The Philippines: The New BPO Capitol of the World?

By: Fernando Vidaurri

Earlier this year, Tholons Inc. a leading US-based services globalization and investment advisory firm published a report that placed Manila ahead of Mumbai as the second largest outsourcing destination in the world. Cebu, also figured among the top ten preferred destinations. In fact, over the past couple of years the Philippines has seen a fast growth in the BPO industry.

The BPO industry has not always been a fast growing market. The first call center was set up by Accenture in 1992. However, it was only after restrictions were eased in 1995 with the Special Economic Zone Act that the industry started growing. The past ten years in particular saw rapid growth with industry revenue growing ten-fold from US $1.55 billion in 2004 to $15.5 billion in 2013. Employees working in this industry rose by a similar percentage rising from 101,000 to 900,000 over the same time period.

An English-Speaking and Highly-Educated Workforce

The large supply of college educated, English-speaking labor force has being one of the main factors behind this growth. Owing in part to their past colonial history as well as their modern education system, a high number of Filipinos speak English with an American accent. Their culture is Western oriented and many of them have studied or worked in the US or being taught to speak with an American accent at school.

The country produces more than 450,000 graduates every year that contribute to the qualified labor pool. The country makes higher education a priority; this fact, coupled with the 95% literacy rate provides a big advantage over Asian countries. Additionally all schools in the Philippines teach in English, making the country the third largest English-speaking country in the world. All of these factors, as well as being one of the most Western-oriented countries in Asia have benefited the BPO industry.

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Business Incentives

The rapid growth in the BPO industry can also be attributed to government regulations and incentives of doing business in the country. The legal regulatory framework and financial reporting guidelines of the Philippines are based on the American systems, reflecting the links between the US and the Philippines. Additionally, the 1995 introduction of Special Economic Zone eased restrictions by lowering area requirements for developers and offering tax incentives.

Companies that set up a business in the country can enjoy capital-related, operation-related and taxation-related benefits. Some of these include exemptions on local tax and permits, duty-free import of capital equipment, permanent residence for foreign investors and four-year exemption of corporate income tax, extendable to eight years.  Companies also benefit from one of the lowest cost office rental markets in the region.

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Internet Connectivity

The young population is also very technologically savvy; in fact Filipinos are some of the most active social media users in the world. However, the country’s connectivity still lags behind other countries in the region, exemplified by the country’s relatively low rankings in indices of internet connectivity. The Net Index report published in May by internet broadband testing company Ookla shows the Philippines has an average download speed of 3.64Mbps, well below the world average of 23.3Mbps.

The slow connectivity speeds, especially when compared to other countries in the region can influence investors seeking to do business in the region, despite the multitude of other advantages the country offers. According to real estate services firm KMC MAG Group, connectivity issues and infrastructure still put a cap on further investment.

Recognizing the impact of poor infrastructure on attracting FDI, the country’s politicians have taken action to remedy the problem. Last year a bill was filed in the Senate that would require communication companies to provide faster internet connections. Senate Bill 2238 would impose minimum internet connections of 10Mbps on local telecommunication companies and ISPs operating in the country. The bill is still pending on the committee, but if passed it would be a good step in improving Internet connectivity in the country.

Future Outlook

The good news is also that growth is not just confined to Manila but has spread to other cities around the country. Cebu already ranks eight in Tholon’s Top 100 Outsourcing Destinations and is joined by six other Filipino cities in the Top 100. The industry accounts for 6% of the GDP of the country and is expected to grow more as more companies look to the Philippines to take advantage of lower rents in the interior the country and the talented work pool.

The high number of English-speaking graduates, the emphasis on higher education and relative young age, 23 year old average, promise great potential not only for the BPO industry and the country. Despite the connectivity challenges the IT and Business Processing Association of the Philippines projects that the industry will create 372,000 new jobs between 2014 and 2016. The BPO sector is projected to employ some 1.3 million Filipinos and generate up to US $27 million in annual revenues by 2016.

While the country is largely open to investment, the Philippines can prove a tricky market to crack for first time entrants. In order to best take advantage of the country’s strengths as well as anticipate possible challenges to doing business, it is highly recommended to enlist the assistance of a professional services firm experienced in operating region-wide. To find out about how we can help your business grow, please get in touch with the experts at Dezan Shira & Associates and asean@dezshira.com.

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