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Weathering the Storm: The Philippines Remains an Offshore Outsourcing Leader

Weathering the Storm: The Philippines Remains an Offshore Outsourcing LeaderIn retrospect, late 2019 seems like another world. With the COVID-19 pandemic lurking in the shadows, we wrote an article about the changing BPO industry in the Philippines. Little did we know that the issues the outsourcing powerhouse was currently facing were about to be dwarfed by considerably larger obstacles.

So where do things stand now? Let’s take a look at how the potential threats we covered in 2019 have played out, and how the Philippine call center industry has faced the additional difficulties initiated by the pandemic.

The Rise of the Casino Industry

2019 Status: In 2019, online gambling aimed at Chinese customers found a foothold in the Philippines due to low taxation. As they expanded, these companies snapped up prime office real estate previously occupied by other types of organizations – like call centers. However, many were unsure if the online gambling industry could outpace the BPO industry as government eyes finally began to settle on it.

2022 Update: Of all the industries to potentially disrupt the contact center industry in the Philippines, one has stood out: Online gambling. One of the biggest challenges to the contact center industry has been the loss of available office space to these gambling establishments. For several years, a lack of taxation energized the growing industry. Unfortunately for online gambling operators, however, those days seem to be coming to an end.

Lawmakers issued a new tax plan on Dec 3, 2021, for online gambling operators. The new tax will see licensees paying out either 5 percent of their gross gaming revenue or 5 percent of an agreed-upon minimum monthly revenue. This new tax will also see licensees pay a 25 percent annual income tax on any of their non-gambling operations.

Outlook: The changes in taxation are sure to make the online gambling industry less lucrative. With interest in the industry waning, prime office space is likely to open back up for contact centers. As BPO leaders look to open their doors for the first time or expand their existing staff, these vacant offices are sure to catch their attention.

Reduction of Tax Incentives for Urban Development

2019 Status: In June 2019, President Rodrigo Duarte issued an order to pull resources previously dedicated to urban development and apply them to rural areas. This shift in economic objectives led to less lucrative tax breaks for businesses in urban areas.

2022 Update: Investment by the Philippines into both urban and rural ecozones has taken a back seat amid lockdowns and fiscal drain.

Though investment in centralized places of business has dwindled, the Philippines has created other incentives for foreign investors by amending the country’s Foreign Investments Act. Included in this amendment is the Foreign Investment Promotion and Marketing Plan (FIPMP) which includes competitive advantages, natural resources, skill and educational development, and other areas of improvement.

Outlook: While investment in the development of all ecozones has largely stalled, the Philippine government still has the importance of foreign investors in mind. By establishing objectives through the Foreign Investment Act, the Philippines has given investors peace of mind that the country will recover financially from the COVID-19 pandemic.

The Rise of Nearshore Outsourcing

2019 Status: Cost increases in the Philippines had been making it more difficult to significantly undercut other prime outsourcing regions like Central and South America, causing some business leaders to consider alternative destinations for their outsource call centers. However, the widespread fluency of English and excellent customer service kept the Philippines competitive even as pricing became less of a differentiator.

2022 Update: For most of its history, the Philippines has enjoyed a cost advantage as a BPO leader. However, in recent years experts have noticed a shift as the cost of outsourcing has risen. This has led some to wonder if the country is on the verge of losing the cornerstone of its competitive edge. While the Philippines’ costs remain below, or at least comparable with, nearshore and African regions, it can no longer offer the massive discount it once enjoyed.

But pricing isn’t the only reason the Philippines is a world leader in the call center industry. One key factor in the Philippines staying competitive: exceptional customer service. With a thriving industry comes the ability to invest in excellent training programs and customer service best practices.

Outlook: The margins may be closing, but Philippine BPOs are still able to undercut nearshore competitors in most cases. This means that the Philippines can remain a leader in the world of call center outsourcing. Though the cost of call centers in the Philippines is on the rise, the years-long investment in customer care can counteract the price increase. Those looking for a way to elevate their customer experience at a competitive cost will still find the country an exceptional choice.

The Impact of COVID

2019 Status: COVID-19 was first documented on December 31, 2019. Epidemiologists had been theorizing about the likelihood of a global pandemic, and the world had been regularly battling smaller outbreaks for decades, but the reality of COVID-19 was barely a blip on the radar prior to 2020.

2022 Update: In the past two years, the Philippines has been hit hard by COVID-19. The fact that only 36 percent of the population has received at least one dose of a vaccine has been a major hindrance to minimizing spread. However, with government vaccine campaigns rolling out over the last several months, the country has finally started to see a decline in its infection rate.

As the transmission of COVID-19 slows, Philippine citizens are starting to return to work and a semblance of normal life – for now. The Omicron variant is sweeping through the world, leaving many experts uneasy about how long normalcy will last.

Outlook: The effects of a slow vaccine rollout after being hard-hit by COVID-19 has dealt a blow to the Philippines and its BPO industry. However, the government’s commitment to vaccination is helping the country’s recovery keep pace with other outsourcing regions and will likely allow it to stay competitive.

The Future of Working From Home

2019 Status: Working from home was generally not considered feasible by the call center industry, with most agents taking calls from offices equipped with productive workspaces and high-speed internet. This was especially true in the Philippines, where poor internet connectivity and multi-generational households made working from home less efficient than coming into an office. As a result, few call centers had employees working remotely, and many lacked the technology and security to do so.

2022 Update: Many Philippine call centers faced difficulties while transitioning to a work from home model at the height of pandemic lockdowns. Ultimately, most BPOs were able to find a solution in the face of necessity and have been implementing solutions for long-term remote work in many cases.

One of the biggest factors to ease the transition has been the spread of reliable internet services. The World Bank has approved a $600 million loan designed to help the Philippines build infrastructure to keep the country competitive. Part of this loan is for the expansion of broadband services that will support both urban and rural households as more employees work from home.

After two years, many employees feel confident in their ability to remain productive outside of an office environment. Many employers report that they are experiencing higher productivity but are becoming concerned for their employees’ mental health. Work from home employees are less likely to take breaks and more likely to pack more into their daily schedules, causing high levels of stress.

Outlook: Many employees are hoping for at least a hybrid model, but employers are still hesitant. The current efforts to expand internet services will certainly help make the case for remote work, but employees without adequate home offices will probably return to the office full time.

Overall Outlook for the Philippines

Although the Philippines has faced challenges over the last two years, it is still on track to remain a reliable outsourcing destination. With a strong commitment to customer service and English language fluency, business leaders will find themselves hard-pressed to find a better balance between cost and benefit.

Additionally, the Philippines has made strategic investments in response to a global pandemic. The country has a renewed commitment to adding practical infrastructure to support not just businesses, but their employees as well.

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