The Business Process Outsourcing (BPO) is an industry that plays a vital role in the Philippine economy, but are its benefits sustainable enough for the long term?
Since the early 2000s, the Philippines has rivaled India as the preferred offshore destination for BPO companies. Companies from English speaking countries are mainly attracted due to its cheaper labor cost and ranking as the 3rd largest English speaking country in the world after the United States and India. This multi-billion dollar industry provides international revenue to the Philippines and provides employment for its people. Despite the benefits, the industry is giving to the Philippines, several issues exist. We will discuss a few of these issues on this article.
A quick overview of the BPO industry in the Philippines
Perhaps, the greatest legacy of the American colonization in the Philippines is the Filipinos’ fluency of the English language. English is one of the official languages of the country and is spoken fluently by 70% of the population. It is not surprising why a lot of American BPO companies like Accenture, Skyes, qnd Convergys choose to transfer a part of their operations in the Philippines particularly in their business services, back-office services, and contact centers. American companies accounts to 60% of all the BPO industries provided followed by Australian and British companies. Moreover, labor costs in the country just like in other developing countries are generally cheaper and majority of the population is relatively young with the 37.11% of the population belonging to the 24 to 54 years old age group.
The Philippines’ Department of Trade and Industry or DTI defines the BPO industry as a “delegation of service-type business processed to a third-party service provider.” In 1992, the first contact center in the country, or what we know these days as ‘call center’ was created by Frank Holz under the Accenture group. Having seen the potential of this industry, the Philippine government gave its support. In 1995, the Congress passed the Special Economic Zone Act which offers foreign investors tax incentives. For the BPO companies this meant that they are exempted from paying local and national taxes and only had to contribute 5% of their gross income as tax.
In the domestic scene, the first call center that is locally owned is ePLDT Ventus, a subsidiary of the Philippine Long Distance Telephone Company (PLDT), was founded in 1999. Fast forward in 2017, the Philippines had overtaken India as the world’s BPO capital with 16 to 18 percent of the global market share according to the A.T. Kearney Global Services Location Index which remains the case up to this day. The different factors that were taken into account for this study are financial attractiveness, people skills and availability, and business environment. Aside from English fluency, having a neutral accent, which can be easily trained, and being culturally more adaptable of the Filipinos also play an important factor.
A multi-billion industry
Generating revenue without a doubt is the biggest benefit the BPO industry is giving to the country. After the passing of the Special Economic Zone Act in 1995, large multinational companies like Skyes Asia from the US have started to set up operations in the country only two years after the Act has been passed. Interestingly, the rise of GDP contribution by BPO companies coincided with the number of companies setting up operations in the country: From 0.75% in 2000 it jumped to 7% in 2016 to 12%-15% in 2019.
Next, as investments are being poured in the country, employment opportunities with attractive salary rates for the population increases. BPO companies currently employ 1.3 million employees in the Philippines as of 2019 in a population of more than a 100 million. According to Philippine Statistics Authority or PSA in 2015, a family of 5 needs at least PHP 8,778 a month or (USD 168 )to meet their most basic food and non-food needs. In another PSA survey of the same year, it showed that the average middle class Filipino family of the same size spends USD 345 every month. An average BPO call center agent earns USD 500 month with mandatory 13th month pay included not to mention health benefits and various allowances.
Finally, when the Philippines’ current President Rodrigo Duterte was elected in 2016, one of his top priorities is to decentralize the economic activities in Metro Manila to bring wealth to other regions in the country. The National Capital Region which is the official administrative name of Metro Manila, has always been the center of development in the archipelago. Even before the decentralization platform of the Duterte administration, the BPO industry has already started the campaign to push for this process since investing in second tier cities are more cost effective and the labor market in these areas are still untapped. Data gathered by CBRE Group (Coldwell Banker Richard Ellis), an American commercial real estate services and investment firm shows that investments are being made in Laguna and Cavite, south of Metro Manila; Pampanga in the north; Cebu, Bacolod, and Iloilo in the Visayas; and Davao and Cagayan de Oro in Mindanao.
Challenges for the BPO industry in the Philippines
Changing Political Scenes, in particular, the unstable relations between the US and the Philippine government these days is seen as one of the threats facing the BPO industry. The coinciding of US President Trump’s ‘America First’ policy with Philippine President Duterte’s anti-US rhetoric stance took its toll. While those BPO companies that are already operating in the country are still expected to expand their activities, those ‘prospective’ or ‘potential’ BPO companies are becoming less aggressive in setting up their business operations in the country. For instance, according to an unnamed reliable source of the local newspaper Philippine Inquirer a US client pulled out of a local BPO firm in March of 2017. The withdrawal of the said US client cost the jobs of about 400 Filipino workers.
There are also various health issues associated with working for the BPO industry that puts its employees at risk. The country’s Department of Health lists headache, fatigue, eye strain, chest and back pain and voice problems as some of the health concerns that need to be addressed by BPO employers. As most BPO companies cater American clients, it has been a routine for agents to do graveyard shifts several times a week because there is a 12-15 hours difference between the US and the Philippines. Compared to other sectors, a recent study by International Labor Organization also revealed that ‘BPO agents are also more exposed to HIV/AIDS, the stress they experienced in the workplace, among other factors, could encourage risky sexual behavior’. In general, not only their health is at risk but also their overall work-life balance and their psychological well being.
Another challenge the BPO industry is facing in the Philippines is having a stable power supply in the country especially in cities outside of Metro Manila. Data from the Department of Energy shows that in Luzon alone (the biggest and most populated island in the archipelago) there are 126 power grids installed there and 72% of these are at least 16 years older. Furthermore, Lawrence S. Fernandez of Manila Electric Co. (Meralco) said in an email interview that ‘older power plants require more frequent maintenance and repairs and may be more prone to unscheduled outages’. Installing generators that can be used during power outage in public establishments are not funded by the government and thus costs of putting them are paid by building owners and/ or building tenants. Stable power supply in order to provide undisturbed providing of services is essential for these companies.
Despite the drawbacks and challenges the BPO industry is facing in the Philippines such as changes in political scene domestically and internationally, domestic power supply issues and health concerns of BPO agents, the BPO industry in the Philippines is alive and thriving. According to the IT and Business Process Association of the Philippines (IBPAP) revenue from the Business Process Outsourcing industry is expected to be around $29 billion to $32 billion by the year 2022 while full-time employees will increase to about 1.42 million to 1.57 million.