Manila Rising as Call Center Power

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When a Los Angeles outsourcing company opened a call center in the Philippines years ago, it was considered an odd place, since most offshore call centers are in India. But it turns out it may have been on to something; even India wants to put call centers there.

And last week PeopleSupport Inc. announced that it is to be purchased for $250 million in cash by a private Indian competitor. The main attraction was the company’s call center in the Philippines, where a pool of Americanized and educated employees is attracting companies that want to outsource their customer service support operations.

PeopleSupport is an outsourcing provider that sets up call centers for the travel, financial, technology, health care and media industries.

Aegis BPO, an outsourcing subsidiary of Mumbai-based conglomerate Essar Group, will pay $12.25 a share.

“They have the capacity in the Philippines, which is the primary off-shore location for voice,” said Matthew McCormack, an analyst with FBR Capital Markets Corp. in Virginia. “You have voice-related contracts in India going to the Philippines.”

The reason for that, he said, was that Philippine operators are better at answering questions off-script than staff in India. As a former U.S. colony, Philippine schools teach from American textbooks and its citizens are more likely to travel and use credit cards than workers in India, McCormack said.

PeopleSupport is just the latest company to benefit from the current industry trend.

Several companies have announced plans to open call centers in the Philippines over the past two years. Those include Denver-based StarTrek Inc., which in July announced plans to open a 78,000-square-foot call center in Makati, a city in the metro Manila area.

In 2007, Cordia Corp., based in Florida, and Foxgate Solutions Inc. also announced that they were opening call centers, both in the province of Cebu.

Lance Rosenzweig, PeopleSupport’s founder and chief executive, said he was the pioneer.

“We were the first to do offshore customer service from the Philippines,” he said. “We lowered our cost structure and changed our client base to larger and more established companies.”

PeopleSupport moved into the Philippines after the dot-com bubble burst in 2000. At the time, PeopleSupport was forced to change its client base or risk going out of business like the majority of its dot-com clients.

Rosenzweig revamped PeopleSupport’s business model, closed its U.S.-based customer service centers, and opened a center in the Philippines. It opened another in Costa Rica, where the company can offer clients Spanish-speaking customer service representatives.

PeopleSupport’s clients include Internet-based travel agency Expedia Inc., financial services companies JP Morgan Chase & Co. and Washington Mutual Inc., and Internet service provider EarthLink Inc.

However, in a significant blow, it lost a major client, Internet phone service company Vonage Holdings Corp., two years ago.

The company houses more than 8,000 college-educated employees at its main call center in Manila, and 500 employees in its call center in Costa Rica.

With annual revenue of $320 million, Aegis BPO currently operates in the United States and India and employs more than 20,000 people.

“Aegis doesn’t have any capacity in the Philippines,” McCormack said. “It makes sense for them to build that out.”


Still standing

Rosenzweig, a serial entrepreneur, said he plans to remain as an executive after the Aegis BPO purchase is approved by shareholders, which is expected to occur by the end of the year. He will stay on for at least one year.

The New York native doesn’t rule out the possibility of starting another company. Prior to launching PeopleSupport, he founded startups UniSite, an Internet provider, and Newcastle Group.

“This is the third company I was involved in founding, and I do like that entrepreneurial opportunity,” Rosenzweig said. “Over time, I will see if my entrepreneurial itch gets large enough.”

He expects that current PeopleSupport employees will continue to work at their respective call centers.

“I think it’s a great opportunity for our people,” he said. “Our employees can stay with the company and have more growth opportunities.” Call center workers could benefit from Aegis’ larger reach and get experience working at the company’s centers in the United States.

The downturn has hit some of PeopleSupport’s clients, though, and that trickles down. And as a company doing business abroad, the exchange rate is also a factor.

PeopleSupport reported a second quarter loss of $1.3 million, compared with a net income of $3.9 million for the same quarter one year ago. Revenue was $36.4 million, up 6 percent.

Rosenzweig said a weak U.S. dollar compared with the Philippine peso is partly to blame for the net loss.

“Servicing companies in a variety of industries are being affected by the economy,” Rosenzweig said. “Consumers are making fewer calls to travel companies.”

McCormack said there was another factor, too. He said PeopleSupport has been struggling since the company lost Vonage as a client in 2006.

“It’s been somewhat of a train wreck,” McCormack said. “With any kind of small services business, the biggest risk from an investment perspective is always customer concentration, and they have had significant concentration with Washington Mutual, EarthLink, Expedia and Vonage.”

In January, the company rejected higher offers from IPVG Corp. and AO Capital Partners partly because of concerns over the funding vehicles. IPVG is a call center operator based in Makati.

IPVG’s first offer was $15 per share and the second was $17 per share. Rosenzweig said that he accepted Aegis’ lower offer because he and the other board members were looking at the best long-term scenario for shareholders. They believed it was better for PeopleSupport to be absorbed by a major Indian enterprise than a smaller Philippine business.

“It was in the long-term interest of shareholders to be part of a global organization,” he said. “Aegis can offer growth opportunities and cost-saving opportunities to clients.”

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