By Gervy James Biagtan
Last year I discussed the growth of the business-process outsourcing (BPO) industry and the notion of the midnight sun that would never set. That sun is now facing some potential and imminent headwinds in the next nine months, within the next three to five years and within the next six to 12 years.
The Duterte and Trump effect
Much discussion has been made across both mainstream media and social media about the implications of the Duterte and the Trump administrations in the BPO industry. Since Donald J. Trump started campaigning for the presidency, his key economic themes already revolved around “Making America Great”—some of which can even be associated to autarky or self-reliance. He calls for big tax cuts, steady wages, repeal of Obamacare and massive tariffs on countries that are seen taking American jobs. Such steps have serious repercussions to “source” countries, like Mexico, China, India and the Philippines. Nearly 80 percent of the outsourced work in the Philippines comes from the North American market (77 percent), while the rest comes from European and Asia-Pacific regional markets. However, these expected policies of the Trump administration (from an outsourcing standpoint) may not hold. First, his policies are mainly directed toward the manufacturing industry specific to the businesses in Mexico and China, and not necessarily a crackdown on the BPO industry. Second, even if jobs come back to America, he cannot stop other Western countries from producing overseas.
As a result, not only would the other Western countries become more competitive versus their US counterparts, but also these “outsourced” products and services will still get exported to the US. The worst that could happen but is very unlikely is a tariff war between the US and its western allies. Third, implementing his “bring back jobs to America” can be complicated. Both Dan Reyes (country head of genpact Philippines and IBPAP chairman of the board of trustees) and Travis Coates (managing director of TelePhilippines) shared the same perspective: it’s not that easy just to migrate jobs back to America. With the robust infrastructure and skillset of running the contact centers in the Philippines, migrating back the jobs to America simply cannot be performed overnight. There will also be issues of being able to distinguish, which are outsourced jobs versus which jobs are the by-products of overseas growth of the business. With the attractive cost arbitrage of offshore outsourcing, US companies can be lured to look for loopholes and workarounds to outsource amidst the call for “bring back jobs to America”. Last, both Reyes and Coates asserted that we have to wait and see when Trump becomes president.
As for President Duterte, his statements against the West initially sounded worrisome to the BPO industry. As such, key leaders in the industry, like Tonichi Achurra-Parekh (vice president and head of operations-Startek Philippines), had to assure clients (both prospective and incumbent) that the President’s statement may not necessarily lead to a fallout between the country and its partners. Reyes and Coates also observed that there has been no significant policy shifts in international business relationships under the Duterte administration. Furthermore, in the President’s message to the outsourcing industry in November 2016 signified that the government is keen on helping bolster the Philippines’s competitiveness in BPO industry (10-point agenda). Hence, there is no immediate risk of weakening in the BPO industry.
Facing the next six years
Since the entry of the “BPO start-ups” nearly 20 years ago, the business environment has changed dramatically with the emergence of advances in technology, such as cloud computing, automation, online support and customer support via social media. In an article published by The Economist online (http://www.economist.com) in Febuary last year, it was mentioned that the contact-center jobs in the Philippines, including India, may be at the “end of the line” due to technological enhancements of an organization’s labor-saving or labor-substituting capital (e.g., interactive voice response). As such, labor-market forces will once again demand for a new kind of labor that will complement the state-of-the-art capital. Thus, the labor force in the contact center niche of the BPO industry will need to evolve toward producing services that are at the higher end of the “value-added” chain.
The government is aware of this. In Duterte’s message to the IT-BPM last year, he anticipates that within the next six years, nearly three-fourths of the labor force in the industry will be in the knowledge-process outsourcing (KPOs are jobs related to animation and design, R&D, financial market services and legal services). Once more, both India and the Philippines will compete for the “smarter” jobs that will be outsourced. This is because even Western countries lack the adequate manpower to handle knowledge-based processes. The question is—are we ready for this transition? Fortunately, the Information Technology and Business Process Association of the Philippines (IBPAP) has developed the Philippine IT-BPM Roadmap 2022. This requires an extensive effort for stronger partnerships between IBPAP other key stakeholders—from academe, to the infrastructure-building sectors—ensuring that the Philippines will remain the outsourcing destination of choice for the next six years.
Biagtan is a lecturer in Economics Department, Ateneo Center for Economic Research and Development, Ateneo de Manila University.
Despite fears of US developments that will adversely affect the BPO-Sector in Manila, there are still optimism surrounding the established BPO companies that are already operating in the Philippines. Australia too, is more likely to invest more offshore operations in the Philippines.