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Introduction
Business process outsourcing (BPO) is the contracting of non-primary business activities and functions to a third-party provider. BPO services include payroll, human resources (HR), accounting and customer/call center relations. 1
In the Philippines, Business Process Outsourcing (BPO) industry is booming. In terms of profitability, the expected annual growth is at 7% to 9% which is higher than the expected 6% to 7% growth for the global industry according to the Contact Center Association of the Philippines. The Philippine Central Bank also expects a 10% revenue growth in BPO services to US $24.4 billion for 2018, noting its 7.5% revenue increase in the first quarter of the year. 2Based on Jobstreet.com Job Outlook Report, BPO jobs are the most in-demand in the Philippines, contributing to the country’s 14% overall increase in job openings. BPO industry officials expect almost 700,000 additional opportunities for medium and high-skill jobs by 2022.2
It is also worth noting that the major cities supporting this growing industry includes Iloilo City, a home to more than ten IT companies and hosts at least 6,000 call center seats. With its rapid development gearing towards being a mega city, Iloilo City has established itself as the next best destination for IT-BPO operations.3
IXL Solutions was incorporated in 2012, and started as a Philippine government certified training institution specializing in Near-Hire Training for BPO agents in La Paz, Iloilo City. In 2013, the company evolved from being a learning and consultancy center to a Business Process Outsourcing company with its first US based client specializing in flower delivery.3
As a new player in Iloilo City’s growing BPO sector, what is the future like for iXL Solutions?
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Industry Analysis
The Philippines as a whole is considered a viable solution for process outsourcing ranking 7th among the world’s top outsourcing destination, according to the 2017 A.T. Kearney Global Services Location Index. The country’s ranking is based on financial attractiveness, people skills and availability, and business environment. The government both on the national and local levels has been very aggressive too in promoting the country as a BPO destination. 2 This resulted to the boost in the strategic position of several cities in the country, which were included on the 2018 Tholons Top 100 Global Outsourcing Destinations: Manila (2nd), Cebu (11th), Santa Rosa (87th), Bacolod (89th), and Iloilo (92nd). The city ranking is based on digital transformation, talent skills and quality, cost, ease of doing business, and other outsourcing-related parameters.4
The high organizational support present in both national and local levels, which is geared to develop the services outsourcing industry, the low real estate and talent salary cost, and the availability of infrastructure both physical and technological platforms or systems required to host outsourcing operations from a location has made Iloilo city, where iXL Solutions is located, an extremely viable location for businesses and players interested in starting an outsourcing business. This makes the threat of new entrants high as potential new players are likely to see Iloilo as possible business location for starting an outsourcing venture.
The industry is experiencing its biggest digital shift with the surge of technological disrupters. Being primarily a service industry for non-primary functions or processes, potential replacement of core capabilities of BPO companies can easily be replaced through the use of artificial intelligence (AI) or through robotic process automation (RPA). As the market continue to adopt more of these changes, the threat of substitution continues to increase, and many of IXL’s core solutions and services (see Exhibit 1) can get affected.
Iloilo City is an education hub in the Western Visayas region with the capability of supplying over 14,000 graduates yearly. Since effectively implementing K-12 as an academic curriculum which include courses on Business Process Outsourcing for Senior High School, the first waves of its graduates are also joining the workforce this year (2019).3 This guarantees steady supply of manpower for the BPO industry. This translates to low power of manpower suppliers as loss in talent pool can easily be replaced given high supply.
As per Market Research Future (MRFR)’s latest study, the global business process outsourcing (BPO) services market is projected to expand at a CAGR of 11% during the forecast period 2017 to 2023. The rapid increase in the adoption of BPO services in IT and telecommunication sector is a major factor responsible for the proliferation of the business process outsourcing (BPO) market. Furthermore, the adoption of BPO services across banking, finance and human resource services is gaining momentum. 5 Also, based on the 2013 Annual Survey of Philippine Business and Industry (ASPBI, USA has 66.9% share in the income transaction of the BPM industry in the Philippines, followed by UK at 12.2%, Canada at 4.5%, Australia at 3.7%, Japan at 2.8%, and 9.9% are from other countries. 6 This high number of potential customers translate to low buyer power.
Finally, compared to the saturated market of call centers in the National Capital Region (NCR), Iloilo City remains to have very few players competing in the market.7 But given both the ease of doing business in the locality, and the threat of substitution, the steady supply of manpower in the region, and the potential of a huge global market, a moderate level of competitive rivalry is observed.
Competitor Analysis
As a new player, how does iXL compare to its competitors? Exhibit 1 shows key figures like number of employees’ worldwide, latest reported annual revenue, and core services or solutions per major BPO player in Iloilo City. Most of the big players are global BPOs with annual revenue exceeding $100 million dollars, and total employees around the world exceeding 10,000. IXL Solutions Philippines Incorporated remains to be quite small compared to its rivals. These figures are significant in understanding the competitive position of iXL relative to the other call centers in the city.
Competitive Positioning
Understanding its core capabilities (Exhibit 3), certain opportunity areas were identified – these are creation of capabilities on the technological and business transformation front. Also, further understanding of its core services and solutions as compared to its competitors, it would seem that the capability of IXL as a firm is mostly similar to those of the big players – customer service, sales and tech support. Although, the firm has adopted cost leadership as a strategy, it has yet to identify its focus target market.
Conclusion
In summary, using Porter’s Five Forces Analysis (Exhibit 2), IXL should consider taking advantage of the high manpower supply of the Western Visayas region and to focus on services that are untapped in the global or even the local market. IXL should also consider beefing up its business transformation capabilities by looking into talents in the market that can help with process and technological improvements, and innovation. Finally, by working on identifying core capabilities that will define its competitive advantage, IXL must think of building its client and employee value proposition, identify sustainable cost leadership strategies and to focus these strategies to a specific target market that has not been tapped by the big players.
References
1Technopedia. Business Process Outsourcing (BPO). Retrieved May 23, 2019 from https://www.techopedia.com/definition/13776/business-process-outsourcing-bpo
2Zoleta, Venus. Business Process Outsourcing to the Philippines [Complete Guide], featuring the top BPO companies in the Philippines. Learn how to scale your business effectively and succeed through outsourcing. Retrieved May 23, 2019 from https://grit.ph/bpo/
3The iXL Advantage. Retrieved May 23, 2019 from http://ixlph.com/the-ixl-advantage/
4Tholons Services Globalization Index 2018, 2019. Retrieved May 23, 2019 from http://www.tholons.com/digital-innovation/
5Sawant, Abhishek. Business Process Outsourcing (BPO) Services Market Size, Share, Recent Trends, Companies Profile, Regional Analysis and Industry Growth by Forecast to 2023. Retrieved May 23, 2019 from https://www.reuters.com/brandfeatures/venture-capital/article?id=61528
6Philippine Statistics Authority. 2013 Annual Survey of Philippine Business and Industry (ASPBI) - Business Process Management (BPM) Activities : Final Results. Retrieved May 23, 2019 from https://psa.gov.ph/content/2013-annual-survey-philippine-business-and-industry-aspbi-business-process-management-bpm
7Iloilo Blogazine. List of BPO Company in Iloilo. Retrieved May 23, 2019 from http://allaboutiloilophilippines.blogspot.com/2016/02/list-of-bpo-company-in-iloilo.html
This article was written as part of the requirement to pass the capstone project on the Foundations of Business Strategy
Posted from my blog with SteemPress : https://pinoyviajero.blog/competitive-position-analysis-of-an-outsourcing-company-in-the-philippines/