BAGUIO, Philippines - There never used to be much to do after midnight in this northern Philippine university city except study or hit the lively bar scene.

Since Baguio got its first call center, though, nightlife has taken on a new meaning for hundreds of graduates.

At 3 a.m., row upon row of them stare at monitors, speaking into headsets in the near flawless American accents that give the Philippines an edge in its battle with India for the fast-growing outsourcing market.

Faced with rising wage costs as the pool of qualified candidates in Manila and central Cebu empties, outsourcing firms are moving to parts of the country that are still rich in English-speaking graduates willing to work for 12,000 pesos ($220) a month.

In Baguio, 200 km (120 miles) north of Manila, more than a third of the 300,000 population are students. So far there is only one call center, run by ClientLogic Corp., a unit of Canadian firm Onex Corp.

"It's a gold mine," said Ramon Dimacali, head of industry group Outsource Philippines, who sees benefits beyond pay rates that are a third lower Manila's for the same caliber of graduate.

"There's definitely higher loyalty, less attrition, less churn," he said.

Philippine call centers have higher average staff tenure and better customer satisfaction ratings than India, industry studies have shown.

But there are signs the boom, a rare bright spot for the indebted economy in recent years, could soon start to run up against the shortcomings of an underfunded education system, poor infrastructure and a limited labor supply.

Bangalore alone churns out nearly as many graduates each year as the 400,000 produced by the whole Philippines, and Indian workers are renowned for their expertise in areas like engineering, which opens the door to high-end outsourcing jobs.

BARRIERS TO GROWTH

When outsourcing firms such as Convergys Corp., Nasdaq-listed PeopleSupport, and Sykes Enterprises started expanding in Manila a few years back, they would hire more than 10 out of every 100 applicants.

Industry officials said that ratio has now fallen to as low as two out of 100.

"We're facing a hiring crunch," said Carol Dominguez, President of recruitment firm John Clements Consultants.

"You're losing more people than you can hire. Call centers have to figure out a retention strategy."

Outsourcing firms in India are facing the same problem, but Dominguez said India had done a better job moving beyond call centers to higher-margin jobs like animation, accounting and financial analysis.

That could cost the Philippines in the years ahead.

"In a few years, they're going to develop technology that will take over some of that voice work," Dominguez said. "Then we're going to lose jobs here."

Competition is also heating up.

In 2001, there were only about six countries seen as serious competitors for the outsourcing dollar. Now there are about 30, with eastern Europe, China and South Africa among them.

London-based research firm Datamonitor said in a February report that the Philippines was a strong competitor to India for the nearly 250,000 new call centre jobs expected to be created in the two countries through 2009.

The Philippines now has around 60,000 outsourcing jobs, compared to 245,000 in India, according to Datamonitor.
But Datamonitor analyst Peter Ryan said barriers to growth were also emerging.

"There is definitely the issue of good graduates outside of the major centers, a phenomenon that is being felt in many other offshore locations," Ryan told Reuters in an email response.

"There is also the worry of technology in outer locations not necessarily being at the level necessary to accommodate large-scale contact center operations."

The Philippines' southern city of Davao got its first call center last October, and central Iloilo city has lured two to set up there, but most are in Manila and Cebu.

Social Impact

The stakes, economic and social, are high.

Dominguez, a former banker, said the Philippines had the potential to add $1 billion to its $89 billion GDP by 2010 if it achieved its potential of creating 250,000 outsourcing jobs.

At its current rate, though, it was on course to fall short of that by about 100,000 jobs.

In Baguio, graduates now feel they have a realistic chance of staying in their hometown instead of joining the exodus overseas to escape one of Asia's highest unemployment rates.

"It's like the downstream effect," said Jose Ferreros, director of operations at ClientLogic's Baguio plant. "The benefit is not just on people we hire but on the transport industry, the food industry."

Ferreros plans to ramp up the staff numbers at ClientLogic's Baguio centre to 825 in the months ahead.

The competition, with India and other firms, is palpable as ClientLogic's 350 agents push on through the night.

Clients give their feedback on the agents' performance every day for comparison with rival call centers in India and elsewhere in the Philippines.

On one wall, individual agents' names are pinned on a map of the United States, indicating southern states where they have achieved a perfect customer satisfaction rating.

The first agent to get a full house of states wins a Sony PlayStation 2.

"The opportunity for growth here is very vast," said Michael Batac, a 23-year-old team leader and coach at ClientLogic.

"Now I have this position I'm thinking of staying here in the Philippines. If I can make it here, why do I need to go abroad?"