Converging on the Mall

Somebody forgot to give the folks at Convergys the memo about the global economic slowdown. OK, so maybe the decision to build the outsourcing company's biggest facility in the Philippines was made in better times. But now CVG's got room to add another 2,050 employees when it already is one of the largest BPO employers in the country.

And it goes to show that the outsourcing model remains intact: serve First World companies' needs using labor from Third World countries. But the modern day equivalent of the sweatshop involves having your workers report for work at one of the country's swankiest malls.

Convergys Corp., a customer relationship management company, will open its 12th and the largest facility in the Philippines.

President Gloria Arroyo will lead the dedication of the new facility on Thursday, Oct. 22. The facility encompasses over 17,000 square meters located in Glorietta 5 along Ayala Avenue in Makati City and can hold 2,050 employees.

It is the first Convergys site to offer the convenience of a shopping mall on its lower floors and includes executive and administrative offices, training rooms, conference rooms, and employee lounges.

Convergys has experienced an unprecedented growth in its six years of operations in the Philippines. From 200 employees upon opening just six years ago, it now counts over 17,500 employees on sites across Metro Manila, Cebu, Bacolod and Sta. Rosa, Laguna.

Convergys employs more than 70,000 people across its facilities.

Convergys is now the largest BPO provider in Cebu City with over 3,300 employees throughout three contact center facilities.

Within five years, Convergys has established 12 contact centers in the Philippines - seven located in Metro Manila, three in Cebu City, one in Bacolod City, and one in Santa Rosa, Laguna.

Dispersing to the Periphery

One thousand new jobs in a city of 12 million may not be too exciting. One thousand jobs in a city of half a million is something to write home about. In the Philippines' Visayas region, Iloilo is fast becoming a favored destination. It's no surprise that a city with six universities and thousands of fresh graduates a year would become a viable location for outsourcing companies. Other wannabee cities looking to boost development need remember that besides the available labor pool, another ingredient is necessary -- reliable telecommunication links to the rest of the world -- before they prepare the powerpoint presentations to lure companies to their neck of the woods.

Transcom, touted to be Europe's largest business process outsourcing (BPO) firm, will open a call center in Iloilo in 2009, and will hire from 1,000 to 2,000 employees.

The investment is expected to cement the city's place among the top new wave international BPO sites.

Iloilo City Mayor Jerry Treñas said Transcom has set the hiring of around 1,060 employees in October. It is planning to double its work force after it starts its operations, according to Treñas.

Transcom has 75 sites in 29 countries worldwide and has expertise in various industries including telecommunications, the financial industry, travel and leisure, utilities and retail/consumer goods. It has around 20,000 employees serving over 120 major clients in more than 30 languages.

The investment has also affirmed the city as among the top new BPO investment sites in the world.

The city already hosts nine BPOs with more than 4,000 workers. These include Teletech, ePLDT Ventus, Callbox Customer Contact Center, Global Mega Communications Inc., Techno Call Corp., Interactive Voice Call Center, Medlink Trans Services, Eversun Software Philippines Corp., and Savant Technologies.

Getting to 20% With Ayala

As eTelecare's (ETEL) shares tumbled, the Philippines' oldest conglomerate and owner of the country's biggest bank and biggest real-estate company made good on its intentions to boost its stake.

According to information reported by Ayala Corp. to US regulators, the conglomerate now owns 6.39 million ETEL shares, or 22.22% of the BPO. Ayala first bought into ETEL in June 2006, when press reports said it paid about 800 million pesos for 11% of the company, using LiveIt Solutions Inc. as its investment vehicle.

The shares may have just been transferred from one Ayala pocket to another. Check out Ayala Corp.'s US SEC filing. There are more layers in this than a wedding cake: Ayala wholly owns Azalea International Venture Partners Ltd., which wholly owns LiveIt Investments Ltd., which in turn wholly owns Newbridge International Investment Ltd. Newbridge, after all, was an original investor in eTelecare. In an early November filing, Ayala said additional investments in eTelecare were for "investment purposes."

Ayala Corporation currently intends, depending on market and other conditions, and in its sole discretion, to consider acquiring additional Shares of the Issuer and thereby increase its total beneficial ownership interest to 20% of total outstanding Shares on a fully diluted basis (or approximately 22% of the Issuer’s total current outstanding Shares on an undiluted basis), in order, among other things, to allow Ayala Corporation to account for its Shares under the equity method of accounting.

Even then, it's usually a good sign when a major shareholder puts it on record that it is the shareholder on record, instead of burying it in an offshore vehicle domiciled in some balmy tax haven. After all, Ayala will not want to get above the 20% threshold if it's expecting poor performance from ETEL going forward.

ePLDT's SPI Making Deals in India

Here's another little tidbit on the globalization front. SPI, a Philippine BPO owned by the nation's largest telecommunications company, is looking to buy Indian companies as it expands its presence in the subcontinent. In the meantime, Indian companies are scouting in SPI's backyard for suitable acquisition candidates in the race to bulk up and develop a full service line. Now which of the many BPO companies around today will become the household name in 2020?

Global healthcare, legal and publishing business process outsourcing company SPi is looking out for suitable acquisitions in India. Ernest L Cu, president and chief executive officer of the Philippines-headquartered Spi, said the company has allocated $50 million for mergers and acquisitions. The company is in talks with investment bankers and is considering several proposals, Cu said while addressing the media here on Wednesday. According to Cu, SPi plans to move its medical billing work to India from the US. He said the setting up of new delivery centre in Chennai and the cost differential between the US and India has made the company favour shifting of medical billing business to Chennai in eight months. The business has the potential to create 150 new jobs. SPi Technologies inaugurated its new 17,000 sq ft facility in the city on Wednesday. The 1,100-seat facility will house the company's publishing and healthcare business operations. The new centre will be the company's fourth in the country after Pondicherry, Coimbatore and New Delhi. Cu said the Indian company would increase its headcount by 700 by the end of this year. In 2003, SPi through its wholly owned Indian subsidiary SPi Technologies Private Ltd
acquired the Pondicherry-based Kolam Information Services Private Ltd, a book
publishing BPO. Two years later, it acquired the medical transcriptions business
of KG Information Services and Technologies Private Ltd in Coimbatore.

Half a Million Jobs

The Contact Center Association of the Philippines (CCAP) has a target: 500,000 gainfully employed in the industry by 2010. If this target is achieved, what will it do to the ecosystem that serves this industry? More Manila bars, open at noon, with dark curtains to shield the sun, so that graveyard shift workers can still feel like they're going out at night? More 7-11 and Ministop convenience stores with dine in facilities? More "We will give your accent an American twang" ESL (English as second language) centers? More healthcare workers trained to diagnose and treat "graveyard disease"?

Raffy David, CCAP director, said in a phone interview that industry estimates peg the total current industry workforce at around 200,000 workers.

Since call centers began setting up around the early part of the decade, the industry has been doubling its workforce annually but has tapered off in recent years due to concerns in the supply of skilled labor.

This is one of the perennial issues CCAP wants to address in an industry roadmap currently in development. CCAP plans to unveil this roadmap, basically detailing a strategy for the industry until 2010, in its annual conference this July.

"Since 2001, we've been trying to address perennial issues like HR, including poaching of agents, and promoting the Philippines abroad," said David, who also serves as CCAP director for membership.

Manila's Construction Boom

There was a time when property developers had to rely on a "build it, and they will come" strategy. Now the world has turned -- all the big boys with capital and spare land are being approached by BPOs, i.e. "we have come, please build it." The larger BPOs are ready, willing, and eager to take up entire buildings and sign long-term leases in their rush to expand. Which goes to show that the constraint for the Philippine economy's growth engine isn't the ability to sell its services abroad. BPOs with U.S.-facing businesses are so confident of demand that they are snapping up any sizeable office space that comes onto the market. What's holding back the boom are domestic capacity constraints, be it buildings with the right cabling, or qualified managers to manage the pell-mell growth. But have faith -- the capitalist system is responding to remove those constraints . . .

SM Investments Corporation, one of the Philippines’ largest conglomerates, broke ground on its latest built-to-suit project in Makati City.
The firm disclosed to the Philippine Stock Exchange (PSE) yesterday that the project, to be called SM Makati Cybezone, is a 4- storey building at Sen. Gil Puyat Avenue, due for completion in Q2 2008. Located at the heart of the Metro’s business district, SM Makati Cyberzone will have a gross floor area of 18,700 square meters and will be occupied by eTelecare Global Solutions, Inc.
"With the growing presence of the BPO industry comes also the growing need for spaces and integrated office facilities," said SMIC vice chairman Henry Sy, Jr.
He added that "the SM Group is more than prepared to answer those needs, as we have aligned with the market demands of this growing industry to provide well-planned and integrated office facilities to BPOs and Contact Centers in strategic locations.". . . .SMIC also broke ground for its second business process outsourcing (BPO) building for PeopleSupport at the SM Baguio Cyberzone recently.

If Citi Can Do It, So Can HSBC

HSBC , according to this press report, will add a few thousand more jobs in the Philippines to serve its US and UK customers. As more and more financial bigwigs such as AIG and Citibank cluster their in-house operations in the Philippines, you can say the Philippines is becoming the center of backroom operations -- the contradictory terms intended.

...the visiting bank official said HSBC is committed to the country in terms of expanding its banking services and its support group by increasing its Business
Processing Outsourcing (BPO) operations.
A third BPO is scheduled to open this coming year, which will increase the total employees of the bank on a consolidated basis to roughly 11,000, disclosed HSBC Philippines Chief Executive Officer Mark Watkinson. Specifically, its banking operations employs a total of 2,500 and 5,500 for BPOs.
At present, the bank has a couple of BPOs, one in Ayala-Alabang and another in PBCom Tower at the heart of the Central Makati Business District. These two service HSBC’s clients in the United States and United Kingdom.
It was explained the Philippines has an edge to service the bank’s US and UK customer base because of the natural talent of locals to speak English as a second language.

300? No 3,000

With money in the bank after selling shares to the public for the first time, eTelecare says it's busy adding capacity in the Philippines with plans to open a new 13,000 square meter site, its 13th office, in a few months. Triskaidekaphobians need not apply for any of the new jobs opening up, which will boost eTelecare's Philippine headcount past 10,000.

eTelecare Global Solutions, Inc. (NASDAQ:ETEL), a leading provider of business process outsourcing solutions, today announced it will invest in its sixth delivery center in the Philippines. The new center, located in the Annex@Shaw facility in Mandaluyong City, Metro Manila, will open in the third quarter of 2007 and employ more than 3,000 employees when fully deployed.
Funding for the new center comes from eTelecare’s recently completed initial public offering of American Depository Shares.
eTelecare is the first Philippine-incorporated business process outsourcing (BPO) company, and the second Filipino company overall, to trade on the NASDAQ stock exchange.
“Our successful U.S. IPO affirms that the Philippines is one of the top outsourcing delivery locations in the world, and that there is strong market demand for a high-quality multi-shore provider such as eTelecare,” says John Harris, eTelecare President and Chief Executive Officer.
“We plan to invest a significant portion of the proceeds from our IPO in further expansion in the Philippines,” added Fred Ayala, Chairman of eTelecare.

New Growth Areas

Say you have a corporate lawyer friend, who is so successful at what he does that he is the go-to guy whenever some corporation needs his services. He is featured on the cover of business magazines. His law firm is the top in the field, charging the highest rates per hour -- with no shortage of clients.

What if one day he says he is looking for "new areas of growth" and that he will begin practicing medicine. Your head will snap from shock.

It's the same shock that comes with the announcement of San Miguel Corp., the Philippines' largest food and beverage company, that it will get into power generation.

In a preliminary information statement filed with the Securities and Exchange Commission, SMC said its board of directors has approved a plan authorizing the company to invest in new businesses such as power generation or transmission, water and other utilities, mining and infrastructure.
The recommendation to venture into new businesses was made by SMC's financial adviser, Goldman Sachs.
SMC's board said it was timely to "actively consider developing new engines of growth" to further augment the gains realized from nurturing its current core businesses. SMC is the market leader in the Philippine food, beverage and packaging sectors. Philippine Daily Inquirer sources estimated that SMC would need about $2 billion to be a formidable player in the power industry, which includes generation, distribution and transmission. The sources said SMC could raise this amount by reviving a hybrid debt issue that it earlier shelved, or by other capital-raising options it was currently studying.

Power generation may offer more lucrative returns than making snacks and drinks. And you may argue that a conglomerate such as San Miguel is already in far more businesses than just making good beer and tasty meats. There's the logistics side -- a trucking fleet to bring produce to the country's 7,101 islands; there's the information technology side to track its sprawling assets; there's property development to house its offices and suppliers; and there's even some connection to the power industry. Those sprawling plants consumer a lot of electricity, right, so why not get into the act?

Yet there's no escaping the whiplash when someone strays far from his competency.

Texas at Clark: Philippines Lands a Biggie

Texas Instruments chose the Philippines over China for a new 800,000 square foot (74,000 square meter) plant. The world's largest maker of chips for mobile phones will spend US$1 billion over 10 years to build out the factory. The plant will be located at Clark, a former U.S. airbase about an hour's drive north of the Philippine capital, and will employ 3,000 people by end of 2008.

"We have broken the myth of China here," said Ernie Santiago, executive director of the Semiconductor and Electronics Industry in the Philippines, Inc. (SEIPI). "It seemed before all roads are going to China, but we have made a point here that the Philippines is also a smart choice for investment. It will be a magnet, we expect other companies would follow," he said.
The Philippines supplies about 10 percent of the world's semiconductor manufacturing services, including mobile phone chips and microprocessors. Texas Instruments and Intel Corp are two of the biggest companies with manufacturing plants in the country.
Once the new TI plant comes onstream at the end of next year, Philippine electronics exports could jump by $3-4 billion per year, Santiago said.

The Bloomberg take was that human capital, and not cheap costs, was the deciding factor for TI choosing the Philippines over the perennial favorite China:

Texas Instruments in recent years has implemented a strategy of making about 80 percent of its chips and outsourcing the rest to reduce production quickly when demand weakens. The company's current management in the Philippines, where it has had a factory since 1979, gave that country the deciding edge over undisclosed locations in China, (TI's) Silcott said.
``We got a really experienced team, and we wanted to quickly bring up the factory,'' he said.

The Wall Street Journal had a similar take, arguing that the overall cost of doing business in China, especially taking into account rapid increases in wages for skilled labor, are no longer as cheap as they used to be:

Texas Instruments' executives visiting Manila Thursday said the highly skilled workers at its existing chip plant in the Philippines persuaded the company to open a second plant there, despite intense competition to attract Texas Instruments' investment from other Asian nations.

While China continues to be a major draw for technology companies -- Intel Corp. in March said it was planning a $2.5 billion chip-wafer manufacturing facility there -- Texas Instruments' decision to build another semiconductor testing and assembly plant in the Philippines may also reflect how rising costs in China are encouraging investors to consider other locations.

On Thursday, Kevin Ritchie, Texas Instruments' senior vice president of technology, said the Philippines' pool of educated, English-speaking workers tipped the company's decision. The new plant is expected to provide jobs for around 3,000 people.

The First Gram is Always Free

There's a study out by Compact Management Consulting on how IT and BPO outsourcers deliver cost savings in the first year, and then ratchet up their prices in successive years, making them the costlier option for a company than if it kept the service in-house.

The research, based on an analysis of 240 deals worth more than £20m, found that outsourcing providers were pricing contracts to produce savings of up 18% compared with in-house costs in the first year. But costs then began to escalate, reaching 36% above comparable top quartile internal operations by year three. . . .

Simon Scarrott, head of business development and marketing at Compass, said: “With those figures, it is easy to see why the claim that all outsourcing will save money is a myth. There can be sound strategic reasons for outsourcing but saving money over the long term is not one of them.”

He added: “Outsourcing providers are not that different from an in-house operation. Indeed, they often use the same people as the in-house operation after the deal is signed and outsourcers cannot perform alchemy on a business process and turn an operation into gold.”

Hold on. There are significant savings involved if the business model is to arbitrage the labor costs between an expensive developed country's workers and the cheaper rates available in a developing country. So even if you are still using the same number of IT programmers, clerks, project managers, and customer representatives, there's no doubt the correct outsourcer can do it, cheaper.

Then again, even if you, the chief information officer of a fast-growing company, take the Compass study as gospel truth, you can always choose what Aviva has done -- get an outsourcer to build it for you so you can enjoy the first and second-year savings, and then take over the facility.

The previous month, Aviva transferred 1,600 employees in Bangalore from an outsourcing vendor, 24/7 Customer, to Aviva Global Services. It was the first move of its kind and size in the Indian business processing outsourcing industry, NASSCOM said.

When a vendor creates a call center for a company, runs it for a certain period of time, then hands the operation over to the company, it's called the build-operate-transfer (BOT) model. Typically, a company moving operations to India would build the operation from scratch, or subcontract the operation to an outsourcing vendor, or some combination of the two.

The BOT approach lets a company get going in India faster, Aviva executives said at the ceremony in Mumbai. That helps Aviva, and its Norwich Union insurance subsidiary, adapt to change, [Executive Director Patrick] Snowball said when he accepted the award.

"Our excellent operations in India are critical for us to ensure we maintain a competitive advantage," he said. Aviva has worked with three vendors under the BOT model: EXL, WNS and 24/7 Customer. Over the course of the year, 5,000 employees will be transferred from those vendors to Aviva's own offshore division. The Bangalore facility was just the first to be transferred. Later this year, the company will transfer facilities in Sri Lanka to its control, and in Pune.

Infosys 300 Seats

Here's Infosys BPO on the record saying their Manila facility will be up and running within six months.

Driven by a strong customer demand, Infosys BPO is planning to scale up its presence in Manila by setting up its own delivery centre soon. Infosys BPO currently has a tie-up with Ventus, the call centre company of Philippine Long Distance Telephone Co's (PLDT) unit ePLDT Inc.

"We are looking at setting up a 300-seat facility in Manila over the next two quarters," said Mr Amitabh Chaudhry, CEO and Managing Director, Infosys BPO Ltd. "The partnership with Ventus has worked well for us and we plan to continue with it," Mr Chaudhry said.

Infosys BPO plans to use the Manila facility to serve the US clients in both voice and non-voice processes. Mr Chaudhry said clients are more comfortable with getting serviced from the Philippines because of the availability of better skill sets, especially in areas of F&A (finance and accounting), the familiarity with the US GAAP standards and in customer relationship management.

Moreover, the Philippines has emerged as an ideal offshore destination for BPO firms because of the English fluency and familiarity with American culture. The Manila facility would also double up as a business continuity centre for Infosys BPO, Mr Chaudhry said

Take note of that other phrase peculiar to the BPO industry: "business continuity." The majors are all building in redundancy and reducing the risk that a single event can undermine their ability to do business. In a post 9-11 world (and nuclear-armed Pakistan and India), it's essential to doing business.

Coming Soon: Bosses from Bangalore

When your backyard is crowded, you need to go someplace else. The success of India in making the awkward term BPO an acronym we now all know has led to homegrown problems. While India sorts it out, in the meantime the greener pasture is the Philippines. Competition for Manila's best workers who can speak straight English with an American accent is intensifying, though the labor surplus in the Philippines is still large, so the runaway bidding for qualified workers isn't there -- yet.

Expect a few announcements from major BPO players within the year, according to India's Financial Express.

The wheel has come a full circle for the Indian business process outsourcing (BPO) sector with runaway wage inflation driving the who’s who in the domestic BPO world to look for low cost destinations such as the Philippines to scale up operations.
Leading the pack is the Infosys BPO, which has already set up shop in the Philippines in association with a local partner. The company is said to be planning to ramp up its presence there through an acquisition or floating a new facility. Other BPO players such as HTMT, IBM Daksh and GenPact are also ramping up their Philippines operations, industry watchers say.
“The challenge is real. For a tier-II player who needs to grow to graduate to tier-I, Philippines are an extremely attractive base to expand into. In 2007, we expect four to five deals involving large Indian players who are moving to that country,” he said, adding, “most of the investments there would be towards setting up support operations for primary facilities based in India.” Many BPOs are eyeing tier-II locations outside Manila and Makati in the Philippines to set up disaster recovery centres for Indian facilities, sources said.

Using Your Accent With Accenture

Accenture is opening its seventh office in the Philippines in a massive expansion that will see capacity jump by about 50%, and employment by 36%, according to Philippine press reports. It's all good for those with the proper accents to man the call centers or the skills to do global accounting and programming, not to mention the ability to be productive in a time zone not of your own.

Note to managers: if your lease on office space with excellent telecommunications facilities is expiring soon, make sure you renew and lock in your rates. Landlords are seeing strong demand for prime space.

All Headline News gives us the Accenture capacity figure:

Accenture currently operates seven facilities in the Philippines, with a total of more than 10,000 contact center seats. Its latest and biggest facility is housed at the Robinsons Cybergate Tower II in Mandaluyong City, which has 5,000 contact center seats. Accenture is looking to end its fiscal year with a total of 15,000 seats, including the planned Cebu center, which will initially house 500 seats but will be ramped gradually.

While Inquirer says this about its headcount:

The company expects to have a total of around 15,000 employees in the country by the end of its current fiscal year in August.

Basilio Rueda, senior managing director of Accenture's Global Delivery Network, said that in the Philippines, call center operations exhibit the biggest growth in terms of employee count. In terms of revenue, application development contributes the highest at about 40 percent.

Here's the rub. If you assume a generous yield of one successful hire for every 10 applicants interviewed, that means Accenture has to churn through 40,000 people to get its workforce up from the current 11,000 -- by August.

Singapore vs Philippines

Sometimes, you can compare the housing markets and the level of sophistication of the banking industry by the products they offer.

If you are a Singapore office worker, you can borrow for a home loan, and you'll know what the interest rate will be for two years. Beyond that, you wouldn't know for certain, because the loan becomes variable. If you are an office worker in the Philippines, you could fix the interest rates that you will pay on your home loan for the next 25 years.

In Singapore, OCBC offers the following package fixed-rate loan:

Year 1 3.75% p.a. (fixed)
Year 2 4.00% p.a. (fixed)
Thereafter VALUE RATE Less 0.75% (variable)


In Philippines, BDO offers these rates:

9.00% fixed for 1 year
9.25% fixed for 2 years
9.75% fixed for 3 years
9.95% fixed for 4 to 5 years
11.00% fixed for 10 years
11.50% fixed for 15 and 25 years

Of course, anyone would rather borrow at 3.75% than at 11%. But having a First World economy does not always mean you are ahead of everyone.

When BPO Demands, The Ecosystem Responds

Office workers working in the expanding BPO industry need offices to work, right? The beneficiaries of the BPO boom include property developers busy adding supply to meet demand. Manila's skyline is changing, as surely as Bangalore's. Maybe the pace is not as fast as Shanghai's, but the change is illustrative of how one industry can be the economic engine for the rest of the country.

Real estate developer Megaworld Corporation is riding mightily on the fast-growing business process outsourcing (BPO) sector and is investing P1.5 billion ($31.2 million) in a new office building exclusively aimed at BPO operators.
Megaworld expects to finish the construction of the 27-storey Global One Center, which will house BPO players, by early 2009. The new building, which will offer 42,000 square meters of office space, follows in the heels of other Megaworld properties catering mostly to IT and BPO companies.
The country's BPO sector - which includes call centers, outsourced accounting, and transcription firms, among others - is expected to grow 20 to 30 pecent annually, putting pressure on property developers, like Megaworld, to keep up.
Jericho Go, Megaworld's first vice president for business development and leasing, said they are set to build at least 500,000 square meters of office space aimed at the IT and BPO markets in the next five years, when demand is expected to peak.
Megaworld owns the Eastwood City Cyberpark, the country's first information and communications technology (ICT) park accredited by the Philippine Economic Zone Authority (PEZA), where IBM Philippines is the developer's biggest tenant. The Cyberpark is currently home to about 60 firms, half of which belong to the IT and BPO sectors.