Economic downturn backs Philippine BPO

PHILIPPINES--Despite the current gloomy economic outlook, the Philippines may still reach its 2008 growth targets for the local business process outsourcing (BPO) market, according to a research firm.

Canada-based XMG said the prevailing economic slowdown may even favor the Philippines' outsourcing industry as more companies that outsource, now look at cheaper ways to operate.
 
"Due to recent U.S. economic slowdown and poor global outlook, contract for offshore countries such as the Philippines will grow by an additional 7 percent to 12 percent as top multinational companies cut cost and transfer [processes] to cost-effective sites or outsource some of their needs," said Benedict Ferrer, research manger and senior analyst at XMG.

In an e-mail interview Monday, he said: "For this year, the country is on track to meet its revenue targets.
"In terms of revenue, our conservative contract outlook for the Philippines will be an estimated US$4.8 billion to US$5.1 billion by the end of 2008."

However, Ferrer cautioned that "the biggest potential pitfall" would be the lack of suitable candidates required to meet the surge in demand for relevant skills.

The analyst added that the Philippine BPO industry is experiencing difficulty in hiring and retaining highly skilled talents "due to poaching" from other companies, and the flux of workers migrating overseas.
"For the time being, the impact is relatively manageable but this could derail the industry by 2010 if not addressed properly," he said.
 
Ferrer, however, said significant BPO deals such as the agreement inked between IBM Philippines and Bristol-Myers Squibb, will continue to help spur the local BPO industry. IBM Philippines earlier this month unveiled it signed a 10-year outsourcing deal worth US$324 million (14.4 billion pesos) with the U.S.-based pharmaceutical giant.
 
In a press statement, the IT vendor said the deal aims to help Bristol-Myers Squibb "transform and support many of the company's global human resource (HR) functions".
In addition, IBM will implement an SAP application and integrate Bristol-Myers Squibb's global workforce data into one portal, which can be accessed by employees, managers and HR professionals based around the globe.

The services will support Bristol-Myers Squibb's operations in the United States, Puerto Rico, United Kingdom, Ireland, France, Germany, Italy, Spain and Belgium, as well as limited support to 40 of its other country locations in the Asia-Pacific, Europe and the Americas.

Ferrer said: "The entrance of BPO companies here in the Philippines will heavily contribute to [lowering] unemployment, and generate additional sources of revenue to various industries due to increase of disposable income."

Source: ZDNet Asia

Outsourcing: Not just about cutting costs?

Instead the key is to treat outsourcers as an arm of the business, with customers expecting suppliers to have intimate knowledge of their workings and to get access to top-flight skills across the globe from their suppliers.

In return, providers are given greater freedom to innovate in service delivery and even business strategy, with more emphasis on rewards rather than punishment to drive them forward.

Speakers at the Financial Times Global Outsourcing and Offshoring Conference agreed that companies making a success of outsourcing no longer see low-cost labour as their main motivation.

Kevin Campbell, chief executive of outsourcing at Accenture said: "Cost reduction and labour arbitrage has been a huge driver in outsourcing but high performance companies realize that it is not about what you can subtract from your business but what you can add to it."

"They are looking for growth opportunities that come from having access to critical skills and a highly motivated workforce. It is the ability to put together different components of a company's operating model both onshore and offshore."

Campbell said that despite a trend to spread risk and expertise between many different providers that large companies were trying to simplify the complexities of multi-sourcing contracts.

He said that large companies dealing with about 40 different providers were approaching Accenture to consolidate these deals with fewer suppliers, a process called "bundling".

And Peter Brudenall, partner at the global outsourcing division of law firm Hunton and Williams, said: "The difference with outsourcing now is that companies now want to see providers coming up with more innovation, they want to see a transformation of what is being outsourced."

 
Source: ZDNet Asia



Outsourcing Will Flourish During Recession


As the economy worsens, the prospects for outsourcing and offshoring improve. Throughout 2008, the key word for the economy was "uncertainty." While facing uncertainty, CIOs avoided significant changes to internal organizations or operations, including evaluating or implementing outsourcing. Most outsourcing initiatives are driven by a strong need for change and "economic uncertainty" hindered that need.

Now that the economy is officially in a recession and the 2009 outlook is dire, two changes are taking place. First, CIOs are making cuts to projects and programs, including those staffed by outsourcing firms. Second, beginning in 2009, IT organizations will pursue outsourcing as a method to reduce costs.

Cost Cutting
As CIOs mandate immediate program cuts, some will inevitably impact existing outsourcing agreements. The software development services market, including globalization, will feel the majority of the impact as discretionary projects are cut. At the same time, customers with infrastructure contracts indicate that they are already increasing pressure on existing providers. For companies that have outsourced a majority of their infrastructure, the outsourcing provider is one of the few place to look for potential cost reductions. Financial analysts will continue the "doomsday" forecast for outsourcing providers as they see reductions to current contracts as a foreboding omen to industry growth.

Near term, clients and providers alike are agreeing to reduce prices, resulting in short-term price deflation. Large clients are under pressure to reduce costs; large vendors are under pressure to sign contracts. Even the largest offshore providers are reportedly agreeing to lower prices with select clients.

Increased Outsourcing
Evaluating outsourcing requires 3 to 9 months for an IT organization. The company begins to consider outsourcing as an option, determine services to outsource, and finally evaluate providers. Given the length of this process, changes will not appear in provider financials before March 2009, even for clients that are already beginning to consider new outsourcing initiatives.

Moreover, cost savings from outsourcing are not immediate. While simple contracts such as staff augmentation can realize savings within a few weeks, financial benefits from complex projects can take six months or more. CIOs embarking on outsourcing evaluations are cognizant of the time required for financial returns and usually align projects with internal budget cycles, meaning that CIOs will begin in early 2009 and expect to show results during the same calendar year.

Market changes will appear to reduce outsourcing, but within 3 to 4 months, outsourcing providers will report an increase in sales channel activity and resume announcing new contracts. Globalization companies will benefit the most, but the impact will include all outsourcing services and hybrid solutions such as Software as a Service (SaaS) as well. As the market recovers, service providers will return to their core business of delivering services and reducing costs mandated by CIOs.

Dean Davison is a leading authority on the subjects of outsourcing and globalization. He has published hundreds of articles and facilitated coaching sessions with CIOs on six continents in regards to outsourcing and globalization. He began his outsourcing work at META Group and had also worked at firms such as EDS, neoIT, and now Collabera, a $300M, privately-held globalization provider headquartered in Morristown, NJ.

Source: PC World