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Outsourcing and Reasons why Philippines Provides much better Services than the Rest of the World

Outsourcing in the Philippines

BPO is defined as the "delegation of service-type business processed to a third-party service provider" by the Philippines Department of Trade and Industry (DTI). The industry is divided into the following sectors: contact centers, back-office services, data transcription, animation, software development, engineering development, and game development.

BPO is becoming a vital developing business in the Philippines, owing to the country's low cost of living and a workforce made up predominantly of young, educated Filipinos with high spoken English language abilities. The Philippines is the most popular outsourcing location, according to the majority of international research and data firms. In 2015, the Philippines surpassed Mumbai as the world's second-best BPO destination, and it is expected to remain in the Top 10 global outsourcing destinations (dominated primarily by Indian cities) in 2017.

In the global outsourcing competition, Manila just defeated Mumbai and became the only non-Indian city in the top seven of the Tholons International Top 100 Outsourcing Destinations survey. Eight cities from the Philippines made the top 100 list in the 2015 edition of the survey. According to estimates by Asean Confidential, a research service of the Financial Times, the country's BPO sector now employs more than 1 million people, and the industry's revenue, which is currently $18 billion, might reach $25.5 billion in 2016. Is the Philippines on track to supplant India as the world's largest outsourcing destination?

According to the IBPAP's IT-BPM strategy, the Philippines will consume 13% of the IT-BPO market and 41% of the off-shored voice industry.

By 2016, the Philippines is predicted to consume 13% of the IT-BPO market and 41% of off-shored voice services, according to the IBPAP's IT-BPM plan. With current growth rates, the Philippine outsourcing industry could exceed $48 billion in revenue and treble its workforce by 2020, as companies continue to flock to the Philippines for substantial cost savings of up to 85 percent, making it the most attractive outsourcing destination in the world.

The Philippines has become one of Southeast Asia's fastest-growing economies in recent years. According to the International Monetary Fund, GDP would grow by 6.7 percent in 2015, up from 6.1 percent last year and 3.6 percent in 2011.

Business process outsourcing (BPO) is the most important contribution to the Philippines' gross domestic product (GDP) today, out of all local industries (GDP). According to analysts, outsourcing may soon surpass the value of remittances from abroad Filipino workers, which presently account for 10% of the country's yearly GDP.

What Awaits the BPO Industry in the Philippines?

In 2016, BPO in the Philippines continued to grow at a healthy pace. The industry's activity appears to be strong enough that total revenue projections for 2020 range from US$ 40 to US$ 55 billion. The industry, which presently employs around 1 million Filipinos, is expected to expand employment by 1.3 to 1.5 million new jobs in the next three years, both directly and indirectly. The Philippines Development Plan considers the BPO business to be critical to the country's 10 high-priority development areas. Existing government programs include tax holidays, tax exemptions, and simplified export and import procedures to further entice investors. In addition, prospective BPO employees can enroll in university-based training programs.

Call Centers are the leading sub-sector in local industry sectors. The Philippines' BPO industry has surpassed India as the leading call center country, and as a result, the subsector is expected to continue to contribute the most to the industry's growth in the coming years. The call center industry, according to a UA&P (the University of Asia and the Pacific) industrial economist, is expected to increase at a healthy rate through 2020. However, rising IT and computer-generated voice services may create a slowdown and decline by this time, according to speculation supplied by the Philippine Banko Sentral ng Pilipinas. In other words, there will be a shift away from relying on human voice sources of information in favor of computer-generated responses.

The Philippines’ Possible Risk of BPO in the Future

Though the industry's prognosis is generally optimistic, future issues remain, primarily owing to potential policy alterations by the Philippine government. One big concern is that planned changes to the current tax holiday advantages, which allow for temporary reductions or eliminations of corporation taxes, could be implemented. This proposal explored the elimination of tax breaks for the BPO business in exchange for a lowering in their income tax rate from 30% to 15%.

According to industry experts, the risk here is that, while tax expenses will be lower, foreign companies will be less likely to enter the Philippine market since the country's competitive advantage will be reduced. Other potential issues and challenges for the BPO industry include a potential shortage of suitably educated employees as a result of Philippine universities' inability to cope with the high increase in an educated labor force, as well as high turnover rates and the rate at which employees are replaced, which can be as high as 50% of the workforce.

The Philippines’ BPO Opportunities in the Future

Though the industry will have to deal with a possible shift in demand for voice information services, the BPO industry is expected to keep up with the demand in terms of accommodating new businesses that want to invest or expand in the KPO (Knowledge Process Outsourcing) sector, which could then cater to new demand and cover a wide range of new 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 are expected to demand more competence.

However, it is important to note that the Philippine BPO industry continues to grow at a high rate, with an average annual expansion rate of 20%. According to statistics supplied by the IT and Business Process Association of the Philippines (IBPAP), the Philippines' export sales climbed from US$1.3 billion in 2004 to US$25 billion in 2016.

The Philippines’ Salaries and Wages

Due to economic expansion, salaries have been rising in Makati, Manila, Eastwood, Ortigas, Fort Bonifacio (BGC), and the rest of the Philippines, particularly in the BPO/IT/Call Center industries. Salaries, on the other hand, have now steadied, and in some cases, have even decreased slightly. Some international corporations with Call Centers and BPO offices in the Philippines have lowered product sales, resulting in some layoffs of Filipino workers. Nonetheless, this is thought to be a short-term issue. The salaries of IT specialists (developers, programmers, designers, and technical support personnel), as well as call center employees, are still much cheaper than in Western countries.

Technical or customer support representatives earn between $300 and $500 a month on average in Makati, Central Manila, Eastwood, Ortigas, and Bonifacio Global City. Salary ranges from US$200 to US$400 outside of Metro Manila and throughout the Philippines. IT workers and developers can earn anywhere from $300 to $2,000 per month in the Philippines, depending on their expertise, skillset, and managerial abilities. A thirteenth month's wage must be added to the monthly salary.

All employees in Metro Manila and the rest of the Philippines have earned a bachelor's degree and are fluent in English.

Stats for Philippines’ Employees in BPO Offices

Shared service offices, worldwide in-house centers, and third-party outsourcing companies make up the Philippines' offshoring/outsourcing business. International 3rd party providers provide services from the Philippines to foreign multinationals, and independent Philippine companies provide services to international clients. Multinational companies outsource functions of their operations to the Philippines, and international 3rd party providers provide services from the Philippines to foreign multinationals.

Many offshore outsourcing services performed in the Philippines can be supplied to firms of various sizes and demands through these choices. Contact Centers and BPOs are the two main areas of specialization. Previously, the Philippines was ranked second in the world for outsourcing, just behind India. Recent changes in the global outsourcing business, however, have propelled the Philippines to first place in voice BPO and second place in non-voice complex services.

According to analysts, the Philippines is among the top three IT-BPO locations globally, after India and China, in terms of the number of graduates employed in the industry, both at the graduate level and among professionals in IT-BPO sectors such as accounting, engineering, health care, finance, and other non-voice, complex services. As a result, the Philippines is among the top three IT-BPO locations globally, after India and China in terms of the number of graduates employed in the industry. Every year, the Philippines produces around 500,000 tertiary graduates.

The outsourcing BPO industry is regarded as one of the world's fastest-growing industries. It has expanded at a 20 percent annual rate on average. According to the IT and Business Process Association of the Philippines (IBPAP), the IT-BPO and Global In-house Center (GIC) industries are the most important job creators in the Philippines. In 2016, it contributed about 17% of the Philippines' GDP, and it is currently the country's second-largest net foreign exchange earner behind remittances from an estimated 10 million abroad workers.

Demand for the offshore call or contact centers is driving the BPO boom in the Philippines right now. As previously stated, the Philippines produced US$25 billion in income from these BPO centers in 2016, placing it third behind India and China. This compared to the country's 2015 revenue of US$ 21.5 billion.

As previously stated, the Philippines' outsourcing industry's recent expansion has been powered by high-end outsourcing, or Knowledge Process Outsourcing, rather than traditional low-value-added contact centers (KPO). Though call centers still make up the majority of the IT-BPO industry, the Philippines is now tapping into the creative design skill pool, as well as a big number of lawyers and CPAs/Accountants. Because of the high demand for IT-BPO and Global In-house Centers (GIC) services, the Philippines now employs 1.4 million people in this business. Given the estimated yearly growth of 20% in BPO centers, employment levels by 2020 may likely be in the range of 2.5 million.

BPO Centers Outside Manila

In addition, BPO Call Centers have exploded in popularity across the Philippines. When foreign investors outsource to the Philippines, they typically want to work only in Manila. However, when these investors 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, and Clark (Angeles City), Baguio, and other places. Companies get to do business for much less money, while communities benefit from the influx of jobs and investment.

For example, in Tanjay City, Negros Oriental, a BPO Call Center was established three years ago. It was one of the city's major employers today. Like the Philippines, there are several "next-wave cities," including not just big capitals like Davao or Cebu, but also smaller ones in Palawan, Ilocos, and Negros. These new places are equally capable of absorbing the skilled jobs that the BPO business is pursuing. 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.

Cebu City's jump from 8th to 7th place in this year's list of BPO Centers was deemed to be one of the most significant swings in the Asia Pacific Region. The city's infrastructure is constantly developing, and PEZA (Philippine Economic Zone Authority) reports that Cebu presently has a total of 27 IT Centers and IT Parks in operation. The city's IT-BPO industry has been able to maintain recent developmental advances because of an expanding talent pool that pulls diversified expertise from this portion of Central Philippines (the Visayas). Cebu is the educational capital of the Central and Southern Philippines, with the Central Visayas Region having 138 higher education institutions (public and private) that produced over 260,000 undergraduate students in the 2013-2014 academic year. JPMorgan Chase, Aegis, Accenture, Teletech, IBM, and Convergys, among others, have constructed BPO Centers around Cebu City's multiple IT Parks and Centers.

Health-Related Constraints in the Philippines’ BPO Industry

The main sub-sector of the Philippine BPO business is call centers, which have been the focus of a case study on health and working conditions. Employees have reported back and shoulder difficulties as a result of workstation settings and monitor visual levels, throat irritations as a result of several calls per day combined with a high-stress work environment, and worries about hearing impairment as a result of exposure to increased audio volumes.

With reference to Call Centers, there have also been some detrimental consequences on the psychological component of health. The inconsistent work schedule caused by foreign time variations is one of the most stressful aspects of the office. These things have the potential to upset social and family life in the Philippines, which is a relatively conservative society where family values are very important. An inconsistent work schedule often generates transportation issues, as well as safety and availability issues, particularly for female employees. These psychosocial stresses have been studied in case studies and found to be a key cause or amplifier of the health conditions mentioned above.

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