The Pro's and Con's of Outsourcing IT and BPO Work to India v/s Philippines.

India has been the biggest beneficiary of the outsourcing boom over the last 2-3 decades – and is today the largest destination for sourcing IT & BPO services. Helping businesses focus on their core, while reduce costs & improve processes, India has grown to become the largest sourcing country for outsourcing & offshoring business services & IT/software development work.

Lately Competition has emerged. Countries like Philippines, China, South Africa and Brazil have been playing catch up and are seen to some extent as alternate destinations for outsourcing to India. Philippines has got significant visibility as an alternate destination to India – especially for  call center work, although it continues to nurse ambitions of broadening its services product suite across all segments of IT & BPO services.

Philippines, though relatively young in the global outsourcing markets, has been able to reach and possibly even surpass India in voice outsourcing-i.e. call centers. This is primarily attributed to the better cultural alignment with the buyer of services market (particularly US market), good customer service attitude and excellent soft skills, as well as good accent of the Philippines work force, all of which are important for “voice” based services work.

Clients working with services firms in Philippines often report more comfort and  lesser complaints with aspects like accent, communication & soft skills than gets reported for basic voice work done from India. However in most every other business segment of BPO & IT work, India continues to dominate –i.e  back office, Analytic work, KPO and IT services and software development.

The overall size of Indian IT/BPO Services industry, despite the above limitation (in basic call center- voice work), is considerably larger as compared to Philippines. India at about USD 118 Billion whereas Philippines is about 10% – 15% of India, at around US $ 15 Billion.

And all things considered, at current price levels, India remains quite attractive, with greater overall maturity of the industry [i.e. IT-BPO services ecosystem, easy availability of resources and skills for all kind of IT & BPO outsourcing(other than basic call center work)

India does report higher inflation levels of around 10% as compared to just about 3% in Philippines. So analysts and industry participants do discuss as to what extent the year on year rising costs of India will impact or reduce the overall cost arbitrage  vis-à-vis developed markets, especially when compared to Philippines.

Now, if we look at the overall current cost structures of service providers (IT & BPO) and factor in all costs (i.e. not just wages), and then compare the cost structures of both countries (more specifically limiting ourselves to the Tier-I cities in both India and Philippines – where most of the IT & BPO work has traditionally gravitated to), India has a marginal advantage as overall cost of operations in Philippines is still marginally higher than India.

The overall infrastructure quality of Philippines and India are by and large comparable, with one significant difference that in India there are about 50 key delivery destinations(i.e. Cities)  where IT & BPO delivery work is done from, whereas Philippines has only one or two main destinations(Manila and Cebu). So scale and overall ecosystem for a robust City BCP operating environment is superior for India, although Philippines continues to aggressively work to improve its infrastructure/eco-system as well and sees India as a role model to emulate.

So in our opinion the better way to look at this topic is that it is not “India v/s Philippines”, rather “India and Philippines”, both from a time-zone and outsourcing cost respect as well as from work force skills optimization standpoint, as well as country BCP stand point, where both countries complement each other and from a services buyer’s perspective, it will always be a good strategy to house the appropriate kind of work in either country or better in both countries.

Overall, all things considered, India with a more than 50% share in off shoring is certainly expected to retain overall dominance in the foreseeable years, with Philippines continuing to grow in its core strength areas of basic voice work for markets like US, etc.