Philippines
The Philippines is a leading nation in the business process outsourcing (BPO) market, both in call center services and the non- voice sector. It is an emerging player in the IT services market (Web design, software development, application maintenance, etc.) with companies focusing on niche segments such as animation.
Much of the attention (especially by US companies) on the Philippines is attributed to its primary strengths: strong English speaking skills and awareness of Western business culture. Many Fortune 500 companies have chosen the Philippines as their destination for outsourced service because of other noticeable strengths including: competitive labor rates, high literacy and a stable telecommunications infrastructure. The numbers clearly show these facts: in 2006, Philippine offshore outsourcing (IT and BPO) was about $3.3 billion and has grown at over 30% per year to an estimated $9 billion in 2009.
The offshore outsourcing industry in the Philippines first started in the 1990s, but really started growing in earnest at the start of this decade. As late as 2004, the industry was only about $1.5 billion, but grew at almost 50% for several years and is now estimated to be growing at about 30% and will reach $9 billion in 2009. Initially the focus was on call centers and low value added BPO, however growth over the last few years has centerd on higher value activities such as web design, software development, animation, legal services, medical transcription, and other shared services. Many of the older outsourcing operations are located in the capital city of Manila, but there is significant growth in secondary cities such as Cebu City, Pasig City, Quezon City and Mandaluyong City.
Country overview
With a population of 90 million, the Philippines is one of the 10 largest outsourcing countries, but is less than one tenth the size of China or India. It has a relatively low per capita income and consequently is in the middle of the pack in economic size. Politically, the Philippines is a representative democracy with national elections on a six year cycle.
Economically, the Philippines has been doing well. Economic growth has averaged 5% since 2001 under President Macapagal-Arroyo’s leadership. In 2007, the economy accelerated and grew at 7%, but then slowed to 3.8% with the worldwide economic downturn. Despite this good overall performance, the economy still faces a number of long-term challenges. Poverty and uneven income distribution remain problems and sustained growth will be necessary to grow employment and support increased government investment in infrastructure and education.
By sector, the labor force can be divided between agriculture (which makes up 35%), industry (15%) and services (50%). Unemployment has been estimated at 7.4% in 2008. The country's per capita income from 2006 to 2008 was at USD $3,100, $3,200, and $3,300 respectively.
Language and literacy play an important role in the Philippines ascendance as an outsourcing destination. It is the third largest English speaking population in the world and has one of the highest literacy rates in the region.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Cost competitiveness
The Philippines is one of the most cost effective locations for IT (web design, software development, animation, etc.) and BPO (voice and non-voice) in the world. Employee compensation costs, the primary cost component of any outsourcing operation can be a tenth to a fifth of that for a domestic US operation. Furthermore, with recent wage inflation in India, these costs are below those of Indian based employees.
Salaries, excluding bonuses or other non-cash compensation, for junior technical resources are $4,400 to $6,700 per annum. Resources are relatively more expensive at the senior levels, but still modest by US standards. Senior software engineers with 10-20 years experience can expect salaries of $12,000 to $24,000 which are about 20% to 25 percent of those in the US.
Real estate
Office occupancy costs are also relatively low. Costs for prime real estate in central business districts is about half that of the US and lower than what one finds in the large Indian cities. General tax rates are high in the Philippines, on par with the US, but the offshore outsourcing sector has numerous tax incentives that minimize the impact. Other expenditures such as communications and electricity are about 50 percent less than U.S. rates.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Occupancy costs are for Manila.
Resources and skills
Education and skills
Language
Technological readiness
Source: CIA Factbook, 2009
Source: NASSCOM, SourcingLine, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Business and economic environment
Economic competitiveness and stability
The Philippines has moderate competitiveness scoring a 3.96 global competitive index. Macro economic stability in the nation is high with a 4.6 index, higher than the United States.
Infrastructure
A nation’s infrastructure is a major component in deciding where to set up sourcing projects. Road quality is quite low, with a score of just 2.8 is falls well below Western standards - comparable to Russia and many of the former Soviet states. Electric supply is similarly low with just a 3.4 index.
Regulation
The Philippines is generally not an easy place to operate business, ranked 148th globally. Starting and registering a new company takes on average thirty-eight days and filing taxes will typically take 195 hours to complete.
Corruption
Corruption is a major factor when contemplating where to establish an outsourcing operation. High levels of corruption can often lead to unforeseen costs and lower efficiency in the workplace. The Philippines scores a 2.4 index, among the worst scores globally.
Legal and intellectual property protection
Contract enforcement is a major component in operating a business overseas. The cost of enforcing a contract is twenty-six percent and will generally take more than 840 days to complete. There are thirty-seven procedures in place to fully execute a contract in the Philippines. Intellectual property protections are low, below Pakistan and Thailand. Software piracy is fairly high in the country at 69 percent - much higher than the US (20 percent) and Singapore (35 percent).
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009