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Will the global recession be a good or bad thing for outsourcing in the Philippines?
It is said that when the U.S. sneezes the whole world catches a cold. But not all countries are equally sick in the current global recession.
“There is a positive and a negative to a recession,” pointed out Alfredo Ayala, chairman of the Business Processing Association of the Philippines(BPAP), at a press conference during the International Outsourcing Summit on October 11, 2011.
Ayala acknowledged the obvious negative as a decline in consumer transactions. But he also saw an opportunity for customers wanting to save money becoming more dependent on outsourcing, or the contracting of business to a third party, often across borders.
“I’m sure everyone worries,” Ayala acknowledged. “All the CEOs in this room check their forecasts.”
After all, there is cause for concern worldwide. TPI, one of the leading global sourcing advisory firms, reported that outsourcing slumped globally by 18% to US$16.4 billion in the second quarter of 2011.
But the decline depended on location.
Total contract value dropped 51% quarter on quarter in the Americas but jumped 55% in the Asia-Pacific.
Donald Felbaum, the chairman of the American chamber of Commerce in the Philippines said, “We all know that there is a global recession going on. The fact is, the U.S. is suffering by it. I was just back a few months ago and I could see it first hand.”
Yet he noted: “The Philippine BPO industry is looking at 16% to 18% year-on-year growth.” In 2010 the country’s business process outsourcing sector grew 26% so that would mean a decline.
But everything is relative. Felbaum said, “The Philippines has been somewhat isolated from the recession going on in the [United] States.”
Ayala said that the Philippine industry may experience a slowdown, as it did during the 2009 financial crisis when growth went from 20% in 2008 to 18%. However, he expects that after a dip, growth will pick up again.
Ayala eyed a second positive opportunity in the recession- attracting businesses to outsourcing who never considered it in rosier economic times but need to save money.
“A lot of people who weren’t going to talk to you before are going to talk to you now,” he shared.
But people do not always do what makes financial sense, contested Aparup Sengupta, managing director and global chief executive of Aegis Global. He explained that there is a conflict between sensibility and sentiment.
“The sensibility part is that, with more pressures on cost, people are going to look at reengineering cost structure and efficient geographies, where the Philippines really comes out as a preeminent player, especially for the North American market,” Sengupta explained.
“However, there is a sentiment issue,” he said. “There is a huge desire to create opportunities for local citizens,” referring to those in countries experiencing a downturn.
He cited high unemployment rates as a reason for governments wanting to move business back into their own backyards.
Felbaum disagreed. “Even if they could keep those jobs in the U.S. I think it would be very difficult. Kids coming out of the U.S. colleges now already want to start with $70,000 to $80,000 a year. They’re not going to make that in entry jobs in any call center.”
BPAP had earlier projected that outsourcing would bring in $11 billion this year and directly employ 600,000 people. BPAP is now looking at a target of $20 billion by 2016 and hiring an additional 900,000 direct employees.
Sengupta offered a straightforward and surprising solution for outsourcing sore spots. He suggested more structured defaults worldwide.
In the next breath, he said “We need to create stories about how Filipinos helped the world and how Indians helped the world.”
He explained there is an inherent brand that is told in a story. He said that it was not enough to say that your country was good at service culture or voice analytics. He said the scientist or inventor has to be singled out and associated with the country.