Editor's note: This is the eighth in our series of year beginners.

After posting a robust growth in recent years, the business process outsourcing (BPO), industry, experts say, is expected to grow at a slower pace in 2009 as the country starts to feel the effects of the global financial crisis.

Industry experts said that although the industry will continue to grow in 2009, the global economic slowdown affecting major economies—particularly the United States—will dampen the industry’s growth and delay its expansion.

Oscar Sanez, chief executive officer of the Business Process Association of the Philippines (BPAP), said the financial crisis has forced companies to re-structure and review their plans.

 “There will be a distraction because of the restructuring of some companies,” Sanez told abs-cbnNEWS.com. “A review of their structure can cause delay in expansion plans.”

Sanez expects the industry will grow between 20-30 percent in 2009, down from the expected 2008 growth of about 30 percent.

“The slower growth is also caused by a bigger base in the previous year,” Sanez added.

Considered as one of the sunshine industries, the BPO industry has grown by an average of 50 percent for the past three years. In 2007, it generated US$4.9 billion revenues and employed around 300,000 workers.

Signs of slowdown showing

As early as this year, signs of a slowdown in growth of the industry are already felt by sectors of the industry like the animation and transcription sector.

Myla Reyes, managing director of the Medical Transcription Industry Association of the Philippines Inc (MTIAPI), said that most of the small players in the industry acknowledged that their operations have slowed down as a result of the recession in the United States.

Grace Dimaranan, president of the Animation Council of the Philippines, said the recession has forced some of their clients to put on hold their projects and to even reduce the number of episodes.

Even the biggest sector in the industry—the contact centers—is expected to experience slower growth. Benedict Hernandez, president of the Contact Center Association of the Philippines, told abs-cbnNEWS.com/Newsbreak in a previous interview that the growth in this sector will only reach 23 percent for 2008. The figure is lower compared to the sector’s average annual growth for the past three years of 52 percent.

“The question is how fast we will grow and not whether we will grow or not,” Sanez told abs-cbnNEWS.com/Newsbreak.

‘Strong 2008’

Monchito Ibrahim, commissioner of the Commission on Information and Communication Technology (CICT) told abs-cbnNEWS.com/Newsbreak that the industry has almost reached its revenue target of US$7 billion as of November this year.

Sanez added that 2008 was “a very strong year” for the industry.” We have seen a lot of expansion among BPO players and new investments within the past 12 months despite the effects of the US subprime crisis.”

He said that despite slower growth next year, the industry can still meet its target of US$13 billion revenue and a million workers in 2010.

Industry experts have been saying that the ongoing financial crisis is an opportunity for the Philippines and will boost the growth of the BPO industry as companies, especially in the United States, are expected to cut costs by outsourcing some of their functions to countries with cheaper labor, like India and the Philippines.

“We look to outsourcing as one of the things they want to do as a cost-saving measure,” Sanez said.
   
Industry experts are also advising the Philippines to tap potential markets outside the United States like Canada, United Kingdom, Europe and Australia. The need to tap potential markets has become more felt since the US has been undergoing economic slowdown and its incoming president, Barack Obama, had expressed his anti-outsourcing stand during his campaign.

Challenges: labor, infrastructure, marketing

Labor, infrastructure and marketing the Philippines as an outsourcing destination are identified by experts as the main challenges in the industry.

BPO players have been complaining of low recruitment yield, high attrition, poaching and a shrinking talent pool due to lack of qualified applicants. To meet its target of 1 million BPO workers, the industry needs to recruit more than 600,000 workers from 2008-2010.

“Still the supply of labor is the greatest challenge,” Ibrahim told abs-cbnNEWS.com/Newsbreak adding that the growth of other BPO sectors like engineering and design will add more pressure on the talent supply.

Sanez, meanwhile, added there is a need to address the reforms needed in the power sector to improve the infrastructure needed by the industry.

Experts are convinced that the Philippines should improve its marketing strategy so that it can attract more investments in the BPO industry and encourage more Filipinos to join the industry.

Sanez said other countries like Malaysia and South Africa are very aggressive in attending conferences to promote their countries as outsourcing destinations.

“We don’t spend on marketing the Philippines,” Sanez said adding that the companies abroad should be informed that “operations here are very stable” and the situation is “relatively peaceful.”

Wishlist for 2009

BPO players, meanwhile, are hoping that some pending bills in Congress that can boost the industry’s growth will be passed by next year. Among the bills the industry is supporting are those that deal with data privacy, cybercrimes, amendments to the labor code, and the creation of the Department of Information and Communication Technology (DICT).

MTIAPI’s Reyes said that a law on data privacy will make the Philippines a more attractive destination for medical transcription companies. Meanwhile, Sanez said: “Every country with outsourcing companies should have a data privacy law.”

The provisions on the labor code pertaining to women working at night, said Sanez, also need to be updated. He added that the creation of DICT is a signal that “we are serious in upgrading our IT competitiveness in the country.”