The “indispensable” sector of IT-BPM stays the course despite economic headwinds

The Information Technology and Business Process Management (IT-BPM) industry has proven to be “indispensable” to the Philippine economy – not succumbing to uncertainty such as the pandemic and headwinds of the world economy.

“Indispensable” was the word Jack Madrid, President and CEO of the IT and Business Process Association of the Philippines (IBPAP), used in one of his recent interviews to describe the IT-BPM sector as a pillar of the Philippine economy.

Commerce Secretary Alfredo E. Pascual has always included the country’s business process outsourcing (BPO) industry in his speech to foreign investors. The IT-BPM sector, alongside hyperscale data centers, digital economy activities and products using artificial intelligence (AI), has been classified in the second industrial pole of the industrialization strategy of the Ministry of Trade and Industry (DTI).

“The next decade will see the BPO industry segment as a competitive contributor to our participation in the technology, media and telecommunications cluster global value chains,” Pascual said in his speech to the Philippine Economic Briefing in New York.

“We leverage the fact that 82% of BPOs and shared service centers in the Philippines serve global markets. When it comes to the IT-BPM segment, we like investments that prioritize added value over cost savings,” added the commercial director.

Pascual also noted that the country’s “strong” BPO track record is attracting the attention of hyperscalers. “We see hyperscalers as an important growth engine for our country.”

Additionally, during the post-State of the Nation Address (Sona) economic briefing, the head of commerce pointed out that the potential of the IT-BPM industry is even greater now with the increased use of digitization and services. online in the wake of the pandemic. Pascual pointed out, “So that’s one of the areas we’re focusing on in DTI to encourage more locators here to set up their IT-BPM back office operation.”

“The next decade will see the BPO industry segment as a competitive contributor to our participation in the technology, media and telecommunications cluster global value chains.”—Secretary of Commerce Alfredo E. Pascual

Even amid the pandemic, particularly in 2021, the IT-BPM industry has remained resilient recording increases in revenue and employment. In fact, according to a statement released by IBPAP in August, the IT-BPM sector contributed 7.5% to the country’s gross domestic product (GDP) in 2021.

It posted 10.6% revenue growth from 2020 levels to $29.49 billion in 2021, eclipsing its recalibrated 2022 target. full time (FTE) in the country increased by 120,000 in 2021, bringing the total workforce of the sector to 1.44 million and registering a growth of 9.1% compared to 2020.

Madrid described such robust job and income growth as “beyond recovery”, noting that it “marks a resurgence for the Philippine IT-BPM sector”.

IBPAP, the industry’s flagship IT-BPM organization, attributed the growth to pent-up demand from global customers; greater reliance on work from home (WFH) setups by customers in contact centers and business process services; and the growth of sub-segments such as e-commerce, fintech, healthcare and technology.

Global perspective

MEANWHILE, on a global scale, the summary of the Philippine IT-BPM industry roadmap 2022 shows that India and the Philippines share the same place as the world leaders in the IT-BPM industry and remain at the forefront vocal and non-vocal BPM as well as computer services.

The executive summary noted that India has good IT infrastructure and service capabilities and a large talent pool, while the Philippines has great adaptability to Western culture and has the linguistic and service orientation as a competitive advantage.

As for economic headwinds, Madrid pointed out that “at a basic level,” the depreciation of the local currency would appear to favor cost optimization for Filipino IT-BPM players. However, he pointed out that the strength of the US dollar also affects other currencies, including those of emerging IT-BPM sites.

“It’s a volatile situation and we’ve seen the recent strength of the US dollar affect other currencies as well; and many of these currencies are also the currencies of other emerging IT-BPM sites. We must therefore analyze it from this angle. So at an immediate level, it would seem like it would help the cost competitiveness of the Filipino IT-BPM players, but that’s not the only factor,” the IBPAP official told a conference. virtual press last week.

With this, he moved on to the most “critical” component to drive investment in the local IT-BPM industry.

“I think the experience of the past two years has really highlighted the most critical component, in my view, of talent and talent quality and talent employability as an investment consideration,” noted Madrid.

Madrid said cost optimization on the part of industry investors and employers and its customers is “always an important consideration in growing offshoring business.”

The IBPAP chief also noted that over the past decade, the lion’s share of the industry’s global client base and relentless demand for Filipino talent has come from North America.

In fact, Madrid said, “our estimate is that 70% of our current business is from North America and I think that share will continue to be maintained.”

However, he added, the fastest growing percentage of business comes from the Asia-Pacific region. “It will remain North America, but we have seen a demand for Filipino talent from our neighbors in APAC.”

“I believe that our Filipino employees will continue to be our main competitive advantage. We have a proven track record in resolving customer queries,” Madrid said.

In particular, according to an article by Outsourcing Acceleratorthe global BPO market is expected to reach $513 billion by 2030 at a compound annual growth rate (CAGR) of 8.5%.

“The rise and growth of the BPO industry will also be fueled by innovation, global rivalry and new technologies, as outsourcing gives companies the opportunity to increase revenue while reducing costs,” reads -on in the article published on July 15.

Meanwhile, on a regional level, the article stated, “Asia-Pacific will remain the fastest growing region with an estimated value of $148 billion by 2030 at a CAGR of 10.3%. Leading vendors such as HCL Technologies Ltd., Infosys Ltd., Accenture, and Wipro are driving market expansion by increasing demand for talented workers, reducing labor costs, and making significant digital investments.

Work at home

Alongside the criticality of Filipino talent, it’s the preferred working arrangement that’s been in the news as Filipino employees continue to transition from the pandemic to the ‘new normal’.

Before solving the work-from-home problem of IT-BPM companies, these companies had to make regulatory adjustments such as meeting the work-from-home threshold set by the Fiscal Incentives Review Board (FIRB).

In March, the Bureau of Internal Revenue (BIR) warned that tax incentives granted to Registered Business Enterprises (RBEs) in the IT-BPM sector would be suspended if they violated said threshold. IBPAP has remained firm in its stance on WFH/Hybrid work and on the legal basis of Letters of Authorization (LOA) granted by the Philippine Economic Zone Authority (PEZA) to authorize a 30% WFH deal until September 12 of this year.

On September 6, a week before the teleworking threshold expired, the IBPAP challenged the FIRB’s assertion that the extension of the Work from Home (WFH) implementation has no legal basis. Madrid earlier stressed that this is “inconsistent” with the aim of attracting and retaining investors in “the country’s biggest job-creating and foreign-currency earning industry”.

The head of IBPAP asserted that the industry-leading IT-BPM organization’s drive to have a WFH/hybrid work setup goes beyond business continuity plans (BCPs). Madrid emphasized that it is more about adapting to global labor trends for the business flexibility that investors are looking for and boosting the Philippines’ competitiveness by retaining existing investors and attracting new IT-BPM investors.

For its part, the Confederation of Employers of the Philippines (ECOP) also earlier called on the government to encourage productivity improvement by supporting flexible working arrangements.

“Creating an environment that will encourage more investment, remove red tape, enable ease and flexibility of doing business, protect employers’ rights to manage their business and workforce, and encourage better productivity by supporting alternative and flexible working arrangements,” read the conference resolutions document the business group released in August.

Last month, a week after the long-awaited decision on the FMH arrangement, the FIRB ended the rift by authorizing the transfer of IT-BPM business registration from PEZA to the Board of Investments (BOI), since the BOI is the only Investment Promotion Agency (IPA) unaffected by boundary constraints or area boundaries.

The DTI noted that with the transfer, IT-BPM companies may become eligible for an increased WFH configuration.

Through this transfer, these businesses can continue to receive tax incentives without violating Section 309 of the National Revenue Code of 1997, as amended by the CREATE (Corporate Recovery and Tax Incentives for Enterprises) Act.

The IBPAP chief welcomed the move, noting that the WFH/hybrid setup is a “game changer” for the Philippines and the sustainability of the IT-BPM sector. Additionally, Madrid said it will contribute to the industry’s ability to create 1.1 million new direct jobs for Filipinos, generate billions of additional dollars in annual investment income and foreign exchange, and increase the sector’s rural footprint by 2028. Of the 1.1 million direct jobs it is expected to create, IBPAP said 54% of these will be in the countryside. A good indicator that beyond simply stimulating overall growth, the sector can help disperse development and create jobs more evenly.

Picture credits: To the Mdved |

Denise W. Whigham