Outsourcing has been one of the popular go-to solutions for many companies around the world for decades. It has become a game-changing business strategy that has provided businesses with substantial gains. Even during the COVID-19 pandemic, the industry weathered economic drawdowns and even witnessed significant growth.
Years after the first lockdown, we are now in the midst of an economic recovery. With this gradual return to a semblance of normalcy while a global recession flirts up ahead, how is outsourcing in the Philippines faring after the pandemic?
In this article, we will look at the state of the Information Technology Business Process Outsourcing (IT-BPO) industry in the country and what this means for startups, small to medium businesses (SMBs), and large companies in Australia.
Look Back: Outsourcing in the Philippines During the Pandemic
Before we look at the present state of the outsourcing industry. Let us look back at how the IT-BPO sector in the country fared during the tumultuous economic climate caused by the pandemic.
The history of outsourcing in the Philippines’ industry spans all the way back to 1992. Since its introduction, the country has grown into a premier IT-BPO destination around the world, to the point that it was dubbed the BPO capital of the world back in 2010.
However, when the outbreak of COVID-19 reached the Philippines’ shores, the country went into a hard lockdown in March 2020.
In the first few months, essential sectors, such as healthcare, government, and the food-service sector, were operating as frontliners. At the same time, other industries had to either face a standstill or quickly adapt by going fully remote—such is the case for the IT-BPO sector.
Outsourcing in the Philippines fared surprisingly well. In fact, despite the pandemic and abrupt migration to remote work, in 2020 alone, the Philippine IT-BPO industry’s total revenue increased by 1.4%, which is valued at USD 26.7 billion. In the same year, the industry’s manpower grew by 1.8%, showing a total of 1.32 million working professionals.
Moreover, the changes induced by the pandemic underscored the importance of a robust digital infrastructure, even at the internal level of businesses.
A mid-2020 survey commissioned by Epson, a Japanese multinational electronic company, showed more than 50% of SMBs in the country were in the process of digital transformation. The financial services and IT-BPO sectors were at the forefront of migrating to cloud-based solutions. In addition, the outsourcing industry was making strides in adopting automation technology.
In 2021, the country experienced two more major lockdowns due to the new strains of the COVID-19 virus. Even so, the outsourcing industry in the Philippines continues to thrive.
The Bangko Sentral ng Pilipinas (BSP) upgraded its projections from 5% to 9%. This showed a 4% gap between the initial prediction for 2020 and the reported earnings for the year’s first nine months. In addition, according to the IT and Business Process Association of the Philippines (IBPAP), the industry’s total manpower accounted for 1.44 million full-time employees.
Now: Outsourcing in the Philippines After the Pandemic
After reaching a new high of 10.6% growth in 2021, valued at USD 29.5 billion, IBPAP predicts it will have a snowball effect in the following years. This means the boom of outsourcing in the Philippines during the height of the pandemic will continue.
This prediction is affirmed by the total revenue generated by the IT-BPO industry last year. The sector broke its own record from the 2021 total revenue with USD 32.5 billion in 2022, showing yet another substantial growth of up to 10.3%. Proportionally, in the same year, the industry’s manpower grew by 8.4%, which equates to 1.57 million full-time employees.
In relation to the snowball effect, according to the results from the First Quarter 2023 Business Expectations Survey by the BSP, investors’ confidence index (CI) rose to 34 from 23.9 in the previous quarter. This increased confidence aligns with the news that the Philippine economy is fully reopening and restrictions have been lifted.
However, in the same survey, most outsourcing companies have opted to postpone their expansion plans and wait due to insufficient demand and high-interest rates. Even if most companies in the sector are being cautious given the present financial climate, they remain optimistic.
In fact, in another survey conducted by the IBPAP, 83% of outsourcing companies expect their operations to increase later this year, while 17% of survey respondents remain neutral. This is despite the looming threat posed by the potential global recession up ahead.
Amid the ease of restrictions, the sector has been entangled with the Department of Finance (DoF) to amend their order that all IT-BPO firms must return to on-site operations in April 2022, in line with the country’s economic reopening. In addition, the sector actively lobbied for legislation to allow “long-term implementation of hybrid work” and similar schemes to compete with other countries.
The FIRB Resolution No. 017-22 required outsourcing firms to have 70% of their workforce operating onsite, while 30% were allowed to work remotely. This was meant to ease the companies and employees back in and was set to expire in September 2022.
Luckily, in the same month, the DoF conceded and allowed outsourcing companies to continue conducting remote operations while still being able to avail themselves of fiscal incentives.
The solution was for IT-BPO firms to transfer their registration from the Philippine Economic Zone Authority (PEZA) to the Board of Investments (BOI). At the same time, the government will transfer the benefits to the BOI so that the firms can continue to benefit from the tax incentives.
For 2023, IBPAP expects the industry to maintain its growth at around 8% to 10% in total revenues and 7% to 8% in terms of total headcount. However, given the high demand for outsourcing and the incentives provided by the government, it is possible that the sector will reach new highs yet again beyond what is projected.
How do Australian businesses benefit from this?
It has already been established that there is a big boon when it comes to outsourcing. Australian businesses are fully aware of this and have continually outsourced to Philippines IT-BPO agencies.
With talk of a global recession constantly being flirted with in the news, Australian businesses may potentially migrate more of their operations from in-house to Philippine offshoring agencies. This is a natural option, given the fact that the outsourcing sector in the archipelagic nation has been proven to be resilient and even showed exponential growth despite the pandemic and the economic headwinds that came with it.
In addition, according to Tonichi Achurra-Parekh, a board member of the Contact Center Association of the Philippines (CCAP), a non-profit organisation that actively promotes awareness of the industry, “Businesses have nowhere else to go but in the Philippines.”
Moreover, businesses in the Philippines are expected to grow further and become more capable of thriving in today’s digital economy.
This is no mere speculation. In fact, the Philippine Trade Training Center (PTTC) partnered with Proxtera and Globe Telecom to provide online courses to micro, small, and medium enterprises (MSMEs). Plus, PEZA and IBPAP have plans to attract investments and cooperate with the United States Agency for International Development’s (USAID) initiative to prepare the Filipino workforce for Industry 4.0.
This aligns with IBPAP’s pledge to generate an annual compound growth rate of 10.4%, which equates to USD 59 billion in annual revenues, and around 2.5 million jobs, based on the IT-BPM Industry Roadmap 2028.
Essentially, Australian businesses will still enjoy affordable labour costs without having to sacrifice quality. Moreover, they can expect more top-rated services to be offered by Philippines outsourcing firms. This provides them with a recession-proof strategy that will not only help them weather the economic storm that is about to come but also potentially grow.
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