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No likely victory beyond voice

BPO biz: Larger share of non-voice pie still resides with India

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Rajiv Ahuja’s first experience of managing human resources was as an officer in the Indian Army, leading his men through the jungles of the Northeast. But as President, Asean and Australia-New Zealand, at the Essar Group’s business process outsourcing (BPO) arm, Aegis, Ahuja currently faces a very different challenge in the Philippines.

“The Philippines is probably about 12-15 per cent more expensive (than India), and labour laws are slightly more stringent here. It is also a fact that the demand-supply gap that exists in the Philippines is far more than what exists in India, where you’re in a position to pick and choose. Whereas, in the Philippines, it is a highly-constrained world,” Ahuja says in an interview past 10pm, which is when he begins his daily work hours.

“For most companies, when they started (in the Philippines), they were on the front foot for labour arbitrage. I think subsequently, people are realising that while they came for cost, they are staying back more for quality and the experience that is provided,” he adds.

SMALL CHURN
Number of college degree graduates 
Year 2009 
Medical and natural sciences, allied fields  132,244
Business, accounting, and related fields  107,272
Social and behavioral sciences, education  68,764
IT-related and mathematics  47,928
Engineering and architecture  50,734
Fine arts, masscom, humanities  12,269
TOTAL Tertiary level  469,654
Source: Business Processing Association of the Philippines

That advantage has propelled the industry’s growth so far, and from $11 billion in revenues last year, the country’s sector is expected to reach $25 billion by 2016. But there are concerns over a looming human resources crisis, which may stall the Philippines growth into higher-value, non-voice information technology-based services.

“On an average 500,000 graduates come into the market every year, and the industry is growing at a rapid clip given that there are a lot of customers who want to move, or at least start something, in the Philippines. Given that, what’s happening now is that the supply demand equilibrium is not there,” explains Krishnan Parameswaran, centre head at Tech Mahindra’s facility in Metro Manila.

“In a country like India, you have a population of 1.2 billion, so there’s a huge pool of people coming in (every year),” he adds, “But the graduate pool here isn’t growing any bigger”.

The Philippines produced some 469,654 college graduates in 2009, with the size of the graduate pool growing at 5.8 per cent every year, compared to the BPO sector’s annual expansion in excess of 20 per cent.

Gillian Joyce Virata, senior executive director of the (BPAP), the industry body that represents the sector, accepts that there is a problem, but adds that the government has put in subsidies worth $10 million to help.

“The BPAP perspective is that we have raw talent but it needs finishing, so we have finishing schools,” explains Virata. So, companies are putting candidates who just missed the cut, termed ‘near-hires’, through finishing schools. “And about 70 per cent of that group can be then hired after just two weeks of practicing their English,” she adds.

Yet, there are also historical factors at play. During the 1970-80’s, at the height of the Japanese influence in Asia, Filipino was made the medium of instruction in government schools, in line with the Japanese model of using their own language as the primary means of communication, says Bong Borja, among the pioneers of the industry in the country.

It was only in 2000 that the industry was successfully able to convince the government that English must be brought back in the public school curriculum, along with an increased emphasis on mathematics and science, adds Borja, currently president, strategic initiatives at Aegis.

The crisis, however, isn’t one that’s only afflicting the bottom of the pyramid. The Philippine BPO industry also suffers from a weak middle-management. “It is actually a bigger challenge than developing talent for the entry level positions because there’s no substitute for management material. Management talent isn’t something you learn from an MBA or managing people for a year. You develop skills because of the challenges that are thrown at you over a period of time,” explains Borja.

So far, much of the middle-management shortage has been met by bringing in experienced hands from India and the United States, BPAP’s Virata says, but given the target of more than doubling the sector’s size in the next four years, expatriates alone won’t bridge the gap. That’s why the industry, along with government, have come together to train more local managers.

But the human resource crunch will mean that moving up the value ladder and grabbing a larger share of the non-voice pie, which still resides with India, will become difficult for the Philippines. On an average, the country produces 100,000 fresh graduates with degrees in engineering, information technology-related subjects and mathematics every year, many of whom leave the country to work or study abroad. That means, unlike India with 500,000 engineering graduates every year, there’s just not enough talent in the Philippines to create scale in the non-voice business.    

There is also a fascinating political perspective to the BPO phenomenon in the Philippines. The sector enjoys strong political support, Borja explains, because “it is the biggest (domestic) job generator, and in any economy right now, if you can generate jobs, it gains a lot of political points for you.” But the political impetus is purely geared towards increasing the overall headcount of the industry, rather than focus on generation of specialised skills that would bring additional value. 

The consequence of that is telling. “The difference between India and the Philippines is that India has Indian-owned, home-grown companies that have gone to scale and then gone global like Infosys, Wipro and Genpact. We don’t really have that in the Philippines; we have one Philippine-owned company called SPI Global. That’s a big difference,” reveals Virata.

The decisive victory for the Philippines, so far, has been in voice, and it looks unlikely that it will be able to move much beyond. India can rest easy.

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