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Business outsourcing may not be the most glamorous
industry in the world, but it is one of the few bright lights amid
the doom and gloom of the global financial crisis.
The two countries that have
benefited the most from outsourcing, India and the Philippines,
expect to see some initial pain from the financial turmoil, but the
industry is confident it will ride out the storm.
In the Philippines, the business
process outsourcing (BPO) industry expects growth this year of
between 35 percent and 40 percent on revenues of around $7 billion.
“We are part of the solution,
not part of the problem,” Oscar Sanez, the chief executive of the
Business Processing Association of the Philippines said in a recent
interview.
The outsourcing sector expects
annual growth of around 40 percent with revenues hitting $12 billion
by 2010 and employing one million people compared with 300,000 this
year.
In India, where the industry
generates some $40 billion in annual export revenues, the story is
much the same although it admits that it could expect some initial
pain.
The sector traditionally views
bad times as offering opportunities, as Western companies cut costs
by moving work to cheaper destinations offshore.
India leads the world when it
comes to outsourcing with more than half the global business while
the Philippines is a distant second with around 10 percent.
Both countries place a great deal
of importance on the sector as its growth creates jobs and
much-needed revenue.
Opportunity in crisis
Rick Santos, the Philippine
country chairman for global property services company CB Richard
Ellis, told Agence France-Presse that the crisis would “actually
drive more BPO business to the Philippines.”
“You will see many more
companies having to go offshore just to survive,” he said.
Santos added that he expects
about 502,000 square meters of Philippine office space to be leased
this year, up 52 percent from 2007.
India and the Philippines are the
preferred destinations for European and American banks and IT
companies for outsourcing their back room and call center operations
because of the highly educated workforce and English speaking skills
in both countries.
Sanez said that despite the
financial turmoil, he was confident that the BPO industry in the
Philippines would continue to see growth.
“Judging from the investor
meetings we’ve been having recently, our clients will want to ramp
up their outsourcing activities in order to accelerate cost
savings,” he added.
“The Philippines is in a very
strategic position due to its strong and successful experience with
BPO particularly with large American and British multinationals
giving it a high level of credibility and trust especially in
critical times,” Sanez said.
Short-term distraction
He conceded, though, that in the
short term, there could be a “bit of distraction” because of
management and ownership realignments in the banking sector.
“But this should not affect
outsourcing operations as these are critical functions especially
those that connect with customers,” Sanez said.
Some 85 percent of the
outsourcing business in the Philippines are in banking and come
mainly from the US.
In India, the outsourcing
industry expects there will be a short- to medium-term impact on the
sector as much of its business is IT-related.
Some of the pain from the
bankruptcy of Wall Street giant Lehman Brothers, the sale of Merrill
Lynch and the US government’s bailout of insurance giant AIG—all
ravaged by credit woes—is already being felt, according to
industry sources.
But it is still very much a mixed
picture in India where companies are at best “cautious” on the
outlook for the sector and not peering too far into the future
because they say that all the dominoes have yet to fall.
The main industry body said it
would look at its sales forecast for this financial year to March
31, 2009, in December— and added that it may be revising
expectations downward.
But it is not looking any further
forward than the current year in number terms, it said.
Sales growth could fall below 20
percent this year from 28 percent last year while decisions on new
projects have come to a virtual halt, said Som Mittal, the head of
the National Association of Software and Services Companies (Nasscom).
“New projects are always the
first to feel the hit,” he added.
Mittal said sales growth has
slowed but added: “Companies are hiring from university campuses
for the next quarter,” although the frenetic pace has slowed.
“We’ve got to pay attention
to other parts of the world like Japan and the Middle East,” he
added. “There is no way we can rely so heavily on the US.”
Some 60 percent of India’s
outsourcing work comes from the US and 30 percent from Europe with
the rest of the world contributing just 10 percent.
But Indian firms doing legal
outsourcing work are experiencing a mini-boom as a result of the
financial turmoil with US bankruptcies, mergers and acquisitions
growing by the day and demand growing for help with litigation.
Legal work in India costs a tenth
of what US lawyers charge.
Sanez also believes there are
many industries outside the banking sector that can be tapped for
new business.
“Industries like construction,
food, retail and distribution, high tech, heavy industries and the
pharmaceutical sectors have yet to be tapped,” he said.
--AFP
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