By Frank Holz

I have had my ear to the ground for the past few months, seeking confirmation of that feeling in the pit of my stomach that says things are not as they appear to be.  What is the truth regarding continued growth of the country’s outsourcing industry….and what will be the consequences if the rosy projections of politicians and industry seers are off by a mile.

The Evidence

A couple of things seem to be true:

1. There is BPO space available.  I’m not sure what the guys from Eton, Megaworld, Filinvest would say, but I understand that rents have at the least stabilized and there is enough office space on the market to satisfy demand for some time to come.  Location is of course a key factor, and one sure reality is that every local government in the country has its eye on the BPO sector. Meanwhile, new zones are continuing to open in the National Capital Region, including the UP Technology Park in Quezon City, the Meralco Compound in Ortigas, and Araneta in Cubao. Meanwhile, Cebu is expanding and tier-three cities regularly announce the local opening of new BPO facilities.
2. At least some HR practitioners and search firms are suffering from a slowdown in demand for their services.  I got this anecdotally from a nameless source who said that business is down more than 25% from last year in the people sourcing business.  The implications of a slowdown in hiring could be severe.  On the other hand, another source tells me his business is growing exponentially and is struggling to meet demand. This suggests that the recession is an excuse for contracting revenue when the real issue is quality and reliability of services.

And there is the fact that:

1. There have been a number of new investors and facilities in the market in recent months.  Some of these are relatively large U.S.-based firms that have come in with a splash, e.g., StarTek. Convergys recently opened three sites in one day. Telus opened a large facility with thousands of seats in Araneta Center. Thomson Reuters is moving more of its service fulfillment operations here.
2. Existing locators have been expanding their service offerings, and trumpeting their satisfaction (even delight) with the success of their local subsidiaries, e.g. JPMorganChase, Sykes, and the firms above who offer much more than straight-forward customer service outsourcing.
3. The recent O2P-BPAP survey projected a mixed bag for the year in terms of growth in the face of the global recession.  But about half of the respondents indicated their companies will grow 11% to more than 200%, and the other half will grow more modestly, not grow at all, or grow smaller. All companies have been taking actions to protect themselves.  Hiring rates are stable and turnover is being managed.  The bottom line seems that while growth won’t be at the torrid pace of the past few years, it will still be there.

The Consequences

1. We have enjoyed a remarkable period of rapid growth in the outsourcing industry. The Philippines has become the “king” of voice-based outsourcing, eclipsing India.
2. More and more complex BPO work is being shipped to the country, including engineering services, legal, and financial and health care functions. The expansion from purely voice to value-added BPO has been quite seamless, as the capabilities of Filipinos have become known to the larger world.  This will no doubt continue.
3. The threat of legislation to limit the movement of work from the U.S. to offshore locations probably won’t result in any significant changes.  This is partially due to the complex web of interrelated services that large multinational companies engage in, and the presumption of free trade, which while under threat due to the global economic malaise, cannot be easily reversed.  On the other hand, there might be some impact (probably more sound than fury) on companies that are the beneficiaries of U.S. government funding via TARP.  Count among these some of the largest banks.

My modest conclusion

The truth is that we have lived in the best of all possible worlds, in a sweet spot of increasing demand and the ability to supply resources to meet that demand.  Now, that growth is moderating. We will have to come to grips with cycles of growth and perhaps even contraction as the outsourcing industry matures.  The larger the industry is, the harder it can fall.  The real issues relate to sustaining growth, continuing to build competence, retaining a leadership position, and recognizing that the world continues to get smaller, and competition gets fiercer.

On the other hand, demand for outsourced services is intense, and expanding. However, demand is increasing for value-added services, which may mean few jobs are created but those that are created will be high paying.

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