The Philippines has upped its game in recent years, establishing itself as one of Asia’s foremost destinations for outsourcing. In less than a decade, the business process outsourcing (BPO) industry has become one of the country’s most dynamic sectors and in 2011, the Philippines overtook India to become the world’s largest call-centre operator in ‘voice-related services’, according to outsourcing services provider Outsource BPO.

The BPO industry employs an estimated 638,000 Filipinos and, according to online magazine Inquirer.net, the sector generated $11bn in revenues in 2011. The Philippines Business Processing Association estimates that the BPO industry will expand by an average rate of 15% per year over the next five years and it predicts that by 2016 it will be worth $20bn.

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A growth story

“The Philippines is coming up on the investor radar and it overtook India in 2012 in terms of voice-related [BPO],” says Eric Manuel, the founder and principal advisor of investment advisory services firm BRYCG Group. “All of these companies are coming to Manila to outsource, and it is interesting to note that even Indian outsourcing companies are coming [to Manila].”

The Philippines is among the world’s fastest growing countries. HSBC highlighted it as a “star performer” in its 2012 global report, contending that its economy will grow at an average rate of 7% over the next 40 years. With its population expected to grow from 93 million people in 2010 to 115 million people in 2050, the country's workforce has been a central factor supporting its economic growth.

For Mr Manuel, the country’s predominantly youthful workforce has been one of the main reasons behind the rise of its outsourcing industry. “The average age [in the Philippines] is 23 years old and that is a real demographic blessing for companies outsourcing their operations here,” he says.

Diversified strategy

Agost Benard, sovereign credit analyst at Standard & Poor’s, says that the BPO industry is relatively new to the country, "having emerged from practically nothing over the past five or so years. The main change that unlocked this potential was the liberalisation of the domestic telecommunications market."

Mr Benard says: "This has led to a significant increase in telecommunications infrastructure and capacity, including the expansion of bandwidth essential for large volumes of data and voice transmission to the rest of the world. That leap in communications capacity was the necessary condition for this industry to develop and enabled the Philippines to exploit the existing strengths of its human capital. These strengths are the country’s service-oriented culture and friendly disposition, coupled with a generally high level of English proficiency.” 

The outsourcing industry is not the only sector to have experienced growth in the Philippines in recent years. In an interview with fDi Magazine, the Philippine’s secretary of socioeconomic planning, Arsenio Balisacan, was keen to stress that the emergence of the BPO industry points to the country's rise as an attractive place to do business in a number of areas. “The economy is diversifying – five to seven years ago, the country's exports were dependent on electronics and semi-conductors,” he says. “That dependence will reduce. The economy is growing at a very rapid pace. BPO is a significant component and [it is expected] that the sector will remain a major driver of growth. Filipino labour is quite attractive, even if the global economy has been hit. The Philippines seem to be resilient in that part of its economy.”

Indeed, FDI trends reveal that the country has performed well in diversifying its competitive sectors. According to greenfield investment monitor fDi Markets, business services, software and IT services, food and beverages, financial services, and metals were the top five sectors for greenfield projects between 2003 and 2012. In terms of capital expenditure, the metals and coal, and oil and natural gas sectors received the most investment, $16.2bn and $8.3bn, respectively, between 2003 and 2012.

In terms of project numbers, however, the growth of the business services sector has far outweighed that of any other sector. It attracted 211 projects in the period, accounting for nearly a quarter of all projects. This was compared to 84 in software and IT services and a total of 151 projects in the food and beverages, financial services, and metals sectors combined.

High-tech hiccup?

For all its success in the business services sector, however, questions have been raised regarding the country’s ability to move into higher, value-added functions in outsourcing. As the IT industry evolves, demands on the BPO sector have become more complex and some have questioned whether the Philippines is well placed to cater to the market’s demands.

Although the Philippines’ GDP growth reached a year-on-year high of 7.1% in 2012, according to the International Monetary Fund, the country is still a lower middle-income economy, thus its growth is coming from a relatively low base. In addition, its drop from 136th to 138th in the World Bank’s Doing Business rankings for this year highlights its business environment still faces critical constraints.

Infrastructure is a limiting factor for foreign investors, according to Mr Manuel. “The Philippines has very poor infrastructure, especially now, as it is urbanising so fast," he says. "Back in the 1990s, outsourcing was more customer services, as people called in and a representative answered the phone. The US or Filipino accent is preferred to an Indian one. But customer service is being automated. The industry is moving towards non-voice analytics and automated technology takes away a lot of [issues] a call-centre agent can handle. That is the trend and India is still going to be number one in non-voice outsourcing, as it has big companies [there].”

Cause for optimism

While frank in conceding that the Philippines will continue to face significant constraints, Mr Manuel is keen to maintain that the Philippines government has worked to address these challenges, and is optimistic that the sector can continue growing.

“The government is putting in so much money just to educate the industry,” says Mr Manuel. “The Philippines is seeing more foreign investors because the government really opened up the country in 2010. The president said 'we have to rebuild our roads, airports' and so on, and he created public-private partnerships. That is a very big draw for foreign investors and it is actually happening. The country has new cities that are being built that have world class infrastructure.

"The GDP per capita may be low when compared to other countries in the Association of South-east Asian Nations [Asean] region but it is definitely improving. The Philippines has one of the healthiest GDP growth rates in the region and when compared to other Asean countries, it really looks as if we are shining. This year will be good for the country. There is a large construction boom, there [will be] another real estate boom and if the world [economy] gets worse, you will see more multinational companies coming in to cut costs.”