Outsourcing thriving in Philippines

There never used to be much to do after midnight in this northern Philippine university city except study or hit the lively bar scene.

But since Baguio got its first call centre, nightlife has taken on a new meaning for hundreds of graduates.

At 3 am, row upon row of them stare at monitors, speaking into headsets in the near flawless American accents that give the Philippines an edge in its battle with India for the fast-growing outsourcing market.

Faced with rising wages as the pool of qualified candidates in Manila and central Cebu empties, outsourcing firms are moving to parts of the country that are still rich in English-speaking graduates willing to work for 12,000 pesos ($302) a month.

In Baguio, 200km north of Manila, more than a third of the 300,000 population are students. So far there is only one call centre, run by ClientLogic, a unit of Canadian firm Onex.

"It's a gold mine," said Ramon Dimacali, head of industry group Outsource Philippines, who sees benefits beyond pay rates that are a third lower than Manila's for the same calibre of graduate.

"There's definitely higher loyalty, less attrition, less churn."

Industry studies have shown Philippine call centres have higher average staff tenure and better customer satisfaction ratings than India.

But there are signs the boom, a rare bright spot for the indebted economy in recent years, could soon start to run up against the shortcomings of an underfunded education system, poor infrastructure and a limited labour supply.

Bangalore alone churns out nearly as many graduates each year as the 400,000 produced by the whole Philippines, and Indian workers are renowned for their expertise in areas such as engineering, which opens the door to high-end outsourcing jobs.

When outsourcing firms such as Convergys, Nasdaq-listed PeopleSupport and Sykes Enterprises started expanding in Manila a few years back, they would hire more than 10 out of every 100 applicants.

Industry officials said that ratio had now fallen to as low as two out of 100.

"We're facing a hiring crunch," said Carol Dominguez, president of recruitment firm John Clements Consultants.

"You're losing more people than you can hire. Call centres have to figure out a retention strategy."

Outsourcing firms in India are facing the same problem, but Dominguez said India had done a better job of moving beyond call centres to higher-margin jobs such as animation, accounting, financial analysis and examination marking.

That could cost the Philippines in the years ahead.

"In a few years, they're going to develop technology that will take over some of that voice work," Dominguez said. "Then we're going to lose jobs here."

Competition is also heating up.

In 2001, there were only about six countries seen as serious competitors for the outsourcing dollar. Now there are about 30, including eastern Europe, China and South Africa.

London-based research firm Datamonitor said in February that the Philippines was a strong competitor to India for the nearly 250,000 new call centre jobs expected to be created in the two countries through 2009.

It says the Philippines now has about 60,000 outsourcing jobs, compared with 245,000 in India.

But Datamonitor analyst Peter Ryan said barriers to growth were also emerging.

"There is definitely the issue of good graduates outside of the major centres, a phenomenon that is being felt in many other offshore locations," Ryan said.

"There is also the worry of technology in outer locations not necessarily being at the level necessary to accommodate large-scale contact centre operations."

The southern Philippines city of Davao got its first call centre last October, and central Iloilo city has lured two to set up there, but most are in Manila and Cebu.

Dominguez, a former banker, said the Philippines had the potential to add US$1 billion ($1.36 billion) to its US$89 billion GDP by 2010 if it achieved its potential of creating 250,000 outsourcing jobs.

At its present rate, though, it was on course to fall short of that by about 100,000 jobs.

In Baguio, graduates now feel they have a realistic chance of staying in their home town instead of joining the exodus overseas to escape one of Asia's highest unemployment rates.

At ClientLogic, the competition with India and other firms is palpable as the company's 350 agents push on through the night.

Clients give their feedback on the agents' performance every day for comparison with rival call centres in India and elsewhere in the Philippines.

On one wall, individual agents' names are pinned on a map of the US, indicating southern states where they have achieved a perfect customer satisfaction rating.

The first agent to get a full house of states wins a Sony PlayStation 2.

"The opportunity for growth here is vast," said Michael Batac, a 23-year-old team leader and coach at ClientLogic.

"Now I have this position, I'm thinking of staying here in the Philippines. If I can make it here, why do I need to go abroad?"

- REUTERS