Call centers in Manila

So which country is a bigger market for off-shored technology services, India of the Philippines? According to Market Watch, the latter is the answer (Philippines lifted by outsourcing boom, Jun 15).

The Philippines’ fast-growing business-process outsourcing industry has turned the Asian nation into a major center for off-shored information tech services. The country recently passed India as the world’s top outsourcing destination, according to a report by the services arm of International Business Machines IBM +1.09% — which has a major presence in the country. …

“Ten years ago, we had maybe about 25,000 people in the industry,” said Jose Mari Mercado, business development director at Convergys in the Philippines, who said that number reached about half a million last year.

“The interest in the Philippines has really grown tremendously in the last five years,” he added.

While business outsourcing is typically associated with call centers, the industry actually covers a range of IT services, including customer relations, human resources, accounting and even more specific functions, such as mortgage processing.

In 2010, the Philippines’ IT and business process outsourcing grew 26% to $8.9 billion, according to the Business Processing Association of the Philippines. Workers and professionals employed by the industry grew by 24%, the industry association said.

I’m not sure I have a whole lot to add to this. Let me point out, however, two interesting angles to the story. The first is about human resources, which is what emphasized in the video. There is a challenge with such rapid growth to come up with enough managers. Manila might be attractive location because it is possible to hire educated workers relatively cheap but until those workers have cut their teeth in the industry they are not ready to manage. Outside of more recruiting, the article doesn’t say anything about what is being done to address this shortfall.

The second point is the geographical hedging involved. Why go to the Philippines? At least one reason is political risk.

Benedict Hernandez, a senior executive at Accenture in the Philippines, also cited an international development that helped draw more attention to the Philippines: tensions between India and Pakistan in the early 2000s.

“What we saw around that time speeded conversation on our client side on doing work in the Philippines,” he said. “I think people woke up and said, ‘What if something happens and we’re heavily invested in one geography?’”

This is an interesting variant on the risk mitigation strategies one sees in supply chains.