BPO in the Philippines Could Jumpstart Economic Growth

Posted on October 7, 2014 by ASEAN Briefing

By Edward Barbour-Lacey
The month of August saw an all-time high for employment in the Business Process Outsourcing (BPO)
sector in the Philippines, hitting over one million employees. Growth in employment is being primarily
driven by the expansion plans of a number of companies, such as Accenture and Convergys.
Over the past decade, the Philippines BPO industry has seen tremendous growth revenues and
employment have expanded tenfold since 2004. The industry sees an average yearly growth rate of 20
percent.
The countrys success has had a profound impact on other BPO centers, such as India, who have seen
their share of the industry decline. In 2013, it was reported by the Associated Chambers of Commerce
and Industry of India (Assocham) that India had lost over 50 percent of its BPO industry to foreign
competitors.
The Philippine government has strongly supported the BPO industry. The government led Philippine
Development Plan, a program lasting from 2011 to 2016, has singled out BPO as a high-potential and
priority development area for investment. Additionally, the government is running a number of training
programs, such as the Training for Work Scholarship Program, in order to create a competitive
workforce.
Additionally, investors into the BPO industry are eligible for a number of incentives, such as tax holidays,
simplified import and export procedures, tax exemptions on imported capital equipment, and the
freedom to employ foreign nationals.
Filipino employees are particularly attractive to BPO employers they tend to be very fluent in Westernaccented English. While the BPO industry employees just two percent of the countrys workforce, the
industry has had a positive effect on a number of other business areas, such as the retail, real estate,
and telecom industries.
However, this growth cannot go on forever key among present challenges is the trend of BPO moving
away from pure voice services towards a multi-channel delivery model. This has combined with more
traditional challenges faced throughout the BPO industry such as a lack of well-trained employees and
high turnover rate (often as high as 50 percent in the Philippines).
Key statistics of the Philippine BPO industry include:

Export revenues grew from US$1.3 billion in 2004 to US$13.3 billion in 2013

2013 US$15 billion in total revenue

2014 forecast of US$18 billion in total revenue

2016 forecast of US$25 billion in total revenue

RELATED: Philippines Destined to be Asias Next Tech Tiger?

BPO growth not shared by the wider economy
However, growth in the countrys BPO industry must be balanced against the wider economy. The World
Bank recently downgraded its economic growth forecast for the Philippines: from 6.6 percent to 6.4
percent for 2014, and from 6.9 percent to 6.7 percent for 2015. The World Bank noted that any future
growth in the country would largely depend on public spending, disaster reconstruction, and
government-led structural reforms.
The Philippines was not alone in receiving a downgrade; predictions for economic growth in emerging
East Asia slowed down to 6.9 percent, from 7.2 percent in 2013. However, World Bank East Asia and
Pacific regional vice-president Axel Vann Trotsenburg explained that he believes the region has the
potential to continue to grow at a higher rate and faster than other developing regions if policy makers
implement an ambitious domestic reform agenda.
Noteworthy for foreign investors, the World Bank has highlighted a number of external and domestic
risks that are worth paying attention to as the Philippines economy moves into the future.
Key external risks include:

Disorderly policy normalization in high-income countries

A disorderly adjustment in Chinas property market

Political tensions in the Middle East and Eastern Europe

Territorial disputes with China

Domestic risks include:

Low government consumption

Slow reconstruction spending

Lags in domestic reform (particularly) reforms to raise tax revenues needed to raise
infrastructure and social services spending
In its analysis of the Philippine economy, the World Bank concludes that, in order to maintain economic
growth, the country should pursue further structural reforms and increase investment in human and
physical capital. Meanwhile, necessary structural reforms include protecting property rights, promoting
more competition, and simplifying regulations.
Not just BPO the rise of KPO

Changes are happening quickly in the BPO world. In order to not be left behind it is crucial that the
Philippines pay close attention to trends that have the potential to alter the industry. If the country fails
to keep pace with the changing landscape, it could well find its economic growth stagnating further.
As the demand for non-voice services continues to rise, there is a growing need for what has been
described as Knowledge Process Outsourcing (KPO). KPO is defined as the outsourcing of core databased business activities to another company, which plays an important role in a companys value chain
by providing highly specific expertise.
While obviously aimed at cutting costs, KPO is also a value adding activity. Core processes served by the
KPO sector are wide ranging and include:

Market research

Fraud analytics

Equity research and investment banking

Insurance and actuarial

Engineering services

Web development

Data integration

Project management

Research and development

Medical transcript preparation and legal processes

The KPO industry is already seeing strong growth in India and Europe, where it has been easier to find
the highly qualified employees needed to work in this new industry. Globally, from 2013-2018, the KPO
market is expected to grow at a CAGR of 23.12 percent.
Currently in the Philippines, call center and voice operations make up about two-thirds of the BPO
sector, however the government has recognized the trend moving towards KPO. As such, it is
attempting to create an attractive investment environment, and is working with companies in order to
identify key areas of specialization and training needed to create a competitive workforce. As a result,
KPOs share of the market is steadily gaining ground in the country and some of the worlds largest KPO
service providers, such as J.P. Morgan and AIG, are already operating in the country.
If government reforms continue, the future of KPO and BPO in the country looks bright. This feeling has
been reiterated in the highest levels of Philippine government at a recent meeting, President Aquino
stated, We are determined to prove to the world an important truth about our country: In the
Philippines you will find a place where the government is focused on investing on its greatest resource,

its people; a nation where entrepreneurs are viewed as partners, and where everyone works to prove
that, for tourists and businesses alike: Es ms divertido en las Filipinas [Its more fun in the Philippines].
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