MANILA--The local business process outsourcing (BPO) market will remain robust despite the global financial turmoil, but it will face HR challenges--particularly talent shortage and higher salary demand--as the sector copes with surging growth.
This is the prognosis presented by Canada-headquartered IT research firm XMG, noting that the decade-high inflation rate in the Philippines--at 11.4 percent--may push BPO workers to turn to their employers or the job market, in a bid to increase their pay to compensate for the rising cost of living.
In a report released Friday, XMG said call center, IT and BPO companies in Metro Manila should brace themselves for increasing employee sentiments to have their salary reviewed to combat inflation.
Citing figures from the latest XMG Employment Lifestyle Index, the research firm noted that over 73 percent of respondents expressed a need for increased compensation from their employers. The index was conducted in the third quarter of 2008 and polled 100 ICT professionals working in Metro Manila.
"Of the 73 percent, over 70 percent are actively looking for better opportunities within the city or overseas. Only 12 percent are currently satisfied with their current salaries," the report stated.
Emerson Fababaer, research statistician at XMG, said the numbers indicated a genuine trend of employees demanding increases in the cash component of their remuneration.
Lauro Vives, XMG's Filipino founder and chief analyst, said in the report that there were "very few extrinsic options" for employers to address the challenges.
"Either provide a relief in the form of increased compensation, subsidy or allowance, or position the current compensation package as being above industry," Vives said.
Based on studies conducted in the past, XMG said, companies have been able to address this by performing regular compensation benchmarks, as well as "aligning employee attitude and value in building a sense of ownership in the company".
Vives added: "This means a shift from a monetary-based attitude, to a self-fulfillment outlook."
To raise employees' level of commitment and overall productivity, the XMG report suggested organizations frequently review their worker incentive programs. Companies should also independently monitor employee perception and behavior to accurately gauge employee sentiments toward the organization, the research firm said.
The good news is, the Philippine outsourcing industry will largely remain a bright spot in the next two years and continue to grow well into the next decade.
Global fall, local gain
In a separate report, XMG said the ongoing credit crisis will force financial and insurance firm to seriously consider selling IT and business process service units to third-party providers, in a bid to monetize assets.
"Captives in this segment will realize that it will be difficult to achieve the operational efficiency of a focused, well-managed and profit-driven third-party vendor," it said.
In 2007, XMG predicted global offshoring to grow 34.7 percent through 2010. However, due to the economic slowdown and expected recession, the research firm reduced its forecast to 24.2 percent--due in large to reduced investments by captive operations.
The Philippines' BPO market growth is expected to fall from 31.2 percent to 25.6 percent. Vives said: "The global financial upheaval will have a deleterious effect across most industries, but the IT industry and offshoring, specifically, will still experience double-digit growths."
A Philippine lawmaker echoed XMG's assessment, noting that the country's BPO industry is likely to benefit from JP Morgan's recent rise as the top bank in the United States.
House representative of Catanduanes Joseph Santiago, and chairman of the chamber's information and communications technology committee, said in a statement that the current development in the United States would likely mean that JP Morgan would "soon aggressively offshore more backoffice jobs to the Philippines."
Santiago noted that 119-year-old Washington Mutual (WaMu), the erstwhile largest American savings bank since closed by the U.S. government, and its banking assets have been sold at a fire-sale price to JP Morgan.
WaMu, incidentally, is a key client of PeopleSupport, a call center operator that employs some 8,000 Filipino workers. The U.S. company was acquired by India-based Aegis in August 2008.
Santiago said: "Among U.S. banks, JP Morgan is the most comfortable with the Philippines. The bank has been here for 47 years [and] has become totally acclimatized to our political and economic conditions.
"Our sense is, now that it has become larger, JP Morgan would be inclined to build up in a big way its contact centers and other backoffices here," he said, noting that the bank first outsourced customer support jobs to the Philippines in 2003, establishing a 900-seat contact center in Makati City. It recently opened a 1,400-seat contact center in Taguig City, he added.
After acquiring investment firm Bear Stearns in March, and WaMu last month, JP Morgan has emerged as the largest U.S. bank in terms of market capitalization, surpassing Bank of America and Citigroup.
Santiago, meanwhile, said he expects the American International Group (AIG) to sell its local outsourcing subsidiary, AIG Business Processing Services (AIG-BPSI).
AIG-BPSI provides backoffice operations and contact support services for AIG businesses worldwide.
According to the Business Processing Association of the Philippines, the local BPO industry is expected to employ 920,764 Filipinos and generate up to US$12.2 billion in annual revenues by 2010.
Melvin G. Calimag is a freelance IT writer based in the Philippines.