In a changing business landscape, the Philippines is staking its claim as a go-to destination for outsourcing activities.
By Alex Frew McMillan
Aimee Engelmann first travelled to the Philippines in late 2013 to seek out graphic designers, office administration help and some bookkeepers for her Brisbane-based marketing business. What she planned as a one-off trip turned into 10 week-long excursions within a year
“I was absolutely astounded with the level of talent, and it really did open my eyes to the way the service industry is changing,” says Engelmann.
“I didn’t understand the depth and breadth of talent available until I got on a plane and experienced it myself.”
More and more businesses in English-speaking nations have begun to see the Philippines as an attractive business process outsourcing (BPO) destination over the past two decades.
Global connectivity helps, of course, but the country’s colonisation by the US between 1898 and 1946 also left it with a Western-oriented culture, US-style regulatory systems and a large pool of English speakers. The result: BPO is the economic success story of the Philippines. Aimee Engelmann’s enthusiasm is widely shared.
Creating a BPO company
By the end of her 2013 Philippines tour, Engelmann had set up a Philippines-based BPO company, Beepo, with husband Mark. Beepo helps mainly Australian companies send work offshore.
Engelmann counts accountants, manufacturers, software designers and construction companies among her clients. They sign a contract with Beepo, which hires the Filipino workers and keeps them on its books.
“When you consider the high cost of compliance in Australia, I realised there was very little or no difference in quality and a significant saving in costs,” she says.
“The accountants we work with understand it. They want to be that trusted adviser for clients. So they try to get transactional work done as quickly and efficiently as possible to free up their Australian staff to be much more strategic.”
In November last year, she was back at her company in the Philippines’ Clark Freeport Zone, a free-trade zone on the former Clark Air Base, to celebrate the hiring of Beepo’s 200th employee. She recently sold her marketing company to a Singapore entrepreneur, who himself has an extensive network of offshore employees. He was attracted to Engelmann’s company because of the similar way it was set up.
“If I didn’t have an offshore team, I wouldn’t have been able to sell that business; it would have disappeared two years ago,” says Engelmann. Instead, revenue dropped by 22 per cent at the agency – but net profits increased 5 per cent.
Delivering value for clients
The Philippines used to specialise in phone support but is now working more broadly with businesses around the world. The CEO of accounting software company Panalitix, Rob Nixon, notes two factors that have helped to move the country’s BPO industry beyond call centres: the typically agreeable Filipino accent and a cultural enthusiasm for learning that helps Filipinos to quickly pick up new skills.
Nixon sees many of the methodical and procedure-based accounting tasks as being ideal for offshoring and says Filipinos excel at these tasks. An accounting “coach”, he has written two books on the topic, most recently Remaining Relevant, subtitled The Future of the Accounting Profession. He has a personal assistant who works at home in the Philippines and his firm uses an extensive labour force in the Philippines, as well as a smaller number of outsourced computer programmers in India.
Nixon believes that outsourcing can help accounting become a “forward-looking” profession that advises clients on how to build their business, increase profits and protect their wealth.
Early adopters are already moving away from a data-administration approach to accounting.
“It’s not really helping the client, other than writing up a tax return,” says Nixon, adding that this sort of task can be easily achieved by overseas workers with lower wages and basic training. Likewise, much compliance work is repetitive and can be delegated out by a firm.
Although this will force a change in the very nature of what an accounting firm does, it should be seen as a positive change that will deliver more value to clients, says Nixon.
“Everyone moans and groans that we’re sending jobs offshore. No. It is about freeing up that talent in Australia,” says Nixon.
“The downside is that we have to retool and reskill the accountant. Accountants who don’t want to face the client and want to sit behind a screen all day long are the ones that are in trouble, because why do I pay you A$80,000 when I can do it for 20 per cent of the price in the Philippines?”
A new cottage industry
The trend towards business process outsourcing has even led to a new Australian cottage industry: BPO self-help. Businesses such as The Outsourced Accountant, Mike’s Manila Tours and Easy Offshore run trips to the Philippines to help people learn how to employ workers there effectively.
“I was absolutely astounded with the level of talent. It really did open my eyes.” Aimee Engelmann, Beepo
BPO gurus John Jonas and Dan Goggins, both based in the US, launched ReplaceMyself.com in 2008 and followed up with OnlineJobs.ph in 2009. For US$49 per month, US$89 per quarter or US$499 per year, OnlineJobs.ph offers access to a database of 85,000 Filipino workers. It helps employers post jobs, find staff members and manage them through software that tracks hours worked and authenticates the completion of tasks.
Goggins, who lives in Boise, Idaho, says the entire process can be done online. He believes that just about any task can be outsourced, including not only back-office procedures but even client-facing sales and marketing roles. There are many ways that accounting firms can make the most of the process – outsourcing accounts receivable, for instance, as well as tax preparation, budget analysis and so on.
“Benefits are immediately apparent,” says Goggins, adding that the low wage structure in the Philippines “allows even small accounting firms to hire multiple workers to help complete their tasks, freeing time for sourcing new clients and growing the business”.
About 60 per cent of Goggins’ clients are outside the US, with plenty of professionals such as accountants and lawyers, as well as real estate agents, call centre operators and the like.
Views on outsourcing can sometimes sound patronising or potentially exploitative, but advocates say the workers signing up for sites such as OnlineJobs.ph are eager to work and find their jobs respectable and well-paid compared with those of many of their peers.
Not all accountants, however, are sold on the idea of outsourcing. Suzanne Liu Duddek, who runs her own Hong Kong-based firm, S. Liu & Co., believes it would be too difficult to supervise workers in the Philippines. That’s even as she notes that the frothy market for initial public offerings in Hong Kong and China has resulted in full employment for accountants in Hong Kong. Plus, Hong Kong has just implemented a new companies ordinance, creating extra challenges for her staff.
“I don’t do bookkeeping, so I don’t need to outsource,” she maintains.
“I just do auditing and tax work, and that is difficult to outsource. You have to directly deal with the client. It’s quite labour-intensive and based on skills and experience.”
Commercial real estate services company Cushman & Wakefield and management consulting firm Everest Group also flag the issue of natural disasters in the Philippines, where fragile infrastructure is at risk from the area’s typhoons and earthquakes.
The new normal
BPO isn’t right for every situation, but expert groups such as Cushman & Wakefield argue it is now a mature feature of the business landscape. Firms need to adjust, it says, by harnessing the new talent pools and new technologies and putting in place new ways of working.
For the Philippines, that looks like a win-win future.
A winner for the Philippines
Business process outsourcing (BPO) is now a US$100 billion industry worldwide in terms of annual contract value and is growing at 5 per cent per year, according to a report by property services firm Cushman & Wakefield.
In the Philippines, it says, growth is faster: revenue hit a record US$15 billion in 2014. Indeed, Cushman & Wakefield’s 2015 rankings list the Philippines as the second-best nation globally for BPO; only Vietnam, with its very low cost base and young work force, is more attractive.
BPO is widely credited with helping to keep the Philippines’ annual economic growth rate at 6 to 8 per cent over the past three years, which is significant on two levels: this growth rate is above the Asian average, in a country previously seen as one of East Asia’s economic laggards; and BPO is still a small sector of the Philippines economy, accounting for just over one million jobs in a nation of more than 100 million people. (It also employs only graduates, limiting its impact on Philippines poverty levels, according to a 2012 Asian Development Bank report.)
The Cushman & Wakefield report says the Philippines is taking a substantial share of voice and call centre operations from traditional BPO powerhouse India. The two nations have similar average wages, but Cushman & Wakefield estimates some 30 per cent of Filipino graduates are “employable” for BPO, in contrast to India’s rate of 10 per cent.
“This gives the Philippines a competitive advantage in enabling companies to reduce investment in their in-house training programs, which can be tantamount to a significant overhead,” the report states.
Management consulting firm Everest Group came to a similar conclusion in its Global Locations Annual Report 2015, calling the Philippines the leader and “star performer” for functions related to English-language phone support and some information technology tasks.
Nixon also agrees: the Philippines has a “service” culture that has been Americanised, he says, and its “US-style” attitude means Filipinos mesh well with the working styles of people in cultures such as Australia.
The "Awesome 8"
Rob Nixon, of accounting software company Panalitix, argues that accountants need to spend much more of their time on forward-looking work that helps clients function better
and plan business expansion. Many repetitive regulatory, compliance and data-entry functions can be offshored to the Philippines or elsewhere, he says.
In his book Remaining Relevant, Nixon lists an “Awesome 8” – functions that accountants should build their practice around to better serve their clients:
Growth. Help me increase revenue and build wealth.
- Profit. Help me understand where my profit comes from and suggest how to improve it.
- Cash flow. Help me understand my cash flow and suggest how to oversee it.
Tax exposure. Help me manage my tax exposure efficiently.
- Asset protection. Help me keep hold of what I’ve got.
Financial retirement. Help me create the wealth I will need.
Succession planning. Help me plan for the next generation of business and family.
Estate planning. Help me leave my wealth and a legacy.
Outsourcing by the (accounting) book
Australia’s Accounting Professional & Ethical Standards Board issued a set of guidelines in 2013 on how to approach the outsourcing of services – rules of thumb that it updated in October 2015. Appendix 2 provides a useful checklist of the subjects that any outsourcing agreement should cover.
Channa Wijesinghe FCPA, the technical director at the board, says that leading accounting firms were major lobbying forces in pushing for the voluntary standards. Although adhering
to them is entirely self-imposed, accounting firms have been keen to incorporate them into their best practices.
In researching the guidelines, the board looked at what accounting organisations had implemented in other nations. However, it found that only the US has much guidance in place, and even that guidance from the American Institute of CPAs amounts to little more than a few paragraphs.
As outsourcing becomes more common, though, it pushes up against new hurdles. Wijesinghe notes that Australian privacy rules require accountants to tell clients when they use people who are not Australian-based and to inform them on issues such as where the servers storing their data will be located.
Firms should therefore disclose those work parameters in any engagement letter with a client. That letter should also make clear if the BPO contractor is 100 per cent owned by the accounting firm or is an external contractor.
“I guess that’s the riskiest part of this,” says Wijesinghe.
“If information goes overseas and the client doesn’t know and there’s some sort of a data leak, it doesn’t look good for the accountant. Sometimes the results could be quite sensitive.”
Clients should be given the opportunity to say no to outsourcing and pay more to have activity conducted onshore, the guidelines suggest.
“That decision,” adds Wijesinghe, “should ultimately be the client’s.”
Outsourcing's tough reality
When Tanya Titman FCPA outsourced part of her business’s workload to the Philippines, she found herself on an “interesting journey” grappling with the challenges of managing a distant team.
Titman, founder of the Brisbane-based accounting firm Consolid8, opened a serviced office in Manila in 2010 and soon had four Filipino staff members.
The Manileños worked in real time with the Brisbane office, coming to Australia for extensive training and then participating by Skype. Titman saw it as vital that they understood the culture of her firm and felt part of the team.
To avoid any issues over data security, they accessed servers and systems located in Australia. Public holidays are sometimes announced at the last minute in the Philippines, so Titman put the outsourced employees on Australian holiday schedules.
Related: How to manage overseas outsourcing
With all this in place, Titman was disappointed to find that employees in Manila appeared to job hop every two years or so.
“We would spend all the time training and we would lose them to someone else,” she says.
Titman also found that wages rose rapidly, as much as 20 per cent a year. Perhaps most importantly, Consolid8 struggled to make the Manila-based employees feel truly connected to the Australian-based team.
“We really recruited some good talent,” says Titman, “but even with all the training, it was very hard for them to see how they fitted into the picture.”
The company started to question if outsourcing was the right strategy.
“Technology also really started to push ahead,” she says. “We took the view that we could automate a lot of the roles they were doing [in Manila].”
With this in mind, and lacking the stability it wanted, Consolid8 closed the Philippines office in late 2014, keeping on one particularly skilled and keen employee, who moved from Manila to Australia and bought into the team.
Consolid8 continues to send some contract work to India where one accountant in particular – who works on a project basis, not as an employee – will work on data overnight to have
it ready for the Queenslanders when they come in the next morning.
“That is a good fallback for us,” says Titman.
This article is from the February issue of INTHEBLACK.
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