The business process outsourcing (BPO) industry is playing an increasingly important role in the Philippines economy, both as a source of foreign currency earnings and as a destination for overseas investment. However, the sector could face greater regional competition as its neighbours look to cash in on the growing demand for outsourced services.
There are seven Filipino cities listed in the latest edition of the “2013 Top 100 Outsourcing Destinations” report prepared by strategic offshore advisory firm Tholons, with two in the top ten. Manila has climbed one space in the 2014 survey, released on January 23, to be ranked second behind Bangalore, with Cebu holding its place on the eighth rung of Tholons’ ladder. Other Philippines entrants on the list were Davao City, Santa Rosa, Bacolod, Iloilo and Baguio.
Between them, these cities and other smaller centres are making a significant contribution to the economy through their export of services to overseas companies. Data issued by the Bangko Sentral ng Pilipinas (BSP) at the beginning of January show the BPO sector to be one of the country’s main sources of hard cash, generating export earnings of $13.3bn in 2013, a 15% increase on the previous year’s performance. By comparison, the tourism industry was estimated to have had receipts of $4.8bn. The largest source of foreign exchange is still remittances from foreign workers, amounting to $22.5bn last year.
Keeping payments balanced
While the Philippines has been able to maintain a balance of payments surplus since 2005, it has been shrinking in recent years, coming in at just over $5bn in 2013, down from $9.2bn the year before.
According to the BSP, the surplus will continue its decline this year, to reach around $3bn, as the country imports more inputs for manufacturing operations, and purchases of energy and raw materials rise. The BPO industry will likely be one mitigating factor, with the sector’s revenue forecast to increase by 15% to bring in more than $15.3bn in 2014.
Looking further ahead, the IT and Business Processing Association of the Philippines has said the sector will create some 120,000 new positions annually over the next three years, taking total employment to 1.3m, while revenue will double from the 2013 figure to reach $27bn. Much of this growth is expected to come through international players stepping up their operations in the Philippines.
ASEAN integration could power growth, competition
The launching of the Association of Southeast Asian Nations (ASEAN) Economic Community in 2015 could boost growth in the Philippines’ BPO sector, as major international firms look to rationalise their operations following the lowering of trade and employment barriers in the region.
According to David Rizzo, president for the Asia-Pacific region at international outsourcing firm Teleperformance, the Philippines will have the inside running for BPO service provision in the new trade bloc.
“It certainly depends on services. But if you look at the combination of both cost and quality, and then beyond that the scalability, there is no better offer than in the Philippines,” Rizzo said in a recent interview with the local press.
Though well-placed to win additional business as regional and international firms look to take advantage of economies of scale in their BPO operations, especially for services requiring English, the Philippines will likely see stronger competition for a slice of the BPO pie in the Asia-Pacific region in the years to come. China is seen as an emerging rival to the Indian-Filipino dominance in the sector, with three cities ranked in the top 20 of Tholon’s list, and fellow ASEAN member Malaysia is also moving to raise its BPO profile.
While the government has said it hopes to see a further three Philippines BPO centres break into the Tholons’ top 100 by 2016, more will likely need to be done to improve infrastructure and promotion before any but the two best-placed cities make a real impact on the international scene.