Employing more than 1.35 million and reaching 22.1 billion US dollars of revenue in 2017, the Philippine IT-BPO industry is poised to generate around US$38.9 in revenue by 2022.
In 2018 and 2019, the service sector has contributed around 60% of the Philippines’ overall economic growth. Within the service subsectors, the compound average annual growth rate (CAGR) of the IT-BPO industry is seen to be at 9.2% from 2016 to 2022.
The average growth, however, is slower than the previous estimates, which signal the need for more higher value-added services – one of the things that the IT-BPM Roadmap has been focusing on. And by 2020, the industry has a rosy outlook.
Here are some of the developments to look out for in the BPO and SSC industry in 2020:
1. BPO will continue to drive the office market
It is predicted that the BPO industry will yield a 7.8 percent annual growth in full-time employees this year until 2022. According to the IT and Business Process Association of the Philippine (IBPAP), the industry is ‘shifting toward higher value BPO services,’ and the provinces present tremendous growth opportunities.
For 2020, the industry will not slow down as forecasts show a continued interest of multinational investors in the country. In fact, the IT-BPM sector remains to be the biggest demand driver for office spaces at 36% and 35% respectively.
Data from SSON Analytics in 2016 shows that compared to the SSCs, BPO hubs are more diffused across the country and outside city centers.
BPO Distribution Across the Country: Data from 2000 to 2015. The graph shows how BPO hubs are distributed across the country. Graph courtesy of SSON Analytics. To view the full interactive report, register here.
2. BPO revenues will overtake OFW remittances
The BPO industry is well-poised to pass the country’s primary source of dollar income, the overseas Filipino workers’ remittances. OFW remittances are pegged at 4.2 percent annual growth for the first quarter of 2019 while the BPO revenue is steadily at a 9% yearly growth. Globally, the sector covers around 10-15% of the outsourcing market. New BPO hubs are also coming to the country.
According to the IBPAP, the industry generated US$22.9 billion in revenues in 2016 and eventually surpassed OFW remittances this year. The association also expects the sector to reach up to $38.9 billion in revenues by 2022.
“It is possible for BPO revenues to overtake remittances in terms of dollars and cents. Remittances are growing by around 4 percent average on an annual basis while BPOs could grow by as much as 9 percent to 10 percent,” said Bangko Sentral ng Pilipinas (BSP) Governor Diwa Guinigundo.
Of course, this overtake is also due to the slowdown in OFW remittances caused by the economic downturn in developed countries and fluctuating oil prices. BPO’s steady growth in the country will, therefore, offset this stagnation in OFW remittances, which is vital to the buoyancy of the Philippine economy.
3. The BPO sector will be affected by the political climate
In a KPMG report, titled “Global IT-BPO Outsourcing Deals Analysis,” 64.7 percent of total outsourcing services contracts in the Philippines came from the United States, followed by the United Kingdom at 9.2 percent, with Australia and France being two other key outsourcing markets.
The Philippine industry will less likely be isolated from the global political landscape according to some experts, especially now that the IT-BPM Plan for 2022 is taking place.
A cloud of uncertainty, however, hovers over the BPO industry worldwide due to the United States’ foreign strategic policy (FSP) uncertainties. According to Bullhorn’s Trends Report 2017, firms in the US ranks the US foreign strategic policy as third in their list of key challenges, next only to talent shortage and pricing pressure. Thus, many of the employers in the US ranks outsourcing recruitment processes as their least priority in 2017.
The Philippines, Still a Leading SSC destination in Southeast Asia
Just like the BPO industry, the shared services sector also continues to be on a roll. According to an SSON Analytics report, with a 64 percent upsurge in Shared Services Centers (SSCs) in the ASEAN region from 2010 to 2015, the Philippines is poised as the top destination for shared services.
Courtesy of SSON Analytics. To view the full report, register here.
The Philippines hosts one-quarter of all shared services centres across the ASEAN region (33.4% for captive/hybrid SSCs and 35.1% for MNC SSCs).
In a separate report by SSON Analytics focusing on the Philippines’ BPO and SSC market, with more and more businesses looking to jump-start operations in the country, the Philippines’ SSC industry has overtaken the BPO industry as the primary driver of growth in the Philippines since 2010. It means that are more new entrants in the SSC sector than in BPO.
BPO versus SSCs: Latest data from 2000 to 2015. The graph shows that BPOs outnumber SSCs, but SSCs overtake BPO in terms of growth in new entrants year on year. Graph courtesy of SSON Analytics. To view the full report, register here.
The BPO industry is robust, and the outlook for the industry is rosy. Experts believe it will be able to generate around US$40 billion despite the uncertainties posed by the political climate across the globe.
The Philippine captive SSC sector, on the other hand, is still driving the shared services growth in the country. While BPO hubs outnumber SSC hubs, the SSC sector has already overtaken the BPO industry in terms of new entrant growth rate since 2010.
There is an overarching challenge to the general offshoring and outsourcing industry, however: the vagueness of the effects of US-China relations on trade and investments, especially here in Asia. As such, the industry is advised to prepare for possible consequences and shift to offering more high-value services.
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Cuaresma, B. (2018, October 10). The Green-back faucet. Retrieved from https://businessmirror.com.ph/2018/10/11/the-green-back-faucet/
Cuaresma, B. (2019, May 15). OFW remittances hit 5-month high in March. Retrieved from https://businessmirror.com.ph/2019/05/16/ofw-remittances-hit-5-month-high-in-march/
Fortuno-Mioten, E. (2018). Opening up new opportunities for growth. Retrieved from https://www.bworldonline.com/opening-up-new-opportunities-for-growth/
IT and Business Process Association of the Philippines. (2017). The Philippine IT-BPM sector roadmap 2022 Accelerate PH: Future-ready executive summary. Retrieved from http://boi.gov.ph/wp-content/uploads/2018/03/Executive-Summary-Accelerate-PH-Future-Ready-Roadmap-2022_with-corrections.pdf
SSON Analytics. (2016). Growth of shared services centres in the ASEAN region 2016. Retrieved from https://www.sson-analytics.com/analytics-workbook/growth-shared-services-centres-asean-region?utm_source=aseanarticlesson&utm_medium=portal&utm_campaign=-external-other&utm_term=asean_vaw&utm_content=text&mac=dart_ssonarticleasean&disc=dart_ssonarticleasean
SSON Analytics. (2016). Philippines market deep dive: Captive SSCs and BPOs (2000 – 2015). Retrieved from https://www.sson-analytics.com/analytics-workbook/philippines-market-deep-dive-captive-sscs-and-bpos-2000-%E2%80%93-2015?mac=dart_ssonarticleph&disc=dart_ssonarticleph&utm_source=SSON&utm_campaign=Philippines_2016_VAW&utm_medium=SSON_Analytics_Column
SSON Analytics. (2016). The Philippines’ shared services growth Led by captive SSCs. Retrieved from https://www.sson-analytics.com/blog-entry/philippines%E2%80%99-shared-services-growth-led-captive-sscs