Continuing the SWOT analysis for the strategic plan for the Information Technology-Business Process Management (IT-BPM) sector, let us summarize the findings of the “Accelerate PH (Future Ready) Roadmap 2022” for the Philippine IT-BPM sector prepared in 2015 by the Frost & Sullivan group in partnership with the IT & Business Process Association of the Philippines or IBPAP.
Already in 2015, the Philippines was considered one of the leading destinations for IT-BPM services across the five major dimensions of service diversification, talent pool, affinity, vertical specialization, and cost. In terms of service destination, the Philippines occupied the spot as the top destination of choice for voice-based services and was expanding its horizontal BPM services in areas such as Finance and Accounting (F&A), as well as vertical-focused solutions such as health information management services. The country also had and continues to have a strong affinity to the North American market and has been consistently preferred by major buyers because of its cultural and historical links, English proficiency skills, and friendly and hospitable nature.
In 2016, revenues generated by the sector were expected to be $22.9 billion, comprising mainly outsourced services in contact center and BPO ($12.8 billion), IT services ($3 billion), health information management services ($2.4 billion), and Global in-house Centers ($4.7 billion). Animation and Game Development was then the smallest segment, contributing only $56.7 million or 0.2% of the total revenue. Before the pandemic struck the global economy, the market was expected to grow a compound annual growth rate (CAGR) of 9.1% from 2016 to 2022, reaching $38.9 billion. At that time, the projected revenue growth rate from 2016 to 2022 was considerably lower than the 17% attained between 2000 and 2016. Nevertheless, the Philippines was still projected to outperform the pace of global IT-BPM revenue growth of 5.6% (from 2016 to 2022) and as a result was expected to increase its share of the global market from 12.7% in 2016 to 15.5% by 2022.
The slower growth expected was explained by a perception of a maturing sector and the anticipated impact of the Industrial Revolution 4.0 (Artificial Intelligence, Robotics, Internet of Things, and Data Analytics). Each subsector of the IT-BPM market was expected to expand at different rates because of varying factors such as the maturity of the subsector, demand in the global market, supply constraints, changing service portfolios, as well as indirect factors such as the quality of infrastructures, connectivity, real estate availability and costs, and government incentives or disincentives.
The young, growing and English-speaking population of the Philippines is its greatest attraction for IT-BPM enterprises to choose it a destination for outsourcing services. In the study we have been citing, the total manpower employment of the sector was projected to increase from an expected 1.15 million Full Time Employment (FTEs) in 2016 to an estimated 1.8 million FTEs by 2022, an equivalent to a CAGR of 7.8%. The relatively slower growth rate in manpower compared to that of revenues (7.8% to 9.2%) can be attributed to technology-enabled, higher-value jobs (the waning of call centers and the greater prevalence of knowledge-intensive services). This would indicate an increase in revenue per FTE — a sign of moving up the value chain.
The key services offered were:
• Contact Center and BPO: Mature services (Customer care, helpdesk); growth services (ESO, Data analytics, performance management, legal process outsourcing).
• IT Services: mature services (application development, infrastructure, support); growth services (system integration, automation, enablement, IoT Enablement, languages, application development management [ADM]).
• Health Information Management services: mature services (payer services); growth services (preventive health, remote healthcare management, provider services).
• Animation and game development services: mature services (2D animation, game development); growth services (3D animation, AR/VR, gamification).
• Global In-House Centers: mature services (Finance and Accounting); growth services (industry-specific services for telecom, healthcare, insurance and pharmaceutical).
Considered mature, customer care services and support include voice and multi-channel support for customer requirements. “Support” refers to services (such as helpdesk) offered as part of an IT services contract predominantly targeting the buyer’s internal users. The Philippines remains a key offshore player for these services, providing considerable maturity in quality of services provided, skill sets, talent, and buyer confidence.
Application development and maintenance (ADM) services in the Philippines are provided by both large service providers, as well as mid-size to smaller companies. Large service providers typically use the Philippines as an alternate location for IT services contracts as part of their diversification and risk mitigation strategy, with India as the preferred destination. This can be explained by the lack of sufficient and experienced talent for complex application development projects. Mid-tier service providers, on the other hand, prefer smaller and less complex contracts from both foreign and local small to medium enterprises.
Finance and Accounting (F&A) services have been the most mature in the non-voice BPM segment of the market considering that one of our largest courses in higher education has to do with accounting and finance (I myself was an accounting major who became a CPA without practicing the profession). In the past few years, however, Human Resource (HR) services began to expand on the basis of increasing focus from large service providers. There has also been a steady growth in the maturity and value of KPO (Knowledge Process Outsourcing), ESO (Engineering Services Outsourcing), legal and analytics services being offered. Although many are niche services globally, these offer higher profitability to companies offering such solutions to their customers.
A trend discerned in 2015 that can be significantly reversed was the rapid maturing of healthcare services. After the pandemic, there will surely be a significant increase in consumer spending on healthcare services, especially on the preventive side. It is almost certain that the COVID-19 pandemic will become endemic and will result in increased demand for healthcare services. In the past, there were a few medical transcription services being offered, most of which were being serviced out of countries such as India in which costs were lower. The Philippines had been focusing on higher value services on both the provider and payer sides. The payer market is much larger than the provider in terms of revenue because the former consists of large, multi-year contracts being serviced by large BPO outsourcers. In contrast, the provider side of the market is more fragmented, with a large proportion being served by small-sized service providers.
The subsector that may undergo the most dramatic transformation in the coming years is Animation and game development. In 2015, the perception of the experts was that these services were already considerably mature, especially animation services. They were considered to offer small market value because of the nature of the industries they serve, as well as the type of work being outsourced. There was the recommendation that the Philippines as an animation and game development destination needed to leverage new platforms such as mobile and web to grow at a faster rate compared to the other service sectors in the market. In a separate study conducted also by Frost & Sullivan on this subsector, a brighter future for Animation and game development surfaced as key drivers of the sector were identified. These are the growing availability of new platforms, such as internet streaming and on-demand TV, along with the increase in global broadcasting hours among many countries through satellite and cable TV. Another driver is the advancements being seen in animation techniques, such as 3D animation, which opens a whole new market for the outsourcing industry. The obstacles that have to be overcome are a lack of skilled animators for digital or 3D animation and the high cost of specialized animation software.
These observations may have been rendered obsolete as we face the post-pandemic global economy. These two full years of strict lockdowns all over the world have resulted in an unprecedented acceleration in the demand for digital services in practically all fields of consumer behavior in such areas as education, shopping, dining, healthcare, and especially entertainment. Just witness the exploding markets of Amazon, Meta, Netflix, and Disney, and not to mention the even more phenomenal rise of their Chinese counterparts, TencentQQ, Sina Weibo, Tiktok, YouKu, and WeChat. In a separate article, we shall dwell on a Strategic Plan for Animation and Game Development as part of the burgeoning Creative Industry of the Philippines.
Meanwhile, as the pandemic significantly waned during the first quarter of 2022, the President of the IT-BPM Industry Association, Jack Madrid, presented to the presidential candidates a checklist of issues that should be addressed by the next president. Although the industry demonstrated great resilience and dynamism during the pandemic, growing its total revenues to $28.8 billion and adding 7-8% more in employment, there is still much to be done to defend the Philippine global market share versus such regions as India, Poland, and Malaysia. Top in the list is improving the ease of doing business for present and future investors. Also very important is enacting legislation providing more flexibility in the workplace through the adoption of hybrid, WFH, and location-independent work arrangements and models that will democratize job opportunities, improve employee productivity and work-life balance, reduce absenteeism and attrition rate and decongest Metro Manila while reducing the carbon footprint.
The industry also would require the Government’s support for higher budgets for talent and skills development to address the widening gaps and compete with other IT-BPM locations. The next Administration must add to its Build, Build, Build program addressing the inadequate digital infrastructure as the global landscape becomes more and more technology-driven. Expanding the coverage of fiber internet to more regions with significant talent pool availability, such as Palawan, Iloilo, Bicol, Tuguegarao, Dumaguete City, and Cagayan de Oro, is imperative. Mr. Madrid promised the next president that IBPAP will be publishing Roadmap 2028, the industry’s blueprint describing the industry’s key objectives, priorities, and strategies under the new administration. It is my hope that this series of articles on a Strategic Plan for the IT-BPM Sector has contributed in a small way to the ongoing formulation of this Roadmap 2028.
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.