Outsourcing BPO Services to The Philippines and India

By Nishant Maddineni

The Philippines has overtaken India as the largest hub for call centers in the world with more than one million Filipinos working in call centers and the related Business Process Outsourcing (BPO) industry as of August 2014. Call centers are one segment of the BPO industry, which involves outsourcing non-primary business activities such as payroll, human resources, accounting and customer call center relations.

Export revenues from BPO in the Philippines have boomed in the last decade, increasing tenfold from US$1.3 billion in 2004 to US$13.3 billion in 2014. The IT and Business Process Association of the Philippines expects this to continue increasing to $25 billion in 2016. However, 80 percent of this revenue comes from voice call centers as opposed to more technical IT outsourcing.

Most of the increase in BPO to the Philippines has come at the expense of India. In 2013, the Associated Chambers of Commerce and Industry of India (ASSOCHAM) said that the country lost over 50 percent of its BPO to foreign countries, costing the Indian economy approximately US$25 billion.

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Business English and American English Proficiency

The primary reason companies have moved their outsourcing from India to the Philippines is because Filipino employees often speak fluent American-accented English. While Indian employees are also known for good English compared to the rest of Asia, employers have found that the Indian accent can be hard to understand for some of their customers in the U.S. and Europe. In a report by GlobalEnglish Corporation, the Philippines was named the world’s best country in business English proficiency, while India was ranked ninth.

Filipinos also tend be more exposed to American culture, with widespread access to American TV shows and movies which helps in dealings with customers. This also leads to better knowledge of American idioms and cultural references. Although the Philippines has a significantly smaller population than India, this is somewhat mitigated by its higher literacy rate, which currently stands at 95 percent compared to India’s 63 percent.             

The Philippines’ Strong BPO Infrastructure

Other factors in the Philippines’ favor include better telecommunications infrastructure and strong government support for the BPO industry. The Philippine government is running a number of training initiatives, such as the Training for Work Scholarship Program that enables the IT industry to provide training for BPO applicants. Investors are also given a number of benefits, including tax holidays, exemptions on imported capital equipment, simplified export and import procedures, and freedom to employ foreign nationals.

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Advantages of Outsourcing BPO Services to India

Despite the loss in BPO business there are some trends that will benefit India in attracting potential outsourcers. For example, some companies have been moving their BPO away from pure voice services towards multi-channel delivery services that combine e-mail and chat. With an e-mail service, difficulties with the Indian accent will matter less.

Moreover, technical ability tends to be higher in India, which leads to much more IT related outsourcing. According to K.S. Viswanathan, vice-president at industry body Nasscom, “The Philippines has an edge in pure voice customer service. But if you have technology-enabled services for customer support, or for services like technology support, for that we see the center of gravity moving back here [to India]”. India benefits from a much more math and science heavy education system than in the Philippines, including an emphasis on technology and engineering.

Being a larger country also makes India a safer option, as serving a large concentration of clients out of a small country such as the Philippines limits the ability to scale without expanding to a second market. In a report by strategic advisory firm Tholons, six of the top eight global cities for outsourcing were in India, with the other two cities in the Philippines. Bangalore was ranked first, while Manila and Cebu City were jointly ranked eighth.

Finally, wages in India also tend to be lower, with the average call center employee income approximately US$300 in the Philippines compared to only US$200 in India.

While significant gains have been made in the Philippines’ BPO industry, most of the country’s business is in voice-centric customer service. This suggests that the market for BPO outsourcing could bifurcate, with lower value voice services moving to the Philippines and more technical IT outsourcing staying in India.

About Us

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email asia@dezshira.com or visit www.dezshira.com.

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