ASEAN integration – Will this help or hinder the growth of ITES in the Philippines?

There remains no doubt that the Philippines IT-BPS industry has seen a stellar growth in the past decade. Clocking double digit growth YoY to reach US$ 18 billion in revenue and having replaced India as the Voice BPS capital of the world, the industry now employs more than a million people. With ambitious targets in place by the government and industry bodies, the industry is slowly inching towards a target of US$ 25 billion where it will contribute around 10% to the national GDP, employing close to two million people.

With this background, the developments outlined by the ASEAN Economic Community (AEC) as well as the activities underlined under ASEAN integration now raises new questions - Will FDI investments from companies be rationalized in the region due to freer trade barriers? Will there be newer competition for FDI coming into the region for IT-BPO services?

Today, the Philippines stands at a crossroad. While the peso has grown stronger, inflation is rising due to higher real estate and food prices. With this, traditional English voice BPS activity - which has so far been a mainstay of GDP growth for the Philippines is now challenged. Many players find their margins challenged owing to a steady rise in the costs coupled with pricing pressures in an extremely competitive market. In addition, the ITES market in the Philippines has been consolidating; even witnessing a flurry of big ticket acquisitions in the recent past.

In response to the situation, ITES companies in the Philippines now are embracing a higher revenue from services such as back office and knowledge processing such as Finance and Accounting (12% YoY growth), HR services (12%), Marketing BPS (19%) and Healthcare services (44%). Some companies have even ventured into entry level IT services (26%) such as Infrastructure Support, Application Development and Maintenance services, etc. However, increasing costs also mean that most shared services model in the Philippines which are primarily designed for English support, eventually run transformation programs to de-couple non-critical work that is bundled up to cheaper locations.

Coincidentally, at this same crossroad lies a unique opportunity for the Philippines to venture into APAC Shared Services – an area traditionally dominated by Singapore but now experiencing an eroding value proposition due to higher costs and attrition. Other entrants into the scene have been Malaysia and China, offering high-tech industrial parks and favourable investment clauses for FDI in ITES.

Within the provisions of the AEC treaties lie clauses to encourage freer movement of skilled workers across ASEAN and measures to incorporate Double Tax Avoidance (DTAs) facilitating their movement. With favourable developments in the above areas, ITES companies in the Philippines could easily import skilled workers from other countries in ASEAN for APAC Shared Services businesses at competitive wages. This will help ease the significant language premiums for non-English language work that is currently three to four times higher and results in uncompetitive business models.

Is this going to be easy? Probably not as much. There isn’t a lot of expertise within the Philippines for Asian Shared Services and, hence, requires necessary initial investments. Also, import of talent means that Philippines will have to be ready with a lot of infrastructural upgrades that are present in many of its competitors in Asia such as Malaysia and China. But with the expertise of a decade of IT- BPS and a lower cost of living compared to other countries in the fray, the Philippines could potentially be the next big market to watch out for your regional shared services.

About the Author

Jibin Arjunan is the Regional Head of Wipro BPS in APJ and is based out of Manila. He is responsible for the overall business of Wipro BPS in the fast developing Asian region. Wipro Ltd delivers IT, BPS and Consulting services out of various countries in Asia such as Australia, Singapore, Japan, China, Hong Kong, Philippines and Thailand with more than 100 customers and 8500 employees.

With over 16 years of international resident exposure in various countries including the EU, Greater China and ASEAN, Jibin has handled diverse roles between service delivery, pre-sales, transition and regional administration in both onsite and offshore locations. He is also speaks Mandarin proficiently.

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ASEAN integration – Will this help

or hinder the growth of ITES in

the Philippines?

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