Which Philippine City Will Lead Services Into the Next Decade

WHICH PHILIPPINE CITY WILL LEAD SERVICES INTOTHE NEXT DECADE?

For global organizations in search of scalable locations that offer language, skills, plenty of talent and a service-oriented work ethic, the Philippines has long been an obvious choice. With multi-nationals today seeking scalable solutions, however, and Metro Manila feeling the strain of explosive growth in service delivery centers, there are a number of interesting and opportune tier two and three cities emerging that offer plenty of capability at costs up to 40% lower than Manilas. Its making many center leaders sit up and pay attention

www.ssophilippines.com

AN EVALUATION OF KEY IN-COUNTRY DEVELOPMENTS AND OPPORTUNITIES

WHICH CITY IS WINNING?

Manila Cebu Bacolod Dasmarinas Malolos Iloilo City Baguio

Laoag

Baguio city

Malolos

Metro Manila

Iloilo

Dasmarinas

Metro Clark

BacoorSanta Rosa

BacolodMetro Cebu

Dumaguete

Cagayan De Ore

Davao

If you consider IT business process services alone, which is a good reflection of current services trends, over 75% of current activity is concentrated in Metro Manila. The resultant pressure on costs and talent means that inflation is slowly eroding the arbitrage opportunities of these operations. And when you add in the appreciation of the peso relative to the US dollar, organizations are actively looking for lower-cost delivery locations as part of their global services strategy.

Across the Philippines there are three main locational opportunities (see also map):

ESTABLISHED LOCATIONS These include places like Metro Manila, Metro Cebu, Metro Clark, and Bacolod

EMERGING LOCATIONS These include areas such as Malolos, San Fernando, Dasmarinas, Dumagueta, Iloilo, Baguio and Santa Rosa all based near or around Manila

NEWLY EMERGING LOCATIONS These include cities like Cagayan De Oro, Laog, and Davao city located in the South as well as the North of the country.

ASSESSING TIER TWOAND TIER THREEOPPORTUNITIES FOR SERVICE CENTER EXPANSION


Source: Everest Group (2014)

1

2

3

The growth of shared services and BPO continues to accelerate, although still trailing the predominantly voice-base contact centers that have long been the calling card of the Philippines. According to Everest Group, voice services accounts for two thirds of the total market, while shared services constitute roughly 15% of the market. As service centers mature and customers demand more value, however, both BPOs and inhouse shared services are continuing to expand the scope of services supplied.

With more than 15.5 billion dollars of revenue and total employment nearing 1 million FTEs [source: Everest Group] the Philippines global services market continues to expand and offer opportunities. Much of this growth is being underpinned by IT business process services, as centers recognize and integrate the potential of technology-led value add.

While North America remains the key investment group [accounting for 68% of total business in 2013], the local markets strengths to date are in the banking and financial services industry as well as high-tech and telecommunications. Over the past two years, however, both energy & utility and the healthcare sectors have been growing steadily.

For many organizations it is the high-growth potential of tier two and tier three cities that will really drive the sectors growth. The risk of natural disasters, as witnessed over the last decade, is an additional inducement for organizations to diversify their operations across the country and away from the traditional (tier one) locations in Manila, for example. The pressure of high attrition and wage inflation, as competition increases in Manila and Cebu, both traditional first choices, is also driving activity out across the country.

While only just emerging onto the marketplace, the tier two and three cities of the emerging and newly emerging locations mentioned here all offer attractive opportunities to multinationals, especially given the proactive incentives offered by the governments to inward migration (see table below).

What these emerging locations offer in particular is the opportunity to scale up. What is attractive for multinationals is that these tier two and tier three cities offer 10 to 25% savings on operating costs over Metro Manila. For example, many of the emerging locations offer real estate rentals at rates that are 20 to 40% lower than Manila, and salaries that are 20 to 25% lower (see table below). What is notably lacking, however, is experienced staff to lead an operation. That means that for the foreseeable future it will be necessary to import senior leadership teams into the area.

ANNUAL OPERATING COSTS PER FTE FOR IT-BPS SERVICES DELIVERY2014; Indexed: Metro Manila = 100

Manila

100 90-95 80-90 85-95 80-90 75-85

Cebu Bacolod Dasmarinas Malolos Iloilo City Baguio


ANNUAL RELEVANT POOL2013; Number of graduates

Source: Inputs from recruiters, investment support agencies, and market players; Everest Group (2014)

RELEVANT TERTIARY GRADUATE POOL2013; 000s

RELEVANT VOCATIONAL GRADUATE POOL2013; 000s

Establishe

dEm

erging

Manila

120-130

44-46

44-46Cebu 22-24

Bacolod 5-6 4-6

14-16

9-11

1-3

Dasmarinas 5-6

Malolos 16-17

16-17Baguio 14-16

Iloilo City 12-13

Salaries are 3 to 7% lower than Metro Manila Costs of real estate and utilities are 15 to 20% lower compared to Metro Manila

Salary differential (~10%) from Metro Manila/Cebu Real estate rentals are 20 to 40% lower than Metro Manila

Salaries for entry-level positions are nearly 20 to 25% lower than Metro Manila However, senior staff (team leads and managers) needs to be relocated during the initial years of set-up Real estate rentals and cost of utilities (e.g., power) are 30 to 40% lower than those in Metro Manila

85-95

Source: Investment agencies, inputs from players, Everest Group (2014)

SUMMARYTo meet the growing needs of multinational organizations in search of scalable resources, operations in the Philippines will need to focus on adding more value across their service delivery operations by incorporating social media, considering additional channel delivery models, leveraging robotic process automation, and driving knowledge-based insights.

Faced with the significant pressures of an appreciating currency, the number one challenge for in-country delivery centers will be to maintain their cost competitiveness and shifting operations out to emerging locations is a strategy that will help.

KEY SESSIONS YOU MIGHT BE INTERESTED IN: The Daimler experience - the journey of an MNC in its first 3 years of set-up

Heiko A. Nitsche, President & CEO, Mercedes-Benz Group Services Philippines, Inc.

How the Knowledge Process Outsourcing (KPO) servicing model adds value to business bottom line at AIG

Mark Lwin, President and CEO, AIG Philippines Insurance, Inc.

De-risking your operations with a robust business continuity plan (BCP)

Andreas Mall, Head of Business Continuity, Shell Finance Operations

BPO AND SERVICE PROVIDERS LEADING THE CHARGEA number of BPO providers have already discovered the arbitrage opportunities that emerging cities in the Philippines offer. According to Everest Group research, for example, the following providers have already established service delivery centers across many of these emerging cities:

Learn the best practice strategies to ensure your SSCs and BPOs is leading servicedelivery in the future. Join us at


MOVING UP THE VALUE CHAIN AND MAINTAINING COMPETITIVENESSTO IMPACT BOTTOM LINE PERFORMANCE

Main conference: 12 - 13 August 2015Pre-conference workshops: 11 August 2015Post-conference site tours: 14 August 2015Venue: Manila, Philippines

DOWNLOAD EVENT AGENDA HERE

BOOK AND PAY

BEFORE 29TH MAY AND

SAVE UP TO USD600

Main conference: 12 13 A

ugust 2015

Pre-conference workshops

: 11 August 2015

Post-conference site tours

: 14 August 2015

Venue: Manila, Philippines

MOVING UP THE VALUE CH

AIN AND MAINTAINING CO

MPETITIVENESS TO IMPACT

BOTTOM LINE PERFORMA

NCE

It was my fi rst time to atten

d this type of conference

and it was both a refreshing

and encouraging

experience. It was good to h

ear from different

participants about their pas

sion and dedication to the

shared services industry, a

nd it was encouraging to

know that we have similar c

oncerns and strategies in

place. The speakers were ex

perts in their areas.

Lyndo Villegas, Senior Man

ager, Macquarie


NO SALES PITCHES ONSTAGEA new industry

standard!

details on page 3

BIG IDEA

speaker Tony

Meloto talks

about social

innovation

Mark Lwin

President and CEO

AIG Philippines

Insurance

Nihar Nidhi

CEO

JPMorgan Chase & Co.

Philippines Global Service

Center

Annie AlipaoCIO

Ayala Land

Heiko Nitsche

President and CEO

Mercedes-Benz

Services Phils., Inc.

Joselito G Diga

CFO

United Laboratories

Turn to page 7 for more

Sponsor:

CITY KEY PLAYERS1

Bacolod Convergys Teleperfomance Transcom Teletech Panasiatic

Dasmarinas Convergys Teletech - Bacoor Sutherland - Carmona

Malolos Menza Teleservices - Marilao Nestle - Meycauayan

Iloilo Hinduja Global Spi Global Transcom Teletech

Baguio Aegis People Support Covergys Sitel

Source: Investment agencies, inputs from players, Everest Group (2014)

1 Includes leading offshore and regional BPO players across service providers and GICs of large companies

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Which Philippine City Will Lead Services Into the Next Decade