Philippines is the New Hub of Outsourcing

Manila recently was able to beat Mumbai in Mumbai recently won the global outsourcing race and became the only city outside India to be in the top 7 cities in the International Tholons Top 100 leading outsourcing destination in the world. The 2015 version of the report featured 8 cities in the Philippines that made their way to top the 100 lists. Today, the country's BPO sector employs more than 1mn people in the Philippines. its revenue, which currently stands at $18bn, could rise to $25.5bn in 2016 according to estimates made by Asean confidential the research department of the Financial Times. Is the Philippines in the process of getting to displacing India as the most prestigious outsourcing destination around the globe?

In accordance with the IT-BPM plan by the IBPAP The Philippines is predicted to absorb 13,01% of IT-BPO market in addition to 41 per cent of off-shored voice services by 2016. Based on the current rate of growth it is estimated that the Philippine outsourcing industry could reach $48 billion in revenue and double its number employees by 2020. Companies continue to flock because of enormous cost savings up to 85 percent and making the Philippines the most desirable outsourcing destination in the world.

Booming Economy

In the last few years, the Philippines has emerged as one of the fastest-growing economies within 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 just 3.6 percent in 2011.

Business process outsourcing (BPO) is the top contributor of all domestic industries to the Philippines' gross domestic product (GDP). Some analysts have predicted that outsourcing may soon surpass the value of remittances made by overseas Filipino workers currently estimated at 10 percent of GDP.

What is it that makes Philippines an attractive destination?

There are many factors for the reason that Philippines has emerged as a key destination for outsourcing. There are a few reasons below:

1. Western culture influence and fluency in the language

The Philippines has a growing young population. It has around 90% of the 100 million people under 55. In addition, it has a very high literacy rate of 95%. An estimated 30% of graduates are employable.

A former colony of Spain along with the United States, the Philippines is a great ally to Western culture and is the world's third-largest English-speaking nation. In a study by GlobalEnglish Corporation, the Philippines was named one of the nations with the highest economic English proficiency.

2. World-class infrastructure

The Philippines has a well developed infrastructure. There's an abundance of world-class telecommunication services, with redundant international connectivity through submarine fiber optic cable networks and complemented by satellite networks. The conditions for business are conducive to the operations and procedures of global companies; ensuring competence in servicing international clients. The abundance of low-cost real estate in the major cities increases customers' savings on office space and other utilities. The office space of the best in Manila is available for only about two-thirds the price of office space in Mumbai which is significantly less expensive then Delhi, Bangkok, Guangzhou, Taipei, and Seoul as per the global property firm Colliers.

3. Government Aid

It has also been an important supporter of the sector over the past decade. Its Philippine Development Plan, which runs from 2011 to 2016 It has highlighted BPO as one of the top 10 high-potential and development priority 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 :

• Tax and non-tax incentives which offer a 8% to 10% cost reduction impact

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

• Regional ICT councils and ICT road map for the country. National ICT road map

• CHED, TESDA, DepEd implemented to facilitate education sector reforms. (eg. the Training of Work-Skills Scholarship Program, which enables the IT industry to provide training to BPO applicants.)

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

• The creation and operation of special economic zones, in which BPO/contact centers facilities could be established and managed

Challenges Ahead

1. Concentrate on Pure Voice Services

Based on findings from Tholons analysis, $11.5 billion in revenue is expected to come from the contact center and customer services. This represents about 62 percent from the overall $18.4-billion revenues expected for this year.

The market is moving away from pure voice services to multi-channel offeringsthat include emails, voice, and online chats, and employ sophisticated delivery models like Platform BPO and the cloud-based Business Process as a Service (BPaaS). Other nations' establishment of "centers of excellence" that offer text, email chat, and email is putting tension on Philippine BPO market. Moving delivery models to accommodate changing demand would be critical to ensure long-term stability and growth.

2. High Attrition Rate:

The high rate of attrition has become a major source of concern for the nation with some companies losing upwards of 1,000 employees each month.

The steps are being taken in order to reduce the amount of attrition. The DOST-ICT is working on a "Next Wave Cities" program that helps to determine ICT hubs that are not Manila by evaluating criteria including worker supply, telecom infrastructure, and other important factors that support a local BPO business.

In accordance with their IBPAP projections, the percentage of workers employed by Manila residents and those from the countryside will be around 60:40 when compared to the 75/25 ratio currently. By placing the sites near to the places where workers live and work, the rate of attrition goes down since the lifestyle cost is less and workers are close to where they live.

3. Modifications to Regulation

These departments, along with Finance and Industry recently proposed the removal of income tax holidays of up to eight years from the list of benefits that could make it more difficult for expansion in areas other than of Manila and other cities.

Although the government, as a compromise, is also planning to reduce the tax rate by as much as 10 percent. taking away tax holidays could cause foreign companies to turn to countries offering better and bigger fiscal incentives.

Conclusion

The outsourcing industry in the Philippines is growing rapidly and is predicted to reach 1.3 million workers by the year 2016 According to Contact Center Association of the Philippines. With a favorable business environment that is characterized by four key aspects: incentives for financial growth support from investors, a perceived risk environment and overall support from the government and major investments in the workforce, telecommunications network, and real estate this country could be able to challenge India as the main outsourcing hub in the world in the near future.

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