Inclusive reforms for Business Process Outsourcing
The IT-BPM industry has been one of the shining stars of the Philippine economy as it has grown to include over 1.2 million direct employees, generating over USD $21 billion in revenues, which is on the cusp of being the largest (industry) contributor to the Philippine GDP by 2017.
The growth of the industry has been very steady and consistent (+20% CAGR since 2006) and the most dynamic rate of growth in recent years comes from higher value services (i.e. Finance/Accounting, Healthcare Information Management services, IT) which are generating inclusive growth as it fuels growth of the middle class.
This is particularly evident when compared to the current largest contributor to the Philippines’ GDP – OverseasFilipino Workers’ (OFW) remittances – whichdo not provide the same amount of economic benefits given the earners’ indirect spending and tax payments are made outside the Philippines.
This growth has been enabled by a large population of young, highly literate and English speaking workforce. The talent pool of university graduates (approx. >500,000 annually) has continued to improve their English proficiency and critical thinking skills, thanks to programs like the “Service Management Program” developed by the IT & Business Process Association of the Philippines (IBPAP) with funding from the CHED.
This specialization track of 5 subjects and a 600-hour internship program to address the skill gaps of potential IT-BPM employees. Programs like this support the industry’s growth by ensuring a sustainable supply of qualified talent, and indirectly benefiting other industries by improving the overall quality of college graduates.
The government also stimulated the growth of the industry by extending both fiscal and non-fiscal incentives to multinational companies (MNCs) and outsourcing services providers (third party) to encourage them to locate operations in the Philippines and to help offset training costs and the higher cost of doing business in the Philippines (i.e., prohibitive cost of power, gaps in basic infrastructure, number of non-working holidays, and a restrictive labor law).
There has also been recent evidence of growth of start-up firms, primarily in the software/e-commerce space, some of which were designed to support the growing IT-BPM industry. There has been evidence of increased “idea generators” and funding vehicles, but not yet at a critical mass to make a lasting impact.
Industry Challenges - While the industry has experienced significant growth, and future growth projections are promising, there are multiple challenges that will put future growth rates at risk. The key challenges for future sustainable growth are the continuity of government incentive programs, predictability of government policies/regulations and bureaucracy/red tape, the supply of qualified talent, quality of higher education curriculum and technical skills development, and Philippine infrastructure. If not addressed, these challenges may become larger risks going forward, given the rapid pace of technology-based change and increased competition from other ASEAN countries.
Recommendations - It is expected that the IT-BPM industry will rapidly evolve with increased reliance on IT tools/robotics and as the industry transitions into new sectors. Workforce skill levels, the government support structure and other infrastructure that enabled the growth of the IT-BPM industry over the last 20 years, may not be enough to support future inclusive growth given how rapidly the industry and other ASEAN markets are progressing. The following recommendations should enable the sustainable, inclusive growth of the ITBPM industry for future generations:
* Improve government incentive programs
* Develop the infrastructure to support investment
* Focus on and support talent development
* Government policy – tax policy, improved regulatory environment, creation of a DICT.
In conclusion, there is no doubt that the IT-BPM industry has been a significant economic driver for the Philippines over the last 20 years. But it is important to recognize that the technology/global economic landscape that enabled the past growth of the Philippine IT-BPM industry may not support future growth as technology gains and global economic factors rapidly change. The recommendations above are required for the industry to capitalize on these changes to enable future growth and offset inevitable employment losses behind robotics/artificial intelligence.
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