Potent Philippine BPO industry aims to lure back overseas workers

Reading Time: 7 minutes
Jomari Mercado_IBPAP_1
Jomari Mercado, President and CEO of the IT and Business Process Association of the Philippines (IBPAP)

Investvine sat down with President and CEO of the IT and Business Process Association of the Philippines (IBPAP) Jomari Mercado to receive an update on the business process outsourcing (BPO) industry’s tremendous growth, the development of more complex work beyond call centers, and strategies for attracting overseas Filipino workers back home.

Overall, since I had an interview with former IBPAP Senior Executive Director Gigi Virata two years ago, how has the industry changed? Well, last year, we actually exceeded the one-million-person mark, closing 2014 with 1.07 million Filipinos working in this industry. Moreover, for every job we create, we generate another 2.5 auxiliary jobs: the baristas in the coffee shops, the people in the convenience stores, tricycle and taxi drivers and so on.

The BPO industry, then, remains a significant contributor to GDP? We closed last year with $18.9 billion in revenue, contributing 6.2 per cent to the Philippines’ gross domestic product; two years ago, we accounted for about 5 per cent. The central bank actually made a statement about two months ago, saying that BPO revenues are coming close to remittances from overseas workers, which are the biggest contributors to the Philippines’ foreign exchange economy. Remittances stood at $24 billion at the end of 2014 and they are growing at about 5 to 8 per cent per year. Our industry has been growing at about 15 to 18 per cent, and the central bank says if both growth rates continue on the same path, by 2017 we will actually overtake the Overseas Filipino Workers’ (OFW) segment in terms of contribution to the Philippine economy.

What is the likelihood of overtaking the OFW segment? Next year, our target is $25 billion and 1.3 million people in direct employment. The OFW segment is targeting $26 billion, but there are 11 million Filipinos contributing to that $26 billion.

So what is propelling this growth? Thirty per cent of the work done in the industry is now being done outside of Metro Manila, accounting for more than 300,000 jobs. Increasingly, young Filipinos don’t even have to leave their hometown. Changes in tier-three cities have been the most dramatic. And I’m proud to say that we were one of the biggest reasons for those changes.

That’s a profound shift. Has there been a shift in clients as well? We had a lot of trade shows to promote the Philippines in the Australia-New Zealand markets, and the result is that this region now represents 9 per cent of our revenue. Overall, presently 77 per cent of revenue comes from North America, namely the US and Canada. Another 9 per cent comes from the European market, predominantly from the UK. And, finally, 5 per cent comes from Japan – mainly from the IT industry there.

Besides English, what other languages are in highest demand in the BPO industry? The biggest demand nowadays would be for Japanese, Mandarin and Spanish.

Mandarin and Spanish: Which one is growing faster, do you think? Definitely Spanish. IBM has said that by 2020 there will be more Spanish-speaking Americans than English-speaking Americans. The challenge is that we don’t speak as much Spanish in the Philippines as we did before. And, unfortunately, most of our students don’t take up Spanish in college.

I think that may be a part of the challenge, like IBPAP has mentioned, of a skill set mismatch. What are other challenges that you are facing with the next generation of workers? When we conduct an actual check on which competencies are missing, we find that they are not technical competencies but soft skills, for example Business Communication, as well as critical thinking. Unfortunately, our students today have so much technology at their fingertips and google everything. If you ask them a question they don’t retain it anymore. But when they are in a customer service scenario – when they are dealing with a person from another country – and customers start asking questions, they don’t necessarily have the luxury of googling it – they have to think on their own.

Are there any other barriers to grooming the perfect BPO worker? We found one missing core competency is multi-tasking. You might say, “Wait, kids today can do things simultaneously.” Well, the challenge is when you put them in a business environment they lack attention to detail. They can do multiple things at the same time, but fail to pay attention to the details.

What is being done to address these shortcomings? The good news is that we were able to identify the gaps. We now have empirical data from a mass survey that I can use to write back to every school that participated to address the gaps. But we also found that the schools cannot change their curriculum overnight. So, we started working together and we developed the Service Management Programme. It’s a 21-unit specialisation track that has been accredited by the government to be offered in the last two years of college for IT, computer science, business administration and accounting.

And how many students are currently in this programme? We are now in the final stages of rolling it out across 17 state colleges and universities across the country – from La Union all the way down to Davao. We have about 8,000 students now enrolled in the most vital subjects and the last six units of that course work is actually a 600-hour internship with a BPO company. We had the first branch of 686 come out of the pipeline in the first quarter of this year. And we asked the 12 BPO companies that participated: Before you take them in, make them go through the recruitment process, we just want to see what the hit rate is. Well, the graduates from one school came up with a hit rate of 33 per cent, up from 10 per cent. Another school came out with about a 52 per cent hit rate. So, are we actually multiplying the size of our qualified candidate pool in the process.

What has been the best experience in the initial trial run of the programme? Previously, the experience with the University of the Philippines Open University (UPOU) for online courses is that their completion rate was anywhere between 10 to 25 per cent. But the 800 people who signed up for the two courses of the Service Management Programme were hitting 45 to 50 per cent completion rates. Part of the reason, we believe, is because they think there’s a potential job waiting for them at the end of the course. It’s a more solid value proposition. The second thing that came out of that test, which is an exciting point, is that half of the people who signed up are OFWs based in Dubai, London and Singapore.

Wow, that’s indicative of a trend that everyone wants to hear. “Do you want to come home?” I’d ask prospective BPO workers from overseas. And before you come home, take this online course so that you can be sure that your competencies are at the level that this industry requires. Bringing Filipinos back home and adding 150,000 jobs this year – that’s what keeps us excited.

But, of those 150,000 jobs, how much is voice work? Right now, about 60 per cent is still voice work. But, let me clarify: voice work is not necessarily simple work. In fact, the bulk of voice work requires a complex style of work. Ten years ago, for example, when you got a call center job, everything was scripted. Today, the only thing that’s scripted is the opening and closing sections.

So then, the other 40 per cent represent more value-added services. Which one of those do you see as the stars? The two stars right now are IT and healthcare. Healthcare posted a growth rate of over 50 per cent at the end of last year primarily because of Obamacare. We’re talking about a huge amount of medical records that had to be converted to digital. And we’re talking about a shift from ICD -9 to ICD -10 in medical coding. And then, most notably, we have a lot of nurses in the Philippines that are US-registered nurses. They’re able to seamlessly provide clinical assistance and medical care out of the Philippines for patients in the US.

This will certainly allow for the Philippines to establish itself as a healthcare specialist hub, yes? Absolutely. Our nurses are practicing their craft, which is actually the best part – they’re practicing what they are trained to do.

Are there any investors looking to develop this nascent industry? There’s an Australian company here that is currently setting up shop and is looking for 300 radiologists. The business model is that magnetic resonance images and X-rays taken in Australia are sent to radiologists here who look at it, file a report and email it back for a fraction of the price of a radiologist practice in Australia.

What tools are needed to maintain this niche growth? Software, it goes without saying, is in big demand. There is no way that we will overtake India when it comes to IT and software; they have scale. But we’re benefiting from the fact that a lot of companies are saying, “I need to find a second location, where is that second location?” Or, a lot of these companies looking at IT now are starting out by putting call center operations in the Philippines and they’re saying, “Okay, you’re doing such a good job. Can you also do this?”

There seems to be a perception in developed countries that outsourcing only sucks away jobs. Can both developing and developed economies find sustainable and mutual benefits? First of all, let’s clarify the term outsourcing because there are several different types of outsourcing. The bulk of the jobs that have left the US were not in the knowledge space, they were in the manufacturing space. And in the knowledge space, there are two aspects about outsourcing: Number one is that a lot of these jobs that are being outsourced to the Philippines, or India, or even Budapest, for example. These are jobs for which they cannot find enough people in the US. And secondly, yes, costs are a big factor. But over the last 10 to 15 years companies have realised that cost savings are not the be-all-end-all of it. The quality of the work is more important and if the quality is not there, it can result in rework, thus increasing the cost. Actually, by doing the math, some companies find it as expensive overseas as back in the US. Most importantly, companies are finding out today that there are types of work where face-to-face interactions remain very important, but then there is another type of work where chat is important. The chat work they can send somewhere else because it is location-neutral.

Where do you see the BPO industry in five years? Consulting group Tholons predicts that the global outsourcing market will be worth $250 billion by 2020. In the Philippines, we will quickly reach $25 billion; so there is still a huge market to tap into. I think the challenge in the Philippines is that the size of the market share that we could grab is completely dependent on how much we can step up the industry, and it boils down to the availability of a sufficient talent pool.

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Reading Time: 7 minutes

Jomari Mercado, President and CEO of the IT and Business Process Association of the Philippines (IBPAP)

Investvine sat down with President and CEO of the IT and Business Process Association of the Philippines (IBPAP) Jomari Mercado to receive an update on the business process outsourcing (BPO) industry’s tremendous growth, the development of more complex work beyond call centers, and strategies for attracting overseas Filipino workers back home.

Reading Time: 7 minutes

Jomari Mercado_IBPAP_1
Jomari Mercado, President and CEO of the IT and Business Process Association of the Philippines (IBPAP)

Investvine sat down with President and CEO of the IT and Business Process Association of the Philippines (IBPAP) Jomari Mercado to receive an update on the business process outsourcing (BPO) industry’s tremendous growth, the development of more complex work beyond call centers, and strategies for attracting overseas Filipino workers back home.

Overall, since I had an interview with former IBPAP Senior Executive Director Gigi Virata two years ago, how has the industry changed? Well, last year, we actually exceeded the one-million-person mark, closing 2014 with 1.07 million Filipinos working in this industry. Moreover, for every job we create, we generate another 2.5 auxiliary jobs: the baristas in the coffee shops, the people in the convenience stores, tricycle and taxi drivers and so on.

The BPO industry, then, remains a significant contributor to GDP? We closed last year with $18.9 billion in revenue, contributing 6.2 per cent to the Philippines’ gross domestic product; two years ago, we accounted for about 5 per cent. The central bank actually made a statement about two months ago, saying that BPO revenues are coming close to remittances from overseas workers, which are the biggest contributors to the Philippines’ foreign exchange economy. Remittances stood at $24 billion at the end of 2014 and they are growing at about 5 to 8 per cent per year. Our industry has been growing at about 15 to 18 per cent, and the central bank says if both growth rates continue on the same path, by 2017 we will actually overtake the Overseas Filipino Workers’ (OFW) segment in terms of contribution to the Philippine economy.

What is the likelihood of overtaking the OFW segment? Next year, our target is $25 billion and 1.3 million people in direct employment. The OFW segment is targeting $26 billion, but there are 11 million Filipinos contributing to that $26 billion.

So what is propelling this growth? Thirty per cent of the work done in the industry is now being done outside of Metro Manila, accounting for more than 300,000 jobs. Increasingly, young Filipinos don’t even have to leave their hometown. Changes in tier-three cities have been the most dramatic. And I’m proud to say that we were one of the biggest reasons for those changes.

That’s a profound shift. Has there been a shift in clients as well? We had a lot of trade shows to promote the Philippines in the Australia-New Zealand markets, and the result is that this region now represents 9 per cent of our revenue. Overall, presently 77 per cent of revenue comes from North America, namely the US and Canada. Another 9 per cent comes from the European market, predominantly from the UK. And, finally, 5 per cent comes from Japan – mainly from the IT industry there.

Besides English, what other languages are in highest demand in the BPO industry? The biggest demand nowadays would be for Japanese, Mandarin and Spanish.

Mandarin and Spanish: Which one is growing faster, do you think? Definitely Spanish. IBM has said that by 2020 there will be more Spanish-speaking Americans than English-speaking Americans. The challenge is that we don’t speak as much Spanish in the Philippines as we did before. And, unfortunately, most of our students don’t take up Spanish in college.

I think that may be a part of the challenge, like IBPAP has mentioned, of a skill set mismatch. What are other challenges that you are facing with the next generation of workers? When we conduct an actual check on which competencies are missing, we find that they are not technical competencies but soft skills, for example Business Communication, as well as critical thinking. Unfortunately, our students today have so much technology at their fingertips and google everything. If you ask them a question they don’t retain it anymore. But when they are in a customer service scenario – when they are dealing with a person from another country – and customers start asking questions, they don’t necessarily have the luxury of googling it – they have to think on their own.

Are there any other barriers to grooming the perfect BPO worker? We found one missing core competency is multi-tasking. You might say, “Wait, kids today can do things simultaneously.” Well, the challenge is when you put them in a business environment they lack attention to detail. They can do multiple things at the same time, but fail to pay attention to the details.

What is being done to address these shortcomings? The good news is that we were able to identify the gaps. We now have empirical data from a mass survey that I can use to write back to every school that participated to address the gaps. But we also found that the schools cannot change their curriculum overnight. So, we started working together and we developed the Service Management Programme. It’s a 21-unit specialisation track that has been accredited by the government to be offered in the last two years of college for IT, computer science, business administration and accounting.

And how many students are currently in this programme? We are now in the final stages of rolling it out across 17 state colleges and universities across the country – from La Union all the way down to Davao. We have about 8,000 students now enrolled in the most vital subjects and the last six units of that course work is actually a 600-hour internship with a BPO company. We had the first branch of 686 come out of the pipeline in the first quarter of this year. And we asked the 12 BPO companies that participated: Before you take them in, make them go through the recruitment process, we just want to see what the hit rate is. Well, the graduates from one school came up with a hit rate of 33 per cent, up from 10 per cent. Another school came out with about a 52 per cent hit rate. So, are we actually multiplying the size of our qualified candidate pool in the process.

What has been the best experience in the initial trial run of the programme? Previously, the experience with the University of the Philippines Open University (UPOU) for online courses is that their completion rate was anywhere between 10 to 25 per cent. But the 800 people who signed up for the two courses of the Service Management Programme were hitting 45 to 50 per cent completion rates. Part of the reason, we believe, is because they think there’s a potential job waiting for them at the end of the course. It’s a more solid value proposition. The second thing that came out of that test, which is an exciting point, is that half of the people who signed up are OFWs based in Dubai, London and Singapore.

Wow, that’s indicative of a trend that everyone wants to hear. “Do you want to come home?” I’d ask prospective BPO workers from overseas. And before you come home, take this online course so that you can be sure that your competencies are at the level that this industry requires. Bringing Filipinos back home and adding 150,000 jobs this year – that’s what keeps us excited.

But, of those 150,000 jobs, how much is voice work? Right now, about 60 per cent is still voice work. But, let me clarify: voice work is not necessarily simple work. In fact, the bulk of voice work requires a complex style of work. Ten years ago, for example, when you got a call center job, everything was scripted. Today, the only thing that’s scripted is the opening and closing sections.

So then, the other 40 per cent represent more value-added services. Which one of those do you see as the stars? The two stars right now are IT and healthcare. Healthcare posted a growth rate of over 50 per cent at the end of last year primarily because of Obamacare. We’re talking about a huge amount of medical records that had to be converted to digital. And we’re talking about a shift from ICD -9 to ICD -10 in medical coding. And then, most notably, we have a lot of nurses in the Philippines that are US-registered nurses. They’re able to seamlessly provide clinical assistance and medical care out of the Philippines for patients in the US.

This will certainly allow for the Philippines to establish itself as a healthcare specialist hub, yes? Absolutely. Our nurses are practicing their craft, which is actually the best part – they’re practicing what they are trained to do.

Are there any investors looking to develop this nascent industry? There’s an Australian company here that is currently setting up shop and is looking for 300 radiologists. The business model is that magnetic resonance images and X-rays taken in Australia are sent to radiologists here who look at it, file a report and email it back for a fraction of the price of a radiologist practice in Australia.

What tools are needed to maintain this niche growth? Software, it goes without saying, is in big demand. There is no way that we will overtake India when it comes to IT and software; they have scale. But we’re benefiting from the fact that a lot of companies are saying, “I need to find a second location, where is that second location?” Or, a lot of these companies looking at IT now are starting out by putting call center operations in the Philippines and they’re saying, “Okay, you’re doing such a good job. Can you also do this?”

There seems to be a perception in developed countries that outsourcing only sucks away jobs. Can both developing and developed economies find sustainable and mutual benefits? First of all, let’s clarify the term outsourcing because there are several different types of outsourcing. The bulk of the jobs that have left the US were not in the knowledge space, they were in the manufacturing space. And in the knowledge space, there are two aspects about outsourcing: Number one is that a lot of these jobs that are being outsourced to the Philippines, or India, or even Budapest, for example. These are jobs for which they cannot find enough people in the US. And secondly, yes, costs are a big factor. But over the last 10 to 15 years companies have realised that cost savings are not the be-all-end-all of it. The quality of the work is more important and if the quality is not there, it can result in rework, thus increasing the cost. Actually, by doing the math, some companies find it as expensive overseas as back in the US. Most importantly, companies are finding out today that there are types of work where face-to-face interactions remain very important, but then there is another type of work where chat is important. The chat work they can send somewhere else because it is location-neutral.

Where do you see the BPO industry in five years? Consulting group Tholons predicts that the global outsourcing market will be worth $250 billion by 2020. In the Philippines, we will quickly reach $25 billion; so there is still a huge market to tap into. I think the challenge in the Philippines is that the size of the market share that we could grab is completely dependent on how much we can step up the industry, and it boils down to the availability of a sufficient talent pool.

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