Outsourcing to the Philippines

The Philippine government's Board of Investments estimates that 112,000 people are now working in call centers in this country, bringing in 1.12 billion dollars in revenues this year - a sharp increase from 2000 when call centres employed just 2,400 people and earned 24 million dollars. The government boasts that the Philippines has cost-competitive, highly-skilled, readily-available labor with low overhead and a strategic location, easily accessible to major Asian cities and the US West Coast. The Philippines hopes to capture about five percent of business process outsourcing globally by 2010, amounting to as much as 10 billion dollars.

But there are concerns over the industry's ultimate competitiveness. Many critics have warned that the English proficiency of Filipino graduates has been going down for years. To remedy this, Manila has improved the quality of English instruction and in 2003, launched a program where colleges will integrate special English courses "for international business" in their curricula.

Manila's new thrust is to expand BPO operations to other major cities in the country such as Cebu City and Davao City where salaries and costs are lower and where unemployment is more serious. The government wants to make sure that prospective host cities can meet the requirements in regard to power supplies, telecommunications infrastructure and fiber optic facilities. They are also expanding the industry to higher level information technology sectors like software development, engineering design, computer graphics and animation, and hope that business outsourcing will spread to other fields, providing jobs to the country's many accountants and lawyers.

- According to the calculations you see above, one warm body = USD $10K per year. Or, to put it another way, from the target country's perspective, achieving every billion dollars of outsourcing revenue requires throwing in 100,000 warm bodies.

So, when will equilibrium, or "Peak Outsourcing" be reached? All this is purely speculative of course, but let's say it's reached at USD $30K, when wage inflation in the cheap countries triples the average salary and corresponding wage deflation in the expensive countries cuts the average wages there by half or more. There might be a band of say $20K to take into account "frictional losses" in the system.

With the warm bodies in the cheap Asian countries reportedly demanding 10-20% wage increases every year, it will take maybe 5 years for salaries to double and another 5 to double again. 10 years tops, then. So it's probably a toss-up between "Peak English-Speaking Graduates", "Peak Cheap Cities To Outsource To", or "Peak Consumer Tolerance To This Whole Outsourcing Thing".

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