The business process outsourcing (BPO) industry is a powerhouse, especially in the Philippines. It has moved far from its roots in the ‘90s and is now a major contributor to the economy. The information technology and business process management (IT-BPM) industry has seen similar success with 13% of the global market share.
But, the outsourcing industry in the Philippines faces a challenge. Forces such as the emergence of digital automation technology and global government investment are allowing competition to grow fast. Service providers must adapt to these trends to stay ahead of the curve, and businesses looking for a provider should keep these trends in mind.
Challenges of the Outsourcing Industry in the Philippines
Emerging Technology
The digital age has seen a wave of new innovations which many industries, from healthcare to manufacturing, are keen to fold into their operations. Some of these innovations, especially automation, have done away with several traditional and manual business functions such as data entry. In turn, BPO firms are also adopting and incorporating these, to retain or redefine the value of traditional outsourcing services.
Last October, the International IT-BPM Summit (IIS) discussed the impact of these innovations, namely generative artificial intelligence (AI). Amid job loss concerns because of industry-wide AI use, the IT & Business Processing Association of the Philippines (IBPAP) presented the 4E Framework: Education, Engineering, Enforcement, and Ethics. This framework aimed to integrate emerging tech into society while promoting empowerment, accountability, and integrity.
This framework was used last January, when IBPAP shifted its attention to agentic AI. This innovation focuses on optimization and automation rather than content creation. IBPAP considered agentic AI a valuable resource for the industry, as it was critical in boosting the efficiency of features like fraud detection, supply chain management, predictive analytics, and customer service escalations.
Through the framework, IBPAP encouraged both BPO firms and employees to foster sustainable AI integration by engaging in certifications and boot camps (Education), upgrading existing IT infrastructure (Engineering), establishing and adhering to AI compliance standards (Enforcement), and promoting fair, responsible, and human-centric AI use that augments rather than replaces human expertise (Ethics).
Rising Competition and Government Investment
As the global business services industry grows, from 624 billion USD in 2022 to 681 billion USD in 2023, the players have gotten much more competitive. Kearney’s 2023 Global Services Location Index (GLSI) reveals that tech such as AI and machine learning (ML), coupled with decreased hirings induced by a global economic slowdown, have forced dozens of markets to focus on talent regeneration, or the ability to upskill the workforce, to meet industry gaps. Markets that can bridge tech with talent have succeeded tremendously.
GLSI ranked 78 countries according to their performance, talent regeneration, and technological affinity.
Malaysia, for example, ranked third through a mix of the adoption of new tech and government support in equipping the workforce with skills like cloud architecture, analytics, AI use, and software development. Poland ranked 13th globally and second in Europe by drawing in foreign investment and highlighting its education system that has produced around 400,000 highly skilled IT professionals. Countries like Egypt dropped ranks (from 15th to 23rd) due to a lack of digital focus and rising labor costs. But this pressure has motivated the country to develop its technological expertise. India continues to rank at the top due to the value of its workforce for a low cost. And, its government is furthering its lead by investing in upskilling. Apart from artificial intelligence, the country is introducing its talent and youth to 3D printing, drone technology, the Internet of Things, cryptocurrency, and more.
The Philippines, meanwhile, dropped from 9th to 12th place as both Mexico and Colombia drew in investment from markets like the United States. However, the archipelago still stands as a titan of the industry with more than a thousand BPO firms and a million-strong talent pool. Support from both the private and public sectors, as discussed throughout this article, is allowing companies to double down on both tech usage and talent regeneration.
The Geography Gap
In the digital age, communications run 24/7. Yet, there remain persistent challenges. Natural calamities mean unexpected disruptions. Differences in time zones can prolong processes. Language barriers can lead to miscommunication. All this to say that issues in one region can cascade across the others.
How companies mitigate the impact of these challenges affects their success. This is a critical point for Philippine firms. They must contend with nearshore markets (i.e., Mexico and Colombia) for access to the United States and other markets, in addition to the usual shifting forces they must adapt to, such as extreme weather conditions.
That said, even against classic rivals such as India, Filipino talents continue to stand out by emphasizing key traits such as their English proficiency and affinity with global markets.
Opportunities Rising in the Outsourcing Industry in the Philippines
Refined Services
Call centers used to dominate Philippine BPO operations. Now, many of these businesses are transitioning into contact centers. Others are developing niche expertise and business services to cater to specific markets.
- Contact centers can manage even more non-core business functions than a typical call center: customer service, analytics, tech support, and sales and telemarketing.
- For Information Technology (IT) projects, many providers have diversified into providing software development, cloud computing, and cybersecurity services.
- Managed logistics service and shared service providers specialize in back-office outsourcing, IT, finances, and logistical support.
- E-commerce partners excel in providing data entry services and the full scope of order fulfillment.
- Providers working with the healthcare industry offer medical coding, billing, and claims processing. Specialized providers also offer telehealth services, life sciences research, and more.
- For media and entertainment companies, creative agencies offer animation and game development services.
As providers offer more niche services to stay competitive, more industries have become interested in outsourcing. This is true for vertical markets, with key players in banking, financial services, and insurance (BFSI), IT, manufacturing, and healthcare. This is true as well for real estate firms, legal services, and the hospitality industry, where specialized expertise may be difficult to source internally or will only be required short term.
Whether you run a local business or a global corporation, you can rely on a qualified outsourcing provider.
Upskilled Talent Pool
Affordable services are a staple of the Philippine market, but that does not mean the talent pool is subpar. Service providers set themselves apart with their skill and dedication, and global competition means that providing upskilling opportunities must be the norm.
Both the GLSI and the 4E Framework emphasize the role of training and development programs, as well as integrating relevant digital skills into education, so that both the existing workforce and young people entering the talent pool are best equipped to adapt and take advantage of the shifting business services landscape.
IBPAP supports this growth, as shown in the IT-BPM Roadmap 2028. In 2024, the industry closed with 1.82 million members in the workforce and 38 billion USD in revenue. While this falls short of the targets to employ 1.84 million and reach 40 billion USD, the roadmap aims to employ 2.5 million people and generate 59 billion USD by 2028. Together with the academe and government, IBPAP hopes to bridge worker talent gaps through educational opportunities amidst industry expansion.
The focus on talent regeneration means an ideal avenue for career growth. Combined with competitive employment packages and empowering work environments, the Filipino talent pool is slated to be a serious contender in the global outsourcing market.
Government Investment
As the outsourcing industry in the Philippines is on an upward trend, the government is working closely with the sector to cultivate it.
The restrictions of the COVID-19 pandemic forced many workers to relocate out of Metro Manila and had companies implement flexible work arrangements. This trend gave BPO companies the momentum to expand their workforce without incurring additional fixed overhead costs, which allowed them to scale their client base and engage a broader employee base more efficiently. It is estimated that the industry headcount increased by 120,000 in 2021 alone. So, in the closing era of the pandemic, the government allowed hundreds of BPO firms to keep remote set-ups for 30% of their workforce. In 2024, 60 to 70% of the workforce will have hybrid or in-office arrangements.
More recently, the Department of Information and Communications Technology (DICT) launched several initiatives, such as the IT-BPM Industry Ambassadors project. This program aims to reinforce the industry’s role in economic growth by designating market leaders as resource speakers and advocates.
The Digital Cities 2025 program capitalizes on the industry’s countryside movement and hopes to further it. The program seeks to turn dozens of cities, specifically those in the provinces, into industry hubs — after their success in cultivating areas such as Manila, Cebu, Baguio, and Davao in the Next Wave Cities project. In developing the outsourcing industry in the Philippines, the goal is to make the entire country an ideal outsourcing destination.
New forces challenge businesses to explore modern technologies and work with different entities. There are obstacles, but there are even more opportunities. DBSA can help your business stay ahead of the curve by thinking of the future. For more information, start a conversation with us today.
