Fred Chua – Customer Centric Outsourcing

Derek: Hi and welcome to another episode of the Outsource Accelerator Podcast. My name is Derek Gallimore and this is episode number 152. So we are speaking to Fred Chua again of Magellan Solutions. We spoke to Fred previously in episode 146 and 149, and Fred is the founder and CEO of Magellan Solutions which is a full service BPO. Fred is also the founder of Philcall.ph which is an association of Filipino owned call centers. So we talk to Fred now about the industry generally, the opportunities for outsourcing in the Philippines and the future direction of the sector. Fred has pretty seen the outsourcing since the beginning, he started it in 2001 so he certainly has a lot of first hand experience. It’s a really good conversation, I enjoyed our conversation and I’m sure you can learn a lot as well. If you want get in touch with Fred or want to know anymore about this episode just go to outsourceaccelerator.com/152 enjoy.

Derek: Welcome back everybody, again today I am excited to be talking to Fred Chua of Magellan Solutions. Hi Fred how are you?

Fred: I’m fine, thank you. Thanks for inviting in this podcast.

Derek: Absolute pleasure. It’s great to have you back and of course, people can listen to the earlier episodes to learn more about Magellan Solutions, and your background, and your now nearly 20 years experience in the sector. But I suppose initially can you introduce yourself and a little bit about your journey to this point?

Fred: Sure. So I started off as a call center agent myself back in 2001. I’ve been in the industry for a long time so when the industry started I was already in the industry and we realized there was a need, so when I worked in the call center back then there was only few handful of call centers predominantly focusing on the fortune 500 companies and all that I was thinking to myself and said you know what there’s a very big market potential for the SME segment to focus on that side. So we setup a call center back in 2003, we started operating in 2005, so we started up with just 14 people now we’re currently in a 600 seat operation already running, servicing pretty much on 80% US market and the 20% is like Europe and Australia including APAC as well. So it’s been great, it’s been a very good journey of course not easy but it’s a good journey.

Derek: Yeah and you know to companies in the west, if the operation is 600 staff is just absolutely kind of monstrous isn’t it, where as here it’s certainly a good operation and there’s obviously like a good level infrastructure there but it’s amazing just how kind of large some of the operations here can become.

Fred: Exactly.

Derek: And so you have seen a lot changes and movements in the market you started in 2001, you started Magellan Solutions in about 2004-2005. You’ve seen a lot consolidation in the market like where do you see the market going? Do you see it reducing down? Do you see a lot merger and acquisitions, you see a lot consolidation? Where do you see the kind of the players in the market in the next 5 or 10 years?

Fred: I think there’s still gonna be, my perspective is that the M&A aspect continue, there’s a lot of consolidation as you pointed out a while a ago. It’s completely different from if you go back to 10 years ago you know a lot those companies over there are not there anymore. And some of them have been bought out 2 or 3 levels, 2 or 3 times over. So bought out ones then sold again then bought by another company again. So I think there’s in the big player segment there’s gonna be a lot of that happening. I think it’s still gonna continue to happen even in the offshore market or the Philippine market or whatever. The industry itself as a whole I still foresee that it will grow at the 15% or 20% more, I don’t know what the specific percentages. Naturally as the industry grows it’s difficult to maintain a 15%-20% year on year growth path. So it’s bound to decrease but on a total scale on increase it’s still massive, again we start off back in 2000, we’re just probably like 10,000 in employment in the call center industry right now with 1.3m with a ratio 1:3 so you have like restaurant, 7elevens and all of that encompasses 4-5 million total employment in this industry in direct or indirect.

Derek: And the direct contributes about 10% to the country’s GDP now it really is becoming a critical industry.

Fred: It’s gonna soon overtake also the remittances. I think remittances right now is probably like 27- 28 billion and if the outer BPO sector already at 25 billion just based on the percentage increase I believe they were saying that in before 2020 it’s gonna be overtaken by the BPO sector already.

Derek: By remittances, you mean the OFWs which is processed farm workers and you know that historically has always been a very strong contributor towards the economy and supporting people back here but it’s nice to see outsourcing is now about to overtake that but also the positive thing about outsourcing is it reduces the brain drain, it keeps people at home, it keeps people with their families. And it’s also in kind of careers and sectors where they kind of white collar jobs and people had a career ladder, there’s a huge kind of upside for outsourcing for Filipinos.

Fred: I agree because of course OFW you’re not building an industry, you’re not building any industry for the Philippines. You’re right the brain drain is really a major factor at least in this case BPO is industry all together they’re employing 5% of the entire population of the Philippines that’s good, that’s huge right. No other industry was able build that scale of operation in that short period of time.

Derek: Yeah it’s incredible. And again prior to the internet and prior to telecommunications, there was so many friction points and hurdles for Philippines to really advance the economy where is now and previously an example of an economic upside would be if a factory was built in the province and where is now people in the province can enter the world wide economy with outsourcing, with freelancing and they’re working on computers, they’re upskilling themselves and there’s really kind of unlimited potential through this avenues now.

Fred: Yup, agreed. Because everything is over the internet they could be, if you don’t have for example in the provinces you might not have that high quality of internet connection but you don’t need to do voice it’s of course naturally voice is a lot more sensitive for internet connection connectivity but in the provinces you could do back office stuff and it’s not as sensitive to connection speed and latency and trace routes and stuff like that so huge potential. You just have to focus on a specific niche, what specific vertical of market you want to focus on. Like in our case we’re also doing 3D modelling for shipping clients, were also doing the typical online marketing for clients as part of the back office stuff on top of like the typical data encoding and data processing work.

Derek: Yeah absolutely. I mean in the beginning it was just called centers but now it’s really anything that can be done in front of the computer can be outsourced. Certainly, the Philippines is showing incredible kind of aptitude and skills especially within certain areas like design and front-end as you say a lot like the creative and rendering 3D modeling, it’s just growing in every direction.

Fred: Agreed

Derek: So I wanna to put this to you. In the upper end of the market and a lot industry bodies like IBPAP and CCAP, they are a bit gloomy and they are suggesting that it might be a sunset industry, they’re suggesting downward trends, they’re also mentioning stuff like AI. What are your thoughts on that? because there’s a lot people really worried about the future of outsourcing.

Fred: I think honestly I’m more of a positive thinker in that aspect of things, I’m more of an optimist but generally speaking there are challenges, I think the government has to really support the industry too in that side of things. Whatever it is I think it’s really good that we implement, what we have maintained for whatever incentives that we have for the industry because even if, like for example for an export company of course there’s the in a BPO sector you have income tax exemption and part of that income tax exemption is to invite more players and more companies to setup in this industry because that provides employment. I think the most critical part in any economy is are you able to provide a lot employment for the citizens especially for a country like the Philippines that has a hundred million population if you don’t provide employment the economy is gonna down for sure. So I think the major factor that the BPO sector is able to do is really provide employment for the people. And people in the government should not look at it on a short-term basis and say, you know what I wanna earn income direct corporate income tax from this company and say let’s look at the long-term and say what is the potential of providing more employment so they have to look at that. So I think it’s critical that they have to support it, they have to support the industry.

Derek: Yeah and for all of the people listening oversees there is incredible, the government is so aware of the benefits of outsourcing and historically it has supported it but they kind of evolving things at the moment. But certainly I think the government generally is very progressive, it’s very supportive of outsourcing and well done to them. As you say outsourcing contributes about 10% GDP and still only employs about 1% of the population so I think there is such a huge employment there and also we suggest that more and more SMEs should outsource and again that’s your kind of sweet spot as well. And it seems that the industry just generally has it, the bigger boys in the industry generally have a bit of disinterest in the SME market do you think?

Fred: Well I think it’s all connected to, again most of the big associations like IBPAP and CCAP majority of their members are predominantly very large BPO companies. So the large BPO companies are affected are also, even the SMEs pretty much. The industry whether you’re ans SME or a big BPO company everybody is pretty much affect as well but I think honestly speaking again you cannot maintain the percentage of growth on a year to year basis can’t be maintained at 15%-20% if you’re GDP is already is like 10% or 15% percent, it’s massive already. So it’s bound to taper a bit, again look at the overall impact of the industry itself it’s still continuously rising. I think you have to look at the what is the potential of the market itself, the outsourcing sector. The outsourcing sector is I don’t know several trillion dollars I don’t how much the specific figure but it’s huge. It’s anything essentially anything and everything that’s pretty much processed driven can be outsourced if you look at it closely it can be, would it be back office stuff and all that as long as it’s processed driven, there’s a structure to it it can be outsourced. So you looked at any company to go to whether it be the US or Australia or UK or whatever essentially any company there’s a process there, yes you can hire somebody in-house but also you could outsource that offshore. So if you look at market potential it’s bound to increase. Now the good thing about the BPO sector as oppose to like the manufacturing sector this is where I become more a bit more optimistic is that in the manufacturing sector it’s purely processed, there’s no culture involved in it. When it comes to BPO outsourcing there’s the cultural component, the communication skills and of course the good thing about the Philippine market is that it’s extremely customer service centric. Very good customer handling, the rapport building with customer service are pretty good. We’re very courteous, we always apologize all the time even if sometimes even Americans don’t, stop apologizing it’s the habit of regular Filipino to always apologize.  It’s a good thing, it’s very ideal so the good thing about BPO is that it has to be mix of both process side of things and the cultural aspect in which we’re pretty good at on both parts. That’s the reason why were number 1 in terms of BPOs.

Derek: Yeah and again were trying to promote the Philippines as the Swiss banking of outsourcing because of that cultural alignment and because of the natural aptitude and friendliness of the Philippines and also I find it incredibly, it’s so positive looking forward because all of the kids the young kids of today they are being brought up on a cultural diet of Youtube and all the same forums and blogs as the rest of the world, so it really is becoming one world and that would really empower the future generations to just work on the same level as anyone sitting anywhere in the world.

Fred:  Exactly, I agree.

Derek: Ok and thank you so much also it’s interesting you have founded Philcall.ph which is a Philippines Call center association? And that was in response to the majority.

Fred: It promotes the Philippine owned call centers.

Derek: Can you speak to that there is the majority of call centers are foreign owned and because when they were originated it was effectively what the US clients that had a sort of interest in funding these things.

Fred: Majority of the BPO players although it’s very big industry. Majority of it are foreign companies whether it be an SME BPO or a big BPO company they’re all foreign-owned either American owned, Australian owned, Indian owned. But for the local market there is only handful of BPO companies that are locally owned. And I think the objective of Philcalls to be able to help more locally owned companies establishe themselves here in the Philippines so there’s a bit of a non profit and very idealistic expectation or objective that we need to support local home grown companies as well to succeed because the BPO sector is not an easy sector, very very complicated. You have to benchmark, you have to compare yourself and you have to have the proper support with other organizations that’s willing to help you out. So that’s really the purpose of Philcalls to help this locally owned players.

Derek: Yeah it’s an interesting observation that is because all of this BPOs, the big BPOs even if they are foreign owned 99 percent of the senior management and executive are now Filipinos because they have grown up in the industry and they have the experience and executive capabilities but it is quite surprising that not more are actually Filipino owned. I personally do see now more and more kind of small SMEs in that space, more commonly in the kind of agency area you seen a lot of Filipino start like digital marketing agencies a lot of those kind of the digital nomad agencies which is fantastic. Hopefully in future generation they will be the next kind of IBM services etc. Are you seeing acceleration then?

Fred: For me not much. Historically over the course there was sort of acceleration back in like, that’s my perspective. I’m looking at specifically at specific call center industry so not on the digital marketing or the back office stuff. I kinda agree with you on that other stuff, other industry are verticals of course, the good thing about BPO it’s so widespread on the call center side no, unfortunately it’s not. It’s actually decreasing in terms of percentages for SME companies, locally owned SME companies establishing themselves in the call center sector. But I think it’s because a lot of companies have setup, it’s because the industry is very complicated and difficult you have to have a lot of support mechanism and you have to benchmark, you have to really be resilient and that is to overcome all of this challenges in the BPO sector. And part of it is that and part of is the support in the benchmarking so that’s the reason why there’s a decline in that side of things. But in terms of number of BPO companies in general setting up it’s increasing I’m just talking about specifically are there a lot of locally own call centers being established.

Derek: Right and that is the result of growth generally you get a lot of startups but I suppose it is funny isn’t it, you know I talked to a lot of entrepreneurs here and startups, they’re all focusing still on the domestic market and there is this huge golden egg and opportunity out there which is utilizing the cheaper overhead, cheaper staff in here but then go out and sell your where is your services, your software, your call center functions to the west who will pay western prices and I see that actually as you know for the kids with ambitions here in the Philippines they have a phenomenal advantage over someone in the US because they have that incredible cost advantage that they can naturally tap into.

Fred: So I think in that aspect it’s really just how do you market yourself to the west, to Australia, to Europe I think that is challenge that’s kinda like the one of the golden egg I guess you know how do you successfully market yourself, not only to focus on the local market, I kinda agree with you normally when company setup here their target market was a local domestic market and said why? there’s so much, the industry is so much bigger if you focus on outside of the Philippines as opposed to within the Philippines.

Derek: Absolutely, So of course if they anyone wants to get in touch with you either with Magellan or Philcall how can they do that Fred?

Fred: Yes you could visit our website, our company website www.magellan-solutions.com or if you’re from the US you could call our number it’s 1800-371-6224 and we’ll definitely assist you when you call that number.

Derek: Amazing, thank you so much.

Fred: Thank you, thank you for your time, Derek.

That was Fred Chua of Magellan Solutions and Philcall.ph if you wanna get in touch with Fred or know any more about this episode then go to outsourceaccelerator.com/152 and of course, if want to ask us anything then just drop us an email to [email protected] see you next time.