The Philippine Offshoring and Outsourcing Industry: A Clear “Growth” Direction The Philippine offshoring and outsourcing (O&O) industry is indeed headed in a clear direction, one punctuated by growth that industry leaders hope would lead to more prosperity not only for industry players but also for the country in terms of economic development. The Business Processing Association of the Philippines (BPAP), the umbrella organization of the thriving local O&O industry in the Philippines with over 200 member-companies and 5 associations, in an update, was optimistic in achieving its objectives based on its “Roadmap 2010” initiative, which was launched late last year with no less than Philippine President Gloria Macapagal-Arroyo in attendance. “Roadmap 2010” is a strategic industry initiative aiming to up the ante in making the Philippines a significant and recognizable powerhouse in the global O&O market. It seeks to capture at least 10 percent—around US$13 billion in revenues—of the total projected US$130-billion global O&O pie, representing a 41 percent annual revenue growth rate. The initiative also seeks to generate significant employment for close to a million Filipino O&O workers by the year 2010 working in both the voice and non-voice services, including IT offshoring (ITO) and engineering services offshoring (ESO) services sectors of the industry. With Roadmap 2010 in place and with the assistance of all its major stakeholders, BPAP executives believe that the target is attainable. Presently, the local O&O industry has close to US$5 billion in revenues compared with US$1.5 billion in 2004 for a 49 percent annual growth rate. At the same time, the industry provides direct employment to 300,000 workers, up by 45 percent a year from 100,500 workers back in 2004. These impressive numbers reflect the collective achievement of highly skilled Filipino talent excelling in various offshoring IT and business process services offered in the country, like voice and non-voice (medical and legal transcription, finance and accounting), ITO (software development, systems integration, animation), and ESO (engineering and architectural design). Based on BPAP’s own analysis, the local O&O industry is growing in all sectors. Revenue-wise, the contact centers, or the “voice” side, still dominate the industry with US$3.6 billion in revenues, followed by “non-voice” or the back-office operations like finance and accounting (F&A), legal and medical transcription with US$700 million. The ITO and ESO sectors, though still with a small base, continue to experience growth with US$423 million and US$152 million in revenues, respectively. With respect to providing direct employment, contact centers have around 198,000 workers, non-voice with 62,000, ITO with 29,000 and ESO with 8,000. Again, though still small in terms of worker base, continued growth is expected for the ITO and ESO sectors. Growing preference of global clients for the Philippine O&O industry also continues, and this is attributed to several factors, foremost is quality-based talent value. According to a survey done by the McKinsey Global Institute among human resource (HR) managers, HR agencies and heads of global resourcing centers from three continents (Eastern Europe, Asia, and Latin America), Filipinos are among the most-preferred workers for hiring by companies in specific areas of expertise like engineering, finance and accounting, and other generalist practices. With regard to cost-competitiveness, according to a report again from the McKinsey Global Institute and Watson-Wyatt, the Philippines ranked among the lowest (second to India) in terms of cost to employer, which includes wage, bonus and benefits, across 7 occupations. Government incentives were also a plus factor in giving the Philippine O&O industry a strong business proposition due to its various tax-based incentives. Couple this with a robust, redundant, efficient and yet highly affordable telecommunications infrastructure, the local O&O industry was a clear favorite. Given these dynamic aspects, the Philippines has become a truly favored site for outsourcing services and this hasn’t gone unnoticed. Last year, the Philippines was voted the 2007 Outsourcing Destination of the Year by the London-based National Outsourcing Association (NOA). This reinforced the findings of Duke University and the Booz Allen Offshoring Research Network’s 2006 survey, which put the Philippines second to India in terms of being a favorable location for O&O services. The Philippine O&O industry, however, will not rest on its laurels. Citing the country’s leading presence in the voice business, the Business Processing Association of the Philippines (BPAP), sees the Philippines leveraging on its commanding position to elevate itself in the “higher-value” chain of services in the industry and thus achieve more growth. With its strength and inherent excellence in customer-focused services, plus the rising pressure on top O&O provider India in terms of talent and infrastructure, the Philippines is generally considered in a “sweet spot” to capture more market share. BPAP, in its role as the promotions arm of the Philippine O&O industry, has already identified three key themes that need to be addressed: talent, business environment, and next-wave cities. The organization has five thematic programs that aim to draw additional talent to the industry. These include assessment and training programs, awareness on O&O career opportunities, tapping of alternative talent pools, improved funding channels, plus changes in school curriculums deemed responsive to the needs of the industry, in order to bring it closer to its 2010 employment goals. In terms of business environment, BPAP is looking at three key areas like public policy (incentives, data protection), promotion (risk survey, information security), and investor support (BPAP portal, operational excellence program). BPAP is also developing what it calls “next-wave” cities, particularly in the provinces, as effective alternative venues for outsourcing locators to eventually decongest major O&O hubs like Manila and Cebu. BPAP is dead serious in achieving its 2010 goal since it believes doing so would create a significant impact on the Philippine economy. Based on National Statistics and Coordination Board (NSCB) Economic Accounts, National Economic Development Authority (NEDA) Medium-Term Development Plan and BPAP analysis, the O&O industry is projected to contribute around 8 percent of total Philippine GDP by 2010, higher than the current share of the financial, real estate, and transportation and communications sectors. With this lineup of initiatives, BPAP believes it is definitely on the right track to making the Philippines the destination of choice for O&O services by the beginning of the next decade. MTIAPI