Outsource Accelerator: Future of Outsourcing White Paper Review

The Strong Future of Outsourcing: White Paper
An Abridged & Abbreviated Review
Outsource Accelerator White Paper:
An Abridged & Abbreviated Review.
For free copy of full white paper article – click here
A white paper, by Outsource Accelerator, Exploring
the Trends, Challenges and Initiatives in the
Outsourcing Sector, and the Unrecognised Potential
of the SME Sector as The Potent Success Factor.
Outsource Acceleratorhttps://outsourceaccelerator.com/whitepaper/strong-future-of-outsourcing-white-paper
www.outsourceaccelerator.com/

Part I. Overview
The 1997 Asian financial crisis caused waves of economic anxiety and hardship that compelled many
developed regions of the world to recalibrate their ways of doing business, push costs down, and
diversify their operational portfolio as means to manage risks and mitigate costs.
Outsourcing emerged at that time as a nascent key strategic thrust among companies, which
allowed them to free up resources and redirect managerial focus to core competencies.
Outsourcing: A recent search for efficiency
Outsource Accelerator White Paper: An Abridged & Abbreviated review.
Outsource Accelerator
https://outsourceaccelerator.com/whitepaper/strong-future-of-outsourcing-white-paper

Large firms began to look for providers that could take on the outsourcing of some of their
operations, taking the following factors into consideration:
• High absorptive capacity for knowledge and technology
• An environment characterized by a resilient market and
• good governance.
• Sufficient infrastructure to support advanced telephony
• and staffing needs
• An affinity to the customer and company culture
Part I. Overview

Part I. Overview

Globally, the IT-BPM sector generated US$ 166 billion in revenues in 2016 and is expected to increase to US$ 250 billion by 20225. The
Philippines has been projected to capture 15.5 percent of the global share of the IT-BPM market in 2022, which translates to US$ 38.7
billion.
Part I. Overview

The Philippine BPO sector is expected to slow down from the double-digit growth rates it enjoyed
during the first phase of its expansion.
Even as the Philippines builds its non-voice capabilities, which points to a "maturing" sector, it is
critical that the policy stance indicated in the 2017 Investment Priority Plan and industry initiatives
embodied in the new IBPAP roadmap maintain its momentum.
This roadmap has been endorsed and supported by IBPAP or the Information Technology and
Business Process Association of the Philippines, which is the “enabling association” for the IT-BPM
industry in the country, supported by various stakeholders, namely the government, chambers of
commerce, and allied industries.
Part I. Overview
A Maturing Sector?

Table 1. Dynamic effects of the BPO sector
Part I. Overview
A Maturing Sector?

The outsourcing sector is fast changing in both its breadth and depth of service provision. It is
quickly upskilling in response to an increasing demand for broader services. This is an exciting
development for the industry as it allows it to offer increasingly higher-value services, but it means
that the industry has to keep pace with educational requirements to ensure that there is adequate
supply of higher skilled roles.
Part II. Democratization of Outsourcing
Tapping into the Business of Small Enterprises

However, when it comes to the main bulk of
the outsourcing market, it is evident that the
vast majority of jobs still remain within the
original, more basic functions. When it
comes to the global IT-BPM sourcing market
for 2015, IT Services global sourcing
accounted for nearly 60 percent of the
world’s US$166 billion total. Another 40
percent came from BPO global sourcing
services. According to Frost & Sullivan
Analysis from the iBPAP Roadmap 2022
show, demand for IT services will remain
prevalent across all sectors while sub
segments indicate an increasing Knowledge
Process Outsourcing (KPO) demand followed
by Finance and Accounting.

The same reports that tout the contributions of
Small & Medium-Sized Enterprises (SMEs) to the
global economy also show that SMEs and start-ups
are excluded from many of the critical support
services that allow them to more efficiently grow
their business. In comparison, the bigger, more
established corporations has access to a broad array
of services which enable to them to better optimise
the efficiencies of their business.
Table 2.
Cost differentials from remuneration of service
professions across countries (2015, in US dollars)
A Different Story for SMEs

Currently, there is no standard definition for SMEs as countries who are at different stages of
economic development also face a high degree of heterogeneity among firms. Regional groupings
such as OECD define SMEs quite broadly as enterprises which “are non-subsidiary, independent
firms which employ fewer than a given number of employees”. The frequent upper limit in the
European Union is 250 employees, while the workforce could consist of only 100 people in the Asia
Pacific Region.
Defining SMEs

Compiling SME data from official
statistics, there is an estimated
35,000,000 SMEs in the ten
countries identified. In 2014, a
study showed that in the UK
alone, already 60% of their SMEs
chose to outsource IT
infrastructure15, thus, showing
their awareness of the benefits of
the IT-BPM industry.
Defining SMEs

If SMEs employ 101 million people
and 10% of that workforce is
represented by a Filipino BPO
employee, then this would result
in 10 million new jobs.
If 5% of SMES employ one
outsourcing employee, it would
add 1.7 million outsourced jobs to
the Philippines.
Defining SMEs

Should the Philippines corner 10%
of revenues of these SMEs, this
would contribute US$ 1 billion to
the national economy.
Taking a step further, if we take the proportion of
SMEs who are likely to engage in offshore
outsourcing, this market roughly represents
US$1.2 trillion worth of gross revenues using 2015
data.16
These conservative estimates make it apparent
that the Philippines should (1) aim to become the
outsourcing destination for SMEs, and (2) actively
encourage and promote outsourcing to SMEs in
these high-cost English speaking countries.
Defining SMEs

Observers of the BPO sector have seen a decline in the growth of large scale outsourcing clients.
They see Artificial Intelligence (AI) entering the space, putting downward pressure on the industry’s
basic roles. They see that the sector has little interest in the SME market because it is used to
catering to the single clients that contract thousands of staff each.
They conclude that the future of BPO, which is traditionally linked to large multinationals, may not
seem as robust as in the previous years of the industry17 - and may now be a sunset industry. But,
this simple exercise illustrates a massively untapped market in SMEs – a market which can produce
at least one million more jobs for the Philippines.
Defining SMEs

Table 3. SME demographics of 10 English-speaking countries.
Declining Trends

What are the type of jobs SMEs are likely to
outsource? Ironically, SME’s might, on a whole, be
less sophisticated than large multinationals. But
within an outsourcing setting, it is the SMEs that
generally seek more highly skilled roles for
fulfilment.
For example, the large multinationals might seek to
outsource 5,000 basic tele-support roles; whereas an
SME might need one web designer, one digital
marketing manager, and five sales executives.
High Value Demand

If we take into account the “gig economy,” we get a
better picture of the kind of freelance work Filipinos
are already rendering. The table below shows the skill
areas employed by websites that specialize in online
freelance services such as UpWork (formerly Elance &
oDesk) and Freelancer. In 2015, UpWork registered
1.4 million Filipinos onto its platform. The company
estimates revenues amounting to USD 200 million
from its operations in the Philippines alone. UpWork
makes more than USD 900 million a year, making it
the biggest company of its kind in the world.
The New Economy

When we look at the Global
Competitiveness Index (GCI), indicators
reveal interesting patterns for the
Philippines. In Figure 6, we compare the
rankings of the Philippines for each GCI
indicator against its overall rank (i.e. the
“frontier”). Those that perform above this
country-rank are the relative strengths of
the country, while those that perform
below the rank are deemed weaknesses.
We then compare these same indicators
from the previous year’s performance of
the Philippines to see which areas are
“upgrading” or ”downgrading.” Plotting
indicators from both years reveals an
interesting pattern
A Challenging Environment

The Philippines enjoys its position as one of the most
attractive destinations for offshore services. A.T. Kearney
(country-wise) and Tholons (city-level) rankings show that
the country and its capital continues to belong to the top
10 countries and cities for outsourcing. While the
Philippines ranks seventh worldwide, it still fared better
than Thailand, Brazil, and China in terms of financial
attractiveness based on the 2017 Global Services Location
Index. It also bested its ASEAN peers in terms of people
skills and availability. The Philippine business environment
outperformed all others as the top location for
outsourcing.
A Survey of Global Players

The Philippines enjoys major improvements in its business environment compared to previous
years. Such improvements are linked to the roles and initiatives played by the BPO industry, the
Philippine government, and the academe, in supporting the country’s outsourcing sector. In less
than a decade, the Philippines moved up 37 places when it comes to the Ease of Doing Business.
From 138 in 2010, the Philippines ranked 99 in 2016.
There is obviously still a long way to go to bring the business environment to ‘Western standards’,
but there is evidence of strong inertia and global support from within the associated outsourcing
and government bodies.
Supporting Initiatives and Bodies

The above initiatives, which span many sectors and agencies, show how serious the Philippines is in
building a strong successful future for outsourcing.
However, while these activities undoubtedly benefit the BPO sector, key aspects of the industry are
lacking critical strategic assistance. The lion’s share of current activities focus mainly on (i) internally
facing initiatives – i.e. industry bodies looking within the industry – and (ii) as mentioned, the
mammoth corporate/enterprise clients.
Part III. Outsource Accelerator

Eventually outsourcing will not be called ‘outsourcing’. Eventually, it will simply be called
‘employment’. As technology increasingly makes the world flatter and smaller, the world will soon
truly be seen as one market place. Thiswillhappeninallaspectsoflifeandcommerce,but most
dramatically within the employment sector.
Once technology creates a seamless interface between employees sitting across the globe, it will
not matter which city or country they’re based. Prior to the internet, people would hire staff based
on the geographic location (i.e. their town) in which they were sitting. Moving forward, as the
friction of ‘remote working’ is reduced, employers will be selecting people based on a truer
meritocracy – their ability to get a job done, for a certain price – instead of geography.
Redefining Outsourcing and Employment

For the outsourcing sector to become more relevant, it needs to focus on the high-growth, and as
yet unsaturated, SME market. Those businesses in the SME market are inclined to be early adopters,
and can more quickly evolve alongside new technologies and trends. As already highlighted, the
SME market collectively plays a dominant role in world commerce and represents over 60% of total
employment.
Consumer-facing Solutions

In the context of where the BPO industry is and where it hopes to be in the future, Outsource
Accelerator has come into being. Outsource Accelerator (OA) is rapidly becoming the world’s
foremost authority on outsourcing to the Philippines. Particularly focusing on SMEs, OA provides
abundant free information promoting outsourcing and business in the Philippines. Their services
include:
• An industry Newshub, blog articles and ebooks • A BPO directory
• Thrice-weekly podcasts
• Industry blueprints and guides
• Outsourcing advice and insights
• Community engagement via social media sites like Facebook • Relevant knowledge and advisory
services
The Company – Outsource Accelerator

As the Philippines continues to strengthen its reputation as one of the premier BPO providers in the
world; and increasingly becomes a significant part of the global value chain, Outsource Accelerator
believes that effective centralised branding and promotion of the sector is key to ensuring its
continued success.
Other Functional Components
Branding

Although the BPO industry has evolved into a big business over the years, still only a few are familiar
with its workings. For many business owners in the West, outsourcing is simply an ‘unknown entity’,
or worse, it might be misconceived as an unethical “IT sweatshop”. Within the Philippines, the
potential of outsourcing careers can also be undervalued and seen simply as a stepping-stone for
fresh graduates to make their hay before they find “better” jobs or pursue a career elsewhere. So it
is clear that more promotion and effective marketing is required.
Knowledge Media

BPO brokers, are independent individuals who engage potential customers in their local market,
using their local networks. Outsource Accelerator acknowledges the potential of this decentralised
approach and aims to augment the potential that they may bring to the BPO sector. With this, OA
will start to build a network of locally based BPO brokers. Upon acquiring the necessary knowledge
and assessment tools, localised brokers are then able to go out a develop business, for the
Philippines outsourcing sector, amongst their own community. This effectively creates a network of
self-employed brokers who provide valuable support, promotion and leads for the Philippine
outsourcing sector.
Network of Outsourcing Brokers

Although second only to the OFWs in terms of economic clout, the BPO industry has none of the
sense of community OFWs have forged globally.
OFWs remain connected to their families back home while having scores of activities, gatherings,
and other social events that bring them closer to fellow Filipinos abroad.
BPO employees do not have that kind of esprit de corps. They do not have established organizations
that allow employees to network among themselves. OA recognizes the need for such an initiative.
Thus, it proposes the “Outsource, Offshore, and Remote Workers” or OORW community as a driver
of growth to the middle class and highly skilled BPO workers of the Philippines.
A sense of community

The proliferation of so-called “corporate universities” such as those of General Electric, McDonalds,
Pixar, Deloitte, General Motors and Apple, among others, serve to effectively address upskilling
needs within these corporations. The popularity of corporate universities rose as a result of its
ability to apply a combination of research-based training within a practical business set-up.
BPO Academy

Key takeaways
The growth and trajectory of the global BPO market augurs well for the Philippine economy, given
that the sector will likely become the primary driver for economic growth, and employment. The
Philippines was able to maintain its global competitiveness in the BPO industry – keeping its rank as
second in the world and besting other giants such as China and Malaysia in certain aspects.
However, changes in technology will require the Philippines to adapt and seek new market
segments. This paper recognizes that SMEs located in English-speaking markets offer a potential
that has yet to fully reveal itself, and one that the industry is slow on developing.
It also acknowledges the historical difficulty of SMEs to access offshore outsourcing services. Thus,
removing the friction and better linking SMEs to Philippine BPO providers will enable the country to
better capitalise on, and fully realise, the potential of this new economic gold rush – and equally
mitigate the brutal impact of an otherwise maturing/declining BPO industry.
• Moving forward, the Philippines should build on its achievements to usher in a high-growth
trajectory for a critical sector of Philippine competitiveness in a new globalized setting.

Key takeaways
It also acknowledges the historical difficulty of SMEs to access offshore outsourcing services. Thus,
removing the friction and better linking SMEs to Philippine BPO providers will enable the country to
better capitalise on, and fully realise, the potential of this new economic gold rush – and equally
mitigate the brutal impact of an otherwise maturing/declining BPO industry.
• Moving forward, the Philippines should build on its achievements to usher in a high-growth
trajectory for a critical sector of Philippine competitiveness in a new globalized setting.

Outsource Accelerator: Future of Outsourcing White Paper Review

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