The local BPO industry is the fastest-growing sector in the Philippines. Here are the key facts that entrepreneurs should know about business process outsourcing in the country.
Business process outsourcing (BPO) plays a major role in supporting various business models. It enables companies to focus on core business processes to become more efficient and competitive.
That is why it is not a surprise that the value of the global market size of services outsourced by companies was 92.5 billion US dollars in 2019.
India is still holding the top outsourcing title worldwide. But given the workforce’s varied competencies in the Philippines, the country is rising in the ranks of service providers. In fact, it clinched the sixth spot in the Tholons Services Globalization Index list of Top 50 Digital Nations in 2020.
Now, are you an entrepreneur planning to expand your operations through BPO? There are pros and cons of offshoring and outsourcing services. And if you’re eyeing the Philippines as a target location, then take note of the information compiled in this article.
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What is BPO
Business process outsourcing is a process of hiring a third-party service provider. They perform specific tasks and business operations that are traditionally done in-house.
The BPO agency can be within the local or national range. However, it can also be offshore outsourcing where the office is anywhere else in the world. Some of the most commonly outsourced services are back-office tasks, data analytics, and customer support.
This business setup started in the manufacturing industry. Manufacturers hire third-party agencies to handle certain areas of the supply procurement and production process. Until global technical advancements came, and other sectors utilized the benefits of BPO.
BPO Industry in Philippine Context
Looking into the national context, the information tech-BPO (IT-BPO) sector is its fastest-growing arm. Currently, it has sub-sectors that divide the specializations of the workforce into the following categories:
- Call centers
- Software development
- Game development
- Engineering design
- Medical transcription
- Back-office tasks (data management and marketing)
Reasons Why the BPO Industry Experiences Continuous Growth
The Philippines’ BPO industry is still on a steady rise despite the pandemic. In terms of headcount, the industry has seen a 1.8 percent increase.
On the other hand, its revenue has seen an increase of 1.4 percent. So why is the sector growing every year? There are four reasons that serve as its driving force in the market.
1. Competitive Pricing
The country’s service providers offer a competitive price for high-quality output. So companies from the US, UK, and other countries enjoy a significantly reduced operating cost.
2. Wide Workforce Pool
With more demand for service providers, BPO companies expanded beyond the capital region into other major cities. This means more professionals are in the market for hiring. It’s just a matter of hiring the right talent for your business.
3. More Highly Skilled Talent Available
Since the growing BPO industry offers a competitive salary and benefits, more professionals are joining the workforce. The career path is also attractive because of training and development programs. Hence, it attracts more job seekers and creates a pool of highly skilled talent.
4. Strong Government Support
The government has policies and programs that companies can take advantage of. Moreover, reforms and streamlined procedures for enterprise registration and taxation make it easier to fulfill your duties as an employer.
Most importantly, the National Cybersecurity Plan and Digital Transformation Strategy for 2022 is already available.
Spearheaded by the Department of Information and Communications Technology, it aims to institutionalize the implementation of cybersecurity governance for both businesses and individuals.
How Outsourcing BPO Companies in the Philippines Started
The Special Economic Zone Act was passed by the Philippine Congress in 1995. After it was enacted, two things happened that sparked the start of the BPO industry in the country.
First, the Act created the Philippine Economic Zone Authority. And second, it provided tax incentives and lower area requirements for development. Due to these benefits, foreign companies were attracted to open an offshore office in the country.
Shortly after its enactment, SYKES became a pioneering multinational call center in 1997. Four years later, Gloria Macapagal Arroyo, the Philippine president in 2001, attended an Information Technology Forum in New York City.
She also facilitated the signing of six Memoranda of Understanding (MOU) from the following companies:
- ePLDT, Inc. and Teletech Holdings, Inc.
- Immequire and Tele Response Center, Inc.
- ePLDT, Inc. and Echostar Communications Corporation
- ICP Venture Partners, Inc. and Ambergis Solutions, Inc.
- Corporate Information Solutions (CIS) and Information Builders
- Customer Contact Center, Inc.(C3) and Source One Communications
The signing of the MOUs was the catalyst of the BPO industry’s growth in the country. Afterwhich, foreign companies started opening their doors in the Philippines. It generated jobs for many Filipinos and helped increase the nation’s GDP.
Events After the MOU Signing
From the MOU signatories, the first call center to open was Ambergis Solutions in 2001. Its clients were based in the US offering services, such as telecommunications, utilities, financial services, and travel and hospitality. The company hired 5,500 employees during its run.
Next came Immequire, which is a call center with a headquarter in Arlington, Virginia. And then a call center was opened in Eastwood Cyberpark for Source One Communications.
Echostar Communications Corporation (US company) and ePLDT, Inc., also opened a call center in Makati City. It’s valued at 5.5 million US dollars at its opening with an initial slot of 500 seats.
Teletech established its office in the country too. Its founder and CEO, Kenneth Techman, hired more than 21,000 professionals during the Arroyo administration.
Moreover, a US-based outsourcing call center, People Support, moved its operations in the country. It opened 8,400 opportunities for Filipinos who are looking for a job.
Bong Borja, its former CEO, became the head of the Information Technology and Business Process Association of the Philippines (IBPAP) back then. The organization was formerly known as the Business Processing Association of the Philippines (BPA/P).
In 2003, Convergys Corporation established two additional call centers. Jack Freker, the former COO of the company, announced the country’s inclusion in its revenue generation plan and global expansion.
Two years later, in 2005, the BPO industry accounted for 2.4% of the country’s GDP. The Philippines also acquired more than 3% of the global BPO market. The industry’s contribution to the economy increased by 5.4% in 2006. It also prompted the hiring of 11, 000 more employees.
History Made In 2010 and Onwards
According to Rappler.com, the Philippines was hailed as the BPO industry capital of the world in 2010. By this year, there are already 525,000 employees working in call centers as it generated 8.9 billion US dollars in revenue. Not only that, the five-year compounded annual growth rate was expected at 38%.
Come 2011, the BPO industry generated 638,000 jobs for Filipinos with a staggering 11 billion US dollars in revenue. The generated revenue made up 4.9% of the Philippines’ GDP. A year later, it occupied 5.4% of the country’s GDP marking its growth rate at 46% since 2006.
In 2013, the BPO industry’s revenue reached 15.5 billion US dollars generating 900,000 jobs for Filipinos who are full-time employees.
And in 2016, it was projected that the industry to have a 17% annual growth rate creating 1.3 million jobs. These are just some of the contributions of the industry to the Philippine economy.
Common Setup of BPOs in the Country
Currently, three major cities serve as the hotspot of BPO offices. Most foreign companies open their base in Manila, Cebu City, and Davao City.
Now, as they open their doors for business, they set up their companies between two common practices. The differences between them lie in the context of risk management level, cost-effectiveness, and managerial arrangements.
Organizations use this setup when they need a more cost-effective model to run core business activities. It involves a long-term strategy and planning that requires a high level of managerial control. This enables the company to limit the risk of disclosing confidential and sensitive business information to another party.
There are two ways to utilize this business model.
- Start from Scratch Model — The company builds its resources in the location of its operations. It means starting a new business and taking care of requirements with due diligence until the company becomes operational.
- Build-Operate-Transfer Model — A company works with a third-party service provider to open the business in the designated area. The provider has to take care of the requirements, manpower, and operations for a certain period of time. After the contract expires, the client will take over the management of its operations.
Companies that use the captive market model include JP Morgan, American Express, Wells Fargo, and Capital One.
There are two types of third-party outsourcing utilized by the BPO industry in the Philippines.
- Project-Based Outsourcing — This setup is advantageous for activities that do not have a regular pattern or schedule. Its costing method typically involves computing the time and resources used to deliver the service or product.
- Dedicated Development Center — The setup is beneficial for companies who have long-term and specific requirements for the delivery of the product or service. A development center is a common partner for companies developing software or any tech product.
Top 2 Issues that Haunt the BPO Industry
Just like any other progressive industry, there are certain issues that the industry faces. The first one pertains to the health condition of the employees in connection to their working conditions. On the other hand, there are also socio-economic issues that need to be addressed.
Health and Wellness of BPO Employees
Employees of call centers complain about health problems due to their working conditions. Some of them report back and shoulder pains because of the workstation and monitor setup. A number of agents also experience throat irritations and hearing damage after taking multiple calls in a day’s work.
Most importantly, psychological wellness is also affected since the agents are exposed to a high level of stress in their workplace. Not only that but there are also external stressors, such as irregular work schedules and fast work pace.
That is why more BPO professionals are calling for better health programs and the propagation of better work culture.
Although the BPO industry is the fastest-growing sector in the country, analysts are questioning its inclusivity in offering jobs.
Companies mostly hire college graduates or those with high-level English-speaking skills. So it leaves little to no work opportunities for people without a degree or those with moderate skills.
In addition to that, poor infrastructure and slow internet connectivity also hinder more growth for the sector. Foreign companies think twice about opening their business in the Philippines because of these factors.
The BPO Industry in the Midst of the COVID-19 Pandemic
With the ravaging COVID-19 pandemic, operations of BPO companies nationwide were greatly affected. Even when they were allowed to operate during periods of Enhanced Community Quarantine, they still didn’t have the normal staffing capacity.
As a temporary solution, some of these organizations adjusted to a work-from-home setup. However, since some households have limited tech resources and an internet connection, businesses had to send necessary IT equipment for the employees.
Others offered onsite accommodation, so employees can continue to work given the restrictions. This includes sleeping on workstations and sharing hotel rooms.
Moreover, since global travel restrictions are still imposed, it decreased the demand for travel and insurance services. Thus, some clients of BPO companies pulled out from their contracts rendering employees jobless or in floating status until things get back to normal.
Post-Pandemic Implications on the BPO Industry
The current COVID-19 dilemma has triggered many risk management strategies for many businesses. Hence, some companies are already re-shoring their activities to other places instead of the common BPO hubs. An ideal area should have newly unemployed workforces who have the necessary resources for the job.
It is also expected that the pandemic will increase the pace for the de-globalization of work. And with the advancements of Artificial Intelligence, automation, and other technologies, risks to the BPO industry in the Philippines have become apparent.
Because for a country whose outsourcing job opportunities support a significant employment rate, what will happen if businesses prefer technology-driven support? That is the question that hangs on the balance in the industry.
Currently, the Future of the BPO Industry is still Uncertain
Despite the risks and issues facing the industry along with the shift in the working environment, BPO businesses are still hopeful for future growth. The industry also expects the global scene to become more competitive in terms of catering to clients’ needs and requirements.
Therefore, companies in the Philippines would have to take advantage of new technologies and make use of new practices. Cloud-based software, better information security, and efficient shore outsourcing strategies are among the trends that are also rising.
Full Scale As An Offshore Development Center
Now, are you looking for a software development center in the Philippines? Full Scale offers offshore development solutions to companies of all sizes.
Our highly skilled developers undergo a stringent technical assessment process. This ensures that they are qualified for every task. So every project that we deliver is world-class quality without the high price.
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