Many companies look to India as the obvious choice, but with the rapidly increasing salaries in India and the retention problems BPO companies have, many are realizing the benefits of outsourcing to the Philippines.
Unlike India and China, the Philippines has a culture that is very compatible with Western cultures. After being a Spanish colony, the Philippines was governed by the United States from 1899 to 1946 - the effects are still very evident today. Television and movie theaters are almost fully dedicated to American productions shown in English without subtitles. English is the primary language for business and education in the Philippines. Although the official language is Filipino, the Philippine government has considered changing the official language to English due to its widespread use.
With the strong presence of the US, the Philippines has developed a government that is somewhat similar to the US system. This makes Western companies more comfortable doing business in the Philippines.
The Philippines is a very low-cost country compared to other Southeast Asian countries. Salaries in the Philippines are a fraction of those in the Western world, with the daily minimum wage set at about $8 per day. Newly graduated employees with college degrees from reputable schools can be hired at around $300 per month. These low costs also apply to all other business expenses such as office rental, utilities, supplies, and third party services.
This graph shows the Consumer Price Index (CPI) by country. CPI is the price indicator of consumer goods such as food, transportation, and utilities. The index compares consumer prices to New York City (NYC), so if the index of a country is 110%, the prices of consumer goods in that country are 10% more expensive that in NYC (www.numbeo.com).
One thing that is more expensive in the Philippines is telecommunications. Internet infrastructure is constantly being upgraded as the government realizes the need to invest in sustaining current BPO developments. However, the connections in the Philippines are still very slow compared to countries like Japan and South Korea. The high price on a good internet connection means that savings on labor and operational costs can sometimes be countered by an increase in telecom costs.
That said, Philippine outsourcing is always going to be very low compared to prices in the US and Europe. You can expect to operate an offshore team at about 30-40% of the costs of a domestic team. For more pricing details, read our Outsourcing Pricing section.
The Philippines has a very high literacy rate of about 92%, with basic education made available to virtually the entire population. The University of the Philippines, Ateneo de Manila University, De La Salle University, and the University of Santo Tomas are reputable universities delivering graduates who occupy top positions internationally. Filipinos are creative and expressive people by nature and many choose courses like creative design, multimedia arts, freehand drawing, and animation. There are numerous schools and colleges that provide excellent education and training in these creative fields.
Because of its historically weak local economy, the Philippines has always had a hard time providing jobs to the hundreds of thousands entering the workforce each year, causing a significant portion to migrate overseas. The Philippines owes its rapidly growing BPO industry for providing local opportunities to workers that would otherwise have to leave their homeland. For these reasons, BPO firms are having little trouble finding highly skilled people for their clients. This is in stark contrast with India, where finding candidates and especially keeping employees are serious problems.
One of the things that kept the Philippines from developing fully in the past was political instability. Even after ousting the dictator, Marcos, there have been several coup attempts that have prevented foreign investors from seriously considering the Philippines. As a result, these investors chose different destinations like Thailand and South Korea; countries that grew as the Philippines stood still. This situation has changed as overseas investors rediscover the Philippines.
The Philippines has been stable for more than a decade. The current government still has a lot of work to do as problems like poverty, corruption, bureaucracy, and the gap between rich and poor looms. These have served to further magnify the importance of the Philippine outsourcing industry with the government consistently supplementing the emergence of BPO operations.
The industry has become one of the main revenue generators of the country, which is why the government fully supports its endeavors. It has set up special economic zones, established a Philippine Economic Zone Authority, and grants fiscal and non-fiscal incentives such as a 4-year or 8-year income tax holiday to BPO players. Even Indian BPO service providers have established operations in the Philippines over the years.
The country is well-positioned to become one of the best offshore outsourcing destinations in the world. Metro Manila gets the highest concentration of BPO activities (80%), but as more investors see the potential of the country, other major cities and provinces have emerged as ideal IT-BPO hubs. Dubbed as the Next Wave Cities, areas like Cebu, Pampanga, Bacolod, and Davao have proven to be great alternatives to Metro Manila with their pools of English-speaking talent and conducive business environment.
IBPAP plays a huge role in promoting the country as the ideal location of choice and in supporting BPO players. Since talent is the primary driver of the industry, BPAP is collaborating with government agencies to further improve the education system. It is also implementing industry-specific training programs to hone the skills of Filipino workers and make them suitable for BPO work.
It's no wonder the Philippines has gained a new reputation as the preferred BPO destination, a source of highly skilled labor, and home to some of the warmest and friendliest people in Southeast Asia.