Apr 01, 2015

The Philippines – Poised for Growth Through BPO

With a population of about 100 million people, the Philippines is the seventh most-populated country in Asia, and the 12th most populated country in the world. The Philippines is an archipelago consisting of 7,107 islands, and is one of the ten most biologically diverse countries in the world.

The Philippine economy is the 39th largest in the world, with an estimated 2014 gross domestic product (nominal) of $298.686 billion. Primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits.

Employment by Major Occupation

Employment by Major Occupation

Source: Philippine Statistics Authority

A Quick PESTLE Analysis of the Philippines

A PESTLE analysis is a framework used to quickly scan an external macro environment, covering the political, economic, social, technological, legal, and environmental aspects of a country or region.

Politics: The Philippines is a constitutional republic with a presidential system. The inclination of the country is towards western values and peaceful foreign policies. A large number of Filipinos living around the globe has resulted in mostly positive relations on the world political arena. The Philippines is an active member of the United Nations, ASEAN, East Asia Summit, and the Asia-Pacific Economic Cooperation.

Economics: While the country is rich with natural resources, due to the infrastructure and geological conditions, the economy leans towards services rather than industry. While agriculture only accounts for 11.2 percent of GDP, it employs 32 percent of the labor force (14 percent is employed by industry and 53 percent by services). The fast growing population puts additional pressure on the Philippines economy since the amount of workplaces generated is lower than the rate of increase in labor force.

Social: Wealth distribution is highly unequal in the Philippines. Approximately 45 percent of the population earns an income of less than $2 per day (25.1 percent below the national poverty line.)

Technology: The ratio of fixed investment to GDP in the Philippines is approximately 15 percent. Many Asian economies have investment to GDP ratios of 25 to 30 percent, while in China the ratio exceeds 40 percent. According to the Economic Intelligence Unit, compared to other Asian economies, the Philippines is “technologically crippled.”

Legal: In the Philippines Economic Assessment Report by the United States Agency for International Development, the judicial system is named as the weakest institution in the country in terms of legitimacy, representativeness, and professional competency.

Environmental: The population of the Philippines is committed to and behaves responsibly towards environmental issues. According to the Environmental Performance Index by the Yale Center for Environmental Law and Policy, the Philippines ranks at 65.7 compared to the general world ranking of 50.

Economic Growth in the Philippines

In 2014, economic growth in the Philippines was strong, driven by strong foreign direct investment and expansion in the real estate, business process outsourcing (BPO) and mining sectors. The World Bank estimates growth of 6.7 percent in 2015.

Manufacturing made the biggest contribution to GDP growth last year, and is expected to continue to lead growth in 2015. The construction industry has also been growing, expanding by 11.9 percent in the third quarter of 2014. According to the Philippines Statistics Authority, the number of construction permits issued in the second quarter of 2014 rose 11 percent year-over-year to 32,729 due to a surge in residential projects.

The BPO Industry

Employment in the business process outsourcing (BPO) industry hit an all-time high in August 2014. The growing numbers of companies drives the growth in the sector, where employment recently hit 1 million. The IT and Business Process Association of the Philippines (IBPAP) says the employment growth has been phenomenal, from 101,000 in 2004, and 930,000 in the first quarter of 2014.

Size Distribution of Philippines IT-BPO Industry, by number of FTEs

Size Distribution of Philippines IT-BPO Industry

Source: Everest Group and O2P

The BPO sector is expanding at an average of 20 percent annually. Export revenues from BPO have grown from $1.3 billion in 2004 to $13.3 billion in 2013. IBPAP estimates that the sector generated $15 billion in total revenues in 2013, and expects revenues of $18 billion in 2014, and $25 billion in 2016.

The Philippines government has been a key promoter of the industry for the past ten years. The Philippines Development Plan highlighted BPO as one of 10 high potential and priority development areas. Government programs provide training for BPO applicants, and give investors numerous benefits including tax holidays, tax exemptions, and simplified export and import procedures.

Philippines BPO Industry Growth

Philippines BPO Industry Growth

Source: BPAP & Everest

As a result of its expansion strategy, the Philippines has become a major rival to India, the global BPO leader. In 2013, the Associated Chambers of Commerce and Industry of India (Assocham) stated that India had lost over 50 percent of its BPO industry to foreign competitors, with the job migration costing the country approximately $25 billion. The majority of lost business relocated to the Philippines, where 30 percent of graduates are employable in the industry, compared to just 10 percent in India, due to fluency in English and Western accents. Many of the world’s largest providers of BPO services have call centers in the Philippines, including Accenture and Convergys. 

The Philippines Talent Market

According to the Business Processing Association Philippines (BPAP), to reach the targeted growth for the BPO industry, 1.3 million workers would be needed by 2016. For this industry, the country has approximately 450,000 graduated annually and is among the top three IT-BPO and global in-house center (GIC) locations in the world.

Southeast Asia, in general, has the third youngest number of professionals in the world (just behind China and India), and is in the running to overtake the aging populations of Japan and South Korea. The literacy rate in the Philippines is above 92 percent, and the labor force is expected to have double-digit growth through 2020.

On freelance marketplaces such as oDesk and Elance, Philippines is the third largest country represented. According to Forbes, there are approximately 2.3 million Americans registered on these sites, 1.9 million Indians, and 1.3 million Filipinos.

Freelancers on Elance-oDesk (East Asia)

Freelancers on Elance-oDesk (East Asia)

Source: Forbes

“In Asia, the categories we’re seeing the most work in based on freelance earnings are: Web & Mobile Development (47% of total freelance earnings), Design & Creative (16%) and Admin Support (13%).” ~Fabio Rosati, CEO of Elance-oDesk

For Filipinos, writing and translation work constitutes about 7 percent of total freelance earnings, surprising due to the high rate of English fluency in the country plus knowledge of the Associated Press style of writing. Most earnings stem from the administrative support category (35 percent), followed by customer service (15 percent), sales and marketing (14 percent), web and mobile development (11 percent), and design and creative (9 percent) work.

The ASEAN Economic Community

Economists believe that this year the Philippines and its neighbors – Brunei Darussalam, Laos, Vietnam, Cambodia, Singapore, Indonesia, Thailand, and Myanmar – will edge closer to a regional milestone by preparing for integration under the ASEAN Economic Community (AEC).

The AEC is expected to operate as a single market and production base geared to develop into a competitive economic region, similar to the European Union (EU), East African Community (EAC), and Gulf Cooperation Council (GCC). It will offer benefits such as free movement of goods, services, investment, skilled labor, and a freer flow of capital.

Currently, a deadline has been set for December 2015, but a report by the U.S. Chamber of Commerce finds that many are skeptical if the targeted launch date will be met, with most expecting the AEC to be fully running closer to 2020. Many stakeholders have doubts about ASEAN integration, believing that cheap imports may harm local industries such as agriculture.

“It is estimated that in the ongoing decade, India might lose $30bn in terms of foreign exchange earnings to the Philippines, which has become the top destination for Indian investors.” ~D.S. Rawat, Secretary General of Assocham