The call center sector is a crowded sector due to low barriers to entry and the high expectations for growth in the outsourcing business. Despite the fact that MM Group is one of the top ten in the UK with annual turnover of L30million, it has experienced low growth and low profitability (margins of 5%) for some time. MM Group has defined a double-barrel objective if it is to survive in the future; improve margins to 10% by increasing annual turnover to L100million.

The following facts emerged from the case study:

a) Bigger clients will mainly outsource to firms who are bigger and more experienced even though they may be more expensive. “Confidence is the sine qua non of the outsourcer”. Cost is not the primary motivator when choosing a supplier of IT outsourced service.

b) Consequently, the big call center firms can demand higher charges, get large contracts, achieve reduction in % overheads, resulting in profit margins in the magnitude of 10%.

c) MM Group shares the common worry of this sector and that is the recruitment of skilled management and middle level staff members who are as good as those in the bigger firms. IT firms in general continuously ascertain that they have the desired technical and management skills required for global competitive environment; hence, recruitment and retention policies are crucial to success.

d) While growth in outsourcing in the UK had been quite high, continental Europe is just starting to accept the benefits of outsourcing. Higher growth rates are therefore expected for the entire Europe in the coming years as businesses are forced to take drastic reforms in Germany, Italy, Spain and even France.

What are the implications for Philippine firms in the same sector?

1) Philippine companies must achieve a minimum size capability to be considered seriously in Europe. One way of achieving this is to band together to become more viable players.

2) While India is concededly the leader in this sector globally; the Philippines should never allow itself to be far behind (not lower than a close 2nd or 3rd position). Small market share means poor margins, low confidence by worthwhile customers, and static growth in revenues.

3) In view of the above, consider alliances with certain European or Indian Companies to fast track the achievement of the desired “scale” However, it must be ensured that the Philippine companies will not be relegated to do backroom support only without being exposed to the clients. The alliance must be one of ‘real partnership’.

4) Actual presence in Europe may be necessary and justifiable since the potential for market growth is big. MM Group, which is based in the UK, is considering establishing a branch in the continent to be closer to the customers.

5) Call centers are in a crowded, “matured” sector. They should be making plans to move up to higher –value operations (business process outsourcing, medical diagnostics, etc.) where there are less competition, good growth prospects and more reasonable margins.

6) The corollary to Item 5 is to ensure that appropriate skills (both technical and management) are embodied in the key staff members of the Philippine firms. Comparison of skills must be made with international standards.