The Philippine HR Strategy



This article highlights the abundance of talent, cost-competitiveness, solid infrastructure, and strong public and private support that makes the Philippines the ideal outsourcing destination.
 

The Business Outsourcing Story in the Philippines


The big business process outsourcing (BPO) story in 2011 revolved around the Philippines overtaking India in the voice or contact center industry. Today, the country remains as the top service provider in the industry due to with highly talented Filipinos.
 
The Philippines has a population of around100 million citizens, the majority of which are young and able to contribute to the growing workforce. In 2014, more than one million Filipinos worked in the BPO industry, which consists of only 1% of the total population. This is projected to increase exponentially in 2016, where 1.3 to 1.5 million jobs are expected to be generated, contributing to 17% of the annual growth.
 
While the Philippines is recognized as the contact center capital of the world, it has started building its strong base of human resources supporting various back office work including but not limited to finance and accounting, human resources, information technology, healthcare management, engineering, and supply chain network.
 
The Philippines is recognized as a preferred outsourcing destination for the following reasons:
1. Value added service combined with cost-efficiency.
2. Impeccable levels of customer service.
3. A deep pool of talent that can easily be trained.
 
All of this coupled with a supportive political and business climate, these factors create the perfect environment for the country to continue its domination as the BPO leader, especially in the contact center industry.
 
The Philippines’ competitiveness as an outsourcing hub is also reflected in its rankings in different IT-BPO and global in-house center (GIC) functions. Metro Manila is among the established outsourcing cities in the contact center, finance and accounting, legal services, and human resources services industry.
 
The country has a prestigious client base, among them shared service centers/captives of Fortune 1000 companies such as JP Morgan Chase, HSBC, Procter & Gamble, Nestle, Johnson & Johnson, Microsoft, Shell, Google, Telstra, Lufthansa, and Hewlett- Packard to name a few. Philippine BPO firms serve a wide range of key industries such as banking and financial services, manufacturing, distribution, retail, healthcare, telecommunications, travel, energy, and media.

Strong Industry Performance


The Philippine IT-BPO industry revenues are expected to reach US$25 billion in 2016 more than doubling its output in only five years, from US$11 billion in 2011. It is also expected to be the biggest contributor to the Philippine economy by 2017, rising consistently from its position as the second largest contributor in 2015.

The voice/ contact center subsector of the industry has always been the biggest contributor to its success, consistently providing employment to almost 70% of workers in the industry. Notable is healthcare outsourcing showing the fastest growth rate at 30%, now contributing US$3 billion from being a contributor to the non-voice sector’s US$1.8 in 2010. Even with the huge growth in the industry, the US maintains the largest percentage of clients at almost 70%, down from 74% in 2010. This shows that other countries have also started staking their claim in the Philippines, contributing to the 12-fold growth in less than two decades.
 
The Philippine IT-BPO and GIC industry are performing so well that it is a notable driver of economic growth in the country today. In 2015, outsourcing services accounted for 7% of the country’s GDP (up from only 2.7% in 2006) and resulted in over 1 million direct and 3 million indirect jobs (up from 240,000 direct and 600,000 indirect jobs in 2006). Both government and private support for the IT-BPO and GIC industry are evident whereas strengthened public-private partnership can further boost the growth of the industry.
 
The outlook for the industry is extremely positive. The baseline estimate is that the industry will have a compounded annual growth rate of 15% until 2016, reaching total revenues of US$20 billion and 1.3 million full-time employees. But theThe strengthened public-private partnership can significantly boost growth, with an optimistic projection of US$48 billion in revenues and more than 2 million employees by 2020.


Why Outsource Your Business in the Philippines?   

Foundations of the Philippines' Success   

The success of the IT-BPO and GIC industry is founded on four key points:
  • - Suitable and Abundant Talent
  • - Cost Competitiveness
  • - Excellent Infrastructure
  • - Government Support and Public-Private Partnerships

 

Talent   

The Philippines produces 500,000 college graduates annually. Since English is the main medium of instruction from high school onwards, young Filipino graduates are able to converse effectively with Filipinos and foreigners alike. At the minimum, most contact centers require a college degree, English proficiency, and computer literacy; thus, many graduates easily qualify for employment in BPO firms. Moreover, accounting students are exposed to both local and global standards (e.g., Generally Accepted Accounting Principles, or GAAP, and International Financial Reporting Standards, or IFRS), making it easier for them to be trained and retained to perform finance and accounting related jobs.
 
The country also has an available pool of over 5 million high school graduates each year. Universities and schools encourage skills development by partnering with BPO companies to develop courses that target future call center and BPO employees.
 
The Technical Education and Skills Development Authority (TESDA), a government agency supporting the demand of outsourcing industry offers vocational courses for those who wish to build careers in the IT-BPO and GIC industry. TESDA offers English language training for graduates interested in pursuing a career in the contact center industry. They also have bookkeeping training for those who want to be in the finance and accounting subsector.  Additionally, the English training program of TESDA includes modules on communication, customer service, computer literacy, and American culture and geography.
 

Cost Competitiveness   

Like other top outsourcing countries, the Philippines as a whole offers a low-cost business environment with low labor unrest. On average, a newly graduated contact center employee in Manila receives around 500 USD in monthly salaries. Local BPO firms offer competitive compensation and benefits packages and provide different support programs for employees and their families.   
 
Labor costs significantly less expensive in the Philippines, where the salaries of call center agents are typically about 20% of what someone who works in the US or other workers in developed countries would take home. The tax breaks implemented by the government and less expensive infrastructure further contribute to more profit for those who choose to outsource parts of their business in the Philippines.
 
The typical operating cost for each full-time BPO employee (voice) in the Philippines is US$16-18,000 annually. This is slightly higher than the cost for India (US$15-16,000) and significantly lower than the costs for the US (US$70-72,000), Dublin (US$50-75,000), Krakow (US$24-25,000), and Kuala Lumpur (US$19-20,000). Average Grade A office space rent in the country at US$209 per square meter per annum is similarly very low compared to other notable outsourcing cities such as Hong Kong (US$1,758), Tokyo (US$1,042), Singapore (US$857), Mumbai (US$743), Shanghai (US$692), and Beijing (US$683). Average office rental rates in Metro Manila cities range from US$10.00 (Muntinlupa City) to US$23.00 per square meter per month (Makati City).


Infrastructure   

There is a diverse choice of suitable locations for IT-BPO and GICs in the Philippines. Currently, there are more than a thousand IT-BPO and GIC sites in the country – and this number is still growing. The development of “Next Wave Cities” in the Philippines – Davao, Bacolod, Metro Cavite (Bacoor, Dasmariñas, and Imus), Iloilo, Sta. Rosa (Laguna), Malolos (Bulacan), Lipa (Batangas), Cagayan De Oro, Baguio, and Dumaguete – has partly been enabled by the surge of BPO opportunities in the country. Expansion in these areas aims to provide extensive support for large BPO operations.
 
Business districts also provide reliable international connectivity and expanding infrastructure for IT-BPO firms and GICs. There are three Transmission Backbone Networks (PLDT, Globe, and BayanTel) capable of handling and transmitting volumes of data across the international broadband cable. There are also four cable landing stations (in Cagayan Valley, Cavite, Batangas and La Union) with two more in the pipeline. In addition, the country is connected globally through 11 international gateway operators and 13 submarine cables. The cost of bandwidth has also decreased in the last five years by at least 85%.
 

Support From the Public and Private Sectors   

Companies registered with the Board of Investments are given fiscal incentives (e.g., tax holidays, zero-rated value-added tax, zero duty on importations, business tax exemptions, export tax exemptions) as well as competitive non-fiscal incentives (e.g., employment for foreign nationals, simplified customs procedures). Other incentives may also be granted to companies who are registered with the Philippine Economic Zone Authority (PEZA).

Additionally, there are various industry and government initiatives in place to support the growth of IT-BPOs and GICs in the Philippines. Among these are coordination with ASEAN countries/organizations, coordination with the academe on training and development programs, coordination with investors for funding industry programs, and coordination with local and regional BPO organizations.
 

Growth Beyond Contact Centers   

Voice BPO, or contact centers, continues to provide the lion’s share of revenues to the overall BPO industry. With over 700 contact centers in the country, the Philippines has become the biggest call center hub in the world.
 
While contact centers continue to be the top outsourced service in the country today and the segment is still experiencing double-digit growth (15% in 2015 from the previous year), non- voice BPO and IT services are projected to significantly grow as well in the next five years. With non-voice and IT services showing growth rates around 30%.
 

IT Outsourcing

The United States currently accounts for 57% of IT outsourcing foreign revenues, which amounted to about US$413 million in 2010. The top three service lines (application maintenance, software testing, and custom application development) accounted for 42% of total revenues.
 
There remains a steady supply of talent for the IT outsourcing segment. According to the Commission on Higher Education (CHED), there were over 60,000 engineering and technology graduates and over 80,000 information technology graduates for the school year 2014-2015. The CHED projects consistent growth in the number of graduates over the next five years and has implemented more incentives for students to pursue engineering and technology courses.
 
The two primary IT outsourcing engagements in the Philippines are in the areas of IT Operations Management and Application Development and Maintenance. IT Operations Management involves service desk, maintenance, asset management and remote network activities. Application Development and Maintenance (ADM) comprises technical consulting/business analysis, application development and deployment, package implementation, application conversion and integration, and application maintenance and support.
 
Regarding ADM, the Philippines possess a competitive cost advantage over notable outsourcing cities. The direct operating cost for a full-time IT ADM employee in 2015 was US$25-27,000 – close to the cost for India (US$24-26,000) and significantly lower than for Mexico (US$50-52,000), Krakow (US$52-53,000), Kuala Lumpur (US$37-38,000), Beijing (US$34-36,000), and Cairo (US$26-27,000).
 

Finance and Accounting Outsourcing

There is now a growing demand for outsourced finance and accounting (F&A) processes, which are divided into three tiers. Tier 1 includes basic accounting services (services that high school graduates who take the aforementioned TESDA vocational course on bookkeeping can perform) such as accounts payable, accounts receivable, billing and invoices, payroll, and property, fixed assets and depreciation. Tier 2 and 3 include more advanced services such as finance reporting, financial accounting, management reporting, planning analysis, taxes, and treasury and cost management.
 
The country produced almost 200,000 graduates in F&A-related fields for the school year 2014-2015, and this number is projected to increase in the next few years especially as the F&A segment expands. These graduates are fluent in English and computer literate; most importantly, they are knowledgeable in global accounting standards and processes (GAAP, IFRS) and are trained to be customer-centric, which makes them good candidates for outsourcing work.
 
The direct operating cost for a full-time Filipino employee doing F&A transactional work is US$20-22,000, close to India’s US$18-19,000 and Cairo’s US$21-23,000. This is also well below the costs for Dublin (US$68-70,000), Krakow (US$37-38,000), and Kuala Lumpur (US$24-26,000).
 

Healthcare Information Management Outsourcing

A few years ago, healthcare BPO primarily consisted of medical transcription. Now, this sub-sector has shown the biggest and most consistent growth in the industry. The Philippines offers a more diverse portfolio of healthcare-related outsourced services: medical coding, medical billing, electronic medical record and clinical informatics, medical claims recovery, patient education, utilization review/quality assurance, clinical research documentation/medical communications, and pharmacy benefits management.
 
In 2015, around 100,000 healthcare information management employees rendered $3 billion worth of services globally – almost ten times its revenue in 2010 (US400 million).
 
For the school year 2014-2015, there were over 75,000 graduates of medical and allied courses; the CHED projects this number to increase in the coming years.
 

Legal Process Outsourcing

Legal process services being outsourced in the Philippines include the following: legal research, legal transcription, litigation assistance, contract review/drafting/management, litigation document review and electronic discovery, immigration services, secretarial services and marketing communication. Graduates of law and jurisprudence related courses amounted to over 7,000 for the school year 2014-2015.

 
Animation and Game Development

The Philippines also competes with developed countries when it comes to animation and game development. Many Filipino artists are starting to be recognized for their artistic talent and storytelling skills – both important facets of gaming and animation. More and more productions are looking to the Philippines as a go-to place for quality animation.
 
The capabilities of our local animation industry are extensive. These range from the preproduction process (e.g., character/background design, concept art, sound-cut/reading, voiceover/dubbing), to production (e.g., 2D/Flash/3D animation for TV and movies, special effects, commercials and other audiovisual presentations, game animation and development, medical/industrial animation, interactive learning materials, digital ink and paint applications, modeling/rendering), to postproduction (e.g., original musical scoring and sound effects, recording/compositing/editing, output to different media formats, subtitling).

In 2015, the animation and game development subsectors raked in revenues of US$142 million and US$7 million, respectively. Around 10,000 Filipinos were employed in this subsector.

The Filipino X-Factor

Aside from the abovementioned factors, the Filipino workforce is the heart and driving force behind the Philippines being the best of the best when it comes to quality outsourcing output. Filipinos are customer-oriented; highly trainable, adaptable, resourceful, industrious, and willing to work long hours if necessary. But while this commitment and loyalty are undeniable, the Filipino employee is still able to have fun and create an enjoyable working environment.
 
As more outsourcing opportunities continue to arrive, the Filipino BPO – brains, personality, and outlook – is what will further propel the country as one of the best outsourcing destinations in the world.
 
Engelbert T. Camasura is the President of Asia Select Inc., a total recruitment firm in Southeast Asia recognized for its expertise in managing talents for various industries with high specialization in startup operations, especially in the outsourcing industry. Gilbert is recognized as one of the talent experts in managing recruitment solutions in business process outsourcing (BPO), which includes contact centers, IT services, and shared services. He is an active leader in the People Management Association of the Philippines and is a certified Associate Fellow in Personnel Management. Prior to his joining Asia Select Inc., he worked with Genpact as country recruitment leader, responsible for its growth in banking and financial services. He completed his executive education from IESE (Barcelona, New York, and Munich).
 
Jeremiah Bonifacio is a Consultant with Asia Select Inc. managing executive search and new markets. He is focusing on recruiting top executives cut across various functions and industries. Prior to joining Asia Select Inc., he worked in a top auditing firm in the Philippines.