India Vs Philippines: Outsourcing outlook
August 24, 2009
Whereas India is still considered to be the preeminent offshore outsourcing destination for IT services as well as in BPO, the Philippines has fast made a name for itself in providing offshore call center and BPO related services. In fact, few can argue that Filipinos, with their relatively neutral accents and better understanding of and affinity towards American culture, aren’t at least better at providing voice related work. Hence, the global economic crisis is affecting the outlook in both countries differently.
In the Philippines, a recent survey conducted by the Business Processing Association of the Philippines (BPA/P) and Outsource2Philippines (O2P), only 16% of surveyed BPO executives said that the impact on business from the global economic crisis was “significant” while 5% said it was “very significant.” Furthermore, four out of five BPO executives surveyed said that the impact was "moderate" or "minor" on their companies while 60% of the executives in firms affected indicated that they have responded by introducing new services. In addition, BPA/P expects job growth this year to be around 160,000 new jobs – less than the 400,000 jobs created last year but nevertheless, a solid performance given the circumstances.
In contrast, Business Week recently reported that there is a chill in the air in India’s Gurgaon. One reason is due to the fact that higher-value work such as writing software code is typically outsourced to Bangalore and other places where there are top-notch schools while the work sent to Gurgaon is mostly low level call center and BPO type of work. Moreover, some companies have decided to shift customer-facing jobs back to home markets due to quality concerns and the fact that the economic crises has lowered the cost of work homeshored. Hence, Gurgaon now has a 28% commercial real estate vacancy rate while office rents have dropped 25% and are expected to keep falling. In addition, India’s software industry is facing challenges given that IT expenditures are in many cases still being scaled back due to the tough economic environment and economic uncertainty.
Nevertheless, the New York Times has also recently reported that India is feeling less vulnerable as outsourcing revenue, which was predicted to reach US$50 billion in 2010 by a McKinsey/NASSCOM study conducted a decade ago, is still predicted to reach that level. However, it just may take three or four quarters longer and the latest predictions are that revenue will reach US$47 billion this year and US$175 billion by 2020. Moreover, while revenue from hard hit sectors such as banks, mortgage servicing companies and Wall Street firms has fallen, new sources of revenue are opening up from insurance companies, pharmaceutical companies and corporate legal departments who increasingly need to cut costs in today’s difficult economic environment. Hence, Indian outsourcing firms are starting to aggressively learn new skills and set up new operations abroad.
Hence, while the Philippines is well poised to continue growing with much of the growth coming from call center and BPO work, India will need to work a little harder and smarter to maintain its growth trajectory.