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Asia Briefing


Business Process Outsourcing in the Philippines

By Dezan Shira & Associates

The Philippines Department of Trade and Industry (DTI) defines business process outsourcing (BPO) as the “delegation of service-type business processed to a third-party service provider.” The industry is generally divided into the following sectors: Contact centers, back office services, data transcription, animation, software development, engineering development, and game development.

Oct17_AsiaBrief_Phillipines_InsideBPO in the Philippines is becoming a key developing industry, primarily due to the relatively low cost of living, and a workforce which is composed mainly of young and educated Filipinos with good spoken English language skills. The majority of international research and data companies have placed the Philippines as the No. 1 trending country as the top outsourcing destination. In 2015, the Philippines replaced Mumbai as the second ranking BPO destination and will in all likelihood continue to maintain a high position in the Top 10 worldwide outsourcing destinations (dominated mostly by Indian cities) in 2017.

The growth in the Philippine BPO sector therefore remains bullish for this year, and the industry is expected to hit a government revenue target of US$25.5 billion and 1.4 million people employed by the year end.  The sector currently contributes 9% of the country’s GDP growth. However, the Philippines Government needs to continue to provide increased government support to speed the development of national infrastructure projects, for this rapidly expanding industry.

Future for the BPO Industry in the Philippines

In 2016, BPO in the Philippines continued to experience positive growth. Activity in the industry appears to be robust enough such that the industry’s projected total income range would reach US$40 to 55 billion by 2020. The Industry, currently employing about one million Filipinos, is also projected to increase employment by providing a total of about 1.3 to 1.5 million new jobs in the next three years, both in terms of employees directly and indirectly employed. The BPO industry is regarded as a priority by the Philippines Development Plan as essential to the country’s 10 high priority development areas.  To further entice investors, existing government programs include incentives such as tax holidays, tax exemptions, and simplified export and import procedures. Additionally, there are university training programs available for would-be BPO employees.

For local industry sectors, the leading subsector is Call Centers. The Philippines BPO industry has overtaken India as the leading call center country, and due to this, the subsector is projected to continue to maintain the largest contribution to the industry’s growth in future years. According to a UA&P (University of Asia and the Pacific) industrial economist, the call center sector is projected to continue a robust growth rate until 2020.  However, the increasing advances of IT and computer generated voice services may cause (according to speculation provided by the Philippine Banko Sentral ng Pilipinas) a slow-down and reduction by this time. In other words, a move in reliance from human voice sources of information will develop, in favor of computer generated responses.

Figures for Employees in Philippines’ BPO Offices

The Philippines’ offshoring/outsourcing industry is composed of shared service offices, global in-house centers, and third party outsourcing providers. Multinational companies outsource functions of their operations to the Philippines, and international third-party providers offer services from the Philippines to foreign multinationals, plus independent Philippine companies provide services to international clients. Through these options, many offshore outsourcing services performed in the Philippines can be offered to companies of all sizes and needs. The two main areas of expertise are Contact Centers and BPOs. The Philippines formerly ranked second in outsourcing worldwide, just after India. However, recent developments in the global outsourcing industry have pushed the Philippines to the top spot in voice BPO, and ranking second in non-voice complex services.

The Philippines ranks in the top 3 for location for talent according to analysts, both in the graduate level pool, and among professionals in IT-BPO sectors such as accounting, engineering, health care, finance and other non-voice, complex services and as such, is among the top 3 IT-BPO locations globally, after India and China in terms of the number of graduates employed in the industry. The Philippines records approximately 500,000 tertiary graduates annually.

The outsourcing BPO industry is considered one of the fastest growth industries in the world. It has grown at an average annual expansion rate of 20%. The IT and Business Process Association of the Philippines (IBPAP) has stated that the IT-BPO and Global In-house Center (GIC) industry is the Philippines’ most important generator of jobs.  Its contribution to the Philippines GDP is approximately 17% in 2016, and it is now the Philippines’ second largest net foreign exchange earner after remittances from an estimated 10 million overseas workers.

The BPO boom in the Philippines is currently led by demand for offshore call or contact centers.  As mentioned earlier, in 2016, the Philippines revenue in these BPO centers generated revenues of US$25 billon, placing it third behind India and China. This is compared to the US$21.5 billion the country earned in 2015.

As mentioned earlier, the more recent growth of the outsourcing industry in the Philippines has been fueled, not by traditional low value added call centers, but by the high end outsourcing or Knowledge Process Outsourcing (KPO). Though call centers still comprise the largest part of the IT-BPO sector, the Philippines is now using the potential of its creative design talent pool, large numbers of legal professionals, and CPAs/Accountants. The demand for the IT-BPO and Global In-house Centers (GIC) industry has meant that the current figures employed in this industry in the Philippines is 1.4 million. Given the expected 20% annual increase in BPO centers, the projected employment figures by 2020 may well be in the region of 2.5 million.

Read here for more information on how business process outsourcing affects the Philippines.

Original article posted by Asean Briefing. Since its establishment in 1992, Dezan Shira & Associates has been guiding American investors through Asia’s complex regulatory environment and assisting them with all aspects of legal, accounting, tax, internal control, HR, payroll, and audit matters. As a full-service consultancy with operational offices across China, Hong Kong, India, and emerging ASEAN, including liaison offices in Boston and Waltham specifically established to support our American clients, we are your reliable partner for business expansion in Asia and beyond. For inquiries, email us at [email protected]. For further information about our firm and how we can support American investors in Asia, visit our North American Desk.