Manila recently overcame Mumbai to win The city recently came out on top in global outsourcing race and became the only non-Indian city to make the top seven cities of The Tholons Top 100 leading outsourcing destination in the world. The 2015 version of the report featured 8 cities in the Philippines that made Top 100 on the list. The Philippines' BPO sector employs more than 1mn people along with the sector's revenues, currently at $18 billion, could grow to $25.5bn in 2016 according to estimates from Asean confidential, a research service at the Financial Times. Are the Philippines well on its way to displacing India as the most prestigious outsourcing destination in the world?
Based on the IT-BPM roadmap developed by the IBPAP The Philippines is expected to use 13,01% of IT-BPO market as well as 41 percent of off-shored voice services by 2016. With the current growth rate in the industry, the Philippine outsourcing market could be worth $48 billion in revenue and double its amount of employees by 2020 as companies continue to flock due to huge savings on costs up to 85 percent which makes the Philippines the most desirable outsourcing location globally.
Growing Economy
Over the past few years since the Philippines has become one of the most rapidly growing economies within Southeast Asia. As of the International Monetary Fund predicts GDP will increase by 6.7 percent in 2015, an increase from 6.1 percent last year , and less than 3.6 percent in the year 2011.
Business process outsourcing (BPO) is the most significant contributor among all domestic industries today to the Philippines' gross domestic product (GDP). Analysts have speculated that outsourcing could soon surpass the value of remittances made by overseas Filipino workers, which is currently estimated to be 10 percent of the annual GDP.
What makes Philippines an appealing destination?
There are a variety of reasons the reasons why Philippines is now one of the top destinations for outsourcing. A few of them are listed below:
1. Western culture influence as well as fluency in languages
The Philippines has a growing young population . It has around 90% of the 100 million residents under the age of 55. It also boasts a high level of literacy at 95%. It is estimated that 30% of graduates are employable.
Since it was a former colony for Spain as well as the United States, the Philippines is a great ally to Western cultural traditions and is the third-largest nation in the world to be English-speaking. In a study by GlobalEnglish Corporation, the Philippines was recognized as the top country in the world for the field of business English proficiency.
2. World-class infrastructure
The Philippines is home to a well developed infrastructure. There is an availability of top-of-the-line communications services. There is multiple international connectivity using submarine fiber optic cable networks , complemented by satellite networks. The business environment is favorable for business practices and operations of global firms, and ensuring the ability of dealing with international clients. Abundant, low-cost real estate in major urban areas boosts the efficiency of office space and other utilities. The best office space in Manila is available for just over two-thirds of the cost of space in Mumbai, while it is significantly less expensive that Delhi, Bangkok, Guangzhou, Taipei, and Seoul according to global property firm Colliers.
3. Government Aid
It has also been a key advertiser for the business over the last 10 years. Through the Philippine Development Plan, which runs from 2011 until 2016 highlights BPO in the list of ten high-potential and development areas that are prioritized. 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 that offer a 8% to 10% cost reduction
- Development initiatives for the industry (e.g., TESDA vouchers)
- Regional ICT councils and ICT road map for the country. National ICT road map
- CHED, TESDA, DepEd set up to help with reforms to the education system. (eg. Training for Work Scholarship Program, that allows the IT sector to provide training to BPO prospective applicants.)
- Facilitating investors through fiscal and non-fiscal rewards such as a 4 - to 8-year income tax holiday provided through the Philippine Economic Zone Authority (PEZA) as well as other government initiatives
- The establishment and operation of specific economic zones within which BPO/contact centre facilities can be set up and operated
Challenges Ahead
1. Concentrate on Pure Voice Services
In according to the Tholons review, $11.5 billion in revenue would be generated from the contact center and customer service, which would be about 62 percent out of total $18.4-billion revenue forecast for this year.
The industry is moving away from simple voice services, to multi-channel options that incorporate email, voice and online chats, and employ sophisticated delivery models like Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other nations' establishment of "centers of excellence" offering email, text and chat are putting stress on the Philippine BPO market. Modifying delivery methods to meet the changing demands is essential for stable, long-term growth.
2. High Attrition Rate
The high rates of attrition have become a major source of concern for the country and some companies are losing over 1,000 employees each month.
The steps are being taken to decrease the rate of attrition. The DOST has created plans to reduce the attrition rate "Next Wave Cities" program, which identifies ICT hubs outside Manila by evaluating criteria such as worker supply along with telecom infrastructure, as well as other aspects that are essential to sustain a local BPO business.
On the basis of their IBPAP projections for the future, the ratio of employment of Manila residents versus those living in the countryside will be 60:40 in comparison to the 75:25 ratio currently. If you put sites close to where the workforce lives in the city, the percentage of employees who leave the workforce goes down as the lifestyle is less expensive and employees are employed close to where they live.
3. Changes to Regulation
Ministers from Finance and Industry recently proposed the removal of tax breaks for income taxes of up to 8 years out of the list benefits which will make it harder for expansion in areas other than of Manila and other cities.
The government, as an alternative, is seeking to lower the tax rate by 10%, removing the tax holidays might result in foreign companies turning to countries offering more substantial and more favorable fiscal incentives.
Conclusion
The outsourcing industry in the Philippines has grown rapidly and expected to have 1.3 million employees by the year 2016 by the Contact Center Association of the Philippines. A stable business climate that is characterized by four key sectors: incentive financials, support for investors, perceived risk environment , and general support from the government as well as large investments in its workforce, telecommunications networks and real estate, the country is on track to surpass India as the largest outsourcing center in the world over the years to come.
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