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The Philippines: The Location of Choice for IT-BPO and Shared Services 6 th Shared Services and Outsourcing Exchange BrainWeave Session 10:00 a.m.-11:00 a.m., 17 September 2012 Prague, Czech Republic Alejandro P. Melchor III Deputy Executive Director for ICT Industry Development Department of Science & Technology Information and Communications Technology Office

Increasing our IT-BPO Market Share in Europe

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Gartner confirms the 2008-09 financial crisis has triggered widespread adaptation of BPO and shared services by European countries and corporations. Presentation for the Shared Services and Outsourcing Exchange in Europe.

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Page 1: Increasing our IT-BPO Market Share in Europe

The Philippines: The Location of Choice for IT-BPO and Shared Services

6th Shared Services and Outsourcing Exchange

BrainWeave Session 10:00 a.m.-11:00 a.m., 17 September 2012

Prague, Czech Republic

Alejandro P. Melchor III Deputy Executive Director for ICT Industry Development

Department of Science & Technology

Information and Communications Technology Office

Page 2: Increasing our IT-BPO Market Share in Europe

Outline

• Philippine economic scorecard

• Policy directions

• Philippine Advantage

• Government Support

Page 3: Increasing our IT-BPO Market Share in Europe

Land Area: 300.000 km2

Population: 94.2 million

41% working group from ages 20-44

16% working group from ages 45-64

Capital City: Metro Manila

Political Structure: Democratic (Presidential System)

National Language: Filipino,

Official Language: English

Religion: 93% Christian Believers of which 83% are Catholic

2011 GDP : US$224.8 Billion

2011 Per Capita Income: $2,223 Sources: Bangko Sentral ng Pilippinas National Statistical Coordination Board and National Economic and Development Authority

PHILIPPINES AT A GLANCE

1

Page 4: Increasing our IT-BPO Market Share in Europe

PHILIPPINE ECONOMIC SCORECARD

GNP/GDP Quarterly Growth

(2010-2012) Highlights

6.9

5.6

3.5

2.4

2.2

4.5 5.1

6.3

7.3

6.1

4.9

3.6

3.2 4.0

6.3

5.1

0

2

4

6

8

10

12

GNP

GDP

Sources: Bangko Sentral ng Pilippinas National Statistical Coordination Board and National Economic and Development Authority

GDP growth of 7.6% in 2010, highest in 31 years

BOP record surplus of US$10.2B in 2011

Inflation at its lowest in 21 years

Stable and low interest rate environment

Gross international reserves (GIR) peaked at $75.3 million in 2011

Page 5: Increasing our IT-BPO Market Share in Europe

PHILIPPINE ECONOMIC SCORECARD

= Resistance to external shocks. Positive GDP growth rate for 52

consecutive quarters since 1999

-20%

0%

20%

40%

60%

80%

100%

2003 2004 2005 2006 2007 2008 2009

Pvt. Consumption Govt. Consumption Investments Net Exports

Consumption-driven economy + Nearly $80M Gross Int’l Reserves

+ Prudent fiscal management

+ Sound economic policy

Page 6: Increasing our IT-BPO Market Share in Europe

HSBC, The World in 2050:

• “Attention will increasingly turn to the

‘new emergers’ as the world economy

undergoes a seismic shift…”

• “We highlight the following:

The striking rise of the Philippines,

which is set to become the world’s

16th largest economy, up 27 places

from today.”

• “Who will deliver the

fastest growth enroute

to 2050?” https://www.research.hsbc.com/midas

/Res/RDV?ao=20&key=hCmm8WiQC

0&n=317638.PDF

Page 7: Increasing our IT-BPO Market Share in Europe

Ruchir Sharma, Morgan Stanley

• TIPs, poised to upstage BRICs

• Turkey, Indonesia, Philippines

• “Aquino is delegating power to

competent technocrats…”

Jim O’Neill, Goldman

Sachs:

• Philippines one of the

“Next 11”—the next

BRICs.

World Economic Forum:

• Philippines leapfrogged 20 places in

global competitiveness in the 2 years of

the Aquino Administration.

Page 8: Increasing our IT-BPO Market Share in Europe

2012 economic performance lives up to billing

#2 in Asia, 1Q 2012

#3 in Asia, 2Q 2012

Page 9: Increasing our IT-BPO Market Share in Europe

• A more responsive government and a business-friendly environment

• Continued fiscal consolidation

• Increased infrastructure spending

• Clear agenda for competitiveness

• Broad-based expansion led by services

• Prioritizes creation of jobs that empower the people

• ASEAN masterplan for ICT development

• National development plan for rapid economic growth

• Inclusive agenda for national ICT development

POLICY DIRECTIONS

http://devplan.neda.gov.ph/index.php

ilearn.gov.ph/PhilippineDigitalStrategy2011-2016.pdf

http://www.aseansec.org/22073.htm

Page 10: Increasing our IT-BPO Market Share in Europe

President Benigno S. Aquino III supports the IT-BPO Industry

“The BPO sector has successfully showcased

the skills of Filipinos to the world.”

“By the time I step down in 2016, we are looking at

revenues that will have more than doubled to $25 billion

and 4.5 million jobs — 1.3 million directly as a result of

the BPO sector and 3.2 million indirect jobs.”

Page 11: Increasing our IT-BPO Market Share in Europe

Source: Business Processing Association of the Philippines (BPAP)

101

163

236

300

372

442

525

643

0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011

$1.3

$2.2

$3.3

$4.9

$6.1

$7.1

$8.9

$11.0

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

2004 2005 2006 2007 2008 2009 2010 2011

Total Employees (000s) Annual Revenue (US$B)

Philippine IT-BPO Industry: The country’s premier sunrise industry

Page 12: Increasing our IT-BPO Market Share in Europe

12

Suitability rates are empirically based on a total of >80 interviews

with HR professionals working in each country

Number of college degree graduates 2010

Medical and natural sciences, allied fields

119,378

Business, accounting, and related fields

117,339

Social and behavioral sciences, education

68,811

Engineering and architecture 50,734

IT-related and mathematics 47,928

Fine arts, masscom, humanities 12,269

TOTAL Tertiary level 481,862

Pop Labor force Unemp rate Literacy

World 7,021M 3,264M 9.1% 83.7%

India 1,205M 488M 9.8% 61.0%

China 1,343M 796M 6.5% 92.2%

Brazil 206M 105M 6.0% 88.6%

Philippines 92M 41M 7.4% 92.6%

Abundant labor force of 38 million

Over 450,000 college graduates per year

Large pool of accounting and business

graduates

English proficiency

Affinity with Western culture

Customer service orientation

Highly trainable

Cost effective

High level of commitment and loyalty

Source: CHED 2012; CIA World Factbook 2012; NSO 2012

The Philippine talent value proposition: large pool of young, English-speaking talent

Page 13: Increasing our IT-BPO Market Share in Europe

Philippines has abundant human and natural resources—world’s 5th richest store of natural resources

Page 14: Increasing our IT-BPO Market Share in Europe

1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel

costs

Note: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009 to Sept.

30, 2010

Source: Everest analysis

29-3224-26

19-2016-17 15-16

14-15

70-72

US Tier-2 Mexico City Krakow Kuala Lumpur Cairo Metro Manila Delhi/NCR

Reflective of market averages. Range

could vary depending upon

Tier-1 vs. Tier-2 cities

Suppliers vs. captives

Scaled operations vs. mid-size

operations

Direct operating cost1 per FTE for English voice work

2010; US$ ’000 per annum per FTE

ENGLISH-LANGUAGE VOICE EXAMPLE

Philippines is currently among the most-competitive destinations for IT-BPO services

MARKET AVERAGES

Page 15: Increasing our IT-BPO Market Share in Europe

Direct operating cost1 per FTE for F&A transactional work

2010; US$ ’000s a year per FTE

1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel

costs

Note: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009, to Sept.

30, 2010

Source: Everest analysis

MARKET AVERAGES

FAO EXAMPLE

Copyright ©2011: BPAP, CICT, Everest Global, O2P. All rights reserved.

Likewise, The Philippines is among the lowest cost locations for non-voice BPO work

Page 16: Increasing our IT-BPO Market Share in Europe

1 Ongoing costs only; excludes margins/mark-ups, centralized corporate overheads, initial investment, set-up costs, and travel

costs

Note: Exchange rates for local currencies with respect to the U.S. dollar have been averaged for 12 months from Oct. 1, 2009, to Sept.

30, 2010

Source: Everest analysis

MARKET AVERAGES

ADM EXAMPLE

Direct operating cost1 per FTE for IT Applications Development and Maintenance (ADM)

2010; US$ ‘000s per annum per FTE

Copyright ©2011: BPAP, CICT, Everest Global, O2P. All rights reserved.

…and for IT Services

Page 17: Increasing our IT-BPO Market Share in Europe

RELIABLE AND REDUNDANT CONNECTIVITY

Cable Landing Stations

Transmission Backbone Networks

PLDT Digital Fiber Optic Network

(DFON)

Globe Telecom Fiber Optic

Backbone Network (FOBN)

TelicPhil (BayanTel) Nationwide

Digital Transmission Network

(NDTN)

Ballesteros, Cagayan

Tanza, Cavite

Nasugbu, Batangas

Bauang, La Union

Daet, Camarines Norte DAVAO

CDO

DAUIN

TALISAY

LAHUG

LILOAN

SAN REMIGIO

ROXAS

SAN JOSE

MAMBURAO

NASUGB

U

BACOOR

ERMITA

SAMPALOC

CADIZ

MANTICAO

ILIGAN

CANERO

AURORA

MAKATI

ZAMBOA

NGA

GEN. SANTOS

BACOLOD

SORSOGON

BATANGAS

CABADBARAN

COTABATO

PAGADIAN

BUTUAN

MAASIN

TACLOBAN

ORMOC

PAGBILAO PILI

LEGASPI

CALBAYOG

DONSOL

NAGA

DUERO

TAGBILARAN

BALLESTEROS

ILOILO

LAOAG

SUBIC

BAGUIO

SFLU

DAGUPAN

CABANATUAN

VIGAN

TARLAC

URDANETA

MASBATE

BANATE

CAUAYAN

TUGUEGARAO

SOLANO

MARIBOJ

OC

TALISAY

TGN-IA

AAG

EAC

APCN2

C2C

ASE

SeaMeWe-3

SJC

(June 2013)

Page 18: Increasing our IT-BPO Market Share in Europe

World class, IT-BPO designed, infrastructure

Lowest rental rates in the region; dedicated IT parks right in the center of business districts

McKinley Hill

Taguig City

Northgate

Cyberzone

Muntinlupa City

Ortigas Center,

Mandaluyong City/Pasig City

Bonifacio Global

City, Taguig City

Eastwood City Cyberpark

Quezon City

Makati City

METRO MANILA

UP-Ayala Technohub,

Quezon City

Page 19: Increasing our IT-BPO Market Share in Europe

4 to 8 years Income Tax Holiday (ITH)

Special 5% tax on Gross Income

Other tax and duties exemptions*

Domestic sales allowance of up to

30% of total sales

Additional deduction on total

manpower training cost

1 Exemption from duties and taxes on imported capital equipment, spare parts, supplies, and raw materials 2 Exemption from export taxes, wharfage dues, imposts and fees 3 Exemption from Value Added Tax (VAT) on allowable local purchases such as telecom, power, and water bills 4 Additional deduction of 50% of total manpower training cost under the special 5% gross income tax regimec

COMPETITIVE INVESTMENT INCENTIVES

Page 20: Increasing our IT-BPO Market Share in Europe

iPPP PROGRAMS

Stepping-Up the

Value Chain

i-TalentDev.PH

Next Wave Cities/

Smarter Countryside

i-Creative.PH

ICT Marketing &

Research

GOALS

ICT: a $50B industry by

2016:

• IT-BPO $25-27B

• All other ICT: $23-25B

Global leadership in

multiple high growth

segments

Countryside development

through ICT & BPO

Increase size &

employability of talent pool

Develop knowledge

workers with

21st Century Skills

PROJECTS

1 – Research & Road

Mapping

2 – Training & Education

3 – Organizational

Development &

Capability Building

4 – Advocacy and

Marketing

5 – IT-preneurship &

Technology Business

Indicators

6 – Policy Framework,

Business Environment

Investment Incentives

ICT & BPO Industry Development Programs

GOVERNMENT SUPPORT

Page 21: Increasing our IT-BPO Market Share in Europe

We are #1 in call centers and we

intend to become market leader in UK & Australia

We intend to attain world

leadership in 4 more fast growing services

We intend to double our market

share in 3 other fast growing services

Voice BPO

Healthcare Information Management Outsourcing

Finance & Accounting Outsourcing

HR Outsourcing

Creative Process Outsourcing

IT Outsourcing

Engineering Services Outsourcing

Multilingual BPO

ICT-enabled Creative Industry Development

Philippine Technological Council

Stepping Up the Value Chain Program

Page 22: Increasing our IT-BPO Market Share in Europe

World Class Talent

450,000 college graduates annually

Industry specific curriculum

development,

assessments & certification

Knowledge Workers with 21st Century

Skills for the Global Knowledge Economy Government

support to training and development

of ICT-industry workers

Educational reforms for mutual

recognition of qualifications and

degrees

Development of World Class Talent

Page 23: Increasing our IT-BPO Market Share in Europe

Next Wave Cities Program provides access to

talent throughout the Philippines

Page 24: Increasing our IT-BPO Market Share in Europe

An Invitation

Discover

the

Philippine

Advantage!

For more details, visit:

www.icto.dost.gov.ph

www.dti.gov.ph

www.peza.gov.ph

Department of Science and Technology-

Information and Communications Technology Office

http://www.bpap.org/publications/research/investorprimer2012