A perfect storm of opportunity can propel the Philippines’ IT-BPO industry to US$33 billion in revenues by 2016, dramatically exceeding the best-case scenario forecast in the IT-BPO Road Map 2011-2016, according to Alejandro P. Melchor III. Other ICT opportunities can generate an additional $17 billion, boosting total IT-BPO industry revenues to an eye-popping $50 billion, Mr. Melchor predicts.
Mr. Melchor is the deputy executive director for ICT industry development of the Department of Science & Technology’s Information & Communications Technology Office (DOST-ICTO). The IT-BPO Road Map 2011-2016 is a study undertaken by Everest Group and Outsource2Philippines in 2010. Engaged by the Business Processing Association of the Philippines (BPAP) and supported with funding from the DOCT-ICTO’s precursor, the Commission on Information & Communications Technology, the two companies forecast IT-BPO revenues in 2016 of up to $25 billion, under the right circumstances.
What makes Mr. Melchor believe that the industry can actually generate twice that amount four years from now? He believes that conditions within the industry have rapidly evolved over the past year with the result that circumstances are right for the Philippines to extend its lead in voice services while becoming the global industry leader in at least four other fast-growing, non-voice complex services segments.
The reason? The “Philippines has pulled away from the pack and established itself as the clear global number two after India in worldwide IT-BPO,” Mr. Melchor has been telling audiences around the country.
He suggests that although competition in the global IT-BPO industry has mushroomed in recent years, competitors trail India and the Philippines. The Philippines became number one in global voice services in 2010, but is number two to India in a number of non-voice segments, particularly ITO, or IT outsourcing. The caveat is that Philippine non-voice services segments are growing faster than voice services.
As a result, the “Philippines has become the destination of choice,” Mr. Melchor says, with the “world’s top locators on hyper-growth mode.” He cites IBM, Accenture and HP in the technology space. Most global banking institutions have a significant presence in the Philippines, with thousands of employees each working in multiple locations. Global energy firms such as Shell and Caltex have leveraged the Philippines for its back-office capabilities for many years.
Increasing demand and successful experiences in these areas have positioned the Philippines to dominate four fast-emerging segments: Healthcare information management, finance and accounting, HR, and creative processes. Last year, health information management grew 172% according to BPAP, and non-voice BPO and knowledge process outsourcing (KPO) services jumped 24%.
Mr. Melchor believes that the Philippines is also positioned to become a major, if not the dominant supplier in information technology, engineering services, and even multilingual BPO. ITO grew an impressive 37% last year, and India’s media have begun picking up on this shift, noting that it can’t assume it will continue to lead this segment simply because of its large supply of engineers.
Global Services, an industry advisory firm, recently wrote that aside from its own pool of IT engineers and other workers in this segment, the Philippines boasts a more attractive incentives regime for investors than India. Mr. Melchor reiterates this point, arguing that increasing ITO investment in the Philippines shows that investment incentives are a critical factor in a nation’s competitiveness and in investors’ appreciation of investment locations.
In 2011, engineering services, another promising segment for the Philippines, expanded at a modest rate, five percent, but the real news is in the kind of services that are being performed from the Philippines. The Philippines has transitioned from support services to full project design and management, according to executives in the industry. If we consider growth in high-value engineering services delivered from the Philippines, growth would be much higher.
Of course, there are risks. Aside from zealously maintaining investor incentives, the Philippines must address a shortage in talent supply which is mostly the product of poor educational infrastructure and misunderstanding of the industry among many graduates, their parents, and professionals who might otherwise consider a career in IT-BPO. There are also external threats.
Although U.S. legislation to penalize companies for outsourcing has little chance of passing the U.S. Congress, the Obama administration appears to be moving to undermine the global industry. Major India IT-BPO providers, U.S. technology companies, and the U.S. Chamber of Commerce recently wrote President Barack Obama noting increased scrutiny of L-1 visa applications and a rise in rejections.
An American IT-BPO executive based here told me days ago that when he last visited the U.S., immigration authorities refused to allow him entry—despite his citizenship—if he didn’t reveal who his U.S. clients are. These instances show that the Philippines must be prepared to argue its case—along with the industry—for free trade, and articulate the benefits outsourcing provides to the global economy to achieve Mr. Melchor’s vision.
(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand. Write him at email@example.com and follow him on Twitter, Facebook and LinkedIn. Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.)