I was seated beside a senior executive of a large BPO (business process outsourcing) in the country in the first face-to-face general membership meeting of MAP — Management Association of the Philippines — and we got to talk about the developments in the BPO industry in light of the pandemic. From our conversation, I gleaned three very interesting pieces of information.
Firstly, the outsourcing business increased and even accelerated during the pandemic; secondly, the employees and even applicants gained greater power and influence, making this an employees’ market; and, finally, as a spawn of the second item, the birth of “direct hires” employees.
The pandemic has forced many governments to impose lockdowns. Since they are continuing despite the lockdowns, businesses have to adopt work-from-home (WFH) models (in different degrees), mainly copying from what outsourcing has been doing for many years. Since everyone is working from home, everyone has been cooperating and has been making the WFH set-up work.
Many companies realized that WFH equates to outsourcing. And, outsourcing or WFH, in a way, is just a matter of distance. Outsourcing to the Philippines is farther away but essentially still a WFH. The Philippines, having established itself as an outsourcing haven, has taken many new clients. The WFH in the US became WFH in the Philippines, but cheaper.
While this is mainly good news for the local outsourcing industry, it has inadvertently led to issues of personnel and staffing. The Philippines has imposed several recurring lockdowns of varying degrees. Thus, many workers in the outsourcing industry have to do WFH as well. And mostly, these workers found WFH to be convenient, not physically draining, and easier. And many of them do not want to report back to the office but rather continue under a WFH set-up.
This desire of the workers runs counter to the desire of some clients and some government agencies, like the FIRB — Fiscal Incentives Review Board. Some clients have requirements that the outsourcing provider has to house the workers in an office.
Accordingly, the outsourcing provider has to open up the office or, in some cases, has to even open a new facility.
On the other hand, FIRB, in its desire to help the government stimulate the economy, has mandated that all PEZA-registered companies should follow a 70% (onsite) — 30% (WFH) set-up starting April 1, 2022. (Note: The Philippine Economic Zone Authority, or PEZA, I was told, was more inclined to continue the 90% WFH and 10% onsite set-up, which was adopted at the height of the pandemic.) Otherwise, these companies would lose their tax privileges and incentives.
Unfortunately, many providers have been unable to comply with this mandate as employees would rather resign than be forced to report onsite. And, providers also found that new applicants have WFH as one of their criteria for accepting work.
Consequently, according to the executive I talked to, the industry has a shortage of workers of 10% to 15%. In terms of numbers, this translates to about 100,000 to 150,000 workers, considering that PEZA estimated that those employed in the outsourcing industry as of 2021 to be about 1 million.
So, where are the workers? And why are they so bold as to resign (if already employed) or refuse the offer of employment (if still applying)?
It turns out that many young people are now working directly for companies abroad without the umbrella of a corporate entity. The outsourcing industry calls this arrangement — “virtual assistants” — primarily “direct hires” by companies abroad. Many of our young workers have adopted and accepted this work arrangement since they remain to be doing WFH and, moreover, they get significant increases in salaries compared to what they were getting while employed in local companies.
In some instances, these “direct hires” are even provided computers and related tools of the trade.
The WFH and the outsourcing practices have been adopted by the global business community for some time, primarily due to advances in technology and the agility of management. The pandemic has just accelerated these practices and made their adoption more widespread and easier.
The companies have adjusted, the employees have adjusted; but unfortunately, for most parts, the government/regulatory agencies are lagging far behind.
Looking at the actions of FIRB and other regulatory agencies, they seem to be missing critical points of these issues and are not attuned to the developments. For example, with the 70% — 30% mandate, some PEZA-registered companies are looking at foregoing their tax privileges and incentives just so they can keep their people.
Moreover, there seems to be a lack of action on the issue of “direct hires.” For me, more than the issue of the government losing taxes on revenues (and even payroll taxes), contributions to the Social Security System (SSS) and to health insurance (PhilHealth), the government should look after the general welfare of the “direct hires” — making sure that they are not abused nor short-changed in the end.
These issues of outsourcing and the new “trend” of “virtual assistants”/“direct hires” are surely not unique to the Philippine situation. It is likely being done in other outsourcing countries, like India, Brazil, and Poland.
Also, there might be new trends coming. The government should work hand in hand with the outsourcing industry in acting on and resolving these issues. There should be more creative solutions as the outsourcing industry continues to flourish even in the pandemic.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.
Jessie C. Carpio is a member of the MAP ESG Committee. He recently retired as partner of P&A Grant Thornton where he took on various leadership roles, such as head of Audit and Assurance Division, president of its outsourcing division, and International Liaison director.