Best Offshore Destination: India vs. Philippines
You’ve decided to give offshoring a shot. Next question, where are you going to build your team? Choosing which country you’d want to do it in is a critical step. India and the Philippines are two of the top countries when it comes to business process outsourcing or offshoring, so we decided to compare them. We do software development for a living and have experience working with teams from both countries. If you need help building a remote software development team, you can call us at Full Scale and create your dream team today! Now that we’ve got our shameless plug out of the way, let’s get back to business!
Offshoring is the relocation of a company’s business process from one country to another. The process can either be an operational process such as manufacturing or a supporting process such as accounting. Simply put, offshoring refers to a company relocating certain aspects of its business to another country. The main reasons a company would choose to offshore are:
- To reduce costs due to low wages, and the lower costs for manufacturing or obtaining services.
- Better availability of skilled human resources.
- To retain control either wholly or partly of the business process that they are outsourcing.
If you are deciding to offshore most or some parts of your business process due to those identified reasons, then your next move is to choose which country offers the most offshoring advantages. Two countries stand out in today’s offshoring industry – India and the Philippines. Let’s discuss the basics of what each country has to offer as an offshoring destination. Hopefully, this article will guide you on deciding which country offers the most benefits for offshoring your business.
Let make a comparison of India and the Philippines based on several factors. These factors are based on the major reasons cited by other companies that influenced their decision to offshore their operations to either one of those countries.
Choosing the Right Offshoring Destination
However, the final decision to choose which country is the best offshore destination – India or the Philippines – ultimately falls upon you, the business owner. You can consider the factors that will influence your decision such as labor costs, availability of skilled manpower, the reliability of public and IT infrastructure, taxes and tariffs, economic and political stability, and other influencing factors. But your decision should really focus on which country offers the most advantages for your company. As the CEO and founder of your company, you will invest your own money, resources and time in the country that you’ll choose. You could be staking your company’s future on the decision that you’ll make. So make sure it’s the best decision that you’ll ever make in your life.
If you’re going to choose the Philippines as your offshoring destination, Full Scale offers affordable access to an experienced and highly-skilled offshore team of developers, designers, testers, and digital marketing personnel. Contact us to learn more about how we can help your business grow.
India was colonized by Britain from 1612 to 1947, while the Philippines was a colony of the United States from 1898 to 1946. You might think that India has an edge in English proficiency because it was colonized much longer by an English speaking country. The Philippines was an American colony for only 48 years, but U.S. culture deeply embedded itself into Filipino culture that is still prevalent today.
Thus, the Philippines is one of the most English-proficient countries in Asia. In the Philippines, from kindergarten until college, English is the primary instruction language. American culture in terms of films, TV shows, sports, and music are prevalent in Philippine society. It’s not surprising many Filipinos have a high rate of English proficiency. Filipinos who undergo accent neutralization training in BPO companies can speak with a neutral accent after just a short training period.
There are some differences in how Indian and Filipino workers would take directions or instructions from their superiors and how they go about doing it.
India is a very hierarchical society due to its history of the caste system – that people, by definition, are unequal. The hierarchical structure is very evident in the workplace – the boss is expected to lead, make decisions and give out the orders, while subordinates are expected to follow and execute the orders. Lower-level employees have few opportunities to participate in problem-solving processes with their superiors because the lower ranks are not expected to be creative and proactive.
The Indian workplace culture is more focused on strictly following the established process and procedures. The subordinates expect very clear and specific working instructions from their superiors. So when it comes to Western managers assigned to offshore operations in India, the local subordinates would look upon them the same way as their Indian managers.
If you plan to offshore your operations to India, here are some tips on what to do when communicating your instructions to employees:
- Tell clearly what you expect them to do and how to do the work.
- Tell them how to report the status of the work to you (on what, when, what medium to use for the report, etc.).
- Write down on paper the specific work processes they should do. If it’s possible, join them in some of the work processes.
- Encourage them to be creative and not to be afraid to express their opinions.
In the Philippines, respect for elders is a defining trait of a Filipino family. The inherent respect for elders would extend to many Filipino workplaces where most subordinates would generally follow orders from their superiors with little or no questions at all. The reluctance to speak out is also based on the concept of “saving face” or avoiding being embarrassed in public. They chose not to be very confrontational and value their public reputation.
The concept of “saving face” extends to the workplace where it’s not unusual for subordinates to say they can do the job even if it’s really beyond their capabilities to do. They are too embarrassed to admit to their superiors that they don’t know how to do a specific job. Additionally, Filipinos practice indirectness in their communications. A yes may not necessarily mean a specific “yes”, but it may also mean “yes, but…” or “yes, maybe…” or “yes, however…”
If you plan to offshore to the Philippines, here are some tips on how to talk to your employees:
- When you need to talk to your team members about sensitive issues, it’s preferable to do it in a courteous, constructive and discreet way. You can do it either face-to-face with them or through video conferencing so you can assess their reactions and get their feedback and opinions.
- When you give them instructions or a task, ask them specifically if they clearly understand what you are asking them to do and if they really have the capabilities to do the job.
- Because of the Filipinos’ trait for indirectness, you should observe their body language or gestures during your meeting with them. For example, when you are talking during a meeting and you notice some Filipinos would open their mouths, it’s a sign they didn’t understand something. If you notice this, repeat what you said or explain it a way they can understand.
Job Specialty vs. Versatility
In this section, let’s discuss if the workforce in India and the Philippines have a specialty in just one or two skills, or if they have versatility in several skills.
A major issue facing college graduates and professionals in India is skills gap – the mismatch between the skills that workers have and the skills required by employers. The current skills gap is due to two issues – numerous graduates that lack the skills that companies want to employ, and millions of professionals will skills sets that are becoming redundant at a rapid pace who need to upskill or upgrade their skills. A 2016 study by Aspiring Minds, an employment solutions company based in New Delhi, studied engineering students who graduated in 2013. The study showed that about 94% of the engineering students are not fit for software development jobs.
According to Harish Subramanian, an IT industry expert from India, “Single skill is not enough to sail through the ferociously competitive environment.” He further says “Increasingly single skills are becoming redundant, your one single skill starts to become more of a detriment rather than an attribute. What happens when people figure out a way to automate that and do it cheaper and faster.”
The evolving job market in India no longer needs professionals that possess a single specialized skill. Today’s job market needs professionals with multiple skills, which have to be constantly upgraded to keep up with the continuous changes in technology. Experts recommend that Indian IT professionals should learn in-demand skills to boost their employability now and in the future. They should upskill in IT areas that will be in demand in the coming years – artificial intelligence, automation, machine learning, cloud computing, data analysis, cyber security, and the Internet of Things (IoT).
Skills mismatch and supply-demand mismatch are major issues for the Philippine’s workforce. There were more than 73,000 Information Technology graduates in 2017, but several studies say that not all of them are considered employable due to skills mismatch. There is also an oversupply of IT graduates that could not be absorbed by the labor market. The studies recommend that the quality of instruction and on-the-job training programs that schools provide for IT students should be re-assessed and re-evaluated to make them relevant to the requirements of the industry. Filipino industry experts also say that there should be government and private sector partnership for IT education – policy setting and curriculum standards development, quality adherence, and qualifications of teachers.
Listen to Episode 26 of the Startup Hustle Podcast – How I Ended Up in Cebu City
In spite of a long history of colonization by foreign powers – India by Britain and Philippines by Spain and the United States, both India and the Philippines have retained their distinct cultures.
Religion, social hierarchy, and the joint family system are major influences in India culture. Hinduism originated in the Indian subcontinent and is the largest religion in India with 79.8% of the population identifying as Hindus. India’s hierarchical society is rooted in its historical caste system – social ranking of people into specific groups. However, the caste system is weakening in contemporary India due to factors such as industrialization, urbanization and the spread of modern education. The traditional joint family system has been existing in India for generations, but this concept has also been breaking down due to the spread of education and growth of economics.
The most peculiar Indian cultural traits are the Namaste gesture of greeting, the practice of arranged marriages, and the head shake gesture. In Hinduism, Namaste means “I bow to the divine in you.” The greeting is done by saying Namaste with a slight bow and hands pressed together, palms touching and fingers pointing upwards, thumbs close to the chest.
Arranged marriages have long been the norm in India society with the rate of arranged marriages reaching up to 90%. Majority of Indians today still have their marriages planned by their parents and other close family members. But contrary to Westerners’ popular belief that these marriages are forced on the bride and groom, a majority of them today are arranged with consent from both parties.
The unique head shake, bobble, or wobble is a common gesture among Indians. It consists of a side-to-side vertical tilting of the head. It may mean “Yes”, “Good”, “OK”, or “I understand”, depending on the context of the people who are using it in their conversation. It has become a source of bewilderment for foreigners when they see it for the first time among Indians.
Filipino culture is a combination of cultures of the East and West – cultures from the surrounding countries in Asia, indigenous ethnic tribes, and the Western colonizers – Spain and America. Spain’s most enduring influence on the Philippines is Roman Catholicism, which made the country the most predominant Christian country in Asia. At least 92% of Filipinos are Christians with 81% belonging to the Roman Catholic Church, and 11% belonging to Protestant and other Christian denominations.
Other Spanish influences to Filipino culture include the many geographical place names and Filipino surnames of Spanish origins, Filipino cuisine, festivities based on patron saints, folk, and traditional music, and literature.
The Philippines was a U.S. territory for 48 years. American influence is evident in the wide use of the English language and the pervasive presence of American inspired pop music, food, and clothing style in Philippine society. The jeepney – a popular means of public transportation in the Philippines – was originally derived from military jeeps left by the U.S. after World War II. They have eventually transformed them into the jeepney – a cultural icon widely seen all over the Philippines.
The three most unique Filipino traits are hospitality, family oriented and religiosity. Filipino hospitality means they are usually friendly and welcoming to local and foreign guests. Many foreigners who visit the Philippines speak of Filipinos who go out of their way to make them feel welcome and their ability to understand and speak English.
The family as the most important unit in Filipino society puts a great emphasis on being close to family members. The common Western practice of putting elder family members in nursing or retirement homes is frowned upon in Filipino society. Filipino parents who cannot take care of themselves are often cared for in their children’s homes.
Spain’s colonization of the Philippines for 333 years made Roman Catholicism the dominant religion. This is reflected in the Filipinos’ deep faith as seen in their various religious practices. They regularly go to Sunday mass, observe church holidays, pray at various times of the day, make the sign of the cross when they pass by a church, and observe the traditions associated with Holy Week.
The availability of workers with the necessary skills is one of the important factors you’ll consider when offshoring to India or the Philippines. Let’s compare the talent availability for offshoring that India and the Philippines can offer.
As of the 2011 Census figures, India’s literacy rate is at 74%. However, India’s 380 universities and 11,200 higher education institutions produce about 2.1 million graduates each year. This means foreign companies have a vast pool of talent to recruit employees for their offshoring operations. This pool of talent is not expected to shrink in the coming years since it is estimated that the number of people in the working age group will increase by 250 million from now until 2020 at an average of about 15 million per year.
India has a large talent pool of Science, Technology, Engineering and Mathematics (STEM) professionals. It is the second country in the world to have the most STEM graduates with 2.6 million graduates in 2016. The leading industry sectors that hired STEM graduates include IT, banking and financial services. The top job roles for STEM talent include business analyst, software engineer, software architect, SAP consultant and web developer.
When it comes to India’s talent pool of trained IT professionals, it’s estimated that over 120,000 trained IT professionals are added to the pool every year with about 62% of this workforce having more than four years of experience and over 70% having an engineering degree.
But as previously discussed in our Job Specialty vs. Versatility section, there is a lingering issue about the skills gap for India’s vast talent pool. However, there are efforts being taken by the government, educational institutions and private sector to address the skills gap issue so that a talent pool with the right skills needed by industry will be created.
The Philippines has a rich pool of talent in terms of English language proficiency, college graduates and the skills of its workforce. The Philippine’s literacy rate is 96.5% as of 2013. American colonization for almost 50 years has made the Philippines one of the most English proficient countries in the world. According to the EF English Proficiency Index, the Philippines ranks third out of 20 countries in Asia and 15th out of 80 countries in the world for its English proficiency.
There’s also no shortage of graduates for the Philippine’s talent pool. The country’s public and private higher education systems produced about 703,327 graduates for the school year 2016 – 2017. From those figures, there were 82,794 engineering and technology graduates and 73,646 information technology graduates.
Since the offshoring industries in the Philippines have been operating for more than 26 years, it is estimated that more than 4 million trained workers have experienced working for foreign companies and servicing foreign customers. This means they have gained a wealth of knowledge and skills in their respective specialties. About 90% of the population is under 50 years old, which means there is large pool of working age, educated and English proficient workers.
But as previously mentioned in our Job Specialty vs. Versatility section, there is a skills gap issue about the Philippine’s college graduates that is affecting the quality of its talent pool. However, Philippine government agencies are working with the private sector and public and private education institutions to address issues in the education system so that future graduates are better prepared and equipped for the labor market.
Significant savings due to lower labor costs is one of the major reasons for companies to offshore to India or the Philippines.
India’s per capita income was $1,820 in 2017, which is much lower than the United States’ $58,270 in 2017. U.S. companies offshoring to India citing the significant savings they
Aside from salaries, offshore companies would also save on other expenses for employees like health insurance, social security, workers’ benefits and other taxes, which are all lower compared to their counterparts in the U.S. Additionally, the favorable exchange rate of the U.S. dollar to the India rupee also has a huge impact in the cost savings for offshoring.
The Philippine’s per capita income was $3,660 in 2017. The daily minimum wage in the Philippines would depend on the region where the worker is located. In the National Capital Region where Metro Manila is located, the 2018 daily minimum wage is from 475 to 512 pesos which is equivalent to $8.96 to $9.65 per day. This shows that wages in the Philippines are much lower compared to those in the U.S. where the average minimum wage per capita in 2017 was $8.49 per hour.
This also means that Filipino IT professionals would have much lower costs for salaries compared to their counterparts in the U.S. even if they do the same type of work. For example, a Filipino software engineer would have an average salary of 439,752 pesos ($8,239.85) per year while a software engineer in the U.S., would have an average salary of $82,227 per year. That represents huge savings in salaries for U.S. companies who would get the services of Filipino IT professionals doing the same type of work as their American counterparts.
Public and private infrastructure to support the setting up and continued sustainability for offshore manufacturing and services in both India and the Philippines are supported by the governments and private sectors of both countries. In the Philippines, Metro Manila and other major cities such as Cebu, Bacolod, Iloilo, Dumaguete, and Davao have economic zones or business parks with the necessary infrastructure and facilities for offshore business processes. The same is true for India’s major cities such as Bangalore, Chennai, Hyderabad, Delhi, Mumbai, and Pune.
The national and local governments of both countries are actively coordinating with schools, companies, and other stakeholders are working together to improve and sustain the manufacturing and services being offshored in their countries. Governments in both India and Philippines are aggressively promoting their respective countries’ advantage as offshoring destinations for companies from the U.S., Europe, and Asia.
Who has the Offshoring Advantage?
India is way ahead by many years compared to the Philippines in capturing the bulk of the business processes from the offshoring industry when it took off and expanded.
India’s IT-BPM industry had total revenues of $167 billion in 2017-18 and contributed 8% to the country’s GDP in FY 2018. The Philippine’s IT-BPM industry made a 9% contribution to the country’s GDP in 2016, and the industry generated total revenues of $23 billion in 2017.
India continues to lead in the offshoring of business processes such as software development, IT and customer support, back office support, financial services, engineering services, IT operations, and other IT-related services, Overall, industry experts say that India with more than 50% share in offshoring will continue to sustain its lead over the Philippines in the foreseeable years. The Philippines is definitely trailing behind India in the offshoring industry. But business experts say that the Philippines can take advantage of its rich pool of skilled manpower to take the lead in some areas such as web development and design, back office support, and animation.
where should you build your offshore team?
Both India and the Philippines have a large number of highly-skilled, affordable resources. On average, it would be slightly cheaper to offshore to India. In terms of English communication, the Philippines wins.
It’s important not to overgeneralize either of the two countries. Both India and the Philippines have plenty of great English speakers, affordable workers, and highly-competent developers. On the flip side, you can also find poor English communication, expensive labor, and flat-out bad developers in both countries as well.
There are plenty of good, mediocre, and bad offshoring companies out there waiting to develop your systems and products. Do your research, ask around, and don’t give up! At Full Scale, we are obsessed with our clients’ success! If you want to find out whether we are the right fit for you, or if you want to get expert advice from seasoned startup founders, let us know. Indecision is a decision.