It’s already 9 p.m. but the day has just started for a group of call center employees in an outsourcing firm in Quezon City. They will be wearing headsets and talking to customers calling from the other side of the world, particularly the United States and the United Kingdom, until 6 a.m. Every two hours, they will be given 30-minute breaks, which most of them spend by smoking outside their office buildings.

More than five years ago, one could see this familiar scene only in the business districts of Makati and Ortigas, where most business outsourcing (BPO) firms are located. Now, the scene is replicated all throughout the archipelago—from Baguio to Bacolod and from Dumaguete to Davao.

Driven by shrinking talent pool, wage inflation and increasing rental rates, BPO companies in the Philippines have been expanding and locating in the provinces, outside established outsourcing hubs, for the past few years.

“We are avoiding another Bangalore in the making,” said Teletech senior vice president Maulik Parekh in a local governance conference on October attended by representatives from local government units (LGUs) interested in attracting investments from the BPO industry. Parekh was explaining why some BPO firms are establishing their presence outside Metro Manila and he was referring to the case of India’s outsourcing hub where concentration of BPO firms in one location resulted in high labor and rental rates.

Dubbed as one of the sunshine industries of the Philippines, the BPO sector employs around 300,000 workers and generated US$4.9 billion in 2007. For the past three years, the industry revenues have grown by an average of 50 percent.

Manila-centric

Around 80 percent of BPO workers, however, are employed by outsourcing firms based in Metro Manila. In contrast, data from the Commission on Higher Education (CHED) showed that 74 percent of around 400,000 graduates every year are from outside Metro Manila.

The expansion of the industry has driven the growth of some sectors, particularly real estate. Rick Santos, chair of the commercial real estate service firm CB Richard Ellis (CBRE) Philippines, told reporters last October that offshoring and outsourcing will continue to drive the demand in most real estate segments, particularly office.

The concentration of BPO firms in outsourcing hubs like Makati, however, has resulted in the rapid increase of office space rents and has prompted some companies to look for sites in the provinces where a there is huge potential talent pool and where rents are lower.

Promises of the provinces

“BPO companies that have been in the country for three to four years are looking at the provinces to leverage the large labor pools in these areas and to leverage the benefits of lower rates for office space and operating costs,” said Joey Radovan, vice chair and head of global corporate services in the Philippines of CBRE in a forum in Singapore last September.

David Leechiu, country head of global property consulting firm Jones Lang La Salle Leechiu told abs-cbnNews.com/Newsbreak that while BPO firms in Manila pay their employee a monthly salary of around P20, 000, their counterparts in the provinces only give monthly salary that ranges from P8, 000-P12, and 000. The rent per square meter of office space per month in Makati may reach P900 while the price in the provinces can go as low as P250 per square meter per month.

Jojo Uligan, executive director of the Contact Center Association of the Philippines (CCAP), said that apart from the low wage and rental rates offered by the provinces, call centers want to have branches in other sites to increase their redundancy.

“We do not want to put all the eggs in one basket,” Uligan told abs-cbnNews.com/Newsbreak adding that having operations in different locations allow continuous operations even if one site is affected by weather disturbances or political unrest.

With these growing trends among BPO companies to go to other parts of the country, local officials have been riding the bandwagon and become keen on attracting investments to their cities and provinces. Even the governor of Batanes—the archipelagic and northernmost province that is often battered by typhoons—has expressed his dream of attracting BPO investments in his province.

No one can blame these local officials for their desire for investments in the BPO industry. The entry of BPO firms in some localities has made local economies more dynamic because it has benefited other businesses like restaurants and recreation centers and generated indirect employment. Commissioner Monchito Ibrahim of the Commission on Information Technology (CICT) said that for every one employment in the BPO sector, three indirect jobs are created.

The Department of Trade and Industry (DTI), CICT)and the Business Process Association of the Philippines (BPAP)—an umbrella organization of BPO firms—recently came up with a scorecard showing the next-wave of cities suitable for the BPO investments.

Clusters of LGUs in Laguna and Cavite, Iloilo, Davao, Bacolod are among the locations that topped the list. Also included are Angeles-Clark-Mabalacat cluster in Central Luzon, Baliuag-Marilao-Meycauayan cluster in Bulacan, Cagayan de Oro, Malolos-Calumpit in Bulacan and Lipa City in Batangas.

The scorecard ranked the cities using three criteria: availability of talent (50%), infrastructure (30%), cost (5%) and business environment (15%).

Role of the LGUs

While the scorecard puts too much emphasis on the supply of talent, industry experts interviewed by abs-cbnNews.com/Newsbreak said that the role of the LGUs is very crucial in attracting investors from the industry.

Businessmen have to deal with the local governments from the moment they start their business until they close it. The local governments also craft and implement policies that have impact on business operations--like imposition of corporate taxes--and spend for basic infrastructure projects like road and bridge networks.

Gigi Virata, executive director for information and research of BPAP, said that apart from these functions, the LGUs can make their location attractive to investments because they have the authority to endorse the accreditation of the Philippine Economic Zone Authority (PEZA) sites and the granting of both fiscal and non-fiscal incentives to the companies.

The creation of PEZA sites is usually endorsed by the local councils. Companies that locate their businesses in these sites can avail themselves of incentives like income tax holidays, exemption from taxes and duties from imported spare parts and export taxes.
However, Virata said endorsement from the LGUs sometimes takes a long time.

“There are a lot of people that you need to get support from,” Virata told abs-cbnNews.com/Newsbreak.

Leechiu, meanwhile, said that some businesses are having problems with LGUs that set conditions before they endorsed the accreditation of PEZA sites. “Some LGUs compel the companies to hire a certain number of employees from their localities even if they are not qualified.”

“LGUs should help the tenant develop the talent and not force them to hire even if they are not qualified,” Leechiu told abs-cbnNews.com/Newsbreak adding that LGUs should have a pro-active positive role to match the talent pool with the needs of the industry.

ICT councils

The creation of local information and communication technology (ICT) councils, experts said, also can also make a location attractive to BPO investors. Virata said that ICT councils make it easier for investors to deal with the local governments.

An ICT council is composed of representatives from both the private and public sector. The members of the council may vary from one LGU to another but most of them include representatives from the local governments, academe, telecommunication companies, real estate developers, local chambers of commerce, and heads of the local offices of DTI.

Other ICT councils, like the one in Bacolod, include representatives from the local tourism office, Department of Labor and Employment, and the city’s planning and licensing divisions.

“It provides a single point of contact,” Virata told us. “It is very helpful especially if they can convene the council in one meeting instead of making appointments with each member.”

Ibrahim said that ICT councils allow local officials to understand the BPO industry through their interaction with representatives from different sectors. “

“LGU officials do not really understand what is happening [to the BPO industry],” Ibrahim told abs-cbnNews.com/Newsbreak. “It [ICT council] helps the cities and the provinces to understand what it takes for them to become BPO-ready.”

Don’t forget the basics

LGUs, however, should not forget the basic needs of the BPO industry like available talent supply and infrastructure. Ibrahim said that LGUs can help improve the talent pool by providing scholarships to programs to students and trainings to address the job-skills mismatch.

Leechiu said some BPO companies are hesitant in locating in the provinces because they want to make sure first that they have the needed infrastructure and a conducive business environment.

“In many provinces, workers have difficulty of access to the office because of the quality of roads,” Leechiu said in a forum last month adding that there is a need for secured transport services, housing facilities, and good support infrastructure that will minimize the firm’s vulnerability to damage.

Trent Frankum, general manager of CB Richard Ellis Philippines, told reporters last October that to boost lasting growth in the BPO industry and the property sector, the government should spend more on major road projects and airport facilities.

‘Livable community’

Security has also become a major concern among BPO players, especially after reported incidents of call center employees who fell prey to hold uppers while they were traveling to and from the offices. CCAP’s Uligan said that police visibility is important particularly on areas where most call centers and other BPO firms are located.

Ibrahim said that it is important for aspiring BPO locations to build a “livable community” not only for the employees but also for the expatriates. “The expatriates usually bring their families with them.”

Potential BPO locations, said Virata, should also provide recreational facilities for the employees. “BPO employees are very young and they look for amenities, places to eat, things to do and retail stores that are open when they are working.”

Reforms in the LGUs

Industry experts also said some reforms in the processes at the local level needs to be reformed. Ibrahim said that is important that LGUs have a clear development plan before it decide to attract investments.

“City planning is important,” Ibrahim said. “You cannot just build an office building anywhere.”

Ibrahim also added that local governments should make the process of doing business with them easier by reducing red tape—the unnecessary delays in transactions with the government.

The Philippines ranked 140th out of 181 economies in the World Bank-International Finance Corp. (WB-IFC) Doing Business 2009 report, which studied the ease of doing business among countries and compares the regulations that enhance or constrain business activity.

Furthermore, “They should clean up and streamline e-governance process,” Ibrahim said that they should also remove corruption because it will give negative image and may scare away potential investors from the BPO industry in the future. (abs-cbnNEWS.com/Newsbreak)

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