Philippine outsourcing in 2017

By Wilma C. Inventor-Miranda, Feb 16, 2017

Among the predictions for outsourcing in 2017, what stands out and seem the most common is the uncertainty hanging over the industry. This uncertainty is traced to the victory of Donald J. Trump at the US elections and the victory of the leave-the-European Union movement or Brexit. With this uncertainty, outsourcing contracts between provider and client or buyer will likely be more flexible. For instance, contracts will be more short term, with provisions for early termination in case of a pullout of the outsourcing agreement.

It helps to analyze the results of outsourcing activities in 2016 so as to reasonably predict what will happen in 2017. In a KPMG report, titled “Global IT-BPO Outsourcing Deals Analysis”, 64.7 percent of total outsourcing services contracts came from the United States, followed by the United Kingdom at 9.2 percent, with Australia and France being two other key outsourcing markets.

I was also surprised that the top consumers of information technology–business process outsourcing services were government and defense entities, contributing 55 percent and 13 percent of outsourcing deals signed in 2016, respectively. The telecom sector was the next biggest contributor in terms of contract value. Last year was not also as strong as 2015, with annualized contract value of only $21.3million compared to $43.5 million in 2015, or a decline by 51 percent. This decline happened even before Trump was sworn into office.

I should say the Philippines should prepare for this period of uncertainty in the industry. While the country compared to the rest of Asean should not experience a decline in output or the GDP no matter Trump’s victory, that is because an infrastructure buildup this year were to compensate for the expected slack. In addition, the Philippines has a strong economic foundation.

In the outsourcing sector, however, many contracts may be put on hold or renewed under more flexible terms, pending a more stable environment and more firm economic policies in the United States. Moreover, one of the predictions this year is that call centers will likely become extinct as self-service tools and intelligent assistants, like virtual agents and chat bots, become more popular. According to CIO.com in its seven top predictions for 2017, call centers will be replaced by the rise of tech-enabled contact centers. The web site quoted Anna Frazetto, chief digital technology officer and senior vice president at Harvey Nash.

The article also quoted Everest Group’s Rajesh Ranjan, who said that in 2017 customers will rationalize their contact-center vendor portfolios and identify key strategic partners.

The Philippines, being the No. 1 call-center services provider globally, should be prepared for this risk. It can remain the top provider and strategic partner for customers so long as it upgrades its technology, although at the expense of hiring fewer people as automation picks up.

The IT outsourcing sector, being the top provider in 2016, can remain the dominant outsourcing services in 2017, although India is still the top provider in this sector. The Philippines can diversify and improve its IT outsourcing services and other areas of outsourcing, like finance and accounting outsourcing and knowledge-process outsourcing, the latter together with BPO bundled service as key contributors to BPO deals in the fourth quarter last year, according to the KPMG study.

We have so much potential in the outsourcing sector but we have to manage the risks and strategize so that we do not rely on only one area, such as call centers, but prepared to grab other opportunities that are out there. We need to prepare our people with the appropriate skills and arm ourselves with the needed technology so we remain competitive in the outsourcing arena and still be the top destination for BPO services.