MANILA -- When the Philippine business process outsourcing sector wraps up its five-year road map next year, it will likely tout a success story: a $25-billion industry employing 1.3 million people.
The BPO industry's call center sector has arguably played a key role in this feat. For one, it accounts for more than half of the industry head count and revenues. Nonvoice sectors like information technology, knowledge process, health care, animation and others make up the rest.
The expansion of BPO has had a positive effect in the Southeast Asian country. Call centers and other companies have boosted the real estate sector and, by lifting household incomes, aided retailers.
The question is, can the growth of call centers continue unabated? As the industry looks to map out a new game plan, potential obstacles are cropping up.
At a recent international call center summit in Manila, industry leaders sounded apprehensive about other burgeoning businesses in the Philippines, particularly gambling. The reason? Competition for talent.
"Once upon a time, we were the only game in town," Benedict Hernandez, president of the Contact Center Association of the Philippines, told reporters on the sidelines of the summit in late January. "We were the fastest growing private employer, and we still are. [But] now, other industries are growing. You have new casinos, and they also pay well."
City of Dreams Manila, an integrated resort and casino, opened last month and was looking to hire up to 8,000 workers. The Philippines expects at least two more big casinos to open in the next few years. The country has ambitions to overtake Las Vegas as the world's No. 2 gambling destination by 2020.
So far, there has not been an exodus of call center agents. But Jonard Bonifacio, a former customer service representative who now works as a cashier at a major casino in Manila, is happy with his new job. The position entails fewer graveyard shifts and "less irate" clients, the 25-year-old said, yet the salary is "as good" as what he earned before.
Bonifacio, who is also a licensed nurse, said he is not the only call center veteran in the casino department where he works.
Hernandez noted that call center companies invest heavily in training, meaning their agents are fit for any customer relations job. "They speak English well, and they are used to shifting work [hours] too," he said.
Less talking, more competition
Hernandez said newly hired call center workers, on average, can earn up to 20,000 pesos ($453) per month. Bonifacio doubted he would make that much if he opted to practice nursing.
Even so, finding and retaining qualified employees has never been easy for call centers. Only one out of every 10 applicants is hired. The annual attrition rate is more than 50%, Hernandez said.
Changes in the Philippine education system are set to make the task even more difficult, at least temporarily.
A new K-12 program will add two more years to high school. This means it will take longer for students to obtain degrees, a requirement for most employers. In the years 2020 and 2021, call centers and other businesses will be unable to tap the normal pool of more than half a million new college graduates.
The Contact Center Association is seeking to turn this problem into new opportunities by working with the government to offer relevant training in high schools. This would allow the Philippines to produce employable high school graduates.
Still another challenge: Demand for contact services that do not involve talking is making it harder for Philippine companies to set themselves apart from rivals elsewhere.
Hernandez said around 90% of services still require voice communication, but the nonvoice segment is growing fast. "We already do nonvoice [contact services]. The point is, if you take away the better Filipino accent, how do we say that we are better than the rest? How do we say that we are different?"
The Philippines in 2012 overtook India as the world's leading call center market. But the competition for talent with growing domestic industries, like gambling, may force companies to jack up salaries. That would put more pressure on margins already squeezed by electricity rates that are higher than in competing countries. Eventually, Manila could risk losing its title as the world's call center capital.
Hernandez said the differentiation question needs to be answered in the next industry road map.
"Very capable industry"
Investors may be turned off by looming amendments to fiscal incentives, too.
For enterprises that register with the Philippine Board of Investments and set up shop in special economic zones, the government is thinking about imposing a 15% income tax for the first 15 years. Currently, such call centers are eligible for income tax exemptions of four to eight years before they are subject to a 30% annual levy.
Hernandez advocates maintaining the incentives, noting that other countries dangle even better packages for investors looking to set up offshore outsourcing. He said the policy change could deal a blow to the industry, whose earnings growth has slowed in recent years.
Revenue growth averaged 18% from 2012 to 2014, compared with 37% from 2009 to 2011, according to data from the Contact Center Association and Bangko Sentral ng Pilipinas, the nation's central bank.
Some industry watchers are confident the Philippines can push through the headwinds, however.
"The Philippine call center industry is an established industry," said Roberto Floro, a research manager at Tholons, a consultancy for BPO companies. "It is a very mature and very capable industry."
With its English-speaking workforce, the country is still the preferred destination for contact center services, even though costs are lower in India and China, according to Floro.
H. Karthik, research director at outsourcing consultancy Everest Group, still sees vast room for growth in the Philippines. At the call center summit in Manila, he said that out of $350 billion worth of global spending on contact centers, only 20% is outsourced. That spells opportunity for the Philippines, which already leads the global offshore English contact center outsourcing market, with a 36% share.
Karthik expects that, as companies trim costs, offshore call center outsourcing will grow at a 12% clip.
For the Philippines, the real challenge may be ensuring "that it can meet future demand," Floro said. That, he suggested, means "the issue really is talent."