HOW IS CHINA IN THE BPO RACE?

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China has been tagged as India's formidable contender in the race to become Outsourcing's top destination.

Two articles tackle this issue.

Where does China stand in BPO race? and China lags far behind India in BPO sector

"Though the Chinese government came out with supportive ordinance to promote BPO in the country with huge level of visibility on the global arena, Chinas offshore market has not taken off as expected and it still seems a long way before it could claim to be of any potential alternative to India, as reported by technology research firm Forrester on Thursday.

Forresters Vice-President John McCarthy said "When China was looked upon as an alternative to offshore two years back, it was widely considered as a key contender to challenge India's dominance on offshore business. However, the latest finding reveals an opposite story, which says, "China has still more to prove,"

In addition...

"Forrester in its finding clarifies that Chinas overall offshore resources has dropped and other countries are growing at a rapid pace. The need of the hour for the country is to refurbish its offshore efforts.

Instead of trying to compete in areas like application development and management, where India clearly dominates, China should encourage its local firms to focus on other areas like testing, data management and product development services.

Chinese firms also need to implement strict intellectual property controls..."

STRONG ASIAN CURRENCIES SCARE ASIAN BPO FIRMS

I have always argued that the BPO industry should be treated by Asian governments as a part of its export industry. As such, it should be given the full incentives due to exporting companies. With the current strengthening of most Asian currencies, the export market is generally suffering and this situation is very much being felt by BPO firms.

Since most outsourcing contracts are dollar denominated, a boost in the value of the local currencies has resulted in corresponding cost increases and decline in profits.

The Philippines, which earned approximately US$2 Billion in 2007, is becoming a little nervous due to the continuous appreciation of its currency. The Peso, which closed at PhP46.60=US$1.00 last Friday, has been on a constant climb since last year.

The other Asian currencies (Malaysian RmB, Indian Rupee, Chinese Yuan, etc.) have also appreciated despite governments’ attempts to restrain its value.

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"General weakness of the dollar. Despite attempts of most Asian Central Banks to keep their currencies from further strengthening against the dollar, the pace of appreciation seemed to have increased over the past two months. The Indian rupee, which was quite stable from January to March for example, suddenly moved eight percent higher in just two months. This is an exceptional move given that the Reserve Bank of India has been managing its exchange rate closely with the rupee appreciating by only 1.8 percent in 2006 and 3.6 percent in 2005. Likewise, the Malaysian ringgit began accelerating against the dollar in mid-March following announcements of key economic reforms. The Philippine peso, meanwhile, has been on a gradual appreciation since the start of the year primarily due to healthy remittances and capital inflows, and a generally peaceful election period. Finally, the baht is still up 2.3 percent against the dollar despite earlier attempts of capital controls by the Thai government."

Strong peso may dampen foreign investors’ interest in BPO sector

"A strong peso may deter foreign investments from coming into the country as this makes the cost of doing business here more expensive.

International real estate provider CB Richard Ellis warned that the continued strengthening of the peso against the dollar may be a threat to business process outsourcing (BPO) firms in the country.

“If the exchange rate continues to climb, it can potentially be a threat because it makes it expensive to do business here,” CB Richard Ellis general manager Trent M. Frankum said."

PRICING ONE'S SELF OUT OF THE MARKET

Yesterday's article in PE.com illustrated what most of the BPO insiders know but are not talking about. Read the article here.

Technology has made it possible for some tasks to be done from distant locations. As a result, offshore companies who are into customer services, information technology, transcription, animation, architectural & engineering design, medical research, etc. has successfully penetrated the US and European markets.

As the demand for outsourced work continuous to grow, the existing service providers are observed to be increasing their prices. This is mostly due to sharp increases in their factors of production (loss of government incentives and rising cost of wages, office spaces, etc.).

Unfortunately for them, customers are not complacent. After a while, the same creative minds that made them resort to outsourcing will tell them to continue and look for new places to send their outsourcing requirements. For example, the garments industry which left the US years ago, has started departing from the Philippines towards China. In addition, the call center and transcription businesses which used to be synonymous with India are now known to be successfully being hosted by other Asian countries like the Philippines, China, Pakistan and Indonesia.

In the Philippines, BPO firms which used to be predominantly located within Metro Manila have started to expand to the provinces in order to lower their costs (land, labor, taxes, electricity, etc.). At this point, the call centers can still afford the cost of doing business in the country. However, the industry should take heed.

Be careful not price yourselves out of the market. When you keep on increasing the cost of servicing a client, the customer will be forced to move on to the next provider.