Bpo Philippines Essay

attention breed THE line OF sustainable war-ridden ADVANTAGE IN PHILIPPINE c exclusively in CENTERS Aileen S. Alava* Facing postgraduate expectations as the new(a)est sunshine exertion, the offer concent reckon on pains in the Filipinos appears to attain dimmer prospects in the coming years. Having experienced rapid process from 2000 to 2003, the diligence experienced a s emitdown in emergence from 2004 to 2006, raising the exami res publica of how sustainable the awkwards agonistical service is against beside competitors much(prenominal) as India and chinaw be. This paper uses Porters Diamond deterrent example to fail the factors resulting in competitive return amidst nations, and countenances manufacture player and commercialize learning on the Philippine bring forward midst industriousness, as sound as updates on how the industrys participants ar seeking to get by the industrys challenges.I. INTRODUCTION The ring perfume industry is herald as the newest sunshine industry in the untaught, earning around US$1.8 one thousand million in 2005 alone, with r visualiseeues forecasted to reach US$5.3 billion by year 2010. craft for this sector has much than doubled every year, from 2,400 movers in 2000 to 150,000 in 2006, and is pass judgment to reach 300,000 full-time employed agents in 2010. The Philippines is among the cap sides in the realness for outsourced surround totalitys. An SGV industry report states that in 2005, the Philippines appropriate of the international invite subject matter marketplace is 3% and 31% for the Asia Pacific market. By 2010, industry leaders target 6% world(prenominal) market sh be and 51% Asia Pacific market share.II. FRAMEWORK AND METHODOLOGYWhat pull up s plays give Philippine natter meats an favour all over wawl out touchs in separate countries, such(prenominal) as those in India, china, Malaysia, capital of Singapore? Michael Porters Diamond Model defines com petitive good in the midst of nations as the outcome of four interlinked factors 1) unfluctuating strategy, building and rivalry 2) demand conditions 3) related re present(a)ing industries and 4) conditions modify the cite factors of production in spite of appearance the nations. This paper aims to discuss the competitiveness of the Philippines using thisframe run short. Desk interrogation was conducted to obtain secondary industry data on local and worldwide bitch subject matters, mend inter emplacements _________________________________with roar warmness managers provided insight on opportunities and challenges indoors the industry. The role of government forget too be discussed in this paper. struggle ripenings show government policies such as tax incentives and relaxation of retention laws contributed to the industrys set upth. Streng thereforeing of government support for capital upbringing is crucial to the sustainability of the Philippines competitive do. Insufficiency in primary education is gravid the Philippine advantage as local players face difficulty conflux planetary demand with local supply of qualified chitchat midpoint agents.* Assistant Professor of Information Systems watchfulness, College of phone line Administration, University of the Philippine-Diliman.2INDUSTRY distinguish THE paradox OF sustainable combative ADVANTAGE IN PHILIPPINE foreknow out CENTERSIII. CALL CENTER OUTSOURCING A claver center is a coverting operation put acrossling bigeminal types of customer-oriented give ways such as marketing, selling and servicing, by means of and by multiple channels of customer interaction such as electronic mail, the introduction Wide Web, electronic messaging, voice messaging, fax messaging, and traditional mail. watchword centers serve various stakeholders of an organization from prospects to customers, suppliers to competitors, as tumefy as distributors, partners, and employees. The status band center is apply as a collective confines to refer to these operations for the reason that the primary means of sink in facilitated by these argumentationes are telephone wishs. crab centers are categorized as trade Process Outsourcing companies or BPOs. BPOs in addition include medical checkup transcription, IT support, animation, software product festering, monetary accounting and payroll processing companies. Outsourcing in the Philippines arrived at the heels of masteryfulderegulation in the tele communication theory industry. Intense tilt spurred wadive sendment in technology and expertness among Philippine telecommunications companies, jumper lead to innovation, quality improvement, and price competitiveness in overhauls. The Philippines is no stranger to hostile arrangements of this kind. The semiconductor industry, one of the leading merc quite a littleise sectors in the country, started in much the aforesaid(prenominal) way. From the early 1970s t o mid(prenominal) 1980s this sector experienced dramatic expansion, ontogeny at an annual middling rate of 53%. International factors also impelled growth in the form of transnational companies from the developed economies (e.g., US, Europe, lacquer) locating seaward plants in developing countries (e.g., Philippines, Vietnam, Singapore) for the close wear-intensive phases of semiconductor manufacturing. As with the turn to center sector, the Philippines main advantage in semiconductors is cheap and literate jab. Government solvent to further incite export activity in semiconductors is similar to regulative mechanisms accomplished in the call center industry today, such as the establishment of freeport zones, the relaxation of tariffs and duties on imported technologies, and the permission to employ foreign nationals. Agreements in the semiconductor industry during its period of rapid growth were cover by subcontracting arrangements. Todays global trend for off-shoring, or seaward outsourcing, has very little difference with subcontracting. Offshoring is the arrangement by which one confederacy contracts with service providers located outside the country for serve that could also be or unremarkably wee-wee been provided inhouse. Outsourcing business processes to remote locations is made executable by advancements in the telecommunications sector in the outsourcer countries. Low job appeal and improved connectivity resulting from technological advancement and deregulation in the telecommunications sector in the servicing countries (e.g., India, mainland mainland China, Malaysia, the Philippines) be put on made shoreward outsourcing attractive from an economic stand register. The monetary value of in operation(p) a call center in the Philippines, for example, is describely 40% lower than in the United States (55% equal savings from labor less(prenominal) 15% incremental cost from travel and telecommunications requirements). Offshore outsou rcing in command brings in around 25% to 50% in cost savings. globalisation and its societal set up draw made manageable the challenges of crosscultural communication many inshore destinations waste a Western heritage and almost all are exposed to Western culture pop culture, even by means of the internet, cable idiot box, and some different fun media, e.g., movies, books. The difference in time zones amongst the servicing and the served countries (e.g., the United States, the United Kingdom) are addressed through exchange six- to eight-hour teddys in the day, enabling call centers to maintain 24-hour service agent availability. eyepatch incremental be are incurred for perfunctory risk way expenses, e.g.,AILEEN S. ALAVA3hazard pay, etc., the total cost of operating a call center out of India or the Philippines are stilllower compared to the cost of operating out of the US or the UK.IV. THE PHILIPPINE CALL CENTER INDUSTRY An IT-Enabled operate briefer from the be on of Investments in 2007 states that there are an estimated 146 call center companies in the Philippines. blazon out center companies should be distinguished from call center sites. A site is a facility housing a call center operation and a call center company may operate multiple sites. Sykes Asia, for example ope evaluate five sites in the Philippines while sight Support operates four. There are three categories of call center companies Foreign-owned call centers with Philippine subsidiaries. These are call centers owned by foreign companies, usually from the United States, that establish branched out to offshore outsourcing. Insourced call centers of jumbo multinational corporations. These are operations that are dedicated to the rise up companies and whose object is to bring competitive advantage by transforming an erstwhile internal backoffice function into one that is revenuegenerating. Filipino-owned call centers. These call centers are wholly owned by Filipino ent repreneurs or corporations (e.g. Smart, PLDT, Globe, etc.) that seek customers from the United States, Europe and Asia, particularly from Japan and Singapore.Estimates from the Board of Investments (BOI), the Commission on Information and Communications Technology (CICT) and the Business Process stand of the Philippines (BPAP) report the demand for call centers to reach anywhere from between 30,000-50,000 new agents hired in the Philippines per year from 2007-2010. cypher 1 Employment in extend to spunks350000 301,000 300000 262,000 250000 218,000 200000 168,000 150000 112,000 100000 50000 0 2004 2005 2006 2007 2008 2009 2010 *2006-2010 from BOI/CICT/BPAP figure 64,000 331,000 reference point Board of Investments, BPAP4INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE combative ADVANTAGE IN PHILIPPINE CALL CENTERSThe success of call centers ecumenic is attributable to the growth of outsourcing as a profitable business model. The BOI estimates that 2006 revenues in business process o utsourcing (which includes other IT enabled operate such as medical transcriptions, animation, and back office transactions processing) amounted to US$3.67 billion, andprojects revenues to jump upwards 40% to reach US$4.79 billion this year. Joint forecasts from the BOI, BPAP and CICT predict that there leave alone be 343,000 new outsourcing jobs this year (of which 64% or 218,000 volition be in call centers), a 40% increase from the number of new outsourcing jobs in 2006 of about 244,000 (of which 69% or 168,000 were in call centers). examine 2 yearly Employment (2004-2010)1000000 900000 800000668,1 26920,764700000 600000479,51 9500000 400000244,675 343,01 3 262,000 21 8,000 1 68,000 99,300 64,000 1 2,000 1 301 ,000 331 ,000300000 200000 100000 0 20041 62,250200520062007200820092010BPO manufactureContact Centers obtain Board of Investments, BPAPThe Philippine call center industry is estimated to have realise US$2.7 billion in revenues in 2006, a growth of 50% from 2005s earnin gs of US$1.7 billion. The section of batch and Industry expects actual 2007 returns to be close to US$3.5 billion, a further growth of 30%.AILEEN S. ALAVA5 pick up 3 yearly Revenues of Contact Centers (in US$M) opening Board of Investments, BPAPIt is interesting to none that service income of ten of the crown call centers1 in the country (Ambergris, Convergys, Cyber City Tele function, Sitel, E-Telecare, iContactsCorporation, InfoNXX, Parlance, good dealSupport, and Sykes Asia) unitedly account for more than 20% of the total revenues of the entire sector. common fig 4 Comparative Annual Revenues of 148 scratch Centers vs. Ten Top Call Centers (2004-2005)6INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSActivity in the industry is apparently parasitical for the most part on a small number of regretful players. The BOI in its IT-Enabled operate briefer (2007 release) states that it expects upward momentum to continue until 2010. Source s of growth have been identified as follows a) Expansion fromestablished call centers such as PeopleSupport, Sykes, eTelecare, PLDT, ClientLogic, InfoNXX, Citibank, Ambergris, Accenture, IBM, Caltex and HP b) Entry and consequent expansion, i.e. addition of new sites, etc. of global players such as Dell, HSBC, JP Morgan, AIG, Convergys, TeleTech, Sutherland, Deutsche Bank, and NetSuite.c) Next wave of entrants such as Accor Reservation, MiSYS, Siemens, Ericson, Alsbridge, virgin Atlantic, Philips, Emerson, Capital IQ, DDC and Kanbar. Growth in the sector follows expansion the operations of large(p) players. In the pull round two years, both Sykes Asia and People Support have established new call center sites while still others have added new projects and accounts. These activities and the influx of new players have resulted in revenues steadily growing until 2006 and expectations for further expansion until 2010. While growth is continuous, provided, a slowdown in the rate of gr owth is expected starting 2005.Figure 5 Annual Revenue Growth Rate of Contact Centers220.0%166.7% 133.3% 114.3%75.0% 50.0% 29.8% 20.2% 14.9% 10.0%2001200220032004200520062007200820092010*2006-2010 forecasted by BOI/CICT/BPAPSource Board of Investments, BPAPSlowing growth in the last two years aft(prenominal) the steep increases of 2003 to 2004 indicates that the call center industry in the Philippines is now glide path maturity. Sales and earnings expansions of the past years resulted from thePhilippines cost advantage over other countries. The passage of time, however, may erode this advantage as China and other southmosteast Asian countries affrighten to eat into the Philippines market share with better cost or qualityAILEEN S. ALAVA7 oblations. The challenge for the industry is to extend growth by improving the competitive dimensions where the Philippines is weak or by adjusting industry targets to create new competitive advantages. The Global region The Asia Pacific region outperforms other regions such as eastern Europe, South the Statesand Africa. Japan and South Korea are seen to increase nearshore outsourcing investments in inexpensive, labor-rich neighboring China while Southeast Asiancountries benefit from close-toWestern cultures, open economies, and progress technologies for a similar cost advantage. In 2005, Frost and Sullivan forecasted that call centers in Asia result grow from 21,360 in 2004 to 39,248 call centers in 2011, at a compound annual growth rate of 9.1%Figure 6 Forecast Growth of Call Centers in Asia Pacific*at a tangled Annual Growth Rate of 9.1%, as forecasted by Frost and Sullivan. more than recent studies predict faster growth rates. A 2006 Asian Contact Center Industry Benchmarking Report assessed the industry to be in a period of strong growth. The choose conducted on 747 sink in centers in the Philippines, India, Singapore, China, Malaysia and Thailand estimates that by 2007, the total 576,000 seats in the countries studied would increase to 704,500, a growth rate of 23%. Among the countries in the study, the Philippines has the eminentest forecasted growth rate. By 2007, it is expected to grow by 33%, Singapore and Malaysia by 32%, China at 22% and India by 16%. Of the Asian destinations, India is the top choice, with other nations such as thePhilippines, Malaysia, Singapore, and China following closely. The Philippines, having an American-influenced culture, a proficiency in face equivalent to India without the heavy accent, and a skilled labor force, was considered the greatest threat to Indian domination in this sector. However, recent years learnings in other competitor countries such as China, Malaysia, Thailand and Indonesia coupled with a strong peso and deficiencies in the local supply of qualified call center agents have slashed the Philippines advantage. The A.T. Kearney Global Services Location forefinger in 2007, a survey conducted to measure the carnal knowledge attractiv eness of offshore locations with regard to financial structure (40%), people8INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE INPHILIPPINE CALL CENTERSskills and availability (30%), and business purlieu (30%), has graded the Philippines the 8th most attractive country for offshoring in2007. The top twenty-five countries are as followsFigure 7Source AT Kearney 2007 Global Services Location IndexAILEEN S. ALAVA9The 2007 study saw the Philippines deny from its 4th rank from AT Kearneys last GLSIsurvey which was conducted in 2005. The top twenty five locations then were as followsFigure 8Source AT Kearney 2005Global Services Location IndexThe Philippines drop in the AT Kearney rankings is attributed to the appreciation of the peso and growth in the call center industry which has driven up labor costs in terms of the US dollar, by as much as 30%, according to AT Kearneys GSLI 2007 highlights. In other areas of performance, the country improved slightly,particularly in bag, industry coat of it and language skills. In contrast, Malaysia, Thailand, and Indonesia have either retained their rankings or moved up the index. gradual industry growth rates in these countries have tempered the effects of inflation on labor costs.10 INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSFigure 9 Philippines Offshore Attractiveness, 2005 & 2007 A. T. Kearney Findings6 5 4 3 2 1 0 pecuniary Structure Business Environment People and Skills Availability2005 2007 3.6 3.32005 2007 1.2 1.02005 1.02007 1.3Ratio of Categories 403030Philippines Score 2007 2005 Financial Structure Compensation hail (8) Infrastructure greet (1) Tax and regulatory Cost (1) 7.1 7.7 0.7 0.8 0.3 0.5 8.10 9.00 Philippines Score 2007 2005Business Environment Country risk / economic and Political Environment (6) Country Infrastructure (2) Cultural Adaptability (1) Security of skilful Property (1)1.9 1.2 0.7 0.3 4.11.8 0.7 0.8 0.2 3.5Philippines Sco re 2007 2005 People Skills and Availability Relevant experience / IT BPO Industry size/quality (4) Size and availability of labor force (2) reading (1.5) Language (1.5) abrasion risk (1)1.2 0.7 0.9 1.2 0.2 4.20.9 0.7 0.9 0.7 0.6 3.8Source AT Kearney 2005 and 2007 Global Services Location IndexAILEEN S. ALAVA11India Among the top contenders for offshore locations, India is the country with the most experience. The emergence of call centers as an opportunity for national growth came upon deregulation in the telecommunications industry in the mid-1990s, much like the Philippine experience. The outsourcing sector, the offset printing participants of which were medical transcription service companies then followed by data management and customer support providers, began to take root in the late 1990s. As in the Philippines, the first operations consisted of support subsidiaries of multinational companies servicing the parent company. Low-cost and highly-skilled labor, significant impr ovements in IT understructure, and a positive business environment spurred by industry organizations such as the National Association of parcel and Services Companies (NASSCOM) propelled exponential growth for the industry in the years to follow. The NASSCOM estimates yearly growth of 37% for the outsourcing segment with the call center industry leading the sector. Call centers comprised 46% of the total US$4.6billion revenue the outsourcing sector earned in 2005. India is the strongest contender in the sector and is often tagged as the worlds first-choice in offshore outsourcing. In 2005, it has 8% globalmarket share and 68% market share in AsiaPacific. The Philippines greatest advantage over India is in language skill. American side being the dominant lingua franca in sales and support transactions coursed through call centers, the Philippines has a culture that is closer to the West and an English expectoration that is the easiest to understand in the whole of Asia,partly to exposure to American television and pop culture, as wellhead as English being the long suit of instruction in all education levels. It has been observed that Indias pussy of endowment has the advantage in technical, specialized occupational skills while the Philippines competency is in liberal arts, which provides more general knowledge as well as capabilities necessary for back-office processing, e.g., communication skills, and cultural adaptability. Increased global competition in the call center sector has led to efforts to expand the portfolio of services of the Indian IT-enabled services sector. NASSCOM reports that the last three to four years in India have been a period of diversification. Indias BPO companies have expanded to higher-value processes through vertical integration towards non-voice- base services such as back-office processing and guinea pig learning. In 2005, customer care services comprised 34% of total BPO revenues in India, compared to 69% in the Phi lippines.12 INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSFigure 10.1Figure 10.2Sources DTI (Philippines) , PriceWaterhouseCoopers (India)China China is the favored choice as a call center location for companies targeting South Korea (attracted by ethnic Koreans living in China) with which it has the closest cultural ties. Chinais the unless other country in the world that poses a threat to India as far as size and cost of labor supply is concerned. The yearly cost of operating a call center seat in China is the lowest in Asia.Table 1 Comparative Annual and Hourly Costs per Call Center Seat in China, India, Malaysia, the Philippines, Singapore and Thailand in USD ($) Annual Cost per Hourly Cost Seat per Seat 13,543.00 3.62 15,872.00 4.24 34,779.009.29 18,086.00 4.83 66,998.00 18.46 18,527.00 4.95China India Malaysia The Philippines Singapore ThailandSource callcentres.netChinas cost advantage, however, is dampened by its deficiencies in Englishspeaking manpower. In this regard, China can non as of yet compete head-on with India and the Philippines in the global outsourcing market. University enrolments however have grown 25%in recent years which increase the countrys potential to compete. Chinas entry to the World Trade Organization has spurred the inflow of capital as well as Western influence and analysts predict that in due time the labor supply in ChinaAILEEN S. ALAVA13will be comparable to India in size as well as in skill. Singapore Despite high labor costs, Singapore enjoys a comparative advantage from reliable bureaucracy, excellent technical theme, superior educational systems, political and economical stability, and stringent enforcement of intellectual property laws for information and data security. Singapore outsourcers provide high-value services differentiated from lowvalue, back-end processes provided by other Asian countries. To take advantage of this market niche, Singapore outsourcers market ad vanced offshore functions such as basic research, robotics, healthcare and medical diagnostics. Singapore companies in turn outsource lower-value operations to India and China to gain cost advantage. Malaysia What Malaysia lacks in manpower (its nation is significantly smaller than India or China and thereby cannot meet the same economies of scale) it makes up for in advanced infrastructure. Malaysia is second only to Singapore in IT competitiveness rankings between countries in Southeast Asia. Strong government support isapparent in efforts such as the Multimedia Super Corridor project, which includes the evolution of infrastructure in what they have called intelligent cities such as Cyberjaya and Penang Cybercity, where major(ip) IT leaders such as IBM and Motorola have already located their regional offshore service centers. Latin American Countries Latin American countries such as Brazil, Chile and Mexico enjoy the advantage of beingnear-shore destinations, or offshore servic ing countries close to the served country, this being the United States. Near-shore destinations are in the same time-zone as most customers, thereby diminishing the need to arrange multiple 8-hour shifts in the day as well as the need to invest in additional expenses for hazard pay, safety insurance and the like. The A.T. Kearney study implant Brazil has the best labor skills in the region, Argentina has the cost advantage, while Chile has the best business environment (e.g. it has, for instance, supplemented agreements with US and European companies with IP infringement penalty clauses). Nonetheless, perhaps the primary advantage of the region in general is the vast availability and incomparable quality of its bilingual (English and Spanish) call centers, much in demand in the United States. Eastern European Countries Eastern European countries such as the Czech Republic, Poland, Romania and Hungary are contingent choices for Western European countries as a near-shore destinati on. Eastern European call centers provide cost, language skill, and time-zone advantages. Multilingual call centers for the multilingual European market can be easily and efficiently set up in Eastern Europe more so than in Latin America or Asia. Customers from Germany and the United Kingdom moreover may prefer Eastern European call centers most particularly for its bilingual workforce citizens in most Eastern European countries can speak both German and English. Reportedly, however, Eastern European countries, most particularly Russia, need to upgrade telecommunications infrastructure to compete with the other regions as well as to comply with European Union requirements.14 INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSV. CONCLUSION The factors affecting unwaveringly strategy, structure and rivalry involve the services offered by local firms, and how competitive locally provided services are against those provided by other countries. Pr imarily, this involves why the Philippines is chosen by call center companies when qualification the call center location decision. The factors involving demand conditions involve the evolving needs of the global market for call center services, ranging from the basic service of answering inquiries based on predefined scripts to the more entangled service of providing technical tending and support. The sufficiency of related supporting industries will involve the state of local educational institutions, real the three estates, transportation and sell sectors and how these sectors contribute to sustain the growth of the local call center industry. lastly the conditions affecting the key factors of production, such as local skilled labor and mission-critical technology, will also be discussed. Firm Strategy, Structure and Rivalry Figure 11 Factors Affecting the Call Center Location DecisionAs earlier mentioned, the first factor affecting competitiveness is firm strategy, structu re and rivalry, which primarily contributes to why the Philippines is chosen by call center companies when making the call center location decision. The offshore location decision is influenced by a number of factors and it is against these criteria that India, China, the Philippines and other countries are evaluated. It follows that it is in these attributes that the Philippines should perform for a distinct competitive advantage over the others. These factors include the following quality and cost of labor (including technical competency and language skills), connectivity (i.e., telecommunications bandwidth) cost and reliability, jump on business, regulatory and technological environments for outsourcing operations, political stability, and cultural alignment between the offshore outsourcer, the outsourcing company, and the customers to be served by the call center.Decision Criteria in Selecting an Offshore Call CenterPolitical StabilityReliability and Cost of Connectivity Qualit y and Cost of LaborCultural AlignmentMature Business EnvironmentAmong these success factors, the Philippines competes strongest in (1) quality and cost of labor, and (2) cultural alignment. It is in these two factors that exponential growth in 2003 and2004 can be attributed. The challenge of sustaining the Philippines advantage in the industry can be discussed from two vantage points first from the visual modality of creating a distinctAILEEN S. ALAVA15competitive advantage and second from the view of ensuring the distinct advantage created is impervious to erosion. Threats arise from deliberate attempts by competing entities to break it and from developments in call center operations and technology that will shift the bases of competition. The benefit of lower cost is the Philippines most substantial value offer to call center investors and customers. The results of the AT Kearney survey have shown that while other factors are also significant, the global competition in the call center sector continues to be driven by cost at the present it remains to be the most important factor in the acquaintance of the attractiveness of an outsourcing location. In this regard, the countrys low infrastructure and stipend costs, as well as the provision of special tax concessions within specific zones have contributed significantly to making the country a preferred choice among investors. In addition, the results of the study also emphasized that in the Philippines, call centers were given most emphasis among the outsourcing sectors and likewise highlighted the efforts of the government to promote these services by establishing special economic zones that provide investors with freeport privileges, tax shields and holidays. Among the participants in the global call center industry, India outperforms all other countries with a cabal of advantages low-cost labor as well as a progressive educational system ensuring a continuous supply of highly-skilled employees, reliabl e low-cost infrastructure, ancillary business government, and a wealth of management experience in the call center industry, as well as in other outsourcing services. The Philippines this instant competes against India by providing labor and infrastructure at comparable rates and what is more provides the advantage of a Westernized culture and better performance in informal English to appeal to US-and UKbased customers. Singapore has the highest compensation rates but has the advantage of good government reflected in lower costs of bureaucracy and corruption. Chinas majoradvantage is its massive pool of available lowcost talentonly China can directly compete with India in size of available laborhowever labor skills are still circumscribed in language proficiency and management experience in the industry. What makes India a success story is the combination of multiple sources of advantage available to the call center investor. The Philippines ongoing competitive advantage mean while is in the combination of low compensation cost and high English proficiency, and while this advantage continues to bring additional revenues and profession to the sector, growth rates have also been observed to be decreasing, apparently due to two observable trends low borrowing rates and high attrition rates. Both low acceptance and high attrition imperil the advantages of labor availability, cost and quality of Philippine call centers. The advantage of cost over other factors, i.e., people and environment, affecting the offshore location decision is nonetheless not a everlasting one. The leveling of technical competency between the different countries through globalisation and convergence of technologies as well as the homogenization of social conditions between different economies may affect the importance of cost as a success factor. The ubiquity of information available through advanced mass media and telecommunications have also brought about less cultural heterogenei ty between the countries competing as call center locations. The advantage of cultural alignment is and so not exclusive to thePhilippines and, further, is one that erodes with the passage of time and the availability of communications technology. Demand Conditions Despite the low-cost labor advantage offered by offshore call centers, companies continue to look for ways to gain even more cost savings, if not from a more efficient and thereby cheaper workforce, then from automation technology. Meta Groups technology research services group reported an increasing number of clients16 INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSchoosing to carry out voice-automation technology systems to handle standard, routine inquiries, e.g., account balances, product and service, payment offices, etc., kinda of contracting the services of an outsourcer in a low-cost country or establishing their own call center operations offshore. The eventual outc ome of this development is that, with the existence of automation technology, only customer calls requiring more complicated assistance will be routed to offshore call centers, perhaps from the Philippines or India. This centering means that customers will have higher expectations from call center agents in offshore countries. Agents will no longer be able to entrust on simplified inquiry-and-answer instructions or scripts to answer more intricate questions that will be asked them. Industry analysts observe that, out of 100 applicants, only three to five are hired given existing skill requirements. Support services for more complex inquiries, perhaps requiring technical information or instruction, will consequently require higher technical competency, as well as more than adequate communication and problem-resolution skills. Should such requirements be made necessary, it is expected that the hiring rate will be lower in the years to come, unless initiatives are implemented to en hance the skills and capabilities of existing as well as future workers in this sector. Sufficiency of Related Industries The Philippines weakness in information technology infrastructure threatens the ability of the country to compete where value-added services require a higher telecommunications bandwidth. Despite being one of the top offshore location choices in the world, the Philippines ranks, and has always ranked indisposed in network exercise set surveys, seen by most investors as measures of the competitiveness of a country in information technology. In both the 2004 and 2005 Network provision Index (NRI) listing compiled by the World Economic Forum (WEF), the Philippines ranked in the lower levels 67th in a group of 100 in 2004 and evenlower in 2005 (70th place). Other outsourcing destinations fare similarly India, the top location for offshore outsourcing is at 40th place while China, second in the AT Kearney Index, is at 50th place. The WEF NRI is a measure of relativ e performance in the following areas a) aspects of the environment of a given nation for development in information and communications technology (ICT) such as the regulatory regime and legal framework for ICT, and the available infrastructure b) networked readiness of individuals, businesses and governments and c) ICT usage by individuals, businesses and governments. The apparent inconsistency between networked readiness and other IT competency ratings for the Philippines and the remarkable growth of IT-based services, made plain by records of investment, revenue, and employment actually generated by the sector, is attributed by industry analysts to the observation that indices and rankings comparing countries with each other consider all the regions in the country, from the most advanced areas to the vestigial ones. Developed countries such as the United States, Japan, and Germany have progressed to a point where the availability of telecommunications technologies and other relat ed services in the less urbanized regions are virtually at par with that of the most industrialized areas. ontogeny countries are characterized by a marked difference in infrastructure and economic activity between the centers of business and the rural, residential areas. Such is the brass of India, China and the Philippines where the small portion of the population living and working in the centers of business enjoy advanced technology while the rest have very limited access to even the most basic deliberation technology, e.g., internet access, if at all access is given them. Nonetheless, call centers in developing countries choose to locate only in the industrialized,AILEEN S. ALAVA17technology-enabled centers of business. Thus, they are able to employ, and at a cost advantage, the network infrastructure, hardware equipment, software and consulting services at a comparable technological level to those used by call centers in more developed countries. While it is effectual that network-readiness surveys include locales in the Philippines which call centers are not considering to locate in, and that these call centers are eventually established in the industrialized, technology-enabled centers of business, it is still worthwhile considering that this flaw significantly limits the range of options for call center sites in the Philippines. Low infrastructure development in areas outside tube-shaped structure capital of the Philippines also threaten the cost advantage as call centers are constrained with only a few places to locate their operations since the location options are limited, the cost of real estate in these areas increases. While on the one hand the rise in real estate prices is seen as contributing to the trickle-effects of revenue growth in the call center sectors, on the other hand it can be seen as a threat to the countrys cost advantage as far as real estate and infrastructure costs are concerned. Factor Conditions The 2006 Asian Contact Center Industry Benchmarketing Report ranks human resource management, particularly the areas of recruitment and agent turnover, as the greatest challenge faced by Asian contact centers. In the Philippines, the consistency of supply of qualified call center staff office is threatenedas reflected in a very low 3% acceptance rateby apparent degradation of the quality of primary and secondary education in both private and public schools. Although it has been reported that the average 10-year-and-above literacy rate in the Philippines is above 93%, literacy is not sufficiency to ensure a position for a call centerapplicant. basic English proficiency, for that matter, is considered a minimum requirement, enough for the agent to be considered for a position, but still insufficient to match the higher levels of conversational and even colloquial proficiency required for hiring. While low cost labor still works to the countrys advantage, labor on the average making up 46% of the total bu dget of operating call centers, such an advantage will not be sustainable if the country is not able to supply as much as is needed by steadily growing demand. While hiring is becoming more and more stringent, English proficiency in the formative levels of education remains down the stairs average. English language skills tend to diminish over time, as shown by statistics reported by the Department of Education, e.g., Grade 4 public school students show national average of 42% in English, while high school students show 30%. As English and communication subjects are required less in college, it may be expected that the level of proficiency will deteriorate more in the tertiary levels of education. Although English continues to be widely used in business, in government (at least in the high levels), and in school, programs in local mass media and entertainment are dominated by Tagalog films, making mastery of English a more difficult task for the average call center applicant. The c urrent state is reflected in the low acceptance rate among applicants in call centers and other BPO companies. Out of every 100 new college graduates applying, only three are hired. High attrition rates and the increase in run and piracy of agents on the other hand threaten the low cost of labor as companies invest in benefits and compensation packages to ensure agents will not move to a competitor. In 2006, the labor attrition rate in the Philippines is reported to be 18% for full-time agents and 24% for underemployed agents. India has significantly higher attrition rates, as follows18 INDUSTRY REPORT THE PROBLEM OF SUSTAINABLE COMPETITIVE ADVANTAGE IN PHILIPPINE CALL CENTERSTable 2 Comparative Mean Attrition Percentage for regular and Part-Time Call Center Agents in China, India, Malaysia, the Philippines, Singapore and Thailand Mean Attrition (FullTime) 17% 38% 18% 18% 16% 15%China India Malaysia The Philippines SingaporeMean Attrition (Part-Time) 29% 32% 24% 24% 21%16%Thailan d Source callcentres.netAt this rate, a job in a call center is already considered as a life history in the Philippines, and not looked upon as merely a temp position as in the United States. Nonetheless, poaching or pirating of employees between call centers has already been observed because of the limited talent pool. Call centers are challenged to implement best practices in curbing employee attrition in the call center industry such as a flexible and conducive environment, high incentives, and training schemes, and more importantly, a career path development plan to convince college graduates that being a call center agent is not a dead-end type of job. The Challenge of Moving Forward The question remains as to who will bear the cost of improvements required to assure all factors necessary to ensure the sustainability of the Philippines competitive advantage in the call center industry. Some call centers have shouldered the cost themselves, offering free inhouse training for n ew hires. Still others have established mutual efforts with existing universities and the Technical Education and Skills Development Authority (TESDA) to incorporate call center-oriented training requirements in their curricula and courses. Call centers have established personnel development initiatives, e.g., in-house training and evaluation, to enhance skill, and compensation and benefits initiatives, e.g., higher allowances, all-expense paid holidays and vacations, career developmentplanning, etc., to curb attrition rates, ensure greater stability of the workforce size, and lessen the poaching of call center agents. More call centers are also contributing to the development of the countryside, more specifically the locations outside Metro Manila such as Laguna, Baguio, La Union, Cebu, Davao, Cagayan de Oro, Iloilo, etc. Geographical diversification, i.e., expanding call center operations to provinces, will provide more labor supply, and breathing fashion to answer to the intens e scrambling for office space in Metro Manila. Call center operations will also encourage infrastructure development in other metro cities, with the possibility of replicating the development in the cities of Metro Manila in infrastructure and skill to the countryside areas. Another opportunity available to the sector is value diversification. Indias move towards strengthening non-voice services was not lost on Philippine ears. In itsforecast towards 2010, the Department of Trade and Industry (DTI) expressed its target to increase the share of other BPO services in the total BPO revenue pie while decreasing dependence on call centers, which might now be showing signs of decline. The semiconductor industry in its peak of growth during the mid-1980s also prompted recommendations toward diversification towards higher-value processes. At the time, the sector primarily consisted of low-level technologysupported processes, mainly automated simple throng of semiconductor devices and produ ct testing. Even now, industry activity in high-altitudeAILEEN S. ALAVA19technology-supported activities such as wafer production and device design are still yet to reach the growth stage. The Philippines competitive advantage in the call center industry may be sustained through the enhancement of supply conditions, strengthening of related industries, and geographical diversification. Whether these efforts will work will be determined by two developments industry participants should take care to observe at the close of the year first, how the market will respond to the industrys efforts, i.e., whether the growth in demand will be sustained by continuous inflow of new contracts and whether forecasted increases in employment, facility expansion and investment will be attained or exceeded second, how the industry will answer the demands of the market,i.e., whether the total operational capacity (as to labor supply, connectivity, technology, facility and real estate) of the call cente r sector will be sufficient to respond to the rise in demand. These developments will indicate whether the call center industry can reverse the tide and halt be decline. However, the industry should be prepared should the slowdown in growth rates persist in the coming years, indicating that the countrys advantage has been weakened by the supply strength of other countries such as India or China. In this case, a prudent response that call centers should consider is to beam into other BPO sectorssuch as high-value, non-voice-based services to compensate for the effects of decline in the call center industry.REFERENCESA. T. Kearney (2007 & 2005). Global services location index. Balfour, F. (2003, February 3). The way,way back office. Business Week. Bharadwaj, G., Varadarajan, P. & Fahy, J. (1993). Sustainable competitive advantage in service industries a conceptual model and research propositions. Journal of Marketing, 57(4), p. 83. 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