IT - Business Process Outsourcing Sector
One of the most vibrant industries in the Philippines is the Information Technology and Business Process Management (IT-BPM). Started emerging in 2000, the industry has significantly diversified its growth in the past two decades and has created employment opportunities to the predominantly English speaking young Filipinos. IT-BPM generated as much as USD 18.4 billion in revenues in 2014, which is 18.7% higher than the USD 15.5 billion growth in 2013. This figure represents 6% of the country’s total economic output in 2014 and generating at least 1.03 million direct employments. Absolutely on track with its forecasted revenue of USD 25 billion and 1.3 million direct employments in 2016.
The IT-BPO account for 30% of the global market in voice BPO and 10% of the global market in non-voice BPO. The country has a culture that is very compatible with Western cultures, since English is the primary language for business and the Philippines is listed as the third largest English speaking country in the world. The IT-BPM industry is characterized into voice and non-voice operations. It is recognized as the number one voice provider in the IT-BPO services worldwide catering to various functional and vertical areas of healthcare, engineering, banking, investments, financial services, and shipping, among others. On the other hand, the Philippines is the second highest non-voice provider in the world next only to India. Non-voice with complex services is rapidly growing in the country due to client satisfaction of the quality of voice services, higher demands, increasing market operations, availability of workforce, and the overall competitiveness of the Philippines.
Although most economic developments spurred by IT-BPM are concentrated in Metro Manila, the government with the private sector is encouraging businessmen to invest in the “Next Wave Cities” such as Baguio, Davao, Dumaguete, Ilo-ilo, Metro Bulacan, Metro Cavite, Metro Laguna, Metro Naga, and Metro Rizal to further cascade its economic benefits into the various regions of the country.
Likewise, the Philippine government through the Technical Education and Skills Development (TESDA) has provided funding and training for Filipinos wanting to specialize on animation, customer relationship management, software and game developments. A number of educational institutions have been identified to jointly craft a curriculum that fits the demands of the IT-BPM industry. After reaching the revenue of $23 Billion in 2016, the Philippines has drafted a new roadmap for the Information Technology and Business Process Management (IT-BPM) industry forecasting the growth until 2022 to set goals of $40 billion revenue by 2022 and 15.5 percent market share of global outsourcing industry. The global outsourcing industry is growing between 5-7 percent annually, which Philippines has been constantly outpacing.
Good command of English with neutral accent makes the Philippines attracting contact center & back office destination and the country has remained as a global number one destination for voice BPO services. The IT-BPO industry is one of the cornerstones of the Philippine economy generating roughly the same amount than the remittances coming from overseas Filipino workers.
Source: IT & Business Process Association of the Philippines (ibpap.org)
Revenue split among the sub-sectors (2014)
While the overall growth of the sector is strong, IBPAP has set a target to develop the skills of the workers to support the growing demand in high-value knowledge process outsourcing like animation, game development and banking. Moreover, the Knowledge Process Outsourcing (KPO) is rising rapidly. Back-office services, like Information Technology Outsourcing (ITO), healthcare, legal process, animation, game development, among others, are now taking remarkable growth strides.
The industry is concentrated in four clusters of cities: (1) Metro Manila is still the most popular outsourcing destination in the Philippines driven by a need for broad-based growth making them outsource-ready with around 75 % of all the employees; (2) Metro Clark in the main island Luzon; (3) Metro Cebu, Leyte, Bacolod city, Iloilo city and Dumaguete City in the Visayas region; and (4) Davao City, Cagayan de Oro and General Santos in the Mindanao region.
In the first wave of growth of the Philippine BPO industry from the late 1990s to 2010, the first three major hubs emerged followed by the “Next Wave Cities” (NWCs) established by the Information and Communications Technology Office (ICTO) of the Department of Science and Technology (DOST) and IBPAP based on talent, infrastructure, cost, risk management and business environment.
The Internet and E-Commerce Market
Telecom infrastructure is made available nationwide and industries are primarily serviced directly by two major domestic telecom firms: Globe Telecom and PLDT. Both key players maintain nationwide, high-speed networks and landing stations connecting to international submarine cables.
In terms of internet development, the Philippines currently has a modest 59 percent internet penetration rate and has an average connection speed of 4.2 Mbps. Laptops and desktops are still the most preferred device over mobile devices. The smartphone penetration nationwide in 2016 was around 57 percent, recording the fastest growth in smartphone adoption in Southeast Asia In fact, the Philippines are recorded to have the longest daily time spent on the Internet in the world.
To connect the rural communities to the Internet Philippine Digital Roadmap for 2011-2016 aimed to have at least one public Internet center (e.g., Internet café, Community e-Center or similar) that provides reliable Internet service, in 80 percent of the barangays by 2016.
Meanwhile, the e-commerce penetration in the Philippines in 2016 was recorded as 38 percent, while m-commerce slightly lower at 26 percent. However, m-commerce is rapidly growing recording 85 percent growth rate compared to 2015. To support the robust growth of the industry, DTI in cooperation with the private sector has formulated a 2020 e-commerce roadmap to address the bottlenecks and lay out a plan to develop the sector.
Biggest bottlenecks for the development of the e-commerce sector include connectivity, logistics and trust in online transactions. Although the internet penetration in Metro Manila is high, the numbers decline rapidly when studying the provincial areas. With this, large e-commerce companies like Lazada have set up warehouses on all major island groups Luzon, Visayas and Mindanao to reduce the delivery times. Credit card penetration can be measured in single digits, which leads to Cash On Delivery (COD) payment being the dominating method of payment. CODs account for nearly 80 percent of all the e-commerce related transactions, since many customers want to see the product before accepting it.
Opportunities for EU SMEs
The Philippines can be looked as a fast-growing end market for ICT solutions as well as a support market. Even though the connectivity remains as an issue in the Philippines the young, tech-savvy population pushes for reliable ICT services.
The need for innovative ICT solutions is imminent on many sectors. Growing infrastructure offers opportunities for companies developing e.g. mapping and project monitoring systems. For instance, in terms of cyber security, many banks consider enhancing their security as well as government organizations and public utility companies. In light of this, the Philippine government, spearheaded by the recently established Department of ICT, started drafting a National Cyber security plan. Meanwhile, growing e-commerce sector has created a demand for platforms and e-payment solutions. The market is still very scattered; only Rocket Internet operated companies are sticking out from the crowd. Additionally, the access to healthcare and medicine, especially in the rural areas is still lacking, which is a problem few health IT companies have tried to tackle. Solutions for hospitals are in demand.
Furthermore, Philippines being the largest call center country in the world and second largest when looking at non-voice back office operations creates opportunities for EU companies to increase their efficiency and be more competitive in the global setting. The large English-speaking talent pool can be tapped to enhance the global expansion of EU SME.
Government Regulations and Initiatives
The Philippine government has identified the IT-BPO and GIC industry as among its top-five priority investment areas. A strong partnership between the government through the ICT Office of the Department of Science and Technology (DOST-ICTO), and IBPAP, representing industry players, ensures that the government interventions are aligned with the industry priorities, such as talent development and country promotion.
Market Entry Barriers
As in the most developing markets, there are certain restrictions to consider when evaluating the market entry such as the availability of skilled laborers, regional concentration, broadband network speed, protectionism, or restricting foreign ownership on multiple sectors.
Source: ITC Trade Map