How the Philippines overtook India in call centers
January 19, 2011
Recently and according to various reports and industry experts, the Philippines “officially” overtook India in call centers and voice related work. In fact and in a December 2010 article in Business Week, the Everest Group estimated that the Philippines will have pocketed US$5.7 billion in 2010 for call center work from the US, Europe and Australia verses US$5.5 billion for India’s call centers (although India still leads in overall outsourcing revenue at an estimated US$70 billion verses US$9 billion for the Philippines) while according to IBM’s latest Global Locations Trend Annual Report, the Philippines is now the world leader in business support functions like shared services and BPO with India ranked as number two for the first time. Interestingly enough, the IBM report also noted that Sri Lanka was another Asian country that was succeeding in positioning itself as an alternative outsourcing destination to India.
So just how did the Philippines go from having virtually no call centers or outsourcing operations a decade ago to become the premiere destination for outsourced voice related work? History and luck plus government support all played a role and offer lessons for both India and other countries such as Sri Lanka who seek to compete with India for outsourcing business. Consider the following:
- The Philippines was a US colony from 1898 until 1946. Hence, there is a strong affinity and familiarity towards American culture and many Filipinos now live in the USA. Moreover, English is used in the education system and is widely spoken by Filipinos.
- In order to understand why India was successful in outsourcing and in voice related work, Filipino officials visited industry representatives in India. When they returned to the Philippines, they streamlined the approval process for the setting up of call centers and changed their rules to allow individual buildings to become special economic zones offering tax breaks, quick clearances for permits and exemptions from import duties for necessary IT and telco equipment. In addition, a government-sponsored training program was created to improve the English and communication skills of nearly 40,000 students so they could work in the industry.
- This government support continues to this day with a recent article in the Philippine Daily Inquirer noting that in November 2010, Philippine senator Miriam Defensor-Santiago was quoted as saying that she would file a measure to further jump-start support for the BPO industry and its workers plus she urged other legislators to come up with laws that would support this so-called “booming sunshine industry” in the country.
On the other hand, Business Week noted that a tax break for Indian outsourcing companies is set to expire in 2011 (although the outsourcing industry is lobbying for an extension). Furthermore and in big Indian outsourcing hubs such as Bangalore and Gurgaon, outsourcing companies are still forced to rely on diesel generators to ensure adequate amounts of electricity, operate fleets of buses in order to get their employees to and from work and struggle with attrition levels that can reach as much as 50% or more per year. In other words, India is not exactly rolling out the welcome mat for new call center, BPO and outsourcing operations in general – let alone making it easy for existing ones to operate effectively and efficiently in the country.
Nevertheless, India at the moment still has little competition in knowledge intensive industries such as IT and software. However and if a country like the Philippines can rise from nothing to overtake India in a major outsourcing segment in less than a decade, India should not be resting on its laurels.