BPO sector to play major role in Phl economic growth this year – WB

MANILA, Philippines – The Philippine economy is projected to expand by five percent in 2011 with the business process outsourcing (BPO) industry expected to play an important role, according to the World Bank.

In its latest Philippine Quarterly Report, the World Bank noted that the catalysts for growth last year had “run its course.” These include election spending, recovery of exports and manufacturing, accommodative monetary and fiscal policies, rebuilding of inventories, and the withdrawal of policy stimuli.

It added net exports are seen to remain strong, the services sector will be the main driver for growth, and the BPO sector will play a key role in both segments.

“The services exports are rising strongly in the Philippines and provide an important source of diversification of the country’s exports as these have long been dominated by electronics and semiconductors,” the report said.

It further noted that the rapidly rising BPO sector is building on the natural comparative advantages of the Philippines, namely a cost-competitive platform built around an English-speaking, technology-savvy young labor force, readily available telecommunication infrastructure, and a favorable economic zone environment.

The Philippines is a net services exporter, and the BPO sector has been contributing to the country’s balance of payments (BOP) as much as the remittance inflows of the overseas Filipino.

BPO services are recorded in communications, computer and information and miscellaneous business, professional and technical services of the BOP. It is an intensive user of human capital and communications and information technology (IT), and has bucked the downward trend of the global financial crisis.

Its revenues amounted to 71 percent of all services exports, or four percent of gross domestic product (GDP) in 2009. The BPO sector has gained comparative advantage in world BPO services. According to the Business Process Association of the Philippines (BPAP), nearly 100 percent of the sector’s production is for exports.

The BPAP said that the industry employed 235,000 individuals, earning $3.3 billion in revenues, and contributing roughly two percent of GDP in 2006. In the same period, it captured nearly five percent market share in the global market.

The association estimates that if it can grow by roughly 40-percent per annum, the Philippine BPO sector can grab a 10-percent share of the global market. It could earn revenues worth $13 billion and directly employ nearly a million people.

The BPO sector in the Philippines actually started in the 1970s with data entry and accounting, but grew exponentially in software development and animation in 1980s. Since then it has expanded into contact centers, medical, legal transcription, and back-office functions. The country is now a leader in the contact center field.

Export destination of the BPO sector has also become more diversified. The United States has been the sector’s major client but its share has been declining from 86 percent of total BPO revenues in 2004 to 68 percent in 2008.

Japan, on the other hand has grown from three percent in 2004 to 16 percent in 2008. Europe takes up nine percent and the remainder is mostly exported to other Asian countries and Australia.

However, the US is the main importer of contact center BPO, while Japan is for software development, animation and other IT-related BPO.

The World Bank report said that the total labor costs of the Philippines are at 16 percent of the US, and compensation costs of the Philippines are on par with that of India.

The industry enjoys lowest-cost business-grade voice-over-Internet protocol to the US at $0.01 per minute. As for real estate costs, Makati City offers rates lower than Beijing and Mumbai.

In 2008, a total of 444,810 college graduates entered the market with skills appropriate for the BPO sector: 125,000 students from the medical and science-related field, some 100,000 from business, accounting and related fields and another 100,000 from the IT, engineering and architecture fields.

“These young talents in the IT-related field are a key factor to host software development and other IT-BPOs from Japan. English proficiency and Filipinos’ affinities to the US culture and accounting and legal system contribute to strong exports of contact center and back office BPO services,” the World Bank said.

The report also noted that the Philippines offered generous and competitive tax incentives, including income tax holiday of six to eight years and a five-percent gross income tax rate thereafter (in lieu of all national and local taxes).

“During the tax holiday period, the net margin rate is estimated at 11-21 percent for the Philippines and 13-16 percent for India. After the income tax holiday period, the two countries are roughly on par: nine to 14 percent for the Philippines and 10-13 percent for India,” it added. –Ted P. Torres (The Philippine Star)