Outsourcing

Philippines outsourcing: the state of play in 2024

Despite the threat of automation and competition from other countries, as well as the residual impact of COVID-19, the Philippines BPO (business process outsourcing) industry continues to thrive in 2024, employing some 1.7 million workers. BPO is indeed a powerhouse of the Philippines economy.

Worth an estimated US$37 billion in 2024 and 9% of GDP, BPO is a job creation engine for Filipinos, who are employed in a range of call centre, marketing, I.T. and back office roles.

The Philippines is undisputed global leader in the area of customer experience outsourcing, which accounts for more than half the BPO pie. It is the location of choice for the North American market and very popular for Australia/New Zealand as well. Many contact centre agents are now working from home, showing how the industry has adapted since the pandemic to reflect global hybrid working trends.

When US and Australian companies first began outsourcing to the Philippines in the mid-1990s, offshoring of functions like the contact centre was little more than a way to provide an equivalent service at a lower cost. However the motivation for outsourcing has become more complex, as customer experience has become a key differentiator in competitive and commoditised sectors such as telecommunications, energy and insurance. BPO vendors have had to up their games and offer something more than just cost reduction. From analytics to AI, the Philippines outsourcing industry is moving up the value chain to meet the changing demands of its clients, and it’s possible to find a BPO partner for every possible need.

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Culture and language

One of the major objections Australian consumers raise about offshore customer service is the difficulty of being able to understand a strong accent and, in return, make oneself understood.

The Philippines’ unique history – as a Spanish and then US colony – has given it a culture that is much closer to that of the developed Western world than that of its neighbours or competitors in the global outsourcing industry such as India, Indonesia, and China.

In the EF English Proficiency Index, based on testing of 2.2 million adults in 113 countries, the Philippines is ranked in the top 20 countries in the world, easily beating India (ranked 60th) and China (82nd).

Filipinos learn English from a young age, English-speaking TV shows and movies are generally not dubbed or subtitled, and most of the country’s highly-educated workforce speak English daily as it is the country’s language of business. It means that the average Filipino speaks an American-style English with a neutral accent and has a good understanding of globally recognised idioms. Both factors are crucial to being able to hold natural conversations with native English-speaking customers in western countries such as Australia, the UK, and the United States.

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Talent and experience

The literacy rate in the Philippines is high, at around 96%, according to the World Bank. Every year around half a million graduates join the world’s third largest English-speaking workforce. Like their counterparts in Mumbai and other high-tech hubs in the developing world, Filipino staff are extremely IT savvy.

As the BPO industry has established itself and become a vital part of the economy, jobs in the sector are now well thought of and much sought after. Local universities offer courses which equip their graduates to do the types of tasks that are being offshored.

It is not just call centre services that are outsourcing to the Philippines. Other services include data entry, accounting, animation, medical transcription, software development and digital marketing. The sheer size of the Philippines’ BPO industry gives it a breadth and depth of experience that few other destinations compete with.

Location options

While Manila is the BPO epicentre, other cities in the Philippines have a thriving BPO industry, according to IBPAP, the industry’s peak body. Alternatives including Cebu, Davao, Iloilo, Clark and Cagayan de Oro offer a much shorter commute than the 2-hour average for workers with office-based jobs in Manila.

With more than 5% of Manila’s workforce employed in BPO, which is near saturation levels, more and more businesses are considering broadening their footprint, particularly in light of growing client acceptance of home based workers.

850,000 new graduates hit the market each year, ensuring ongoing replenishment of the labour force.

It is estimated that while the majority of overseas businesses prefer to partner with a BPO in the Philippines, 20-25% opt to invest in their own office or operation, otherwise known as a “captive” or “inhouse centre”.

Sector success

Financial services (including banking, insurance and fintech) is the biggest outsourcer to the Philippines, followed by the telecommunications/media and retail sectors.

One of the sectors that has grown rapidly in the Philippines throughout 2023/24 is healthcare, which now accounts for 12% of the volume of work outsourced. Game development and animation services are also fast-growing niches to watch.

Business-friendly environment

After 35 years spent developing its BPO industry, the Philippines boasts infrastructure, technology, and government support second to none.

The trend to outsource in the Philippines developed somewhat later than the Indian cities with which it now competes. Learning from their successes and failures, Filipino cities were able to build world-class infrastructure – highways, schools and colleges, utilities and communications – from scratch. The country’s cities are dotted with high-tech hubs that are all connected by world-class transportation and telecommunications links.

Additionally, the government has been keen to attract outsourcing providers and their clients and can rightly take a lot of credit for the boom in the outsourcing industry. It has long made available financial incentives including tax holidays, duty waivers, reduced taxes, training and education grants, and other awards for companies setting up in the Philippines. This has created a virtuous circle of growth, where every new outsourcer and client helps create the environment to attract more.

Finally, to do business in a global and digitised world, BPOs need access to leading technology solutions. Partnering with the world’s biggest technology giants, including Microsoft, Philippines-based BPOs have been at the forefront of the use of technologies like IP telephony, social media, webchat, and video chat for customer interaction.

All this and low costs too

Even though the Philippines today offers so much more than just the ability to reduce costs, it is still a major reason that companies outsource offshore. As a developing nation, the cost of living, doing business, and hiring people in the Philippines is a fraction of that in western countries. The Philippines is also very competitive even compared to its South East Asia neighbours.

For example, the daily minimum wage in the Philippines in 2024 is 610 pesos (approximately US$10). Companies can employ well-trained graduates in many fields for a monthly salary of around US$400. The salaries for IT professionals and developers as well as contact centre supervisors and managers are all a fraction of the cost to hire than their counterparts in Australia and the US.

Rather than hire workers directly, overseas businesses more often than not contract with a BPO to either provide a managed service, or as an entity they can “lease” staff through. The latter model is particularly popular with SMEs and certain sectors such as ecommerce.

While costs may rise in the future with living standards, they are unlikely to rise as quickly as they do in developed nations for some time yet. So, while some US and Australian companies will make a fanfare of moving contact centre work back onshore, many will continue to make use of the high skill levels, English proficiency, experience, infrastructure and more sustainable cost-base the Philippines has to offer.