Philippines: Growth in outsourcing

With its large pool of English-speaking professionals and well-developed infrastructure, the Philippines is poised to overtake India as the world’s largest supplier of international business processing (BPO).

Over time, BPO has evolved from a provider of call centre services to a business of supplying a broad spectrum of services, including IT support, administrative, animation, engineering, and medical transcription. In the Philippines, this evolution began in the early 1990s. Today, the BPO sector is one of the driving forces of the service-based economy.

More than 500,000 Filipinos work in the BPO sector, making it a leading source of employment. According to Business Processing Association Philippines (BPAP), the sector’s turnover accounts for 5% of GDP annually.

In terms of employment, the BPO sector in the Philippines is second only to that of India, which employs more than 700,000 people but has a much larger total population. It is possible that this gap could be closed within a few years. Indeed, Cristino Panlilio, under secretary for Trade and Investments at the Department of Trade and Industry, said in early August that the sector has the potential to provide employment for up to 1m Filipinos by 2012.

Panlilio also spoke to government plans to increase promotional campaigns that highlight opportunities offered by the local industry. “We will not only do international road shows, we have to undertake sales and marketing campaigns to aggressively invite investors,” he said. “We have enough BPO infrastructure to welcome BPO companies to locate here. We have BPO-ready buildings, excellent telecommunications facilities and we have the Metro Manila setting which is very trendy for foreigners.”

Annual revenues for the BPO sector are strong and growing. According to BPAP, total sector revenue amounted to $9.8bn in 2009 and is projected to increase to $11.6bn in 2010. This is consistent with a recent statement from Trade Secretary Gregory Domingo, who said that revenues for the BPO sector are expected to grow by 20% for each of the next three years.

One segment of the BPO industry that has been identified as holding great promise for further expansion is health care information management, according to Myla Rose M. Reyes, president of Healthcare Information Management Outsourcing Association of the Philippines.

“There is a growing need for companies that can handle information technology development for solutions that will support electronic medical records to communicate across all health care system platforms,” Reyes told Business World on August 10. Reyes said that outsourced health care information management has expanded to include medical coding, medical billing, information technology support and claims processing.

Currently 12,000 Filipinos are employed in the segment, but this could increase to 100,000 by the end of the year, she said.

“Technology is constantly reshaping the health care market landscape which we have barely begun to explore,” Reyes said.

However, despite its recent success and growth, the Philippines faces increasing competition from other countries. China is working to develop its BPO sector, with Beijing in a position to invest heavily in the necessary infrastructure and fund educational and training services.

Moreover, the BPO sector in the Philippines faces other problems, including a high turnover rate in staff. As employees leave their jobs, new staff must be trained to fill their positions. The annual rate of attrition is estimated to be approximately 33% which undermines profitability due to high traning costs

In spite of its turnover problems and the potential for increased competition, the Philippines appears to be on course to capture India’s position as the top BPO destination in the future.