Philippines IT outsourcing
The Philippines IT outsourcing industry is growing. More and more outsourcing firms are setting up offices in the country as more companies worldwide are expected to shift to subscription and cloud-based solutions. Hence, even newcomers in the local knowledge process outsourcing industry expect their business to grow in the Philippines. Also, as a result, Philippines real estate builders are adding office spaces to accommodate the outsourcing boom in the country. Here are some of the developments in the IT outsourcing and the whole outsourcing industry in the country.
The Philippines is already a “trusted brand” in outsourcing and will continue to shake up the Top 10 worldwide outsourcing destinations. In 2015, Manila grabbed the No. 2 ranking, but the government will have to address its infrastructure strained by rapid growth.
The continued growth of the information technology-business process management (IT-BPM) industry which includes offshore software development is seen to continue. However, there’s still a need to develop the Philippines’ talent pool to address the requirements of the global outsourcing market. Thus, funding for more scholarship is needed to prepare more graduates for their entry into the IT-BPM sector especially now that the industry is moving to high-value sectors. It’s a shift in the kind of outsourced services — from the usual contact center to more knowledge-intensive services in the fields of IT, research, accounting, and engineering.
Recent industry reports appear to confirm this for the first half of 2014, indicating that non-voice BPO (which includes the KPO sector) is catching up with the voice segment, with voice services dropping to around 60% from 65% of the Philippine outsourcing industry.
Under the industry’s new roadmap, the share of the contact center to total business would reverse and shrink to about 40% as the industry shifts to new and high-value sectors.
Back in 2014, a target of $48-billion revenue by 2020 was set. Now, the industry will revise upwards its revenue and employment projection for 2022. The local BPO industry is on track to meet its 2016 target revenue of $25 billion. It already breached its 2015 target revenue of $21 billion.
When it comes to the outsourcing industry in the Philippines, the first thing—if not the only—that comes to mind is the contact center sector. With nearly half a million Filipinos employed, the call center industry is so far the brightest sector in the Philippine economy.
Beyond contact centers, the Philippines is also making waves in IT, particularly software development. In recent years, the tech sector has also embraced a more robust IT consulting, which includes implementation, deployment, and administration of IT systems.
Analysts project that the total size of the Philippines’ ICT sector will increase from US$1.2 billion in 2005 to US$2.3 billion by the end of the decade. The Philippine government recently unveiled a five-year program, which it hopes to generate up to US$12.8 billion, from the combined contact center and IT services sectors. Out of the projected worth, it is not known how much software development will contribute. But with satellite development centers for leading technology firms opening on these shores, it is safe to say that the application development outsourcing industry is on a growth path.
Taking advantage of a large number of college-educated workforce, engineers, and application developers all over the country, the government has opened regional centers to provide low-cost labor to firms based in Europe, North America, and Australasia. The tech sector eyes the financial services industry; locally, SMEs will spur the growth in IT.
There are a number of challenges, though, that the tech sector faces. For one, the local market is not yet ready to sustain growth in the IT industry due to lack of funds and business models that do not fully integrate automation, analysts say. Moreover, competition from the rest of the region poses a challenge to projected growth. The Philippines is fourth, behind India, China, and Malaysia, in attracting offshore outsourcing deals. Political upheavals and lack in infrastructure development hinder further growth.
Junior and middle management still need to keep up with emerging practices in process methodologies and management practices. According to a McKinsey Group report, The Philippines’ Offshoring Opportunity (2005):
“… for all its potential, the Philippines faces enormous challenges in achieving this goal. MGI research shows that, although it boasts widespread English language skills, very low costs, and promising human resource capabilities, it lags behind India and many other potential offshoring locations on several of the key criteria companies examine when choosing an offshoring location. These include risk, infrastructure, the availability of vendors, and the supply of middle managers who are key to establishing large offshore operations quickly.
If the Philippines is to capitalize on the opportunities that are undoubtedly there for the taking, the government, together with the private sector, must work to strengthen the perceived attractiveness and reality of offshoring to the Philippines.”
Related article: Benchmarking the Philippines’ IT Competitiveness