Ever wondered about the history of the BPO industry in the Philippines?
The Philippines has become one of the leading destinations for business process outsourcing (BPO) worldwide, serving as a hub for international companies seeking cost-effective solutions for their business.
Today, the BPO industry plays a crucial role in the country’s economy, providing millions of jobs and contributing significantly to its GDP. The country’s BPO sector expects to post a record annual revenue of US$32.15 billion in 2024.
But how did that all start? That’s what we’re going to uncover in this article.
Together, let’s trace the evolution of the BPO sector in the Philippines from its humble beginnings to its current status as a global powerhouse.
The Early Years of Outsourcing
Believe it or not, there was a time when the Internet wasn’t readily available to the public, so businesses couldn’t hire digital nomads from across the globe to work for them.
Outsourcing began to take shape during the Industrial Revolution in the 18th century, a period that revolutionized how factories operated and acquired labor and materials. American factories were no longer limited to their geographical location but were empowered to go beyond it.
Historically, the US outsourced and imported raw materials from India. These imported inexpensive raw materials were processed in Scotland, making the goods cheaper while maintaining quality.
Why did they do this? Well, factories outsourced their manufacturing activities to cut labor costs while still maintaining the quality of their products.
Businesses were quick to respond, and since then, the concept of outsourcing has evolved to keep up with the changing demands of our modern times.
How Did BPO Start in the Philippines?
The Genesis of Outsourcing in the Modern World
While it’s difficult to trace the origins of modern outsourcing, we know it boomed in the late 20th century, marking the start of a new era in business operations. Like the Industrial Revolution, outsourcing emerged as a solution as companies sought to cut costs and streamline business processes. Hence, the term “business process outsourcing.”
Businesses began shifting non-core tasks, such as customer service and back-office operations, to offshore locations where labor was more affordable and operations could run 24/7.
The BPO Exodus into the Philippines
While we’re unsure where modern outsourcing started, we know when it began in the Philippines.
The business process outsourcing (BPO) industry in the Philippines started in 1992 when Accenture secured the country’s first outsourcing contract. After three years, the Philippine Congress enacted the Special Economic Zone Act of 1995 to bolster the BPO industry’s growth.
The Special Economic Zone Act aimed to place ecozones and information and communication technology hubs to attract foreign investments, create jobs for Filipinos, and stimulate economic growth.
As a result, the act opened doors for numerous companies to begin outsourcing to the Philippines, opening the floodgates for more companies to enter the country.
Shortly after that, Sykes established the first multinational BPO company in 1997, and eTelecare Global Solutions launched the nation’s first call center in 1999.
And the rest is, how we say, “history.”
The influx of foreign investors was no surprise as multinational companies saw the potential of the Filipino workforce because of their strong English language skills, work ethic, and cultural alignment with Western markets.
The Philippines eventually became an excellent destination for IT-BPM (Information Technology and Business Process Management) services and continues to be a global leader in the industry. It holds the top spot in voice-related services and captures 13% of the global market share.
All this development led to the establishment of the nation’s first call centers, marking the beginning of the country’s journey into the global outsourcing arena.
It’s no wonder that in 2010, the Philippines was named the BPO capital of the world!
But why is the country a preferred destination for outsourcing? Let’s find out in the next section.
Why BPO Companies Love the Philippines
To put it frankly, what’s not to love? You’ll probably lose count because several factors make the Philippines an attractive destination for BPO operations. However, one of the most significant reasons was the widespread proficiency in English. The fluency in English is because Filipinos are multilingual, having that language as the country’s second official language.
As mentioned above, another reason is that Filipinos have solid cultural ties with Western countries, particularly the United States. This alignment with Western and American culture makes Filipinos ideal candidates for customer-facing roles.
Additionally, the cost advantages of operating in the Philippines are top-notch. Its lower wages and operational costs compared to Western nations significantly helped fuel the industry’s growth in the 90s!
Saving big is always a great reason to love outsourcing to the Philippines. Let’s take a detailed look into the development of the BPO industry in the Philippines.
A Glimpse Into the Development of the Philippine BPO Industry
Becoming the BPO capital of the world didn’t happen overnight. The country’s boom took a series of developments to bring the nation to the top of the BPO food chain.
Let’s take a look at how the BPO industry developed into the powerhouse it is today.
The Rise of Call Centers
The rise of call centers in the Philippines during the late 1990s and early 2000s was notable. Companies such as Accenture and Convergys established large-scale operations, and the country quickly became known as the “Call Center Capital of the World.”
The BPO industry quickly grew exponentially as global firms outsourced their customer service and technical support needs to the Philippines, attracted by the quality of service and lower costs.
Government support was also very helpful in helping the industry grow, so let’s examine how they support the industry.
Government Support and Policy Changes
In the Philippines, having the right support changes everything, which is true for the outsourcing industry.
The Philippine government played a vital role in the growth of the BPO industry. As we said earlier, Congress enacted the 1995 Republic Act No. 7916, also known as the Special Economic Zone Act, which offered tax incentives and other benefits to companies operating within special economic zones.
Finally, creating the IT-BPM Roadmap further guided the BPO sector’s development, which focused on increasing competitiveness and attracting more foreign investments in the nation.
With strong government support, it’s no surprise that more and more companies are choosing to establish themselves in the country known as the “Pearl of the Orient Sea.” It’s safe to say these businesses have found the “pearl” they’ve been searching for.
Beyond Call Centers
The BPO sector in the Philippines has gone beyond call centers.
As the industry matured, the BPO sector in the Philippines expanded the ordinary call centers into hubs for business processes. The Philippine BPO scene became known for other business branches, such as Knowledge Process Outsourcing (KPO), IT outsourcing, and specialized sectors like healthcare and finance.
Suddenly, the country became a hotspot for higher-value services, including software development, financial analysis, marketing, and medical transcription. This expansion helped diversify its offerings and increase its appeal to a broader range of industries.
The Impact of the BPO Industry on the Philippine Economy
Undoubtedly, the impact of the BPO industry has been resoundingly felt around the country. The industry has helped provide numerous jobs and has become a driving force in GDP growth.
Simply put, many lives in the Philippines are changing because international companies are finding their home in the island nation.
Here are some of the most impactful ways the outsourcing industry has brought to the Philippines.
Opportunities for Employment
The BPO industry has become one of the largest employment sectors in the Philippines, providing jobs for millions of Filipinos and changing lives. The industry’s rapid growth created a new middle class, particularly in urban areas like Metro Manila, Cebu, and Davao.
For many, BPO employment offered an alternative to working overseas or becoming an OFW (Overseas Filipino Worker), allowing them to support their families while being close to home.
Economic Boost
The contribution of the BPO industry to the Philippine economy cannot be overstated because it has significantly boosted the country’s economy.
The industry has become a primary driver of GDP growth and a significant source of foreign exchange earnings. The influx of foreign investments into the BPO sector has also spurred infrastructure development, particularly in business districts with many BPO offices.
Social Impact
Beyond its contribution to the country’s economy, the BPO industry has had a profound social impact on the Philippines. It has driven the development of key cities, transforming them into bustling hubs of commerce and innovation.
The rise of the BPO industry also influenced the country’s work culture, with a shift towards 24/7 operations and more flexible work arrangements becoming the norm among workers.
Challenges and Future Prospects for the Philippine BPO Industry
The nation’s BPO industry is booming and will continue to do so in the future. While this rings true, challenges are still present. Don’t fall into the trap of thinking that outsourcing in the Philippines is all about parks and rainbows.
Let’s examine the challenges and prospects of BPO outsourcing in the Philippines, starting with global competition.
Global Competition
While the Philippines remains a leading BPO destination, it faces increasing competition from other countries, including India, Vietnam, and Eastern Europe. This competition tells us that the world is catching up with the trends in outsourcing and BPO.
These regions also vied for a share of the global outsourcing market, often offering competitive pricing and specialized services attractive to companies seeking to outsource.
Consequently, the Philippine BPO industry must continue to innovate and diversify its offerings to maintain a competitive advantage.
Technological Disruptions
The rise of automation, artificial intelligence (AI), and digital transformation is reshaping the traditional BPO landscape. Routine tasks, once outsourced to human workers, are increasingly being handled by AI and software solutions. Many voices now say that AI and automation will take away many jobs in the BPO industry.
While this reality presents a challenge for the BPO industry, it also opens up opportunities for growth in higher-value services that require human expertise, such as data analysis, AI development, and fintech.
However, at CoDev, we believe that AI will not “steal” jobs from Filipinos. We believe that AI will continue to develop and innovate, consequently creating more new roles and jobs.
Growth Opportunities
To follow up on what I said in the challenges section, the Philippine BPO industry’s future lies in its ability to adapt and evolve, but the industry is undoubtedly growing. According to a Business World Article, the IT-BPM industry is on track to achieve a 7% revenue growth by the end of 2024.
This growth is because high-value services, such as fintech solutions, AI development, and advanced IT outsourcing, present new opportunities for growth in the nation. Therefore, continuous upskilling and education will ensure the Filipino workforce remains competitive in a rapidly changing global market.
If you’re one of those people worried about the AI landscape, don’t be. With great innovation will come growth.
CoDev Gets You Where You Need to Be
That’s all I have for you for the history of BPO in the Philippines. We journeyed from its humble beginnings in the 1990s to its current status as a global outsourcing powerhouse; the BPO industry has transformed the Philippine economy and helped shape the lives of millions of Filipinos.
As the BPO sector expands, it will face new challenges and opportunities – and CoDev is there in the thick of it to help your company grow.
Want to hire skilled offshore developers from CoDev? Give us a free call today to learn how you can benefit from the country’s outsourcing treasure trove!
