With rental rates in Metro Manila rising from $21.80 per sq foot in 2014 to over $31 in 2016 and the majority of new graduates located outside of the capital, the Philippines’ business process outsourcing (BPO) industry is increasingly looking to decentralise investment and activities to a portfolio of emerging secondary cities.
Now entering its eighth year, the Philippines’ Next Wave Cities initiative shines a spotlight on these locations, with stakeholders reviewing multiple urban areas each year to determine which offer the best investor benefits, skilled workforce and supportive infrastructure. Infrastructure is an especially important priority, as many cities still lack modern, efficient transportation networks and sufficient internet connectivity.
First launched in 2009 the Next Wave Cities initiative aims to support BPO expansion outside of Metro Manila through the identification and publication of high-potential, second- and third-tier cities that are well positioned to support new projects and investment. “What we look at every time we go to the provinces is people – how many people live in the area, how many graduates?” Jojo Uligan, corporate secretary at the Contact Centre Association of the Philippines, told OBG. “We look at infrastructure, we look at facilities, we look for realistic buildings and properties, and we look at roads and security. We always want to check the infrastructure, utilities and the cost of power.”
2016 Edition
In April 2016 the Department of Science and Technology, through its ICT Office, announced it had named the country’s 10 new Next Wave Cities: Baguio, Cagayan de Oro, Dagupan, Dasmariñas, Dumaguete, Lipa, Malolos, Naga, Santa Rosa and Taytay. The cities were selected on criteria including talent, infrastructure, cost and local business environment. Two additional cities were named centres of excellence for BPO operations: Davao and Iloilo now join Metro Manila, Metro Cebu, Metro Clark and Bacolod. Special awards were also given to Dasmariñas for best talent availability, Laoag for best infrastructure, Dumaguete for best business environment, and Legazpi for the most active ICT council and local government unit.
Goals & Benefits
Next Wave Cities aims to decentralise BPO investment, with the IT and Business Process Association of the Philippines (IBPAP) reporting that roughly 70% of the country’s BPO industry was concentrated in Manila as of August 2016. The association hopes to see that number fall to 50% by 2020 through the development of secondary BPO hubs across the country. Investors in secondary cities will benefit from large labour pools; the IBPAP reports that out of an estimated 450,000 annual tertiary school graduates, 75% live outside of the capital region.
BPO employment outside of Metro Manila is set to rise significantly in the coming years, according to IBPAP’s industry roadmap spanning 2017-22. The roadmap estimates that BPO employment outside of the capital will record a compound annual growth rate (CAGR) of 11% between 2016 and 2022, compared to a CAGR of 7% in Metro Manila.
Challenges
The evolution of secondary cities to support BPO activities will still face challenges, however. IBPAP noted in a 2010 report that “while the development of Tier-2 cities has eased pressures on the dominant sourcing locations, infrastructure and facilities development take considerable time to reach levels that suit a captive’s requirement.” Internet connectivity is one needed development as penetration is still relatively low in the Philippines, with the International Telecommunications Union estimating that just 36.7% of the population used the internet in 2015.
This figure should increase with the deployment of a national broadband network currently under development by the newly created Department of ICT (see Telecoms & IT chapter). The plan envisions the creation of a high-speed national internet network that will offer near-universal coverage through either a satellite or fibre-optic cable network. The network is expected to be developed in collaboration with the private sector.
Read More from OBG
