The Philippines has emerged as a new outsourcing hotspot.

 Manila recently defeated Mumbai in this year's global outsourcing race and became the only Indian city to make the top 7 in the Top 100 Tholons leading outsourcing destination in the world. The 2015 edition of the report included 8 cities in the Philippines being included in their way to top the 100 lists. The country's BPO sector employs more than 1mn people along with the company's income, which is currently at $18 billion, could grow to $25.5bn in the year 2016, as per estimates provided by Asean Confessional, a research service at the Financial Times. Are the Philippines getting close to displace India as the most prestigious outsourcing destination around the globe?

Based on the IT-BPM roadmap of the IBPAP, the Philippines will consume 13.5% of the market for IT-BPO in addition to 41 per cent of off-shored voice services in the year 2016. With the current growth rate, the Philippine outsourcing industry could reach the sum of $48 billion in annual revenue and double its number employees by 2020 . Companies continue to flock because of huge savings on costs as much as 85 percent this makes the Philippines the most desirable outsourcing destination worldwide.

Economic Boom

In the past few years over the past few years, the Philippines has become one of the countries that is growing fastest within Southeast Asia. In fact, the International Monetary Fund predicts GDP will increase by 6.7 percent in 2015, which is up from 6.1 percent in the previous year and as little as 3.6 percent in the year 2011.

Business process outsourcing (BPO) is the leading contributor of all domestic industries to the Philippines Gross Domestic Product (GDP). Many analysts believe that outsourcing could soon surpass the value of money remitted by overseas Filipino workers that currently account for 10% of the annual GDP.

What makes Philippines an attractive destination?

There are numerous reasons that Philippines has become the most sought-after destination for outsourcing. Some of them are highlighted below:

1. Western cultural influences and fluency in language

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 at 95%. It is estimated that 30 percent of the graduates are employed.

It is a former state of Spain in the United States, the Philippines is deeply entwined with Western cultures and is the third largest English-speaking country in the world. According to a report of GlobalEnglish Corporation, the Philippines was recognized as the best nation in the world in commercial English proficiency.

2. World-class infrastructure

The Philippines has a highly developed infrastructure. There's an abundance of top-of-the-line communications services. There is the ability to connect internationally via submarine fiber optic cables, which are further complemented by satellite systems. The business environment is favorable for the operations and procedures of global businesses, ensuring that they are proficient in serving international customers. The abundance of low-cost real estate in major urban areas can increase the efficiency of office space and other utilities. The top office space in Manila can be rented for around two-thirds of price of office space in Mumbai as well as also cheaper than Delhi, Bangkok, Guangzhou, Taipei, and Seoul according to global property agency Colliers.

3. Government Support

This government is a major advocate for the industry during the past 10 years. The Philippine Development Plan, which covers the period from 2011 to 2016 highlights BPO as among the 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 :

• Incentives for taxes and not tax that offer a 8% to 10% cost reduction

• Development initiatives for the industry (e.g., TESDA vouchers)

• Creation of regional ICT councils as well as an National ICT road map

• CHED, TESDA, DepEd instituted to provide education sector reforms. (eg. the Training to Work Scholarship that allows the IT industry to offer instruction for BPO candidates.)

• Investor enablement through tax incentives and other fiscal incentives such as a 4 - to 8-year income tax holidays granted to investors by the Philippine Economic Zone Authority (PEZA) and other government initiatives

• The identification and operation of special economic zones in which BPO/contact-center facilities can be constructed and managed

Challenges Ahead

1. The focus is on Pure Voice Services

According to according to the Tholons report, $11.5 billion in revenue is expected to come from the contact center and customer services. This represents about 62 percent out of total $18.4-billion revenue expected this year.

The BPO market is evolving from pure voice services to multi-channel services, which include voice, email and online chat , using advanced delivery models like Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other countries' creation of "centers of excellence" which offer email, texts chat and email is placing stress on the Philippine BPO market. The need to change delivery models to meet evolving demands would be crucial for a steady, long-term growth.

2. High Attrition Rate

The high levels of attrition have been a major cause of concern for the country with some companies losing upwards of 1,000 employees each month.

The steps are being taken to cut down on the number of employees who leave. The DOST-ICT has formulated a "Next Wave Cities" program which helps identify ICT hubs outside Manila and based on factors such as supply of workers along with telecom infrastructure, as well as other essential factors to sustain a local BPO industry.

On the basis of their IBPAP projections, the percentage of employment of Manila residents as compared to those who live in the countryside will be in the 60:40 range in comparison to the 75:25 percentage currently. By putting sites near where the workforce is, the attrition rate comes down as the lifestyle is less expensive and employees are employed near where they live.

3. Changes in Regulation

Ministers from Finance and Industry recently proposed the removal of tax-free income of up to 8 years from the list of perks which would make it difficult for expansion in areas other than of Manila and other major cities.

As the government, in an agreement, is suggesting to cut the tax rate by 10%, removing the tax holidays might cause foreign companies to turn to other countries that are offering greater and better fiscal incentives.

Conclusion

The outsourcing industry in the Philippines is booming and will likely to grow to 1.3 million employees by 2016 according to the Contact Center Association of the Philippines. With a favorable business environment especially in the four aspects: incentives for financial growth, support from investors, perceived risk environment , and overall support from government and massive investments in its workforce, telecommunications network & real estate, the Philippines could displace India as the most renowned outsourcing center in the world over the near future.