barnes & Noble, WorldCom, Sony, Minolta, JVC, Sun Microsystems, and P&G. Third party providers on the other hand, offer services to any host of verticals or clients. Sykes, Convergys, PeopleSupport, ClientLogic, ICT Group, Teletech, and etelecare are some of the bigger third party providers in the country serving almost the whole vertical industry spectrum from the United States, including the retail space. These third party providers have continued to build on their impressive resumes, which today include the likes of Nokia, MSN, Sony, Intel, FedEx, MCI, AT&T, and Kodak to name a few. Computer retail giant Dell for example, is one of the more recent entrants in the Philippine Contact Center space. In 2006, Dell rolled out a contact center site within Metro Manila (Pasay City) consisting initially of 700 employees, and serving its consumer customers in the United States. Dell expansion is expected to be rapid and large in scale for the immediate future, scaling not only in total number of employees, but also in locations within the metropolis. For its Pasay City contact center for example, Dell intends to double the number of employees, and take its first call on a second location in Metro Manila, all within For this retailing giant, the process of globalization of its customer support services is slowly beginning to pay dividends. As taken from the company s website: Dell s investment in people, training and technology tools is turning around the customer experience. Dell s scores in the annual University of Michigan American Consumer Satisfaction 2007 Tholons 4 of 9

5 Index (ACSI) improved 2.5 points overall, with specific gains in customer satisfaction, product quality and service quality. Dell s internal "Likely to Repurchase" data registered its highest results for the past six quarters with a 6.5 percent increase for relationship customers and a 5 percent gain for transactional customers. From the above quotation, the consideration of investments in human resources, proper training and equipping employees with adequate technology tools must be taken into account. For developing BPO destinations such as the Philippines, these internal dynamics must be in place for the globalization process to succeed. An adequate or even abundant labor pool is nothing more than a potential availability of supply if the necessary initiatives are not taken by both the service provider and client. In the end, proper training and an adequate technology infrastructure may be as important as an available labor pool in determining the success of the outsourced process. This is especially evident in the Philippine Contact Center space, which both a young industry, and relatively lacking in experience. As such, there must be a deliberate effort taken by the operator to ensure that an effective transfer of knowledge and expertise is undertaken. Though this process may be seen as an additional cost, which may be felt to a lesser degree in more mature contact center locations such as India or Ireland, the cost to benefit ratio may actually favor the Philippines in the long term. In this case, higher deployment cost as incurred by extended training periods and additional investments on technology are offset by the returns of higher quality of service provided and a reduced long-term cost envelope in comparison to the other mentioned destinations, respectively. Internal Supply-Side Constraints Given that the Philippine educational system churns out an adequate sized labor force, and that global demand for outsourced services will continue on a positive trajectory in the near term what could be the possible inhibitors in the local contact center industry? There are three points which are currently affecting the landscape of the labor force with regards to the Philippine Contact Center and BPO industry: Quality of labor supply Labor supply allocation Skill-set identification Quality of Labor Supply Labor supply, in as much as it is essential for the outsourcing, is nonetheless dependent on internal criteria. Labor per se, is not enough to provide an effective and efficient outsourcing service. Other factors which are equally as important as the total number of the labor force often determine the success and feasibility of outsourcing customer service support to destinations such as the Philippines. Copyright Dell Inc. Dell Plans Second Customer Contact Center in Philippines. Round Rock, Texas, August 31, Tholons 5 of 9

6 In the Philippine scenario, the quality of the labor force or the level of skill-sets which the labor force possesses is one of the primary and most pressing considerations for contact center providers. The fact that the Philippines is the third largest English speaking country in the world is more a reflection of population size and growth rather than quality of education. Further, though the literacy rate in the country has hovered at the 92 percentile in recent years, English proficiency and the high level skill-sets which can be directly transferred to modern day industries such as BPO have been noted to be lacking, if not altogether declining. This predicament has been compounded, with speculation that it has been caused by the near-past labor migration of the country s educated labor force. This migration to higher paying employment destinations abroad has included teachers, doctors, nurses, accountants, software and IT professionals, and other skilled workers who directly or indirectly contribute to the quality of education and the higher level of English proficiency in the country. Consequently, this scenario affects hiring and attrition rates of contact center operators and other outsourced BPO players. More recently, it has been learned that training periods for contact centers need to be intensified, and in some cases extended, to augment the so-called degraded quality of the labor pool. This situation will continue to be a formidable inhibitor to the local contact center industry due to the negative effect on the financial bottom lines of operators. Further, rates of growth and scale are effectively hindered as service providers will need additional time to train new hires and ensure that they are able to meet the increasingly high quality of service demands of Western clients. Labor Supply Allocation Labor, as with any given resource, is only effective when it is allocated properly. In the Philippine scenario, Government and industry groups are continuing to learn how best to identify and allocate the potential-rich labor pool scattered throughout the country s 7,000 islands. The demographic composition of the country and the highly centralized (per region) nature of urbanized areas compound this situation. As the Philippines is considered to be composed of only two major metropolitan areas (Cebu in the South and Metro Manila in the North) growth and development, particularly of IT and IT enabled industries, have remained largely clustered in the same locations. Though this is a natural tendency of businesses, it uncovers one of the more pressing pain-points for the Philippine BPO sector; namely that beyond and between Metro Manila and Cebu lies a vast supply of still untapped and relatively unknown labor pool. This in fact is the very same labor pool that BPO operators in the two cities have been clamoring to tap to supplement their internal labor shortages. Skill-set Identification Local and foreign businesses alike have long considered the Philippines to be talent rich with regard to its workforce. In the Philippine BPO landscape, this has been evident in operators continuing to expand outside of Metro Manila in search for new sources of talent. This migration of business to cities like Cebu, Baguio, and Tier 2 cities in the Southern Tagalog region are indicative of the talent available beyond the Metropolis. However, adequate identification and 2007 Tholons 6 of 9

7 valuation of existing talent in Tier 2 cities and alternative provincial destinations has, to date, been lacking. This is an important exercise that must be undertaken in a collaborate manner by both the Government and BPO industry groups. Thus, the identification of labor resources and their corresponding skill-sets are of equal significance in evaluating the current and potential capacity of the Philippines as an outsourcing destination. Properly identifying specific skilled resources will also allow for a much more effective approach in selling and marketing the Philippines as a legitimate outsourcing destination. Potential BPO locators, for example, are now looking at more granular detail beyond population size and literacy rate, as these data points are not enough to sway decisive business action. Locators, needing to be more cost effective and efficient, are looking at specific details such as language proficiency, and technical skills capability. A North American client looking at the Philippines for customer support of its Spanish speaking customers for example, would be more interested in identification of labor resources such as Zamboanga City in the Southern Philippines, where a Spanish speaking and highly trainable labor pool actually exists Tholons 7 of 9

8 Conclusion The Philippine outsourcing landscape continues on a positive track of development. The success and viability of the local Contact Center space and the effective delivery of the customer service process has been substantiated by large American retailers entering the country. This can be considered as definitive evidence of the country s capacity to compete in the global BPO landscape. However, additional measures, both progressive and concise - must be taken to ensure that growth and development of the industry is sustained. Decisive action to ensure the quality of the labor pool must be taken immediately. Government must be aware at this early stage that industry growth cannot be guaranteed without an adequate and capable labor pool. Thus, sheer population alone will not be sufficient to attract BPO locators to choose the Philippines, as ultimately it will be the quality of service provided that will be given the most weight. Labor supply allocation is another foundation that must be addressed. The Philippines cannot simply be a one-trick-pony, with Metro Manila and its immediate vicinity being the singular focal point. As Metro Manila begins to experience early signs of saturation and the competitive dynamics between captive and third party providers heightens, BPO operators will need to look at alternative destinations within the country. In the contact center space, where operators need to scale in short periods of time, and in the hundreds, if not thousands of agents, concentrating in Metro Manila will become increasingly difficult as the most capable talent would have already been taken by the biggest service providers. Further, Government and industry groups must be able to take inventory and undertake a concise assessment of the country s available talent pool. In this case, knowing how much you have is equally important as knowing what you have. Without accurate understanding of available skill sets, the Philippines will become a harder sell from the perspective of Global clients, who are increasingly looking at more specific skill sets and more focused labor pool profiles. Though these arduous steps will undoubtedly take time and provide a formidable challenge to Philippine BPO stakeholders, they are in fact necessary. However, when looking at local BPO s ecosystem, the Philippines can take consideration that near-term global demand for offshored outsourcing services will continue to outpace local supply-side dynamics, and thus continue to fulfill the demand-side component of the equation. As such, if prudent and definitive action is taken at this stage, the Philippines may in fact be able to re-calibrate and make more efficient, its BPO machinery enabling it to not only sustain growth in the local market, but to expand its market share in the rapidly developing global outsourcing market 2007 Tholons 8 of 9

9 marketplace About Tholons Tholons is a Services Globalization and Investment Advisory firm that combines "Best of Breed" consulting experience with deep execution expertise and investment insights to deliver truly effective services to its clients. Tholons offers a detailed understanding of business processes and combines it with practical hands-on expertise in executing the strategy. Tholons draws upon the considerable experience of a handpicked team, which has successfully formulated and executed globalization strategies to unlock value for Global Fortune 1000 companies. Service providers leverage Tholons expertise to optimize their global delivery model. Tholons advisors engage with government bodies to build compelling strategies for making countries attractive destination for outsourcing. THOLONS Global Offices Author: Manuel Ravago Research Director Editor: Avinash Vashistha Chairman & CEO For more details about Tholons' Services Globalization and Investment Advisory capabilities, please visit our website at: You may also contact: Jessica MacKenzie Director, Marketing and Public Relations [email protected] US: North America Office 3130 Fairview Park Drive, Suite 500 Falls Church, VA 22042, USA Phone: Fax: Europe Office 2 Crawfurd Farm, Ray Mill Road East Maidenhead, SL6 8SU Berkshire, UK Phone: Asia Office 2/10, 2nd Floor, 80 Ft Road RMV Extension Stage II Bangalore , India Phone: Philippines Office 46th Floor, Yuchengco Tower RCBC Plaza, 6819 Ayala Makati City 1200, Philippines Phone: Tholons 9 of 9