Typhoon Unlikely to Have Long-Term Impact on Philippines Outsourcing Industry

As the total impact of Typhoon Haiyan on the Philippines becomes clear and rescue and aid work continues, it appears that the country’s flourishing IT and business process outsourcing industry emerged largely unscathed.

Manila, which for around 65 percent of the nation’s $16 billion IT and customer management business, was largely unaffected by the killer storm. The typhoon, which ripped across the country on November 8, killed more than 5,000 people, according to the United Nations, and displaced more than three million.

“In some cases, recovery may never take place because they have been all but wiped out,” says Jerry Durant, a partner with outsourcing consultancy NeoGroup based in Manila. “But this has zero impact on sourcing as it presently stands.”

The Impact on Outsourcing

“In the outsourcing industry, the main issues are not loss of life or property damage,” says Frances Karamouzis, research vice president at Gartner. “The main issues are absenteeism due to family issues or volunteer work and also intermittent power grid issues.”

Cebu, the second largest outsourcing hub accounting for around 15 percent of industry revenues, was closer to the path of the storm, taking an indirect hit. The city and surrounding area employs 95,000 people in outsourcing, according to the Cebu Investment Promotion Center with the 17 new outsourcing offices opened there in the last year generating 11,000 new jobs.

Some of the major providers, such as Teleperformance, Convergys, and Aegis have indicated that they have no damages to facilities and the large majority of employees are safe.

“Cognizant, which also has a Cebu facility, said it had no loss of life or major issues. But “there [has been] employee absenteeism as people are understandably checking on family and helping with relief efforts,” says Karamouzis.

In addition, employees are impacted on a psychological level as they have personal ties to affected areas, says Durant.

Accenture and Country’s Trade Group Need to Speak Up

The industry employs about 750,000 professionals in IT and business process outsourcing and is led by 10 to 15 very large vendors (including IBM, Cognizant, Capgemini, Dell, HCL, Genpact, WNS, Infosy, and EXL) and dozens of mid-tier providers. The biggest player is Accenture, which Gartner estimates employs around 35,000 people there.

But neither Accenture nor the country’s industry trade group, the Business Processing Association of the Philippines (BPAP), has issued a public statement or regular updates on the effects of the storm that has left clients in the dark.

“This is a sign of immature approach to the current realities of this world of information, social media, et cetera,” says Karamouzis, who said officials at the BPAP indicated to her that they don’t feel the storm will have a long-term impact on the industry.

However, there may also be a number of small players scattered around the islands that were impacted by the typhoon, says Durant. The largest providers tend to have robust disaster recovery and business continuity processes. “They have had the capital to invest plus they have alternate locations to offload work,” says Karamouzis.

“It’s a low frequency issue so most clients take the risk. However, once it hits, it’s difficult to come up with options in the short term.”

Indeed, the outsourcing industry in the Philippines was, more than anything, lucky in avoiding the impact of the unprecedented and catastrophic storm.

Can’t Prepare for This Magnitude of Disaster

“Even with the best preparation and processes in place, a disaster of this magnitude is an entirely different beast. You can’t be prepared for this order of magnitude,” says Durant.

“Precautions with respect to elevation, power, communications can all be taken. The issue, however, is that employees who are a part of the servicing organization are impacted. Unless they live at the workplace they are all at risk of peril,” says Durant. In terms of facilities, even concrete structures in the path of the typhoon were destroyed.

And while the industry and its major players have been spared, the typhoon will increase the focus of outsourcing customers and providers on location monitoring, says Durant. “Many of the regulators have started to pay attention to this too in the U.S.”

It also sheds a light on the importance of the government’s role in business relationships, as the Philippines government’s response has been criticized.

“This highlights the importance of considering the effectiveness of the government in a region under consideration as a sourcing location,” Durant says. “After all, laws in and of themselves are no good without enforcement. A government’s self-commitment is heavily weighed against how corrupt the diversion of funds is taking place.”

Stephanie Overby is regular contributor to CIO.com’s IT Outsourcing section. Follow everything from CIO.com on Twitter @CIOonline, Facebook, Google + and LinkedIn.