UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT

Trade and Development Board Fifty-eighth session

Geneva, 12–23 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. PanlilioUndersecretary, Ministry of Trade and Industry

Philippines

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

CRISTINO L. PANLILIOCRISTINO L. PANLILIOUndersecretaryUndersecretary

Managing Head, Board of Investments,Managing Head, Board of Investments,Department of Trade and Industry, PhilippinesDepartment of Trade and Industry, Philippines

World Investment Report World Investment Report United Nations Conference on Trade & Development (UNCTAD)United Nations Conference on Trade & Development (UNCTAD)

Geneva, SwitzerlandGeneva, Switzerland16 September 201116 September 2011

IT and BPO Services in the PhilippinesIT and BPO Services in the Philippines

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Leading the Outsourcing Evolution

Source: Everest analysis

Philippine IT-BPO industry size2006–2010; US$ billion

3.2

4.86.1

7.2

8.9

2006 2007 2008 2009 2010

# FTEs(~‘000)

240 300 370 440 530

Global share1 5% 6% 6% 7% 8%

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

services market, in revenue terms

Voice BPOVoice BPO

Non-voice BPONon-voice BPO

IT-ESOIT-ESO

Market dynamics

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

Recognized as Call Center capital of the world

Large industry-specific opportunity (e.g., banking, health care, media, KPO)

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.

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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

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); Internationally-

accepted engineering standards• Revenue in 2010: US$201million

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%

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

www.planetphilippines.co

The Philippine IT–BPO Industry

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Mature Tier-1 Destinations

Mature Emerging Nascent

Eastern Europe: Established near-shore destination

Eastern Europe: Established near-shore destination

China: Domestic and APAC centric scale and capabilities

China: Domestic and APAC centric scale and capabilities

Mexico, Columbia, Chile, and Argentina: Evolving rapidly as near-shore base

Mexico, Columbia, Chile, and Argentina: Evolving rapidly as near-shore base

Philippines: Reaching #1 in voice BPO (330K+ FTEs)#2 in non-voice/IT-BPO (200K+ FTEs)

Philippines: Reaching #1 in voice BPO (330K+ FTEs)#2 in non-voice/IT-BPO (200K+ FTEs)

India: Industry leading scale and capabilities Voice: 350K+ FTEsNon-voice IT-BPO: 1.4M+ FTEs)

India: Industry leading scale and capabilities Voice: 350K+ FTEsNon-voice IT-BPO: 1.4M+ FTEs)

Egypt, Morocco, and South Africa: Significant government-backed push to target UK and Europe

Egypt, Morocco, and South Africa: Significant government-backed push to target UK and Europe

Source: Everest Research Market Vista Location Maturity Heatmap June 2011

Brazil: Support for North America and entry into domestic market R&D and Engineering

Brazil: Support for North America and entry into domestic market R&D and Engineering

Source

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IT-BPO 2010 PERFOMANCE 2011

Revenues (US$ B) 8.90 26 % 11.0 23.5%

Full-Time Employees 525,000 26% 640,000 21.9%

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

Growth Expectations

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Industry Roadmap 2016

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

Impact of IT-BPO industry growth is tremendous

Continued push on current industry efforts critical

Public-private partnership can change trajectory

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Suppliers Service Range

Supplier presence across industry verticals1

Wide range of industry-verticals serviced Captives of 60+ Fortune 1000 firms

# FTEs servicing (’000s)

75+75+

# Firms

50+50+

40+40+

40+40+

25+25+

15+15+

25+25+

Banking and financial services

MDR and healthcare

Telecom, travel, energy, and media

BFSI = banking, financial services, insurance; MDR = manufacturing, distribution, retail1 Per Everest-O2P survey of ~200 firms across the Philippines IT-BPO industry

Sources: BPAP database; survey results

SCALE OF OPERATIONS SERVICE OFFERINGS KEY PLAYERS

CONTACT CENTER 5000 to 20,000+

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

IT AND SOFTWARE DEVELOPMENT

300 to 15000+

Applications development and maintenance IT operations and infrastructureSoftware product development Business analysis, project management, education

BACK OFFICE AND OTHER PROCESSES

500 to10,000+

Finance & AccountingHuman ResourceLegal outsourcingBusiness analyticsMarket research and analysisProcurementPublishing Other back office processes

CREATIVE SERVICES

50+

2D/3D animationFlash animation, Web design, graphics

and art designInteractive game dev (PC gaming and

console games)e-learning (Medical/educational)

ENGINEERING SERVICES & R & D 300+

Civil engineering & ArchitecturalPrinted circuit design, wireless devices &

display technology Electronic components CAD/CAMMobile applications

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COMPANY SERVICESJP Morgan GSC has close to 14,000 FTEs

GSC includes functions such as HR, performance improvement, quality assurance, 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

Key Players

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COMPANY SERVICESEstablished 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)

Key Players

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COMPANY SERVICESArvato 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 fourth-generation (4G) wireless network technologies

Will also provide technical support for the group’s 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 itsAsian 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

Emerging Players

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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. We’re 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, weregistered no missed calls despite the heavy impact of that storm on Metro Manila and our personnel. This dedication to the job and the Filipino’s 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

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

Large, scalable talent pool—next only to India,

China

Competitive Evaluation Parameters

Risks

perceptions

Risks

perceptions

CostsCosts

Talent

scalability

Source: Everest experience

Courtesy of the Business Processing Association of the Philippines

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Slide courtesy of Stream Global BPO

Hallmarks of Our Value Proposition

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Slide courtesy of Stream Global BPO

Hallmarks of Our Value Proposition

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Challenges to be AddressedChallenges to be Addressed Key Objectives to be AchievedKey Objectives to be Achieved

Talent scalability, particularly to meet sizeable voice demand

Significantly more competitive environment for voice and non-voice from India and emerging destinations

Voice-centric perception

Limited mind-share among U.S.mid-market and UK/European customers

Distinguished branding against India and near-shore geographies

Scalability to provide regional services (particularly against India and China)

Limited growth capital for scale-up of small-to-medium firms

Talent scalability, particularly to meet sizeable voice demand

Significantly more competitive environment for voice and non-voice from India and emerging destinations

Voice-centric perception

Limited mind-share among U.S.mid-market and UK/European customers

Distinguished branding against India and near-shore geographies

Scalability to provide regional services (particularly against India and China)

Limited growth capital for scale-up of small-to-medium firms

Maintain or improve overall cost competitiveness (including wages, incentives, telecom, real estate, etc.)

Consolidate dominance in the U.S. and aggressively promote and grow footprint in the UK and APAC

Rapidly demonstrate capability and scalability outside of voice, with a focus on high-growth segments for the future

Accelerate scale-up of talent, while sustaining or improving cost competitiveness, regulatory environment, capital availability, and risk perceptions

Maintain or improve overall cost competitiveness (including wages, incentives, telecom, real estate, etc.)

Consolidate dominance in the U.S. and aggressively promote and grow footprint in the UK and APAC

Rapidly demonstrate capability and scalability outside of voice, with a focus on high-growth segments for the future

Accelerate scale-up of talent, while sustaining or improving cost competitiveness, regulatory environment, capital availability, and risk perceptions

Some Challenges

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Centers of Excellence

Tier 1

Top 10 Next Wave Cities

Tier 2

Cities in Waiting Aspirants

Manila-NCRCebuClark

DavaoSanta Rosa BacolodIloiloMetro CaviteLipaCagayan de

OroMalolosBaguio Dumaguete

CabanatuanCaintaDagupanGeneral SantosLegaspiNagaRizalSouth BulacanSubicTuguegarao Urdaneta

BalangaLa UnionTagbilaran Tarlac

Developing IT / BPO Locations

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

Increasing Location AttractivenessNext Wave Cities

Centers of ExcellenceNext Wave Cities

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Human Capital Development

Public – Private PartnershipsPublic – Private Partnerships

Service Science Management and Engineering (2008)

Earn As You Learn Program (2009)

Philippines as the Global Leader in Multilingual BPO (2011)

Service Science Management and Engineering (2008)

Earn As You Learn Program (2009)

Philippines as the Global Leader in Multilingual BPO (2011)

Public – Private PartnershipsPublic – Private Partnerships

National Competency Assessment

Advanced English Pre-Employment Training Program (AdEPT)

Expanded Learning on IT Services (ELITES) Teacher Training

National Competency Assessment

Advanced English Pre-Employment Training Program (AdEPT)

Expanded Learning on IT Services (ELITES) Teacher Training

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Establishes the Intellectual Property Office - RA 8293 (June 6, 1997)

Mandates VoIP call or traffic, outgoing or incoming, to pass through duly registered and authorized VoIP service providers (NTC MC 3-11-2005)

Prescribes guidelines for the protection of personal data in information and communications in the private sector (DTI DAO No. 8 -July 21, 2006)

Mandates data log retention of telecommunications traffic (NTC MC 04--08 June 2007)

Prescribes guidelines governing safety and health of workers in the Call Center industry (DOLE Department Circular No. 1 (2008)

Encourages the use of IPv6 (E.O. 893 June 2010)

Provides equal employment opportunities to both men and women who want to work during the night (Senate Bill 2701 - 2011)

Establishes the Intellectual Property Office - RA 8293 (June 6, 1997)

Mandates VoIP call or traffic, outgoing or incoming, to pass through duly registered and authorized VoIP service providers (NTC MC 3-11-2005)

Prescribes guidelines for the protection of personal data in information and communications in the private sector (DTI DAO No. 8 -July 21, 2006)

Mandates data log retention of telecommunications traffic (NTC MC 04--08 June 2007)

Prescribes guidelines governing safety and health of workers in the Call Center industry (DOLE Department Circular No. 1 (2008)

Encourages the use of IPv6 (E.O. 893 June 2010)

Provides equal employment opportunities to both men and women who want to work during the night (Senate Bill 2701 - 2011)

Policy Framework

Legislation and PoliciesLegislation and Policies

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How to Reach Road Map 2016 Targets

IndustryIndustry

Dramatically increase quality and quantity of talent pool by catalyzing the education and training sector

Industry recognized standardsIndustry accreditation

Position IT-BPO as a career of choice

Aggressively promote Philippine IT-BPO proposition in new service lines and geographies, e.g.,

F&A, Healthcare, ITUK and APAC

Next Wave Cities – Development of Tier 2 & 3 locations

Dramatically increase quality and quantity of talent pool by catalyzing the education and training sector

Industry recognized standardsIndustry accreditation

Position IT-BPO as a career of choice

Aggressively promote Philippine IT-BPO proposition in new service lines and geographies, e.g.,

F&A, Healthcare, ITUK and APAC

Next Wave Cities – Development of Tier 2 & 3 locations

GovernmentGovernment

Enable industry growth through legislation and policy changes

Greater autonomy in curriculum design and other education interventionsFlexibility in labor marketsEnact data privacy and anti-cyber crime lawsContinuation of current incentives

Allocate resources for critical talent and marketing initiatives

Continue training scholarships

Domestic and international marketing

Enable industry growth through legislation and policy changes

Greater autonomy in curriculum design and other education interventionsFlexibility in labor marketsEnact data privacy and anti-cyber crime lawsContinuation of current incentives

Allocate resources for critical talent and marketing initiatives

Continue training scholarships

Domestic and international marketing

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22Gumasa White Beach, Glan, Sarangani Province, Mindanao, PhilippinesPhoto by Angelo Juan Ramos from www.ixplore.com

Thank You