Outsourcing in the Philippines:

What Business Leaders Think

A well-attended BPO Forum was held a couple of weeks ago at the Westin Hotel in Manila.  The event was organized as a kick-off to the E-Services Exposition at the World Trade Centre.  There were about 170 registered guests and half of these held the title CEO.

It was very interesting speaking to these people.  There is a consensus emerging about the attractiveness of outsourcing operations to Philippines. Below are some of the main points that seem to have broad agreement among business leaders in the industry.

1. The BPO Sector is Growing - Most of the people I spoke to at the BPO Forum were owners or leaders of companies involved in the outsourcing sector.  The majority of these people said they were acquiring new work and hiring new staff.  The numbers involved seem to be large from my experience (25% to 50% overall staff increases over the next 6 to 9 months seem to be common for the smaller companies and 15% to 20% for larger organizations).  Some of this hiring may be speculative in nature as companies hire now in order to be ready for future business that may (or may not) come.  In any case, these are significant numbers.

2. Good Supply of Intermediate and Junior Level People - It is no surprise that business leaders think Philippines offers a large supply of intermediate level and (especially) junior level people.  As employees, Filipinos have a reputation for quality and a capacity for hard work.  I have heard it again and again that Filipino IT people are equal to those of India but that Filipinos are easier to get along with.  As call center agents, the ability of young people in this country to mimic American accents is remarkable.  Just yesterday a senior manager I spoke to in New York said he could not tell the difference between his agents in Philippines and his agents from the wheat fields of Kansas.  His comment is typical.

The consensus is that the country could support large amounts of growth in hiring before this supply could become constrained.

3. Management Talent is Difficult to Find - This was a common concern expressed by business owners and leaders.  The supply of management people is becoming limited.  We are already seeing large salary increases in the call center business for such people.  Soon we will see this in the other areas -- especially IT.  Business leaders seem to be taking a wait and see approach to the problem which is less than constructive.  It seems clear, however, that unless local management staff can be developed quickly, a new supply will have to be found if the industry is to grow.  Perhaps Filipinos working overseas will have to be lured back to Philippines or expatriates need to be brought in.  Given the current growth in hiring, it seems the problem will get worse.

4. People are People - It is common for new people to the country to be concerned about cultural differences in Philippines.  The expatriates I speak to feel those differences are over-rated.  Given that most employees in the outsourcing sector are young people, running an operation in Philippines is not that different from running one in North America or anywhere else where there are large numbers of immigrants to interact with.

Most of the cultural differences seem to be matters like getting used to being called "sir" by staff or that people will say “yes” but still won't do what is asked.  One other amusing difference has to do with the propensity of young people working closely together to end up in bed.  The rate of this propensity seems to be the same in Philippines as in the west with one important difference.  In western countries, the two people involved in the affair do not let the success or failure of their relationship affect workplace productivity.  In Philippines, the situation is more complicated.

When the affair ultimately ends, one of the former partners will refuse to work with or even sit close to the other.  The resulting outbursts can be disruptive to the workplace until management learns how to deal with such issues effectively.  Apparently, Filipinas are indeed the different breed of female they claim to be.

5. Infrastructure is Adequate - Most business leaders feel the infrastructure required for their outsourcing businesses (mainly telecommunications and office space) is adequate.  There is some grumbling that telecommunications services could be provided cheaper or with improved levels of service.  These complaints are perhaps reasonable. Nevertheless, the progress made in this country over the past few years since deregulation of the telco industry has been significant and can be expected to further improve.  In addition, the quality of office space in Manila is world-class and available at deep discount rates.  Outsourcing businesses are fortunate in that they do not require efficient transportation networks or large factories to be built (with all the difficulties of regulatory approvals and logistics).  They also don't have to deal with customs agents.

6. Education Levels are Acceptable - There have been a number of commentators recently who believe the quality of education in this country is "not what it used to be."  Whether this is true or just a continuation of the age-old practice of the old complaining about the young, is not clear.  Probably, it is a bit of both.  It should be a concern to everyone when educated young people from prominent universities are not able to write a paragraph that is understandable to native English speakers.  The Philippine government has made a point to focus more on English proficiency in classrooms.  Anything that improves the quality of education will improve the country’s outlook.  This is clear and obvious.  It is also clear that education is not a big issue for foreign companies setting up outsourced operations in Philippines.  Education levels of staff they can attract here are better than what they can attract in their home countries.  They wouldn't be coming here if that wasn't the case.

7. Government Not as Bad as People Say - If there is one thing that is in harmony with all people in the world, it is that they complain about their governments.  In Philippines, the complaints are generally louder for understandable reasons.  However, the consensus is growing that the government is not as bad as people say and it is getting better.  I was pleasantly surprised recently when a person who was primarily responsible for the setup of her company’s operations in Philippines said the overall startup process (including dealings with the government) was “easy, no problem.”

8. Optimism that Country is Improving - People within the outsourcing sectors believe the country prospects are improving and the future looks bright.  This optimism is in complete contrast to people running businesses in many other sectors of the economy.  It is an interesting discrepancy.

9. A Large Number of Small Companies - There are a large number of small companies with less than 100 staff in the outsourcing business.  With the exception of the call centers, many of the outsourced operations seem to be small with most having less than 100 staff.  There are only a handful of companies with larger numbers (for example: SVI, SPI, Caltex, P&G, WeServ).  Even large organizations like PhilamLife and Zuellig who were presenters at the BPO Forum have less than 100 people employed in their shared service operations currently.  There is a lot of room to grow.

10. Perception of Lawlessness Harming Growth of Operations - This, I hear often.  The feeling among business leaders is that it is hard to get potential clients on the airplane to come here to take a look because of the negative perception of Philippines.  While local managers (especially the expatriates) are gung-ho about the potential of their operations to become large scale, the feeling is that head-office is not willing to commit to a country that is perceived as "unsafe."  The concerns cited are the same ones we are all sick of hearing: crime, terrorism, corruption, political scandals, etc.  Nevertheless, once head-office staff or potential clients can be convinced to come to Manila than their views usually change.  They can see with their own eyes that things are not as bad as they are made out to be.

11. Lack of Certifications is Slowing Growth in the IT Sector - There is a great need for companies and individuals to invest in certifying their expertise.  The IT sector seems to hold a lot of potential for creating large numbers of well paid career opportunities.  Competitors in India already have a tremendous commitment to certifying everything they do.  Companies in Philippines need to get moving on this if they are to be taken seriously.

12. Minor Concern about Militant Unionism - I have heard a few people make passing comments about this issue to me.  The concern expressed is along the lines of, “Are unions going to destroy my business like they destroyed the textile industry in Philippines?”  This issue seems to be a minor one at this point.  As long as there are no horror stories in the future, expect this to remain so.

13. Expatriates like Living in Philippines - The first 6 months in the Philippines are usually considered a difficult adjustment.  If an expatriate can survive this initial period of shock, he often doesn't mind staying for the long term.  Most expatriates living here are average people in their home countries -- upper-middle class, at best.  But here, they are made to feel like big shots.  They like having maids and drivers to look after them, and receiving special attention by retail staff and salutes from security personnel.  The aristocratic life-style is easy to get used to and difficult to let go.

Reprinted with Permission from

Richard Mills, CFA

Chalre Associates Executive Search

Tel: (632) 892.6703