The Philippines has emerged as a new outsourcing hotspot.

Manila recently beat Mumbai to win this year's global outsourcing race and became the only city outside India to be in the top seven cities of Tholons' Top 100 Global leading outsourcing destination in the world. The 2015 edition of the report featured eight cities in the Philippines which made it to Top 100 on the list. The country's BPO sector employs more than 1mn people along with the industry's income, which is currently at $18bn, could rise to $25.5bn in 2016 according to estimates made by Asean confidential Research, a service from the Financial Times. Is the Philippines already on its way to displacing India as the leading outsourcing destination in the world?

According to the IT-BPM roadmap by the IBPAP, the Philippines is projected to account for 13 % of the IT-BPO market as well as 41 percent of the off-shored voice service market by the year 2016. At the rate at which it is growing that the Philippine outsourcing industry is expected to reach the sum of $48 billion in annual revenue and double the number of employees by 2020 as companies continue to flock to the country due to huge cost savings of as much as 85 percent which makes the Philippines the most attractive outsourcing location in the world.

Growing Economy

In the last few years since the Philippines has been one of the most rapidly growing economies in Southeast Asia. According to the International Monetary Fund predicts GDP will increase by 6.7 percent for 2015, up from 6.1 percent in the previous year and as low as 3.6 percent in the year 2011.

Business process outsourcing (BPO) is the largest contributor of all the domestic industries that contribute to the Philippines Gross Domestic Product (GDP). Analysts have suggested that outsourcing could soon surpass the value of remittances from overseas Filipino workers that currently account for 10 percent of the GDP.

What makes Philippines an attractive place to visit?

There are many factors for that Philippines is now a key destination for outsourcing. Some of them are highlighted below:

1. Western cultural influences and language fluency

The Philippines has a growing young population . It has around 90% of its 100 million inhabitants under the age of 55. In addition, it has a high literacy rate of 95%. An estimated 30 percent of the graduates are employed.

A former colony of Spain and the United States, the Philippines is very influenced by Western cultural traditions and is the third-largest country with an English-speaking population. According to a report of GlobalEnglish Corporation, the Philippines was named as the world's best country in corporate English proficiency.

2. World-class infrastructure

The Philippines has a very developed infrastructure. There's a wide range of world-class telecommunication services, with the ability to connect internationally via submarine fiber optic cables, which are further complemented by satellite networks. The working environment for business is conducive to processes and practices of global firms, and ensuring the ability of servicing international clients. The abundance of low-cost real estate in urban areas is a major source of the savings of clients on office space and utilities. The best office space in Manila is available for about two-thirds the price of office space in Mumbai as well as significantly less expensive in comparison to Delhi, Bangkok, Guangzhou, Taipei, and Seoul according to the world-renowned property agency Colliers.

3. Government Aid

This government is an important supporter of the sector over the past 10 years. In the Philippine Development Plan, which runs from 2011 until 2016 it 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 :

• The tax incentive and the non-tax one that provide an 8%-10% cost reduction
• Assistance for development of industry (e.g., TESDA vouchers)
• Development of regional ICT councils, as well as ICT road maps for the nation. National ICT road map
• CHED, TESDA, DepEd instituted to provide reforms in the education sector. (eg. Training on Work Scholars Program that allows the IT industry to provide training for BPO prospective applicants.)
• Investor enablement through fiscal and non-fiscal incentive programs such as a four- to eight-year income tax holiday provided by the Philippine Economic Zone Authority (PEZA) along with other initiatives of the government.
• The identification and operation of special economic zones, in which BPO/contact centers facilities can be constructed and maintained

Challenges Ahead

1. Accent on Pure Voice Services

As per an analysis by the Tholons report, $11.5 billion in revenue will come from the contact center and customer services. This will be around 62 percent from the overall $18.4-billion anticipated revenue this year.

The business is moving from pure voice services to multi-channel services, which include email, voice and online chats, and employ sophisticated delivery models , including Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other countries' establishment of "centers of excellence" with email, text and chat are putting stress on the Philippine BPO market. The need to change delivery models to meet the changing demands is essential for sustainable, long-term growth.

2. High Attrition Rate

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

The steps are being taken to decrease the rate of attrition. The DOST-ICT is working on an "Next Wave Cities" program which helps identify ICT hubs that are not Manila and based on factors including worker supply in addition to telecom infrastructure, among other elements that are necessary to sustain a local BPO business.

Based on their IBPAP projections, they predict that the ratio of workers employed by Manila residents as compared to those who live in the countryside will be in the 60:40 region as compared to the 75:25 percentage at present. If you put sites close to the places where workers live as well, the number of people who quit comes down as the lifestyle is less expensive and employees are employed near where they live.

3. Changes in Regulation

The departments of Finance and Industry recently proposed the elimination of income tax holidays of up to eight an year from the list benefits which will make it harder for expansion in areas other than of Manila and other urban areas.

As the government, in an agreement, is seeking to lower the tax rate by as much as 10 percent. removal of tax breaks could cause foreign companies to turn to countries offering bigger and better fiscal incentives.

Conclusion

The outsourcing industry in the Philippines is flourishing and expected to have 1.3 million employees by the year 2016 in accordance with the Contact Center Association of the Philippines. With a sound business environment that is characterized by four key factors: fiscal incentives support for investors, perceived risk environment & overall support from government and significant investments in its workforce, its telecommunication network and real estate, the Philippines could displace India as the most renowned outsourcing center in the world over the next few years.