Via our contacts at the Philippine Trade and Investment Center in Berlin, we received the latest Industry Performance Outlook for the ITO and BPO sector in the Philippines. For more information and investment & trade support you can contact Van Randolf Tan (LinkedIn).
Overview of the Philippine IT-BPM Industry
The Philippines is a top-tier destination for IT-BPM services and remains as one of the leaders in the global IT BPM industry, ranking 1st in voice-related services and accounting for 13% of global market share. The country has since evolved from being an alternative destination for low-cost services to providing high-quality services at competitive price points. The Philippines is rapidly growing its capability to offer non-voice BPM and IT services to an increasingly broader set of clients worldwide, expanding its horizontal BPM services in areas such as finance and accounting, as well as vertical-focused solutions such as healthcare information services.
In terms of revenue, the Philippine IT-BPM industry reached US$26.7B in 2020 and there is still potential for the industry to reach US$29B by 2022, despite the effects of the COVID-19 pandemic. Meanwhile, in terms of manpower, the industry grew by 1.8% from 2019 to 2020, representing about 23k full-time equivalents (FTE), bringing the total industry headcount to 1.32M. Based on the recalibration study conducted by the Everest Group, it aims to attain headcount growth of 5% and revenue growth of 5.5% per annum from 2021 to 2022. According to the 2021 Tholons Services Globalization Index, the Philippines ranks 18th in the Top 50 Digital Nations, while Manila and Cebu City were also included in the list of the Top 100 Super Cities, ranking 8th and 52nd, respectively.
With the advent of the Fourth Industrial Revolution (Industry 4.0) and with the accelerated digitization of government, industry, and society as a whole due to the COVID-19 pandemic, there is an opportunity for accelerated growth in high-value services, particularly in animation, game development, global in-house centers, health information management (HIM), IT, and software development.
The IT-BPM Industry experienced growth between 1.4% – 1.8% in 2020; however, growth is expected to pick up again in 2021 and 2022, much of which will be led by digital transformation. The top trends emerging in Industry 4.0 include Big Data and Analytics (BDA), Internet-of-Things (IoT), Automation and Artificial Intelligence (AI), and Cloud Computing, all of which rely heavily on the IT-BPM industry. With the formulation of the AI Roadmap, the Philippines is laying the foundations to keep up with rapidly changing times and improve its technology adoption and competitiveness. IT Services, Contact Centers and BPOs, and Animation were down in 2020, while Global In-house Centers and Healthcare Services experienced some gains, although growth rates will be lower compared to the 2019 forecast due to COVID-19.
The Philippines is the leading offshore-nearshore location for healthcare services delivery and the segment is expected to grow steadily driven by the global increase in demand, especially in light of COVID-19. The Philippine Game Development industry is also on the threshold of an impending boom. The growth of local industry continues and the expanded market share and range of services is evident as homegrown companies take advantage of global video game industry opportunities. This brings an ever-increasing likelihood that the next big video game title will have Filipino imprint on it.
The Information Technology and Software Development sector serves as the engines of the country’s manufacturing and services sectors. This sector plays a significant role in improving the business environment, increasing productivity and efficiency, and in enhancing the consumer experience. Thus, the Philippine government has gone the extra mile to enable these sectors to continue thriving as the country paves the way to leapfrog into Industry 4.0.
As players move to high value complex and digital services, the revenue growth is expected to be marginally higher than headcount growth. In an industry-wide survey carried out by IT & Business Process Association of the Philippines (IBPAP), it was shown that 87% of IT-BPM companies are expecting to see between 5-15% growth in 2021, with the other 13% anticipating flat growth. There was also a good number of firms expressing that they have plans to expand in the countryside within the next 12 to 18 months.
A majority of organizations are also saying that hybrid working models will continue to prevail in 2021 and possibly, in 2022 as well. Currently, the IT-BPM sector is able to deliver work and provide service through a 70-30 split between work-from-home and on-site work. Moving forward, this will most likely change depending on company policies, government mandates, and digital capabilities.
The survey also found that IT-BPM firms will be prioritizing optimization of existing operations, digital transformation, and the upskilling of their human capital in 2021. Below are the imperatives in achieving the industry’s growth potential:
- Accelerate Digital Transformation
- Upskill to Digital Talent
- Improve Ease of Doing Business
- Strengthen Country Positioning
- Fortify the IT-BPM Ecosystem
The Impact of COVID-19
As one of the more resilient sectors in the face of the COVID-19 pandemic, the IT-BPM industry plays a crucial role in the Philippine’s economic recovery by fostering innovation and providing high-value services and employment opportunities. 41% of job openings are from the IT-BPM industry, while PEZA investment pledges for the industry remained flat in 2020 whereas total investment pledges fell by 19.1% during the same period.
In parallel, a report by Leechiu Property Consultants (LPC) stated that office space demand reached 389K sqm. in 2020 and that close to 50% or 189K sqm. came from the IT-BPM sector. It was also recorded that the Province of Iloilo captured 48K sqm. of the take-up by Business Process Outsourcing (BPO), higher than even key cities in Metro Manila.
In the early phase of the lockdown in March/April, even when productivity was at 50%, IT-BPM companies did not lay off employees, but rather worked to enable their employees to be able to either work remotely or on-site. The industry was quick to adapt to various work arrangements and institute health protocols with work productivity now reaching near 100%.
With most organizations regaining their momentum by September 2020, the Philippine IT-BPM sector was already able to display signs of recovery by the fourth quarter. There was also a notable upturn in IT Outsourcing (ITO) projects in the latter part of the year as clients invested more in digitization to mitigate prevailing issues caused by the outbreak and as a way to enhance their Business Continuity Plans (BCPs). While there are industries heavily affected by this pandemic such as travel, hospitality, and tourism, IT-BPM firms are expanding their head count in services related to healthcare, electronic commerce, telecommunications, and logistics. The growth of emerging segments such as financial (e.g., fintech, insurance, financial administration) services, gaming and animation shows an encouraging sign for the IT-BPM industry. Additionally, multinational and global companies will be looking into outsourcing or offshoring more of their operations to cut down on costs, potentially benefiting the local industry.
In view of the accelerated adoption of automated services, the industry is keen on attracting investments in higher value-added services to sustain the competitiveness and support the growth of the industry.
Major industry players include Accenture, Concentrix, Teleperformance, and Wells Fargo. The Philippines also hosts a number of Indian BPOs such as Aegis, Hinduja Global Solutions, Infosys, Genpact, and Tata Consultancy Services. The industry is also supported by the IT & Business Process Association of the Philippines (IBPAP), the industry’s primary enabling association, as well as its partner associations which include the Animation Council of the Philippines Inc. (ACPI), the Contact Center Association of the Philippines (CCAP), the Game Developers Association of the Philippines (GDAP), the Global In-House Center Council Philippines (GICC), Healthcare Information Management Association of the Philippines (HIMAP), and the Philippine Software Industry Association (PSIA)
You can download the full brief by the Philippine Trade and Investment Center in Berlin here: Download (PDF)
Source: Text based on INDUSTRY BRIEFER IT-BPM INDUSTRY by Philippine Trade and Investment Center in Berlin
Photo by OJ Serrano on Unsplash