Serious threat to BPO industry

The threats to the local industry that’s keeping millions of our young people profitably employed have been festering for some time now. One of these is the threat of AI on the voice part of our BPO industry. The other one is a pending bill in the US Congress seeking to bring back offshored call center jobs to the US.

A bipartisan group of American legislators are pushing for the approval of the Keep Call Centers in America Act, aimed at discouraging businesses from outsourcing large portions of their customer support operations overseas.

The proposal pending in Congress will make companies that outsource more than 30 percent of their call center operations outside the United States ineligible for federal grants and government-backed loans for up to five years.

If this is all there is in the proposal, it will generally not be enough to overcome the massive labor cost advantage that countries like the Philippines and India have. The operational cost savings of offshore outsourcing far outweigh the potential risk of losing future federal grants or government-backed loans.

The potential loss of government funding is of minimal concern compared to the annual savings on salaries, real estate and overhead for a center of hundreds of agents. Multinational corporations, private equity-backed firms, and companies without federal ties will remain virtually unaffected.

The math favors offshoring. Labor and facility costs in the Philippines and India are a fraction of those in the US.

“Reshoring” operations to the US also requires massive upfront capital expenditures to build facilities and recruit domestic labor.

But there are other ways of forcing reshoring. The US Federal Communications Commission (FCC) is thinking of regulations that would tie up companies into knots of red tape that will increase the cost of regulatory compliance and eat up some of the cost advantages our local BPO industry has.

For example, the FCC will require mandatory disclosures of agent locations and guarantee consumers the right to transfer to a US-based agent. This forces companies to put up a costly domestic backup capacity which decreases the potential savings from offshoring the services.

Contact center software must be reprogrammed to show upfront geolocation and the use of AI before the customer speaks to an agent.

Another proposed rule requires wait times for offshored calls cannot be longer than the wait times for calls routed domestically.

The FCC will conduct compliance audits to assure the use of standardized American English, written and spoken. This creates recurring costs for third-party linguistic certifications, accent monitoring software, and localized cultural training.

This requirement could increasingly impact us because our young people are no longer as easily at home with American English the way past generations were.

The FCC proposal dictates that specific consumer transactions involving highly private data must be handled exclusively at US-based centers, regardless of the communication channel (voice, email or chat). This will require complex network routing layers, stripping away the efficiency of a centralized global queue.

All those proposals are supposed to create more American jobs, strengthen national economic security, and improve customer transparency.

But experts say the more immediate threat to our BPO industry is AI, which is completely reshaping the offshoring math. Instead of shifting jobs from the Philippines back to the US, AI is reducing the total number of human agents needed everywhere.

AI will simply shrink the workforce to manage the same volume of customers. The massive volume-based cost advantage of offshore centers is reduced when AI software handles the bulk of the traffic for pennies.

Our cost advantage is also stripped as companies may be more willing to pay premium US wages for agents with deep critical thinking skills and flawless local cultural context.

Ultimately, AI is making the “offshore vs. onshore” debate less about labor rates and more about data security, system integration, and the complexity of the customer issue.

How is our BPO industry affected?

For now, the proposed rules are not a threat to non-voice business segments. Roughly 50 percent of our BPO revenue is from non-voice operations. This includes data science, IT software development, digital marketing, AI training, content moderation and graphic design.

Because these jobs do not feature a live, consumer-facing telephone interface, they are not covered by the Keep Call Centers in America Act and FCC disclosure requirements.

The proposals threaten the traditional call center model that built our BPO boom. Our rapidly growing digital back-office ecosystem remains untouched.

To its credit, the local BPO industry group had been proactive in addressing the threats. The Contact Center Association of the Philippines, the premier non-profit organization for the country’s BPO sector, rebranded itself as the Customer Xperience Association of the Philippines.

This change from ‘Contact Center’ to ‘Customer Xperience’ reflects the “aspirational shift” toward higher-value, AI-enabled services rather than just traditional voice-based transactions.

Jack Madrid, president and CEO of the IT and Business Process Association of the Philippines (IBPAP), told Malaysia’s The Star that IBPAP had submitted its position to the US FCC and is coordinating closely with Philippine government agencies.

According to Madrid, demand continues to grow for higher-value services requiring specialized expertise, including analytics, cybersecurity, customer experience management and AI-enabled support functions.

But what happens now to the estimated one  million of our BPO workers still employed in traditional voice-based services? They still constitute about 50 percent of the country’s close to two million IT-BPM work force.

These are people who rely on their BPO voice jobs as a pathway to the middle class and don’t have deep savings. They are one major hospitalization away from falling back into poverty. There should be crash programs to upgrade their skills.

So, here we are with one of our economy’s two legs under serious threat. BBM should use our strategic defense importance to the US to gain concessions and buy time for our BPO industry. That’s his administration’s responsibility.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco