By: Our Correspondent

Has the Philippines surged past India, its bigger outsourcing rival and a
Business Process Outsourcing superpower, as the world's favorite back

The latest industry figures suggest that, to the
consternation of India-based outsourcing industry, the Philippines has
surged past India, recording US$5.7 billion in pure voice-based revenues
so far in 2010. That is compared with US$5.58 billion for India.
Voice-based work accounts for nearly half of India's total outsourcing
exports, valued at US$12.4 billion.

The Philippines, the second
largest BPO industry in the world, has been snapping at India's heels
for a while now, with an industry built on cheaper manpower, tax breaks
and government investment in infrastructure. The island nation currently
ranks number one in the availability of knowledge-based jobs and
workers and fourth in labor quality in all of Asia, according to a study
by the US-based Meta Group.

India's position, on the contrary,
has eroded significantly as the number one choice of US companies for
backroom operations, suggests a survey by Michigan-based Kelly Services

More and more small and medium-sized American companies
appear to have been voting with their feet for the Philippines over
India as their BPO headquarters of choice. A raft of global companies –
like MSN-Microsoft, Cisco, HSBC, AT&T, IBM, Washington Mutual,
Sallie Mae, Expedia, Intuit, Transunion, Alltell and Bellsouth — have
already shifted work for their outsourcing needs.

Even Indian
BPO majors have opened large centers in pockets like Metro Manila, Cebu
City, Davao and Angeles. According to The Economic Times, EXL has a
centre in Pasay with more than 800 employees. IBM and Accenture are
estimated to have more than 20,000. Convergys this year announced plans
to hire about 3,000 people around Manila, while Sitel plans to hire
4,000. Aegis also acquired Philippine outsourcing company PeopleSupport
for US$250 million in 2008.

Powering the Philippines growth
story are the burgeoning call centers in pockets like Manila, Cebu, and
Davao City. Cheaper manpower, among other things, has made the
Philippines a much more viable option in recent years, especially where
medium-sized businesses are considered.

The US$9.5-billion
Philippines O&O (off shoring & outsourcing) industry grew at a
compounded growth rate of 27.6 percent in the last two years while
India's BPO industry trialed at less than half CAGR of 11.92 percent
over the same period.

There are many reasons why the
Philippines' may well topple India. According to a senior National
Association of Software Companies official: "High staff turnover of
nearly 60 per cent remains India's biggest challenge in retaining its
supremacy as the world's favorite BPO destination."

forget, India's GDP is growing at a much faster clip than the
Philippines," the official said. "In 2009, Filipino GDP grew at 1
percent compared to India's 7.4 percent." This high growth rate gives
the young Indian workforce the incentive to look for better job
opportunities in other lucrative service sectors like finance, telecoms
and insurance.

Staff tenure in India, the official added, is
staggeringly low at only 11 months compared with the Philippines at 19
months. A prime reason for this, he says, is the scarcity of competing
options in the Philippine employment sector.

"The Philippines
also enjoys other advantages over India like a better affinity with
western culture and a politically stable environment," said Prabhu
Nivare, a Mumbai-based IT consultant. "Add to it higher tax incentives
and business-friendly policies and it explains why the Philippines has
emerged as a threat to India."

Analysts also point out that
during the financial crisis, the Philippine government invested heavily
in infrastructure that allowed the nation to compete better globally.

IT and outsourcing enterprises in the Philippines enjoy a 100 percent
tax exemption for up to eight years. The island country also provides
cost benefits for infrastructure, operational expenses and business

"The Philippines has gained prominence as it remains
a less expensive option," Nivare said. "In some specific industries,
employee costs in India have spiraled up to 60 percent of comparable
costs in the US while in the Philippines the corresponding rise has been
only 30 percent."

This development is all the more ironic
considering till 2008, the Philippines revenue in the BPO sector stood
at US$6.8 billion while India recorded US$11 billion.

comparative advantage the Philippines enjoys is the superiority of its
telecom infrastructure which is more safely set up and maintained
because of attractive economic incentives and highly skilled human
resources. Kelly Services in Michigan found out that the Philippines has
the highest agent productivity in the region. "Filipino call center
agents handle an average of 107 outbound and 98 inbound calls in a day
compared to Indian call center agents who can only handle 78 outbound
and 73 inbound calls per day", reported Kelly.

The high quality
of the Philippines' workforce, assert analysts, is sustained in part by
its impressive literacy rate of 93.4 percent according to the United
Nations Development Program as compared to India's figure of 61.0

"Apart from offshore software development and other IT
services, the Philippines has also been aggressively tapping the global
animation market, which is growing phenomenally," says Satish Parashar,
CEO of Horizons, an offshore advisory firm.

Major animation
studios like Marvel, Disney, Warner Brothers and Hanna Barbera and
Japanese anime studios like Toie, Parashar said, have already
established their presence
in the Philippines.

In a paper
titled "The Great Call Center Debate: India vs the Philippines," an
official of a top US-based BPO company noted the advantages enjoyed by
Filipinos over Indians in the industry.

"Filipinos speak
idiomatic American English better than Indians, and their accent is more
neutral. The Philippines is an outstanding destination for a wide
variety of offshore services. They have gained great traction especially
in voice work," wrote Chris Repholz, senior vice president of the
outsourcing company Zenta.

The paper also cited "better affinity
with the American culture, lack of competing industries for skilled
workforce, and higher tax incentives" among the leading reasons behind
"the unprecedented rise of the Philippines' BPO industry."

goal to overtake India is part of the five-year (2011-2016) road map for
the Philippine information technology and BPO sector. The objective is
to expand it to a US$25-billion industry employing 1.3 million people.

to the International Labor Organization (ILO) in its first in-depth
study of the workplace in the four top BPO destinations in the world —
India, the Philippines, Argentina and Brazil – the working conditions in
the Philippine BPO industry are of "reasonably good quality" compared
with those in developing countries.

The study, titled Offshoring and Working Conditions in Remote Work,
said that Filipino BPO employees earn 53 percent more than workers of
the same age in other industries. The average monthly salary is P16,928
(US$388.70), with benefits such as meal and transport allowances. Hours
of work in the BPO industry are also quite reasonable by local
standards, in stark contrast to the often excessively long hours of many
workers in the developing world including India

So is this
reason enough for serious concern on the part of the Indian outsourcing
industry? Yes and no, Indian analysts say. While many feel there is
enough business for everybody in the exponentially growing global
market, others are not so sure.

"India retains its core
advantages and won't be so easy to dislodge from its frontrunner
position," Nivare says. "Each year, 120,000 IT professionals enter the
Indian workforce because of an education system that lays an overt
emphasis on science and math." That is not true of the Philippines
educational system, which has come under considerable criticism.

in India is also far superior due to their private undersea cable and
the state-owned Videsh Sanchar Nigam Ltd," says Brahm Gutgutia, a
Hyderabad telecom entrepreneur and an IIT alumnus. "Telecom rates are
quite low as a result of the industry's privatization. Furthermore,
software development remains a very lucrative business in India,
attracting IT giants such as Microsoft, IBM, HP and others," adds the

Even so, the Philippines, according to industry
estimates, is expected to grow at a steady pace of at least 20 percent
annually in BPO exports over the next five years. Given this
environment, Indian BPO outfits would do well not to be complacent. They
should instead focus on launching more innovative products and checking
staff turnover.

The Indian government too, should sit up to
take note and work towards improving the country's security environment
and promoting business-friendly policies before it's too late, the
analyst say.

Neeta Lal is a New Delhi-based senior journalist;