Since 2020, the outsourcing sector in the Philippines has witnessed a massive shake-up, and recent regulatory changes mean the industry will never be the same.
We explore the winners and losers of a recent decision by the Philippines Government to allow outsourcing firms to keep tax perks while enabling 100% of staff to work-from-home (WFH).
Learn more about the industry’s evolution and see our predictions for how an incentivized, 100% remote Philippines BPO industry will fundamentally change the recruitment and retention of staff, clients’ expectations, and outsourcing firms’ business models.
The Philippines’ rocky path to recognizing that work-from-home is the new normal
Efforts to protect the health and safety of citizens during the Covid pandemic saw the introduction of measures to allow many Filipino call center staff and others employed by outsourcing companies to temporarily move to remote working arrangements.
At the time, work-from-home was unusual for the industry. The Philippines has long been a hub for business process outsourcing (BPO) companies due in part to favorable tax policies, but these perks have always been tied to foreign investors registering their business, physical buildings and physical assets like computers under the Philippines Economic Zone Authority (PEZA).
Additionally, economic zones in Metropolitan Manila, which is home to more than 12 million Filipinos, are set up to support the BPO industry, with integrated restaurants, shopping malls and entertainment facilities — all the better to promote spending and a strong domestic economy.
Return-to-office resistance and rogue operators
Despite the government’s determination to restore economic activity in its capital, it quickly became clear that flexible work arrangements allowed during the Covid crisis were highly desired by employees who had become accustomed to spending time with their families and didn’t miss long commutes into the city center. In fact, there was an outcry from workers when regulators recently sought to force a return to in-office environments. The extent of which was such that, the largest BPO firm in the country, Concentrix, allowed its employees to work from home despite losing PEZA tax benefits, only because it had significantly increased employee and customer satisfaction under a remote model.
The country’s IT and Business Process Association also lobbied for a permanent hybrid model, which it warned was essential for jobs growth and to avoid losing market share to India. Concurrently, a raft of new non-government-registered competitors, dubbed ‘underground BPOs’, also entered the market offering work-from-home as a way to lure talent.
Breaking the stalemate with a new compliance solution
BPO companies were faced with a dilemma. They couldn’t afford to lose generous tax perks that hinged on compliance with requirements to have staff on-site, but they also didn’t want to lose talented staff who valued the freedom of remote work.
After months of upheaval, in September 2022 the Philippines Government recognized that work-from-home has become the “new normal” for the country’s business process outsourcing (BPO) industry. The government announced registered IT, business process management and BPO firms could adopt 100% work-from-home and still enjoy tax incentives.
BPOs will be required to transfer their registration to the country’s Board of Investments (BOI) authority to increase their contingent of work-from-home employees and keep tax perks, but the solution appears to be a permanent one.
Let’s dive into how this affects the way BPOs attract and retain employees, cost-effectively run their businesses, and position themselves against emerging competitors to deliver value to clients.
What’s the impact on talent acquisition and management in the Philippines?
On one hand, the ability to offer WFH creates the potential for BPOs to access a larger talent pool — you can essentially recruit people from any location in the Philippines. However, the new laws also creates a new set of challenges for BPOs:
- Filipino outsourcing industry workers have already adapted to working via a distributed model for the same salary they enjoyed in-office, while benefiting from better work-life balance and no commute. BPOs not ready to facilitate a permanent shift to WFH, or who don’t pivot fast enough, could face high levels of staff attrition.
- Competing for the best talent in the Philippines will now be influenced more heavily by how well you support flexible working arrangements. Not only will workers now have more choice across registered BPO firms, they’re aware of the unregistered upstarts operating in the sector. For some, the pros of flexibility and innovation will outweigh fears about the stability of these new market entrants.
Additionally, BPOs that haven’t already set-up sustainable systems to make WFH permanently possible need to overcome obstacles such as:
- Keeping a remote team productive and accountable to maintain high standards in service delivery and avoid moonlighting.
- Ensuring that employees working from home feel engaged and motivated, by continuing to benefit from clear communication, direction from leaders, and team collaboration.
- Security of IT systems, devices and clients data.
- Infrastructure issues that face workers located in rural parts of the Philippines including internet speeds, power outages, and the risks posed by natural disasters such as typhoons and floods.
BPO companies in the Philippines are already working hard to attract the best people in a candidate-driven employment market. Also, outsourcing in the Philippines is evolving to meet higher-end talent requirements for clients. Many positions being recruited for are complex and niche roles, requiring skills that depend on in-depth technical, analytical or strategic knowledge. The power is in the hands of employees, and employees want to work-from-home.
Our prediction is that BPOs that don’t quickly adapt their employee experience and systems to enable effective remote working conditions will lose employees to more flexible firms in the short-term, and will struggle long-term to win the war for talent.
How does 100% WFH affect BPOs’ operational costs in the Philippines?
The option to embrace a fully remote model enables BPOs in the Philippines to reduce costs through lower attrition and more streamlined operations:
- Employers that can create a cohesive, autonomous workplace that engages employees while it provides the freedom to work at home are able to mitigate many triggers for turnover and burnout, and therefore reduce their future recruitment, training, and leave costs. Additionally, it will better meet the needs of BPO clients who increasingly prefer remote workers, which leads to lower client churn.
- Uncoupling tax perks from the need to operate from a physical office immediately opens the door for firms to reduce their overheads and asset management costs. Of course, there are other costs associated with setting-up work-from-home but the ongoing operational costs are generally much lower, which means profit margins increase.
- Investing in systems for best practice remote workflows can also reduce costs by helping BPOs embrace digital, data-driven approaches that benefit their business more broadly.
We predict BPOs in the Philippines that move quickly to fortify their operational model with ideal remote-first tools and management strategies will achieve the highest growth in profitability due to being able to provide equal or better value at a lower cost to clients, in a more scalable way.
How does it change the competitive landscape and the impact of ‘underground’ BPOs?
As business models evolve to accommodate WFH, it’s natural that customer options, competition and pricing models will also shift. Here are some keys consequences of this:
- BPOs in the Philippines that embrace work-from-home long-term can offer more flexible packages that match the level of service and oversight clients want. Firms could introduce tiered pricing based on in-office, hybrid and fully WFH team members to cater to varying client preferences for access and control over outsourced staff.
- It’s likely that many existing clients will expect Philippines-based outsourcing operations to embrace work-from-home in order to keep the talented people they’ve come to depend on — this will become key to retaining clients. Clients are also likely to expect that operational savings will be passed on in some way, to help them lower their own resourcing costs.
- While the playing field has been leveled, ‘underground BPOs’ haven’t disappeared and may continue to poach employees and clients. With a lean, WFH model becoming ‘business as usual’ in the Philippines, BPOs must be wary of the slippery slope effect, where clients might start to explore other arrangements like employer of record providers, or direct hiring of independent workers. Being a legitimate, registered BPO with WFH flexibility is an advantage; but clearly, outsourcing firms need to continually prove their worth and press their competitive edge to retain and grow market share.
We foresee a future where the most sought-after BPOs in the Philippines are those with structures that allow them to not only continuously create value at low cost for their clients, but clearly demonstrate and communicate that value
Summary of our top predictions for how 100% WFH will transform the Philippines BPO industry
A. Employees will:
- Expect to keep Covid gains: no commute, work-life balance, lower cost of living
- Have even more choice and bargaining power in the employment market
- Expect even more competitive salaries/conditions, especially for niche skills
- Seek even more balance through flexible schedules, autonomous work, focus on wellbeing
B. Clients using BPOs will:
- Expect you to retain workers they know and trust by enabling flexibility
- Expect you to pass on operational savings while delivering a high value service
- Be more cognisant of WFH realities in the Philippines market and look for best-value solutions
C. Successful BPO/outsourcing firms will be those that:
- Reimagine their employee value proposition, hiring and management strategies
- Embrace WFH to provide equal value at a lower cost to clients to reduce churn
- Save on assets, overheads and operations leading to higher profit margins
- Prioritize ways to empower an efficient, engaged and accountable remote workforce
The work-from-home BPO workforce in the Philippines will continue to increase in size because of its sheer desirability to employees — who, after all, are the backbone of a BPO’s ability to meet its clients’ needs.
While the rise of WFH outsourcing is inevitable, your success in attracting, retaining and effectively harnessing the energy and commitment of the Philippines’ WFH talent pool is not. We’re on the cusp of a more competitive future where your skill in managing a remote team is the difference between becoming obsolete or thriving.
It’s critical that BPOs in the Philippines establish systems, and tools that bring accountability, productivity, engagement, effective remote workflows, and powerful visibility to remote work (for both BPOs and their clients).
Liam Martin is a co-founder of Time Doctor which is software to improve productivity and help keep track and know what your team is working on, even when working from home.