End of the line?

OFW remittances and BPO revenues are the two pillars of the Philippine economy. With an annual potential of almost $50 billion in dollar earnings from these two sources, our economy had never seen better days in recent years.

So good were the earnings and jobs created by these two pillars that our leaders became complacent about introducing enough structural reforms in our economy to make growth more sustaining. Like Marcos before them, post EDSA presidents were happy to rest on the earnings of OFWs and lately, of our call center workers at home.

Warnings have been issued about the need to complement these two legs of our economy. We need a resurrected industrial sector and a more productive agricultural sector as well. A study by the ADB said as much, but our officials are doing nothing much.

The next administration will likely be faced with a more urgent situation. Developments abroad may result in a serious loss of revenues initially from overseas workers and eventually from our BPO industry.

Low oil prices have forced many countries in the Middle East hosting our workers to introduce austerity measures, including the mass lay off of foreign workers. Malacanang has bravely said they are ready to help any OFW laid off, as if they actually have a credible plan to do this.

There are about two million OFWs in the Middle Eastern oil producing countries. Even if only 10  percent of them lose their jobs, a crisis will arise not just in repatriating them, but also in giving them alternative employment here.

As for the BPOs, an article last week in The Economist suggests the beginning of the end. Technology, The Economist said, may spell the end for this industry as we know it. The Economist sounded certain the low end part of it that we now control will be wiped out by new technologies.

“Call centers have created millions of good jobs in the emerging world,” The Economist declared, “technology threatens to take those jobs away again.” And it pointed out we have the most to lose once that happens.

“The Philippines is also, probably, the end of the line. New technologies are poised to abolish many call-center jobs and transform others. At best, jobs will be created more slowly in the Philippines and India; at worst they will vanish. And it is likely that nowhere else will be able to talk its way out of poverty as they have done. There might never be another Manila.”

The Economist reports “overall, though, the call-center explosion has been a colossal boon for Filipinos who speak good English... Experienced workers can often find managerial jobs. And though the night shift is hard, it is far better than being a maid in Saudi Arabia.

“The Philippines has long exported workers: remittances are worth around 10 percent of GDP. But business-process outsourcing is catching up fast. Many of the 1.2m people who found jobs in outsourcing in recent years would otherwise have gone abroad...”

The Economist also noted it is not only Manila that will suffer the loss of call center jobs due to technology.

“Outsourcing firms are already building call centers in provincial cities in the Philippines, where employees are less picky. And other countries, some of them in better time zones, are trying to grab a share of the business. South Africa is especially keen. But they are likely to be disappointed, because the call-center industry is on the verge of profound change.”

I had warned about this in past columns. We have seen how disruptive technology killed a once profitable medical transcription service. The next serious disruption is starting to happen—that includes smart phone apps that will render some customer service jobs redundant.

I have seen how my own children in California are now using iPhone apps for many things that in the past necessitated talking to a live person. Here is how The Economist sees it:

“Much of the call-handling and data-processing work sent overseas is basic and repetitive, says Pat Geary of Blue Prism, a British technology firm. When somebody challenges a gas-meter reading or asks to move an old phone number to a new SIM card, many databases must be updated, often by tediously cutting and pasting from one to another. Such routine tasks can often be done better by a machine.

“Blue Prism makes software ‘robots’ that carry out such repetitive tasks just as a person would do them, without requiring a change to underlying IT systems—but much faster and more cheaply. The firm has contracts with more than 100 outfits.

“Increasingly, Western companies prod customers to get in touch via e-mail or online chat. Software robots can often handle these inquiries.

“The cleverest systems, such as the one Celaton, another British firm, has built for Virgin Trains, refer the most complex questions to human operators and learn from the responses. The longer they run, the better they get…

“Software robots are only going to become faster, cleverer and cheaper. Sarah Burnett of Everest, a research firm, predicts the most basic jobs will vanish as a result. Call-center workers will still be needed, not for repetitive tasks, but to coax customers into buying other products and services. That is a harder job, demanding better language skills.

“So automation might mean fewer jobs, or at least less growth, in India and the Philippines, but more jobs in America and Europe. This might already be happening. Between 2013 and 2014 America’s share of global contact-center employment rose slightly, from 19 percent to 21 percent, according to Everest.

“Outsourcing contracts that move work overseas have become rarer. Western banks are especially keen on repatriating work,” says Arie Lewin of Duke University, an expert on outsourcing. That is partly because of America’s stringent, but vague Dodd-Frank Act, which has made them paranoid about their suppliers’ activities.

“This might work well or badly for the Philippines. Perhaps software robots will wipe out the dullest jobs, freeing Filipinos for more interesting conversations... Or it is possible that computers will learn to handle almost all simple inquiries, leaving humans to deal with the most incoherent, irate customers…”

It is clearly urgent to move up the value chain in BPO services. This was seen some years ago by Mariels Almeda Winhoffer who was at that time head of the local IBM unit.

The threat of a technological disruption in the BPO business was why she made it her mission to gear the country to develop expertise for handling Big Data Analytics. She worked with CHED to develop a curriculum that is now being used by a number of universities. But we need to move those baby steps up several notches rather quickly.

The thing with disruptive technologies is that the impact could be merciless. Indeed, it is pathetic our officials are fighting for the honor of being the industry’s father. It is more important to work together and save the industry by making it possible to move up the value chain faster.

I see a very scary scenario in the horizon. Our economy will lose the growth momentum we have enjoyed because of a decline in OFW remittances and BPO revenues.

Geo-political developments on one hand and disruptive technologies on the other will rain on our parade. The only question is when.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.