Mapping Offshore Markets Update 2005
By neoIT

(Excerpt)
The neoIT Offshore Attractiveness Index ranks offshore destinations according to financial benefit (labor cost and cost advantage), service maturity (competency of suppliers, industry size & growth, security/IP protection), people (labor pool & skill level, language proficiency, HR, educational system), infrastructure (ICT & physical infrastructure), and catalyst (government support, geopolitical environment, physical & time zone displacement, cultural compatibility).

Based on the study, the Philippines is ranked as a highly attractive destination in the BPO market, scoring high in the financial benefit and catalyst factors. Also, the country’s colonial past and strong cultural ties with the US foster a high rate of English proficiency and enable suppliers to better understand Western business processes – thereby becoming more effective service providers. Thus, there is high growth potential in the country’s leveraging its existing relationships with BPO players to get IT outsourcing deals as well as in penetrating English-speaking markets other than the US.

Majority of the suppliers in the Philippines are strong in ITO domains (CAD, application management and support); technology domains (multimedia and animation, web-based applications); and BPO functions (F&A, content management, sales/customer care, transaction processing, HR, transcription, and technical support).

Attracting more offshoring to the Philippines
Christopher P. Beshouri, Diana Farrell, and Fusayo Umezawa
Also available at www.mckinseyquarterly.com

(Excerpt)
The Philippines is emerging as an important supplier of labor to the global offshoring market. In 2003, the country supplied $1.7 billion worth of offshore services to the world economy; today around 100,000 people are employed in call centers. Low costs are one reason for the country’s emergence as an offshoring location.

Studies point to the Philippines as the country with the second-lowest hourly wage for offshoring professionals, at 13 percent of the Western level.

The Philippines also has a larger pool of workers suitable for multinational companies than its relatively small population of 88 million would suggest. For every 100 college graduates with finance and economics degrees from the countries studied, executives from multinationals said they will hire 30 in the Philippines, compared with just 15 in India. The corresponding figures for generalists and life science researchers, respectively were 25 versus 10 and 20 versus 15. The Philippines even compares favorably on the suitability of its engineering graduates for employment with multinationals. Moreover, a higher percentage of the Philippines’ population than of India has earned a college degree. The Philippines has a large diaspora that could be a potential source of managers.

Cost-conscious companies may well regard the Philippines as an attractive offshoring location now. As its public-private sector leaders address the remaining barriers, the Philippines will become even more eye-catching.

Services Offshoring
Study of offshoring in the financial industry by Deloitte Touche Tohmatsu

(Excerpt)
Trends in financial services point to the ability of financial services companies in scaling its actual operations, and offshoring multiple functions, with a shift toward captive operations and captive/outsourced hybrids. The industry as a whole can treble cost-savings from its offshore operations.

Two key tactics are being deployed by financial institutions to improve their efficiency 1) re-engineering onshore business processes; and 2) moving parts of the business to lower-cost locations offshore.

The opening up of Asian markets is more likely to fuel the trend in offshoring. Offshore operations give financial services companies a foothold in new and emerging markets where revenue opportunities maybe more lucrative than mature markets in their home base.
The offshore boom and search for suitable countries has led to expansion in the Philippines. The Philippines is the third largest English-speaking nation in the world (after the US and the UK). Filipino IT professionals are highly trainable with a typical learning curve of 6 to 8 weeks. The Philippines also has the largest pool of high quality accountants in Asia. During the first quarter of 2005, there were about 113,300 licensed accountants in the country, recognized as “among the best in the world.” Schools in the Philippines produce more than 100, 000 graduates in finance, accounting, and management every year, and that number is rising.

Shared Services and Outsourcing
A Frost and Sullivan Study

(Excerpt)
In the past decade, there has been a phenomenal growth in the business transformation and re-engineering activities. In order to alleviate the pressure from falling marging and fend off intense competition as a consequence of globalization. Shared Services and Outsourcing (SSO) was embraced dramatically, albeit amidst much controversy, as one of the solutions to transform organizations’ costs and revenue structures.

In 2004, the SSO market as a whole was estimated to be worth $647 billion. Though SSO offshoring currently accounts for merely 6.01 percent of the total SSO market, it is expected to generate impressive growth between 20 to 30 percent within the next three to four years. The offshore SSO, which currently accounts for the bulk of SSO activities, will also increase in parallel with the overall industry growth and moderated by macroeconomic fundamentals estmated at 12.34 percent CAGR (2004-2007).

While the primary driving factor for SSO adoption has always been cost benefits, Global Fortune 500 companies are also using SSO as a catalyst for unprecedented business transformation. It manifests globalization and borderless collaboration in a scale that have not been witnessed in history before. To stay focused and competitive in their own industries, global companies are maturing fast in their SSO operations. They are increasingly emphasizing the need to integrate front, middle, and back-end operations virtually and seamlessly. Although the most popular business process for SSO is IT Services & Support followed by Back Office Processing, Human Resource and Customer Service and Call Center, more emphasis is placed on locating the SSO ‘Center for Excellence’ in specific industries or verticals.

There are several models of SSO that are adopted currently: (1) Integrate Domestic Capability-SSO is located onshore and services are provided by controlled units, either fully or partially owned; (2) Source Domestic Capability-SSO is located onshore and services are provided by external service providers; (3) Integrate Foreign Capability-SSO is located offshore and services are provided by controlled units, either fully or partially owned; and (4) Source Foreign Capability-SSO is located offshore and services are provided by external service providers.

The more likely trend in the next few years are:
1. More SSO activities across industries with Asia Pacific and Eastern Europe are expected to become the main beneficiaries of offshoring
2. Increasing maturity of the SSO operating model that has a constant need for continuous improvement and higher requirements for responsiveness & integration between client and service provider
3. Convergence in SSO needs from functional to vertical or industry focus

Global firms will outsource to “best of breed” centers of excellence

Outsourcing is the new competitive dynamic. Global companies who want to boost their competitiveness resort to outsourcing to improve their cost position and create jobs.

Avinash Vashistha, co-founder of NeoIT and author of the book “Offshore Nation” that specifically addresses outsourcing trends speak about outsourcing in the future and what it takes for the Philippines to become an e-services hub in the region.

Outsourcing in the future
“Outsourcing will become one of the key component of corporate strategy and will receive C-Level and board attention. It will be strategic and a must to maintain competitiveness.”

According to Vashistha, “New supplier geographies will emerge with unique service offering. Countries will develop centers of excellence to address niches. Clients will outsource to “Best of Breed” centers of excellence and new types of business and organization models will come into play.”

He said the Philippines could be the “Best of Breed” in animation and call centers; Russia in R&D and encryption technology, and China in embedded systems and telecommunications support and management.

Vashistha has over two decades of experience in global services delivery in a variety of vertical industries including telecom, healthcare and financial services among others. As Managing Partner of Global Advisory Services, he led neoIT’s consultants in sourcing over $1 billion in IT and BPO contracts in 2003. As a co-founder, Avinash has helped develop and nurture neoIT’s mission to improve the way global services are organized, outsourced, transitioned and delivered.

“BPO work will be offshored predominantly in captive, BOT or joint equity model with transactional BPO being directed to third parties.”

The Philippine Advantage
The Philippines, according to Vashistha, is positioned well as a center of excellence to set up shared services centers and is better positioned to niche in services like voice-based BPO and animation.

“I would like to meet suppliers from the Philippines to understand their service delivery capabilities and how they are planning to difference themselves and work towards being the Best of Breed. The Philippines is a great destination with exceptional clients and investors,” observes Vashistha.

There are more than 60 BPO operators in the country, the big ones are mostly third party contractors serving global accounts. The BPO-back office sector currently employs more than 20, 000 employees while the entire IT and IT-enabled services sectors employ around 150, 000 knowledge workers.

Through his experience with Global 2000 clients in the USA, Canada, UK, Europe, Australia and Asia, Vashistha has developed exceptional expertise in creating and executing offshore IT and BPO strategies. He has evaluated and conducted due diligence on hundreds of supplier firms including companies in Russia, China, the Philippines, Eastern Europe, UK, Ireland and Vietnam. He has directed sourcing assessments, IT and BPO sourcing transactions, and executed program governance models. His opinions are sought and recognized by worldwide organizations as Nasscom, Marcus Evans, CNN, CNBC and TMG.

“Many Canadian firms like Toonz are planning to leverage Philippines for animation. The Philippines is already recognized as having the skill set and the drive to emerge as a COE for animation. Gaming and entertainment companies should be targeted by the Philippines to develop this niche.”

Opportunities in Outsourcing
According to Vashistha, the future belongs to “Best of Breed” players and services. Being a generalist is at best a short-term approach. The future needs leading niche players to lead the global sourcing to COEs.

“Companies should try and build long-term relationship with their clients, which requires significant marketing investment. Scalability is important and vendors need to be able to grow with clients. Do not try to be all things to all clients – focus on the niche expertise and COEs.”

Over time, supplier countries will become experts in certain types of services e.g. Russia in product development; Philippines in voice-based first level support; India in application maintenance. Vashistha emphasized, corporations will take shared services and critical business functions to global centers of excellence. The model of the future is more outsourcing rather than less.”

Govt readies trade show to support IT/BPO firms

The Department of Trade and Industry is providing a range of support to Philippine technology companies through e-Services Philippines to be held on 15-16 February 2007, the country’s most comprehensive ICT event attracting an audience all over the Philippines and the world.

e-Services Philippines will highlight this year conference tracks on all e-services sectors in the Philippines, namely animation, business process outsourcing, contact centers, medical transcription, and design and engineering. The event will also have a high-level CEO forum on the following key topics: Southeast Asia as outsourcing location of choice for global companies; Urban myths in outsourcing; Privacy and Security Issues; Keys to successful outsourcing; Knowledge Process Outsourcing and Labor arbitrage in Asia.

“e-Services Philippines is the biggest Philippine IT event and the government wants to maxmize the opportunity by facilitating the visit to Manila of international buyers and introducing them to Philippine ICT companies interested in doing business in their markets,” said Trade and Industry Secretary Peter Favila. “The event provides an excellent forum for international business matching.”

In a bid to attract overseas attendance to e-Services Philippines 2007 and at the same time invite potential locators to the Philippines, the Department of Trade and Industry, Center for International Trade Expositions and Missions (CITEM), and the Board of Investments (BOI) are embarking on trade missions to the United States and Europe this September.

“Basically, we want to strengthen our links with our counterpart trade associations in the United States and Europe and of course invite them to partner with Philippine IT/BPO companies,” added Favila.

The trade mission to Europe is scheduled on 13-20 September while the mission to the United States will be on 25 September-6 October.

This year, e-Services Philippines generated 20.7 million dollars and attracted 1,678 local and foreign visitors, including foreign trade delegations from Japan, Sweden, and the United States as well as members of C-Level Organization.

The central focus of e-Services Philippines is the networking meetings where international visitor, industry associations and Philippine IT/BPO companies networked and talked business. The United Kingdom’s National Outsourcing Association (NOA), ICT Office Netherlands and the National Association of Software Service Companies (NASSCOM) attended e-Services Philippines 2006.

The Philippines is presently a leading destination of critical offshore work. It has 405, 000 college graduates every year who are highly skilled and English-proficient. The Swiss International Institute for Management Development rates the Philippines among the 60 countries in the Asia Pacific as #1 in available skilled workers, #3 in available senior managers, #10 in available accounting and financial skills, and #12 in qualified engineers. Some of the recent global companies who located their offshore work to the Philippines are Dell and Logica.

For several decades, the Philippines has been Southeast Asia’s hub for shared services and outsourcing not just in IT services & support, back office processing, human resource, customer service and call centers, but moreso in specific industries or verticals like healthcare, energy, and finance industries.

World leaders in business consulting like PriceWaterhouse Coopers, KPMG Consultancy, Deloitte Touche, Tohmatsu, and Ernst and Young are also represented in the Philippines.

Overall, global research and consulting firm Meta Group ranks the Philippines as number four worldwide in terms of availability of knowledge workers. The country is also thr third largest English-speaking nation in the world outside the United States and the United Kingdom. Filipinos are also highly trainable and technically capable within 6 to 8 weeks. They are also ranked with the second-lowest hourly wage for offshoring professionals, at 13 percent of the US level. Recent studies point to the Philippines as a favorable source of engineering graduates qualified to work with multinationals. Leading global brands such as Caltex, Procter & Gamble and AIG are among the firms that have located their backroom operations for shared financial services here.

The Philippines: The New Outsourcing Hot Spot

Economists and analysts are startled by the Philippines’ runaway growth in the sector. “The pace of development of the BPO sector in the Philippines has been impressive,” says a recent report by the US investment bank Goldman Sachs. “Three years ago there was a question mark whether Philippines could develop some [outsourcing] momentum. Now, it’s a $3 billion industry.”

Golden Opportunity
“Some of the countries like Philippines and Malaysia have done fairly well to leverage their unique skills and carved niches for themselves,” said Infosys Chief Executive Officer Nandan M. Nilekani, in Singapore recently attending an International Monetary Fund and World Bank meeting.

The Philippines’ vast archipelago is starting to gain some traction on the outsourcing front. Chennai, India-based OfficeTiger now has over a hundred people working in Manila on legal outsourcing for clients such as Dupont and expects to have nearly 1,500 by the end of 2007.

The Philippines raked in offshore service generating revenues of $2.1 billion last year, placing third behind India and China and slightly ahead of Malaysia. That’s up to 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 a mere $24 million.

Language Advantage
The outsourcing sector currently employs over 200,000 people. The Business Processing Association of the Philippines estimates the industry will chalk up 57 percent growth this year with total revenues of $3.3 billion, and is on track to deliver nearly 48 percent growth in 2007 to $4.9 billion. Business process outsourcing (BPO) is one of the fastest growing segments of our economy and a key plank of the government’s strategy to put strong growth drivers in place.

Consultancy A.T. Kearney, in its recent ranking of the most desirable global services locations which are competitive for business process outsourcing, ranked the Philippines fourth in the world behind India, China, and Malaysia – a huge change from being outside the top 10 three years ago. Philippines gets high marks for its large, educated talent pool and English language skills.

Economists and analysts are startled by the Philippines’ runaway growth in the sector. “The pace of development of the BPO sector in the Philippines has been impressive,” says a recent report by US investment bank Goldman Sachs. “Three years ago there was a question mark whether the Philippines could develop some [outsourcing] momentum. Now, it’s a 3 billion industry.”

White Collar Force
Goldman’s report also notes the outsourcing industry has begun to expand beyond the capital Manila into university towns such as Baguio, as well as Clark (the former US military base), Cebu, Dumaguete, and Davao. “It is clear that Philippines is now very much on the global map for outsourcing,” the Goldman report said.

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.

“Philippines as a country offers us a unique talent pool for outsourcing services in legal as well as design services,” says Joseph Sigelman, co-president of India-based OfficeTiger, which was acquired by US printing services giant R.R. Donnelley in April. The company chose the Philippines as the springboard for its legal services outsourcing and expects to make Manila the main center for “pre-media” outsourcing work, including desktop publishing, composition, typesetting, and graphic design.

Familiar with US
Legal services were a natural extension of the outsourcing work the firm has been doing from its base in Chennai for years. “As an ex-American colony, there is cultural affinity and the legal system is based on US law,” says Sigelman, a native of New York. “In Manila, every lawyer seems to know what Roe vs Wade was about. In Chennai, they may have some of the finest legal brains in the world but not everyone has heard about Roe vs Wade or other key cases in US Supreme Court.” Most Filipino lawyers sit for US bar exams and that gives Manila a leg up over India, China, or Malaysia.

Design work is another place where Filipinos have an edge, according to Sigelman. He says he has found incredible depth of design talent in Manila; the kind of talent that is hard to come by in Bangalore, Hyderabad, or Chennai.

Talent Poaching
Another factor working in the Philippines’ favor is cost. In India, wage costs in outsourcing have risen 15 percent per annum over the past two years. This rise has outsourcing firms and clients looking for alternatives..

Already, heavy demand for office space, despite a boom in construction of new buildings, is causing upward pressure on rents. There are signs of a tight labor market too. New companies are offering “joining bonuses” to the most talented the day they sign up for the job. Many employees are given bonuses for finding new recruits. “It’s inevitable that costs will rise but the Philippines is still a very competitive place for the sort of work we are doing,” says Sigelman.

Money for Training
The government is focused on developing human capital through education and training to keep a steady supply of talent for the outsourcing sector. Manila is also beefing up the telecommunications infrastructure, he says.

Chasing the outsourcing wave is a smart strategy for an economy such as the Philippines. Compared with capital-intensive manufacturing, service businesses are cheap to set up and can generate a hundred times more jobs per dollar invested. President Gloria Macapagal-Arroyo recently earmarked $10 million for new trainees in the outsourcing industry. Students interested in outsourcing jobs are given vouchers that can be used for tuition at vocational institutes.
Unless cost esacalation gets out of hand or other infrastructure bottlenecks appear, the Business Processing Association of the Philippines projects that outsourcing in the Philippines could be an $11 billion industry employing 900,000 people by the end of 2010. That will put it close to where India is today.


Source:
By Assif Shameen
Business Week Online

Philippines explores business opportunities in the US

The Philippine trade delegation to the United States met with key business groups in New York, Florida, Chicago, and Denver in a bid to promote the Philippine capabilities in the United States market.

The trade delegation were joined by eleven companies who represented the Philippine advantage in shared services and business processing work.

“We wanted to see the opportunities available for Philippine companies in areas like IT products, information services, software development, and telecommunications to name a few,” reported Trade Assistant Secretary Fe Agoncillo-Reyes, executive director of the Center for International Trade Expositions and Missions (CITEM), the export promotion arm of the Philippine Department of Trade and Industry (DTI).

The Philippines, according to Agoncillo-Reyes, can also be an investment gateway for American companies looking into expanding their business in Asia.

The United States remains the Philippines’ primary source market for outsourced business processes and contact center services.

“We would like to help our small enterprises in the BPO space who want to collaborate with international partners through this trade and investment mission. These local enterprises are going to be crucial players in the knowledge-based economy and the US mission can become a strong bridge for partnerships and investments,” added Agoncillo-Reyes. “Also, we hope to invite delegations from the United States to attend e-Services Philippines, the government’s flagship show for our players in the IT and ITES industries.”

“If we are to leverage on our unique attachment to the US model, there are vast opportunities present for customer contact center, business back office, human resources work, content management and development, arts and engineering, procurement, software and medical transcription,” said Agoncillo-Reyes. “The challenge is to position the Philippines as a preferred sourcing destination of choice for US companies.”

In addition, other niche areas that the Philippines wants to explore in the United States are food, natural products, construction materials, and design-driven products. Early this year, the Philippines’ raw materials such as abaca, bamboo, capiz to name a few were developed into new applications by Filipino and international designers at Material Connexion New York. The Philippine participation highlighted the country’s rich resources that have tremendous potential for new, innovative designs. Also, the Philippine herbal and organic products exhibited at the Natural Products Expo West in California this year generated USD11 million, proof of the country’s potential as a source of health and wellness products and services.