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Philippines Looks to Ensure Future of Business Outsourcing Sector

Despite ever-rising incomes, several external and internal factors may compromise the viability of the Philippines' largest source of foreign currency, a development that has spurred a rethink of the business process outsourcing sector.

Photo: Holding the line: Can the Philippines outsourcing sector survive being cut off by the US? (Shutterstock.com)
Holding the line: Can the Philippines outsourcing sector survive being cut off by the US?
Photo: Holding the line: Can the Philippines outsourcing sector survive being cut off by the US? (Shutterstock.com)
Holding the line: Can the Philippines outsourcing sector survive being cut off by the US?

Despite offshoring/outsourcing having overtaken remittances from overseas workers as the Philippines' largest source of foreign currency, there are growing concerns over the sustainability of the sector. According to figures from the Information Technology – Business Process Association of the Philippines (IBPAP), as of end-September 2016, the total revenue from business process outsourcing (BPO) was US$15.5 billion. Based on this, the Asian Development Bank estimated that the full-year revenue derived from the sector would account for about 10% of the country's GDP.

There are, however, suggestions that several external and internal factors are likely to undermine the sustainability and future development of the sector. Most obviously, the current US administration's anti-outsourcing stance could hit the Philippines hard, while there are also threats from automated call-centre voice technology and a perceived shortage of skilled local employees.

In order to address these concerns, the Philippines outsourcing sector has embraced a three-point initiative, which has seen it look to move up the value chain by focusing on skill-based services rather than voice work. At the same time, it is looking to expand outside the heavily congested Metro Manila district and into the provinces, while also seeking to diversify its client base beyond solely English-speaking countries.

Acknowledging the challenges the sector faces, Rosemarie Edillon, Deputy Director-General of the National Economic and Development Authority, said: "In terms of BPO, we need to level up as we could well lose the English-speaking component of the market. As a result, we really need to go to non-voice and look to serve far more diverse markets."

In line with this, a number of Philippines-based BPO companies have introduced a greater range of skill-based services, including IT, accounting, health, software development and games design. The government is also looking to do its part and has introduced a number of incentives designed to lure BPO organisations away from the already over-subscribed Metro Manila region.

To this end, under the terms of its 2017-2019 Investment Priorities Plan, the government has stated that, after 2020, IT-BPM firms based within the Metro Manila area will no longer be eligible for income-tax holidays. Announcing the move, Ceferino S. Rodolfo, the Trade and Industry Undersecretary, said: "This is a clear signal for IT-BPM firms to look beyond Metro Manila and support the less developed regions."

In response to President Trump's hard-line bring-the-jobs-back-home stance, the industry is already proactively seeking to diversify its client base beyond the US. At present, some 70% of the revenue of all Philippines-based BPO companies is derived from the US, a figure that has left the whole industry feeling somewhat exposed.

Although the Trump administration has yet to make good on its threats to curb overseas outsourcing, many US firms are already playing safe and holding off on committing to projects. Some local businesses, however, have been reassured by the words of Sung Kim, the US Ambassador to the Philippines, Downplaying suggestions that US companies are losing their positive regard for the Philippines, he said: "We don't see a big downturn in BPO engagement here any time soon."

Despite such reassurances, many BPO companies are now looking to boost their linguistic resources in the hope of securing non-English voice contracts. In particular, businesses in Singapore, China, Europe, Japan and Hong Kong are being wooed as possible replacements for the loss of any US work.

In the case of Hong Kong, a number of Philippines businesses are also looking to the city for help in managing this transition. It is believed that Hong Kong companies could supply the training needed for Philippines businesses to serve many other Asian countries, most obviously China.

There is also an expectation that Hong Kong businesses could make use of the lower costs offered by the Philippines BPO sector as part of their own international expansion plans.

Geoff de Freitas, Special Correspondent, Cebu

Content provided by Picture: HKTDC Research
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