Why the Philippines is a BPO Destination

Why the Philippines?

in association with

Contents

Philippines at a Glance

General Overview of the Philippine BPO Industry

Human Resources

Real Estate Sector

Infrastructure and Utilities

Government Support/Initiatives

Present Locators

Government Presidential with Bicameral Congress

and Independent Judiciary

Land Area 299,764 km2

Capital Metro Manila

Local Time GMT + 8 hours

Monetary Unit Philippine peso

GDP per Capita

(PPP)

US$3,520

Climate Tropical with three (3) pronounced

seasons:

a) cool, dry (November - February)

b) hot, dry (March - May)

c) wet or rainy (June - October)


Population 88.57 million (August 2007)

94.01 million (2010 projection)

Life Expectancy Male: 68 years; Female: 73 years (2010-

2015 medium assumption)

Languages

Spoken

Pilipino (Tagalog derivative) and English,

along with around 170 local languages,

and some other major languages as

Spanish and Lan-nang (Chinese)

Functional

Literacy Rate

84.1% (2003)

Religion Christians make up more than 90% of the

population



6.1%

5.1% 5.4%

7.1%

3.8%

0.9%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

2004 2005 2006 2007 2008 2009

Annual GDP Growth (%)

3.9% 4.2% 4.6%

2.9%

0.6%

0.8%

0.4%

1.8%

7.3%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Q108 Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110

Quarterly GDP Growth (%)


Membership in International Organizations:

United Nations (UN)

Association of Southeast Asian

Nations (ASEAN)

Asia-Pacific Economic Cooperation

(APEC)

International Atomic Energy Agency

(IAEA)

International Labor Organization

(ILO)

International Parliamentary Union

(IPU)

East Asia Summit (EAS)

Latin Union

Non-Aligned Movement (NAM)

Colombo Plan

Asian Development Bank (ADB)

World Trade Organization (WTO)

World Bank (WB)

International Monetary Fund (IMF)

G – 24

G – 77

G – 20

Next Eleven (N-11)

International Criminal Police

Organization (Interpol)

Contents



Human Resources

Real Estate Sector



Present Locators

General Overview of the

Philippine BPO Industry

The Philippine IT/BPO industry has a wide breadth of

competencies in the following services:

Contact/call centers;

Business process outsourcing or BPO (finance & accounting, HR

administration, payroll);

Knowledge process outsourcing or KPO (marketing research,

medical research, legal case research & preparation, insurance,

mortgage);

Medical, legal and other data transcription;

Film animation;

Software development;

Engineering and construction design; and

Game development or content development



The Philippines is recognized by UK’s National

Outsourcing Association as the undisputed Offshoring

Destination of the Year for 2009 and 2007.

IT and BPO revenues reached US$7.2 B in 2009 which is

equivalent to 21% of the total offshore BPO market

next only to India. This is a 19% improvement in

revenues amidst the global economic crisis.

Evolving to higher value non-voice BPO functions with

relatively high competence and maturity in Finance &

Accounting and Transcription services.



As of January 2009, the Philippines represented 15% of

the offshore BPO market and has emerged as a key

destination for English-based work especially for the

North American market.

The Philippines is poised to emerge as a leading

destination for non-voice business process outsourcing

(BPO) work.

The Philippines is the No. 2 Offshore Nation in the

world, next to India. Cebu City is the top emerging

global outsourcing city.



“The (Philippine) BPO industry continued to grow

strongly during the crisis and is poised to emerge structurally stronger from the crisis... The Philippines

seems to have established itself as the preferred

choice... thereby establishing its relatively new industry on the global map.”

- World Bank, November 2009

Contents



Human Resources

Real Estate Sector



Present Locators

Human Resource Pool

As of January 2010, Labor Force Participation Rate is

at 64.5% (38.8 M persons).

More than 400,000 tertiary-level graduates per year

Large pool of quality graduates of disciplines that

could cater to BPOs (i.e., Engineering, Accounting,

Education, etc.)

English proficient workforce; Fluent in American

English as the language is the basic communication medium used in schools, business, and government

Human Resource Pool

Deep affinity with Western culture; universal cultural

adaptation with fast learning curves, and highly

trainable

Strong customer service orientation and high level of

commitment and loyalty are inherent strengths

Highly educated, productive, dedicated workforce

with excellent work ethics and attention to detail

Human Resource Pool

Ability to deliver better quality service at a

significantly competitive cost

Middle Management Program for BPO to accelerate

the training of middle managers to supervise entry-

level workers

Human Resource Pool

125,005, 28%

98,120, 22%

75,819, 17%

50,770, 11%

40,894, 9%11,242, 3% 42,965, 10%

Tertiary-level Graduates (2008)

Medical and Natural

Sciences, related fields

Business, Accounting, related

fields

Social and Behavioral

Sciences, Education

Engineering and Architecture

Mathematics and IT-related

fields

Fine Arts, Mass

Communication, Humanities

Other fields

Human Resource Pool

English Competence among Philippine

Tertiary-level Graduates

% (2008)

Thinks in English 60

Speaks English 72

Writes in English 83

Salaries and Employee

Benefits

The laws on labor standards and employment

relations are consolidated in the Labor Code of the

Philippines.

IT and BPO Salary Matrix (1Q 2010)

ParticularsMonthly Salary Range

Php US$

Call Center Agents

Manila-based 12,000.00 – 20,000.00 260.70 – 434.50

Provincial -based 10,000.00 – 18,000.00 217.25 – 391.05

Software Developers 15,000.00 – 40,000.00 325.87 – 868.99

Animator / Graphic Artist 25,000.00 – 65,000.00 543.12 – 1,412.12

Medical/Legal

Transcriptionist

12,000.00 – 20,000.00 260.70 – 434.50

Systems Analyst 15,000.00 – 40,000.00 325.87 – 868.99

Team Leaders / Technical

Support

30,000.00 – 50,000.00 651.75 – 1,086.24

Manager / Department

Heads

50,000.00 – 80,000.00 1,086.24 – 1,737.99

US$1 = Php46.0302


Benefits

Aside from basic salaries, employees are also entitled

additional compensation and benefits in cash and/or

in kind as determined by law, implementing

government agencies, and the employer (fringe

benefits)

Additional compensation and incentives:

Over-time pay

Holiday/rest day pay

Night differentials

Bonus

Paid leaves


Benefits

Fringe Benefits may include but are not limited to:

Housing

Expense Account

Vehicle of Any Kind

Interest on loans at less than market rate to the extent of the difference between the market rate and actual rate granted;

Membership fees, dues and other expenses borne by the

employer for the employee in social and athletic clubs or other similar organizations;

Holiday and vacation expenses

Educational assistance to the employee or his dependents; and

Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows


Benefits

13th-month pay

Home Development and Mutual Fund (HDMF)

National Health Insurance Program (NHIP)

Social Security benefits

Mandatory Employment

Contributions

Contents



Human Resources

Real Estate Sector



Present Locators

Present Real Estate Situation

Despite the real estate sector being affected by the

world economic crisis in 2009, including the office

market particularly for BPOs, major developers have

been bullish which led to a general increase in office

supply.

Higher supply + poorer investor sentiments = Increase

in vacancy

Increase in Vacancy = Lower lease rates

This trend of lower lease rates and higher vacancies is

expected to persist at least for the 1st half of 2010.



The office market has already bottomed out. Lease

rates are expected to recover gradually upon the 2nd

half of 2010 onwards.

Since lease rates are at its market low and vacancies

tend to be higher, it is the best time to negotiate lease

agreements as it is still a tenant market.

The success and results of the upcoming automated elections is expected to influence investor sentiment,

hence, the office market as well.


OFW Remittances and the REIT Law are expected to

continue to buoy the Real Estate Sector for the year 2010 and onwards. A return to pre-crisis levels is

perceived to be unlikely since full recovery is still far

ahead.

Business Centers

NCR (Metro Manila)

Makati CBD, Makati City

Fort Bonifacio, Taguig City

Eastwood, Quezon City

UP-Ayala Technohub,

Quezon City

Ortigas Center,

Quezon-Mandaluyong-Pasig

cities tri-boundary

Filinvest, Muntinlupa City

Madrigal Business Park,

Muntinlupa City

Cebu City

Cebu Business Park

Asiatown IT Park

Banawa

North Reclamation

Area

Baguio City

Metro Pampanga(Clark Freeport Zone)

West Bulacan

East Bulacan

Metro Cavite

Metro Laguna

Lipa City

Bacolod City

Iloilo City

Cagayan de Oro City

Davao City

Tier 1 Locations

Tier 2 Locations

Major Developers /

Landlords

Space Accessibility

Major business districts for both Tier 1 and Tier 2

locations are easily accessible from the capital (Metro

Manila) through major thoroughfares, which include

not only terrestrial highways but also airways and

nautical highways.

Most of these locations also have international

airports, making them easily accessible from foreign countries without having to pass by the country’s

capital.

Space Accessibility

Business districts are strategically located such that

these are immediate to town commercial and leisure

centers, educational institutions, and, to some extent,

residential areas.

Leasing Guidelines

Lea

se T

erm

s Typical Lease Length Usually 2 years

Rates Quoted InPhilippine peso per square

meter per month

Typical Break Options Negotiable with Landlord

Re

nta

l Pa

ym

en

ts

Frequency of Rent Payable Monthly in advance

Rent Deposits

(expressed as X months rent)3 months rent

Annual Index to Inflation No

Statutory Right to Renewal Tenants have to negotiate

Basis of Rent Review Open market value

Frequency of Rent Reviews 2 years

Leasing Guidelines

Se

rvic

e C

ha

rge

s,

Re

pa

irs,

an

d

Insu

ran

ce

Internal Tenant

Common Parts Landlord

External/Structural Landlord

Taxa

tio

n

Building Insurance Landlord

Local Property Taxes Landlord

VAT Payable on Rent Tenant

Dis

po

sal o

f

Lea

se

Assignment/Sub-lettingNegotiated separately by

Tenant

Early Termination Yes, but usually with penalty cost

Tenant’s Building Reinstatement

Responsibilities at Lease EndOriginal condition with reasonable

wear and tear

Leasing Guidelines

Me

asu

rin

g

Co

de

Measuring Practice

Usually net usable area.

Whole floor tenants may be

the exception wherein gross

areas are the usual measuring

practice.

Leg

isla

tio

n Legislation Relating to

Lease ContractsNone

Prospective Changes to

LegislationNone

Leasing Guidelines

The rent typically includes the usage of office and

common space. Additional rental is charged for

parking slots; air-conditioning and utilities are billed

separately.

Landlords usually provide a rent-free period as an

incentive.

Measurement standards may vary from building to building but the most common standard is the net

usable area. Gross areas are usually used as a

standard for whole floor tenants. Efficiency may be anywhere from 70 to 95%.

Leasing Guidelines

A formal lease contract is signed in English. Landlords

usually supply their own versions of lease contracts

and are not necessarily supplied from legal offices.

Long term lease contracts do not have to be

registered in the local government office.

Landlords usually require rental advance payments,

security deposits and fitting-out costs. Rental advance payments and security deposits may vary but are

usually equivalent to three (3) months respectively.

Leasing Guidelines

Landlords may be willing to grant rights of first refusal

for premises within the same floor or contiguous floors

above or below the leased premises. However,

Landlords do not give these rights over long periods.

One to two years is usual.

If the premises were leased to the Tenant bare of

improvements, the Tenant is usually required to retain all hard improvements such as the ceiling, walls and

fixed partitions back to the Landlord upon conclusion

of lease term. Inventory checks are also usually done

prior to turning back the unit to the Landlord.

Leasing Guidelines

Grade-A office buildings are usually fitted out with

raised flooring, drop ceiling, lighting, sprinkler systems

and basic air-conditioning systems. However, some

Grade-A buildings do not offer raised floors or ceilings.

There are a number of developers who also give the

option of just leasing the premises bare of any

improvements.

Tenants have the right to make improvements with

plans subject to Landlord’s approval.

Leasing Guidelines

Normal Tenant power provision is 60VA/m2 but other

buildings give a higher provision especially for IT

Buildings which offer up to 100 VA/m2.

Landlords usually provide only emergency power for

the common areas such as hallway lights, lifts and

building management systems. Some buildings offer

limited emergency power to the Tenants. Grade-A buildings offer 100% emergency power back up.

The typical HVAC system is provided by chilled water

distributed to Air Handling Units (AHUs) from the cooling towers or chillers.

Fit-out Costs

Costs may vary depending on the design, finish, IT

requirement, cabling, construction schedule, etc.

Usually the following prices may be anticipated.

Fit-out Costs

ItemPhp/sqm US$/sqf

Low Med High Low Med High

Consultants 2,300 4,375 6,450 4.64 8.72 13.01

General

Construction

13,500 29,310 45,120 27.22 59.10 90.98

Mechanical &

Electrical Works

6,300 9,500 12,700 12.70 19.60 25.61

Sub-total 22,100 43,185 64,270 44.56 87.42 129.60

Furniture (System & Loose)*

Made Locally 6,500 8,200 15,000 12.08 15.23 27.87

Imported 8,300 15,000 19,500 15.42 27.87 36.23

US$1 = Php46.0302* Based on a typical office configuration of 1,000sqm

Space Availability

Grade A &

Premium

Available Occupied

Grade B &

Below

Available Occupied

All Grades

Available Occupied

Makati CBD case

Rental Rates

Benchmark rental rates in Makati CBD

Grade Php/sqm US$/sqf

Premium 750 - 900 1.51 – 1.82

Grade A 440 – 851 0.89 – 1.72

Grade B 379 - 464 0.76 – 0.94

Contents



Human Resources

Real Estate Sector



Present Locators

Transmission

Digital Fiber Optic Network (DFON) backbone

[PLDT]

Fiber Optic Backbone Network (FOBN) [Globe Telecom]

Nationwide Digital Transmission Network (NDTN)

[TelecPhil (BayanTel)]

Communication

Nationwide radio microwave terrestrial network

Next generation networks (NGN)

Internet Protocol (IP)

Multi-Protocol Label Switching (MPLS)

Wave Division Multiplexing (WDM)

Expanding technologies on fiber and copper network, wireless technologies (CDMA, GSM, WAP, GPRS, 3G,

wireless broadband), radio, and VSAT

Communication

Redundant International Connectivity

Expanding Multi-media Infrastructure

24x7x365 support operation

Short lead time in provisioning international leased circuits:

30-45 days

Telecommunications Industry is deregulated

More robust, stable, and highly scalable due to numerous

fiber optic landings/links

Cost of bandwidth has gone down by at least 70% in the

last 4 years (From US$ 14,000 in 2001 to today’s rates of US$

2,000 per month for E1 lines to U.S.)

Communication

Over 700 NTC-registered service providers

553 Value Added Service Providers

65 VOIP Providers

93 Content Providers

Power

Stable, with excess capacity over current demand

Regulated by the Energy Regulatory Commission

Power rates may vary among areas and/or distributor

Sub-metering is standard market practice among

landlords

Contents



Human Resources

Real Estate Sector



Present Locators

Government

Support/Initiatives

EO 561 (19 Aug 2006) created the Philippine Cyber

Corridor

An ICT belt stretching from Baguio City to Zamboanga

Supported by a $10 billion high bandwidth fiber

backbone digital network

2009 Investment Priorities Plan providing fiscal and

non-fiscal incentives to BPO voice and non-voice IT-

enabled services

Data Privacy Bill proposed in Congress

Ensures protection of personal information in the ICT

systems in government and private sector

Government

Support/Initiatives

Allocation of P350 million scholarship for the training

of near-hires in IT/BPO

18 Jan 2010: over 26,000 work scholarship certificates

totaling P156 million distributed by the industry

association nationwide

Employment yield rates: 67% for Contact Centers, 85%

for Medical Transcription, 85% for Software

Development, and 100% for Animation

Government

Support/Initiatives

Medium-term Philippine Development Plan 2004-

2010

Reduction of connectivity cost

Development of ICT Human Resource

Adoption of Service Science, Management and

Engineering (SSME) curriculum in colleges and

universities nationwide

Fiscal Incentives for BPOs

4 to 8 years Income Tax Holidays (ITH)

Special 5% tax rate on gross income after the lapse of ITH

(for IT Park/Eco-zone locators)

Tax and duty exemption on imported capital equipment

(for IT Park/Eco-zone locators); duty-free importation of

capital equipment (for BOI-registered firms under EO 528)

Exemption from 12% input VAT on allowable local

purchase of goods and services, e.g., communication

charges (for IT Park/Eco-zone locators)

Additional deduction for labor expense

Non-fiscal Incentives for

BPOs

Unrestricted use of consigned equipment

Exemption from wharfage dues and export tax, duty,

impost, and fees

Employment of foreign nationals: Special Investors

Resident Visa

Economic Zones

As of March 2010, there are a total of 211 Operating

Economic Zones registered at the Philippine

Economic Zone Authority (PEZA).

129 of the 211 Operating Economic Zones are IT

Parks/Centers.

REIT Law

Republic Act No. 9856 or “An Act Providing the

Legal Framework for Real Estate Investment Trust

and for Other Purposes

Enacted on Dec. 17, 2009 which seeks to

promote the development of capital market

Tax incentives such as exception to minimum

corporate income tax of 20%, income payments

subject to lower creditable withholding tax of 1%

and sale or transfer of real property will only be

subject to 50% of the applicable documentary stamp tax.

Contents



Human Resources

Real Estate Sector



Present Locators

Present Locators

The BPO industry currently takes up around 70% of all office transactions nationwide.

Key Players

Back Office / KPO

Software Development and

Creative Processes

Engineering and Design

WHY PHILIPPINES?

Comparison with Competitors

Sources

Cuervo Far East, Inc.

Board of Investments

Business Processing Association of the Philippines (BPAP)

Commission on Higher Education (CHEd)

National Telecommunications Commission (NTC)

Liwanag, Victor et al. The Philippines Contact Center Cluster, 2007.

company logos care of their respective websites and/or web

advertising associates

Documents

Why the Philippines is a BPO Destination