You get what you pay for. A poor man cannot afford to be cheap. There are plenty of sayings that highlight the perils of false economies, and these principles are as true in business—and by extension outsourcing—as they are in life. The Philippines’ Business Process Outsourcing (BPO) industry is an example of this. Starting from humble beginnings, it has become a world leader over the last 20 years, and that success was not because it was cheap but because it offered high-quality services.
“BPO to the Philippines is often driven by cost pressures, a desire to keep customer prices low, and/or to maximise shareholder profits, so it is easy to see why the lowest-cost option might appeal. In practice, those cheap options often become incredibly costly,” says Ralf Ellspermann, CEO of PITON-Global, a leading BPO provider in the Philippines.
More than half of all offshore outsourcing projects fail. This is a worrying statistic until you look at the details: 90% of those failures are with low-cost vendors. Lower-paid staff and a lack of investment in the latest technologies might mean a smaller invoice, but the price is paid elsewhere—unskilled staff might leave customers dissatisfied, and worse, the lower quality and poorly equipped BPOs may be unable to scale to match changes in demand. There are, of course, many reasons a program can fail, but when you go for the lowest-cost option, you are stacking the odds heavily against success.
The good news is that even with a higher-cost BPO in the Philippines, there are still savings. Compared to onshore outsourcing, the Philippines will still typically result in savings of around 40-50%. With the added 10-20% savings you might realise from the cheapest vendors, the lower quality starts to have an impact, and the indirect costs start to outweigh those extra financial savings.
“The key to successful BPO is maintaining, or even improving, service quality and making savings through efficiencies. Labour costs for equivalently qualified staff are lower in the Philippines, but this is supplemented by using vendors with deep domain expertise and the economies they can offer. Migrating business processes to highly specialised BPOs, when done well, can result in an enhanced customer experience that, in turn, offers far more benefits than just savings,” says Ellspermann.
Research in 2018 identified the risk of turnover of low-paid and unskilled staff in customer support centres; the indirect cost to a business of a staff change was equivalent to six months of their salary. Shockingly, the researchers found annual staff attrition rates that were close to 100% in some onshore BPOs compared to rates as low as 30% in high-performing Philippine companies. The higher numbers of experienced staff in BPO companies in the Philippines translated into better outcomes for customers. Businesses using offshore outsourcing were achieving gains beyond just cost savings from the quality and business flexibility offered.
This research is backed up by practical experience. The Philippines is now the world’s second largest BPO destination, and the industry is worth AU$ 30 billion. The Philippine culture has made it a popular choice for Australian businesses. A number of strongly customer-focused companies like American Express have all recognized the high-quality outsourcing industry that has developed in the Philippines and chosen if for their BPO operations. Perhaps most tellingly, Amazon—a company that has built its success on exceptional customer service—has invested in a massive BPO operation in the Philippines.
The evidence, both from academic research and the practical experience of companies outsourcing to the Philippines, tells a compelling story: BPO should not be based purely on cost. There are definitely cost savings to be had, but these should flow from the efficiencies rather than from cutting corners on service quality. Paying a little more for higher-quality services offers a dividend that is far greater than the additional cost.
“In today’s competitive market, customer experience is often the key differentiator between companies—customer loyalty is hard to win but all too easy to lose. Instead of looking at BPO as a cost or overhead to your business, it might be better to think of it as an investment. The option that has the better chance of a positive, long-term return is always the best one,” says Ellspermann.
“Quality should always be the top priority to ensure that business process outsourcing to the Philippines will lead to increased competitiveness and shareholder value,” he adds.