Philippines: The New Hub of Outsourcing

By Avik Dasgupta

Manila recently beat Mumbai in the global outsourcing race and became the only non-Indian city in the top 7 of the Tholons International Top 100 Outsourcing Destinations report. The 2015 edition of the report had 8 cities from Philippines making the top 100 list. Today, the country’s BPO sector employs more than 1mn people and the industry’s revenue, which currently stands at $18bn, could reach $25.5bn in 2016, according to estimates by Asean Confidential, a research service at the Financial Times. Is Philippines well on its way to displace India as the leading outsourcing destination in the world?

According to the IT-BPM roadmap by the IBPAP, the Philippines is expected to consume 13 percent of the IT-BPO market and 41 percent of the off-shored voice services by 2016.  With the current growth rate, the Philippine outsourcing industry could reach $48 billion in revenue  and double their number of employees by 2020 as companies continue to flock because of huge cost savings of as much as 85 percent, making the Philippines the most attractive outsourcing destination globally.

Booming Economy

Over the past few years, the Philippines has become one of the fastest-growing economies in Southeast Asia. The International Monetary Fund predicts GDP will increase by 6.7 per cent in 2015, up from 6.1 per cent last year and as little as 3.6 per cent in 2011.

Business process outsourcing (BPO) is the biggest contributor among all domestic industries today to the Philippines’ gross domestic product (GDP). Analysts have suggested that outsourcing will soon overtake the value of remittances from overseas Filipino workers currently estimated at 10% of the annual GDP.

Manila-1

What makes Philippines an attractive destination?

There are many reasons for which Philippines has emerged as a key destination for outsourcing. Some of them are highlighted below:

1. Western culture influence and language fluency

Philippines has a growing young population with about 90% of its 100 million people under 55. The country also has a high literacy rate at 95% where an estimated 30% of graduates are employable.

Being a former colony of Spain and the United States, Philippines has a strong affinity to Western culture and is the world’s third-largest English-speaking nation. In a report by GlobalEnglish Corporation, Philippines was named as the world’s best country in business English proficiency.

Manila 2

 The monument to the call center worker built in the middle of Eastwood City commercial mall, Manila, Philippines.

2. World-class infrastructure

Philippines has a highly developed infrastructure. There is an availability of world-class telecommunication services, with redundant international connectivity through submarine fiber optic cable networks complemented by satellite systems. The business environment is conducive to operations and practices of global companies; ensuring competence in servicing international clients. Abundant, low-cost real estate in major urban areas increases client’s savings in office space and utilities. The prime office space in Manila can be rented for just over two-thirds of the cost of space in Mumbai, while it is also cheaper than Delhi, Bangkok, Guangzhou, Taipei and Seoul, according to global property agency Colliers.

3. Government Support

The government has been a key promoter of the industry over the past decade. The Philippine Development Plan, which runs from 2011 to 2016, has highlighted BPO as one of the 10 high-potential and priority development areas. Through the Department of Science and Technology-Information and Communications Technology Office (DOST-ICT), the government continues to oversee the development of the BPO sector :

  • Tax and non-tax incentives which provides a 8%–10% cost reduction impact
  • Funding for industry development initiatives (e.g., TESDA vouchers)
  • Creation of regional ICT councils and a National ICT road map
  • CHED, TESDA, DepEd instituted to provide education sector reforms. (eg. Training for Work Scholarship Program, which enables the IT industry to provide training for BPO applicants.)
  • Investor enablement through fiscal and non-fiscal incentives such as a 4 to 8 year income tax holiday granted by the Philippine Economic Zone Authority (PEZA) and other government initiatives
  • The identification and operation of special economic zones wherein BPO/contact center facilities may be established and operated

Challenges Ahead

1. Focus on Pure Voice Services

Based on the Tholons study, $11.5 billion revenue would come from the contact center and customer relations which would be about 62 percent of the total $18.4-billion revenue expected  this year.

The industry is shifting from pure voice services to multi-channel offerings, which combine voice, email and online chat services, using sophisticated delivery models such as Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other nations’ establishment of “centres of excellence” offering email, text and chat is putting pressure on the Philippine BPO market. Shifting delivery models to meet changing demand would be critical for a stable, long-term growth.

2. High Attrition Rate:

The high attrition rates have become a major source of concern for the country with some companies losing over 1,000 employees every month.

Steps are being taken to reduce the attrition rates. The DOST-ICT has come up with a “Next Wave Cities” programme that identifies ICT hubs beyond Manila, based on criteria such as worker supply, telecom infrastructure and other factors necessary to sustain a local BPO industry.

Based on their IBPAP projections, the proportion of employment of Manila residents versus those in the countryside will be in the 60:40 region as compared to the 75:25 proportion right now. By putting sites near where the workforce lives, the attrition rate comes down since the lifestyle cost is cheaper and employees work near where they live.

3. Changes in Regulation

The departments of Finance and Industry recently proposed the removal of income tax holidays of up to eight years from the list of perks which would make it difficult to expand in areas outside of Manila and other urban centers.

While the government, as a compromise, is also proposing to lower the tax rate by up to 10 percent, removing the tax holidays might just make foreign companies turn to other countries that are offering bigger and better fiscal incentives.

IGT in Philippines

IGT has been operating in Philippines for over five years now and has recently set up its third center in Manila taking into account the excellent infrastructure, big talent pool, supportive government policies and connectivity with the rest of the world.

The new center will support BPM services such as customer service, reservations and booking services, back office processing and multi-language support among others for IGT’s travel and hospitality clients.This includes calculation of complex fares to migration and management of mainframe solutions, managing dynamic multi–contact channels to building e-commerce and m-commerce platforms.

Conclusion

The outsourcing industry in Philippines is booming and is expected to reach 1.3 million employees by 2016, according to the Contact Center Association of the Philippines. With a sound business environment, particularly in four areas: financial incentives, investor support, perceived risk environment & overall support from government and major investments in its workforce, telecommunication network & real estate, the country is poised to displace India as the leading outsourcing hub in the world in the coming years.

_________________________________________________________________________

 About the Author:

Avik Dasgupta leads the thought leadership marketing division at IGT. With an engineering degree in Information technology from Mumbai University and a management degree in Marketing from the Institute of Management Technology, Nagpur, Avik has 7+ years of IT marketing experience. Having worked in leading firms like Polaris Financial Technology and Cognizant Technology Solutions prior to joining IGT, Avik has authored several blogs and articles on BFSI and Travel technology innovations . He can be reached at mktg@www.igtsolutions.com

Leave a Reply

Your email address will not be published.