Knowledge Process Outsourcing in the Philippines

 

  • The Philippine outsourcing sector is a mature industry and is evolving towards core and higher-value service offering such as Knowledge Process Outsourcing.
  • In 2016, Knowledge Process Outsourcing (KPO) comprised 34% of the country’s outsourcing industry. In 2017, the Information Technology and Business Process Association of the Philippines (ITBPAP) seeks to increase KPO offering to 42% in anticipation of the impact of the automation of voice-based services and the rise of Business Process as a Software model (BPaaS).
  • The Philippines remains an attractive KPO destination owing to a number of factors. Cost and people skills and availability remain top attractiveness factors.

 

Over the past decade, the Philippine outsourcing sector has significantly matured. It has evolved to involve high-value functions like accounting, animation, software and applications development, and medical and legal services among others. These services are often referred to as “non-voice” or back office services. These are services outside call centers and customer and IT support services. This is what is also known as Knowledge Process Outsourcing (KPO).

Overall, the Philippines remains a top offshoring destination due to low labor costs, highly-skilled workforce, excellent language proficiency, and relative economic stability among other factors. In its 2016 Global Services Location Index, A.T. Kearney ranked the Philippines number 7 among 51 countries in terms of back office services.

KPO Industry in the Philippines

In 2016, knowledge process outsourcing in the Philippines comprised 34 percent of the country’s outsourcing industry. While a bigger part of the outsourcing industry in the country is focused on low-value service offerings like contact center services and other back office functions, the Philippines is poised as a top destination for higher-value functions like animation, design, and content production or publication among others.

Higher-value KPO service offerings become more and more attractive as the outsourcing industry anticipates the impact of automation of voice-based services. For this reason, the Information Technology and Business Process Association of the Philippines (IBPAP) seeks to increase KPO offering to 42% in 2017 from 34% in 2016 year.

 

The KPO industry in the Philippines is composed of the following key high-value functions:

Banking and Finance Services

For the past half a decade, BFSI-related services are the leading KPO activity in the Philippines. KPO vendors in the country provide strategic research, market research, financial services research, analytics, and competitive intelligence monitoring.

Legal Services

Clients from the United States seeking legal and paralegal services favor the Philippines more than its competitors like India. This is due to the Philippine’s strong cultural affinity with the West and the alignment of legal education both in the West and in the Philippines.

Medical Services and Research and Development

The Philippines produces around 250,000 nursing graduates each year. Around half of which are expected to be employed in the healthcare services sector each year. There’s no shortage of healthcare professionals in the country.

Consequently, more and more international firms are setting up offices in the Philippines due to relatively more affordable operating and rental costs and the availability of skilled workforce. Chinese research and pharmaceutical firms, for instance, prefer the Philippines for setting up offshore bases.

Animation and Design

In 2008, the Philippines had over 50 animation companies. There are big animation companies in the Philippines, as well, which include TOEI Animation, Roadrunner, and Toon City Animation Inc., among others. These animation firms employ 18 percent of the country’s total animation talent pool.

 

Attractiveness Factors for KPO in the Philippines

Scrutinizing the 2016 A.T. Kearney Global Services Location Index, it is noticeable that the Philippine’s high total score is due to two key measures: business environment and people skills and availability.  The Philippines, however, gained a relatively lower score on financial attractiveness. Nevertheless, the Philippines is ranked 7th in back office services.

Business Environment

Investors are incentivized in the Philippines. Incentives include income-tax holiday of up to eight years, deduction on labor expense for the first five years of registration, value added tax exemption on allowable local purchases such as telecom, electricity and water, and domestic sales allowance of up to 30 percent of total sales.  

Furthermore, businesses located in economic zones are given ‘exemption from import duty fees and taxes on imported raw materials and equipment, and permanent residence status for foreign investors with initial investments of a certain amount’ among other incentives (Visit the Philippine Board of Investments website at: http://boi.gov.ph/ for more details).

People Skills and Availability

The 2017 Global Talent Competitiveness Index of French business school INSEAD ranks the Philippines at 56th out of 109 countries in the 2015-2016 report. India, on the other hand, was ranked at 92nd out of 109 countries.

Furthermore, the Philippines produces an average of 400,000 to 500,000 college graduates every year. Also, due to the educational system for legal and accounting professions being patterned after Western systems, the country’s legal, paralegal and finance professionals remain sought after by clients from countries like the United States.

Labor Cost

The Information Technology and Business Process Association of the Philippines estimates that the all-in costs for English-speaking professionals in the country are among the lowest in the world. This makes Filipino talent more competitive in terms of skills and cost compared to other English-speaking professionals elsewhere. Moreover, the country’s inflation rate is also predictable and manageable, thanks to its excellent central bankers.

Infrastructure

Low-cost but high-quality real estate is aplenty in the Philippines, both in urban and rural centers. Telecommunication infrastructure is also reliable and affordable. There’s a consistent and reliable energy supply and round-the-clock low-cost transportation. Infrastructural improvements are expected as the government vies to maintain its staggering economic growth in recent years.

Government Support

The Philippine government pledges continued support for the outsourcing industry despite policy uncertainties in and out the country. Philippine President Rodrigo R. Duterte reassures the outsourcing industry that the industry will remain protected and supported by the government.

 

Final Thoughts

The Philippine outsourcing industry is a mature industry which is continually evolving towards higher-value functions such as Knowledge Process Outsourcing (KPO). In 2016, KPO services comprised 34% of the country’s outsourcing industry. This year, the Information Technology and Business Process Association of the Philippines (ITBPAP) seeks to increase KPO offering to 42% in anticipation of the impact of the automation of voice-based services and the rise of Business Process as a Software model (BPaaS).

 

Overall, the prospect for Philippine KPO industry looks bright. Business environment and people skills availability remain as the top attractiveness factors of the Philippines as a KPO destination. According to the ITBPAP, the Philippine outsourcing industry aims to increase the Philippines’ BPO sector share of the global market to 15.5 percent in 2022 from the current 12.6 percent.

 

Sources:

 

(http://www.hydrant.co.uk), S. (2016). The Philippines’ business process outsourcing sector expands into high-value services. [online] Oxford Business Group. Available at: https://www.oxfordbusinessgroup.com/overview/strength-strength-sector-continues-expand-higher-value-services  [Accessed 15 Apr. 2017].

 

Staff Virtual (2017). The Philippines Outsourcing Industry 2017 Predictions. [online] Available at: http://www.staffvirtual.com/blog/the-philippines-outsourcing-industry-2017-predictions  [Accessed 14 Apr. 2017].

 

Barbaso, M. (2017). SGV & Co. Philippines | Ernst & Young | Accounting Firm. [online] Available at: http://www.sgv.ph/the-future-of-the-philippines-kpo-industry-by-mariecris-n-barbaso-october-7-2014/  [Accessed 15 Apr. 2017].

 

Tholons (2017). The Philippine Animation Industry Landscape [online] Available at: http://www.tholons.com/nl_pdf/150508_philippine_Animation_Industry.pdf  [Accessed 17 Apr. 2017].

 

INSEAD. (2017). FR – Global Indices – GTCI Overview. Global Talent Competitiveness [online] Available at: https://www.insead.edu/global-indices/gtci  [Accessed 18 Apr. 2017].

 

A.T. Kearney (2017). 2016 Global Services Location Index. [online] Available at: https://www.atkearney.com/strategic-it/global-services-location-index [Accessed 18 Apr. 2017].

 

Cushman & Wakefield (2017). Should MNCs Stop Paying Rent Overseas. [online] Available at: https://issuu.com/csdesignworks/docs/should-mncs-stop-paying-rent-overse  [Accessed 18 Apr. 2017].

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