Knowledge process outsource is a growing industry in the Philippines. The last decade has seen major growth of the outsourcing sector in the country. From voice, there was a need to expand services to include higher skills and expertise. From this need emerged knowledge process outsourcing.
Knowledge process outsource began in India in the 1980s. However, by the early 90s, KPO took the Philippines by storm. In 2016, it comprised 34% of the country’s outsourcing industry. The government expects the demand to more than double by 2022 with an estimated worth of US$250 billion. This means jobs for about 1.3 million direct staff. As a result, companies offering KPO services will become the 2nd largest source of foreign exchange in the country.
In this article, we shall delve on the following topics:
1. Difference Between KPO and BPO
2. Reasons The Philippines Is An Attractive KPO Destination
3. Advantages of KPO
4. Top KPO Services
5. How To Improve Relationship With Your BPO Partner
Differences Between KPO and BPO
KPO is an offshoot of business process outsourcing. The term is usually interchanged with BPO. They are even considered as a call center by some people. In actuality, however, they are two different things. Business process outsourcing involves support tasks such as customer support, call center services, IT, and more. BPO jobs require low level skills. Most of the workflow can be taught during training.
BPO companies follow a certain pattern. When a customer calls about their bank account, the outcome is usually predictable. The call center agent answers your questions and the concern will be resolved. Aside from that, BPO requires administrative tasks and basic professional expertise.
On the other hand, different types of KPO involve tasks like legal services, medical services, animation, video, and others. These tasks require specialized expertise as well as advanced technical and analytical skills. In a KPO, the outcomes do not follow rigid rules or procedures. A lawyer cannot predict the outcome of a case. KPO requires people with analytical and technical skills.
KPOs draw its strength from the knowledge of its employees while BPO is all about efficiency. In addition, running a BPO company is not that difficult. Even freelancers can be hired to do the work. KPOs are more complicated.
Finally, you can set up a KPO business even if you do not own an established BPO company. In fact, some companies started out as a KPO company from the outset.
Philippines: Top KPO Destination
The Philippines is emerging as a top destination for knowledge process outsourcing. The country is ranked 10th among 50 countries in terms of back office services, according to the 2019 Global Services Location Index of A.T. Kearney.
Hailed as the “BPO Capital of the World,” Manila hosts most of the KPO companies. However, the sector has also expanded to Pasig City, Quezon City, and Mandaluyong City. Outside Metro Manila, Cebu City is fast emerging as a low-cost competitor. The city ranked 7th in The Tholons Top 100 Outsourcing Destination 2016 Report. Other Philippine cities include Bacolod, Santa Rosa, Davao, Baguio, and Metro Clark.
The Philippines has a population of more than 109 million people. It is 1/10 of the size of India and China. Despite this, it has emerged as one of the top outsourcing destinations. There are several factors that contribute to the growth of KPO services in the country.
Business Environment
The Philippines has established an investor-friendly environment for KPO businesses as well as those who want to expand local KPO centers. The Board of Investment has provided many incentives to these businesses. KPO providers enjoy income-tax holidays for 4 to 8 years. For the first 5 years after registration, providers get additional deduction on labor expenses.
Aside from that, they will also receive VAT exemptions on allowable local purchases such as telecom, electricity and water, and domestic sales allowance of up to 30 percent of total sales. KPO providers located in economic zones will be exempted from paying import duty fees and taxes on imported raw materials and equipment. They also have the option to pay a special 5 percent tax on gross income. Foreign investors can be given permanent resident status if they make an initial investment of a certain amount.
Highly Educated and Technically Skilled Workforce
The Philippines produces many graduates yearly. In 2017–2018, the Commission on Higher Education reported 751,310 higher education graduates, a huge increase from the 2008–2009 figure of 470,000 graduates.
With an educational system patterned after Western countries, graduates of legal, paralegal, medical, and finance courses are the most in demand by clients from the United States, Canada, Australia, and the UK.
Labor Cost
Estimates from the Information Technology and Business Process Association of the Philippines reveal that the labor cost for English-speaking professionals in the Philippines is one of the lowest in the world. Moreover, inflation has been steady and predictable over the years. This means that you shouldn’t expect to pay higher fees for offering knowledge process outsource.
Filipinos also have the advantage for being proficient in English. Being a colony of the United States for almost 50 years had a huge impact on their language advantage. They are also well aware of the substantial time difference between the Philippines, US, and Europe so they will have sufficient time to meet quotas and deadlines.
Infrastructure
The infrastructure for offering BPO services is also ideal in the Philippines. Low-cost but high-quality real estate in both urban and rural centers is abundant. There is reliable and affordable telecommunications infrastructure. Energy supply has improved over the years and there is round-the-clock low-cost transportation.
KPO providers can also expect improved infrastructure as the government tries to leverage its recent economic gains courtesy of its Build Build Build program.
Government Support
Despite uncertainties in policies in and out of the country, President Rodrigo Duterte gave assurance of protection and government support for the industry.
Advantages and Disadvantages of KPO
Offering different types of BPO has its advantages and disadvantages. It is worth understanding each one to make an informed decision. Here are its advantages:
Cost effectiveness
KPO is flexible so that you can easily reduce or increase staff. You don’t need to set up infrastructure or bear any operating or running costs. You get effective, expert services at a fraction of the cost. You can easily reduce your KPO staff to cut costs or hire specialized staff to increase profit or revenue.
Access to the best talent
KPO companies provide the best and most knowledgeable and skilled professionals available in the global talent pool. In a developing country like the Philippines, the cost of getting the best talent is also relatively low. KPOs fill the gap or need for skilled employees in a particular field.
Focus
With knowledge process outsourcing, you can focus on your core functions. The provider handles the peripheral functions while you can better focus on core functions thus boosting their efficiency and results.
Better utilization of resources
By outsourcing and focusing on core functions, you can use your resources in other places. For example, a company that outsources its supply chain management can save its resources for streamlining other processes.
Here are the disadvantages:
Different time zones
If your client is based out of the US, UK, or APAC, your employees are likely to work the night shift. This will affect their health due to erratic sleep patterns in the long run.
Poor infrastructure and rising real estate prices
Poor infrastructure poses a great challenge in delivering high quality services to international clients. Cities are slowly getting congested and costs of operations are increasing. There is a need for well-developed infrastructure to address this challenge.
Data security concerns
KPO units are privy to information not otherwise available in the public domain. In most instances, clients hesitate to outsource their sensitive or confidential data to third-party service providers. It is unlikely that clients will also share confidentialities and NDAs.
Manpower and knowledge issues
Access to a large and high-quality pool of skilled employees is a precondition to be successful in providing KPO services. Monotony was considered as a psychological factor that can contribute to increasing attrition rate in KPO units.
Industry and business understanding
To be successful, you need to thoroughly understand the industry. The growing gap between demand and supply for quality workers needs to be addressed.
Top KPO Services
Over the years, KPO providers have emerged as a major contributor to Philippine GDP. According to the Information Technology and Business Process Management (IT-BPM) Roadmap 2022, the demand for mid-skill and high-skill jobs will take 46% and 27% of jobs in the industry. This means that there is a bright outlook for the KPO industry.
According to a forecast by a UA&P industrial economist, the KPO industry is expected to grow at 14% to 20% a year for the next five years. With that in mind here are some of the types of KPOs you can consider.
Legal Services
The Philippines competes with India in legal and paralegal services. Legal education in the United States and the Philippines is similar which is why Filipinos are more preferred by US clients for these types of services.
Being a former US colony, the Philippines has a strong affinity for Western culture and laws. The tasks involve reviewing litigation and transactional documents. The professional will also draft contracts, research memorandum, due diligence, patent prosecution, and others. They may also be tasked to do legal research from time to time.
Workers in legal services need to have a professional law degree. Some companies even hire Filipino lawyers and attorneys even though it is outside their license or jurisdiction.
Banking and Finance Services
The last five years has seen the banking and finance sector as one of the top services in knowledge process outsource. Thanks to comprehensive training in finance and accounting, the Philippines is now ready to take the lead in Finance and Accounting.
Workers in the banking and financial services will do tasks such as underwriting, training, consulting, risk mitigation, and profit and loss. They will also perform tasks like analytical research on financial matters, such as payroll. They need to have a degree in Finance or Accounting. Knowledge of banking and investment would be an advantage.
Medical Services and Research Development
The Healthcare Information Management Services established a breakthrough breaching the US$1 billion mark in 2015 with close to 90,000 professionals. The Philippines has more than 250,000 nursing graduates.
Workers in this sector will be tasked to do oncology testing and genetic profiling as well as HIV and allergy tests. Workers in this sector need to have a medical degree with specializations in a specific field.
Engineering Research and Development
Workers in this sector will perform tasks such as value engineering, technical specifications for tenders and conversion from 20 to 30 finite analysis. Workers with knowledge in CAD/CAM applications, product design, and drafting and modeling.
Writing and Content Development
With 1.3 million Filipinos, the Philippines ranks as the third most represented country in the freelance marketplace. Filipinos are good in English making them excellent in content writing and development.
Graphics, Animation, and Design
Outsourcing animation began in the Philippines with companies such as Burbank Animation Inc and Asian Animation. As of 2008, there are more than 50 animation companies in the country. There are more than 7000 people employed in the industry with revenues exceeding $100 million.
How To Improve KPO Relationship
Knowledge process outsourcing is one of the fastest rising trends in the business sector today. When done properly, you can leverage the benefits and improve your overall productivity. Here are some tips on how to maximize your KPO partnership.
Ensure involvement
Make sure that your team is involved in the decision making or any improvements to be implemented. Transparency is important and you need to always be ready to make suggestions. Discuss the benefits that you can get from your partner and let them tell you their opinions. Once they see the benefits of your partnership, they will surely agree with establishing great communications.
Create different situations
Doing business entails having different options for different situations. Gather all the data you need and meet with your executives so they will know your plans. Present to them the KPO services the client can offer and get your team’s opinion about partnering with the KPO provider.
Define your expectations
Part of having a good business relationship is setting expectations. Once you have explained everything, listen to your potential partner about what they can offer or what they can suggest. KPO providers can be a great asset. Set limitations if you want to. They can take care of the things that you need.
Invest with your KPO manager
Success in offering different types of BPO will be attained if you put some effort and investment with your KPO manager. Set a meeting and establish an open communication for improving business relationships.
