Philippines is the New Hub of Outsourcing

 Manila recently has beaten Mumbai on this year's global outsourcing race and became the only city outside India to be in the top seven cities of the International Tholons Top 100 leading outsourcing destination in the world report. The 2015 edition of the report featured eight cities from the Philippines that made the top 100 list. Today, the Philippines' BPO sector employs more than 1mn people in the Philippines. the company's revenues, currently at $18 billion, is expected to grow to $25.5bn in the year 2016, as per estimates by Asean Confidential, a research service at the Financial Times. Are the Philippines well on its way towards supplanting India as the leading outsourcing destination in the world?

According to the IT-BPM strategy of the IBPAP, the Philippines is expected to use 13 percent of the IT-BPO market in addition to 41 per cent of the off-shored phone services by the year. At the rate at which it is growing it is estimated that the Philippine outsourcing industry is expected to reach the sum of $48 billion in annual revenue and double its number of employees by 2020 . Companies continue to flock due to massive savings in costs of up to 85 percent, making the Philippines the most sought-after outsourcing location in the world.

Growing Economy

In the last few years in the last few years, the Philippines has become one of the economies that are growing the fastest in Southeast Asia. The International Monetary Fund predicts GDP will grow by 6.7 percent in 2015, up from 6.1 percent last year . It was as low as 3.6 percent in 2011.

Business process outsourcing (BPO) is the top contributor of all industries in the country 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 that currently account for 10 percent of GDP.

What makes Philippines an attractive place to visit?

There are a variety of reasons the reason that Philippines is now an essential destination for outsourcing. Some of them are highlighted below:

1. Western cultural influences and language fluency

The Philippines has a growing younger population of around 90% of the 100 million residents under the age of 55. Also, the country has a high literacy rate of 95%, and an estimated 30 percent of graduates have jobs.

Since it was a former colony for Spain together with United States, the Philippines has a deep connection to Western cultures and is the third-largest country with an English-speaking population. In a study by GlobalEnglish Corporation, the Philippines was named as one of the nations with the highest corporate English proficiency.

2. World-class infrastructure

The Philippines has a well developed infrastructure. It is awash with top-of-the-line communications services. There is multiple international connectivity using submarine fiber optic cable networks and complemented by satellite networks. The working environment for business is conducive to operations and practices of global companies, with a focus on dealing with international clients. Affordable, low-cost real-estate in the major cities increases the savings of clients on office space and utilities. The prime office space in Manila can be rented at just over two-thirds of the cost of space in Mumbai and is less expensive than Delhi, Bangkok, Guangzhou, Taipei, and Seoul, according to the global real estate agency Colliers.

3. Government Aid

It has also been an important promoter of the industry over the last decade. Through the Philippine Development Plan, which covers the period from 2011 to 2016, has highlighted BPO as being among ten high-potential and growth 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 will provide an 8% to 10% cost reduction

• Assistance for development of industry (e.g., TESDA vouchers)

• Establishment of regional ICT councils as well as ICT road maps that include a National ICT road map

• CHED, TESDA, DepEd created to implement reforms to the education system. (eg. the Training on Work Scholars Program, which allows the IT industry to offer the necessary training to BPO candidates.)

• Encouragement of investors via fiscal and non-fiscal incentives such as a 4-8-year income tax holidays granted from the Philippine Economic Zone Authority (PEZA) as well as other government initiatives

• The creation and operation of special economic zones, in which BPO/contact centers facilities can be set up and operated

Challenges Ahead

1. Concentrate on Pure Voice Services

As per the Tholons analysis, $11.5 billion in revenue will come from the contact center and customer support, which could be around 62 per cent of the total $18.4-billion revenue forecast for this year.

The business is moving from traditional voice-only services to multi-channel services, which include the use of email, voice and chat with sophisticated delivery models , including Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other countries' establishment of "centers of excellence" providing email, text chat, and email is putting stress on the Philippine BPO market. The need to change delivery models to meet changing demand would be critical for sustainable, long-term growth.

2. High Attrition Rate

The high percentage of employees who leave have become a major source of concern for the nation as some businesses lose more than 1,000 employees every month.

A number of steps are being implemented to decrease the rate of attrition. The DOST has created an "Next Wave Cities" program, which identifies ICT hubs outside of Manila by evaluating criteria including worker supply as well as telecom infrastructure and other elements that are necessary to sustain a local BPO business.

According to their IBPAP projections, the percentage of work for Manila residents versus those in the countryside will be in the 60:40 region as compared to the 75:25 proportion right now. If you put sites close to where the workforce is it reduces the likelihood of losing them down as the lifestyle is cheaper and employees work near where they live.

3. Changes to Regulation

The Departments of Finance and Industry recently proposed the elimination of income tax holidays of up to 8 year olds from their list of benefits which could make it hard to expand to areas outside of Manila as well as other urban centers.

While the government, as an agreement, is proposing to lower the tax rate by as much as 10 percent. removing the tax holidays might result in foreign companies turning to countries offering better and bigger fiscal incentives.

Conclusion

The outsourcing industry in the Philippines is booming and expected to have 1.3 million workers by the year 2016, in accordance with the Contact Center Association of the Philippines. With a favourable business climate especially in the four categories: Financial incentives investment support, perceived risk environment & overall support from government and massive investments in its workforce, telecommunication infrastructure and real estate, the country is poised to take over India as the top outsourcing center in the world over the next few years.