The Outsourcing Week in Review: Wednesday, August 5, 2020

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THE WEEK IN REVIEW

Nearshore Americas recently published an article called “The Philippines BPO Meltdown: What Went Wrong?” which raised eyebrows across the Philippine outsourcing sector. Outsource Accelerator arranged an interview with the the publication’s managing director, Kirk Laughlin, on the Outsource Accelerator Podcast to clarify the article.  The podcast covered the controversial piece, as well as topics such as the contrasting Philippine, Indian, Eastern European  and Nearshore outsourcing capabilities; the effects of COVID on the industry; and the future potential of outsourcing.

Laughlin said that the pandemic’s disruption caused many outsourcing clients to reassess their vendor contracts from a view of repatriating services and de-risking positions which caused some to discover that nearshoring offered similar services – and only three hours from the US. When clarifying the BPO Meltdown, Laughlin was generally very supportive of the Philippine industry and its sophisticated infrastructure and capabilities as a outsourcing global leader, saying that “there is absolutely no way Latin America is somehow going to overcome India or the Philippines” but “Latin America has its place.”

Listen to the podcast and tell us your thoughts – just reply to this email.

Listen to The Outsource Accelerator Podcast interview with Kirk Laughlin wherever you get your podcasts: Spotify, iTunes, or direct from the OA website.

Philippine President Rodrigo Duterte on Monday made the difficult decision to revert back into a tighter lockdown for Metro Manila and surrounding provinces. The Modified Enhanced Community Quarantine (MECQ) is in place from August 4 to 18 after numerous Philippines’ health professional associations collectively appealed to the government saying the nation was “losing its battle” against the pandemic. Under MECQ, the second-most-strict lockdown level, public transport is stopped, non-essential stores are shut, a curfew is reinstated and quarantine passes are required for local travel.

Not everyone supported the renewed lockdown.  Senator Sonny Angara said that MECQ would “trigger the economy’s collapse” and he rejected the logic of another lockdown stopping the spread of the virus saying that the ”lockdown approach is trying to avoid [coronavirus] and trying to postpone the inevitable.”

Despite the COVID-gloom, there are green shoots of hope for the economy.  The Department of Trade and Industry (DTI) reported that 60,000 new businesses have registered with the agency since the lockdown in March. They credit the growth to the burgeoning number of online entrepreneurs who are taking steps to join the formal economy. There is maybe a silver lining from COVID as it forces the Philippines to move quickly towards a more digital-first economy.

To help the country recover from COVID, Finance Secretary Carlos G. Dominguez III expressed hope that the lawmakers would finally heed President Duterte’s call to pass the “long-due tax reform”. The proposed Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act seeks to reduce the corporate income tax (CIT) rate and rationalize incentives.  The proposed changes are generally seen as a positive reform for the outsourcing industry. In a statement, Dominguez said that CREATE is a vital part of the government’s comprehensive plan to help revive the economy in the wake of the pandemic.

In spite of the country’s economic hardships, the Philippine peso is outperforming other currencies having shot to recent highs. The peso closed at P49.19 to the United States dollar on Tuesday, July 28, the strongest in more than three and a half years – some economists are paradoxically citing the weakened economy as a reason for the strong currency. While a strong peso is a good indicator for the economy, it can weaken the value proposition of the export-based outsourcing sector – one of the country’s main economic drivers.

Bangko Sentral ng Pilipinas (BSP) has assured the public that equity and property markets have come down from previous highs and are at least now safe from concerns of asset bubbles. Citing Q1 data, BSP Governor Benjamin Diokno said that property prices were still supported by Philippine Offshore Gaming Operators (POGOs), traditional companies and Business Process Outsourcing (BPO) firms’ demand for office space.

The Bank of the Philippine Islands (BPI) is urging Philippine Economic Zone Authority (PEZA)’s member companies to “digitize,” saying that embracing digital commerce and platforms will not only help them survive the current crisis but to grow as well. “While much of our country’s economic activity is centered in the capital, the lockdowns have brought the importance of business and manufacturing bases in our special economic zones in sharp focus… Now, digital capabilities can open new frontiers for business and level up clients’ and partners’ customer experience,” said BPI’s corporate banking head Juan Carlos Syquia.

An exciting BPO acquisition has just been announced in the otherwise wait-and-see commercial climate.  The Australian Quadrant- and Five V Capital-backed Probe Group entered into an agreement to merge with rival outsourcing outfit Stellar creating a combined business expected to generate AUD$600m (USD$427m) of revenues this year. The new group will employ more than 12,600 people across six countries and focus primarily on customer experience outsourcing services, handling things like inbound customer service and AI-enhanced operations. OA reported on Probe’s previous BPO acquisition of Microsourcing from ASX-listed marketing services group Salmat for AUD$100m (USD$69m) earlier this year.

In other good news, IT major Wipro is showing a bounceback as the company accelerated its hiring and posted 3,146 jobs for June 2020 as compared with 741 in the previous month.

POGOs are again making headlines as two government agencies bicker over the offshore gaming operators’ franchise fees. Bureau of Internal Revenue (BIR) Commissioner Caesar Dulay said that the agency “has maintained the position that the said tax applies to all POGO licensees and operators and there was no change of rules midstream.” However, POGO regulator Philippine Gaming and Amusement Corp (PAGCOR)’s memo states otherwise. They highlight that the BIR, in an Office of the Solicitor General (OSG) memo dating to late 2018, did not propose a compulsory five per cent franchise tax.

PAGCOR cautioned that the stress of taxing the POGO sector beyond what it’s willing to pay may make the industry migrate to more supportive regions, like Malaysia. In response, Dulay denied that possibility, suggesting that the predominantly Muslim nation would never allow a gambling sector to grow.

Wednesday, August 5, 2020

NEWS THIS WEEK

4 August 2020

• BSP assures equity, property markets are safe from asset bubble – read article…
• Iloilo City mayor urges call center to cooperate with COVID-19 testing – read article…
• Former employee wins labor case against BPO firm – read article…

3 August 2020

• Mega Manila back to MECQ – read article…
• Probe merges with rival Stellar to create outsourcing giant – read article…
• “There is absolutely no way Latin America is going to overcome the Philippines,” says Nearshore Americas’ Kirk Laughlin – read article…
• DTI registers 60K small businesses in four months – read article…

30 July 2020

• Wipro accelerates hiring, posts 3K+ jobs in June 2020 – read article…
• BIR bickers with PAGCOR over POGO franchise fees – read article…
• Reverting to MECQ would trigger economy’s collapse – Angara – read article…

29 July 2020

• Property market facing up to 30% drop on sales this year – read article…
• Bank urges PEZA to digitize amid lockdown – read article…
• Philippine peso hits new 3-year high of P49.19 to $1 – read article…
• DOF pitches the passing of CREATE bill – read article…

Read more Inside Outsourcing Newsletters here:

1. The Outsourcing Week in Review: July 29, 2020
2. The Outsourcing Week in Review: August 19, 2020