THE information technology and business process management (IT-BPM) industry has proven to be “indispensable” to the Philippine economy—not succumbing to uncertainty such as the pandemic and the global economic headwinds.
“Indispensable” was the word Jack Madrid, the President and CEO of IT and Business Process Association of the Philippines (IBPAP), used in one of his recent interviews to describe the IT-BPM sector as a pillar of the Philippine economy.
Trade Secretary Alfredo E. Pascual has always included the country’s business process outsourcing (BPO) industry in his pitch to foreign investors. The IT-BPM sector, alongside hyperscale data centers, digital economy activities and products using artificial intelligence (AI), has been filed under the Second Industrial cluster of the Department of Trade and Industry (DTI)’s industrialization strategy.
“The next decade will witness the BPO industry segment as a competitive contributor to our participation in the global value chains of technology, media, and telecommunications cluster,” said Pascual in his speech at the Philippine Economic Briefing in New York.
“We are leveraging the fact that 82 percent of BPOs and shared services centers in the Philippines are serving the global markets. When it comes to the IT-BPM segment, we like investments that prioritize value addition over cost savings,” the Trade chief added.
Pascual also noted that the country’s “strong” BPO record is drawing the attention of hyperscalers. “We consider hyperscalers as an important engine of growth for our country.”
Further, at the post-State of the Nation Address (Sona) Economic briefing, the Trade chief highlighted that the IT-BPM industry’s potential is even greater now with the heightened use of digitalization and online services as a result of the pandemic. Pascual emphasized, “so that’s one of the sectors we’re focusing on in DTI so that we encourage more locators here to set up their IT-BPM backroom operation.”
Even amid the pandemic, particularly in 2021, the IT-BPM industry has remained resilient as it recorded increases in revenue and employment. In fact, according to a statement released by IBPAP in August, the IT-BPM sector contributed 7.5 percent to the country’s Gross Domestic Product (GDP) in 2021.
It posted a 10.6-percent growth in revenue from 2020 levels to $29.49 billion in 2021, eclipsing its recalibrated target for 2022. As for employment, the number of full-time employees (FTEs) in the country increased by 120,000 in 2021, bringing the sector’s total headcount to 1.44 million and recording a growth of 9.1 percent compared to 2020.
Madrid described such robust growth in both employment and revenues as “beyond recovery,” noting that this “marks a resurgence for the Philippine IT-BPM sector.”
IBPAP, the flagship organization of the IT-BPM sector, attributed the growth to pent-up demand from global customers; higher confidence in work-from-home (WFH) setups by clients in contact centers and business process services; and growth in subsegments like e-commerce, fintech, health care and technology.
Global perspective
MEANWHILE, on a global scale, the executive summary of Philippine IT-BPM Sector Roadmap 2022 shows that India and the Philippines share the same spot as global leaders in the IT-BPM sector and remain at the forefront of voice and non-voice BPM as well as IT services.
The executive summary noted that India has Good IT infrastructure and service capabilities and a large talent pool while the Philippines has high adaptability to Western culture and has language and service orientation as its competitive advantage.
As for the economic headwinds, Madrid stressed that “at the base level,” the depreciation of the local currency would appear to be in favor of the cost optimization of the Philippine IT-BPM players. However, he emphasized that the strength of the US dollar also affected other currencies, including those of the emerging IT-BPM locations.
“It’s a volatile situation and we’ve seen the recent strength of the US dollar affect other currencies as well; and many of those currencies are also the currencies of other emerging IT-BPM locations. So we have to analyze it in that light. So at an immediate level, it would appear that this would favor the cost competitiveness of Philippine IT-BPM players but it’s not the only factor,” the IBPAP head said in a virtual press conference last week.
With this, he shifted to the more “critical” component in driving investments into the local IT-BPM industry.
“I think the experience of the past two years has really highlighted the more critical, in my opinion, component of talent and the quality of talent and the employability of talent as an investment consideration,” Madrid noted.
Madrid said cost optimization from investors and employers in the industry and its customers is “always an important consideration in growing the offshoring business.”
The head of IBPAP also noted that over the past decade, a lion’s share of the industry’s global customer and the unceasing demand for Filipino talent has come from North America.
In fact, Madrid said, “our estimate is that 70 percent of our current business emanates from North America and I believe that share will continue to be maintained.”
However, he added, the fastest-growing percentage of business has come from the Asia-Pacific region. “It will remain North America but we have seen demand for Filipino talent from our APAC neighbors.”
“I believe our Filipino employees will continue to be our main competitive edge. We have a proven history of resolving customer queries,” Madrid said.
Notably, according to an article by Outsource Accelerator, the global BPO market is projected to reach $513 billion by 2030 at a compound annual growth rate (CAGR) of 8.5 percent.
“The rise and growth of the BPO industry will also be fueled by innovation, global rivalry, and new technologies as outsourcing gives companies the ability to enhance earnings while reducing costs,” read the article which was published on July 15.
Meanwhile, region-wise, the article stated, “Asia Pacific will remain the fastest-growing with an estimated value of $148 billion by 2030 at a CAGR of 10.3 percent. Leading vendors such as HCL Technologies Ltd., Infosys Ltd., Accenture and Wipro are driving market expansion by increasing demand for talented workers, lowering labor costs, and making significant digital investments.”
Work-from-home
ALONGSIDE the criticality of the Filipino talent is the preferred work arrangement that has been the talk of the town as Filipino employees continue to transition from the pandemic to the “new normal.”
Prior to ironing out the issue on the work-from-home arrangement of IT-BPM firms, these enterprises had to go through regulatory adjustments such as complying with the work-from-home threshold set by the Fiscal Incentives Review Board (FIRB).
In March, the Bureau of Internal Revenue (BIR) warned that income tax incentives granted to registered business enterprises (RBEs) in the IT-BPM sector will be suspended if they violated the said threshold. The IBPAP stood firm in its position on the WFH/hybrid work and the legal basis of the letters of authority (LOAs) granted by the Philippine Economic Zone Authority (PEZA) to allow 30 percent WFH arrangement until September 12 of this year.
On September 6, a week before the WFH threshold expired, the IBPAP disputed the FIRB’s claim that the extension of the work-from-home (WFH) set-up has no legal basis. Madrid earlier stressed that this is “inconsistent” with the objective of attracting and retaining investors in the country’s “biggest job-generating industry and contributor of foreign exchange revenue.”
The IBPAP chief asserted that the flagship organization of the IT-BPM industry’s push to have WFH/hybrid work set-up goes beyond business continuity plans (BCP). Madrid pointed out that this is more to adapt to global work trends for business flexibility that investors look for and to strengthen Philippines’s competitiveness in retaining existing and attracting new IT-BPM investors.
For its part, the Employers Confederation of the Philippines (ECOP) also earlier called on the government to encourage productivity improvement by supporting flexible work arrangements.
“To create an environment that will encourage more inflows of investments, remove red tape, allow ease and flexibility of doing business, protect employers’ rights to manage their business and their workforce, and encourage productivity improvement by supporting alternative and flexible work arrangements,” read the Conference resolutions document that the business group released in August.
Just last month, a week after the much-awaited decision on the WFH arrangement, the FIRB put an end to the rift by allowing the transfer of registration of IT-BPM enterprises from PEZA to the Board of Investments (BOI), since BOI is the only investment promotion agency (IPA) not affected by the boundary constraints or zone limits.
The DTI noted that with the transfer, IT-BPM firms can become eligible for increased WFH setup.
With this transfer, these firms can continue accessing fiscal incentives without violating Section 309 of the National Internal Revenue Code of 1997, as amended by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law.
The IBPAP chief hailed this decision, noting that the WFH/hybrid setup is a “game-changer” for the Philippines and the sustainability of the IT-BPM sector. Further, Madrid said this will be a contributing factor to the industry’s ability to create 1.1 million new direct jobs for Filipinos, generate billions more in annual investment revenues and foreign exchange, and increase the sector’s countryside footprint by 2028. Of the 1.1 million direct jobs it is expected to create, the IBPAP said 54 percent of these will be in the countryside. A good indicator that, beyond simply boosting aggregate growth, the sector can help disperse development and create jobs more evenly.
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