Digitalization, Infrastructure, and Talent Enhancement to facilitate Philippine BPO industry growth; Real estate developments to pave way
November 20, 2020
The growth contribution of the services sector in the Philippines has been an important fuel to the recently celebrated economic growth of the country since IT-BPM meaningfully made an entry in 1992 when Frank Holz brought in Accenture. Unknowingly, the onset of the Covid-19 pandemic in the Philippines in January 2020 has now become the largest challenge to the IT and BPM industry’s growth potential.
In the recent IBPAP International Innovation Summit 2020 held online on November 19, Hanumantha Karthik, Partner at the management consultancy Everest Group, presented an IBPAP-commissioned study forecasting Philippine BPO industry revenue to likely increase by 3.2% to $28.3 billion by 2022 (equivalent to 70,000 jobs).
Optimistically, if the global market will show recovery from the Covid-19 pandemic and if the Philippine government supports and stimulates the service sector’s rebound, the BPO industry will potentially grow by 5.5% to $29 billion by 2022 (equivalent to 130,000 jobs).
Either way, Philippine BPO industry should remain at par or better than the global BPO growth, which is expected to grow flat in 2020 at -0.02% and peaking up to 3.9% in 2022.
The BPO industry will depend on several factors, both domestically and globally, most especially in controlling the spread of the Covid-19 virus. The Philippines has been taking its pace over the last eight months, which could make or break the traction of the industry in the next few years. The Everest Group noted that for the country to reach the sector’s growth potential, the Philippines should:
- Strengthen its telecom infrastructure to allow a robust reception for the ICT requirements of the industry.
- Promote digitalization and pivot auxiliary services to digitalization to cope with the rapidly accelerating trend globally.
- Continue to improve the country’s ease of doing business environment.
- Accelerate talent and infrastructure development outside Metro Manila.
- Nurture the talent pool to allow for reskilling and upskilling of the labor force for emerging, if not next-generation, technical and soft skills.
- Invest in improving industry resilience for better marketing and positioning of the Philippine IT-BPM industry.
The BPO sector particularly started surging when the Aquino Administration (2010-2016) emphasized inclusive growth measures to alleviate the poverty condition in the country and instituted policies that attracted many huge IT and BPM multinational companies. By the time the Duterte Administration (2016 to present) came into power, growth redistribution began expanding toward outside Metro Manila with the roll outs of the many infrastructure projects in the pipeline from the previous administrations, hoping to flatten the economic saturation in the National Capital Region.
Role of Real Estate Developments
Critical to these economic goals are the developments in the real estate sector, which has and will continue to pave the way for housing many multinational and domestic companies outside Metro Manila that will absorb the local labor force, and generate income in the local government units. The Philippine Economic Zone Authority (PEZA), together with the Board of Investments and about 18 other investment promotion agencies across the country, takes good care of these developments and ensures that incentives are in place for expanding and relocating companies.
TFA’s analytics maintain that there is a need for the government to increase the supply of integrated industrial zones across the country. These integrated industrial zones accommodate parks and centers that are needed to promote the IT-BPM industry. IT zones or centers are designated locations capable of meeting the requirements for IT and BPO companies, and where these companies can benefit from the business incentives mandated by the state. Unlike industrial parks, IT centers are mostly establishments that are ready to take in companies for operations.
Last year, the Duterte Administration released Administrative Order 18 on June 17th that put a moratorium on processing applications for ecozones in Metro Manila, save the pending proposals that are already on the desk of the president. The logic was to facilitate development and support for ecozones in the countryside.
By first quarter of 2020, PEZA registered a total of 318 IT centers across the country, of which 38% is located outside the national capital region. In terms of gross floor area, these IT centers account for 49% of the total PEZA-registered GFA at around 12,980,000sq.m compared to NCR’s 13,300,000sq.m. This is on top of about 71 pending PEZA ecozones that are awaiting presidential approval.
What this means is that the Philippines is now at a point where the supply for non-NCR IT centers is driving the demand of IT and BPO offices towards other regions. The economics will point to these opportunities as venues for relocation, expansion, and even back-up offices as Metro Manila continues to battle with pestering traffic congestions, and denser residential areas, among other things.
If the Philippines is to promote, market, and position the IT-BPM industry sector in the global market, it has to hasten and create more industrial parks and IT centers in the countryside to support the IT-BPM sector and other industries.
–Froland Tajale, Manager – Research; Consulting