The economic benefits from the outsourcing industry are enticing governments to provide incentives to BPO investors. The Philippines and India are in a close race to dominate the global outsourcing market, and both governments offer tax breaks to encourage BPO investments.
Global Outsourcing Benefits & Geopolitics
BPO start-ups in the Philippines enjoy a six-year tax break. Industry advocates are calling for the extension of the tax break, citing the growing competition from other countries.
A study by IBM showed that the Philippines had surpassed India’s call center industry regarding workforce size and revenues, but globalization is opening up doors for new competitors.
China, Vietnam, Sri Lanka and South Africa are being eyed as major BPO destinations of the future. KenCall EPZ Ltd. marked East Africa’s entry into the call center industry.
Mauritius is keen on attracting IT companies by developing more infrastructures aimed at BPO firms, while Egypt offers one of the most competitive wage rates. South Africa is also offering tax breaks and capital reimbursements, allowing start-up firms to recoup 20%-30% of their capital expenditures in three years.
South Africa has the greatest potential to rival today’s BPO hubs given its large population of native English speakers and lower attrition rate.
Amid the growing competition, the Philippine government is using more means other than tax incentives to support the local industry. Special economic zone designations were extended to BPO buildings, thus eliminating import duties on office equipment and reducing red tape.
The government also actively supports call center training to sustain the growth of the industry. An estimated 40,000 youths have taken government-sponsored training in English communications.
The benefits of outsourcing to the Philippines lure even the country’s competitors in India.
The Philippine call center industry has a lower attrition rate compared with India. Unlike India’s call center hubs, the BPO zones in the Philippines have sufficient supply of electricity and better modes of transportation.
As a result, several Indian and American firms diversified or transferred their entire operations in the Philippines.
- For instance, 24/7 Customer, an American call center firm, started its Indian operation in 2000 before setting a branch in the Philippines five years later.
- Now, its Philippine workforce stands at 4,000, compared with 3,000 in India. Although India produces more IT graduates, the Philippines is catching up.
The Philippines has 38,000 IT graduates every year, and the software industry sector has grown steadily despite the shortage of experienced software engineers.
The economic benefits from the outsourcing industry will encourage more BPO-friendly policies in the Philippines, India and other countries. Tax incentives, grants and vocational training make BPO a more sustainable and profitable business in the Philippines. Government involvement will help reduce attrition rate, control the cost of outsourcing and attract more talents.