by: Sarah Joson
The third quarter ISG Outsourcing Index report revealed that major sourcing markets are moving towards shorter and more affordable contracts which resulted to an increase in contract volume, but a flat overall value globally.
The report covers commercial outsourcing contracts with an annual contract value (ACV) of $5 million or more. A total of 344 contracts were closed in the third quarter, which is a 20 percent increase from the same period last year. However, it is lower than the 448 contracts signed in the second quarter of 2015. Third quarter ACV for this year amounted to $5.6 billion. It is similar with the previous year’s ACV, but is nine percent lower than this year’s second quarter.
Five mega-relationships (contracts valued at more than $100 million annually) were posted, rounding it up the year-to-date total to 14, the lowest figure in the three quarters for the past 10 years.
Meanwhile, for the first three quarters, the volume and ACV for deals valued less than $40 million both reached record highs. In fact, the total volume of contracts climbed eight percent with 1,094 - the highest ever from the same period in 2014 despite an 11 percent decrease in ACV to $16.8 billion.
Value of new-scope contracts reached $3.8 billion which is eight percent higher than last year. Restructured contracts fell 13 percent for the quarter to $1.8 billion. An 11 percent drop was seen for both new-scope and restructured-contract ACV due to a slowing manufacturing sector and unimpressive activity in the financial services sector.
Per segment, business process outsourcing (BPO) took the center stage with its ACV growing 53 percent to $2.0 billion, mostly because of the increase in call center outsourcing and industry-centric operations. In some segments such as information technology outsourcing (ITO), the volume of contracts declined by 15 percent as cloud integration continues to saturate the market.
Property advisory and services firm CB Richard Ellis (CBRE) Philippines, Inc. said due to the increasing rents in Manila’s renowned business districts such as Makati and Bonifacio Global City (BGC), business process outsourcing (BPO) firms are now looking at other cities outside Metro Manila as well as provinces.
CBRE, which is celebrating its 20th anniversary this year, stated that Alabang, Quezon City, and the Bay Area are some of the locations that are being considered for expanding BPOs.
Rick M. Santos, chief executive officer and founder of California-based CBRE Philippines, the local arm of CBRE Group, Inc. said these locations are home to a rising hub of retail and commercial developments which are helping attract new office growth. He added that secondary options for office properties opened up, which could mean old or former offices, and would be available soon.
A CBRE report showed that during this year’s second quarter, Metro Manila is still one of the prime rental locations in Asia even if rate is a bit more expensive than neighboring business hubs such as Bangkok, considering that it is not a BPO destination. Metro Manila offers $32 per square foot per annum while Bangkok’s is $30.
Santos also pointed out that key factors that are driving outsourcing companies to put up and expand operations in the country are steadily improving infrastructure, telecomunications, and rising volume of public-private partnerships.
Morgan Mcgilvray, director of CBRE’s corporate agency and brokerage department, said BPO hubs are expected to emerge in provinces such as Cavite, Pampanga (Clark), Baguio, Laguna, Cebu, Iloilo, Bacolod, Cagayan de Oro, and Davao.
by: Sarah Joson
As more companies are looking to expand and set up operations in the Philippines, the integration of Association of Southeast Asian Nations economies is a perfect platform for the country to present information technology-business process outsourcing (IT-BPO) services to foreign companies.
According to Dan Reyes, Chairman of the Information Technology and Business Process Association of the Philippines (IBPAP), the firms that have chosen the Philippines as a location for their in-house centers or captives will have the chance to develop multilingual skills and culture, and gain access to a rich pool of resources.
IBPAP President Jose Mari Mercado cited firms that have operations in Singapore or Japan, saying they can now consolidate operations in Manila since they can now have global centers in the country’s capital. However, he pointed out that the Philippines doesn’t have the required language capabilities and skills to successfully tap potential investors even if the country is a favored outsourcing hub.
The IBPAP executive added that the sector is partnering with the Commission on Higher Education in identifying vernaculars that can boost the country’s position in the outsourcing space.
Basically, what the ASEAN integration can do is make it easier for other ASEAN member nations to work together. For instance, if a company considers having a regional shared service facility in the Philippines and needs Vietnamese agents but cannot find them in the Philippines, it should be easier for them to address this type of challenge.
IBPAP is scheduled to release a new list of next wave cities by the end of the month - at least 23 cities where BPO firms are now operating. Also, the sector is anticipated to employ 1.2 million workers by the end of the year.