Is geographic diversification a threat to the Philippines’ share of the global outsourcing market?

October 25, 2009

Last week, the Business Processing Association of the Philippines (BPAP) held its first International Outsourcing Summit to discuss the issues, threats and opportunities emerging for the outsourcing industry in general and for the Philippines in particular.

The conference was timely given it has been roughly one year since the global financial crises hit full force and just a few weeks after one of the worst typhoons to hit Manila left much of the city flooded. Moreover, the recently released United Nations Conference on Trade and Development’s (UNCTAD) 2009 Information Economy Report says that the Philippines’ share of the global business process outsourcing (BPO) market is under threat from increasing geographic diversification.

Just how safe is the Philippines’ share (and other early players for that matter) in the global outsourcing market? According to UNCTAD, the Philippines’ market share five years ago was just 9% and this figure rose to 12% the following year and 14% in 2006. However, its market share has remained steady at 15% since then as the trend towards geographical diversification has steadily increased. In fact, UNCTAD data shows that in 2004, just five countries (Canada, China, India, Ireland and the Philippines) accounted for as much as 95% of the total market for BPO market. By 2008, the combined share of these five countries had shrunk to 80% as other new and attractive destinations have emerged. These new destinations include both offshore and nearshore countries such as Malaysia, Singapore, Czech Republic, Hungary, Poland, Romania, Argentina, Brazil and Mexico.

philippinesOutsourceMarket

Nevertheless, the Philippines still has a major edge over China, India, Mexico and many other potential destinations for voice-based work while the global recession has led to growth in sectors that could create opportunities for players based in the Philippines. Besides voice related work, these potential opportunities include knowledge process outsourcing (KPO), process optimization, business intelligence and IT integration. In fact, many players in the Philippines are already diversifying their services beyond just voice based work and are now offering services that require analytical or design skills.

Moreover and despite competition from new and emerging destination, the country’s outsourcing industry is still expected to grow 26% and have revenues of US$7.2 – US$7.5 billion – up significantly from US$100 million in 2001 and the estimated US$6 billion for 2008. In addition, employment in the industry has risen from 100,000 people in 2004 to 345,000 in 2008 and is now probably close to half a million today.

By 2020, the Philippines hopes to have a US$100 billion outsourcing industry employing 4 to 5 million people; however and while local industry players in the Philippines and International Outsourcing Summit participants say that the country’s outsourcing industry is growing and that no business has been taken away from them, the Philippines still faces a number of challenges. These challenges include the relative poor quality of the country’s education system and its infrastructure, the generally negative perception of the country among investors and not to mention a whole host of new and emerging offshore and nearshore destinations.


Comments

One Response to “Is geographic diversification a threat to the Philippines’ share of the global outsourcing market?”

  1. payroll processing services India on November 3rd, 2009 4:04 pm

    Great blog….
    and sure phili is the best place for outsourcing besides some aspects like poor education as mention in this blog….
    really informative one…

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