Asean integration may dampen PH BPO growth

By Ted P. Torres, The Philippine Star

Posted at Feb 12 2014 07:49 AM | Updated as of Feb 12 2014 05:54 PM

MANILA, Philippines - The business process outsourcing (BPO) sector will further help drive economic growth in the Philippines but this could be dampened by the forthcoming ASEAN integration in 2015, a study by an international business consultancy group noted.

Based on a report by the Oxford Business Group, the BPO industry will contribute more to the country’s dollar earnings, with its revenues forecast to increase 15 percent to about $15.3 billion in 2014.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the BPO sector was one of the country’s main sources of hard cash, generating export earnings of $13.3 billion in 2013, a 15 percent increase from the previous year’s performance.

By comparison, the tourism industry was estimated to generate receipts of $4.8 billion. Overseas workers’ remittances remain the largest source of foreign exchange with an estimated $22.5 billion last year.

“While the Philippines has been able to maintain a balance of payments (BOP) surplus since 2005, it has been shrinking in recent years, coming in at just over $5 billion in 2013, down from $9.2 billion the year before,” Oxford pointed out.

According to the BSP, the surplus will continue its decline this year to reach around $3 billion, as the country imports more inputs for manufacturing operations and purchases of energy and raw materials rise.

The sector will create some 120,000 new positions annually over the next three years, taking total employment to 1.3 million, while revenue will double from the 2013 figure to reach $27 billion. Much of this growth is expected to come through international players stepping up their operations in the Philippines.

In the latest edition of the 2013 Top 100 Outsourcing Destinations report by strategic offshore advisory firm,Tholons, seven Philippine cities were included in the list, with Manila cited as the second best destination while Cebu held fort at eighth place.

Also in the top BPO destinations are the cities of Davao, Santa Rosa, Bacolod, Iloilo and Baguio.

Bangalore in India remains the top destination worldwide.

Oxford, however, said the launching of the Association of Southeast Asian Nations (ASEAN) Economic Community in 2015 could hinder the sector’s rapid growth as major international firms may start to rationalize their operations following the lowering of trade and employment barriers in the region.

According to David Rizzo, head of the Asia-Pacific operations of international outsourcing firm Teleperformance, the Philippines has the inside track in BPO service provision in the trade bloc.

“It certainly depends on services. But if you look at the combination of both cost and quality, and then beyond that the scalability, there is no better offer than in the Philippines,” he said.

Though well-placed to win additional business as regional and international firms look to take advantage of economies of scale in their BPO operations, especially for services requiring English, the Philippines will likely see stronger competition for a slice of the BPO pie in the Asia-Pacific region in the years to come.

China is seen as an emerging rival to the Indian-Filipino dominance in the sector, with three cities ranked in the top 20 of Tholon’s list, and fellow ASEAN member Malaysia is also moving to raise its BPO profile.

Another challenge confronting the country is its inability to improve infrastructure, which limits investors to developed areas such as Manila and Cebu.