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Product Market Study on philippines bpo industry (oct 2010)


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Product Market Study on philippines bpo industry (oct 2010)

  1. 1. PRODUCT MARKET STUDY MATRADE MANILA (1/2010) BUSINESS PROCESS OUTSOURCING IN THE PHILIPPINES : TRENDS AND OPPORTUNITIES Overview BPO is defined as services (act of utilizing) of a third party by a company to perform its back office operations in the areas of customer relationship management, call centres/telemarketing (customer help desk), payroll maintenance, tele-servicing and product support, finance/accounting/billing, human resources, logistics management, supply chain management, medical transcription, insurance claims processing, legal database maintenance and endless kind of services. One of the more important economic developments has been the impressive growth in the global demand for outsourcing and off shoring in the services sector in the last few years. It has flourished to a frantic level where big companies outsource their back office business processes to countries with generally cheap labor but can provide better service like China, India, Mexico, South Africa and the Philippines. BPO Industry in the Philippines In the Philippines, initially the focus was on call centres and low value added BPO in the 1990s, but started growing in earnest at the start of this decade. The phenomenon growth really started year 2000 with the establishment of call centres in the Philippines. Call centre industry that year contributed 12 percent to the country’s gross national product (GNP). From a mere 2,400 call centre professionals, it grew to 112, 000 in 2005 with revenues exceeding 1 billion USD. Since then the call centre industry has become one of the biggest sources of employment for Filipinos and has provided tremendous export revenues for the Philippine government. These opportunities propelled the industry players to add higher value activities to BPO services such as web design, software development, animation, legal services, medical transcription, and other shared services
  2. 2. BPO industry in the Philippines is generally divided into the following sectors: Percentage Distribution and Number of BPO Companies, by sector, 2008 Source: Business Processing Association of the Philippines (BPAP)  Contact centre is consist of inbound and out band voice operation service for sale, customer service and technical support among others while transcription is data transcription (including medical) services.  Back office service is also known as knowledge process outsourcing (KPO) like finance, accounting and human resources administration. In terms of employment generated by BPO, this industry expanded rapidly to nearly 372,000 employees at the end of 2008 from only around 100,000 full‐time employees in 2004,. The largest share of job is in the contact centre sector, which employed around 227,000 people in 2008. BPO’s employment growth of 24 percent between 2007 and 2008, outdone total employment growth in the country which grew only by 1.6 percent. For 2009, based from BPAP, the workforce in the BPO industry increased to 446, 000 or approximately by 19 per cent during the closing of 2009 in comparison to the numbers in the previous years. According to the projections of the Department of Trade and Industry, the workforce is expected to swell to anything between 650,000 and 900,000 at the end of 2010. Sector Percentage No. of Companies Contact Centre 31 % 191 Transcription 22% 135 Information technology 19% 119 Back office (KPO) 13% 81 Animation 8% 49 Engineering 7% 43 Total 100% 618
  3. 3. BPO employment by sector, 2004‐2008 Sector 2004 2005 2006 2007 2008 Contact Centres 64,000 112,000 160,000 198,000 227,000 Back Office 15,000 22,500 36,000 40,156 68,927 Transcription 6,300 8,950 11,675 16,409 20,224 Animation 3,000 4,500 6,500 7,000 8,000 Information Technology 10,000 12,000 16,000 29,188 35,314 Engineering Services 2,000 2,800 4,400 8,000 12,000 Digital Content/Game Dev’t 200 500 1,000 200 500 Total 100,500 163,250 235,575 298,953 371,965 Source: Business Processing Association of the Philippines (BPAP) In terms of revenues, the BPO industry despite the financial crisis has shown resiliency and steady growth. It is estimated that the industry generated around US$6 billion in export revenues in 2008 from around only US$1.5 billion in 2004.Contact centers had the biggest impact, bringing in US$4.1 billion, while back office services generated US$827 million in revenue. For 2009, as released by Business Processing Association of the Philippines (BPAP), this industry procured approximately $7.3 billion in terms of revenue. BPO industry had generated the largest amount of revenues compared to all industries in the Philippines during 2009. It is expected that the revenue for 2011 is 11.6 billion USD.
  4. 4. BPO Revenues by sector, 2004‐2008 Sector 2004 2005 2006 2007 2008 Contact Centres 1,024 1,792 2,360 3,600 4,100 Back Office 120 180 288 398 827 Transcription 72 70 109 137 182 Animation 52 74 97 105 120 Information Technology 170 204 272 423 601 Engineering Services 34 48 68 152 228 Digital Content/Game Dev’t 3 7 13 1 3 Total 1,475 2,420 3,257 4,875 6,061 Growth Rate 64.07% 34.59% 49.68% 24.33% Source: Business Processing Association of the Philippines (BPAP) Philippine BPO Performance in the world The Philippines ranks as one of the leading global services locations in terms of financial structures, people and skills availability, and overall business environment. The following are achieved by this industry from different surveys and studies conducted by different international groups  The Philippines ranked 7th place among the top fifty (50) offshore destinations for the year 2007 based from A.T. Kearney Global Services Location Index. Indicators used were financial attractiveness as having the lowest telecom costs and one of the lowest wage cost among the countries in the survey. Other indicators were infrastructure, security, risk, political and investment environment.  Philippine BPO is the third largest outsourcing and off shoring destination in the world according to Everest Group for the year 2008. It posted 15% of the market share in comparison with other BPO country destination.  In aspect of IT industry competitiveness for the year 2008, the Philippines has maintained its 47th position in the world and 8th in Asia. (The six indicators used in raking are overall business environment, IT infrastructure, human capital, legal environment, R&D environment, and support to IT industry development)
  5. 5.  For 2009, as per results of the World Competitiveness Yearbook , Philippine BPO compared favourably with other BPO destination in the aspect of office rental cost , IT skills availability, and telecom investment Philippine BPO Competitiveness The Philippines is has proven to be an excellent venue for offshore call center outsourcing services for three important reasons: the country’s low labor costs, presence of reliable technology and availability of college graduates who posses high level of English and IT skills. According to the Philippine Board of Investment (BOI), the Philippines has more than sufficient and encouraging advantage as key BPO destination to keep up with stiffer global competition. These are the following advantages:
  6. 6. 1) Technology that supports the industry  Expanding technologies on fiber and copper network, wireless technologies (CDMA, GSM, WAP, GPRS, 3G, wireless broadband), radio and VSAT 2) Support infrastructure  Digital fiber optic backbone network (FOBN)  Nationwide radio microwave terrestrial network  Next generation networks (NGN), characterized by the use of Internet Protocol (IP), Multi-Protocol Label Switching (MPLS) and Wave Division Multiplexing (WDM). 3) Ideal locations  Metro Manila, Metro Cebu and the Next Wave Cities .The next wave cities are Metro Laguna, Metro Cavite, Iloilo, Davao, Bacolod, Angeles/Clark/Mabalacat/Dau, Baliuag/Marilao/Meycuayan, Cagayan De Oro, Malolos/Calumpit and Lipa  Around 165 ready-to-occupy IT Parks and Buildings all over the country. 4) Human resources -Availability  More than 490,000 college-degree graduates in 2008, 66.6% of which have courses suitable for the IT/BPO or cyber-services sector.  Annual growth rate of tertiary level graduates is estimated at 3.8%. -Quality  3rd largest English-speaking country in the world  72% of the population fluent in American English  English language as the basic communication medium used in business, government and schools.  Highly educated, flexible, productive, loyal, dedicated workforce with excellent work ethics and attention to detail  Strong affinity for western culture. 5) Costs advantage  Average annual salary of IT professionals in the Philippines handling various types of IT job functions is the most competitive in Asia.
  7. 7. Average annual Salary(in US Dollars) IT Job Function National Capital Region Regional/Provincial Data Encoder/Transcriptionist 3,223 2,976 Call Center Agent/Customer service Representative 4,219 3,384 Team Leader/Technician 4,840 3,936 Analyst/Software Developer 5,812 4,800 MIS/Systems Administrator 5,987 4,956 Manager/Department Head 13,331 11,484  Low average of rental, lease or acquisition Rental /Lease Cost Office Rental National Capital region -500 sq/m Provincial -250 sq/m PEZA Accredited IT Building Lease 300 US dollars/station/month (24/7) including TELCO , backup power generator, security surveillance system, etc PEZA lots lease 0.40 US dollars sq/m  Cost of bandwidth went down by at least 85% in the last five years 6) Government Support Policy  The Medium-Term Philippine Development Plan 2004-2010 aimed to reduction of connectivity cost and Development of ICT Human Resource  Executive Order No. 561 dated 19 August 2006 creating the Philippine Cyber Corridor, an ICT belt stretching 600 miles from Baguio City to
  8. 8. Zamboanga designed to provide a variety of cyber services at par with global standards, and supported by a $10 Billion high bandwidth fiber backbone digital network.  2009 Investment Priorities Plan providing fiscal and non-fiscal incentives to Business Process Outsourcing or voice and non-voice IT-enabled services.  Allocation of Php 350 million scholarship funds for the training of near-hires in IT/BPO.  Data Privacy Bill proposed in Congress to ensure protection of personal information in the ICT Incentives Fiscal Non Fiscal 4 to 8 years Income Tax Holiday (ITH) Unrestricted use of consigned equipment Special 5% tax rate on gross income after the lapse of ITH (for IT Park/Eco- zone locators) Exemption from wharfage dues and export tax, duty, impost and fees Tax and duty exemption on imported capital equipment(for IT Park/Eco-zone locators; duty-free importation of capital equipment (for BOI-registered firms under E.O. 528) Employment of foreign national Exemption from 12% input VAT on allowable local purchase of goods and services e.g. communication charges (for IT Park/Eco-zone locators Special investors resident visa Additional deduction for labour expense Philippine Outlook According to Deloitte Research in its Asia Pacific Economic Outlook, Philippine economic prospects for 2010 are helped primarily by booming BPO industry, robust investment in housing and huge overseas remittances Even as the global economy was in still in recession, foreign direct investment (FDI) into the Philippines increased by 26 percent for 2009. Much of the investment was poured into the call center and BPO [business process outsourcing] industry. Philippine BPO is seen to continue growing as it marks its 10th year this 2010. In fact, the government Roadmap for 2010 aimed to capture significant market share of
  9. 9. 10% the global off shoring and outsourcing market share by the end of the year. The Board of Investment (BOI) put Business Process Outsourcing (BPO) as one of the 10 priorities for 2010 along with packaging, tourism, agriculture/agro-business and Fishing, creative industries, research and development, engineered products, green projects and renewable energy, infrastructure and low cost housing. Intensification of training and development of “world class” BPO work pool or work force was also expected through the adoption of Service Science, Management and Engineering (SSME) curriculum in colleges and universities nationwide to develop the critical mass of skilled manpower needed to sustain Philippine leadership in global O&O industry. However it is not plain sailing with BPO as problems were seen to affect the industry. These are :  Competition with other BPO country destination like India (no. 1 BPO destination)m  strengthening of the local currency peso vis-à-vis the US dollar (smaller BPO operators be compelled to close shop owing to a strong peso, the larger IT’s firms in the country would be hard up as their revenues decline)  Presence of competition from the growth of other sectors is also seen in the BPO industry like tourism and medical services.  Increasing demand from outside the Philippines for OFWs [overseas Filipino workers] is another problem being faced by BPO industry. Poaching of talent (quantity and quality) from the Philippines may cause BPO work pool draining. Top BPOs companies in the Philippines  Accenture  Access Worldwide Communications Inc.  Affiliated Computer Services  APAC Customer Services  Convergys Corporation  Dell  Gemtech Global Solutions Inc.  Headstrong (company)  IBM  Innodata Isogen  JP Morgan Chase  Phil-Am Outsourcing Solutions, Inc.
  10. 10.  Rainmaker  Sourcefit-Custom Offshore Staffing Solutions  StarTek  Sykes Enterprises  Teleperformance  TeleTech  Telus Opportunities for Malaysian Companies Based from the data provided by the National Statistics Office, Philippine’s import of ICT products from Malaysia last 2009 valued at 23.3 million USD while January-July 2010 data amounted to 40.4 million USD. This account for 75.4 percent change leap as of the 1st semester only and expected to increase further at the end of the year. However, markets share of Malaysia against other country only accounts for 1.3 percent of total importation of ICT products from the average 2 billion a year import value (2008 and 2009). Thus, there’s the opportunity for Malaysia to seize a bigger market share. Expectedly, the trend for demand for ICT products from 2009 and end 2010 is to increase. Philippine Import Data of ICT Products (in million USD) Year Total Import Import from Malaysia %Share 2008 2.07 31.2 1.5 2009 1.9 23.3 1.19 2010 (Jan-July) 1.8 40.4 3.7 Source : National Statistics Office
  11. 11. Major products and services The key opportunities in the Philippines business process outsourcing industry include :  IT and software programs  Electronics products  ICT tools and equipment  Office furniture ( tables and chairs )  Pre-fabricated panels for cubicles and partition  High quality, low cost construction materials  Supply to local manufacturer of insulation, steel and aluminium products  Contracting and consulting for -building project, -internal office designs -software program development -training and development (curriculum design and training modules designs) Since BPO is one of the priorities of the Philippines Board of Investment, opportunities are seen also for foreign companies in areas of planning, engineering, supply of infrastructure other project investment. (joint venture or subcontracting) Industry Standard Standards for ICT tools and equipment are monitored by the National Telecommunications Centre (NTC). For some electronic and constructions materials, these are supervised by Bureau of Product Standard (BPS) of the Department of Trade and Industry (DTI) For wood and wood products like tables, wood panels,’s Department of Environment and Natural Resources (DENR). According to Commission on ICT (CICT), IT and software programs being used in BPO are not regulated products here in the Philippines. BPO companies use international standard and certifications in this aspect. However, the use “pirated” software programs are being prohibited in this country. For training module and curriculum use in BPO, it’s the individual BPO’s standard in conformance with their certification standard. BPO related investments are still being handled by the Board of Investment (BOI).
  12. 12. Tariff , regulations and quotas Import duties of 0% percent apply to almost all products being imported as part of the Philippine’s World Trade Organization commitments that includes ICT and constructions materials. A 12 % Value Added Tax (VAT) is mandatory to all imports .The local importer pays the VAT prior to release of goods by the Bureau of Customs (BOC). Marketing of Malaysian Products and Services Malaysian companies can enter the BPO industry in the following ways :  as exporter/supplier to importer (distributor/agent)  as exporter/supplier to wholesalers and retailers  direct exporter/supplier to local manufacturers  partners for local firms (joint or subcontracting) for new and existing BPO projects in the Philippines  partners for foreign firms (joint or subcontracting) for new and existing BPO projects in the Philippines  member of consortium for investment projects  as consultants Malaysian companies are advised to visit the Philippines and to make follow up visit to effectively market their products and services. It is highly desirable and expected that they have comprehensive company information packs, company profile and product catalogue. Familiarization of their products and services and company as a whole can be effectively facilitated through their participation in major trade events. Other effective means are e-mail blasting, sales calls, product advertisement (print ads and TV/radio), local program sponsorship and endorsements . Local representation should be done and supporting them through frequent contact and regular training is a must. Useful links  Board of Investments (BOI) International Marketing Department G/F, Industry and Investments Building 385 Sen. Gil J. Puyat Avenue, Makati City 1200 Tel. No. (+632) 896-8907 Fax No. (+632) 895-3521
  13. 13. E-mail Address: Website:  Business Processing Association of the Philippines (BPAP) – Umbrella organization – 9/F, The Palisades Condominium, 107 Perea St., Legaspi Village, Makati City Tel. No. (+632) 817-2727 Fax No. (+632) 817-8141 E-mail Address: Website:  Animation Council of the Philippines, Inc. (ACPI) 3/F, Bonifacio Technology Center, 31st corner 2nd Avenue, Crescent Park West, Taguig City Tel. No. (+632) 871-1590 Fax No. (+632) 687-7362; (+632) 871-1590 E-mail Address:; Website:  Contact Center Association of the Philippines (CCAP) 2/F, BPI-Fareast Building, Sen. Gil J. Puyat Avenue, Makati City Tel. No. (+632) 634-7444 Fax No. (+632) 638-4781 E-mail Address: Website:  Game Developers Association of the Philippines (GDAP) 2/F, LFG Building, 82 Panay Avenue, Quezon City Tel. No. (+632) 332-0867 Fax No. (+632) 332-0867 E-mail Address:; Website:  Medical Transcription Industry Association of the Philippines, Inc. (MTIAPI) 9/F, The Palisades Condominium, 107 Perea St., Legaspi Village, Makati City Tel. No. (+632) 474-8781 E-mail Address: Website:  Philippine Software Industry Association (PSIA) 9/F, The Palisades Condominium, 107 Perea St., Legaspi Village, Makati City Tel. No. (+632) 817-2727 Fax No. (+632) 817-8141 E-mail Address: Website:
  14. 14.  Commission on Information and Communications Technology. (CICT) CICT-NCC Bldg., C.P. Garcia Avenue, 1101 Diliman Quezon City, Philippines Telephone Number: (632) 920-0101 Email: Website: