In the last 14 years, we have been witnesses to several world changing events: 9/11, the economic meltdown of 2007, the Euro Zone Crisis in 2009, climate change and tensions in the Middle East and Eastern Europe. In November 2014, Japan announced it was in a recession and the United Kingdom released results from a commissioned study that indicated the world was headed into a second global recession. Meanwhile, ASEAN is preparing for Integration in 2015.
These events and developments prove that the world as we know it is no longer predictable. A 2013 study prepared by Kirk Thompson, Program Director for the University of North Carolina described our world as being in a VUCA environment. VUCA is the term coined by The Army College after the end of The Cold War and described an environment which is Volatile, Unpredictable, Chaotic and Ambiguous. VUCA has torn down political, economic and social barriers whereby what affects one part of the world will have repercussions in other regions as well.
We saw this in 2012, when a simple electoral process in Greece held the fate of the world’s financial markets in the hands of its voters. The Euro Zone crisis which had its beginnings in 2009, affected several economic powerhouses as Spain and Italy but also highlighted the stability of Asia. Companies such as Deutsche Bank and Bank of America re-aligned their resources, created an outsource group to Manila as early as 2009 and continued to flourish in light of the structural breakdown. Thus, despite turbulence, opportunities for growth still exist. The key is to be able to foresee turbulence and implement strategies that will adapt accordingly.
Surviving Global Volatility through Outsourcing Services
As the world heads toward more turbulent changes in 2015, companies are well advised to follow the example of Deutsche Bank and Bank of America and implement strategies that moderate operating expenses and align resources to improve productivity by outsourcing services to the Philippines. Outsourcing allows businesses to lower cost by capitalizing on the comparative advantages of economies of scale and improve productivity by channeling these cost savings to corporate functions that fully support revenue generation programs.
In the Philippines, outsourcing offers the comparative advantage of having lower cost of labor. Based on labor cost alone, a US company can save more than 50% on its costs of monthly operational. In the Philippines, a BPO service provider can manage back office operations for anywhere between US$9 to US$15 per hour. This rate is inclusive of salaries, benefits, rent, Internet, power, contingencies and profit margins. In the US, the average wage rate is already at US$23/hour. If we assume that labor accounts for 25% of gross revenue then we can safely estimate cost per hour of operation to be at US$92 per hour.
And Filipinos continue to prove their ability to render world class services as its BPO industry is on pace to grow by 16% per annum despite having a comparative disadvantage with other currencies in Asia. The Philippines is a rich resource of talent with English as the primary medium of instruction and business communication. Proof of this is that 70% of revenues in BPO come from voice campaigns that require telemarketing and customer service skills.
In its 2014 report, multinational real estate developer CBRE reported that of its available commercial spaces in the Philippines, 600,000 square meters have already been allocated and committed to house BPO back office operations alone. To put this into proper perspective, please review the previous paragraph. 70% of BPO revenues come from voice campaigns. Back Office which falls under non-voice is just a minor segment in the BPO industry.
What these numbers suggest is that the Philippines will continue to become one of the premiere outsourcing destinations in the world. Especially with ASEAN Integration which will commence in 2015, barriers to trade are expected to come down in several key industries. Integration will open up more opportunities for companies from other regions wishing to hedge against the unpredictable nature of the global business environment.
Outsourcing which has its origins in the 70’s has evolved from being a purely cost management based strategy to one that has proven to contribute significantly to revenue generation. It is a valuable tool; a double edged sword that offers companies worldwide a potent weapon to cut through the obstacles brought forth by an increasingly unpredictable and ever-changing environment. Outsourcing services to the Philippines is a huge step not just to survive but to thrive despite global volatility.