The Philippines Department of Trade and Industry (DTI) defines 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.
BPO in the Philippines is becoming a key developing industry, primarily due to the relatively low cost of living, and a workforce which 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 2nd 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$25.5 billion and 1.4 million people employed by the year end. The sector currently contributes 9 percent of the country’s GDP growth. However, the Philippines Government need to continue to provide increased Government support to speed the development of national infrastructure projects, for this rapidly expanding industry.
Future for the BPO Industry in the Philippines
In 2016, BPO in the Philippines continued to experience a positive growth rate. Activity in the industry appears to be robust enough such that the industry’s projected total income range would reach US$ 40 to 55 billion by 2020. The Industry, currently employing about 1 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 ten 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.
Possible Future Risks to the Philippines’ BPO Industry
Though the industry outlook is overall very positive, there remain future problems, mainly due to possible policy shifts introduced by the Philippines Government. One major issue is the possibility of proposed changes to the tax holiday benefits that currently are in place, that allow temporary reductions or eliminations of corporate taxes. This proposal has discussed the reduction of tax holidays for the BPO industry, with the compromise of having their income tax reduced from 30 percent to 15 percent. According to Industry experts, the threat here is that, though tax costs would decrease, this might serve as a deterrent for foreign companies to enter the Philippine market due to a reduction of the country’s competitive advantage. Other possible issues and challenges to the BPO industry, are the possible lack of suitably educated employees, due to the Philippine universities being unable to cope with the high increase in an educated labour force, as well as high turnover rates, and the rate at which employees are replaced, which can be up to 50 percent of the workforce.
Future Opportunities for the Philippines’ BPO Industry
Though the possible shift in demand for voice information services is an issue to be faced by the industry, the BPO industry is projected to move with the demand in terms of accommodating new businesses that wish to invest or expand in the KPO (Knowledge Process Outsourcing) sector, which could then cater to a new demand, and cover a wide set of new roles. The higher expertise required is projected to be in these roles: Market Research; Fraud Analytics; Equity Research and Investment; Banking Insurance; Actuarial Engineering Services; Web Design and Development; Data Integration; Project Management Research and Development; Medical Transcript Preparation, and Legal Processes.
However, it should be stressed that the growth in the Philippine BPO industry continues to show significant improvements with an average annual expansion rate of 20 percent. Statistics provided by the IT and Business Process Association of the Philippines (IBPAP), show that export revenues for the Philippines have increased from US$1.3 billion in 2004 to a total revenue of US$ 25 billion in 2016.
Top 36 BPO company offices in the Philippines, with revenue generated in Pesos (2012 figures)
- Accenture Inc. (P28.104 billion in revenues);
- Convergys Philippines Services Corp. (P17.281 billion);
- JPMorgan Chase Bank N.A-Philippine Global Service Center (P10.80 billion);
- 24/7 Customer Philippines Inc. (P7.711 billion);
- Telephilippines Inc. (P7.241 billion);
- TeleTech Offshore Investments B.V. (P6.978 billion);
- Sutherland Global Services Philippines Inc. (P6.805 billion);
- Stream International Global Services Philippines Inc. (P6.738 billion);
- Sitel Philippines Corp. (P6.364 billion);
- Deutsche Knowledge Services Pte. Ltd. (P5.754 billion);
- Sykes Asia Inc. (P5.617 billion);
- IBM Daksh Business Process Services Philippines Inc. (P5.516 billion);
- Aegis People Support Inc. (P5.445 billion);
- TeleTech Customer Care Management Philippines Inc. (P5.402 billion);
- IBM Business Services Inc. (P5.211 billion);
- Telus International Philippines Inc. (P4.962 billion);
- Shell Shared Services (Asia) B.V. (P4.821 billion);
- HSBC Electronic Data Processing (Philippines) Inc. (P4.700 billion);
- ePLDT Inc. (P4.147 billion);
- SPi CRM Inc. (P3.501 billion);
- ACS of the Philippines Inc. (P3.492 billion);
- VXI Global Holdings B.V. (P3.266 billion);
- Emerson Electric (Asia) Ltd. (P3.230 billion);
- StarTek International Ltd. (P3.094 billion);
- IBM Solutions Delivery Inc. (P3.019 billion);
- Sykes Marketing Services Inc. (P2.760 billion);
- SPi Technologies Inc. (P2.626 billion);
- Genpact Services LLC (P2.552 billion);
- Macquarie Offshore Services Pty. Ltd. (P2.522 billion);
- Thomson Reuters Corp. Pte. Ltd. (P2.265 billion);
- AIG Shared Services Corp. Philippines (P2.357 billion);
- Hinduja Global Solutions Ltd. (P2.194 billion);
- Lexmark Research and Development Corp. (P1.956 billion);
- ANZ Global Services and Operations (Manila) Inc. (P1.869 billion);
- Maersk Global Service Centers (Philippines) Ltd. (P1.859 billion);
- Manulife Data Services Inc. (P1.745 billion).
These 36 international companies posted a combined revenue of P192 billion in 2012.
BPO giants such as Accenture and Convergys currently have more than 35,000 employees each in the Philippines. More recently, India-based call centers and IT-BPOs have expanded operations to the Philippines, including: Compvue, iOPEX, OmniGlobe, and TCS. Wipro Technologies, an outsourcing company headquartered in Bangalore, has already set up a center in the Philippines, and now employs close to 2,000 employees.
Salaries and Wages in the Philippines
In general, salaries have been increasing in Makati, Manila, Eastwood, Ortigas, Fort Bonifacio (BGC) and the rest of the Philippines due to economic growth, especially in the BPO/IT/Call Center industries. However salaries have now stabilized, and in some cases reduced slightly. Some international companies from USA, Canada, Europe and Australia with Call Centers and BPO offices companies in the Philippines have reduced product sales, and this has resulted in some layoffs of Filipino employees. Nevertheless, this is regarded as a short term problem. IT professionals (developers, programmers, designers etc), technical support, and call center representatives’ salaries are still significantly lower than Western countries.
The average monthly salary of technical or customer support representatives in the Makati, Central Manila, Eastwood, Ortigas, and Bonifacio Global City areas, ranges from US$300 to US$500. Outside of Metro Manila, and in the rest of the Philippines, salaries range from US$200 to US$400. Salaries of IT professionals and developers in the Philippines can range anywhere from US$300 – US$2,000 depending on experience, skill set and management capabilities. On top of monthly salaries, a thirteenth month salary must be included.
All employees in Metro Manila and the rest of the Philippines are college graduates, with college degrees, and are proficient in English.
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 3rd 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 2nd 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 percent. 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 percent in 2016, and it is now the Philippines’ second largest net foreign exchange earner after remittances from an estimated 10m 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$25 billon, placing it third behind India and China. This is compares to the US$ 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 percent annual increase in BPO centers, the projected employment figures by 2020 may well be in the region of 2.5 million.
Comparison between the Philippines and India for BPO centers
India has lost significant outsourcing ground to the Philippines over the past few years, especially in the business process outsourcing market segment. The Associated Chambers of Commerce and Industry in India has reported a 70 percent loss in its outsourcing market share with Call Centers and BPO services. Several factors have contributed to the reduction in the Indian market of BPOs in favour of the Philippines, these are an accent neutrality, lower labor costs and more government support.
Clear communication is a must when you rely on outsourcing for customer support and other business processes. Without clarity in speech, you run into many problems for getting your business goals accomplished, and lose out on the productivity benefits outsourcing exists for. On the customer facing side of the equation, brand reputation rests on the customer’s experience. If customers/clients cannot get assistance they need, then they will probably look towards a competitor.
According to Flatplanet, the Australian based HR company with a large Philippine presence, it has reported that the Philippines has a 92.5 percent English proficiency rating, and that the English is (after some training) accent neutral, that many potential investors in the BPO business look for in their customer support departments. In addition to a neutral accent, Filipinos have many Western cultural influences that are recognised and accepted internationally.
Compared to India, the current generations in the Philippines grew up with more Western/American influences. Whilst recognizing the British colonial influences in India that make English the overall business language, the English language abilities in the Philippines are more internationally recognised. The Philippines media includes American and English Asian TV channels, while India does not always have the same ease of access. Because of exposure to this media, American accents and idioms are already part of the Philippines culture.
The Philippines like India is a developing country, and has similar or lower costs than India. This means that BPO investors do not need to fund an increased investment to switch their outsourced operations. This increase in BPO operations in the Philippines is to the benefit of employees, as BPO positions provide higher than average local wages, thus encouraging greater numbers of individuals looking for a good job. Many Filipino employees choose customer support positions, while Indian employees are apparently more averse to the instability offered by a position with high turnover, it is understood that there is a 28 percent turnover rate in India, compared to a 20 percent turnover in the Philippines.
BPO Centers outside of Manila
There has also been a rapid development of BPO Call Centers throughout the Philippines. Foreign investors typically want to work only in Manila when they outsource to the Philippines, but when these investors looking to set up shop in the Philippines take a look at the talent in the provinces, they are interested, and this has resulted in the rapid development of BPO Centers in Cebu, Davao, Dumaguete, Clarke (Angeles City) Baguio etc. Companies get to do business for much less cost, while the communities get to benefit from the influx of jobs and investments. For example, three years ago a BPO Call Centre was set up in Tanjay City, Negros Oriental. Today, it was one of the largest employers in the city. There are many “next-wave cities” in the Philippines, and not just major capitals like Davao or Cebu, but also smaller ones in Palawan, Ilocos and Negros. These new locations are just as capable of absorbing the skilled work the BPO industry is moving towards. Approximately 30 percent of BPO employment and jobs are outside of Manila, and it is estimated that this figure will grow to 50 percent over the next 5 years.
It has been reported that one of the important shifts in the Asia Pacific Region in this year’s list of BPO Centers, was the rise of Cebu City, which moved from 8th to 7th spot. The city has a continuously improving infrastructure, and PEZA (Philippine Economic Zone Authority) counts a combined 27 IT Centers and IT Parks now operating in Cebu. There is also an enlarging talent pool that draws diverse talent from this part of Central Philippines (the Visayas), and this has allowed the city’s IT-BPO sector to sustain recent developmental gains. Cebu is considered the educational hub of Central and Southern Philippines, with the Central Visayas Region boasting 138 higher education institutions (public and private) that produced approximately 260,000 undergraduate students for the academic year of 2013-2014. Large international corporations such as, JPMorgan Chase, Aegis, Accenture, Teletech, IBM and Convergys etc, have all established BPO Centers across Cebu City’s numerous IT Parks and Centers.
Health Related Issues in the Philippines’ BPO Industry
The Call Centers, are the largest sub-sector in the Philippine BPO industry, and have been a major subject on a case study on health and working conditions. Some commonly identified health problems are: employees experiencing back and shoulder pains due to workstation setups and monitor visual levels, employees have complained of experiencing throat irritations, due to multiple calls a day, coupled with a high stress work environment, and concerns regarding damage to hearing, due to exposure to higher audio levels.
There have also been some negative effects to the psychosocial aspect of health with regard to Call Centers. The major workplace stress problems are the irregular work schedule, due to international time differences. These can disrupt social and family life, and the Philippines is a very conservative country, where the family are of very high importance. An irregular work schedule also causes problems with transportation, and the related problems of safety and availability, especially for female employee. Case studies have addressed these psychosocial stressors, and that they may also be a major cause or amplifier with regards to the health issues stated above.
This article was first published April 2017.
Since its establishment in 1992, Dezan Shira & Associates has been guiding foreign clients 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, we are your reliable partner for business expansion in this region and beyond.