UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT Trade and Development Board Fifty-eighth session Geneva, 1223 September

2011

Plenary on Item 9 Investment for development: Implications of non-equity forms of transnational corporations operations

IT and BPO Services in the Philippines

Mr. Cristino L. Panlilio Undersecretary, Ministry of Trade and Industry Philippines

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

IT and BPO Services in the Philippines

CRISTINO L. PANLILIO Undersecretary Managing Head, Board of Investments, Department of Trade and Industry, Philippines World Investment Report Geneva, Switzerland 16 September 2011

United Nations Conference on Trade & Development (UNCTAD)

Leading the Outsourcing Evolution

Market dynamics
Philippine IT-BPO industry size 20062010; US$ billion
8.9
Recognized as Call Center capital of the world

Voice BPO Voice BPO

Mature market with 30% share of the U.S. and 15%20% of UK/APAC markets

7.2 6.1 4.8 3.2

Large industry-specific opportunity (e.g., banking, health care, media, KPO) Non-voice Non-voice BPO BPO Credible Philippine share (~10%). Effective alternative to India in several non-voice areas Evolving value expectations: tools, process improvement, end-to-end accountability Highly penetrated applications market Limited market share (~1%) in a large and growing, yet highly competitive market Emerging opportunities to penetrate ASEAN, innovate for the U.S.
Source: Everest analysis

2006

2007

2008

2009

2010

# FTEs 240 (~000) Global share1 5%

300 6%

370 6%

440 7%

530 8%

IT-ESO IT-ESO

FTEs = full-time employees, 1 Philippines IT-BPO market as percentage of global offshore services market, in revenue terms

The Philippine ITBPO Industry

Contact Center

Contact centers in the Philippines: 220+ Full-time employees: 2010 at 350,000; Projected 2011 +70,000 FTEs Estimated revenues: 2010 at US$6.15B; Projected 2011 at US$7.38B Revenue growth: 2010 at 21% ; 2011 between 15-20%

www.planetphilippines.co

Back-office and KPO

No. of service providers: 100+ Total full-time employees: 86,000 Estimated revenues in 2010: US$1.62 billion, 30% growth Y-o-Y

Software Development

Number of development companies: 135 (export only) Total IT professionals: 35,300 Revenues in 2010: US$ 725 million, 28% growth Y-o-Y

Capabilities in applications development and maintenance; IT operations and infrastructure; business analysis, project management, education

Animation & Game Development

20-year wealth of experience in the field Capabilities in 2D, 3D, Maya, 3D Max, Medical/Educational Graphics & Animation Revenue in 2010: Animation at US$142 million; Game Development at US$7 million

Engineering Design

Over 75,000 licensed professionals 40,000 graduates of engineering courses annually (CAD-enabled); Internationallyaccepted engineering standards Revenue in 2010: US$201million

Mature Tier-1 Destinations

Source Mature Emerging Nascent

Eastern Europe: Eastern Europe: Established near-shore Established near-shore destination destination Mexico, Columbia, Mexico, Columbia, Chile, and Argentina: Chile, and Argentina: Evolving rapidly as near-shore Evolving rapidly as near-shore base base

China: Domestic and China: Domestic and APAC centric scale and APAC centric scale and capabilities capabilities Philippines: Philippines: Reaching #1 in voice BPO Reaching #1 in voice BPO (330K+ FTEs) (330K+ FTEs) #2 in non-voice/IT-BPO #2 in non-voice/IT-BPO (200K+ FTEs) (200K+ FTEs)

Brazil: Support for North Brazil: Support for North America and entry into America and entry into domestic market domestic market R&D and Engineering R&D and Engineering Egypt, Morocco, and South Egypt, Morocco, and South Africa: Africa: Significant governmentSignificant governmentbacked push to target UK backed push to target UK and Europe and Europe India: Industry leading India: Industry leading scale and capabilities scale and capabilities Voice: 350K+ FTEs Voice: 350K+ FTEs Non-voice IT-BPO: 1.4M+ Non-voice IT-BPO: 1.4M+ FTEs) FTEs)

Source:

Everest Research Market Vista Location Maturity Heatmap June 2011

Growth Expectations

IT-BPO 2010 PERFOMANCE

Revenues (US$ B) Full-Time Employees 8.90 26 % 11.0 640,000

2011
23.5% 21.9%

525,000

26%

Source: Business Processing Association of the Philippines. Copyright 2010. All rights reserved.

Industry Roadmap 2016

Impact of ITBPO industry growth is tremendous Continued push on current industry efforts critical Public-private partnership can change trajectory

Source: BPAP data, Everest analysis, World Bank and IMF projections

Suppliers Service Range

Wide range of industry-verticals serviced Supplier presence across industry verticals1
# FTEs servicing (000s) # Firms

Captives of 60+ Fortune 1000 firms Banking and financial services

75+ 50+ 40+ 40+ 25+ 15+ 25+ MDR and healthcare

Telecom, travel, energy, and media

BFSI = banking, financial services, insurance; MDR = manufacturing, distribution, retail 1 Per Everest-O2P survey of ~200 firms across the Philippines IT-BPO industry Sources: BPAP database; survey results 7

SCALE OF OPERATIONS

SERVICE OFFERINGS
Outbound (telemarketing, advisories, sales verification. credit & collection, loyalty program benefits, reactivation/ reinstatement of accounts, customer services, order entry) Inbound (inquiries, technical, transcription complaints, customer service, support, support, sales, marketing, billing) Languages Supported English, Tagalog, Spanish, French, Korean, Mandarin, Portuguese, Taiwanese, German, Vietnamese, Japanese, Cantonese, Bahasa, Thai, Russian, Arabic and Scandic Applications development and maintenance IT operations and infrastructure Software product development Business analysis, project management, education Finance & Accounting Human Resource Legal outsourcing Business analytics Market research and analysis Procurement Publishing Other back office processes 2D/3D animation Flash animation, Web design, graphics and art design Interactive game dev (PC gaming and console games) e-learning (Medical/educational) Civil engineering & Architectural Printed circuit design, wireless devices & display technology Electronic components CAD/CAM Mobile applications

KEY PLAYERS

CONTACT CENTER

5000 to 20,000+

IT AND SOFTWARE DEVELOPMENT

300 to 15000+

BACK OFFICE AND OTHER PROCESSES

500 to 10,000+

CREATIVE SERVICES

50+

ENGINEERING SERVICES & R & D

300+

Key Players
COMPANY SERVICES
JP Morgan GSC has close to 14,000 FTEs GSC includes functions such as HR, performance improvement, quality information technology, accounting, account servicing, collections, operations and operations management, project management, and risk & compliance 3rd largest site after the United States and India, employing 13,000 employees Grew by over 33% in 2010 and expected to treble by 2015 One of two Global Delivery Centers for Multilingual BPO, supporting 16 languages Global Resourcing work in Customer Relations Management, Human Resource, Finance & Accounting, Supply Chain Management and Solution Delivery (IT) SGS Gulf Limited Regional Operating Headquarters (ROHQ) is one of the first BPO operators established in 2000 Provide BPO and IT services for SGS Group of affiliates Close to 1000 individuals from various fields of expertise and industries chemicals, petroleum, textiles, machineries Single IT platform and web designed application system which is accessible anywhere in the world on real time information Conversant in a host of languages that include English, Mandarin, Spanish, French, German, Russian, Italian, Japanese, Korean and Thai assurance,

Key Players

COMPANY

SERVICES
Established in March 2003; Grew to contact center facilities 8 in Metro Manila, 3 in Cebu City, 1 each in Bacolod, Santa Rosa, Laguna and Baguio City. Largest private employer in the PHL with over 25,000 employees Provides the following services: collections, card activation, customer service, billing and fraud, telephone and email customer service, advanced technical and sales support, inquiry support, subscriber inquiry support, technical support,email, chat, white mail, etc., Cater to Fortune 100 companies in diverse verticals such as financial, telecommunications, cable satellite providers, pharmaceutical, automotive, direct marketing, among others Has grown from less than 50 staff in 2004 to close to 3,000 employees in 2010, making it the biggest of six Shell Business Service Centres across the globe. Provides processing services related to finance, HR, customer service, and other business needs to Shell businesses in in Europe, North America and Asia Deutsche Knowledge Services Manila (DKS) has about 2,000 FTEs Comprises five competency-based service delivery functions: Financial Accounting Services (FAS); Market and Instrument Control Services (MICS); Expense and Revenue Information Services (ERIS); Information Systems Integrity Services (ISIS); and Applications Development and Support Services (ADSS)

10

Emerging Players
COMPANY SERVICES
Arvato Digital Services - Customer care center facility at the Eastwood City Cyber Park supports Fortune 500 companies in the tourism, games, IT/high-tech and banking industries Arvato Finance - Range of services covers the entire credit management chain, from early arrears management (pre-dunning) to in-house collection services (by letter, telephone, SMS and email), field collection services, legal processing and enforcement through all relevant legal jurisdictions. Credit & Collections for global search engine client Research facility named NetworkLabs joint venture of Nokia Siemens Networks and European Telecommunications Standards Institute (ETSI) Technologies Biggest of its kind in Southeast Asia and is expected to make the Philippines a major R&D center in the region competing with the likes of India and mainland China Develop new technologies that will support third-generation (3G) and fourthgeneration (4G) wireless network technologies Will also provide technical support for the groups customers around the world Company would hire 500 workers by the end of this year and the count would double by 2012. Set up back office operations and employed about 300 in July 2010 to support its Asian expansion (after buying Royal Bank of Scotland Asia) Initially set up to focus on Finance and Accounting and expanded to Human Resource processes; Aggressively expanding to include voice BPO operations
11

Client Testimonials
Our new BPO center in the Philippines strengthens our Global Network Delivery Model and allows us to enhance our delivery capability to our clients across Asia Pacific and the rest of the world. Were very excited about the talent pool available in the Philippines for our new BPO centre and look forward to leveraging our best practices and technology excellence from around the world to further develop talent in the region. -Vish Iyer, TCS Head, Asia Pacific "US-based clients ask for the Philippines as a destination. However, the processes that get outsourced to the Philippines are now not just limited to voice but other high-end processes spread across domain-specific back office, medical, legal and financial accounting work." - Rohit Kapoor, President and CEO, EXL Service

Work ethic here is just phenomenal. When [typhoon] Ondoy hit, we

registered no missed calls despite the heavy impact of that storm on Metro Manila and our personnel. This dedication to the job and the Filipinos natural warmth triggered generosity from our clients and our employees at other sites. - Mike Ettling, CEO, NorthgateArinso

To me Philippines is not a threat, it is a treat, because it is a great delivery destination, customers like it and we are very much present there. There is an economic advantage that comes to us as an enterprise - Aparup Sengupta, Global CEO, AEGIS BPO
12

Competitive Evaluation Parameters

Cost competitive, almost as par with India, across service segments

Costs

Large, scalable talent poolnext only to India, China

t ty len bili Ta a l a sc

pe rc R ep isk ti o s ns

Source: Everest experience

Courtesy of the Business Processing Association of the Philippines

13

Hallmarks of Our Value Proposition

Slide courtesy of Stream Global BPO

14

Hallmarks of Our Value Proposition

Slide courtesy of Stream Global BPO

15

Some Challenges
Challenges to be Addressed Challenges to be Addressed Talent scalability, particularly to meet Talent scalability, particularly to meet sizeable voice demand sizeable voice demand Significantly more competitive Significantly more competitive environment for voice and non-voice environment for voice and non-voice from India and emerging destinations from India and emerging destinations Voice-centric perception Voice-centric perception Limited mind-share among U.S. Limited mind-share among U.S. mid-market and UK/European customers mid-market and UK/European customers Distinguished branding against India and Distinguished branding against India and near-shore geographies near-shore geographies Scalability to provide regional services Scalability to provide regional services (particularly against India and China) (particularly against India and China) Limited growth capital for scale-up of Limited growth capital for scale-up of small-to-medium firms small-to-medium firms Key Objectives to be Achieved Key Objectives to be Achieved Maintain or improve overall cost Maintain or improve overall cost competitiveness (including wages, competitiveness (including wages, incentives, telecom, real estate, etc.) incentives, telecom, real estate, etc.) Consolidate dominance in the U.S. and Consolidate dominance in the U.S. and aggressively promote and grow aggressively promote and grow footprint in the UK and APAC footprint in the UK and APAC Rapidly demonstrate capability and Rapidly demonstrate capability and scalability outside of voice, with a focus scalability outside of voice, with a focus on high-growth segments for the future on high-growth segments for the future Accelerate scale-up of talent, while Accelerate scale-up of talent, while sustaining or improving cost sustaining or improving cost competitiveness, regulatory competitiveness, regulatory environment, capital availability, and environment, capital availability, and risk perceptions risk perceptions

16

Developing IT / BPO Locations

Next Wave Cities
Increasing Location Attractiveness Centers of Excellence Tier 1
Manila-NCR Cebu Clark

Top 10 Next Wave Cities Tier 2

Davao Santa Rosa Bacolod Iloilo Metro Cavite Lipa Cagayan de Oro Malolos Baguio Dumaguete

Centers of Excellence Next Wave Cities

Cities in Waiting
Cabanatuan Cainta Dagupan General Santos Legaspi Naga Rizal South Bulacan Subic Tuguegarao Urdaneta

Aspirants
Balanga La Union Tagbilaran Tarlac

Notes: National Capital Region (NCR) includes Makati , Fort Bonifacio, Pasig, Quezon City, Alabang, Manila, Mandaluyong

17

Human Capital Development

Public Private Partnerships Public Private Partnerships

Service Science Management and Service Science Management and Engineering (2008) Engineering (2008) Earn As You Learn Program (2009) Earn As You Learn Program (2009) Philippines as the Global Leader in Philippines as the Global Leader in Multilingual BPO (2011) Multilingual BPO (2011)

Public Private Partnerships Public Private Partnerships

National Competency Assessment National Competency Assessment Advanced English Pre-Employment Advanced English Pre-Employment Training Program (AdEPT) Training Program (AdEPT) Expanded Learning on IT Services Expanded Learning on IT Services (ELITES) Teacher Training (ELITES) Teacher Training

18

Policy Framework

Legislation and Policies Legislation and Policies

Establishes the Intellectual Property Office - RA 8293 (June 6, 1997) Establishes the Intellectual Property Office - RA 8293 (June 6, 1997) Mandates VoIP call or traffic, outgoing or incoming, to pass through duly Mandates VoIP call or traffic, outgoing or incoming, to pass through duly registered and authorized VoIP service providers (NTC MC 3-11-2005) registered and authorized VoIP service providers (NTC MC 3-11-2005) Prescribes guidelines for the protection of personal data in information Prescribes guidelines for the protection of personal data in information and communications in the private sector (DTI DAO No. 8 -July 21, 2006) and communications in the private sector (DTI DAO No. 8 -July 21, 2006) Mandates data log retention of telecommunications traffic Mandates data log retention of telecommunications traffic (NTC MC 04--08 June 2007) (NTC MC 04--08 June 2007) Prescribes guidelines governing safety and health of workers in the Call Prescribes guidelines governing safety and health of workers in the Call Center industry (DOLE Department Circular No. 1 (2008) Center industry (DOLE Department Circular No. 1 (2008) Encourages the use of IPv6 (E.O. 893 June 2010) Encourages the use of IPv6 (E.O. 893 June 2010) Provides equal employment opportunities to both men and women who Provides equal employment opportunities to both men and women who want to work during the night (Senate Bill 2701 - 2011) want to work during the night (Senate Bill 2701 - 2011)
19

How to Reach Road Map 2016 Targets

Industry Industry
Dramatically increase quality and Dramatically increase quality and quantity of talent pool by catalyzing quantity of talent pool by catalyzing the education and training sector the education and training sector Industry recognized standards Industry recognized standards Industry accreditation Industry accreditation Position IT-BPO as a career of Position IT-BPO as a career of choice choice Aggressively promote Philippine ITAggressively promote Philippine ITBPO proposition in new service lines BPO proposition in new service lines and geographies, e.g., and geographies, e.g., F&A, Healthcare, IT F&A, Healthcare, IT UK and APAC UK and APAC Next Wave Cities Development of Next Wave Cities Development of Tier 2 & 3 locations Tier 2 & 3 locations

Government Government
Enable industry growth through Enable industry growth through legislation and policy changes legislation and policy changes Greater autonomy in curriculum Greater autonomy in curriculum design and other education design and other education interventions interventions Flexibility in labor markets Flexibility in labor markets Enact data privacy and antiEnact data privacy and anticyber crime laws cyber crime laws Continuation of current incentives Continuation of current incentives Allocate resources for critical talent Allocate resources for critical talent and marketing initiatives and marketing initiatives Continue training scholarships Continue training scholarships Domestic and international Domestic and international marketing marketing

20

21

Thank You

Gumasa White Beach, Glan, Sarangani Province, Mindanao, Philippines Photo by Angelo Juan Ramos from www.ixplore.com

22