$6B BPO sector builds on early gains

For an industry that prides itself in following processes meticulously, the success of business process outsourcing (BPO) seems to have hinged on seemingly small measures that later turned out to be “game changers.”

One such policy shift that would later come to have massive positive implications on the industry was the government’s decision to allow individual buildings to be accredited by the Philippine Economic Zone Authority (Peza).

According to LiveIT CEO Fred Ayala, the government’s timely action to ease previously restrictive rules about incentives for investors was one factor that helped the BPO industry bloom.

Policy shift

“Before it [government] intervened, export processing zone rules provided incentives to investors only if they located in a specific industrial technopark,” he said.

“One of the key insights pushed by [the Department of Trade and Industry and the Board of Investments] was to suggest and push for changing those rules, so that the Peza framework could now allow building owners to designate and apply their buildings for Peza accreditation,” Ayala added.

The immediate result was the accreditation of the RCBC Plaza in Makati City as as the first Peza-certified building—a site that became a magnet for BPO firms despite the lingering effects back then of the 1997 East Asian financial crisis.

“If that had not taken place, a BPO coming here might have been told by the government, ‘you must locate in Mariveles,’” the Ayala executive said. “In such a situation, there is no doubt that the take off would have been much slower.”

“It’s like drilling for oil,” he said, crediting the BPO sector’s backers at the trade department for pushing for the rule change. “You have to go where the people are. Export processing zones are quite far from urban locations. So this change allowed BPOs to ‘drill for oil’ by looking for the best people where they were.”

After that, selling the Philippines to foreign firms as an outsourcing destination became a lot easier.

Another BPO industry pioneer, ICT Group president Karen Batungbacal recalled how critical it was for a concerted effort between the public and private sectors to jointly push the country as a product to potential investors.

“Back in 2000, I approached DTI to talk to [then] Secretary [Mar] Roxas and he quickly came on the bandwagon,” she said. “He understood that it was a ‘country sell.’”

Selling RP

Batungbacal said that in the BPO industry, foreign locators and their clients first had to be convinced about the viability of a particular country—its political, social and economic potentials—before even taking a look at individual firms offering their services to them.

This is where companies like Gartner—with its broad influence in the information technology industry—were critical to the country’s success.

“It was very important because companies would refer to consultancy firms or research firms if they wanted to locate offshore,” she said. “We needed to sell the country first.”

“Whenever I approach a potential client, the first hour or two would be about the country,” the ICT Group chief said. “Only after they are convinced about the country’s feasibility would I be able to talk about my company.”

With the public and private sectors focused on this goal, the BPO sector grew into a $6.1-billion-yearly industry with close to 400,000 employees today—and aiming for one million in just a few years.

“We are not resting on our laurels,” Business Process Association of the Philippines president Oscar Sañez said. “We are now focused on making sure that this industry is sustainable over the long run.”

Indeed the BPO sector is now widely credited as one of the industries that helped the country weather the worst global economic crisis since the Great Depression.

In the end, the sector’s success is all about having foresight, the cooperation of government agencies and the private sector, dogged determination and—according to former Board of Investments managing director Gregory Domingo—that crucial dinner between top officials of DTI and Gartner in 2001.

“That opened the doors of the world for us,” he said. “It changed everything.”

PLDT acquires medical outsourcing firm

The Philippine Long Distance Telephone Co. has expanded its business process outsourcing business with the acquisition of Laguna Medical Systems Inc. (LMS) for $8.25 million (about P400 million).

In a disclosure to the Philippine Stock Exchange on Wednesday, PLDT said the acquisition was made by SPi Global Solutions, a leading BPO company which is a unit of its wholly owned information and communications technology company ePLDT Inc.

LMS has over 50 consultants across the region who assist more than 200 hospitals attain coding and billing compliance as well as optimize entitled reimbursements for patient services.

This 22-year-old company also offers recovery audit contractor (RAC) defense and recovery services to help healthcare providers manage and defend RAC audits.

"As a result of the significant focus on healthcare reform in the US, we have been actively tracking companies in the coding compliance space with the goal of finding one to acquire whose corporate culture and values match our own," SPi president Peter Maquera said.

"LMS fits the bill. Their capabilities nicely complement our existing medical transcription, billing and revenue cycle management services and provide an excellent new entry point for us into this rapidly growing $25 billion industry," he added.

The inclusion of LMS' product offering, he noted, would strengthen SPi's relationship with more than 400 hospitals, multi-specialty clinics and physician practices.

"And it increases our healthcare-specific employee base to more than 2,000 worldwide," he said.

The US healthcare industry accounts for 16 percent of US gross domestic product and is the largest segment in the US economy.

With the US government now requiring healthcare workers to achieve a 95 percent or greater accuracy rate on medical coding, inexperienced healthcare providers with limited resources are seen struggling to meet this requirement.

This in turn is seen to provide growth opportunities for well-funded and -managed service providers in the coding compliance consulting market.

"SPi's acquisition of LMS is an excellent example of how we are executing on our strategic plan to accelerate growth and strengthen our position in the BPO arena," said ePLDT president Ray Espinosa.

BPO firm won’t hike workforce to cut costs

A UNIT of Philippine Long Distance Telephone (PLDT) Co. said it would not increase its workforce this year amid efforts to reduce costs, but would spend money on technologies to boost productivity.

Peter S. Maquera, chief executive officer of SPi Global Solutions, said in an interview late last week that the PLDT business process outsourcing (BPO) unit is looking at 10%-15% growth in revenues this year.

The company’s local workforce, which stands at 11,000 in 10 contact centers nationwide, is not expected to post a significant growth this year as SPi Global is trying to cut costs. Instead, the company will focus on investments in technology to maximize productivity and to support its move into high-value services in areas such as health and education, he said.

Meanwhile, Mr. Maquera called for the passage of a law creating the Department of Information and Communications Technology to allow the country to compete with larger BPO hubs like India.

Amid a greater consolidation of customers as well as vendors, an ICT department will serve as a powerful agency to market the high-value capabilities of Filipino talents, he added.

The establishment of such an agency will also strengthen the domestic market, thereby creating a long-term business opportunity for the local BPO industry, he said.

Six SPi Global contact centers are into voice services while four are in the non-voice services. The biggest site is in Parañaque, employing over 3,000 agents.

It merged with ePLDT last year when the latter acquired 100% of SPi Global in April 2008. SPi Global has a total of 14,000 employees in 29 locations in North America, Europe and Asia.