Outsourcing News for February 2014 | MicroSourcing
PH's Gross International Reserves Backed by Remittances and BPOs
Citi, a renowned global financial institution, anticipates that the drop in the Philippines’ foreign exchange reserves last January will be restored by the bullish business process outsourcing (BPO) sector and remittances from overseas Filipino workers.
According to Jun Trinidad, an economist at Citi, the continuous growth of the IT-BPO sector and remittances will carry on in supporting the gross international reserves (GIR) of the country. However, he said outflows for unwinding portfolio positions, external debt repayments, among other things remain a challenge.
The economist cited the sharp drop of the Philippines’ GIR from the $83.187 billion recorded in December, to $78.939 billion last month.
He further explained that last year, GIR stock decreased by $644 million even as revenues from BPO operations and remittances were strong. Last January, it fell by $4.2 billion - the largest decline in a month’s time.
Data from Central Bank showed that 2013 experienced the highest annual record for remittances with $22.76 billion, a 6.4 percent jump from the $21.391 billion posted in 2012.
On the other hand, IT-BPO revenues grew by 17 percent to $15.5 billion in 2013, which is a sign that they’re on target in achieving the $20 billion goal by 2016.
Indian Insurers to Spend 12% more on IT Services
According to Gartner Inc., insurance companies in India will be spending 12 percent more this year compared to 2013. The 121 billion rupees in 2014 will be spread across several IT segments in the insurance industry. These include internal IT (including personnel), hardware, software, external IT services, and telecommunications.
The software segment will be driven by insurance-specific software, making it the fastest external segment. It will also post figures of 12 billion rupees - 18 percent growth this year. IT services, on the other hand, will experience 16-percent growth, the largest segment at 40 billion rupees.
The top groups in the industry are business process outsourcing (BPO) with 25 percent, as well as consulting for insurance-specific application investments at 21 percent.
Gartner’s Principal Analyst Derry Finkeldey said Indian insurance companies are now focusing more on core insurance processes that can help them increase their presence in the market. The insurers turn to the vast volume of local technology providers in India for guidance and supply.
Quality of Outsourcing Service Tops Clients' Priorities
Oliver Hemming, Strategy Consulting Partner at consulting firm Deliotte, gave an in-depth account on what outsourcing clients are looking for. According to Deloitte’s support services predictions, the value of an outsourcing deal will be based on actual results and not cost savings.
The executive explained that this is forcing outsourcing service providers to be more innovative in creating more value for money. That and being able to minimize risks and problems are the challenges for providers this year.
He further noted that the use of facilities management firms will increase to address the demand for "joined up services" from multinational corporate clients. Also, he said firms that choose to focus on local markets will reinforce local relationships, but pointed out that the ones that choose not to build a presence internationally will be estranged from common procurement practices.
Data from Deloitte also showed that mergers and acquisitions remain the primary factor that propels growth in international markets.
According to Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr., the money supply in the Philippines will go back to its normal growth rate this year.
As per his definition, the normal growth is between 12-14 percent. He explained that local financial institutions will ease on investing in the BSP’s special deposits accounts (SDAs) and allocate budget to other projects to boost the economy. As for the lenders, he said they are ready to go back to the market.
In December of last year, money supply growth was seen declining, even if it came from a strong growth record in November. For the country’s M3, or domestic liquidity, it posted a year-on-year growth of 32.7 percent last December, which is a few notches down from November’s 36.5 percent.
BPO sector and OFW remittances propelled increase in liquidity
The bullish foreign exchange inflows from the business process outsourcing (BPO) sector and OFW remittance transaction receipts propelled the increase in liquidity last December. The 11.6-percent increase in domestic claims also fuelled the M3 growth from the private sector.
Foreign Businesses Prefer the Philippines for IT-BPO
According to Information Technology and Business Process Association of the Philippines (IBPAP), a 17- percent growth in revenues was posted by the information technology and business process outsourcing (IT-BPO) sector of the Philippines last year. It was found that the country is still a preferred destination for foreign companies that are looking to expand operations.
Jose Mari Mercado, IBPAP’s President and Chief Executive Officer, said the IT-BPO sector earned $15.5 billion last year, 17 percent higher than $13.2 billion posted in 2012.
Meanwhile, the sector was seen employing 900,000 last year. In 2012, it employed 777,000.
The executive pointed out that clients have been gradually increasing work sent to the Philippines based on the performance of Filipino workers. Moreover, he noted that the country is the top choice for companies looking for voice services, and is the second outsourcing destination for non-voice services.
For this year, he anticipates that revenues from local IT-BPO sector will be 17-percent strong and will continue to grow. Their target for the number of individuals employed in the sector this year is 1.4 million.
It is anticipated that healthcare is one of the segments that will fuel the growth of the sector.
Shared services hubs and healthcare segment contributors to fast BPO growth rate
According to the Chairman of the Information Technology and Business Process Association of the Philippines (IBPAP), Benedict C. Hernandez, the local services sector has been growing nonstop, and will continue to do so in the coming years. The executive identified the shared services hubs and the healthcare segment as key contributors to the industry’s fast growth rate.
These hubs are seen aligned with the trends - in fact, an IBM report not too long ago indicated that the Philippines is the best location for shared services.
He added that even with the disparity in size and scale of the sector, they still consider hyper-growth numbers that are in the 20-percent level every year. At present, there are nearly one million directly employed Filipinos in the sector, which is far from the growth projections of the organization.
According to international business consultancy firm Oxford Business Group, the business process outsourcing (BPO) industry will fuel the economic growth of the Philippines by contributing more to the dollar earnings of the country. It is predicted to produce nearly $15.3 billion in 2014, 15 percent more than the previous year’s $13.3 billion. However, the 2015 ASEAN integration is anticipated to generate challenges to the country’s progress.
BPO to Fuel PH Economic Growth
Information from the Bangko Sentral ng Pilipinas (BSP) indicated that one of the Philippines’ key sources for hard cash is the BPO sector. On the other hand, the tourism sector is projected to contribute $4.8 billion in earnings. Overseas Filipino workers’ remittances are still the major contributor of foreign exchange. In fact, last year, it accounted for $22.5 billion in foreign exchange.
The Philippines has been maintaining a stable balance of payments (BOP) surplus since 2005, but over the years, its depletion has been closely observed. In 2013, it amounted to $5 billion, a huge drop from 2012’s $9.2 billion.
The BSP explained that surplus continues to drop this 2014 and reach nearly $3 billion. One of the reasons is the rise in the country’s imports of energy and raw materials for manufacturing operations.
Over the next three years, the BPO industry is anticipated to create 120,000 employment opportunities, producing a total of 1.3 million jobs. Revenue is seen to grow twice as much from 2013 and reach $27 billion this year.