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Managing Technology | State of the BPO Industry

By oaxtech on June 15, 2009

By Michael Alan Hamlin

As Frank Holz notes in his Inside Outsourcing column in this issue, the latest periodic survey conducted by the Business Processing Association of the Philippines (BPA/P) and Outsource2Philippines (O2P) revealed a mixed forecast for the business process outsourcing (BPO) industry. While 49% of respondents said their firms will expand headcount at least 11% to over 200%, 51% said they would expand their workforce only marginally, stay the same, or decrease the size of their workforce. (Disclosure: My firm developed and deployed the survey for BPA/P and O2P, in which I have an interest.)
However, only six percent of respondents said they would actually decrease the size of their workforce suggesting that whatever impact the global financial crisis is having on the industry isn’t dramatically slowing development. Almost 40% of respondents said their firms will grow significantly, between 16% and 200%. About 85% of respondents said that the crisis has had an impact on their firms, but only five percent said that impact was very significant. Sixteen percent said the impact of the crisis was significant, and 35% said it was moderately significant. Forty-five percent said the impact of the crisis was minor or nil.
Those responses don’t tell us if the impact was negative or positive, but two thirds of respondents said it affected demand, and 36% said the crisis had an impact on expansion plans. Access to funding and payment terms were both identified by 28% of respondents as areas of their businesses impacted by the financial crisis, and 14% of respondents identified a variety of other issues.
When the respondents were asked how they were responding to the crisis, the results were perhaps their most revealing. More than half, 58%, said their response to the crisis was to introduce new services, suggesting that the crisis has created new revenue opportunities for these respondents’ firms. However, 36% of respondents said they had decreased capital investment as a result of the crisis, and only nine percent increased capital investment. This seems to suggest that new services are replacing old ones. But read on.
To determine the vulnerability of sectors to the financial crisis, we examined the results for a growing number of sectors (most respondents identified one of the 25 sectors provided). This showed that firms offering back office services (data processing, HR, finance & accounting, document management, claims & transaction processing, etc,) were most profoundly impacted by the crisis. These firms represented about 63% of respondents that indicated the crisis had very significant impact on their firms and 36% of the firms indicating that the crisis had significant impact.
Next we looked at response to the crisis by sector and found that respondents representing back office services providers accounted for more than 60% of respondents who said their firms are accelerating expansion and only 35% of firms that are postponing expansion. This sector also has the most firms that are introducing new services, about 38% of all firms that are doing so. These results appear to suggest that firms seeking opportunity in the recession are fairing much better than those that may simply be trying to wait out the downturn.
We also wanted to see how firms of varying size have been affected by the crisis. Back office services providers accounted for 66.7% of respondents representing firms with more than 15,000 employees, 71% with 5,001-10,000 employees, and 86% with 1,001-2,500 employees. Only 5.5% of respondents representing firms with over 15,000 employees indicated the crisis had moderate impact on their firms. None indicated any other degree of impact. This suggests that large firms have been substantially unaffected by the crisis.
That’s not necessarily the case for small firms. Firms with 101 to 500 employees represented 25% of respondents who indicated the crisis has had very substantial impact on their firms, 48% who indicated significant impact, and 22% who indicated moderate impact. But there is again a caveat. Respondents representing firms of this size also accounted for 42% of respondents indicating the crisis has had no impact and 29% of those indicating minor impact.
Again, these results seem to indicate that firms that respond in innovative ways to the crisis are faring better than those that aren’t, regardless of size. There’s one other related result that is worth mentioning briefly, and it has to do with value added.
Ninety-five percent of respondents said their firms provide moderate, high, or very high value-added services, and 69% indicated their firms provide high or very high value-added services. This result, along with the high propensity to introduce new services, suggests that the Philippine BPO industry is moving strategically up the value chain.

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