The BPO business cycle

IF you want to understand how the business cycle works, look no farther than the call-center business in the Philippines. If you want to learn how the business cycle functions most successfully without government interference, check the timeline of the Philippines’s business-process outsourcing (BPO) business.

The Philippine government has supported the industry and that is a huge and critical step away from interfering. Investment incentives were given to the foreign companies to step up their operations here in the country. That’s good and similar to the practices that private businesses do when they introduce a new product.

Those promo ladies giving free samples of the latest noodle flavor or soft-drink at the supermarket is a financial incentive to buy the product as is the buy-one-take-one deal. This is a successful marketing technique that was used by the government in the early days of the Philippines trying to attract new business.

As the global recession hit, the government assisted many returning overseas workers in receiving training and finding jobs in the business showing more support. The government also set up English language-training
programs and scholarships to help those that just missed being fully qualified for employment.

When Metro Manila seemed to be stretched to the limit of available and qualified personnel for the call centers many years ago, the national, provincial and local governments provided other locations that have expanded dramatically. Along the way, the private sector at times led and at other times followed government initiatives to support this growing industry. If the government and the private sector could work together as well in other industries, the country could be “richer” more quickly. But back to the call-center business cycle.

If you followed the industry over the last 12 to 15 years, you see the normal business cycle at work. In the beginning, there was a confusing landscape as to salaries and qualifications. You had high wages and low qualifications at some companies and low wages and high requirements across the street and all the other possible variations of these two factors.

Employee attrition, particularly moving to another company, is a critical part of the business. The call centers tried to stop this through what were really unlawful trade and employment practices. More important, restricting employee movement did not work and actually hurt the business. The free labor market worked better.

Then as the business reached its “teenage” years, there appeared to be a looming shortage of qualified candidates particularly in the area of English expertise. Salaries rose to get qualified people from other sectors like nursing, a booming business at the time. Some experts predicted the death of the call- center business because the Philippines had run out of English speakers who were not subject to frequent “nose bleeds” on the telephone.

But over the course of a very few years, and not coincidentally as salaries increased, the number of young people looking for jobs that had more proficient English-speaking skills “magically” also increased. The normal market business cycle kicked in where supply increased to meet more expensive demand.

Then we went through a period where, because of the oversupply of qualified candidates, salaries came down. Bonuses and employee incentives were reduced and companies increased their hiring standards.

All the while, the industry was growing (and continues to grow) both in terms of employees and company revenues by a steady rate of about 20 percent.

The call-center industry has kept a steady growth rate in commercial real-estate development in many places around the country. New opportunities have been constantly opening up for employment outside of Metro Manila. BPO remittances have helped keep the peso exchange rate steady and the industry is a major contributor to the economy from being a small sideline a decade ago.

The important thing is that the call- center industry has had mini-booms and mini-busts over that last decade. However, the normal business cycle was not interfered with nor did the government try to control it. The government played a critical but delicate role in the beginning to get the business going. It was there to help out when necessary and walked away when that was the prudent action to take.

As in every relationship—and the government and business is in a relationship—you have to know when to push and when to lay back. That applies to both parties. The industry did not push too hard for financial incentives. The government did not push too hard for more control. Both of these sensible practices allowed the business cycle to help make the BPO industry so successful. –John Mangun, Businessmirror