BPO to KPO is the way to go for the Philippines

The Philippines can claim its biggest export is not semiconductors but its manpower. And even at home, the BPO industry is able to show its ability to be a growth sector largely on the back of the abundance of skilled and talented labour. Now, the country has to take it to the next level of economic development and get into Knowledge Process Outsourcing (KPO). But the opportunity to do a lot more is possible only if an increased level of investment is spent on education in order to supply the needed highly level of knowledge and skills for KPO related work. Let’s see how we can help.

From BusinessWorld Philippines

October 05, 2014

The future of the Philippines’ KPO industry

IN recent years, the Philippines has shot to elite status in the global outsourcing stage, overtaking India specifically in the voice segment. The country’s business process outsourcing (BPO) industry began in the 1990s and has, since then, become a significant contributor to our export revenues and economic growth.

According to the Information Technology Business Process Association of the Philippines (IBPAP), our IT-BPO sector registered revenues of $15 billion in 2013, which was about 17% higher than the $13.2 billion generated in 2012. Overall, full-time employment at the end of 2013 reached 900,000 versus 777,000 from the previous year, and has already reached the one million mark in mid-2014, up 11% from 2013.

It is estimated that the IT-BPO industry’s revenues will increase by 16% to $18 billion in 2014, putting the industry on track to attain its 2016 target work force of 1.3 million and revenues of $25 billion.

IBPAP estimates that call center or voice operations make up two thirds of the industry, with the rest accounted for by software development and business services, among others. This projected growth is partly due to the increasing demand for BPO services from English-speaking industrialized countries such as the United States, Australia, United Kingdom and New Zealand.

Since most global companies are still focused on cost reduction and operational efficiency, it is expected that they will continue to tap our BPO providers for competitive labor costs and the huge pool of college-educated and English-speaking professionals. However, as these companies expand and strive to be more competitive, there has been a growing thrust for more value-added services. This demand may bring about the development of other non-voice services, in particular, Knowledge Process Outsourcing (KPO).

The KPO concept is reported to have gained prominence in India in the 1980s as technology increased the worldwide reach of multinationals. It saw wide acceptance in the early 2000s when global companies like General Electric set up captive research and analytics, and third-party knowledge services from offshore facilities in countries with knowledge capabilities. KPO is described as the outsourcing of core data-based business activities to another company, which plays an important part of a company’s value chain by providing highly specific expertise. Besides the cost savings, KPOs are also viewed as adding value. Some of the core processes served by the KPO sector include: market research, fraud analytics, equity research and investment banking, insurance and actuarial, engineering services, animation, web development, data integration, project management, remote education, research and development, radiology, medical transcript preparation and legal processes.

Unlike the traditional BPO, where the focus is on process expertise, KPO utilizes knowledge expertise. This requires service providers to possess advanced technical, interpretation, and analytical skills. It also requires more customized tools and a more predictive response modeling. In terms of talent, KPO firms need people with highly specialized skills, requiring superior educational qualifications and extensive training. For example, KPO services for the financial sector, such as insurance and banking, may require personnel who have acquired graduate degrees and certifications, such as being a Chartered Financial Analyst.

The KPO industry is highly prominent in India and Europe. Globally, it is expected to grow exponentially in the next few years. According to TechNavio’s analysts, the global KPO market will grow at a compounded annual growth rate of 23.12% from 2013-2018. This is expected to be due to the demand from developed western economies, such as the US, UK and other European nations where the availability of highly trained and specialized professionals is diminishing. This is particularly true for knowledge-intensive sectors, such as engineering, IT, design and finance, among others.

In the Philippines, the “Philippine IT-BPO Roadmap 2016: Driving to Global Leadership” report commissioned by IBPAP notes that non-voice services are not yet as visible as the more mature BPO voice sector. At the beginning of 2014, local BPO industry analysts predicted that with favorable economic conditions for investment, we can expect further entry of higher-value KPO services. Our local BPO industry indicated a shift in the kind of outsourced services — from the usual contact center to more knowledge-intensive services the fields of IT, research, accounting and engineering. In fact, recent industry reports appear to validate this for the first half of 2014, indicating that non-voice BPO (which includes the KPO sector) is slowly catching up with the voice segment, with voice services dropping to around 60% from 65% of the Philippine outsourcing industry. In addition, the mid-2014 report from IBPAP showed that it is expecting non-voice services, including KPO and engineering services, to grow at about 20%. Some of the higher value KPO and finance and accounting outsourced services providers thriving in the Philippines today include Wells Fargo, Deutsche Knowledge Services, J.P. Morgan, AIG and Thomson Reuters, according to the 2014 report by Tholons, a strategic advisory firm for global outsourcing.

The question now is whether the Philippines can maintain this momentum and actually move up the value chain to become a top KPO destination. Future prospects seem bright, given our huge pool of educated professionals and with the Philippine Government now taking necessary steps to enhance its technology and infrastructure. What is needed now is for companies to identify the primary demand areas for knowledge-based services, and to strengthen capacity-building by focusing or training the available talent pool into areas of core specialization and competency.

Mariecris N. Barbaso is a Partner of SGV & Co.

Article location : http://www.bworldonline.com/content.php?section=Economy&title=The future of the Philippines’ KPO industry&id=95576

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