outsourcing to china growing with china
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BPO OutsourcingBPO OutsourcingBPO OutsourcingBPO Outsourcing
www.callserv.us/www.callserv.net
Accessing Developing Countries’ Knowledge Pool
and Creating a Global Thinking
System
Searching for a more effective way to access cutting-edge technology without the huge
capital outlay? Driven by an increasing cost structure in a competitive business? Then business process outsourcing may just be
answers. BPO is the delegation of one or more IT-
intensive business processes to an external provider that in turn owns, administers, and
manages the selected process based on defined and measurable performance
criteriaOnce used for cost savings in transaction-intensive, back office business processes,
BPO has emerged as a flexible and powerful approach to achieve a wide range of tactical
and strategic aims, among others.
What is BPO?
In general terms, BPO is getting labor intensive, mundane back room day to day business
processes performed elsewhere, where these tasks could be inexpensively undertaken. It requires knowledgeable personnel, some of
them preferably with MBA or CA degrees. Main attraction for BPO outsourcing is lower costs. In uncertain economic times (2000 to 2003), it also reduces corporation’s headcount, hence
liability upon job termination. In India, the West (USA & the Europe) has discovered a huge pool of trained manpower willing and
able to do these tasks inexpensively.
Why Outsource?♦Provide cost effective solution
for increasing volume and complexity of business
♦Reduce operating expenses while maintaining service and
quality levels♦Pilot outsourcing concept for
AIG enterprise
What to Outsource?Backroom support for insurance operations
such as data entry, mail management, post-sales servicing, indexing of documents,
licensing & contracting
Criteria for BPO Site:♦ICT Infrastructure
♦Financials
♦Strategy
♦Business Process Capacity
The Data A new way to leverage skills and markets
Win-win situation: for DCs and ICs: productivity, competitiveness, higher employment, faster economic growth– every dollar of outsourcing creates $1-45-1-47 of
value of which the US captures $1.12-1.15 while India gets only 33 cents
Outsourcing ‘industry’: to exceed $1 trillion by 2006
Total savings from global outsourcing:– to grow from $6.7 bn (2003) to $20.9 bn (2008)
Developing countries’ gains: $60 billion in ITES by 2008
Outsourcing: North-South issue? Hardly…– More North-North trade-68% of trade
• North America, largest market: 60% of total • Canada, largest exporter of private services to
US
Job displacement, unfounded:– Net creation of 22 million new jobs in the US (from
2000-2010); shortage of 10 million in 2010
– Estimates for outsourcing: job creation: 317,000 net new jobs by 2008 in the US
– 2003: 98% of total contract value for outsourced business process service delivery in the US is done domestically (only 2% off-shored)
– India accounted for only 1% of total US imports of private services (of which, 2% - business services)
Worldwide BPO Spending by Region 2002-2006
Region 2002 2006 2002-2006
(CAGR %)
America 484,732 647,427 7.5
EMEA 171,303 237,390 8.5
Asia/Pacific 117,622 194,228 13
World wide 773,657 1.079.054 8.6
The Benefits Contributes to the MDGs:
– gender empowerment, poverty reduction, access to technology
Has positive spill-over effects: – gains from additional consumption, skills and
technology transfer, secondary employment
Strengthens local capacity: – through ToT and technological developments – could assist DCs in building their own industries– Indian example: TCS, Infosys, Wipro Technologies
Expands markets: – through inter-modal linkages, especially with Mode 4– could benefit late entrants, esp. if trend continues
Contributes to the MDGs:– gender empowerment, poverty reduction, access to
technology
Has positive spill-over effects: – gains from additional consumption, skills and
technology transfer, secondary employment
Strengthens local capacity: – through ToT and technological developments – could assist DCs in building their own industries– Indian example: TCS, Infosys, Wipro Technologies
Expands markets: – through inter-modal linkages, especially with Mode
4– could benefit late entrants, esp. if trend continues
Increased sales and profits Reduced costs per sale Maximum phone productivity Increased number of appointments Increased customer base Increased lead generation Higher number of qualified leads Higher number of closed sales Better customer retention More immediate feedback Better results through test marketing Increased local, regional, or national market share
Gains for Outsourcing Companies
Strategic decision / competitive necessity Lower labor costs Economies of scale Round the clock operations / time zone Access to skills (including language skills) Legal and regulatory framework Quality Structure of existing corporate network Global R&D teams working in tandem
The Activities Lower end: customer contact centers, data
entry operations, telemarketing, basic technical support
Middle: processing of financial transactions (credit-card billing, insurance claims)
Higher end: professional services such as research and development, accounting, engineering and architechtural design services, investment analysis, medical diagnostics
Developing Country Beneficiaries
India: a wide known success story – 18 percent share of the global market– Growth rate: 54% in 2003-04– Total export revenues to touch US$ 57 bn
by 2008; US$ 148 bn by 2012– Employment to rise from 110,000 (2003) to
2.7 mn by 2012 Philippines, China, Malaysia, Vietnam,
Bangladesh, S.Africa, Ghana, Senegal, Kenya, Jamaica, Mauritius, Nicaragua, Barbados, Mexico, Brazil.
Others:– Hungary, Czech Rep.
Programmers’ Wages(Average Wage/year
(US$000)
2.45.88 6.4 6.5 7.2 7.2 8 8.9
2528
6
0
5
10
15
20
25
30
Vietnam Experience Nortel, Cisco, IBM, Hewlett-Packard, British Petroleum,
Sony, Fuji, TCS, now in Vietnam
IT training specialists (NIIT, Aptech, Oracle) and Royal Melbourne Institute of Technology, providing training
Attractions: – cost advantage– strong mathematical skills ( focus of educational
system)– knowledge of French and English
Government: providing incentives to IT sector (tax holidays, infrastructure development, education)
Vietnamese diaspora: key driver of IT industry
Ghana Experience
Government: pro-active role: campaign, promotion for major US BPO players to set-up presence
Attractions:– stable political environment– english-speaking workforce; high literacy
Role of Diaspora population:– setting-up their own companies in Ghana; some
in partnership with foreign investors– knowledge of foreign culture and their networks
Success Stories: Summary
Competitive cost Language, education, skills
– also enables moving up the value chain Ability to develop global networks Adequate and reliable infrastructure Government role: infrastructure, education,
various incentives, marketing, political stability, regulatory framework (e.g., security of data and IPR protection)– relates to long-term prospects of doing
business Role of Diaspora population Cultural and relational proximity and trust
The Challenges to Overcome
Lack: infrastructure, trained HR, local market- base
Difficulty in gaining confidence of outsourcing companies: – regulatory framework still under development – political instability and governance issues
Lack of coverage for liability and risk– putting in place a strong risk-control framework
Potential erosion of competitive advantage– through new laws and regulations (e.g., restrictions
on transfer of personal data)
Growing protectionism in outsourcing countries
Intermodal Linkages Mode 1-Mode 4:
– need for professionals to travel for negotiating contracts, trouble shooting, maintenance, training, supervision, monitoring etc.
Mode 1-Mode 3:– Indian companies benefiting from outsourcing
now have established their own commercial presence in major markets:• 480 Indian companies in UK; India, now 8th
largest investor in the UK; • have also established operations in China,
Philippines, etc. to leverage specific skills and take advantage of lower costs.
Liberalization: The Targeted Approach
Full MA and NT commitments on positive list of service sectors at aggregate (2 digit) level:• ensures a reasonable degree of coverage to
include large part of current IT & BPO trade; • is focused on the sectors in question; • allows for gradual liberalization (bearing in
mind regulatory and institution constraints in developing countries);
• allows for more predictability; But:
• may still miss out on a number of services currently being traded;
• may not cover other new services to be traded in the future;
UNCTAD Expert MeetingProfessional Services & New and
Dynamic Sectors
• Analyzing trade opportunities arising from global outsourcing;
• Identifying best practices to strengthen domestic capacity and increase participation in international trade;
• Exploiting existing frameworks for cooperation and coordination among international organisations;
• For UNCTAD, to intensify its capacity-building efforts for developing countries, esp. LDCs;
• For developing countries, to build necessary infrastructure and domestic capacity;
• Effective implementation of Article IV, Telecom Annex;
• For WTO Members, to address issues of market access in the ongoing GATS negotiations;
• Cooperative measures through RTAs.
Golden Rule for BPO Success The country’s software services and business
process outsourcing (BPO) companies can realize $60 billion in export revenues by 2010 if they
reduce operational costs and improve profitability, the National Association of Software and Service
Companies (NASSCOM) has said.India is now the leading destination, having
captured 65 per cent and 46 per cent of the global offshore IT and BPO markets respectively.
As the market leader, it is imperative that we continue to set standards for the global industry.
IT and BPO centers in India must now provide additional benefits such as speed, flexible
operating models, innovation and productivity enhancements, which can be achieved by
excelling in operations
To Sum Up…. Outsourcing is an inevitable trend in the
global economy… with potentially huge gains (for both
developed and developing countries). Benefits are not automatic… but require targeted action…
– at national level (policies to support outsourcing, e.g. create infrastructure and educational base);
– at international level (TA for national policies and negotiating outcomes to curb protectionism).
Top 50 Global Outsourcing Locations
1. India2. China3. Malaysia4. Thailand5. Brazil6. Indonesia7. Chile8. Philippines9. Bulgaria10. Mexico11. Singapore12. Slovakia13. Egypt14. Jordan15. Estonia16. Czech Republic17. Latvia
18.Poland19.Vietnam20.United Arab Emirates21.US22.Uruguay23.Argentina24.Hungary25.Mauritius26.Tunisia27.Ghana28.Lithuania29.Sri Lanka30.Pakistan 31.South Africa32.Jamaica33.Romania34.Costa Rica
35.Canada36.Morocco37.Russia38.Israel39.Senegal40.Germany41.Panama42.UK43.Spain44.New
Zealand45.Australia46.Portugal47.Ukraine48.France49.Turkey50.Ireland
Observation The road ahead of the budding BPO industry, especially
in India, remains long. While successes such as Spectra mind, Daksh and possibly MphasiS have propelled this nascent industrial sector to new
heights, the divestment results of BPO investment trail behind other sectors in the overall Asian private
equity investment landscape. Between 2002 and June 2005, there are 69
divestment results that fall into the top quartile IRR, ranging from 1,648% to 81%. Within this range,
technology companies command the lion's share, in taking up 42% or 29 exit records, followed by
consumer goods with 14 exits, whereas BPO claims only two.
India's BPO companies also face challenges from both China and Philippines which are aggressively
positioning themselves for a bigger portion of the BPO pie. TH Lee Putnam Ventures' acquisition of the
Philippines-based SPI Technologies last year is one of the very first signals that this cannot be ignored.
Outsourcing to India Outsourcing to India Outsourcing to India Outsourcing to India
India's New Faces of Outsourcing
TAKEAWAY: A generation of Indian workers is redefining the way the corporate world sees
outsourcing. What began as a method for achieving cheap call-center and back-office work has now morphed into a global workforce that is
qualified for higher-level management and strategy jobs. These Indian standouts have
raised the bar and forced their U.S. counterparts to see them in a whole new light. As these
Indians take on more responsibilities, they are changing the corporate culture of business. This article looks closely at how two Northern Virginia companies are learning to straddle the cultures as they rely more and more on their offices in
Pune, India. Indian workers in Pune have had to adapt to any number of Western culture
additions — everything from calmer wall colors in the office to nightshifts to U.S. holidays. U.S.
offices are being affected by the Indian culture of their partners as well, especially as Indian
developers are becoming more assertive about things like time off for Indian holidays.
Services Globalisation: The New Paradigm
Digitization and Telecommunication enabling this reality
For more than three months, the possible sale of Baring Private Equity Partners (India’s) ('Baring India') shares
in MphasiS has kept interested parties spell-bound. Since May, the number of investors queuing to take up
Baring India's 36% stake in MphasiS has been growing. While Singapore's Business Times described
its government investment arm, Temasek Holdings, as "set to be main investor" in MphasiS, the Malaysian
government's Khazanah National Bhd was also named as an institution vying for the same assets.
In a statement released through the National Stock Exchange of India, Mr. Rahul Bhasin, Managing Partner of Baring India confirmed that "there has been a lot of
unsolicited interest in the company (MphasiS) at significant premiums". Investors' thirst for MphasiS'
shares and their willingness to pay a high entry price for access to MphasiS' boardroom has again placed
business process outsourcing ('BPO') in the limelight.
BPO Visits
Being Recognized
When Wipro Technologies acquired Spectra mind e-Services Private Ltd. in July 2002, it was the
first major recognition of the future prospects of India's nascent BPO industry. Wipro, the
country's largest technology company valued Spectra mind at US$126 million, which
represented a 2.8 multiple on its forecast revenue for the fiscal year ended March 2003.
For Chrys Capital, which parked a total of US$10.2 million in the budding BPO company
back in October 2001 for a 41.3% equity stake, the investment yielded a 5.9-fold return in just
18 months.
Growth Trends in India
2,400
565
4,250
930
7,100
1,495
11,300
2,900
16,380
3,600
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
Rs. Crore
US$ Million
Growth Trends in India
Captive service providers
Quality of services, eliverability, Confidentiality GE, e-Serve, WNS, Dell
Process specialistsKnowledge of process ADP, Exhult, Convergys, Hewitt
IT outsourcing companies
Specific verticals and outsourcing skills ACS, EDS, CSC
Pure BPO vendorsCost advantage and skilled labour Wipro Spectramind, IBM-Daksh, GTL
Software companiesCost advantage and process knowledge Infosys, HCL, Mphasis, Satyam
ConsultantsFinancial and accounting background Accenture, E&Y, PwC
BPO
Key BPO Players in India
Growth Trends in India India – Presence in BPO
Sector
Content Development/ Digitisation/ Transcription-Data entry-Data conversion-Medical transcription
BPO- Transfer of business process to external service provider
- Enabled by IT and Telecom
Customer Relation Management-Order processing/customer fulfillment-Customer support-Collection follow-up-Telemarketing
Finance and Accounting-Billing-Receivables reconciliation -Creditors reconciliation -Financial accounting
Transaction processing-Tax processing-Claims processing-Cheque processing
India – A Preferred BPO Destination
People attractiveness• Quality• Cost• Type of skills• English language HighLow
Low
High
Location attractiveness
• Infrastructure
– Communications
– Other basic infrastructure
• Country risks/FDI incentives
– Attractive incentive
– Political environment
• Time zone attractiveness
Mexico
China
India
UK
AustraliaSingapore
Ireland
Size of circle indicates quality of knowledge workers
Philippines
Being Recognized
When Wipro Technologies acquired Spectra mind e-Services Private Ltd. in July 2002, it was the first
major recognition of the future prospects of India's nascent BPO industry. Wipro, the
country's largest technology company valued Spectra mind at US$126 million, which
represented a 2.8 multiple on its forecast revenue for the fiscal year ended March 2003.
For Chrys Capital, which parked a total of US$10.2 million in the budding BPO company
back in October 2001 for a 41.3% equity stake, the investment yielded a 5.9-fold return in just 18
months.
In 2004, the Indian BPO industry was ushered into the global limelight when a number of momentous transactions were completed
during the year. IBM brought Daksh e-Services ('Daksh') onto the information technology giant's playing field when it acquired the BPO company for US$170 million. The sale of Daksh to IBM also handsomely rewarded its investors,
including Actis (then known as CDC Capital Partners) and General Atlantic Partners.
Actis achieved an internal rate of return of 79% while General Atlantic Partners made
a 2-fold return from its US$21 million of invested capital for a holding period of less
than 18 months.
In August last year, India's BPO attained a new milestone when Tata Consultancy Services, backed
by GE Capital, was listed on the Bombay and National Stock Exchanges in India. It was the
largest initial public offering for the country, having raised over US$1 billion. More importantly, the
debut of this giant BPO firm has set a new benchmark for others in the country. Four months
later, G.E. Capital raised its glass to another successful transaction when its information services outsourcing arm, now known as GECIS, was sold to
General Atlantic Partners and Oak Hill Capital Partners. The two private equity houses paid a total of US$550 million to assume a 60% equity position in GECIS, placing the company's value at US$833.3 million. The final transaction value for Baring India's
Mphasis shares will be another yardstick of investors' assessment of the BPO future.
Once a cottage industry, technological advancement has facilitated rapid development for Asian BPO
companies allowing them to become an industrial sector keenly courted by venture investors. Of the
29 BPO investments known to have been completed in India between January 2002 and June 2005, over 55% of them have been participated in
by foreign private equity houses.India is the undisputed BPO leader in Asia
commanding virtually the entire market share. Worldwide, India ranks number one among seven leading BPO markets. It is expected to clock up a compound annual growth rate ('CAGR') of 45% between now and 2008. By the end of the year,
India's BPO market is expected to reach a staggering US$6.5 billion.
Factors of Success
With India's recognized skills in providing financial services as well as a vast low cost English speaking work force, its position in
the global BPO market is unlikely to be challenged in the near future. According to research undertaken by IDC, the demand for BPO services in the financial services
sector will be the highest, at 40%, followed by the healthcare segment. These, together with its rather advanced
information technology infrastructure have become a powerful formula for success in the BPO domain, leaving little room for its
rivals to survive.
But BPO companies in India are not sitting in their laurels. They have been assiduously fortifying their own assets in
order to sustain their competitive edge. Warburg Pincus' WNS has acquired two companies, the UK-
based Town & Country Assistance and domestic-based Claims BPO. The acquisitions enabled WNS to diversify its services into insurance claims management as well as into
the health claims area. Earlier in the year, MphasiS spread its tentacles into the
healthcare space when it acquired El Dorado Computing, a healthcare insurance software solution company. ICICI
Venture Funds Management's ICICI One Source has continued an aggressive acquisition trail. Between May
2002 and April this year, ICICI One Source has mobilized no less than US$90 million in bringing five BPO companies
into its fold. The market is abuzz with speculation that the outsourcing company will soon be offering its shares to
public investors in order to raise further capital. The non-organic growth undertaken by India's BPO companies are in fact replicating MphasiS' recipe of
success.
Strengthening Assets
From a software company known as BFL Software back in 1995, it has transformed itself to
become one of the largest BPO companies in India. Baring India was its earliest private equity investor, providing an estimated US$10 million and at that time, held a 52% equity stake. BFL
Software grew through acquisitions. In 2000, BFL Software bought the California-based MphasiS
which was in interactive architecture e-solutions businesses, and began to embark on IT-enabled
and BPO services. In 2003, it consolidated its position in India's BPO space in acquiring MsourcE, a subsidiary of MphasiS. By then
MphasiS BFL Software was known as MphasiS. Today, Baring India, in addition to being a 36%
shareholder in MphasiS, is a holder of substantial minority stake in MphasiS BPO India.
The outsourcing history of India is one of phenomenal growth in a very short span of time.
The idea of outsourcing has its roots in the 'competitive advantage' theory propagated by Adam Smith in his book 'The Wealth of Nations'
which was published in 1776. Over the years, the meaning of the term 'outsourcing' has undergone a sea-change. What started off as the shifting of
manufacturing to countries providing cheap labor during the Industrial Revolution, has taken on a new connotation in today's scenario. In a world
where IT has become the backbone of businesses worldwide, 'outsourcing' is the process through
which one company hands over part of its work to another company, making it responsible for the
design and implementation of the business process under strict guidelines regarding requirements and specifications from the
outsourcing company.
How it started?
This process is beneficial to both the outsourcing company and the service provider, as enables the outsourcer to reduce costs and increase quality in non core areas of business and utilize his expertise and competencies to the maximum. And now we can see the benefit to the
service companies in India as they mature, prosper and build core capabilities beyond what would generally be
possible by the outsourcing company.Since the onset of globalization in India during the early
1990s, successive Indian governments have pursued programs of economic reform committed to liberalization and privatization. Till 1994, the Indian telecom sector was under direct governmental control and the state owned units enjoyed a monopoly in the market. In 1994, the
government announced a policy under which the sector was liberalized and private participation was encouraged.
The New Telecom Policy of 1999 brought in further changes with the introduction of IP telephony and ended
the state monopoly on international calling facilities.
This brought about a drastic reduction and this heralded the golden era for the ITES/BPO industry and ushered in a slew
of inbound/outbound call centers and data processing centers. Although the IT industry in India has existed since
the early 1980s, it was the early and mid 1990s that saw the emergence of outsourcing. One of the first outsourced services was medical transcription, but outsourcing of business processes like data processing, billing, and
customer support began towards the end of the 1990s when MNCs established wholly owned subsidiaries which catered
to the process off-shoring requirements of their parent companies. Some of the earliest players in the Indian market
were American Express, GE Capital and British Airways.Since the onset of globalization in India during the early 1990s,
successive Indian governments have pursued programs of economic reform committed to liberalization and
privatization. Till 1994, the Indian telecom sector was under direct governmental control and the state owned units
enjoyed a monopoly in the market. In 1994, the government announced a policy under which the sector was liberalized
and private participation was encouraged.
The New Telecom Policy of 1999 brought in further changes with the introduction of IP telephony and ended the state monopoly on international calling
facilities. This brought about a drastic reduction and this heralded the golden era for the ITES/BPO
industry and ushered in a slew of inbound/outbound call centers and data processing centers. Although the IT industry in India has existed since the early
1980s, it was the early and mid 1990s that saw the emergence of outsourcing. One of the first
outsourced services was medical transcription, but outsourcing of business processes like data
processing, billing, and customer support began towards the end of the 1990s when MNC’s
established wholly owned subsidiaries which catered to the process off-shoring requirements of their
parent companies. Some of the earliest players in the Indian market were American Express, GE Capital
and British Airways.
The ITES or BPO industry is a young and nascent sector in India and has been in existence for a little more than five years. Despite its recent arrival on the Indian scene, the industry
has grown phenomenally and has now become a very important part of the export-oriented IT software and services environment. It initially began as an activity confined to multinational companies, but today it has
developed into a broad based business platform backed by leading Indian IT software and services organizations and other third party service providers. The ITES/BPO market
expanded its base with the entry of Indian IT companies and the ITES market of the present day is characterized by the existence of these IT giants who are able to leverage their
broad skill-sets and global clientele to offer a wide spectrum of services. The spectrum of services offered by Indian companies has evolved substantially from its humble
beginnings. Today, Indian companies are offering a variety of outsourced services ranging from customer care,
transcription, billing services and database marketing, to Web sales/marketing, accounting, tax processing,
transaction document management, telesales/telemarketing, HR hiring and biotech research.
Looking at the success of India's IT/software industry, the central government identified ITES/BPO as a key contributor to economic growth prioritized the attraction of FDI in this
segment by establishing 'Software Technology Parks' and 'Export Enterprise Zones'. Benefits like tax-holidays generally enjoyed by the software industry were also made available to
the ITES/BPO sector. The National Telecom Policy (NTP) introduced in 1999 and the deregulation of the telecom
industry opened up national, long distance, and international connectivity to competition. The governments of various states
also provide assistance to companies to overcome the recruitment, retention, and training challenges in order to
attract investments to their region. The National Association of Software and Service Companies (NASSCOM) had created
platforms for the dissemination of knowledge and research in the industry through its survey and conferences. NASSCOM
acts as an 'advisor, consultant and coordinating body' for the ITES/BPO industry and liaisons between the central and state
government committees and the industry. The ardent advocacy of the ITES/BPO industry has led to the inclusion of
call centers in the 'Business Auxiliary Services' segment, thereby ensuring exemption from service tax under the
Finance Bill of 2003.
These measures have led to a steady inflow of investments by large foreign companies such as Reuters, for establishing large captive ITES/BPO
facilities across India. Moreover, the existing ITES/BPO operations of major multi-nationals are
also being ramped up to cater to the ever increasing demand for better and speedier
service. Almost all of India's top ITES/BPO giants have announced some form of expansion and are
in the process of hiring manpower to fill the additional seats. India's competitive advantage lies in its ability to provide huge cost savings
thereby enabling productivity gains and this has given India an edge in the global ITES/BPO
marketplace. NASSCOM studies pinpoint the following factors as the major reasons behind
India's success in this industry.
• Abundant, skilled, English-speaking manpower, which is being harnessed even by ITES hubs such
as Singapore and Ireland.• Improving telecom and other infrastructure
which is at par with global standards.• Strong quality orientation among players and their focus on measuring and monitoring quality
targets.• Fast turnaround times and the ability to offer 24x7 services based on the country's unique geographic location that allows for leveraging
time zone differences.• Proactive and positive policy environment which encourages ITES/BPO investments and simplifies
rules and procedures.• A friendly tax structure, which places the ITES/BPO industry on par with IT services
companies.
Outsourcing to India offers significant improvements in quality and productivity for overseas companies on
crucial parameters such as number of correct transactions/number of total transactions; total
satisfaction factor; number of transactions/hour and average speed of answer. Surveys by NASSCOM also revealed that Indian companies are better
focused on maintaining quality and performance standards. Indian ITES/BPO companies are on an
ascending curve as far as the quality standards are concerned. Organizations that have achieved ISO
9000 certification are migrating to the ISO 9000:2000 standards and companies on the CMM framework are realigning themselves to the CMMI
model. Apart from investing in upgrading their CRM and ERP initiatives, many Indian ITES companies are
beginning to acknowledge the COPC certifications for quality and are working towards achieving COPC
licenses.
Despite being a fledgling in the global ITES/BPO industry, the Indian ITES industry recorded a
growth rate in excess of 50% in 2002-03. Industry experts consider this a positive
indication of the times to come and a look at the ranking and the revenue and headcount statistics show the potential of the industry. The global ITES/BPO industry was valued at
around US$ 773 billion during 2002 and according to estimates by the International
Data Corporation worldwide, it is expected to grow at a Compounded Annual Growth Rate (CAGR) of 9% during the period 2002-2006. NASSCOM lists the major indicators of the
high growth potential of the ITES/BPO industry in India as the following:
• During 2003-04, the ITES-BPO segment is estimated to have achieved a 54 percent growth in revenues
as compared to the previous year.• ITES exports accounted for US$ 3.6 billion in revenues, up from US$ 2.5 billion in 2002-03.
• The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment
for around 74,400 additional personnel in India during 2003-04.
• The number of Indians working for this sector jumped to 245,500 by March, 2004.
• By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies
conducted by NASSCOM and leading business Intelligence Company, McKinsey & Co. Market
research shows that in terms of job creation, the ITES-BPO industry is growing at over 50 percent. Surveys of the Indian ITES/BPO industry in 2004
expected it to follow the trends given:
Indian services companies are opening business process outsourcing (BPO) operations in rural villages as a way of
keeping down costs for customers while bridging the digital divide in the country.
With the growth of the IT industry some Indian cities have seen greater prosperity but so far this has passed
the rural areas by.As part of an attempt to address this two BPO centers
have been set up in villages and a third is being developed. The three centers will employ 250 people,
and there are plans for more sites in the pipeline. Technology is changing rural India.
Verghese Jacob, lead partner at the Byrraju Foundation, which is masterminding the operation, said: "The pace of rural growth has been much slower than urban growth."
BPO Operations Head Into Rural India
Today, India is undoubtedly the most favored IT/BPO destination of the world. This raises the question why most of the big MNC’s are interested in outsourcing their operations to Boo's in India. The answer is very simple- India is home to
large and skilled human resources. India has inherent strengths, which have made it a major success as an
outsourcing destination. India produces the largest number of graduates in the world. The name of India has become synonymous with that of Boo's and IT industry hence the
name BPO India. Besides being technically sound, the work force is proficient in English and work at lower wages in comparison to other developed countries of the world. India also has a distinct advantage of being in a different time zone that gives it
flexibility in working hours. All these factors make the Indian Boo's more efficient and cost effective. In order to meet the
growing international demand for lucrative, customer-interaction centers, many organizations worldwide are
looking to BPO India.
BPO Advantage India
The Indian advantage lies primarily in the educational and technical qualifications of the personnel, who are often more qualified than the people working in the parent locations. A survey conducted in 2002 by NASSCOM
(National Association of Software and Service Companies) showed that an India based ITES-BPO center in the
banking and financial service sector, performs better than a UK or US based facility on significant factors such as the
number of correct transactions/total umber of transactions, total satisfaction factor, number of
transactions per hour and the average speed of answers.The ITES-BPO industries are most sensitive to
incorporating internationally accepted standards of quality assurance. The NASSCOM survey also found that
50 percent of Indian companies have implemented varied levels of ISO (The International Organization for Standardization, which conceives sets of quality
management standards) such as ISO 9002, ISO 9001, ISO 9001:2000, and ISO 9001:2001.
The Indian Advantage
The TESCO Hindustan Service Centre is the offshore support and IT development centre of the UK supermarket giant. TESCO was among the first major international retailers to have a fully owned support-centre in India.
The centre - in the Whitefield district of Bangalore - went live in May 2004 and currently employs more than 1,900 staff. It supports, among other things, TESCO's People soft systems, production Unix servers, RFID and wireless systems.
By virtue of certain advantages India has been able to maintain its supremacy over its rivals in the BPO industry but there are a number of other countries, which can give India run for its money in Business Process Outsourcing.
Some of the prominent competitors of BPO India are China, Philippines, Mexico, Canada, and Malaysia. The Philippines
advantage, besides skilled and English educated work force and good telecom infrastructure, is familiarity with
American work culture and Spanish language.Hence India still has the leading edge in the BPO industry, but
it should keep on improvising to maintain its stability. Therefore India should be on its guard to maintain its
position intact. If India has to maintain its supremacy in BPO and its software workforce, then BPO India has to learn
Spanish, which is spoken in more than 24 countries. With India already stamping its superiority in the BPO sector
with its knowledge of the English language, it now needs just one other language that will make the world its
market, which is Spanish.
BPO Competitors of India
BPO India is one of the popular business practices in the world's competitive environment. The Indian BPO industry is constantly growing. According to India Info line, the ITES-BPO segment recorded a growth of 59% in the year 2002 and touched US
$2.3 billion in the year 2003. However, along with the phenomenal increase in BPO to India there has
been a backlash against outsourcing. The opposition and backlash is coming mainly from
developed countries that are directly affected by outsourcing to India. Though this anti-outsourcing movement is gaining momentum but the pace at which the trend of outsourcing is continuing to
India, this is going to double in a couple of years. It is because of numerous advantages that India
enjoys in comparison to other countries.
BPO Indian Backlash
Fame comes at a price. And being the fastest-growing and most cost-competitive
outsourcing destination could sometimes elicit such negative responses. The reality
that India is fast emerging as the back office of the world and our BPO industry is
estimated to grow at a rate of 65 per cent per year is not taken too well by most of the
developed countries of the world, from where these jobs are coming to India. Even as
investments in the ITES-BPO industry are increasing by the day, banners and slogans demanding a ban on outsourcing of jobs to
India are increasingly noticeable.
Some states in the US have tried to legislate banning the transfer of state data processing
contracts to developing nations. Despite the bill being passed by the US senate barring the
shifting of BPO work to India, the BPO supporters lobby in the US is working at
changing the mindset and perceptions. In the UK, three of the country's biggest trade unions have come together to fight the loss of jobs to
India, especially British Telecom's move to open a huge call center in Bangalore. These unions fear that the competitors of BT will
emulate this act. German protesters have been running an unrelenting political campaign
against the German green-card scheme for a while now.
But one thing is sure. The trend of BPO is likely to continue under all circumstances, because
firms have become habitual of moving the BPO work to India, it is now like an addiction, which they can't do without. The only thing that needs to be done now is resolving of
cultural differences, which, crop up during the cross-border shifting of BPO work. Indian
Boo's have been in great demand because of the low-operational costs here and also because most of our workforce is well
educated and has had a university education. Indian BPO industry is driving at the top gear
and is sure to maintain that numero uno position in the coming years too.
Outsourcing to India is now more about high quality rather than cost. Indian companies are fast scaling up to
match or surpass international quality standards and are ensuring that they stay ahead through stable
quality systems and continuous quality improvement.
The Indian BPO industry, which previously relied on its cost effectiveness to attract customers, is now under an
entirely different dictatorship. Quality is the new buzzword and is dominating business processes and
services like never before. Ninety percent of ITES-BPO companies now have specialized quality departments
that are responsible for ensuring accurate, reliable services to their customers. The spotlight in Indian
centers is now focused on ensuring standards of quality that are at par with, if not superior to their counterparts
abroad.
Conditions and Improvement of Economy
According to studies conducted by NASSCOM and leading business Intelligence Company, McKinsey & Co. the
Indian IT/BPO segment is expected to employ over 1.1 million Indians by the year 2008. Market research shows
that in terms of job creation, the ITES-BPO industry is growing at over 50 percent. In the financial year 2003-
2004, ITES-BPO companies were the largest recruiters in the IT/ITES sector, adding a total of about 70,000 jobs.
An estimated 70,000 new Jobs expected in 2005 in the field pf ITES. Plus there will be additional hiring to
replace industry attrition that is around 25%. On the other hand BPO and outsourcing services would
generate around 1, 25,000 new Jobs in 2005. McKinsey & Co. predicts global market for IT-enabled services to be
over $140 billion by 2008. In that the opportunity for India will be around $ 17 Billion.
Growth of Indian BPO Industry
Outsourcing Market Growth Rate and Share,
2004
Indian ITES-BPO industry is world class According to findings of a NASSCOM & QAI survey the range of end
user satisfaction ratings for Indian BPO organizations is 82 –100%.
NEW DELHI: According to NASSCOM, the Indian ITES-BPO industry is world class in customer satisfaction, quality, and people satisfaction. But to sustain its growth and
performance, it needs to continue its focus on processes and people. The industry now needs to focus on people retention and becoming more efficient. Currently, the range of end user satisfaction ratings for Indian BPO
organizations is 82 percent-100 percent.This was the finding of the NASSCOM & QAI survey of the
organizations in the ITES-BPO space (both senior and middle-level management), on key challenges faced by their organizations and the best practices found to be
useful in tackling them. The range of Fatal Accuracy percentages for Indian BPO organizations is 98-100 percent. This is better than most
regions across the world, except North America.
Indian BPO workers happier than IT pros with over 45% growth in the number of employees in 2003-04, overall
employee satisfaction, improved 9% over last year, revealed a DQ-IDC study.
NEW DELHI: Staggering growth is often a recipe for employee dissatisfaction, as the IT industry has seen in 2003-04. But
the $4 billion BPO services industry in India has managed to defy this equation. Despite over 45 percent growth in the number of employees in India's BPO industry in 2003-04, overall employee satisfaction actually improved in 2004.
The satisfaction score rose 9 percent over last year, in the annual Dataquest-IDC BPO E-Sat (Employee Satisfaction)
Survey, 2004. Daksh services emerged as the Top Employer in the survey this year, as opposed to its fifth position last
year.There is often disconnecting between salary and satisfaction with salary. Daksh emerges at the top of the pile in terms of
employees' cost to company and yet, ranks quite low on employee satisfaction with salaries. And despite this, the
employees show a very high overall satisfaction level.
One of the many giant buildings on the road out to Bangalore's Electronic City.
According to NASSCOM, the Indian ITES-BPO industry is entering Phase II of evolution (ie., moving from
potential to performance). Indian ITES-BPO organizations have now started looking beyond contract fulfillment to identify opportunities for
delivering high quality service to end-customers. They are aligning internal systems to ensure high customer satisfaction. These steps will serve as
the building blocks for future success.
Successful BPO companies understood the need to invest in quality and consistency at early stages.
Six Sigma, COPC and ISO were the preferred models.
According to the survey, attracting and retaining people is the key process challenge cutting across
all management levels.
The future for the IT/BP industry holds bright. It is estimated that 56% of the BPO market could be India's by the year 2006 with the demand for BPO services increasing at an annual growth rate of 50 per cent during 2004-06. The pace at which the Indian BPO market is increasing is
tremendous. The market of BPO in India is likely to be around $9-12 billion by the year 2006 and will employ
around 0.4 million people. The BPO market is ready to fire up and India Inc is all geared for this big opportunity.This is really great news for India Inc since we have to
tackle the BPO backlash as well. Though there are chances of this party being spoiled by the US led backlash but then also India is sure to have a large share of the BPO market.
This will go a long way in making India the BPO super power of the world. If the backlash stays on for sometime,
then may be India could only have a 42% share of the market instead of 56%. Though it is a reality that
companies outsourcing their business operations to Indian Boo's have been saving a lot of money and also saving jobs
of their own countrymen.
Future Prospects
Now fast forward this situation to year 2014. The Indian BPO industry is an enormous success. It has grown at a
compounded annual rate of 50 per cent and now employs 6.5 million people. If you include people who started life in
the BPO industry and have moved on to do other things (assuming an annual attrition rate of 30 per cent for the BPO industry as a whole), you will have another 6 million
people.This means that there will be over 12 million individuals in
our country who have worked in the BPO industry, i.e. have been through the rigorous recruitment tests,
extensive training, are accustomed to working in a very high-quality environment, don't consider air-conditioning a luxury, have a very strong work ethic and expect similar
professionalism from their colleagues as a matter of course, are used to satisfying very demanding customers, and delivering quality that is second to none in the world.These will be the Indians who have acquired global skills
without having to migrate to the West.
Indian BPO industry --10 years later … (Year 2014)
Notwithstanding some challenges, India's IT-BPO exports can reach $80 billion by 2010, according
to TCS chief, Ramadorai, and Texas Pacific's Vivek Paul.
Moreover, this high rate of growth in the Indian IT-BPO sector is expected to continue despite
threats to its labor cost advantage from rising wages. However, it would be important to focus on education initiatives and innovation to meet these and other challenges. And, for this, there
needs to be an active industry-academia-government collaboration.
Great Times Ahead For Indian IT-BPO Sector
Wipro's BPO site on the edge of Pune, which is the place of work for 8,000 staff.
And size really does matter, "BPO saw a further flight to scale this year," said Dataquest Group president, Prasanto K Roy. "The larger companies have shown not just higher growth rates but have also managed
to keep employees happier." The five largest companies in the survey averaged a satisfaction score of 85, versus the industry average of 81,
while the smaller companies stayed in the 70s. Roy added that unlike in the IT industry, money is a
huge motivator in BPO. "Salaries replacing higher education as the top reason for leaving a company
serves as a reminder of the trend."
The BPO Employee Satisfaction Survey 2004 covered the spectrum of the Indian BPO industry.
The information in the survey was captured through face-to-face interviews with employees of
participating companies.
♦ Indian BPO industry's employee satisfaction rises 9% even as employee base swells 45%.
♦ "Salary" becomes the top reason for attrition (replacing "higher education").
♦ Work timings and commute time are the top stress factors.
♦ Daksh Tops Employer Satisfaction. ♦ BPO Agents continue to be happier than IT pro.
Highlights of the survey:
Signs like this show the IT and BPO market in Bangalore is continuing to expand. In terms of the salaries offered - 8,500 rupees is around £100, while 40,000 rupees is about £460.
At present India is undoubtedly the BPO superpower of the world but there are other strong competitors of
India who might spoil India's party. China is one such country which can eat into the BPO share (market) of
India. But for the time being India is well ahead of China because of some inherent advantages. India is currently booming in the BPIO arena and has scored over China to emerge as the top offshore destination
for Global businesses. In the 2004 offshore index, India remains the star performer. It has once again
captured the top spot in outsourcing by a comfortable margin due to its strong mix of low costs and
noteworthy depth in human resources. This fact was brought out in a study conducted by AT Kearney, an
international consultancy agency.
India Ahead of China
India proved better than China on account of several factors. The study pointed out that
China lags behind India in terms experience and other important factors like IT and
management education, language skills, concerns about intellectual property and
overall country risk. As per the "2004 Offshore Location Attractiveness Index", which evaluated all countries based on
corporate surveys, offshore experience, labor and government initiatives, Malaysia, Czech Republic and Singapore make up the next three countries, after India in outsourcing.
Outsourcing to China Outsourcing to China Growing with ChinaGrowing with China
Outsourcing to China Outsourcing to China Growing with ChinaGrowing with China
BPO: China the biggest threat to India
Despite the emergence of China and Philippines as competitors in the business process outsourcing
space, India is well placed in terms of parameters like cost savings, competency, technical infrastructure, language and skill pool, according to an industry.
In the BPO field, China is perhaps the biggest challenge in the future and the largest threat to
India, and with the largest population and fastest economic growth, the Chinese have at least two advantages in the global outsourcing market --
manufacturing and IT. In terms of outsourcing options, India has a significant cost savings model with multiple competencies in various areas, an emerging
technical infrastructure, highly rated skill pool with English language and extensive cultural fit.
The main disadvantages of China are lack of good quality record in software, whereas India has a better
image as quality supplier.
Chinese BPO Watch out, India
China is way behind India in the business of outsourced services, but it has now started to catch up in a vast curtained room in Xian in
western China, rows of dark, pony-tailed heads are silently bowed, fingers moving quickly and
expertly. They might be in any Chinese factory—except that they are not assembling shoes, nor soldering circuit boards, but sitting at computer terminals processing medical-claim forms from New York and car-loan applications from Detroit
and marking examinations for high-school students in Melbourne, Australia. “This is the
future of the global back office,” says Michael Liu. Mr. Liu, founder of Comp Pacific International, one
of China's few indigenous business-process outsourcing (BPO) firms, returned after a decade in health-care IT in America, determined to prove
that China can do just as well as India in outsourced services.
It's Cheaper in ChinaTAKEAWAY: When the IT outsourcing Indian giant wobbles —if it ever does — experts generally expect
that China will be next in line to the off shoring crown. Because of this, many CIO’s are already
eyeing China for their IT projects, but the realities of outsourcing to China currently offer a mixed bag of
results. This article takes a close — and eye-opening — look at what IT outsourcing in China really demands by examining one CIO's pursuit of a
successful IT off shoring development project in China. This CIO ultimately chose China over India because of the greater cost savings offered, and a lower turnover rate. This outsourcing effort had to
overcome many difficulties, including language barriers, extreme time zone differences (12 hours) and a lack of specific skills. There seems to be no
question that salability and value chain growth will take time to develop in China, but many CIO’s are
finding it worthwhile to invest that time now.
The Changing Face of China: China as an Offshore Destination
for IT and Business Process Outsourcing
Long the world's factory, China is now becoming an attractive offshore location for IT off shoring (ITO)
and business process off shoring (BPO). These markets are expected to grow as the Chinese
government continues to entice foreign multinationals. Similarly, Chinese-based ITO and
BPO providers are working to improve their capabilities to capture business from
multinationals in the United States and Europe.This paper highlights findings in A.T. Kearney's most recent study of the ITO and BPO markets served by China. It discusses China's strengths and weaknesses, dispels some misperceptions, and offers A.T. Kearney's perspective on how
China is doing in its efforts to become a preferred offshore destination.
China’s Advantages in BPO:
♦Educated, skilled urban workforce♦Low wages♦Off-shore manufacturing and outsourcing
know-how already there♦WTO entry and increased Chinese efforts
at free trade♦Rapidly developing telecoms
infrastructure♦China government efforts to privatize
and modernize economy
China: BPO outsourcing Significant market for BPO outsourcing
– Labor pool & education system– Infrastructure– Cost-effectiveness– Improving legal system & IP /Data Security– Large domestic market – Foreign investment focus– “Coopetition” with India– Non-Latin market skills
• Chinese/Japanese/Korean etc.
China facts and positioning World’s 2nd largest economy World’s fastest growing economy
– GDP growth rate >7% Middle of world’s largest economic center
(China-Japan-India) World’s largest talent pool (Most Ph.D.
candidates)– 23% working age population
Already leads in manufacturing and is transforming itself into a services-based economy
$50 Billion-plus annual foreign investment Domestic infrastructure investment &
improvement
China BPO services market: maintaining a
high-growth momentum in the past five years
0
100
200
300
400
500
600
1999 2000 2001 2002 2003
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
MarketSize
GrowthRate
In 100 Million Yuan
Size and Growth of China BPO Services Market during 1999-
2003. In 100 Million Yuan.
1999 2000 2001 2002 2003
Market Size
193.6 259.8 323.1 429.3 544
Growth Rate
27.5% 34.2% 24% 32.9% 26.7%
Composition of China BPO services market
2002 2003 Growth Rate
Telecom 74.74 91.6 22.6%
Finance 80.31 98.58 22.7%
Government 43.62 62.81 44.0%
Manufacturing
55.05 69.89 27.0%
Energy 37.04 45.82 23.7%
Circulation 26.09 32.31 23.8%
Others 112.45
142.99
27.16%
Total 429.3 544 26.7%
Telecom16.8%
Finance18.2%
Government11.5%
Manufacturing12.8%
Energy8.4%
Circulation5.9%
Others
Forecast of future China BPO services market
China Future IT Services and Outsourcing Market Size and Growth Rate Forecast 2004-2008 In 100 Million
Yuan
0
200
400
600
800
1000
1200
1400
1600
1800
2003 2004 2005 2006 2007 20080.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
Market Size
Growth Rate
2003 2004 2005 2006 2007 2008
Total 544 673.1 842 .3 1054 .9 1296 .7 1567
Growth Rate
26 .7% 23.7% 25.1% 25.2% 22.9% 20.8%
Composition of China Software Exportation
Japan, U.S. and Hong Kong are the main destinations for China
software exports, which account for 80.7% of the total software
exports. In 2002, the software export to Japan logged in a revenue of
USD120.162 dollars ， accounting for 52.28% of the total software
exports, while to U.S., USD30.7799 million dollars ， 13.39% and to
Hong Kong, 34.5351 dollars ， 15.03%.
Japan53%
U.S.13%
Others15%
Taiwan2%
Hong Kong15%
South Korea2%
China BPO Outsourcing Business is Gradually Gaining an Edge to
Compete with Global Players
0100200300400500600700800900
Domestic ITServiceInt'l ITOutsourcing
193260
323
429
544
673
842
2133 60
124
165
415
347
BPO Outsourcing Market Growth Forecast
BPO Outsourcing---Why China?
♦ High availability of skilled resources- Including reverse brain drain
♦ Rapid and sustained economic growth- Very large domestic market
♦ Political stability and strong government support♦ Attractive after entry into WTO
-Enterprise globalization♦ Infrastructure --leapfrogs♦ Lower cost
- 20-40% cheaper than India♦ Improving legal system♦ Hong Kong---gateway for the uncertainty♦ Non-Latin language skills/resources
Process
Process
Peo
ple
Peo
ple
Technology
Technology
CustomersSatisfactionCustomers
Satisfaction
Key: People, Process and Technology
People: Growing Number of Tech Talent
Outsourcing Practices by MNC
More and more MNCs set up offshore development /service center in China– IBM, Motorla, SAP, Microsoft, NEC, BEA– Accenture , BearingPoint – Many more
More MNCs request IT/BPO service for the market and customers in China and Asian countries
Long term partnership and Strategic alliance with Chinese
ISV
Long term partnership and Strategic alliance with Chinese
ISV
Company
Technology
People and process
Long term commitment
Strong company background and reputation in the market Strong company background and reputation in the market
Leading technology ability& industry know-how
Leading technology ability& industry know-how
Strong process and quality control
Including IP and security
Strong process and quality control
Including IP and security
Synergy of Outsourcing to China
Potential pitfalls– IP protection– Lack of experience in
managing large-scale projects
– Quality– Communication– Cultural differences– Capabilities and
services levels
How to avoid– Ample evaluation
prior to selection– Long term
investment– Minimizing risks– Vision and
leadership in management
– Setting performance goals
– Managing relationship
Avoiding Potential Pitfalls
Key Take-away
China– Outsourcing to China brings more
business chances in China market– Ideal destination for IT/BPO outsourcing– People, process and technology are
key– Right strategy and methodology to
avoid potential pitfalls Outsourcing to China, growing with
China
Outsourcing to Outsourcing to Philippines Philippines
Outsourcing to Outsourcing to Philippines Philippines
Strong demand The property market draws strength from sectors anchored to the world economy. Demand for office
space for information and communications technology (ICT) related firms such as call centers
and other business process outsourcing (BPO) firms have provided the spark to revive the
slumbering real estate sector. In 2006, BPO firms in the Philippines earned
US$3.6 billion, up by 50% from the previous year. The sector now employs around 250,000 employees and is expected to expand.
While BPO executives and expatriates add demand to the luxury market, BPO employees form a new
breed of young urban professionals with tremendous purchasing power, earning several times more than the minimum wage. They have boosted the demand for rental housing and other
products creating a ripple effect on the construction, retail, and telecommunications
industries.
WHY PHILIPPINES?:
♦There are many reasons why you should consider the Philippines. These include:
♦An English speaking workforce (3rd largest English speaking nation).
♦Western-style business culture.♦Highly educated and competent workforce
(94% literacy rate).♦World-class business infrastructure.♦Global companies such as AOL and
Citibank have already outsourced to the Philippines.
♦According to A.T. Kearney, 2004 Offshore Location Attractiveness Index, the Philippines ranks third as an outsourcing destination in terms of financial structure.
Outsourcing: Why Outsource to Philippines
India, the dominant player in outsourcing touted as the “back office of the world,” would soon
have to contend with a third-world rival—the Philippines. A highly
skilled English-speaking labor force. A reliable telecommunications
infrastructure. Low cost of qualified personnel. These are some
significant reasons for choosing India or the Philippines for
outsourcing support
Offshore Destination: Philippines :
But the Philippines—one of the world’s second-largest English-speaking populations—is fast
catching up to India. With a literacy rate of 94%, the Philippines has a large pool of information
technology professionals and a cost-competitive telecoms infrastructure. The country ranks third in Knowledge and Information-based jobs in the 2002 Global Technology Index research done by the META Group. Three million college graduates
join the workforce each year, providing a tremendous source of talent. An American colony
for close to 50 years, the Philippines has a Western-influenced culture, a unique trait that
clearly distinguishes the country from other offshore destinations. Although Asian in
orientation, Filipinos watch American TV and are thus able to communicate effectively in
American English.
Lately, BPO has been booming in our country. It has generated a new line of work that has appealed financially to both students and fresh college graduates, thus involving a greater portion of the population to take part in the services sector and ultimately contributing to the overall GDP of the country. With this, we are seeing a sudden influx of foreign-owned BPO companies and a few local ones. For instance for call-centers there are the big players in the market such as Convergys and Epixtar, which have consistently expanded in the past yea
rs.
Now the problem I see lies in the way this type of new service sector is spreading. Much like previous nationally lucrative forms of income in exporting furniture and nata-de-coco, BPO in the country may follow the same sad fate. Since BPO is of economic interest for a country desperately in need of a panacea to the crippling agricultural and industrial sectors, the eventual comprehensive interdiction of policymakers in exploiting the revenues to be gained in allowing an overdose of BPO companies may spur complacency, rashness, and incompetence in the ranks of policymakers themselves. The "fast buck" mentality or short-term planning has since been a bane to the country's overall condition. I'm predicting that sooner or later the services sector will become over-saturated with BPO where quality over quantity would be the name of the game once again. We
need not wait for the BPO service sector to reach its peak of revenue generation for us to innovate. By that time we would be left behind in being the favored market for BPO. As early as we see the signs of a promising new category in the services sector, it would be wise to look beyond the profits and instead aim at "skills and capacity upgrade" as a form of long-term revenue ge
neration for the Philippines.
Can the Philippines sustain lead in BPO?
At the rate that the business process outsourcing (BPO) sector is growing, it may indeed be the next big thing in this country. However, doubts about the sustainability of this hyper-growth situation are increasingly being felt. This was surmised by Prof. Ceferino Rodolfo of the University of Asia and the Pacific in “Sustaining Philippine advantage in business process outsourcing,” one of the studies on the services sector commissioned by the Philippine Institute for Development Studies (PIDS). BPO encompasses several sub-sectors which include contact call centers, medical transcription, animation, shared services, and software development and other outsourced service-type activities that are information technology intensive. Over the past five years, the BPO s
ector has grown tremendously, fueled primarilyby strong global demands. In 2004, the sector reac
hed a size of about $1.65 billion from just about $350 million in 2001, the Department of Trade and Ind
ustry (DTI) reported.
The DTI predicts bright prospects in five BPO sub sectors: customer care, medical transcription, software development, animation, and shared
services. All registered cumulative growth rates of above 25 percent from 2001 to 2004, with
medical transcription as the fastest growing at 130 percent, followed by call centers at 50
percent, software development at 30 percent, and animation at 25 percent. The Philippines is
widely recognized as the emerging best location for call centers, posing serious competition to
Australia, India, and China. The country currently stands fourth to these countries in terms of
industry size. The opportunities for the Philippines, however, remain strong as off
shoring is predicted to gain momentum in the coming years, the PIDS study indicated. The
Philippines continues to be an attractive location for offshore BPO services due to its supply of
qualified English-speaking professionals, low cost of labor, and availability of a good telecommunications infrastructure
But while the Philippines fares favorably in all these aspects, there is admittedly much to be improved, according to Rodolfo. The fluid political situation,
intermittent threats to physical security and increasing reports of graft and corruption are factors
that often discourage BPO investors, he noted. “Efforts should be done to improve the general business environment particularly by creating a
stable political condition. Though not often cited, the high power rate is also a source of disadvantage for
BPO companies as most of them operate all day, seven days a week, at climate-controlled
environment. The Philippines has one of the highest tariffs for electricity rates in Asia,” Rodolfo said.
Additionally, the sourcing of qualified BPO professionals is increasingly becoming a problem, something that is predicted to worsen in the long term as the quality of the country’s educational system further deteriorates. The government—primarily through the DTI—and the industry are
already addressing this problem by partnering with educational institutions. These
partnerships, at present, include offering BPO-related courses in selected colleges and universities
to provide critical skills to prospective BPO professionals while they are still in college.
Is India Losing BPO to the Philippines?
India may be losing its grip on BPO to eastern Europe and the Philippines, a
new study by Gartner says.According to Business Standard Online:
Like India (a former British colony), English is widely spoken in the Philippines. It
also has a large and youthful population of 84 million, with many studying in the higher education system. The downside is that the Philippines faces an annual
typhoon season and its recent history is marked by sporadic political upheavals
and coup attempts, the paper said.
Business process outsourcing or BPO is an emerging industry in the Philippines. This
industry was regarded as one of the fastest growing industries in the world. The BPO boom is led by demand for offshore call centers. It is estimated that 112,000 people were working
in call centers in the Philippines in 2005, bringing in revenues of US$1.12 billion for the year. This emerging industry in the Philippines
is fueled mostly by customer care, medical transcription, software development,
animation, and shared services. Though customer care call centers form the largest
part of the BPO boom locally, the Philippines' language proficient information technology,
human resource, and finance/accounting professionals are significant contributing factors as well. The proficiency of many
Filipinos in English is a major factor in the growth of BPO in the Philippines.
The Philippines has the largest number of accredited accountants in Asia, with the number growing yearly. Areas such as Baguio City, Bacolod City, Cagayan de Oro, Cebu City, Clark, Dagupan City, Davao City, Dumaguete City, and Iloilo City are being developed for offshore operations. Major companies that already operate in the Philippines include AIG, AOL, Barnes & Noble, Chevron, Citigroup, Dell, HP, HSBC, IBM, Intel, JPMorgan Chase, Motorola, Procter & Gamble, and Trend Micro. Notable BPO vendors include Accenture, Convergys, People Support, and Unisys. Many Major companies have experienced a great deal of trouble finding adequate management in the Philippines which has greatly crippled BPO operations. Finding qualified expatriates willing to work in the Philippines is difficult due to high pollution levels, over population, and a corrupt and unstable government. The US government requires companies compensate US nationals working abroad in the Philippines with Hazard pay. Filipino Management is also not an option, as there are very few qualified candidates. Large companies such as Intel, IBM, Charter Funding, Continental Airlines, and Lenox Financial have all had to remove all levels of Filipino management and find ex-pats willing to work in the Philippi
nes.
MOVE OVER INDIA, THE FILIPINOS ARE COMING
Well, it’s not yet moves over time for India. Rather the country has moved up-market in outsourcing. This means there is a market for customer-service call center businesses. And the Philippines have quickly jumped into the fray it may be a low-end, low-margin business, but for the Philippines it has been an employment boon. The main attraction when it comes to the Philippines is that it is very cost-effective when compared to India. There is
however a bigger advantage here: cultural similarities to the United States and employee loyalty. The country has an exceptionally long
history of contact with the United States, which includes several decades of American colonial rule. This means call center employees here can relate better to Americans and are also quick to adapt to
a variety of accents.
Another benefit of outsourcing to the Philippines is that the attrition rate in the industry is a quarter of what it is in India. One of the biggest reasons for the rise in
Indian BPO salaries is the poaching of employees. According to estimates, in some Indian call centers annual staff turnover has been around 200 percent. In Philippines, the corresponding rate is 40% or lower! India’s
huge employee turnover means that the company has to regularly invest in
educating and training new employees. This doesn’t look too good on the company’s balance sheet. The longer an employee
stays in one company, the better the quality of service. This means the Philippines has a definite advantage over India with its low
attrition rates.
Collaboration between Philippine and India-based outsourcing organizations:
A marriage of convenience?
Even as Asian countries compete among themselves for a larger slice of the global outsourcing market,
there is news that the Business Processing Association of the Philippines (BPAP) and India's
National Association of Software and Service Companies (NASSCOM) have come to an
understanding to collaborate in seven strategic areas. The areas that have been identified are
strategic communications, geographic risk mitigation, shared best practices and adherence to international standards, data security and privacy,
workforce collaboration and cooperation, and infrastructure improvement. The collaboration
initiative comes after a detailed process of thrashing out the details so that the agreement is in the best interests of outsourcing vendors in either country.
In the Philippines, BPO is seen as one of the drivers that would secure the country the position of being top
destination of choice for ICT services. Some non core yet critical backroom
operations that have been outsourced to the Philippines include accounting,
contact center services, human resource administration, claims
administration, and logistics. With its excellent telecommunications
infrastructure and its pool of superior talent, the Philippines are at a good
position to accommodate these demands.
Philippines: Call Center Hub In recent years, the Philippines have become the off
shore destination of choice for call center outsourcing, specializing in customer support services. Because of the Filipinos’ high level of English proficiency and strong customer orientation, many leading multinationals have used the Philippines as a global center for customer service. American Online, the largest U.S. Internet service provider, maintains a staff of 600 at its call center in Clark, Pampanga. Caltex, Procter & Gamble, Barnes and Noble, among others, have built large-scale service centers in the Philippines. One very promising industry that has sought outsourcing support in the Philippines is the medical transcription business. The
Philippines boasts a large talent pool of medical professionals, including doctors, nurses, and medical technologists. The demand for medical transcription has risen as U.S. hospitals are now required by federal regulations to convert medical records into data format. Seventeen medical transcription companies are now in operation, employing 1,200
Filipinos.
Business process outsourcing is regarded as one of the fastest growing industries in the world.
Business process outsourcing in the Philippines became the latest trend in the services sector in the 2000s and is led by demand for offshore call
centers.The growth of call centers continue to be rapid, up
from 72 registered in late 2003 when the Asian Call Center Review reported the Philippines as
the first rank in the offshore call center industry for the Asian region, surpassing India at the
second spot. From being an almost unexplored BPO territory in 2000, the call center industry
has grown by leaps and bounds. The Philippines Board of Investments (BOI) estimates growth
rate of this industry since 2001 to 100 percent annually. It is estimated that 200,000 people are working in 120 BPO (mostly Contact Centers) in the Philippines in 2006, and expected to bring in revenues of US$3.8 billion for the year - a sharp increase from 2000 when call centers employed
2400 people and earned US$24 million.
In 2004, the Philippines already captured 20 percent of the total world market share in
contact center services. The Philippine government estimates the Philippines could
capture 50 percent of the total world English-speaking market in 2008. This industry, aside from contributing 12
percent in to the Philippines gross national product, is also the fastest growing
provider for Filipino college graduates. The Information and Communications
Technology division of the BOI reported that the call center industry experienced a growth rate of 70 percent in 2005 making it
the most dynamic of all sectors in the Philippine information technology industry. According to industry forecasts, more than a million Filipinos would be employed in the call center industry, with more than US$12
billion in revenues in the year 2010.
The Philippines is also considered as location of choice due to its less expensive labor costs.
The country offers 24/7 multilingual and multimedia supported premium services for marketing, sales, customer care, crisis management, investor relations and other key business applications. The reasons cited for the bullish outlook towards the Philippines have been, among others, due to lower operating costs, English language proficiency and high ICT skills yet lo
w-cost workforce.The Philippines is considered a major player in t
he global BPO market. In 2005, the country ranked in the top 10 world wide for top BPO destinations, according to neoIT's 2005 Mapping
Offshore Markets Update.
The current drive in USA and UK for BPO outsourcing started with an earlier urgent requirement of
software engineers for the Y2K event. The West fell short on trained manpower and called for
talent from India. The latter provided its best and the brightest and the Y2K event passed
uneventfully. In two years since the Y2K (1997-99), India has been recognized as a resource pool.
Business managers in USA have learnt that the same job, which will cost one dollar in USA, cost only 30 Cents in India. In terms of quality, it will be equal or better. Hence, these two, become
immediate reason to get work done in India. Not to be outdone Philippines, Australia and Ireland has joined India in grabbing these jobs. China is close behind but suffers a major drawback - lack
of English-speaking work pool.
The call center industry is one of the country’s bright prospects in the area of business process outsourcing (BPO). It
started in year 2000 and became a significant activity in the services sector. In 2004, the country captured 20 percent of the total world market share in contact
center services and is estimated to capture 50 percent of the total English speaking world market by 2008. Some industry analysts projected that more
than a million Filipinos will be employed in the call centers in year 2010 and can bring about US$12 billion revenue to the
country. A call center is a centralized office used for the purpose of receiving
and transmitting a large volume of requests by telephone.
The agents, often called as customer care specialists or customer service
representatives, handle the inquiry of the customers on behalf of a client via
voice call. The clientele includes telemarketing services, banks and
financial services, computer product help desk, transportation and freight
handling firms, and information technology companies. A call center
does not only serve as a venue for the telemarketing of products and
services but also provides solutions to problems and customers‘ complaints
on certain products and services.
The size of call center operations is described according to the number of
“seats” available. A seat is a work station with a computer terminal and a telephone line which two or three people can use in
alternate shifts to provide a 24-hour service. There are two types of services in a call center: the inbound and outbound services. The inbound services deal with
customer inquiries and technical assistance. This is usually done during night time in the Philippines which is equivalent to day time in the United
States. The outbound services, on the other hand, deal with telemarketing services and follow-up calls. This is
conducted during off-peak hours, usually day time in the Philippines.
Giving India a Run for Its Money :
While the Philippines may not be as a huge an offshore provider of web and software services as
India, it holds great promise in the customer service industry. Although India does charge lower than the Philippines—for data encoding work, India
charges around $4 (U.S.) versus $6 in the Philippines—more multinationals are choosing the
Philippines because of the high quality of work. Moreover, Filipinos make good customer service
agents not only because they are fluent in American English but also because of their helpful and friendly nature. More companies are choosing
the Philippines for offshore support. Among the services offered in Philippine-based outsourcing companies are copyediting and indexing; web
design and maintenance; data conversion, data warehousing, data capture and data entry; OCR
and scanning services; proofreading; encoding and keyboarding; imaging services and graphics design; call center and customer service; abstracting and document conversion; typesetting; and tagging,
among others.
OUTSOURCING SOLUTIONS INC.Based in Cebu City, Philippines, offers a support service
that enables smaller companies to outsource minus the risk. Began in 1998, OSI initially offered data entry and typesetting/book formatting work, website design and development, word processing and, over the years, has evolved into a highly specialized service-oriented company providing outsourcing solutions to partners such as Lexis Nexis, Xlibris, Bank of America, Mother Earth News Archive, Sound Choice, and Cannon Creek, among others. Integrating on-site American management and a team of Filipino professionals dedicated to a certain client's work, OSI is able to deliver services at costs lower than most others without sacrificing quality or time. Its effective service model allows clients to concentrate on their core businesses and enhance their position in the marketplace. Beyond administrative capabilities, OSI has also developed its technical competency and expertise valuable in project star
t-up and expansion.
For the last five years, OSI has delivered cost-effective, top-quality services such as financial
research and analysis, data entry/capture, typesetting, document conversions, word
processing, SGML tagging, copy editing and press release writing, document scanning and proofing, HTML coding, data archiving, Internet research and surveillance, transcription, website design and
development, and desktop publishing related work. With its motivated and well-educated
Filipino workforce and American management, OSI has maintained a Filipino-American cultural
compatibility enabling the delivery of better services not obtainable in other countries offering
offshore support.
Majority of the BPO facilities are located in Metro Manila although other regional areas are now being promoted and developed for offshore
operations. Major companies that already operate in the Philippines include AIG, AOL, Barnes &
Noble, Chevron, Citigroup, Dell, HP, HSBC, IBM, Intel, JPMorgan Chase, Motorola, Procter &
Gamble, Siemens AG and Trend Micro. Notable BPO vendors include Accenture, Convergys, and Unisys. There are numerous smaller operations
that either support larger vendors during seasonal demands, or directly service Small and Medium
overseas companies. Major vendors are managed jointly by expatriate and local managers whereas smaller operations maintain their viability through
direct management by its owners, who themselves are most likely to be from the BPO and ICT industries. The Philippines' Center for International Trade Expositions and Missions
(CITEM) report for 2004 cited the Philippines as among the top 10 choices for offshore operations.
Market Share and Structure
The Philippine BPO sector grew from $350 million in 2001 to
$1.65 billion in 2004 in terms of revenue. The biggest sub sector
is the customer care or call center which captured 53
percent of the total BPO sector. According to the Department of Trade and Industry (DTI), there are approximately 37 firms in
the call center industry catering to the US and British markets.
The Philippines had 20,000 seats in 2003 which increased to 40,000 seats in
2004. The 100 percent growth in the number of seats puts the country
directly behind the major players in the industry. Assuming there are three people in one seat, the number of employed people in the industry
increased from 60,000 agents in 2003 to 120,000 agents in a span of one year. The employment opportunity
from the call center is complemented by the attractive salary and benefits
that firms offer, which is approximately $300 to $350 a month for an entry
level position.
The Philippine Advantage and
ChallengesThe country emerged as a popular site for contact
center destinations in Asia because the Filipinos possess innate advantages that are attractive to outsourcers. However, there are also some
areas and challenges that need to be addressed in order to sustain the BPO projects in the
country. The Filipinos’ command of the English language is one of the biggest pull factors for firms to set up their operations in the country.
Further, the improved telecommunication infrastructure augurs well for the provision of telecommunication-related services. A side advantage is the quick and smooth cultural assimilation of foreigners managing the call
centers.
It is anticipated that demand for contact center employees will continue to
increase in the near future. However, there is also a possibility that there will be a shortage of qualified employees due to the deteriorating quality of the country's educational system and lack of communication training needed by
the industry. To address this challenge, the Philippine government, through the
DTI and in partnership with various educational institutions, included BPO-
related courses in the curriculum of some of the colleges and universities in
the country.
Other challenges that the industry faces are the unstable political environment and the widespread rumors of kidnapping and
terrorist attacks, all of which drastically affect investor confidence and reduce the potential for increased investment in the outsourcing services. As such, the need to improve the peace and order situation in the country is very crucial. The high cost of power is also
regarded as a major challenge that impedes the operation of BPO companies. A solution
suggested is the “peak load” pricing of electricity which essentially lowers the
electricity rate for night operation of BPOs. The Philippines is referred to as the “best-
kept secret” among contact center providers. Because of this, more effort must be exerted
in the global community to promote the Philippines as an investment destination.
The call center industry may be regarded as a sunrise industry that will provide jobs for Filipinos and dollar revenues for the country in
the coming years. While the Philippines is recognized as one of the popular sites of contact center
destination in Asia, there is stiff competition from other countries like China. Local policies and initiatives should be designed to sustain the growth of the call center industry.
Number of seats 2003-2004
Country 2003 2004f Growth (%)
Australia 135,000 146,000 8India 96,000 158,000 65China 38,000 54,000 42Philippines 20,000 40,000 100New Zealand 12,000 13,500 13Thailand 11,000 13,000 18Singapore 10,000 10,100 1Hong Kong 10,000 10,700 7 TOTAL 332,000 445,300
34f - forecast
Advantages– English proficiency and superiority of verbal
skills– Affinity to US culture – Low cost of labor – Low cost of real estate– World class telecommunication– infrastructure– High level of satisfaction from– expatriates regarding quality of life– and cultural assimilationIssues and Challenges– Deteriorating education system– Unstable political environment– Inadequate marketing on Philippine
advantage– High cost of power
ECONOMIC GROWTHBusiness Outsourcing Sector to Sustain Double-Digit
Growth the Philippine government is projecting the fast growing business process outsourcing
sector to continue turning in double-digit growth in terms of revenue and employment, based on new investments and the expansion of existing industry members. “For the past years, it’s no secret that the IT (information technology) and
BPO sectors of the Philippine economy have set up strategic businesses here, and the Philippines has benefited enormously from these investments,”
Trade Secretary Peter Favila said in a speech during a news conference on the seventh Global Sourcing Conference and Exhibition scheduled next month. The trade department’s Board of Investments estimates that the BPO sector’s
revenue this year will grow 37% to .99 billion from last year’s estimated .63 billion.
The sector generated revenue of .42 billion in 2005. The Board of Investments also
estimates the sector’s workforce to expand 40 % to 343,013 employees this year from the
2006 estimate of 244,675. In 2005, the sector employed a total of 162,250. Back in 2000, the BPO industry had only 2,400 employees
and million in revenue. “By 2010, this sector is projected to grow to a .5-billion industry and create close to a million jobs,” said Favila.
Towards this end, the government has been pursuing efforts to market the Philippines as a
BPO site for companies in the US, Australia, Asia and Europe. The US currently accounts for 85 % of the Philippines’ BPO market, said
Jeanette Carrillo, business development manager for IT and officer in charge of the information and technology division of the
Board of Investments.
“During the next few years, the US will remain our top market, but we want to expand our reach in Europe, Australia and Asia. India is also looking at the
Philippines as an outsourcing destination,” Carrillo told Dow Jones
Newswires on Thursday. India currently ranks as the world’s top outsourcing
destination. Carrillo said the government expects the BPO sector to become the
third largest contributor of foreign exchange after merchandise exports and
overseas workers’ remittances. The Philippines is now moving toward higher value-added services to further enhance
the revenue potential of outsourcing, said Favila.
The Philippines is a developing country in South-East Asia. In 2004, it was ranked as
the 24th largest economy by the World Bank according to purchasing power parity.
The Philippines is one of the newly industrializing countries in the world.
Important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and
electronics and automobile parts. Most industries are concentrated in the urban
areas around metropolitan Manila. Mining also has great potential in the Philippines,
which possesses significant reserves of chromite, nickel, and copper. Recent natural gas finds off the islands of Palawan add to
the country's substantial geothermal, hydro, and coal energy reserves.
OVERVIEW
This industry is regarded as one of the fastest growing industries in the world. International investment consultancy firm McKinsey & Co.
predicts that the demand for outsourcing services will reach $180 billion in 2010, with the customer contact services, finance and
accounting, and human resource sub-sectors taking up the biggest shares. When it comes to
the trend in primary business requirements, experts are seeing a shift from cost-
effectiveness to skills quality and competence. This development all the more strengthens the
Philippines' position as an emerging global leader in the BPO industry (BPAP 2006). The
BPO boom in the Philippines is currently led by demand for offshore call centers.
The Philippines raked in offshore service generating revenues of $2.1 billion in
2006, placing third behind India and China and slightly ahead of Malaysia. That's up
62% over the $1.3 billion it gained in 2004, and a huge increase from the start
of the decade when the outsourcing industry in Manila employed just 2,400
people and the industry had revenues of merely $24 million. It is estimated that 200,000 people are working in 120 BPO
(mostly Contact Centers) in the Philippines in 2006. Overall, Philippine BPO is forecasted to earn US$11 billion and employing 900,000 people by the
year 2010 (Shameen 2006).
The recent growth spurt in the outsourcing industry in the Philippines has been fueled not by
traditional low-value-added call centers but more higher-end outsourcing such as legal services, Web design, medical transcription, software
development, animation, and shared services. Though call centers still form the largest part of the sector, the Philippines has begun leveraging its creative design talent pool, its large pool of
lawyers, and its professionals in accounting and finance (Shameen 2006). To achieve and sustain this rapid growth, the Philippine government is
offering significant fiscal and non-fiscal incentives to attract foreign direct investment in these industries as part of the 2006 Investment
Priorities Plan. The IPP was prepared by the Board of Investments (BOI), as the lead agency in
promoting investments, focused on the sectors identified in the Medium-Term Philippine
Development Plan (MTPDP) 2004-2010 (PBOI 2006).
Outsourcing to BrazilOutsourcing to BrazilOutsourcing to BrazilOutsourcing to Brazil
Why Brazil?Brazil is often referred to as the motor of Latin America. It’s easy to see why. With
a population of 180 million, Brazil's economy is the largest of Latin America and the tenth in the world. The Brazilian
market gives access to Argentina, Paraguay and Uruguay, with whom Brazil
created the joint market Mercosul. By most measures -- geographic size,
population, and gross economic product, each approaching 50 per cent of South
America -- Brazil is the continent's dominant country.
Brazil as an Outsourcing Destination
It's a fair bet that Brazil will beat off all challengers this summer to retain the Football World Cup in Germany. Brazil is well known for its stamina, skill and flair on the football pitch, usually leaving the rest of the world competing for second place. But far removed from these football certainties is how well Brazil will fare
in a newer contest now taking place across the business world -- the contest to be the next location for off shoring of IT and business
process services. Is Brazil a serious competitor in the "BPO/ITO World Cup"? Do they have the "right team" to get to the final or do they face
disqualification in the first round?
The business of off shoring has been maturing for decades. Driven by strategies
to reduce costs, generate economies of scale, and focus on core competencies, it's
clear that IT and business process outsourcing work. India has stood out as the pre-eminent force in this process; but
in practice most global companies and offshore service providers are looking to
spread their facilities and investments on a global basis, rather than in just one
location.As a result, there's keen competition to be
seen as "the next offshore location." And there's no shortage of competing countries, ranging from Poland, the Czech Republic,
Canada, Russia, even Costa Rica and Jamaica.
Customers and suppliers concerned about rising costs in India are evaluating alternative
geographies. Meanwhile, many countries are anxious to inherit the designation as the next great
offshore destination. One of these is Brazil, Latin America's largest economy with a strong local
market just now turning to a focus on software and services exports. Brazil has strength in financial
systems, extensive legacy skills, and competitive billing rates. However, Brazil's robust IT sector is
overwhelmingly local in orientation, and software/services exports remain minimal. Brazil's
smaller scale in terms of qualified personnel resources and limited English language
competency prevents the country from having massive impact à la India or China. But Brazil
provides great promise as a secondary offshore destination, particularly for customers who have
complementary commercial interests in Latin America's largest economy and are willing to
embrace a captive approach.
Brazil IndicatorsWhen searching for a suitable
offshore location, client organizations need to
scrutinize a comprehensive set of indicators, including labor costs and political, economic
and social risks, among others. For Brazil to stand out as the "right decision," it needs to
provide a compelling answer to each of these points.
Geographical Proximity
Brazil's proximity to the US makes it distinctly more accessible than
more distant Asian locations. It
therefore qualifies as a "near shore" location for the US market, along with Canada and various
Caribbean countries.
Labor PoolWith a population of 182 million growing at
1.1% per year, Brazil has an estimated educated workforce of 83 million. The
country clearly has a substantial labor pool, potentially a major strength when many
offshore locations are rapidly "overheating.“
Labor CostsBrazil is cheaper than almost all other South American or European countries, with a 30% salary advantage cost over the US. However
it is not the cheapest option, with Indian locations benefiting for an additional 30% cost advantage. The average salary for an
"entry level" IT worker is about $9,000, while in China and India it's about $5,500.
Language SkillsIn the only South American Portuguese
speaking country, English is only modestly spoken. The Spanish language gets bigger play, but nothing compared to its native Spanish speaking neighbors Uruguay, Argentina, Chile and Mexico, which are
also taking part in this competition.
EconomyEconomically, Brazil has changed a lot since
the days of 2,000% inflation. Today the economy is stable, with a 6% inflation rate at the end of 2005. The IT sector itself is a well developed $10 billion market, with an
$8.3 billion multinational presence.
Brazil has been showing signs of becoming a serious contender in recent years. Aware of the opportunities
of tapping into offshore demand, in 2004 the big national players in the IT service industry in Brazil (CPM, Datasul, DBA, Itautec, Politec and Stefanini)
created BRASSCOM with the main objective of promoting the export of IT services among its current roster of 3,265 IT firms. The Brazilian Association of Software and Services Export is a clear attempt to emulate the Indian success story (though, if the
organization's Web site is any indication, the effort is an anemic one).
As proof of concept for this approach, CPM was recently awarded a $7 million outsourcing contract with a
major European bank. At the end of 2005 Stefanini became the first Brazilian native company to achieve Capability Maturity Model Integration (CMMI) Level 5
certification.
The Current State of Play
The global outsourcing service providers and software firms have a strong presence in Brazil and many
are already serving their global client bases. Companies such as IBM, Unisys, HP, EDS,
Accenture, Deloitte, Motorola, Intel and Nokia all have offshore centers in Brazil. In addition, TCS, the
largest of the India offshore players, has plans to create a new global development center in the
state of Sao Paulo, in addition to an existing center in Brasilia.
As the offshore market continues to evolve, Brazil appears to be well placed to compete. It won't
provide the lowest prices, but in an increasingly sophisticated marketplace, this is no longer the
only assessment criteria. Brazil has a mix of capabilities that, in particular, position it to provide
near shore services to the US. It also has the beginnings of a track record in ITO and BPO. It
appears unlikely they'll ever displace the current market leader, India, but by the time of the next World Cup in 2010, Brazil may well be one of the
leading runners up.
Brazil Executive Call Center Report 2007: An
Emerging Sourcing GiantThe Brazil Executive Call Center Report 2007
offers strategic guidance and detailed decision making cost estimates and economic
handlers to corporate buyers, vendors, investors and executives about how to
compare and evaluate Sao Paulo, Rio de Janeiro, Belo Horizonte, Curitaba and
Florianopolis, for site selection service - supplier analysis and investment. Intense
focus is given to comparing these five cities within the Sao Paolo Rio de Janeiro axis which is responsible for over 90 % of contact center
BPO activity in the country.
Brazil is regarded as one of the four key catalysts among the so-called BRIC (Brazil, Russia, India, China) nations driving service
globalization. Central to both its service export success and internal economic expansion is its emphasis on contact center Business Process
Outsourcing (BPO) and IT services. The country is Latin America’s biggest economy and also boast’s the region’s largest contact
center or voice-based BPO agent population of just over 200,000 agents (216,243). These
numbers represent a significant increase from the market’s 55,000-agent base in 2001. Data on Brazil’s overall contact center BPO and IT
outsourcing revenue is estimated to be US$2.4 billion with about 10% generated from
international contracts.
A higher percentage of its centers use advanced email and collaboration customer interaction technology when compared with the U.S. and Europe. The industry generates
over US$2 billion in revenues, with 90% coming from internal outsourcing and
companies managing their own centers. Approximately 10% of revenues are
generated from international markets lead by the U.S. and followed by Europe and Asia.
Zagada finds that close to 300 of the country’s almost 2,000 universities and
institutions of higher learning serve the Sao Paulo-Rio axis and graduate 1.2 million students each year. This offers a ready
talent source for contact center BPO companies seeking to expand or locate in
Brazil.
While Brazil has a large internal market and an expanding contact center BPO and IT
sector, Zagada finds that the country faces a number of internal and external
challenges. Internally, rising inflation rates, increasing wages as well as high
levels of software piracy rates define the challenge. While government data
projects a 5% GDP 2007 growth rate, most analysts agree on a range under 4%,
which represents half of India and China its leading outsourcing competitors.
Additional contact center BPO competing locations include Argentina, Mexico,
Central America, the Dominican Republic and the Philippines. Brazil’s cost estimates are compared with these markets for easy
and accurate evaluation.
The Brazil Executive Call Center Report 2007 offers strategic guidance and detailed decision making
cost estimates and economic handlers to corporate buyers, vendors, investors and executives about how to compare and evaluate Sao Paulo, Rio de
Janeiro, Belo Horizonte, Curitaba and Florianopolis, for site selection service - supplier analysis and investment. Intense focus is given to comparing
these five cities within the Sao Paolo Rio de Janeiro axis which is responsible for over 90 % of contact
center BPO activity in the country. The report highlights that Brazil has Latin America’s largest
contact center BPO agent population of over 200,000 and creates jobs for close to 1 million workers associated with the industry. These
numbers represent a significant increase from the market’s 55,000-agent base in 2001. Data on
Brazil’s overall contact center BPO and IT outsourcing revenue is estimated to be US$2.4
billion with about 10% generated from international contracts.
We project that the country is on track to have 350,000 agents by the end of 2007, despite a slow down in its average annual growth rate in the sector. The report indicates that while Brazil has over 1,000 call center operators,
the market is highly segmented with 10 larger centers generating under 20% of the market’s revenues. These centers are evaluated as well
as the vendor and equipment service providers. Avaya again has a commanding lead in the market with Plantronics as the
leading headset provider.Close to 300 of the country’s almost 2,000
universities and institutions of higher learning serve the Sao Paulo-Rio axis and graduate 1.2 million students each year. This offers a ready
talent source for contact center BPO companies seeking to expand or locate in
Brazil.
While Brazil has a large internal market and an expanding contact center BPO and IT sector, we find that the country faces a
number of internal and external challenges. Internally, rising inflation rates, increasing wages as well as high levels of software piracy rates define the challenge. While government data projects a 5% GDP 2007 growth rate, most analysts agree on a range under 4%, which represents half of
India and China its leading outsourcing competitors. Additional contact center BPO
competing locations include Argentina, Mexico, Central America, the Dominican
Republic and the Philippines. Brazil’s cost estimates are compared with these
markets for easy and accurate evaluation.
Well Positioned For Continued Growth
0.0%
1.0%
2.0%
3.0%
4.0%
2006 2007 2008
Anticipated margin expansion driven by: Operating leverage Expanded use of offshore resources Stringent cost containment
Brazil Aims to be Outsourcing Giant
In the past decade Brazil has come a long way in shedding its image as an exporter of
commodities like coffee, sugar and iron ore. Today, the country is a fledgling industrial
power with expertise in advanced technology, making products like commercial airplanes and so-called flex-fuel cars that run on ethanol and
gasoline.Hoping to follow other developing countries like
India, Brazil's government is trying to turn the country into an outsourcing center. It has joined
with local software companies to promote Brazil's information technology overseas, Brazil
is offering special credit lines to technology companies that are focusing on foreign markets.
Brazil is a newcomer to outsourcing. The country exported only about $400 million in software
and information technology services last year, according to industry estimates. Though the
government expects that to rise to $2 billion by the end of 2006, it would still be low, compared
with an estimated $15 billion in Indian outsourcing last year.
Brazilian government officials and software industry executives in São Paulo say they are
not out to take on India, but to meet the demand for affordable outsourcing closer to the United
States. "We are selling ourselves as an alternative to India, not a competitor," said Marco Stefanini,
chief executive of Stefanini IT Solutions, an information technology firm based in São Paulo
that is doing outsourcing for 15 companies in the United States, including Johnson & Johnson,
Kimberly-Clark and Lucent Technologies.
"The government is finally waking up to the fact that we have a software industry that can
compete globally," said Djalma Petit, who is in charge of promoting exports for Softex, an
association of Brazilian software companies."This market is expanding rapidly, so we don't
need to steal customers away from India," he said. "There's plenty of business to go around
for all of us.“The United Nations Conference on Trade and
Development said the global outsourcing industry was still in its infancy, and that the trend was approaching a tipping point "from
which cascades of new off shoring will spring." As the world becomes more
dependent on information technology, the report added, dozens of countries will step up to fill the void as expertise in new areas and
geographic concerns come into play.
Many people in the industry have said that Brazil is in position to take a good share of that market. The
country's telecommunications infrastructure is already state of the art, after receiving billions of dollars in investment since it was privatized in the
late 1990s. Another advantage is that the time difference between Brazil and the United States is minimal. A rising number of American companies are taking this into account, especially when they
outsource data centers and call centers. Brazil also has a thriving domestic market for
software services and there is a history of rapidly embracing new technology. The country's banking
sector is among the world's most automated, having developed sophisticated fund-management
software in the early 1990s to help quick calculations while dealing with hyperinflation. A
few years ago, the country also switched to electronic voting machines in all elections, and tens of millions of Brazilians now file their tax
returns on the Internet.
Outsourcing Opportunities in
BrazilSouth American countries, particularly
Brazil, are becoming more popular as destinations of Western outsourcing, as well as off shoring activities from Asia and other regions. Brazil offers great investment opportunities in
sectors like business process outsourcing (BPO), banking and
financial services, cement, iron ore and chemicals, according to the
Federation of Indian Chambers of Commerce and Industry (Ficci).
"China is already making inroads into Brazil in farming, steel and other
manufacturing sectors."India and Brazil have complimentary
strengths and together they can focus on the third country markets.
A critical factor in selecting offshore destinations, Brazil is in a good position compared to competition in India, the
Philippines, and Canada, where costs are rapidly rising.
The conditions are right for offshore-outsourcing in Brazil but several
questions remain. For example, whether or not English language calling can be
supported effectively from Brazil.
Brazil Stock Market 2001-2007
Brazil could prove ‘compelling' near shore
Customer Service Outsourcing option for
USBrazil-based contact center agents serving offshore clients are set to almost triple in
five years.The number of contact center agents located
in Brazil and servicing offshore customers is expected to rise from 3,900 in 2005 to
11,500 in 2010. What's more, demand for Brazilian-based customer care services from companies domiciled in the US is forecast to
grow at a compound annual growth rate (CAGR) of 27% between 2005 and 2010 compared to 21% from other regions.
'Content Outsourcing entails allowing another company to handle specific needs of the primary firm, which that firm cannot or does not want to do. This allows companies to focus on their core competencies and contract out other types of
services. Brazil's strong domestic market has produced more
in-house contact center agent positions than anywhere else in Latin America. What this means
is that a sizeable pool of well trained and experienced contact center agents already exist in Brazil, thus giving it an advantage in terms of
experienced contact center management.In terms of cost per agent, a critical factor in
selecting offshore destinations, Brazil is in a good position compared to competition in India, the
Philippines, and Canada, where costs are rapidly rising.
The conditions are right for offshore-outsourcing in Brazil but several questions
remain. For example, whether or not English language calling can be supported
effectively from Brazil. On the other hand, there's room for Brazilian contact center work in Spanish-speaking US regions and
other Caribbean and Latin American (CALA) countries. Even more uniquely, possibly
Japan.While some challenges face Brazil as it seeks
to expand its position in the global market for off shoring agents, including issues of
language, perception of stability, and macroeconomics, the future looks bright.
Overall, the number of CALA-based contact center agents servicing offshore customers
is forecast to more than triple from 16,200 in 2005 to 44,900 in 2010.
Brazil Overview
Population: 190 Million People GDP Growth: 3.1% World’s 10th largest economy Inflation: 2.65% 95 Million bank accounts 35 Billion transactions, 17% growth 2005 Card Market Growth 30% Currency (Reais per US$) 2007 = 2.14 2006 = 2.19 2005 = 2.43
Outsourcing to MalaysiaOutsourcing to MalaysiaOutsourcing to MalaysiaOutsourcing to Malaysia
Outsourcing Malaysia
Outsourcing Malaysia is a new joint initiative by several groups -- the Association of the
Computer and Multimedia Industry of Malaysia (PIKOM), Multimedia Development Corp. (MDeC), and Malaysia Debt Ventures
(MDV) -- to position the country as an attractive location for shared services and
outsourcing (SSO). But Malaysia is hardly new to the business of
global services. This small country of 24 million in Southeast Asia is already host to dozens of multinationals that have tapped
expertise in the energy, finance and logistics industries, many through captive
arrangements.
In both its 2004 and 2005 Global Services Location Indexes, consulting firm A.T. Kearney named Malaysia the top third
location for shared services and outsourcing behind only India and China and just ahead of Singapore. The ranking analyzes the top 40 service locations worldwide against 40 measurements in three categories: cost,
people skills and availability and business environment. Government promotion policies
continue to pay off... Malaysia has augmented continued investment in world-class infrastructure along the Multimedia Super-Corridor, with further incentives for
corporations choosing to locate in Malaysia and additional policies to open up the labor
pool and deepen English language and technical skills throughout the population."
In its Global Institute Labor Supply Database McKinsey points out that although Malaysia has a "relatively small" pool of talent, its graduates
have "significant international experience." That is a result of three decades of foreign investment in the country by global companies such as
Shell, DHL and Dell.Likewise, Frost & Sullivan, which shared
the stage with the outsourcing consortium in Austin, also has
identified the potential for major growth of SSO in Malaysia in survey
work that is ongoing.
The advisory firm sizes the SSO market worldwide at $758 billion for 2005. Of that, off shoring accounts for about 6% -- $46.5 billion. While domestic SSO is expected to grow about 12% a year over the next three to four years, offshore is expected to grow between 20% and 30% annually over the
same timeframe.The finance industry is the biggest spender
(accounting for 33% of the global SSO spend), while the energy industry is
growing the fastest (with a compounded annual growth rate of 21.5%), said Aroop Zutshi, president and senior partner at Frost & Sullivan. The firm has identified
logistics as the fastest growing vertical in the Asia Pacific region.
This positions Malaysia well for becoming a dominant player in the SSO arena. In the area
of finance, said Zutshi, while India is the "clear favorite due to cost and skill of its
human capital," and China is "ambitiously catching up by leveraging on human capital," Malaysia is "preferred due to its 'First World’
infrastructure."In the energy sector, Frost & Sullivan points to
Malaysia’s "prominence in the sector...due to clustering of industry players and a skilled
talent pool."In the area of logistics, said Zutshi, Malaysia has
been identified as the "rookie of the year," by virtue of being a newcomer "thriving on a
high concentration of supply chain management expertise and...completeness of
infrastructure ecosystem."
Who’s Doing Business There
Momentum for doing business in Malaysia, according to Frost & Sullivan’s Zutshi, is coming
from companies looking for specific domain expertise. "We hear of countries like India that
have excelled in knowledge process outsourcing, China in the manufacturing side. What is
interesting is that many, many companies today -- especially the Fortune 500, that spend millions of dollars on outsourcing issues -- are looking for pockets of excellence, countries -- regions within countries -- that can offer core competencies in
certain areas to help on the process side..."Companies are seeking "business processes that
go beyond generic ones," said David Wong, co-chairman of Outsourcing Malaysia, "That’s why
the industry is moving... not on the cost differential, but on the value you’re getting."
Outsourcing Malaysia’s job is to make sure the capabilities exist as well as the domain
knowledge to be able to serve growing demand. He said the goal is to "achieve
60,000 knowledge workers by 2008" -- up from 40,000 currently -- to serve the supply side of talent requirements.
During the announcement, Rob Cayzer, director of Shared Services and
Outsourcing for MDeC, which oversees the development of the Multimedia Super
Corridor in Malaysia, held up a brand new type of Motorola Nextel phone and said
that it was "designed, researched, developed, tested, manufactured and
shipped out from Malaysia. This is the kind of high end services you will find in
Malaysia."
In the financial services realm, Standard Chartered Bank and HSBC have set up global processing hubs in Cyberjaya, a hub location
for ICT companies that is situated midway between Kuala Lumpur’s city center in the north and the Kuala Lumpur International
Airport to the south. Citibank runs a regional trade processing center in Penang.
Royal Dutch Shell Group runs a global IT support center in Cyberjaya, offering desktop
support as well as engineering and development services to Shell companies
around the world.DHL has located its regional IT hub there, responsible for operations in Asia Pacific. Known as DHL GIS Cyberjaya, it’s one of
three global data centers run by DHL around the world.
HP is running a data center in Cyberjaya as well as Petaling Jaya outside of Kuala Lumpur. The
company said part of its drive to open the newer center in Cyberjaya was to support local
clients, including DHL and Western Digital.Other companies with a presence in Malaysia include Microsoft, Intel (with 8,000 employees in Malaysia, including 1,500 in R&D), Ericsson, BMW and Nokia. On the service provider side,
IBM, Fujitsu, EDS and CSC have all set up operations there. On May 9, 2006, ACS
announced the opening of a new technical development center in Cyberjaya, which will
employ 700 workers by 2007. From this facility ACS said it will provide clients with network and
desktop engineering solutions, system engineering services, mainframe support,
application management systems, customer care and human resources services.
Much of what has attracted this blue-chip roster of companies is a stable government, a highly skilled
talent pool and competitive costs. The country enjoys low inflation, low staff attrition and high levels of
returnees among its foreign graduates. Also, unlike many other nations aspiring to become a favorite
pick in global sourcing portfolios, said MDeC’s Cayzer, "Malaysia is an affluent country."
At the same time a number of domestic service providers are also building growing businesses in
Malaysia. These include BPO firm Scicom; IT service provider ea cap; Sapura, which has grown from being a telecomm provider to becoming an expert in fields
such as ICT, energy, industrial and automotive; Vsource, which runs centers of excellence across
Asia for banking and finance, insurance, transportation, manufacturing and technology; and ICT provider Kompakar, which became a national hero when it became CMMi Level 5-certified and earlier this year won a RM1.15 million deal with a
hospital in China.
Malaysia Finds Its Groove
So why jump up and down (to a disco beat) and launch Outsourcing Malaysia when it’s been
around for years anyway? Why take on hosting WCIT 2008? According to MDeC’s Cayzer,
"When AT Kearney ranked Malaysia as number three in the world, it shocked a lot of people." He pointed out that it arrived in a time when
confidence in the country was just coming out of a low point -- following on the Asia financial
crisis of the turn of the century."This ranking is a potential," he said. "When this
thing first started, we were considered very expensive compared to India. Now compared to Bangalore, in the high end IT space, we’re considered cheaper... We have 3,000 foreign investment projects in the country... It just
keeps growing."
The country is already strong in captives. Outsourcing Malaysia’s goal, Cayzer said, is to
start to "brand local companies." The strategy, he said, is "to redevelop the relationships we have
with the [multinationals]. We don’t have to recreate them. We do have to enhance or capture more mindshare in the American services sector. That’s something we have to aggressively go for."
Concluded the Prime Minister before he took proclamation pen in hand and somebody found the volume knob on the speakers at the Hilton, "We believe we have many advantages we can share -- people who are truly multilingual and multicultural. I am here to say to you, come to
Malaysia and you will see many countries of Asia. It’s a cosmopolitan country."
The recorded disco thumping continued as cameras flashed and he worked the crowd on his way out
of the room, still smiling, still shaking hands. Malaysia is on the move.
Outsourcing's next big thing--Malaysia?
India and China may be the world's premier outsourcing spots now, but Malaysia is fast emerging as a serious contender for global
off shoring.In the firm's latest study, Malaysia is ranked
as the third most-attractive destination for shared services and outsourcing, behind
India and China. Besides sending to Malaysia jobs in areas such as
manufacturing and call centers, companies are using the country as a base for shared services like marketing and IT functions to support their operations in other countries.
India took the top spot in AT Kearney's 2004 off shoring index because of its cost advantages, as well as its depth and
breadth of off shoring experience and the availability of skilled labor. Although China trails India in outsourcing experience and
qualifications, its large educated work force and low costs propelled it to second place.
Still, Malaysia's well-developed infrastructure, attractive business environment and strong
government support makes it a "rising alternative to India and China.
"The government's positioning of Malaysia as a hub for services and technology
innovation has resulted in a number of multinationals locating some of its global or
regional operations in Malaysia.
Although India and China came out on top in the company's study, they have higher political and economic risks, as well as relatively weak infrastructures. Moreover, China has to resolve issues
of intellectual-property piracy and political red tape. By comparison,
Malaysia has a relatively more stable political climate backed by consistent economic growth. But still, the limited
size and quality of Malaysia's work force could be possible impediments in the country's quest for a bigger share of the global IT services and business
process outsourcing pie. This market is expected to cross the $750 billion mark
globally by 2006.
To meet the demand for skilled IT labor, the report said, the educational
system in India produces an estimated 2 million English-speaking
graduates with strong technical backgrounds yearly. In contrast, the pool of IT and engineering graduates in Malaysia totals 75,000 annually. Malaysian Prime Minister Abdullah
Ahmad Badawi spoke of the importance of the off shoring and
shared services market to the country's Multimedia Super Corridor
project, an attempt to develop a high-tech industrial zone like Silicon Valley.
According to Badawi, off shoring is one of the key business drivers in the corridor project. Multinational companies like Ericsson, HSBC, Electronic Data Systems, IBM,
Motorola and Prudential have all planted global services centers in the Multimedia Super Corridor, he
said. The Malaysian government further
expects to create at least 10,000 "high-value jobs" in the shared
services industry by 2010, Badawi added.
Growing Calls in Malaysia
The Malaysian call centre industry has seen considerable growth over the past decade;
Telecom Malaysia ran the only operational call centre in the country 10 years ago and now there are over 575 call centres throughout the country employing an estimated 12,000 people. Such a
trend reflects the growing importance of the services sector. It is also a clear manifestation of the changing economic structure of the Malaysian
economy. Without doubt the growth of the call centre industry has also added a new form of
employment opportunity to Malaysians. Of those organizations operating call centers, 48% have been doing so for at least 7 years. However, the
market continues to grow, with 34% operating for less than 4 years, including 7% that have entered
the market in the past 12 months.
Based on research carried out by call centres.net, over the next 12 months seat
growth is predicted to be healthy in Malaysia where it is estimated that the number of
seats will rise approximately 15% to 13,750. It was only recently, in 1999, that the Call Centre Association of Malaysia (CCAM) was
founded and in line with the subsequent growth in the industry it continues to
withhold their objectives: to develop and promote service standards in the customer service industry and provide a platform for
members to achieve accreditation within the industry and to promote the development of programs to assist members in the growth of the call centre sector, thus making Malaysia the regional hub for the call centre industry
in the region.
Part of the success of the country’s ability to steal a larger proportion of the available call centre work in the Asia Pacific region lies in its multicultural population which can support more that just the English language; India with its large English speaking population has been the site
favored by US-based companies and the Philippines in the region has slowly
emerged as another centre because of the dominant use of American English.
However, Malaysia has advantages in other areas. While India and the Philippines can offer English language support, Malaysia has the multicultural edge in that it can
offer services in multiple Asian languages; for example, Scicom's centre in Kuala Lumpur offers 10 native languages.
The country has been slow to adopt CRM best practices and strategy and it has
only been in recent years that investment in CRM technology started.
Big local banks, Telco’s, airlines and insurance companies have set up call centers to develop closer customer
relations. Unfortunately however, they are still relatively low in number, as most local businesses have not seen
the benefit and the importance of developing customer services. More often than not, the customer relation
function is seen as part of the call centre activity where the ultimate
benefits it can bring to the company are not realized.
Malaysian call centers have suffered from operational problems in the past
brought about by staffing issues as the agent pool has only recently seen a rise
in numbers - this is in part due to the raising of the profile of the industry and the ground it has gained in promoting itself as a viable professional career path. The CCAM has been working
tirelessly in the promotion of management courses and training in
customer relationship management to develop education and is looking to
collaborate with universities and accredited training centers to further
enhance management skills.
Much has to be done still in order to woo investors and to heighten the performance of existing call centers. To push Malaysia to
be the region's call centre hub, various hurdles still need to be overcome. The most
obvious ones are immigration issues on foreign skills, and market perception of call
center agents.
In order to attract investment, the Malaysian government has been offering a wide range
of incentives. The IMD World Competitiveness Yearbook 2002 rates
Malaysia highly for the level of investment incentives offered (7.7 out of 10). Tax
exemption and concessions are proving to be a boon for the call centre industry as the
government has introduced a range of measures to encourage foreign investment.
Malaysia has the potential to be a major call centre hub in the Asia-Pacific region
because of its competitive cost structure, widely spoken English
language skills and ready access to other Asian language competencies, skilled manpower, matured support
network of IT and training companies, and an excellent telecommunications
infrastructure.Looking to the region's future, Martin
Conboy, callcentres.net CEO said, ‘Trying to predict what will happen in the market is always difficult. But the shift of less complex transactions to
cost effective destinations throughout the world was bound to continue.’
Conboy warns that sustained growth is only possible if it is accompanied by
concerted staff development."There is a lot of opportunity for growth
in Malaysia, as long as government continues to recognize the need to
institute education programs for the industry," he said. "They have to
realize that Malaysia has a fabulous opportunity to become part of the world's customer service engine
room, but the global market is highly competitive and attention, innovation
and industry accredited training programs are required."
Malaysia Aims to Join the Tops in Outsourcing
IndustryTAKEAWAY: Malaysia could be in reach of Asia
Pacific's number-one outsourcing spot for information technology support, research and analytical processes as well as supply chain
management. To achieve the top spot, Malaysia would need to identify its competitive edge in
order to attract more multinational companies. According to a Deloitte study that examined the competitiveness of off shoring locations in the Asia Pacific region, the top spot for IT support
was Bangalore, while Singapore held the number-one spot for analytic and supply chain
management. Malaysia's economic growth, along with its efforts to improve its infrastructure and grow its talent pool, are all making the area a stronger contender in the Asian Pacific market.
In today’s highly competitive global environment, the battle for talent knows no
geographic boundaries. Last year, Korn/Ferry International, the parent
company for outsourced recruitment firm Future step, surveyed 185 CEOs across Asia
and found that 33 percent of those surveyed in Southeast Asia felt
Malaysia has the best growth potential during the next five years. Its plans will be
bolstered by the government’s recent “five-year plan.”
Malaysia has become a regional hub for shared services and begun to attract more significant levels of foreign investment. In
this context, the unique human capital challenges facing companies in Malaysia
will be critical to its socio-economic health.
Indeed, the enthusiasm about Malaysia’s prospects is tempered by the growing need to attract and retain
top talent. The country has always been a key exporter of talent, providing people with strong
language and multicultural skills. That fact continues to pose issues for local companies as
multinationals woo workers away. Further compounding the situation are hundreds of locally owned recruitment and staffing agencies that have
created a highly fractured approach to talent acquisition in this market. In Malaysia, the phrase
“recruitment services” has typically referred to the business of mass hiring low- to mid-level positions for blue collar or temporary workers and is farmed out to multiple agencies at a time. Traditionally,
business process outsourcing (BPO) here has included compensation and benefits and other HR-related functions. However, even in this BPO hub, the idea of specifically outsourcing recruitment to one company in a more strategic and efficient way
is relatively new.
Unfortunately, many Malaysian recruitment practices are outdated, with the same methods and technologies popular a
decade ago still common. For example, many HR managers rely on fax machines to send job descriptions to agencies. Too
often, companies exclusively seek outside talent, overlooking the fact that they
potentially already have someone within the organization that fits the bill.
Frequently, there is no system in place to match needs with the best candidates. Furthermore, many organizations still
believe that their name and prestige is enough to attract top-notch professionals,
an attitude that can be naïve in today’s labor market.
Future step’s survey clearly showed the impact this is having. Those who took the
survey indicated an inability to find attractive positions. While 60 percent said they have updated their CV in the
past six months (with 80 percent of those who have not intending to do so this
year), 36 percent said they are still with their current employer only because they
have not seen a vacancy that interests them in recent months. There is growing recognition that a skilled talent provider
can offer expertise in executing successful employer branding campaigns
that reach the most sought-after candidates while also fostering a sense of
loyalty among current employees.
Here is a short list of other factors driving RPO in Malaysia today:
♦Continued Growth of Shared Services. In 2004, A.T. Kearney ranked Malaysia as the third most attractive off-shoring location (behind India and China) for BPO services needed by companies across Asia. The Government’s incentive programs and the shift from manufacturing to a service-oriented center have resulted in a rebound in consulting positions, supported by the continued growth of the Multi-Media Corridor.
♦Expansion of GLCs. Government-Linked Companies such as Telecom Malaysia are expanding to the Middle East, India, and other ASEAN countries, thereby increasing the need to find talent across borders and creating a very dynamic talent flow. Additionally, they are now focused on performance-driven growth to compete with leading global companies. As a result, these organizations are seeking new management teams to drive this growth and require talent partners with global reach to help them build teams quickly.
♦ Changing Expectations of Job Seekers. The Korn/Ferry survey indicated that more than 60 percent of CEOs in Southeast Asia think that offering adequate compensation is the best way to gain and retain talent, followed by offering constant motivation and stimulating professional growth and development (58 percent each). Indeed, Future step’s subsequent survey showed
that Malaysia’s future executives are seeking such opportunities. When asked
what the most significant thing a potential employer could do to make them leave their current company was, offering a
promotion came in second (18 percent) behind investing in their professional
growth and development (40 percent).
Malaysian Overview
The Malaysian economy expanded by 5.3 percent in
2005, and the outlook remains broadly positive.
In 2005, real GDP expansion was supported mainly by strong growth in manufacturing
output (4.9 percent), spurred by the recovery in the production of electronic
and electrical (E&E) products in the latter part of the year, and sustained activity in
the services sector (6.5 percent), following robust growth in consumption, and in trade and business services, including
finance.Exports of goods and services grew by 8.4
percent in 2005, supported by higher exports of manufactured products,
minerals, especially crude oil and LNG, and higher growth in tourism receipts. Imports of goods and services grew by 7.6 percent.
Aggregate domestic demand expanded by 7.3 percent in 2005, reflecting sustained
growth in private consumption (9.2 percent) and higher public consumption
(5.9 percent). Gross fixed capital formation (including changes in stocks)
expanded by 4.7 percent. Looking ahead, despite some softening in
aggregate domestic demand, partly from rising inflation and higher interest rates, a further increase in the global
demand for E&E products is expected to raise overall growth to 5½ percent in
2006 and 5.7 percent in 2007.
