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Philippines: The BPO Boom and Consumer Growth podcast

Young and well-paid Filipino consumers are ready to spend on quality products from Hong Kong

The Philippines’ economy is fuelled far more by domestic consumption than many of its ASEAN peers. In the first half of 2014, household consumption expenditure accounted for 73% of the country’s GDP, with the economy expanding by 6% year-on-year. Currently, cash remittances from Overseas Filipinos (OF) and revenues generated by the Business Process Outsourcing (BPO) [1] industry are the two major pillars supporting robust domestic consumption and the fast-expanding economy. In particular, the importance of BPO revenues has been growing rapidly in recent years – they increased by about 17% annually between 2009-2013, compared to an average growth of OF remittances of just above 7% over the same period. It is now widely predicted that total BPO revenues will catch up with OF remittances in the not-too-distant future.

Chart: BPO revenue catching up with remittances
Chart: BPO revenue catching up with remittances
 

Booming BPO sector breeding a new middle-income class

According to the IT and Business Process Association of the Philippines (IBPAP), the Philippines is now the world’s leading call centre location and ranks second only to India in overall BPO service receipts. Rapid development of the sector has been backed by a continuous supply of quality college graduates, relatively low operating costs and strong support from the government. As a labour-intensive industry, BPO is dependent on the quality of its service professionals, as well as its large number of supporting staff. With their fluency in Western-accented English, Filipinos are particularly appealing to international BPO companies. At present, it is estimated that there are about one million BPO employees in the Philippines.

Photo: An office of the leading India BPO companies, Infosys, in a Philippine mall
An office of the leading India BPO companies, Infosys, in a Philippine mall
Photo: An office of the leading India BPO companies, Infosys, in a Philippine mall
An office of the leading India BPO companies, Infosys, in a Philippine mall
Photo: A BPO centre built by Robinsons, one of the Philippines’ largest developers
A BPO centre built by Robinsons, one of the Philippines’ largest developers
Photo: A BPO centre built by Robinsons, one of the Philippines’ largest developers
A BPO centre built by Robinsons, one of the Philippines’ largest developers

In general, BPO employees, across a number of different grades, including managers, supervisors and junior executives, earn considerably more than workers in other sectors in the Philippines. The latest official figures provided by Bangko Sentral ng Pilipinas (BSP), the country’s central bank, show that the average monthly compensation of a BPO employee was US$737 in 2012, about 1.6 times of the minimum wage of US$466 in Metro Manila or the National Capital Region (NCR). According to the 2014 Annual Salary Report issued by Jobstreet.com – one of the largest human resources companies in the Philippines – BPO is among the country’s top 10 industries, paying the highest wages for different employee grades. For instance, the average monthly wage for a junior BPO executive is about US$482, 10% higher than the US$427 paid in the banking and finance sector.

Table: Average monthly wage of selected industries in 2014 (in US$)
Table: Average monthly wage of selected industries in 2014 (in US$)
 
Photo: Recruiting ads are easily found in Manila
Recruiting ads are easily found in Manila
Photo: Recruiting ads are easily found in Manila
Recruiting ads are easily found in Manila

In fact, half of the Filipinos employed nationwide are agricultural workers and unskilled labourers, many of whom earn far less than service industry employees. With their relatively high wages and spending power, BPO workers are now the major driver of domestic consumption in the Philippines. According to Nielsen, a global market information and measurement company, BPO workers are considered “formidable members of the growing middle-class population of the Philippines”. Although the number of BPO employees only accounts for about 2.5% of the country’s total workforce, the rapid development of the BPO sector and the associated economic benefits, trickle down to other sectors, such as retail, real estate and telecommunications.

Consumption implications of the rising BPO consumer class

With an average age of around 25, Philippine BPO workers command higher incomes and are able to spend more freely on lifestyle products [3]. In particular, these young consumers are tech-savvy, thanks partly to their higher education levels and the nature of their work. They have a keen interest in the latest telecom technology products, such as mobile phones and electronic gadgets, for both entertainment purposes and communicating with family and friends. One popular company in this sector is Starmobile, a widely-used Philippine smartphone and tablet brand that has many of its products manufactured in China. This popularity also indicates a number of opportunities for Hong Kong telecom device and parts suppliers.

In addition, the rapid development of the BPO industry is generating huge demand for catering services and fast moving consumer goods (FMCG), such as packaged foods, soft drinks, toiletries and personal hygiene products. A typical BPO centre usually operates three shifts to cater to clients from different time zones - a morning shift for Asia-Pacific clients, an afternoon shift for those in Europe and a night shift for US-based clients. As a result, it is worth noting that fast-food restaurants and round-the-clock convenience stores selling FMCG have recently been proliferating near BPO business locations. To tap into this rising market, FamilyMart, one of the largest convenience store chains in Japan, entered the Philippine market in 2013. Alfamart, an Indonesian convenience store chain, has also expanded into the Philippines, through a joint venture with the SM Group – the largest retailer in the Philippines. In order to reach these target consumers effectively, Hong Kong FMCG exporters should take note of this prevailing trend for distribution channels in the world’s second largest BPO country.

Photo: A shopping mall next to BPO centres in Cebu
A shopping mall next to BPO centres in Cebu
Photo: A shopping mall next to BPO centres in Cebu
A shopping mall next to BPO centres in Cebu
Photo: Telecom devices stores benefit from the BPO boom
Telecom devices stores benefit from the BPO boom
Photo: Telecom devices stores benefit from the BPO boom
Telecom devices stores benefit from the BPO boom

In addition to convenience stores and restaurants, a number of different kinds of shops selling fashion and gadgets can be found near BPO centres. These stores, together with several stand-alone BPO centres and buildings, in effect, have created a new BPO community that is re shaping the retail and consumption landscape around the country.

To cater to the shopping, leisure and entertainment needs of BPO employees, many Philippine real estate developers have been launching integrated development projects, comprising BPO offices, shopping malls and residential premises. For Hong Kong lifestyle product retailers and exporters, the shopping centres located within these projects would provide effective distribution channels.

BPO helps boost urbanisation

The development of the BPO industry in the Philippines has created considerable demand for housing and infrastructure and is hastening the country’s urbanisation. As a labour-intensive industry, BPO operators need to source workers from the vicinity of the centres, as well as from cities further afield. To ensure BPO workers are close to the BPO centres, in order that the three-shift operations are not affected, there has been a rise in demand for residential lodgings to meet the needs of workers living away from home.

While Metro Manila is still the largest BPO hub in the Philippines, more than 70% of BPO workers are recruited from other provinces. The government is now striving to decentralise the BPO clusters, relocating such work to other cities, such as Cebu, Davao and Iloilo, which may offer a number of cost advantages. This will speed up the infrastructure development in cities outside of Metro Manila, while also attracting more peripheral businesses and investments. With an increasing number of BPO clusters emerging in different parts of the country, the need for infrastructure development - such as building roads and railways - is also growing. Therefore, development of the BPO industry is also helping boost urbanisation in the Philippines.

Targeting young Filipino consumers via the right marketing strategies

Although BPO workers’ earnings are well above the national average, they account for only 1% of the Philippine population, and may not be taken as a single market segment. Because of this, Hong Kong retailers and exporters should set their sights on the broader consumer group of Filipinos aged between 15 and 29. This accounts for 28% of the Philippines’ population and essentially includes all the employees working in the BPO sector. This age group is the strongest consumer group in the Philippines and has the highest gross income among all age groups.

When marketing to young Filipino consumers, many of whom are interested in a variety of branded lifestyle products and FMCG items, Hong Kong retailers and exporters should take note that these young Filipinos share many similar characteristics with general consumers. In terms of lifestyle products, the importance of branding and lifestyle propositions is gaining traction among Filipino consumers, particularly the younger ones with heightened brand awareness. When it comes to FMCG products, however, most young Filipinos are still very price sensitive, despite their relatively high incomes and stronger spending power. Generally, value-for-money is very much the required philosophy when marketing FMCG to Filipino consumers, many of whom are reluctant to pay a big price premium for products unless they become convinced of the claimed product quality.

In addition, Filipino consumers have a high level of brand loyalty. In many cases, Filipino consumers would rather buy less of a branded product that they have come to know or prefer, rather than shift to cheaper brands. In other words, Filipino consumers may be less eager to try out new brands, be they lifestyle or FMCG products, and this may create a challenge to those companies introducing new brands, especially from overseas, to Filipino consumers.

Photo: An Esprit store in a Metro Manila mall
An Esprit store in a Metro Manila mall
Photo: An Esprit store in a Metro Manila mall
An Esprit store in a Metro Manila mall

To break into this rising consumer segment, characterised by relatively high price sensitivity and brand loyalty, Hong Kong companies are advised to adapt their marketing tools and campaigns to gain better penetration into the Philippine market. Localisation of marketing campaigns is essential when it comes to creating “touch points” with Filipino consumers. For example, according to Gallup’s 2013 “positive experiences” index, the Philippines was among the happiest countries in Asia. Therefore, shop-front decorations and salespeople that can help evoke a feeling of joy and happiness for customers are likely to be better received.

In addition to deploying localisation strategies, Hong Kong firms should also avoid marketing their branded products through a one-size-fits-all strategy. Filipino consumers are becoming increasingly stratified and are sensitive to the lifestyle messages or images projected in a marketing campaign, especially the young consumers. For Hong Kong companies intending to sell branded lifestyle and FMCG products to the Philippines, establishing a retail outlet – especially in shopping malls which are fast becoming the centre of social activities – would be an effective way to build up brand image. (see Selling to the Philippines: Syncing with the New Retail Reality)

In the Philippines, traditional advertising media, such as TV commercials and print advertisements, are more oriented towards mass-market consumers, and they may not be cost effective ways to reach young Filipino consumers. With smartphones and other Internet devices gaining increasing popularity in the Philippines, digital marketing through social media and blogging to provide easily accessible and useful product and brand information is an effective means of marketing. Brand image is more easily built up through greater consumer acceptance, which is helped by word-of-mouth buzz among Filipino netizens, most of whom are young middle-class consumers.

Related information: Philippines infographics


[1] BPO includes a wide range of services including voice and non-voice contact centres, transcription, animation, software development, human resources, and design and engineering. However, the industry is increasingly classified as IT-BPO (Information Technology and Business Process Outsourcing) or IT-BPM (Information Technology and Business Process Management), subsuming the area of information technology outsourcing.

[2] Fast moving consumer goods (FMCG) are products that have a high turnover rate and usually at relatively low cost. Examples include cleaning and laundry products, over the counter medicines, personal care items, processed foods, soft drinks and basic clothing and footwear items.

[3] Lifestyle products refer to those non-essential products at relatively high retail prices such as fashion, personal electronics, home decor items, gifts and premiums, watches and jewellery.

Content provided by Picture: Steve Chan
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