Bill Against Call Centers?

In the US House of Representatives, there is a pending bill (the U.S. Call Center and Consumer Protection Act) that seeks to discourage companies from transferring their Call Centers abroad. [Bishop Introduces Bipartisan Bill to cut off Taxpayer Dollars for Call Center Outsourcers ] This law, if passed, threatens to lessen the demand for Philippine-based call centers. The proposed bill will penalize US companies outsourcing their call centers by cutting their Federal grants and loans.

No Effect
The proposed bill with probably not pass the US House of Representatives. There is a Republican majority there, which is pro-free trade and  pro-corporation. Outsourcing of call centers is a significant way of reducing operating costs of companies, and thus will be supported by Republicans.

Even if it passes, though, the law’s effect is likely to be minimal. It would be easy for companies to go around it. For one, a lot of US companies already have call centers abroad, or they hire the services of a BPO (Business Process Outsourcing) company. They will not be affected by a ban on ‘transferring’ call centers abroad.

Then, there are some companies which combine an in-house US-based call center with a call center based abroad. The more difficult problems are addressed by the in-house staff, while the routine questions are handled in the Philippines or India.  With this arrangement, a company could conceivably expand its overseas customer service staff without reducing its in-house staff.

Another way of ‘going around’ the law would be to have specialized US-based BPO companies get contracts from US-based companies to handle their customer service work. The BPO company then assigns Third World based personnel to do the Customer Service work.  This means that the BPO company is the one which outsources work abroad, and thus be deprived of Federal grants and loans, but that won’t be a problem for them.

Up the BPO Ladder
Call centers (also called ‘voice BPO services’) are the part of the BPO services which are the target of the protectionists. Right now, this comprises the largest part of the Philippine-based BPO services. There is the impression among many in the US that call centers in India or the Philippines are ‘cheap’ – in the sense of being both low cost and low quality. They do not realize that Philippine-based call centers are perhaps better than US-based ones in terms of quality; due to highly motivated Filipino agents.

But there are other kinds of BPO work, which are growing even faster than call-centers. There is the medical transcription work, which is the transcribing of medical records for US-based doctors. There are back-office operations (accounting etc) for US banks and other financial firms. Back office work is especially lucrative because of the time difference – Phil or Indian workers work on the transactions when it is nighttime in the US. Back-office operations are less language-dependent than call center work, and thus could be done for companies from countries other than the US.

There are also virtual tutors, remote publishing, virtual personal assistants, and a host of other virtual services which could also be provided by Philippine-based BPO companies. Eventually, all kinds of non-voice BPO will become the bigger part of Philippine BPO services.

Cut the Beef
Even though we know that Cong. Bishop’s proposed law will not have much of an effect on Philippine call center services, the Philippines should still express its concern at what is a protectionist act aimed directly at a key Philippine export.  If we do nothing, there could later be other laws that will be more effective.

The Philippines should tell the US that it will consider possible responses to this hostile act, in terms of restricting the entry of some US products to the Philippines in the name of protecting Philippine jobs. Preferably, these would be US service exports of an equivalent value – perhaps something like insurance, advertising or consulting services. We should also consider imposing extra levies on imports such as beef or chicken, or orange juice.

Philippine political leaders are known to be timid in relations with the US, and may not see such moves as ‘proper’. The public should make it clear to the politicians and technocrats in government that such ‘proper’ behavior does not serve the Philippines’ interest. The Philippines should flex its muscles whenever Philippine interests are in possible jeopardy. Otherwise, the US would simply trample on our interests at will.

Why Invest in the Philippines?

Why would foreigners invest in the Philippines? That’s a good question, especially since there are lots of other countries which are trying to attract foreign investors.

Here are some reasons.

Large Population, Big Market
The Philippines has a large population. It is the 12th largest country in the world, with a population of about 96 million people. This is a lot of people, and they can mostly be reached by advertisements in the media. So, this means that, whatever your product, it will probably pay to try selling it to Filipinos. And in turn, this would probably mean that they will need to open at least a sales office in the country. And, for many kinds of products, it will also pay to manufacture these goods in the country itself.

Large Pool of World Class Labor that Speaks English
This is going to probably be why foreign companies would like to set up shop in the Philippines. If they do, they only need to import a few foreign experts, and then avail of the local labor pool. And the labor pool is quite deep, with lots of universities churning out graduates every year, and lots of Filipinos experienced in almost anything (of course, some of these may be abroad).  And  all these have been educated in English. This is not simply English as a subject in school, but English as the medium of instruction in school. We can see this in the fact that we are one of the main countries for call centers; our accent is relatively easy to neutralize.

This means that the Philippines will make a great center for their customer service (as shown by the growing call center industry in the country), and also for things like accounting back-office, or as regional office. The fact that you can source practically all your personnel locally makes it quite attractive. And salaries are still relatively cheap.

Good Infrastructure
The Philippines has relatively good infrastructure. We have a good system of airports  and ports. Our roads are quite good. We have urban mass transit (i.e. LRT, MRT). Electricity supply is regular, with some outages especially during the summer.

The IT infrastructure is also good. High-speed internet is available in our major cities. It is affordable for a lot of middle class families. Mobile telephone availability is practically universal.

Politically Stable
Believe it or not, the Philippines is politically stable. It only looks unstable, specially for those living in the Philippines – with all the rumors and other things you read in newspapers. For one, the homegrown communist movement is more of a nuisance rather than a threat. [See CPP-NPA Helps Maintain Status Quo in the Philippines ] As for the Moro rebels, the government is constantly having a ceasefire with the MILF, while they negotiate a peace agreement.

Military rebels? Kidding? What kind of threat to stability do they pose, when they mostly resort to occupying hotels when doing a “coup de etat”. What kind of coup is that? Besides, the present Aquino government has good relations with a number of military rebel leaders; I don’t expect them to go against the government now.

No major threat to the interests of foreign investors are on the horizon. It is safer to invest in the Philippines, than to do so in places like Thailand or Indonesia. Of course, this doesn’t cover all the country – take the case in point of Western Mindanao, with its Abu Sayyaf – but it is generally peaceful, and stable in the rest of the Philippines. So, for foreign investors: just keep out of the Abu Sayyaf areas, and it’s alright.

BPO contributes to national development

Some people have expressed the belief  that the BPO sector is not really contributing to national development of the Philippines; that it is just another way in which foreigners exploit Filipinos.

I think that those who take this view have a concept of national development, which for want of a better term, is “classical”.  By this, I mean that they hold that the Philippines should develop agriculture and industry as prerequisites to “real” development. And that factors as overseas work and BPO companies are distorting the economy, and will only bring about short-term benefits.

While I agree that the Philippines needs to develop its agriculture to the point of self-sufficiency, I believe that the country is not in a good position to develop all kinds of industry, particularly heavy industry. We should develop our biggest asset, which is our highly educated (by third world standards, that is) labor force.  And that in the future, our country’s main (export) products will be things of an “immaterial” nature – film making, education, design, music, etc. And in this list of our service exports we would include BPO services and other services which can be done at a distance with the use of modern ICT.

Salaries
BPO companies employ many Filipinos. The salaries that the personnel receive, while certainly benefitting the worker,  also helps to stimulate the national economy.  This is the “multiplyer effect” – the salaries they earn are used to pay for food, rent, clothing, and other needs, which in turn generate employment for others, and so on..

Thus it is important, from this point of view, for BPO salaries to keep increasing, faster than inflation. The idea that our BPO industry is due to the low salaries of Philippine workers is only partly true. True, salaries need to be kept lower than that of the US, but beyond that, they could be raised quite a bit before they reach the US’ level.

Development of IT Infrastructure
Partially as a result of the proliferation of BPO companies, the country is pushing faster with the development of its IT infrastructure.  BPO companies want to base in more of the country’s cities, and high speed links are needed to make this happen.  And the prospect of getting BPO agents to even work from their homes, which will further increase the worker base, demands broadband connections within cities. Also, many IT experts are employed by the BPO industry, keeping them in the country instead of getting jobs abroad.

Telepresence
The present face of the BPO is call centers. But this will not remain this way in the future.  Already, BPO companies are offering non-voice services e.g. back-office functions, animation, software, etc. In a sense, the BPO industry is just taking off – telepresence in all its facets will lead to all kinds of services from more and more Filipinos. Think of radiologists analyzing CT and MRI scans of US patients, or architects helping in the design of buildings abroad. These things are already starting to happen, and there will be more and more fields that will be open to telepresence.

The nice thing about telepresence is that we are able to deliver services internationally, while staying at home.  At the same time, we will be collecting salaries that are high in terms of Philippine wage scales.  Thus, it will be like Overseas work, without having to go overseas.

BPO sector wages still low

The Business Process Outsourcing (BPO) sector in the Philippines is growing fast despite, and perhaps even because of, the current economic crisis. A big portion of this is in the form of call centers doing customer service. It now employs 400,000 people, and is projected to earn $11 billion a year by 2010. Wages in this sector have increased 10% yearly for the past few years, and some people are calling for a slowing down of wage increases because they fear that the Philippines would be priced out of the BPO market.

I do not share this view.  The BPO sector is not like the textile sector, which kept transferring to countries with cheaper labor. The BPO sector requires workers with English and IT proficiency, which the Philippines has in large numbers. For the call center subsector, the Philippines has the added advantage in that Filipinos’ accent is relatively easy to neutralize (this is in contrast to the Indian accent, for example).  Countries with better English proficiency have higher labor costs than the Philippines.  In addition, Filipinos are more service-oriented, which is quite an advantage when it comes to customer-service work.

While wages may have increased rather rapidly, they are doing so from a low base. Call center agents earn about 10% of what US-based call center agents earn. Wages in India (which is the number one in BPO) are higher than in the Philippines. We can say that wages are still low (PhP 13,000 for entry-level agents) in that they are not yet attractive enough for many potential workers.  The BPO also indirectly competes with OFW labor, in that they are an alternative for overseas contract work; and compared to what workers could earn overseas, BPO compensation is still low.

The Philippine BPO sector is far from saturated or overpriced.  The 2010 target earnings of $11 billion is a small part of the world total BPO services which will be $180 billion in 2010. The bigger problem that the sector faces in the Philippines is the potential lack of workers.  BPO companies need to go to the provinces in the hope of tapping the labor pool there. Also, there needs to be stepped-up training of “near-hires”(those who barely failed to qualify for call-center work) to improve their English proficiency and other skills.

In order for the BPO sector to keep growing, it is important to improve the quality of our college graduates, and also to provide the necessary infrastructure e.g. broad-band internet, reliable electricity supply,  office space etc.  And more efforts need to be made to broaden the range of BPO services, beyond the present reliance on mainly call centers.

Higher wages for BPO workers will more likely help its long-term development than hinder it. It would give its workers an incentive to make BPO work into a career rather than a short-term job, resulting in less turnover of workers. It would give an incentive to develop other kinds of BPO services.  And more, higher paid, workers would strengthen the local economies of regional centers, which in turn would make it possible to improve the quality of infrastructure and education.