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“The Status of Business Process

Outsourcing Industry in the Philippines”

An Industry Analysis Paper for 2S-SOC15 Macroeconomics

By:

Laguidao, Christian Arlmel A.


Provido, Wendie
Remulta, Symmone Kyla
Sandoval, Mark Harry
Sangrones, Carlo
The BPO Sector
The contracting of a third-party agency or professional to handle certain jobs and
processes that were typically done within the corporation is referred to as business process
outsourcing. BPO can be done on a local, national, or global scale. Non-core activities such as
back office work, as well as highly specialized and technical services ranging from data analytics
to consultancy, are outsourced by businesses. Manufacturing companies were among the first to
use business process outsourcing, hiring third-party service providers to manage critical supply
chain components. Because of the Internet and advancements in worldwide telecommunications,
businesses could simply recruit someone from a country with lower labor.
Business process outsourcing is used by companies for two types of tasks: back-office
and front-office operations. Accounting, information technology (IT) services, human resources
(HR), quality assurance, and payment processing are some of the back-office tasks, sometimes
known as internal business functions. Customer service, marketing, and sales are examples of
front-office functions. BPO contracts can entail handing over a whole functional area to a single
vendor, such as the human resources department. Specific processes within a functional area are
frequently outsourced as well. For instance, a company might outsource payroll yet handle all
other HR functions in-house.
BPO has a variety of advantages. One of the key benefits is that it reduces costs.
Internally, performing a given job function costs a set amount of money. Outsourcing this job to
an external entity, frequently in a less cost-intensive country, can minimize these costs by
lowering the overall cost of doing that job function. Other benefits include allowing a company
to focus on essential business processes that are critical to its success rather than administrative
tasks or other non-critical components of running a business. BPO also contributes to growth,
particularly in terms of worldwide expansion. If a firm wants to build an overseas office or
operate in another country, working with a BPO provider that has experience in the local industry
and knows the language is tremendously useful.
While BPO has many benefits, it also has certain drawbacks. A company that outsources
its business activities may be vulnerable to data breaches or have communication challenges that
cause project delays, and such companies may misjudge the operating costs of BPO providers.
Another negative could be customer resentment of outsourcing if they believe it is of poor
quality or at the price of domestic employment. Nevertheless, BPO is still one of the leading
industries in the Philippines.

Outsourcing Industry Status in the Philippines


The rise of the offshore service sector in countries like India and the Philippines,
comprising the provision of digital service work to overseas clients enabled by information and
communication technology (ICT), is well acknowledged (Beerepoot and Oprins, 2021). These
evolving global services production provides new economic opportunities and the most visible
example of these economic opportunities is the variety of BPO services such as low-value-added
voice-based services (call centers).
Since the first call center opened in 1992, the Philippine BPO industry has grown rapidly.
This industry has gradually risen and established itself as a global leader over the years. The
BPO industry is expanding at an exponential rate season after season, beefing up the economy
and employing 1.3 million Filipinos at the current count. Based on Filipino’s financial
attractiveness, people skills and availability, and business environment, the Philippines ranks
seventh among the world's top outsourcing destinations. According to a report by
Talmage-Rostron (2021), each year, the BPO industry in the Philippines provides roughly $30
billion to the economy. In 2019, 1.3 million Filipinos were anticipated to be working in over
1000 BPO companies, with that number growing at an annual rate of 8-10%. According to
projections, the country controls 10-15% of the global BPO business. The Philippines is a perfect
and ideal BPO hub due to its high level English language competence, a warm and polite
atmosphere, and due to cost-effectiveness (Zoleta, 2021) in which a business outsource in the
Philippines can save up to 50% - 80% on labor and infrastructure costs. The Philippine
government began supporting BPO companies in 2001 in order to minimize unemployment, and
by 2021, that support had risen rapidly in order to prevent the COVID economic disaster. As a
result, President Rodrigo Duterte recognized the BPO sector's importance in the Philippine
economy, citing it as one of the country's major contributors to GDP.
During the early stages of the Covid-19 epidemic, business process outsourcing (BPO)
was affected by changes in demand and restrictions on worker mobility (Oxford Business Group,
n.d.). The BPO industry in the Philippines is directly impacted by the decrease in demand. Some
clients withdrew their funds, leaving staff in limbo. Industry companies swiftly introduced
remote work and cut shift lengths as the virus broke out. In the early stages, this posed capacity
issues, as well as the fact that certain BPO firms were dealing with decreased demand for their
services as a result of project deferrals and cancellations. Authorities eventually compelled BPO
firms to install work-from-home setups as more areas (Ramirez, 2021), particularly Visayas and
Mindanao, were placed under the much-needed CQ rules. Almost three out of every five BPO
employees work from home as part of an outsourcing company's strategy. The government has
mandated that BPO firms offer on-site staff with lodging, transportation, and meals. BPO agents,
for example, continue to complain about unpredictable internet connections, as well as slowing
down of their devices. 2020 could be a difficult year for the BPO industry. Even a worldwide
health crisis, however, will not be able to stop it. It will continue to employ millions of Filipinos
and contribute billions of dollars to the country's economy in the next few years.
Unlike the early months of 2020, when COVID-19 caught us off guard, the business
world – and BPO & Shared Services are better equipped to stabilize and adapt to a new working
environment with better healthcare protocols in the workplace, on-site and off-site delegation of
teams, and flexible working schedules – has a more stable and optimistic outlook in 2021. As a
result, Ramirez (2021) highlighted that workplace healthcare is the primary goal, with an
emphasis on boosting CSR and community outreach, employee welfare, with HMO and
insurance coverage supplied over time, and encouraging workplace inclusion and diversity.
Furthermore, as part of the new normal, businesses were free to relocate operations to their
homes in order to prioritize employee safety (Offshore Staffing Solutions, 2021). Those who
now work from home have enhanced internet access and other company-provided solutions. To
maintain regular contact with clients and their staff, companies have expanded their use of
collaboration platforms like Skype to include others like Zoom and Google Hangouts. Also,
BPOs are seeking office spaces (Crismundo, 2021) in provinces such as Cebu, Pampanga, Iloilo,
Bacolod, and Davao in order to efficiently expand. This is a good indication because it will
provide jobs, boost the region's commercial capacities, generate tax revenue, and upskill the local
workforce.
To furtherly cope in 2021, BPO firms employed emerging trends to successfully solve
market difficulties, improve product and service offerings, and manage personnel shortages – all
while lowering operational costs (Soucy, 2021). BPOs are reducing expenses and accelerating
growth by utilizing emerging technology such as social media management tools. Companies in
the Philippines are now looking to invest in real-time customer involvement to acquire first-hand
product insights and turn difficulties into new goods or solutions that will solve future problems.
As a result, a growing number of BPO service providers are establishing dedicated social media
service teams. When social media teams and customer service personnel work together, they can
handle customer complaints much more quickly, resulting in improved customer satisfaction and
a better customer experience. On the other hand, a skills shortage is anticipated to occur,
resulting in a growing demand for skilled middle managers in finance and accounting to provide
billing services, accounts payable, receivables, and other financial services. The fear of
low-skilled workers being replaced by technology has driven governments and business leaders
to educate their workforce to fulfill these expectations.

Categories and Types of BPO Services


The umbrella term BPO covers a number of sub-categories and subtypes which are
dependent on the function as well as the location of the services being provided. For instance,
listed below are the sub-categories of BPO services namely: Business Process Outsourcing
Types: Supply Chain and Services and Business Process Outsourcing Types: Location of
Vendor.

Business Process Outsourcing Types: Supply Chain and Services


1. Back-Office Outsourcing are outsourcing tasks that are primarily concerned with
in-house necessities of a business; hence they are not customer-facing. This may
take in the form of administrative tasks such as data management, data entry,
payment processing, surveys, accounting support, and quality assurance. Such
tasks are essential to the core of the business.
2. Front-Office Outsourcing are outsourcing tasks that require interaction between
the BPO staff and the clients and consumers directly; hence they are
customer-facing services. Such tasks may take in the form of tech support,
customer service, sales, marketing, as well as email, telephone conversations, fax,
and many other forms of interaction with consumers.

Business Process Outsourcing Types: Location of Vendor


1. Offshore Outsourcing is a type of outsourcing which happens when your
company hires a company located overseas to fulfill certain work requirements.
Outsourcing to an offshore BPO company is the least expensive option because
the outsourced firm is located across the globe and businesses can access qualified
labor and services at a lower rate, which helps reduce overhead costs, and
potentially lower product or service prices for the end-user.
2. Onshore Outsourcing/Domestic Outsourcing is a type of outsourcing which
happens when you hire a BPO company that is based in the same country where
you are doing business. Onshore companies operate in the same time zone or
within a few hours of your business operations.
3. Nearshore Outsourcing is a type of outsourcing which happens when businesses
contract the services of vendors in countries that are geographically closer.

Apart from its subcategories, BPOs has also its subtypes which are as follows:

1. Information Technology Enabled Services (ITeS)


It is a type of BPO that handles IT solutions over the internet. This
outsourcing is enabled by information technology and covers diverse areas like
finance, HR, administration, health care, telecommunication, manufacturing etc.
2. Knowledge Process Outsourcing (KPO)
Knowledge process outsourcing (KPO) is the outsourcing of core,
information-related business activities. KPO involves contracting out work to
individuals that typically have advanced degrees and expertise in a specialized
area. KPO services providers handle highly-skilled jobs like: Accounting and
financial analysis, Legal processes, Web Design, Content Creation.
3. Legal Process Outsourcing (LPO)
LPO comprises a range of high-level legal work. LPO service providers
hire experienced paralegals to work on complex tasks such as: Drafting patent
applications, creating legal agreements, and performing legal research.
4. Research Process Outsourcing (RPO)
RPO is concerned with research and data analysis processes. RPO is
generally utilized by data-driven companies like marketing agencies, investment
firms and pharmaceutical companies. These service providers work on tasks like:
Data Analytics and Investment Research.

Common BPO Services


Listed below are some of the most common services that are offered by Business
Process Outsourcing Companies (Executive Boutique, 2021):
1. Call Center Services
This is the most popular service which provides both voice and non-voice
service for telemarketing, inbound and outbound sales, technical support and
customer support.
2. Data Entry Services
This service involves documentation, not limited to filling and processing
of forms, data capture and compilation, updating online catalogs and creating
databases.
3. Human Resource Services
This service covers recruitment functions such as finding and screening
job talent; Employee management such as new hire onboarding and training;
Payroll services such as compensation and benefits management.
4. Information Technology Services
Services include help desk support, network and server administration,
software development and data center management
5. Financial and Accounting Services
Includes services such as accounting & bookkeeping, account payables
and receivables management, tax preparation and reporting, financial analysis,
auditing and reporting.
6. Procurement Services
Service revolves mostly on transaction processing support, supplier
selection, assessment.
BPO Employment and Revenues in the Philippines

The Philippines' economy relies heavily on the BPO (Business Process Outsourcing)
business. In the outsourcing industry, the country has been a great option for India. According to
the National Economic Development Authority (NEDA), despite its steady state, the Philippines'
BPO industry is still developing, and businesses must offer diverse and value-added services by
boosting worker skills and embracing the shift to artificial intelligence. Knowledge process
outsourcing (KPO) is becoming more prevalent in new businesses than traditional voice services.
KPO firms are expected to produce new professions such as market research, fraud analytics,
banking insurance, actuarial engineering, web development, data integration, research and
development, legal processing, and medical transcript preparation.
According to the IT & Business Process Association of the Philippines (IBPAP), the top
employer in the Philippines is IT business process management (IT-BPM), a type of BPO
industry. Beginning in 2019, more than 71,000 new jobs were created for Filipinos, increasing
the total number of IT-BPM personnel from 1.3 million in 2018 to 1.23 million in 2019. In
addition, they anticipate an increase in employment and revenue from 2019 to 2022 from other
sub-sectors of outsourcing businesses such as Contact Center and Business Processing,
Information Technology and Software, and Healthcare Information Management, among others.
The COVID-19 pandemic has an impact on every part of our society, and most of our
activities have been halted in order to keep the virus from spreading. Some industries adapted to
working from home, others changed work schedules to meet new government standards, some
laid off people, and, sadly, some firms were forced to close—these are just a few of the effects of
the pandemic on the country and its economy. The BPO industry was also obliged to make
certain alterations to keep things operating during the lockdown, and to comply with the new
quarantine guidelines, requirements and restrictions made by the government. At the beginning
of the pandemic and lockdown, the BPO sector was on the verge of experiencing its first
revenue decrease in 11 years, as well as a slower potential growth. In an article written last May
2021 by ABS-CBN News, according to the data from the IT and Business Process Association
of the Philippines (IBPAP), despite the economic impact of the health pandemic, revenues of the
Philippines' BPO industry increased by 1.4% in 2020, or a total of $26.7 billion compared
to 24.5 billion during 2018. In addition, 1.8% more people were hired, accumulating a total of
1.32 million employment in the Philippines. The BPO industry is expected to increase between
5 and 6.5 percent in 2021, according to Rex Untal, the President and Chief Executive Officer of
the IT and Business Process Association of the Philippines (IBPAP). According to the survey
conducted by IBPAP, 87% of BPO companies anticipate a steady growth for this year, with
increases ranging from 5 to 15%. On the other hand, According to the report of Bangko
Sentral ng Pilipinas in December 2021, revenues from BPO are estimated to increase by 9%
this year, higher than the projection of 5% in September, and are expected to have the same rate
for the following year.

Comparison with other countries

The business process outsourcing sector is vital in one's economic state. Some of the
countries listed in the table were part of top countries for BPO services. Countries belonging to
Southeast Asia are considered to have less developed economies compared to those in countries
belonging to East Asia, such as Japan and Republic of Korea. These lower-income countries,
such as Philippines, Indonesia, Malaysia, Vietnam, and Thailand have a greater opportunity to
develop their domestic market as the country’s economy grows (Mitra, 2013). In the table above,
the country with the greatest population is Indonesia with 273.7M people, whilst Malaysia has
the least population of 32.7M. Moreover, Indonesia and Malaysia has the lowest BPO industry
revenue, which are tied with 1.5M$ each out of their 1,058,423.84M$ and 336,664.44M$ GDP,
respectively. Contrary to this, the Philippines has the highest BPO industry revenue of 26.7M$
out of its 361,489.35M$ GDP in 2020. The Philippines is considered to be one of the highest
when it comes to their BPO revenue in Asia, which is why they hold the title, since 2010, of ‘The
BPO Capital of the World’ (Ultimate outsourcing statistics and reports in 2021, 2021).

Government Policies with respect to BPO Industry


As the Business Process Outsourcing (BPO) industry continuously increases in the
Philippines, the government created policies befitting to this field. These policies, such as
working hours, safety, and health are created for BPOs and the welfare of their employees. One
of these policies is the Advisory No. 04-10, released by the Department of Labor and
Employment (DoLE) in 2010. This provides guidelines and utilization of flexible working hours
arrangements, giving them and their employees the time to meet their foreign clients; as well as
avoiding jeopardizing their deals. Additionally, limitation for allowing women to work at night
was also lifted when RA No. 10151 was established in 2011. Concerning the health and safety
issues of BPO employees, DoLe issued the Department Circular No. 01-08, which tackles the
main issues about BPO work. This issue revolves around mental and physical effects of working
at night and excessive use of the computer, as well as vocal fatigue. Moreover, the BPO industry
has a bilateral vendor-vendee relationship, which means they are exempted from the
Department Order No. 18-A. This DO only involves businesses with trilateral relationships
with arrangements of either contracting or sub-contracting, such as merchandising and security
works
In line with the incentives received by the BPO industry in the Philippines, there are 3
other principal incentive regimes created for companies abroad to entice them to start their
business ventures in the country. The Omnibus Investment Code (OIC) was created in 1987
which aims to promote investments in appealing areas, whilst providing an investment incentive
law for business owners, which includes BPO. Some of these incentives are as follows: Income
Tax Holiday, Additional deductions for Labor Expense, Exemption from Import Duties and
Taxes, and Zero-Rate Value-Added Tax, all of which can be accessed by BOI-registered
businesses. The PEZA Law or the Special Economic Act of 1995, on the other hand, focuses on
increasing economic growth by setting up economic zones which receives little intervention from
the government. Some incentives they can receive are: Income Tax Holiday, Special Income Tax
Rate of 5%, Exemption from National and Local Taxes and License, Zero-Rate Value-Added Tax
(VAT), Deduction for Organization and Pre-Operating Expenses, Tax and Duty-Free Importation
of Materials, Capital Equipment, Machineries and Spare Parts, and Additional Deductions from
Taxable Income, which can only be accessed by PEZA-registered businesses. Finally, the CEZA
Law or the Cagayan Special Economic Zone Act of 1995. Created to increase foreign
investments, this law provides incentives that are under the Presidential Decree No. 66, which
created the Export processing Zone Authority (EPZA Law). Some of the incentives for BPOs
are: Income Tax Holiday, Special Income Tax Rate of 5%, and other applicable incentives under
EPZA Law and OIC (Focus on Philippine BPO Industry, n.d.).

Other Industries linked to BPO sector


Over the past years, BPO companies have been regarded as essential especially for
industries who are looking for ways to be more efficient in the context of our complex,
fast-paced, and technology-driven society. One of the ways to do this is to outsource tasks ,
particularly non-essential ones, which is in this case, with the help of BPOs. Listed below are
other industries who rely and are connected with BPOs.

Finance Industry
Finance industry is among the most complex and multifaceted industries in the
world. Hence, such complexity pushes them to seek help in handling tasks particularly in
the aspect of accounting, marketing, and human resources. And such services are offered
by BPOs helping the industry to manage such complexity. Moreover, BPOs help the
Finance sector to focus more on profitability and expansion by outsourcing specialized
tasks of the said industry.

Health Industry
SImilar to the Finance industry, the Health industry has a lot of tasks and
processes that are not the core of the industry which can be outsourced by other entities.
With the help of BPOs, the health industry is able to be hyper-organized when it comes to
tasks like administration, regulatory compliance, and quality assurance. Instead of
devoting time and manpower to these tasks, your team can focus on patient care and core
business development.

Tourism Industry
With the help of BPOs, travel companies may outsource the tasks and processes
that are necessary with their operations, particularly travel logistics. For instance, by
outsourcing ticket and hotel booking, the company could perform more efficiently while
increasing customer satisfaction.Hence, outsourcing allows them to increase their
productivity.
Telecommunications Industry
Telecommunication companies need to outsource services particularly those who
are focused on general customer service duties and technical support tasks including call
center services. Such services include answering queries or fixing
product-related/service-related problems.

Impact to Philippine Economy


The Philippines is considered as one of the most notable countries in terms of
outsourcing. In fact, the country was named as the BPO capital of the world. The Business
Process Outsourcing (BPO) industry is one of the Philippine economy’s biggest players
contributing $26 billion to the Philippine economy in 2019. And even with the onslaught of the
pandemic, the BPO sector stood up to its challenges and shifted to a work-from-home setup in
order to prevent the spread of the virus. Hence, experts foresee its potential to bounce back
quicker and improve its economy. In line with this, listed below are the following impacts of the
BPO Industry in the Philippine Economy.

Gross Domestic Product (GDP) Growth


Being one of the countries with high performance in terms of outsourcing, the
BPO industry significantly helped the growth of the country in the past few years. For
instance, Department of Budget and Management (DBM) Secretary Florencio Abad
reported that the industry generated $13 billion in revenues in 2012 alone and is expected
to grow at least 16% higher in 2013 (Thompson, 2020). Meanwhile, the latest report of
the World Trade Organization highlighted the contribution of the industry to the
Philippine economy, most especially to its workforce. According to its 2019 report, the
sector recorded a 7.3% contribution to the growth in GDP (Outsource Accelerator, 2021).
And this year, although the pandemic has significantly affected the whole economy, the
BPO sector stood still and consistently exhibited positive growth rates from the first
quarter of 2020 to the first quarter of 2021. To be exact, +4.7 percent in Q1-2020, +10.7
percent in Q2-2020, +3.0 percent in Q3-2020, +1.9 percent in Q4-2020, and +6.3 percent
in Q1-2021 (Peña-Reyes, 2021).With this, it is foreseen that as the BPO industry
expands, the Philippine economy will also prosper.

Employment Generation
Over the years, the BPO Industry has provided Filipino workers an opportunity to
be hired, work, and gain income. In fact, the Philippines has the world’s largest
concentration of call centre workers. For instance, Thompson (2019) argued how the
Healthcare Information Management (HIM) sector was able to utilize and employ an
estimated 200,000 under- and unemployed nurses in the Philippines. With the severe
effect of the pandemic and the economic crisis in the country, the BPO Industry managed
to remain resilient. By way of illustration, DoLE has reported a surge in remote hiring in
the industry. This is due to businesses looking for ways to cut costs during the pandemic
and turned to outsourcing as a solution (Outsource Accelerator, 2021). Moreover, more
individuals resort to applying in BPO Companies as it is highly in-demand particularly
with the current context of the country. Hence, a positive outlook may be derived in
outsourcing as it is foreseen to bounce back in the upcoming years. However, the welfare
of BPO workers must also be taken into account as the industry is known to be
exploitative and oftentimes cannot provide good working conditions to its workers. For
every successful BPO company, a Filipino worker must be working for it, and in turn,
they must be valued greatly.

Rise of Small Businesses


In line with the high-demand in BPO industry is the increasing demand of food
and other outlets near BPO Company officers that would cater BPO workers. With this,
convenience stores, restaurants, etc. are also increasing in number providing not only the
immediate needs of BPO workers but also profit for business owners in the country.

Transportation Growth
Along with the increasing population of individuals who engage with the BPO
sector is the increasing demand on transportation services especially beyond office hours.
Telecommunication Growth
Prior to the pandemic, there is already a positive growth in terms f of telecom
businesses in the country. And now that the setup of most BPO workers shifted to
work-from-home, the reliance and demand towards Telecom services also significantly
increased. Hence, it is foreseen that the BPO Industry will also induce growth towards the
Telecommunication Industry.
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