Manila eclipses Mumbai as services outsourcing magnet

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Metro Manila Skyline

The Philippines has gone from regional laggard to become one of the fastest-growing economies in Southeast Asia over the past few years.

The International Monetary Fund predicts GDP will increase by 6.7 per cent in 2015, up from 6.1 per cent last year and as little as 3.6 per cent in 2011. The turnround has been underpinned by the rising household spending of a vigorous consumer class.

Behind this change is the Philippines’ rapid emergence as a global hub for business process outsourcing (BPO) as more and more multinationals shift overseas their back office operations — such as call centres, accounting or information technology support — to cut costs. 

The Philippines has overtaken India in the ranking of outsourcing destinations, measured by revenues and headcount, and Manila has nudged ahead of Mumbai as the call-centre capital of the world, according to consultancy, Tholons.

Today, the Philippine BPO sector employs more than 1m people and the industry’s revenues, which currently stand at $18bn, could reach $25.5bn in 2016, according to estimates by Asean Confidential, a research service at the Financial Times.

A raft of multinationals, including JPMorgan Chase, HSBC and Royal Dutch Shell, have set up BPO operations in the country, employing tens of thousands of people.

One advantage that the Philippines enjoys over other BPO outsourcing centres is cheaper office rents. Prime office space in Manila can be rented for just over two-thirds of the cost of space in Mumbai, while it is also cheaper than Delhi, Bangkok, Guangzhou, Taipei and Seoul, according to global property agency Colliers.

Remittances vs BPO revenues ($bn)

  Remittances BPO revenues
2009 17.3 7.1
2010 18.8 8.9
2011 20.1 11.0
2012 21.4 13.2
2013 23.0 16.1
2014 24.3 18.4
2015e 25.8 21.3
2016e 27.4 25.5

Source: Bangko Sentral ng Pilipinas (remittances), Information Technology and Business Process Association of the Philippines

Note: 2015 and 2016 remittances are AC estimates, at 6% growth

But the country’s chief selling point is a large young and educated population that speaks English with a neutral accent and has a cultural affinity with the west. It is just what North American customers on the other end of the phone want.

The drawback of global time zones — which require many Filipino phone operators to work antisocial hours — is compensated for by comparatively high wages. Average salaries in the BPO industry are about 60 per cent higher than the national average.

These higher incomes have created a new socio-economic class — the “BPO consumer” — who earn, spend and borrow more than their Filipino peers. More than a quarter of BPO employees’ post-tax income is spent on shopping, dining out and other leisure activities, according to Asean Confidential surveys.

The BPO industry’s rapid growth — it now makes up 6 per cent of GDP — has had a knock-on effect on the overall economy, buoying other sectors and creating millions of indirect jobs. BPO now rivals remittances from overseas workers as the Philippines’ largest revenue generator, and its rapid emergence has encouraged large numbers of workers that might have sought opportunities abroad to stay at home.

(This story was written by David Robinson for the Financial Times)

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