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					                                                                 IT AND BPO SERVICES


I. INTRODUCTION

1. About the Industry

The Department of Trade and Industry (DTI) defines BPO as the “delegation of service‐type
business processes to a third‐party service provider”. The industry is generally divided into the
following sectors: contact centers, back office services, data transcription, animation, software
development, engineering development and game development.

The Philippines gained considerable traction as a BPO location based on the availability of
professionals with the required language skills, cultural affinity with the US (the main BPO
market), and strong customer service orientation of its workforce. This government openly
acknowledged the industry as key driving force for growth and employment in its Medium-Term
Philippine Development (2004-2010).

Companies outsource because they would rather focus on their core business functions while
outsourcing or sending non-core and routine tasks for others to accomplish. Its growth can be
attributed to two main drivers 1.

•        From the demand perspective, the globalization intensified BPO activities with the lowering
         of barriers to trade. This allowed companies to explore alternative locations to lower
         operating costs without sacrificing the quality of service.

•        From the supply standpoint, rapid advancements in information and communication
         technology (ICT) made deliver services via the internet in a cost efficient and timely manner.
         Thus, while outsourcing and offshoring have long been part of tactical strategies of
         companies, it increased dramatically in the past decade with the depth and coverage of
         services evolving into higher value offerings.

2. Local and Global Scenario 2
       Figure 1: Global Offshore Services Market Size (US$ billion)


                                                                                                The global offshore services market is
                                                                                                growing at a healthy albeit slower pace,
                                                                                                and will more than double by 2016.
                                                                                                Companies now regard outsourcing far
                                                                                                more as a means to reduce costs for
                                                                                                business operations.

                                                                                                Overall, the outlook for Asia/Pacific's BPO
                                                                                                market remains positive with the
                                                                                                Philippines aiming for 10% of the total
                                                                                                BPO market or about US$25 billion.



1
    Ceferino S. Rodolfo, Center for Research and Communication Foundation, The Philippine Business Process Outsourcing (BPO) Sector and the Global Financial Crisis,
    April 2009, page 1
2
    BPAP Roadmap 2016, Everest Research Group, 2010
                                                                                                                                                                       1
The year 2011 saw the industry attain about $11 billion revenues while full-time employees
(FTEs) reached about 640,000. The industry is expected to post roughly 20% revenue growth
for 2012.

3. Positive effects of promoting the industry

Heightened Public-Private Partnerships (PPP) or greater collaboration among stakeholders,
including government, industry and the academe, is expected to buoy growth and lead the
industry to meet Road Map targets and contribute to 9% of GDP by 2016 (Figure 4).

The contribution of the BPO sector to the Philippine economy is undeniable. The industry has
given Filipinos jobs with above industry compensation and career paths that will make them stay
in the country rather than seek employment abroad. As such, the value proposition of the
country is anchored on the availability of a skilled and scalable workforce.

Although lower labor cost in the country vis-à-vis other locations is a primary factor in attracting
BPO jobs, the sector, nonetheless, offer a premium wage structure compared to local firms and
domestic–oriented industries. The resulting higher disposable incomes led the Asian
Development Bank (ADB) to conclude that the wholesale and retail sector tops the list of
industries where the BPO industry has the strongest linkage. 3

Since the sector depends on human capital, the quality of the telecommunications network, and
the quality of institution, the government created the enabling environment which reaped
benefits for both service providers and country, fuelling to the overall economic development.

II. INDUSTRY PERFORMANCE AND PROJECTIONS

1. Investments/Number of Firms/Major Players

Investments

Every year the Philippines has seen an increased in the number of companies setting up a
BPO presence in the country except the period between 2007 to 2008 which marked the
beginning of the global financial crisis.




               Source: BOI and PEZA



3
    Nedelyn Magtibay-Ramos, Gemm a Estrada, and Jesus Felipe, An Analysis of the Philipp in Business Process Outsourcing Industry, 2007
                                                                                                                                          2
The graph illustrates the total investments registered with the Board of Investments (BOI) and
the Philippines Economic Zone Authority (PEZA), two Investment Promotion Agencies (IPAs)
under DTI which host more than 90% of all IT & BPO activities in the country.

Major Players

During the past decade, the Philippines attracted many companies, both third party providers
and Global In-house Centers (GICs). There are more than 700 companies currently engaged in
offshore operations in the country.

The following table shows the extent of the success that the BPO industry enjoys in the country.

                                                        MAJOR PLAYERS




  CONTACT CENTER




  IT AND SOFTWARE         
    DEVELOPMENT




 BACK OFFICE AND
 OTHER PROCESSES




 CREATIVE SERVICES




    ENGINEERING
  SERVICES & R & D



2. Installed Capacity

Presence of a Demand-Supply Gap

Despite growing antagonism towards outsourcing from citizens of source countries and in spite
of economic and geopolitical uncertainties, the IT & BPO industry global delivery system is still
expected to be part of corporate and business strategy.

Today, many countries across the globe are attempting to replicate the successes of the
Philippines in attracting corporations from United States as well as Europe to outsource and
                                                                                                3
offshore business processes. The emergence of these new destinations will be the catalyst that
drives future growth and evolution of the industry. Figure 1 shows how the global offshore
services will double by 2016.
Even as the industry grows and evolves, the Philippines is well entrenched to exploit new
market opportunities especially in non-voice services while cementing leadership position in
voice services. The country has surpassed erstwhile leader India in terms of revenues and head
count in voice services with US$7.38 billion, marginally higher than India’s voice-based BPO
exports’ revenues of about $7 billion in financial year 2011 4.

Moreover, aggressive campaigns to diversify into more complex services will sustain rapid
growth with the Philippines intending to be the world leader in Healthcare Information
Management Outsourcing, Finance and Accounting Outsourcing, HR Outsourcing, and
Animation and Game Development. Another goal is to double market share by 2016 in
Information Technology Outsourcing, Engineering Services Outsourcing and Multilingual BPO 5.

3. Sectors Served

The workforce demonstrates efficiency not just through process capability but by superior
business expertise in both voice and non-voice services spanning a range of verticals.

Voice and Non-Voice Services

     •     Sales and Customer Relations Management
     •     KPO (Marketing Research, Legal Case Research and Preparation, Medical Research,
           Insurance, Mortgage)
     •     Back-Office (Finance and Accounting, HR, Payroll, Procurement)
     •     Software Development (Product Development, Embedded SW, Project Management,
           Quality Assurance) and IT Services (Business Continuity/Disaster Recovery, Web
           Hosting, Network Management)
     •     Health Information Management (Claims Processing, Coding and Billing, EMR/EHR)
     •     Transcription (Medical, Legal, Publishing, Data Transformation, Film Subtitling)
     •     Creative Content (Games Development and Animation)
     •     Engineering and Architecture Design

Verticals

     •     Banking Financial Services, Insurance (BFSI), Manufacturing, Healthcare, IT, Legal,
           Energy, Publishing, Retail, Travel, Automotive, Telecommunications, Media, Logistics,
           Procurement, Fast Moving Consumer Goods, etc.

4. Global Markets Served 6

                                                                                   Although the United States remains the prime
                      Figure 3: Philippine IT-BPO source markets                   source of outsource work, the UK, other
                                      In US$ billion
                                                                                   European countries and APAC are emerging
                    100%                                                           as major source of business.
                     90%
                     80%
                     70%
                     60%                                                                         This is attested by the recognition of the
                     50%
                     40%                                                                         National Outsourcing Association (NOA) of the
                     30%
4
                     20%
  Manila Bulletin, Philippines Poised For BPO Leadership, March 18, 2012                         UK recognizing the Philippines as Offshoring
5
                     10%
  Alejandro Melchor, After dominating call centers, Philippine IT-BPO seeks world leadership in four more fast growing services, DOST-ICTO, 30 January 2012
6
                       0%
  BPAP Roadmap 2016, Everest Research Group, 2010                                                Destination of the Year in 2007, 2009 and
                                      2006                       2010                            2010.                                                      4
             Domestic             1%                    5%
             APAC/AUS             8%                    10%                        Figure 3 shows signs of diversification of
             UK, EU               10%                   11%                        source markets as percentage share of US
5. Economic Contribution

5.1 Multiplier Effect and Industry Linkages

The IT-BPO industry contributes to job generation as well as to the overall growth of the
economy. Likewise, it creates influencing factors known as the Outsourcing Adjacencies 7 or
those individual components which compose the entire outsourcing ecosystem. The impact and
breadth are further classified into 4 broad categories comprise related and supporting micro
level components.

 Resourcing Requirements: Considers the labor or people intensive nature of the industry
         which influences related micro parameters such as:

         o     Housing and Infrastructure: Employees tend to stay close to places of work which
               necessitate development of transportation and commuting systems, as well as
               residential complexes.

         o     Transportation: Boosts the types and scale of mass transportation and increase
               supporting employment tributaries.

         o     Food & Commodities Supply Chain: Increases demand for food in and around the
               outsourcing hubs and increases the demand from the agricultural sectors. Likewise,
               there is an increase in employment at food establishments, 24-hour convenience stores
               and related sectors of commodities and other retail goods.

         o     Lifestyle and Entertainment: Growing population and migration toward BPO hubs lead
               to construction of lifestyle and entertainment venues such as malls and recreation
               venues which in turn create employment to support these venues.

 Communication, Collaboration and Technology: Considers the service delivery system
         involved often in different time zones and geographies, and therefore heavily leverages on a
         robust and redundant communication platform.

 Globalization: Considers the diverse time zones that require employees to work in shifts.
         Thus not does only the outsourcing sector workforce work round the clock but also the
         support service personnel – bringing in the concept of working in shifts and round the clock
         availability.

 Skill Development & Propagation: Considers requirement for specialized skills and
         constant pool of trained manpower, creating a virtual cottage industry of skill development/
         training schools which generates more ancillary jobs revolving around technical training,
         language training, and other process-specific education and formation.



7
    Clark Lester Bautista, THOLONS, The IT & BPO Industry’s Direct and Indirect Economic Impact, June 2011
                                                                                                             5
Overall, BPA/P estimates that by the year 2016, the IT-BPO industry would have
contributed US$12.9 billion in annual salaries and benefits or roughly PhP 564.3 billion
through its consumption. 8

From the estimated total annual salaries and benefits of BPO employees, the food sector is
expected to get 41%; housing, 13%; transport & communication, 8%; and other subsectors
(as garments and gadgets), 4%. On the other hand, the government will be collecting
roughly 20% from the salaries of BPO employees while about 14% is estimated to go to
savings. (Figure 4).

                                                                                         Taking this into account, IT-BPO firms in
                                                                                         the Philippines contributed to the rise of
                                                                                         rest and recreation services as well as
                                                                                         commercial and residential real estate
                                                                                         developments. Higher income capacities
                                                                                         of even an entry level contact center
                                                                                         agent - around $330 to $340 per month -
                                                                                         has increased disposable income and
                                                                                         better purchasing power.

5.2 Revenue and Global Market Share and Contribution to GDP

IT-BPO services serve as catalysts for growth, the industry played a major role in fueling recent
economic development in the Philippines.            While the country experienced chronic
unemployment because of low to moderate growth and intervening economic crises in the
1970s, early 1980s and late 1990s, the past decade saw the IT & BPO industry grow
exponentially, rising in prominence to make the country a destination of choice for GICs and
third party service providers.

A World Bank study 9 cited its significant contribution to the expansion of services exports in the
Philippines as a percentage of total exports increasing from 9% in 1999 to 21% in 2009. The
country's services exports rose 3.6% on average per year during the period, higher than that of
Asia as a group, which averaged 1.5% per year. Unlike many developing countries, the
Philippines had been a net exporter of services since 2006, emerging as one of the best
performers in services exports, particularly in IT & BPO.

The country currently holds 8% of the global market for IT & BPO services and is expected to
reach 10% by 2016 if Roadmap projections are met. 10 The industry can expect additional
revenues venturing into high-value non-voice services.




8
    BPAP and Everest Group, “Philippine IT-BPO Road Map 2016: Driving to Global Leadership”
9
    Raja M. Mitra, Senior Consultant, World Bank Group, BPO Sector Growth and Inclusive Development in the Philippines, January 26, 2011
10
    BPAP Roadmap 2016, Everest Research Group, 2010

                                                                                                                                           6
At a compound annual growth rate                 Figure 5: Philippine IT & BPO Industry
                                                 (US$ billions)
(CAGR) of 20%, IT-BPO will become a
US$25-billion industry by 2016.

The industry is also expected to
contribute about 9% of GDP. The study
further indicates that if both the industry
and government strengthen Private-
Public-Partnership, the industry can
reach loft revenue aspirations and
potentially employ 1.3 million workforce
by 2016.




6. Industry Projections

   6.1 Revenues

The industry showed resiliency even during the financial crisis that lingered through 2008-2009.
Growing at a robust rate of 28% annually over the past six years, the industry is expected to
reach US$25 billion in revenues by 2016 based on the higher end of Road Map projections (see
Figure 4).

The country is now considered as a strong alternative to India because investors regard the
consistency of policies on incentives for IT & BPO locators.

The positive business sentiment and improved investment climate would allow the sector to
generate higher revenues.




   6.2 Employment

The industry created more than 110,000 new jobs in 2011 and is expected to create 120,000
more in 2012. Voice BPO remains the largest sector at 65% of total industry followed by the


                                                                                               7
non-voice BPO at 20%. By, 2016, the industry is poised to generate 1.3 million full time jobs
(See Figure 4)

The year 2011 saw the industry reach approximately 640,000 employees as expansion of
current locators and influx of new locators buoyed industry performance.

                  Table 1: Philippine IT & BPO Industry (US$ billion)
                                                          IT & BPO Performance 2011
                                                                  FTEs        Revenue (US$M)   Y-O-Y
                  Voice BPO                                      416,000            7,400       21%
                  Non-voice BPO/KPO                              128,650            2,058       24%
                  ITO                                            49,908              993        37%
                  Health Info Mgt & Care                         24,700              277       172%
                  Engineering Services                            9,030              172         5%
                  Animation                                       8,640              128       -10%
                  Game Development                                1,391               8         13%
                  TOTAL FTEs                                     638,319            11,036      24%



III. THE PHILIPPINE VALUE PROPOSITION

There are several reasons why companies are drawn to the country for their outsourcing needs.
These competitive advantages drove accelerated growth of BPO services in the Philippines and
continue to set the country apart from competitor countries, as follows:

1. HUMAN RESOURCES

•         Highly Educated, English Proficient and Skilled Workforce

          Companies are assured of the best value-for-money proposition with natural pool of talents
          and human resources that are skilled and adept in the use of English, commanding 72%
          proficiency among the population. The Philippines also enjoys high literacy rate at 95.9% 11,
          considered among the highest in Asia.

          Of crucial importance to the success of BPO is for a country to have a large population base
          to be able to meet the soaring demand for human resource. This must also be
          complemented with a strong educational system, which will equip people with the necessary
          skills-set and capabilities to perform optimally and efficiently. The Philippines has a large
          population base, about 100 million that is turning out to be an asset as it stimulates
          investment in education translating to more workers and expanding the talent pool. The
          country produces 460,000 graduates per year 12 of which 1/3 are graduates business related
          courses and another 1/3 have degrees in IT and Engineering.

•         Fast Learning Curves




11
     CIA World Factbook
12   Commission on Higher Education (CHED), Philippines
                                                                                                       8
               Expats held senior management roles at the first wave of outsourcing but local talents
               gradually occupied managerial and C-Level positions even as operations became more
               established and processes more complex. No significant loss in quality and productivity
               were observed, thus, ensuring consistent returns and better value to clients.

     •         Strong Customer Service Orientation and Loyalty

               Filipinos are renowned for their strong customer service-orientation. This is an extremely
               desirable trait because this demonstrates high level of customer interaction and problem
               solving skills, both critical to performance indicators IT and BPO service providers.

               Filipinos also have excellent work ethic and incomparable loyalty which translates to low
               attrition rates. Employees are the most important and valuable asset of an organization,
               hence, companies do their best to hold and retain and make them stick in the organization.

     •         Steady Supply of Graduates and Human Resources 13

               Every year, the country produces almost half a million college degree graduates, 66.6% of
               whom have courses suitable for the IT/BPO sector.




               Philippines ranks 3rd among BPO destinations in terms of annual graduates:

     Table 2: Summary of Graduates (‘000)
     Tertiary Graduates (College)      Finance and Accounting /                  Information Technology (IT)
                                              Business
     India             3,500      India                560                       China               634
     China             2,000      China                127                       India               510
     Philippines       ~500       Philippines          107                       Philippines          85
     Poland            ~500       Poland               107                       Malaysia             68
     Mexico             371       Mexico                68                       Poland               53
     Egypt              330       Egypt                 66                       Mexico               50
     Malaysia           131       Romania               33                       Egypt                39

2.             IDEAL LOCATION

     •         Expat Friendly

               The Philippines ranks high among expatriates willing to relocate or work on multi-year
               assignments. The country emerged as the 8th most preferred destination for expats for 2011
               according to a research by HSBC 14 . The main objective of the research was to provide
               insights on life as an expat – experiences, issues, challenges and rewards, putting a
               premium on ease in quality of life, cultural assimilation, and language and even what it's like
               to raise children abroad.


     13   Commission on Higher Education (CHED) and Everest Analysis 2010
     14   HSBC, Expat Explorer survey 2012
                                                                                                             9
                                                   Friendliest Countries15
                                    1   New Zealand
                                    2   Australia
                                    3   South Africa
                                    4   Canada
                                    5   United States
                                    6   Turkey
                                    7   United Kingdom
                                    8   Philippines
                                    9   Spain
                                   10   Malaysia

In one particular component of the survey called the Expat Economics Luxury league table, the
Philippines ranked a strong 3rd among countries surveyed. It says Expats enjoy more luxuries in
the PHL compared to their home countries like domestic staff, swimming pools, owning their
property or owning more than one property, among others. This is predominantly due to
increased affordability rather than to increased income. Lower spending on essentials like
accommodation, public transport, food and childcare account for the extra level of disposable
income.

•       Adaptability and Affinity with Other Cultures

        Companies can expect Filipinos to easily integrate with professional environment and
        business culture of different clients and nationalities. Multinational companies operating in
        the Philippines are quite impressed with the Filipinos’ ability to assimilate interpersonal
        norms of behavior and organizational culture. Because of the Filipino worker’s ability to
        easily adapt to other cultures and nuances of behavior, companies no longer need to invest
        heavily for cross-cultural training.

3. INFRASTRUCTURE

Multiple Choices of Locations

The real estate industry continues to be bullish with the IT and BPO sector driving demand for
office spaces in major cities. There are many ideal locations throughout the country as the
government encouraged the development of IT parks/centers and accredited buildings. These
facilities are equipped with the necessary infrastructure and systems support in order to function
at a world-class level.
Figure 1. PEZA 159 IT Parks / Centers




15
     HSBC Expat Explorer Survey 2011
                                                                                                   10
    Source: www.peza.gov.ph, December 2011



    Redundant Telecommunications Network

    The telecom industry is one of the more robust sectors in the country. Over the past two
    decades, the sector witnessed substantial investment in infrastructure, driven by the
    deregulation of the industry in the mid-90s which initially encouraged fixed-line development
    followed by the burgeoning mobile telephony market, then by a surge in wireless broadband
    services. More recently, the boom in BPO activities spurred further investments from telecom
    networks to upgrade voice and data capacity both for domestic and international connectivity.

    Because BPO services continue make up such a lucrative business, the government has taken
    steps for the continued growth of the industry by ensuring that a robust and redundant
    telecommunications network is in place. The infrastructure includes satellites, cable and
    domestic fiber optic network (DFON), among others. There are several submarine networks
    that serve as critical components to the BPO industry, providing reliable and diverse links
    between the Philippines and the rest of the world.

    There are now seven submarine cable systems landing in the Philippines, including APCN,
    APCN-2, C2C, EAC, TGN-IA, AAG and Guam-Philippines, distributed in five cable landing
    stations in Batangas, Ballesteros, Capepisa, La Union and Nasugbu.

    The good telecommunications infrastructure, both for voice and data makes the country the
    ideal location for BPO services, as compared to other countries in the Asia Pacific region. The
    cost of bandwidth has also decreased considerably over the last couple of years.

    In addition, the presence of a number of carriers for telecommunications services assures a
    solid competitive landscape for outsourcing buyers. A number of operators have moved forward
    on putting Next Generation Networks (NGNs). The major operators – PLDT and Globe Telecom
    – continue to buy into regional and international submarine cable systems.

Figure 2 (Left): National Telecom Infrastructure               Figure 3 (Right): International Capacity (17 International Cable Systems)


                                  BALLEST


                       VIG




                  SF
                         BAG     SOLA

                  TARLA        CABANA

              SUBI SAMPA        AURO
                     ERMI       MAK
                       BACO
                                                                                                                                           11
                NASU
                                               NA
                             BATANG PAGBI


                                                DONS
                                                       SORSO
                                              MASB
                   SAN


                                        ROX
Source: PLDT Alpha Enterprises




4. COSTS AND OTHER COMPARATIVE ADVANTAGES

Filipino employees represent premium talent because of their ability to deliver service that
leverages both business expertise and process expertise. Add to the quality of human resource
pool is the significant benefits in terms of labor cost in the Philippines.

With one of the lowest hourly labor rates in the world, locators and potential investors gain
significant savings on operations due to lower costs as well as operational efficiencies as
companies can operate 24/7. Companies can easily implement shift-work schedule in the
Philippines. The morning shift typically starts before 12 noon for Australia/New Zealand client
support. The mid shift “typically starts between 12 p.m. and 3 p.m. for UK client support. The
“night” shift begins after 3 p.m. and is aimed to support clients in the United States and Canada.

5. SUPPORT INSTITUTIONS

As the 2nd largest destination for outsourcing, it is imperative to create an environment where
there is heightened cooperation between the government and private sector. The resulting
synergy develops hard and soft infrastructure and creates a robust environment for business to
prosper and further improve competitive advantages.

The following stakeholders and the general initiatives they have undertaken are instrumental to
the growth of the industry:

•     Government – At the forefront of this initiative is the Department of Trade and Industry (DTI),
      conducting international investment promotion of the Philippines as an off-shore BPO
      location from the onset.

      o     TESDA – Skills development training to create highly skilled, globally competitive and
            flexible workforce. This invigorates the workforce with valuable skills and accelerates
            skills development.
    Source: BPAP Next Wave Cities 2010-2011


      o     DOST – Policy formation and development of locations for BPO thru the ICT Office
            (ICTO)


                                                                                                   12
        o   Academe – Adapting curriculum to the needs of the industry. Many academic
            institutions are now implementing courses intended to address the needs of the industry.

    •   Industry Associations – Ensure responsible and dynamic participation in promotion and
           policy formation BPAP and associations under its umbrella, as follows:
           • Contact Center Association of the Philippines (CCAP)
           • Health Information Management Association of the Philippines (HIMOAP)
           • Philippine Software Industry Association
           • Game Developers Association of the Philippines
           • Animation Council of the Philippines Inc.

    •   Other private sector stakeholders:
        o Telecom providers – Assure redundancy and latency that is vital in the delivery of
           services.    The world-class telecommunication network of the country and the
           declining rates further enhances competiveness.

        o   Real estate developers – Modern buildings are rising in major cities in the country,
            creating, creating new business districts all over the country. The real estate industry
            continues to be bullish with the IT and BPO sector driving demand and robust growth for
            office spaces.

    6. GOVERNMENT SUPPORT

        6.1 Enabling Laws

        •   EO 226 (Omnibus Investments Code of 1987) - BOI is tasked with identifying priority
            sectors for investments through the formulation of an annual Investment Priorities Plan
            (IPP). The inclusion in the preferred activities serves as basis for granting fiscal and
            non-fiscal incentives to locators.

        •   RA 8748 - Authorizes the Philippine Economic Zone Authority (PEZA) to grant fiscal and
            non-fiscal incentives for local and foreign investors who locate in economic zones
            including IT Parks and IT Centers.

        •   R.A. 7042 (Foreign Investment Act or FIA) – Provides guidelines for foreign investors to
            be allowed to invest 100% equity in companies engaged in almost all types of business
            activities subject to certain restrictions as prescribed in the Foreign Investments
            Negative List (FINL). Foreigners can own up to 100% of the contact center activity.




    COMPARISON OF INCENTIVES OF PHILIPPINES INVESTMENT PROMOTIONS AGENCIES

                                                                                 CDC/SBMA (Republic
                            BOI (Executive Order      PEZA (Republic Act No.      Act No. 7227 Bases
        INCENTIVE
                            No. 226, as amended)        7916, as amended)          Conversion Dev’t
                                                                                      Authority)
                                                                                 Exempted from all local
Income Tax Holiday (ITH)               4 – 6 years (max of 8 years)
                                                                                  and national taxes –


                                                                                                   13
                                                                                                                value-added taxes,
ITH Bonus                                 2 years provided the firm meets certain conditions                  franchise taxes, excise
                                                                                                               and ad valorem taxes
Special Tax Rate of 5% on
                                                                                 Special Tax Rate of 5% on Gross Income
Gross Income
Importation of Capital
Equipment, Spare Parts,                        0% duty-free                                       Tax and Duty-Free
and Supplies
Wharfage Dues, and
Export Tax, Duty, Impost,                                       Exempted                                                 None
and Fees
Simplification of Customs
                                                                                  Available
Procedures
                                      •    Foreign nationals may be employed in supervisory, technical or advisory
                                           positions within 5 years from a project’s registration, extendible for limited
                                           periods. The positions of president, general manager, and treasurer or their
Employment of Foreign
                                           equivalents, of foreign-owned registered firms may be retained by foreign
Nationals
                                           nationals for a longer period.
                                      •    Foreign employees may bring with them their spouses and unmarried children
                                           under 21 years of age

            COMPARISON OF INCENTIVES VIS-À-VIS OUTSOURCING PROVIDER COUNTRIES

                Area                  Philippines                India                    China             Egypt             Malaysia


                                 Import duty waiver for   Concessional 3.09%     Varies                                  CAPEX subsidies
CAPITAL




                                 capital equipment        customs duty on                                                up to 100%
                                                          import of capitals
            Investment related
                                 VAT, customs duty        goods                                                          Import duty waiver
                                 waiver                                                                                  - multimedia
                                                                                                                         equipment

            Talent               Training grants for                             Training charges        Training        Training subsidy:
            development          finishing schools                               tax exempt till 8%      subsidy         20-40%
            linked               (TESDA vouchers)                                of payroll
OPERATING




                                 Exemptions on local      Services, Sales tax                            Telecom         Subsidy on
                                 taxes and permits        exemption                                      subsidie        telecom, rentals
            Other input cost                                                                             s               and utilities
            linked               VAT exempt inputs        50% exemption of
                                                          stamp duty                                    Rental
                                                                                                        discount

                                 6 years extendable to    5 year ITH only in     Preferential            Personal tax     10 years
                                 maximum of 8 years       SEZs; plus 50%         corporate tax –         rate cuts        corporate tax
                                 (or) 4 years             exemption for 2        15%                                      holiday
TAXATION




                                 extendable to a          successive 5-year                              Corporate tax
                                 maximum of 6 years       blocks subject to      Business tax            rate cuts       Accelerated
            Tax linked
                                                          reinvestment           exemption                               depreciation
                                 Post-tax holiday,
                                 payment at 5% rate on    100% depreciation
                                 gross income             on capital goods for
                                                          5 years


                                                       INCENTIVES FOR ROHQ
            Subject to preferential income tax rate of 10% in taxable income
            Subject to 12% VAT
            Multiple entry visa valid for three (3) years (including spouses and unmarried children below 21 years old)
            Non-immigrant visa within 72 hours from submission of documents
            Exempt from securing ACR
                                                                                                                                    14
Travel tax exemption (personnel and dependents)
15% withholding tax on compensation income applicable to personnel holding managerial and technical
positions subject to:
    • Position and function test
    • Compensation threshold test
    • Exclusivity test

6.2 Development of Next Wave Cities

Under the Information and Communications Technology Office (ICTO), ICT councils are created
and tasked with building capability and promoting awareness of the benefits of hosting IT &
BPO companies. As of March 2012, there are 34 ICT Councils established nationwide.

There are existing collaborative engagements between government and the private sector to
enable physical and social ‘eco-system’ that will ensure wider portfolio of locations and improve
chances of attracting more locators in the sector.

Dubbed as the “Next Wave Cities” (NWCs) program, the objective is to sustain growth
momentum and generate new investments in cities located in Luzon, Visayas and Mindanao, as
potential hosts for BPO companies. The will ease congestion in the National Capital Region
and the Central Business Districts by providing alternative choices of locations. This also
mitigates the pressure on wages and attrition, which is being experienced because of the
conglomeration of locators in the NCR.

BPA/P, Commission on Information and Communications Technology (CICT), and the
Department of Trade and Industry (DTI) developed a Next-Wave City Scorecard™ which
provides information on the key buy factors: talent, infrastructure, cost, and business
environment.

The NWC scorecard reflects the market sentiment of investors, giving more weight to the cost of
doing business in different locations. It also takes into consideration each city’s absorptive
capacity, or its local BPO sector’s estimates employment capacity versus existing sector
employment. Moreover, the scorecard recognizes each city’s educational institutions, which are
accredited as Centers of Excellence/Development by the Commission of Higher Education
(CHED). These metrics add dimensions in the employability of local talent particularly its quality
and availability.




                                                                                                      15
6.3 Talent Development in the IT-BPO Industry

Industry stakeholders identified 9 programs that best preempts a looming talent supply gap.
Each program targets areas for intervention along the entire talent supply chain from
assessment to training and education to specialized knowledge requirements. Talent
development initiatives are designed to attract, recruit, and develop the 1.1 million employees
that industry needs to meet its Road Map 2016 accelerated growth target of US$25 billion in
revenues.

The following are the programs aimed at addressing talent supply capability building for the
different industry sectors:

1.1 Global Competitive Assessment Tool (GCAT) –
    • BPAP’s Online test based on industry-standard Previsor.
    • Assesses basic skills and abilities identified as relevant to sustaining an individual in a
       career with the IT-BP industry.
    • Measures the skills gaps and areas of improvement of test takers which guides schools
       and companies in designing appropriate interventions.

1.2 Advanced English Proficiency Training (AdEPT) program
    • Two-week course aimed at improving English proficiency.
    • Offered to university students and individuals already in the industry wanting to improve
       their English.

1.3 Industry Training for Work Scholarship Program (I-TWSP) - TESDA bridging program
    composed of courses designed by industry to prepare trainees for jobs in call centers,
    software development, medical transcription, and animation. Content for courses in
    finance and accounting, medical coding and billing, game development, and other course
    are also being developed and will be offered within the year.

   • MoA between TESDA and BPAP for the joint management and implementation
   • ₱400 million allocation supports scholarships under a distribution system managed by
      BPAP and its partner associations.

                                                                                               16
    • Proven in the past years to be effective in converting ‘near hires’ into employees after
       they complete the courses that range in length from 2 weeks to 6 months.
    • To further support the I-TWSP, TESDA has also provided ₱50 million to fund TESDA
       Trainer’s Training (T3) to increase the number of trainers for the I-TWSP.

 1.4 BPAP has also recently started two new programs: one on emerging services and the
     other for high school graduates.

    • Emerging Services Program - Addresses the training and educational needs for
       specialized services such as finance and accounting, insurance, health care, IT,
       engineering services, creative services, among others.
    • Associate Program – A 6–12 month program to help high school graduates become
       employable.

 1.5 Service Management Program (SMP) – Recently approved by the Commission on
     Higher Education (CHED) under the leadership of CHED Chair Patricia B. Licuanan.

    • 21-unit minor degree course that can be taken by university students intending to go into
       the IT-BPO industry. By completing this course, students will receive specialized
       education in service management to augment their major fields of specialization such
       as business, IT, engineering, or other courses
    • SMP, which will be offered in at least 6 colleges in SY2012-2013, has been designed by
       industry practitioners to provide students with skills required to qualify for internal jobs,
       practical experience, and industry-specific courses. SMP was approved by CHED in a
       record time of just 4 months.
    • CHED also allocated about ₱125 million to SUCs to implement IT-BPO programs.

 1.6 Service Technology Management (STM) - Program that can be offered by universities
     as either a post-graduate certificate or a master’s degree for individuals with experience in
     other industries who want to join the IT-BP industry as a career shift. STM was specifically
     created to arm potential team leaders or managers with industry-relevant information,
     education, and experience.

 1.7 Executive Development Program - Aimed at providing forward-thinking leadership and
     management education for executives who already hold key position in IT-BP companies.
     This will help fast-track the development of a sizeable cadre of Filipino executives in
     management positions in global companies.

 1.8 Volunteerism and Sponsorship - BPAP encouraged members to sign up as volunteers
     for programs of choice. Participants also signed up their bosses as Executive Sponsors to
     seal their company’s commitment to deeper engagement in industry-wide efforts to sustain
     and enhance the IT-BP talent supply chain.

7. UNIQUE ADVANTAGES




                                                                                                  17
The country is a study in contrast and diversity, boasting of bustling megacities while
maintaining the idyllic vibe of its islands. Modern buildings are rising in Metro Manila while
spectacular and pristine beaches offer perfect getaways for those who want to experience
Filipino tropical spirit.

The second-largest archipelago in the world with over 7107 tropical islands, visitors are
inevitably touched by the Philippines’ beauty and people. A former Spanish and US colony, the
Philippines is renowned for warmth and hospitality.

Visitors can expect to be greeted with an affable smile which gives one a sense of being
welcome. English is also widely used and as the medium of instruction in education, media and
business. The Philippines ranks as a preferred posting for Expats. 16

VI. CONTACTS

ADRIAN S. CRISTOBAL, JR.
Undersecretary for Industry Development and Trade Policy
BOI Vice Chairman and Managing Head
Telefax: (+632) 8953512 / 8953993
Tel: (+632) 8809303 / 8809332 / 8904898
Email: ascristobal@dti.gov.ph
Website: www.boi.gov.ph

LUCITA P. REYES
Executive Director
Industry Development Group
Board of Investments
Telefax: 8953978
Tel: 8953983 / 8976682 (local 326/325)
Email: LPReyes@boi.gov.ph

EVARISTE M. CAGATAN
Director
Infrastructure and Services Industries Department
Board of Investments
Telefax: (+632) 8956617
Tel: (+632) 8976682 local 228
Email: EMCagatan@boi.gov.ph

JOY JOSETTE L. LACHICA
Division Chief
Sectoral Studies Division (Tourism and BPO Industries)

16
     HSBC, op cit
                                                                                            18
Infrastructure and Services Industries Department
Board of Investments
Tel: Trunk Line (+632) 8976682 local 279 ; Direct Line (+632) 8953997
Email: JJLachica@boi.gov.ph

Prepared by:

PAUL EDWARD E. TAJON
VANDERBILT S. LEYNES
Sectoral Studies Division (Tourism and BPO Industries)
Infrastructure and Services Industries Department
Board of Investments
Email: PETajon@boi.gov.ph, VSLeynes@boi.gov.ph

April 2012




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