Call Center Provincial Expansion and Unintended Consequences!

(March 19, 2008)

I’ve been recently going around call centers recently trying to polish my interview skills.

Because of this I’ve been to a lot of websites, local sites and job fairs where call centers have booths.

A welcome trend is emerging. The trend is the constant trickle of jobs to places outside of the Makati Central Business district, the Ortigas Area, Eastwood Libis Area, Alabang Area that probably comprises the center of the Philippines BPO/IT/Call Center Industry. New sites include (from memory not meant to be comprehensive) Angeles, San Fernando Pampanga, Baguio, Antipolo, Cebu as a region, Subic and Clark.

I can think of reasons that necessitate this (okay I cheated, called some friends who worked in call centers mostly middle managers, not the decision makers but at least in the loop.)

More Permanent Reasons

  • Lower Cost – Salary
  • Lower Cost – Rent
  • Local Government Subsidies

Less Permanent Reasons

  • Lower Turnover
  • Smaller Number Of Competitors

In the Philippines the minimum wage is set by the local regional wage boards. The wage boards consist of representative from the government,  business and the labor sector. In the Philippines NCR generally has the highest wages followed by neighboring Regions, then followed by Cebu , and Davao.  This pattern fluctuates depending on the economic health of a regions, although the NCR has the highest wages by at least 5 percent has been true since I started following the regional wages.

This means that barring tremendous growth in economic activity and productivity the cost advantage of provincial call centers are here to stay. I was actually surprised when I found out that the starting salaries of call centers for the same position had around 40-50% difference. Yes I didn’t mistype, Provincial call centers are paying only half of what they are paying to their NCR agents. Another surprising thing is that even with this difference call center jobs in the province are considered high-paying, because anecdotally only the big companies offer salaries that are equal to the regional minimum wage.

The lower turnover is mainly due to the lack of job mobility, there just isn’t any other to go to. One call center is largely the same as another and with the still small number of call centers outside of NCR and Metro Cebu lower turnover for considerable.

The smaller number of competitors is mainly a function of competition. The best paying, best workplace call centers definitely get the best people to work with, which means that a lot of other call centers have to settle with whats left. Call centers that have provincial sites tend to  either pay lower or have less benefits.

The need to reduce cost is mainly due to the overall weakness of the dollar. We must understand that most of these contracts were negotiated during the time when the Peso-Dollar exchange rate was around 55-1 whereas currently (updated as of August 25, 2008) the Peso-Dollar exchange rate is hovering around 45-46 pesos per dollar. For companies that have razor thin margins , the exchange rate is really devastating financially. Moving to places where costs are much lower becomes a necessity especially when it is hard to forecast where the US economy and the Dollar-Peso Exchange rate would be in the near future.

All these factor combine to make provincial expansion a short to long term trend.

Of course if the overall weakness in the US economy continues nobody knows definitively if it would cause a contraction or expansion of Philippine call center industry.

The  influx of disposable cash is important because it is transformative in a way, through unintended consequences will be followed up in a different post.

Some Ideas on what local government units or local groups could do to help this process will be followed up in a different post.

Some problems this may possibly cause will be followed up in a different post.

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