When Philippine president Rodrigo Duterte announced one of Asia’s strictest lockdowns on Luzon island in mid-March, Flat Planet, an outsourcing company, went through what Chris Moriarty, its Manila-based chief executive, describes as “hell for two weeks”.
While police checkpoints were going up around Manila, the capital and Mr Duterte was threatening to “shoot” curfew violators, outsourcing companies like Flat Planet were racing to keep their call and data centres running. In an indication of the industry’s economic importance to the Philippines, outsourcing companies — alongside pharmacies and grocery stores — were allowed to remain open provided companies imposed social distancing rules and gave lodging to employees. Like much of the industry, Flat Planet asked staff to work from home apart from a skeleton crew on site.
“Public transport was shut down, we had to ship computers to people’s houses and get them installed and everyone set up,” says Mr Moriarty.
Like large swaths of industry across the world, the pandemic has thrown the Philippines’ $25bn-a-year outsourcing sector, which employs more than 1m people, into chaos: JPMorgan, Amazon, Google, and Facebook are among the companies whose back office operations have been hit.
The same is true in India’s Bangalore, a pioneer in business outsourcing. After Prime Minister Narendra Modi announced a nationwide lockdown in late March, the millions of Indians working in the country’s $100bn-plus IT, data and call centre industry were forced to start working from home.
Despite the high-tech veneer, and a business model based on an image of seamless, 24-hour global work, the sector relies to a great extent on humans in large offices — “butts on seats”, as one industry locution has it.
Many industries have been dramatically disrupted by the pandemic, but the call centre sector is already being transformed by it. Even before the enforced lockdowns, it was witnessing the gradual introduction of new technology based on artificial intelligence that can do some of the tasks done by humans — and potentially replace millions of jobs.
Industry executives say that process of technological change is now accelerating as a result of coronavirus. The new innovations include the introduction of chatbots, some of which use the same voice recognition technology behind Amazon’s Alexa, and software that can replace repetitive tasks done by humans.
The Philippine industry, which built its reputation on efficient and courteous voice communications in good English, is looking especially vulnerable.
“People are beginning to ask questions,” says Mohandas Pai, a tech investor in India and former executive at outsourcing groups Infosys. “Seeing as you’re working from home and there’s a lag in the service, we’ll use more AI, more chatbots, more automation. That is permanent change, automation will hit that sector very deeply.”
Indian executives say that the industry will be quicker now to cut jobs at call centres, not least if AI and automation allow a handful of human agents to do work that previously required dozens.
“You can’t have people on the payroll if they’re not coming to work,” says one. “Rationalisation — everybody is doing that.”
The Philippine outsourcing industry is, along with remittances, one of the country’s leading sources of foreign exchange and a key driver of an economy that was growing at an annual rate of 6 per cent before coronavirus hit.
Companies have had to move thousands of desktops to employees’ homes to keep them working. But many Filipino and Indian outsourcing workers lack adequate internet connections or working space at home. Productivity has suffered, and not every job can be done at the kitchen table: for example, banking business that involves agents calling up client accounts can usually only be done on site for security reasons.
Outsourcing companies have tried to reassure clients that their employees are working on secure networks, but some western firms have nonetheless sought to reduce their dependence on them. Virgin Media said last month it would recruit 500 call centre workers in the UK as a result of the disruption in Asia.
“Many business-continuity plans [look at] outages in one centre or one country at worst,” says Roger Beadle, founder of UK-based outsourcing platform Limitless. “What they’re unlikely to have planned for is losing operations in a lot of countries at the same time.”
Employees who manage to get to work in places like metro Manila, a megacity of 12m, are worried about their health. Amazon-contracted workers at a call centre owned by the French outsourcing group Teleperformance, in Cebu City in the central Philippines, were recently filmed by colleagues sleeping on office floors because the company’s on-site dormitory was full and they were unable to get public transport home. The retailing giant is now investigating the incident.
“Most of these people are breadwinners, but if they can’t get to work, they can’t get paid,” says Mylene Cabalona, president of the Business Process Outsourcing Industry Employees’ Network (BIEN), an advocacy group. “It’s a choice between courting the virus and earning, or losing your livelihood.”
Many outsourcing companies are putting workers who cannot make it to the office or work effectively from home on “temporary” leave, which employees fear will become permanent. Although some are getting paid, those on “no work no pay” contracts are not. BIEN says it has received numerous reports from workers at outsourcing groups who have been furloughed. One of the companies, Ibex, said that it was “aggressively seeking” ways to get employees, unable to work at the moment, back into jobs.
Facebook, which employs an undisclosed number of content reviewers in the Philippines, says it was already increasing its use of automation before the lockdown, and has scaled up since. The social media company uses AI, for example, to detect spam or pornography sites, or to identify duplicate reports that might tie up multiple reviewers’ time.
“The decision to send our contract workers home was not taken lightly; however, we believe this is the most appropriate measure to protect the health of the people who work for Facebook,” the company said in a statement. “Contract workers will be paid throughout the period they are at home, and we are scaling our use of technology to accommodate this shift in operations.”
Many companies describe their furloughing of Philippine staff as temporary. But many employees believe the shift to at least partial working from home will be permanent. And that the large call centres — the cornerstones of the Philippine industry — are unlikely to return in their current form.
KS Kumar, chief commercial officer of Sutherland Global the US-based outsourcer, which employs thousands in both the Philippines and India, says the move out of large call centres and back office operations will be permanent.
‘It’s a wake-up call for companies that have been doing a lot of business in the Philippines,”he says. “Right now there are concentrated large facilities with thousands of people working in one place. [But] they are going to have to find different locations and a smarter spread of places where they can outsource.”
The Philippines never managed to attract the kind of large-scale foreign investment in manufacturing that fuelled economic take-off in countries like Thailand and Vietnam, in part because of its offshore location and archipelagic geography. But outsourcing — reliant on phone lines rather than shipping logistics — has allowed the country to overcome these disadvantages.
The outsourcing industry in the Philippines got its start in the 1990s, around the same time companies like Infosys were pioneering call centre and data outsourcing in India. Spurred by shocks like the 2008 financial crisis, some US and European companies began automating work in India and over time chunks of call centre business migrated to the Philippines as American companies moved jobs to the former US colony. By 2011 the Philippines was the world’s largest centre for call centre industry jobs, although India’s overall outsourcing sector remains bigger.
This outsourcing boom provided a boost to other sectors, including real estate and the 24-hour businesses serving companies that do much of their work at night.
IT and outsourcing now employ 1.2m Filipinos directly at more than 1,000 companies, according to the IT and Business Process Association of the Philippines, an industry body. Another 4.1m profit indirectly. The
industry recorded $24.7bn of revenues in 2018, the latest year for which IBPAP has published figures.
However, the industry’s growth in the Philippines was slowing even before coronavirus hit, in part because of the prevalence of jobs in voice communications just as some companies were already moving towards AI.
“The Philippines’ real advantage is that people speak English well,” says Greg Wyatt, director of Business Intelligence PSA Philippines, a consultancy. “But it matters a little bit less with automation.”
At a time when texting has been replacing voice communications, AI “chatbots” able to take over part or even most of the work of human agents are on the rise. New players disrupting old and costlier ways of serving customers include Amazon Connect, launched in 2017 by Amazon Web Services.
The product, underpinned by the same speech recognition technology used in Amazon’s “smart” voice assistant Alexa, began by offering voice support — conversing with customers — but has since expanded to chat via text.
“We definitely have seen customers who have saved money by automating certain scenarios,” says Pasquale DeMaio, Amazon Connect’s global general manager.
Some of the leading innovations are coming from India. [24]7.ai, which began two decades ago in traditional outsourcing, but has recently added AI-powered virtual agents that can juggle calls between its roughly 10,000 workers in the Philippines, India, and elsewhere. Since the pandemic began, the US-headquartered company says demand for some automated products has jumped as much as 50 per cent, far outstripping the rise in demand for human services.
“We’ve not seen a shift yet from human agents to automation, but existing clients have been increasing the volume of automated services,” says Shanmugam Nagarajan, the company’s co-founder. “Necessity is going to force the adoption faster than before.”
The Philippine outsourcing industry has been warning companies about the challenge from IT for years. IBPAP noted in a 2017 report that just 15 per cent of the sector’s workforce were in higher-skilled jobs, exposing the vulnerability of many in the industry to greater automation.
Companies with outsourcing business in the Philippines insist the move from live agents to chatbot assistance is not a zero-sum game for the workers, that it can enhance productivity if people are trained for higher-skilled tasks.
Alorica, one of the largest outsourcing companies serving US customers, operates a bot called AVA (Alorica’s Virtual Assistant), which takes over mundane and repetitive tasks from agents so that they can focus on more complex work that requires human interaction.
“If you are thinking, ‘Hey, the new normal is that 50 per cent of the work will be done by bots’, it’s not going to be [like] that,” says Bong Borja, Alorica’s president for Asia. However, “there’s going to be a lot of digital transformation”, he adds. “It was being done pre-Covid, and may accelerate, may expand the use.”
Other companies are retooling their Philippine operations for a new reality in which home working will play a greater role. Google said it was offering members of its “extended workforce” remote access and equipment, including secure laptops.
Flat Planet, hit at first by the lockdown, is back at work at multiple locations — including its head office, with social distancing in place.
“There are always going to be some jobs in the country for voice, but the growth industry is non-voice,” says Flat Planet’s Mr Moriarty. “The question is, can the country produce people sufficiently skilled to meet demand?”
