How the Philippines Beat India at its Own Game

The Philippines is a small country nestled amidst a scenic archipelago in South East Asia. There wasn’t too much to speak about the economy of the Philippines till the recent past. The country was mostly run by primitive businesses such as agriculture and mining. Filipinos who were highly educated would often leave the country. They would then send back foreign remittances which would then be used by the country to import essential commodities. It is important to note that while the other South East Asian tigers were roaring, Philippines was struggling with rampant corruption.

However, the last decade has completely reshaped the Philippines economy. The once backward country is now a centre for the bustling operations of multinational outsourcing companies. The outsourcing business has grown so rapidly in the Philippines that it has left Indian behind. In 2019, as far as contact centres are concerned, the Philippines is the biggest outsourcing destination in the world and not India.

In this article, we will have a closer look at some of the parameters which led to the creation of this incredible growth story.

Why the Philippines Success Story is Incredible?

The success of the Philippines call centre industry needs to be acknowledged. Today the country has more than 1 million workers who work call centre jobs. A lot of these jobs have migrated from India as Indian companies thought the Philippines was a better place to run operations from.

However, the Philippines has taken over the business from an economy which has ten times the number of people that it does. The economy of India is also ranked much higher than the Philippines, both in PPP as well in nominal terms. The call centre industry has grown so rapidly in the Philippines that today it accounts for almost 10% of the entire economy of the Philippines. Other industries such as retail, banking and real estate have also shown an upward trend thanks to the sudden spike in the number of call centres opening in the Philippines.

Major Reason for the Move

As soon as outsourcing began, companies started looking for low-cost countries where people speak English. This is what led them to India. India is the second largest English speaking country in the world. There are more English speakers in India than there are in England. This is the reason why India was the obvious choice.

However, over time, the problems with outsourcing to India became evident. For instance, Indians do speak English, but a lot of them seem to have an accent. For the American consumers, they found it difficult to interpret these accents, and the service levels dipped. Also, since Indians have been trained in British English, they would use different terms and phrases which were not comprehensible to the Americans.

The Philippines, on the other hand, has been an American colony. The schools in the Philippines teach American English. There is no problem with the accents either. Also, the young generation in the Philippines tends to watch a lot of American sitcoms and other TV shows. This is the reason why they are also well versed with American culture and can initiate meaningful small talk. Since American customers reported higher satisfaction levels while dealing with Filipino call centre agents, slowly the entire industry moved to the Philippines. In most cases, multinational Indian companies such as Wipro and Infosys have set up their own captive units in the Philippines.

Government’s Role and Tax Incentives

The government of the Philippines was also very helpful. The generous tax policies have attracted multinational companies who wanted to set up shop. As a result, the Philippines no longer has a problem with unemployment. A large number of educated youth being churned out by the educational institutions are rapidly absorbed by the marketplace.

Also, the Filipino government has provided an income tax holiday for up to 8 years for any company which operates out of Philippines Economic Zone. Even after the 8 years are over, the government taxes these companies at 5% of their gross income instead of 30% tax on net income which is levied on other companies within the Philippines.

Lastly, it is considerably cheaper to set up a call centre in the Philippines. This is because the input goods are not taxed. There is a 100% waiver on the value-added tax for goods which are used as input in the call centre industry. Also, if some capital goods need to be imported, there is no customs duty on imports either!

The government has also changed some laws to accommodate the growing industry. For instance, in the Philippines, it was illegal for women to work in night shifts. However, since call centres mostly work in the night, this law has been amended. Had this law not been changed, the BPO industry in the Philippines would have faced a severe scarcity of workers.

The conclusion is that the Philippines has revived its economy on the back of call centre jobs. However, they are facing the same problems as India. On an average, employees work less than one year in call centre jobs. The work stress is too high and prolonged night shifts start having an impact on health. The Philippines will have to come up with a solution to these problems or else it could end up losing its newfound status as a rapidly developing country.

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