The Philippines market share for the global offshoring and outsourcing (O&O) industry has grown to 15% in 2008, making the Philippines the third largest O&O destination in the world.

The Philippines, whose offshore market has grown 46 percent annually since 2004, is poised to emerge as a leading destination for non-voice business processing outsourcing (BPO) work.

It has emerged as a key destination for English-based work especially for the North American Market.

In terms of IT industry competitiveness, the Philippines has maintained its 47th position in the world in 2008 and 8th in Asia. The ranking is based in six indicators: overall business environment, IT infrastructure, human capital, legal environment, R&D environment, and support to IT industry development.

The country’s improvement in IT infrastructure and human capital has helped sustain this global position.

Since 2003, more than 80% of the IT/BPO services catered the US market.

Exports to Europe and Asia are also growing. Other markets included Japan, Canada, Australia, New Zealand, the Middle East and Africa.

The Philippine IT/BPO industry has a wide breadth of competencies in the following sectors:

-Contact/call centers

-Business process outsourcing or BPO (finance & accounting, HR, payroll);

-Knowledge process outsourcing or KPO (marketing research, medical research, legal case research & preparation, insurance, mortgage);

-Medical, legal and other data transcription;

-Film animation;

-Software development;

-Engineering and construction design; and

-Game development or content development.

Market Opportunity

Market size

• Global O&O market exceeded US$55 Billion in 2008

-Annual growth rate estimated at 20% over the next 5 years

• Estimated global O&O market

-2009 – US$66 Billion

-2010 – US$79.2 Billion

• Philippines O&O forecast, 2010

– US$12 Billion revenue; 25% annual growth.

Presence of a demand-supply gap

• Industry projects about US$12 Billion revenue for 2010. This corresponds to the 15% share of the US$79.2 Billion projected penetrated market for 2010, provided the Philippines sustains its market share of 15% recorded in 2008.

• Out of the US$450 Billion projected global demand, around US$370.8 Billion remains untapped, which is a huge opportunity for the global O&O industry.

Philippine Advantage

Technology that supports the industry

• Expanding technologies on fiber and copper network, wireless technologies (CDMA, GSM, WAP, GPRS, 3G, wireless broadband), radio and VSAT

Support infrastructure

• Digital fiber optic backbone network (FOBN)

• Nationwide radio microwave terrestrial network

• Next generation networks (NGN), characterized by the use of Internet Protocol (IP), Multi-Protocol Label Switching (MPLS) and Wave Division Multiplexing (WDM).

Ideal locations

• Metro Manila, Metro Cebu and the Next Wave Cities
• Around 165 ready-to-occupy IT Parks and Buildings all over the country.

Human resources Availability

• More than 490,000 college-degree graduates in 2008, 66.6% of which have courses suitable for the IT/BPO or cyber-services sector.

• Annual growth rate of tertiary level graduates is estimated at 3.8%

Quality

• 3rd largest English-speaking country in the world

• 72% of the population fluent in American English

• English language as the basic communication medium used in business, government and schools.

• Highly educated, flexible, productive, loyal, dedicated workforce with excellent work ethics and attention to detail

• Strong affinity for western culture.

Costs advantage

• Average annual salary of IT professionals in the Philippines handling various types of IT job functions is the most competitive in Asia.
• Cost of bandwidth went down by at least 85% in the last 5 years.

Industry Potentials

Growths-

Number of industry players

• From an estimated 300 companies in 2004 to 618 in 2008, or an increase of 106% in 5 years. Investments (in terms of project cost)

• BOI-registered IT/BPO projects alone – Project cost increased to Php 26.20 Billion 2009 (July) from Php 18.64 Billion in 2004, or an increase of 40.66%.

Employment

• Estimated 475,000 full-time employees (FTEs) as of August 2009 from 371,965 FTEs in December 2008, or an increase of 27.7% in a period of 8 months.

• Average annual increase of 40% in employment generation from 2004-2008.

Revenue

• US$6.061 Billion revenue generation in December 2008.

• Average annual increase of 43% in revenue generation from 2004-2008.

Contribution Percent of GDP

• Total BPO: 3.6% share in GDP in 2008.

Percent to total exports

• IT/BPO accounts for 12.36% of total Philippine exports in 2008.

Government Support

Enabling laws/policies

• Medium-Term Philippine Development Plan 2004-2010

- Reduction of connectivity cost

- Development of ICT Human Resource

• Executive Order No. 561 dated 19 August 2006 creating the Philippine Cyber Corridor, an ICT belt stretching 600 miles from Baguio City to Zamboanga designed to provided a variety of cyberservices at par with global standards, and supported by a $10 Billion high bandwidth fiber backbone digital network.

• 2010 Investment Priorities Plan providing fiscal and non-fiscal incentives to Business Process Outsourcing or voice and non-voice IT-enabled services.

• Allocation of Php 350 million scholarship funds for the training of near-hires in IT/BPO.

• Data Privacy Bill proposed in congress to ensure protection of personal information in the ICT systems in government and private sector.

Development plans and programs

• Roadmap 2010 aiming to capture 10% of the global offshoring and outsourcing market share by 2010.

• Adoption of Service Science, Management and Engineering (SSME) curriculum in colleges and universities nationwide to develop the critical mass of skilled manpower needed to sustain Philippine leadership in global O&O industry.

Incentives

Fiscal • 4 to 8 years Income Tax Holiday (ITH);

• Special 5% tax rate on gross income after the lapse of ITH (for IT Park/Eco-zone locators);

• Tax and duty exemption on imported capital equipment (for IT Park/Eco-zone locators); Duty-free importation of capital equipment (for BOI-registered firms under E.O. 528);

• Exemption from 12% input VAT on allowable local purchase of goods and services, e.g., communication charges (for IT Park/Eco-zone locators);

• Additional deduction for labor expense;

Non-fiscal

• Unrestricted use of consigned equipment;

• Exemption form wharfage dues and export tax, duty, impost and fees;

• Employment of foreign nationals;

• Special Investors Resident visa.

Cost of Doing Business

Salaries and wages

Rentals, lease, acquisition(average)

• Office space rental – NCR: Php 500/sq.m.;

• Regional/Provincial: Php 250/sq.m.

• PEZA-accredited IT Building lease – US$300/station/month (24/7) including TELCO, back-up power generator, security surveillance system, etc.

• PEZA lots lease – US$0.40/sq.m.