BPO Philippines – Why Paying a Premium for Quality Makes Sense
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Few people dispute that quality and cost are connected. The phrase 'you get what you pay for' has become a cliché because it is so true. We can see it at work every day: Paying a bit more means the shoes are more comfortable and last longer, the restaurant has better food and service, the hotel is that bit more luxurious. But despite this, many people assume that Business Process Outsourcing (BPO) vendors in the Philippines are all created equal.

It is, perhaps, an understandable mistake. The distance makes it difficult, if not impossible, to physically compare different options. A lack of understanding of how outsourcing operations work might mean less insight into why prices can vary. And, because cost is frequently a driver, the temptation to go low can be tempting. If you are already saving 50%, after all, what difference can 60% make? Or 70%?

Choosing a BPO provider on cost alone is likely going to be an unfortunate move. It's estimated that 80-90% of low-cost outsourcing ends in program failures. The problem? While the low-cost vendor's hourly rate may be appealing, it is simply too low to invest in and sustain a high-quality operation. Choosing a premium BPO in the Philippines may come with a higher price, but it saves the enormous costs of unhappy customers, bad publicity, and a failed outsourcing relationship.

Looking at the factors involved quickly demonstrates why the low-cost route cannot work. BPO providers in the Philippines tend to have a similar cost breakdown. Agent salaries will be around 30% of the hourly rate that is being charged, with a further 15% for management and supervision, which include the operations and program managers as well as a team leader. Then there's 10% for support services, like HR and finance. Finally, 15% covers the operational costs of facilities, infrastructure, technology, and connectivity. This leaves the outsourcing provider with a gross margin of 30%.

Applying these to the rates charged, it quickly becomes apparent why low cost equates to low quality. A typical premium BPO in the Philippines will charge around US$14 per agent hour, while a low-cost operator might be around $8 per agent hour. The lower cost means less to spend on the operation. The facilities and technology, for example, have a budget of just $1.20 per hour in a low-cost vendor but $2.10 in a premium operator.

There are, of course, ways to realize savings. Many low-cost vendors will operate in more rural areas, avoiding the expensive real estate costs of places like Manila. However, there is no way to avoid the costs of IT and infrastructure. The top-tier BPO companies in the Philippines are highly sophisticated operations, frequently using AI to route calls, assist agents, and analyze performance data. Low-cost operators simply cannot afford the same level of technology as premium providers.

But the most significant difference in quality comes from the staff. Using the same breakdowns, our example low-cost and premium Philippines-based BPO companies offer their staff US$2.40 and $4.20 per hour respectively. The low labor costs are a significant factor in the savings outsourcing can offer, but by paying their employees 75% more, the premier operators also attract and retain the country's top talent.

BPO in the Philippines has grown explosively over the last twenty years. In large part, this growth was because so many people speak English-over 60 million Filipinos, according to official statistics. This, combined with the low labor costs, make the Philippines an ideal location for call and contact centers that service Anglophone countries. However, there is a range of language proficiency, and being able to speak a language is not the same as being able to communicate effectively in that language.

A college-educated employee with excellent English and a few years of work experience will be able to command those significantly higher salaries because their skills and abilities are in high demand. This leaves the low-cost providers reliant on staff who often have poorer English, lower educational attainment, and less work experience. The result is an industry that, in effect, offers two tiers of BPO, which are differentiated on both price and quality.

Today, there are more than a million Filipinos employed in contact center and back-office operations, and 70% of them are employed by the country's top 50 BPO providers, which include global third-party outsourcing providers like Concentrix and Accenture, as well as captive operators such as JP Morgan Chase & Co. and United Health Group. While offering staff the opportunity to work for more prestigious brands, they can also offer a better working environment and more opportunities and, of course, they all pay in the higher $3-6 per hour range.

These industry giants employ between 10,000 and 90,0000 Filipinos each. Indeed, they represent such a large proportion of the employment offered by BPOs in the Philippines that any high-quality call agent is likely to be working for one. So, with almost all A- and B-grade agents working for the large, multinational outsourcing and captive BPO providers, low-cost operators are forced hire and work with the remaining less qualified employees. It's of course common sense that with a workforce comprised of C-, D- and F-grade agents, it's impossible to achieve A-grade performance and customer experience.

The differences between the premier and low-cost BPO providers in the Philippines are profound. The premier operators, paying highly competitive salaries, will employ people who are not only fluent in English but who typically have little or no accent. The agents combine this linguistic talent with a level of cultural understanding that enables them to build a rapport with customers. The low-cost operators, on the other hand, are forced to employ less fluent staff, heavily accented with a narrower vocabulary, and much less able to understand the nuances of an English conversation. The biggest cause of complaints about overseas outsourcing is communication, so the impact of using a sub-par outsourcing provider like this can be drastic, impacting customer satisfaction and retention and eventually leaving its mark on your bottom line.

Choosing a BPO in the Philippines is much like any other purchasing decision. 'You get what you pay for' certainly applies. You can realize significant savings, perhaps as much as 50%, and still maintain and even improve quality by going with a premier provider. There is, however, a limit to the savings you can achieve, and once you pass that limit, every cent means lower-quality agents working with poorer equipment and support in outdated facilities. Every dollar saved beyond that point means a bigger chance of failure. Going low-cost is almost always a recipe for disaster.