Outsourcing has become an increasingly popular strategy for businesses to cut costs, increase efficiency, scale exclusivity, and focus on their core competencies. Among the most popular outsourcing destinations in the world, the Philippines stands out as a top choice for many businesses.
While the Philippines is known as the BPO Capital of the World it is also a leading source for knowledge process outsourcing (KPO), having ranked ninth in digital resonance according to the 2021 Global Services Location Index. This is a key factor in outsourcing as this measures the competence of a network of digital practitioners, especially as the world enters an even more digitized world powered by technology, data, and AI.
However, before jumping right into the actual benefits of KPOs in the Philippines, it is best to first define what a KPO is.
What is a Knowledge Process Outsourcing (KPO)?
KPO is a business strategy that involves the outsourcing of knowledge-based processes and tasks to third-party service providers. These processes are typically high-level and require advanced skills and expertise, such as research and development, market research, financial analysis, legal services, and intellectual property (IP) research. KPO providers are usually in locations with a large pool of skilled workers who can provide specialized services at a lower cost than in-house resources.
KPOs provide various advantages to organizations, including cost-effectiveness, a high-quality workforce, social responsibility, a conducive business environment, innovative technological infrastructures, scaling exclusivity, access to risk management systems, and intellectual property protection. These benefits can be further elaborated on as follows.
One of the most significant benefits of outsourcing to the Philippines is cost efficiency. Labor costs in the Philippines are significantly lower than in Western countries, which is significantly affected by the value of the Philippine Peso. Many analysts have pointed out that based on predictions the currency pair of the US Dollar and Philippine Peso could strengthen and even raise to 61.674 by 2025; which entails even lower costs for the former. As such, according to forecasts and the history of the Philippine Peso, outsourcing to the Philippines can help businesses reduce their operational costs while maintaining the same level of quality. This is especially true for businesses that require a large workforce, such as customer service or back-office support – which they can outsource from the Philippines’ high-quality workforce.
The Philippines has a large pool of educated, skilled workers who are proficient in English. This is already a significant factor in making the country a key player in the outsourcing industry as being proficient in the language allows people to connect more to other countries, particularly in the US. In addition to this, it was declared as early as 2020 that the literacy rate in the National Capital Region (NCR) reached 97%, with many Filipinos that are college-educated and holding degrees in fields such as accounting, IT, engineering, and healthcare – industries that are in demand. This means businesses can hire highly skilled workers at a fraction of the cost of hiring someone in the West. In addition, many Filipinos have experience working with Western companies, which means they are familiar with Western business practices and culture. However, there is another aspect that sets the country apart from its competitors: social responsibility.
Outsourcing to the Philippines can also have positive social impacts, as it provides employment opportunities for many Filipinos, especially as quality jobs – particularly for the youth – are still scarce. Additionally, outsourcing providers in the Philippines often engage in corporate social responsibility (CSR) initiatives that aim to improve the lives of their employees and the communities they operate in. Some of these initiatives include environmental sustainability and employee well-being. By partnering with an outsourcing provider that values social responsibility, client companies can align their outsourcing activities with their own CSR objectives. Furthermore, studies have also shown that companies investing in CSR initiatives have better financial performance and a higher market value. The country’s innovative practices as mentioned can also be attributed to its performing business environment.
KPOs also benefit from the favorable business environment in the Philippines. The government has established various policies and incentives to attract foreign investments and promote the growth of the KPO industry. For example, the Philippine Economic Zone Authority (PEZA) provides tax holidays, duty-free importation of capital equipment, and other benefits to KPO companies that establish their operations in designated economic zones. Moreover, the country has a large English-speaking workforce and a well-developed and improving telecommunications infrastructure. These factors make the Philippines an ideal destination for KPOs seeking to outsource knowledge-based processes and tasks.
Outsourcing to the Philippines is also beneficial due to its robust technology infrastructure. The country has made substantial investments in this area, with the government and private sector collaborating to enhance the digital infrastructure. For example, the Department of Information and Communications Technology (DICT) has implemented a National Broadband Plan to expand high-speed internet access to more households and businesses. Furthermore, the country has a thriving startup ecosystem, with many technology companies developing innovative solutions that can support KPO activities. This is evidenced by the presence of innovative FinTech solutions such as GCASH and MAYA, as well as the inclusion of the City of Naga in the global top 1000 cities. These factors provide KPOs in the Philippines with a reliable technology infrastructure that has a track record of improvement, which can support their operations. With the presence of such dynamics, it allows companies to focus on scaling exclusively.
Outsourcing to the Philippines can also help businesses scale their operations while maintaining exclusivity. By outsourcing functions such as customer service or back-office support, businesses can focus on their core competencies and free up resources to invest in growth areas.
As previously mentioned, the country has a large pool of skilled, English-speaking workers who are well-educated and culturally compatible with Western businesses. This means that businesses can easily access the talent they need to scale their operations without having to go through the time-consuming and expensive process of hiring and training new employees. Furthermore, this allows them to focus on their core competencies. By outsourcing functions such as customer service or back-office support, businesses can free up resources to invest in growth areas such as product development, marketing, or sales. This can help businesses differentiate themselves from their competitors and maintain exclusivity in their markets.
Outsourcing also involves transferring some of the company’s activities to an external provider—which can expose the company to various risks. For instance, the outsourcing provider may not meet the expected quality standards or fail to deliver on time, leading to customer dissatisfaction and reputational damage. To mitigate these risks, companies need to adopt a robust risk management framework that includes selecting the right outsourcing provider, defining clear service level agreements, and monitoring performance metrics regularly. Addressing this, the Philippines offers a low-risk environment for outsourcing due to its stable political environment, favorable business climate, and skilled workforce. As a matter of fact, many outsourcing providers in the Philippines are certified in international quality standards such as ISO 9001, which sets out the criteria for a quality management system, and ISO 27001, which is the best standard for information security management systems (ISMS); indicating their commitment to quality and security.
Intellectual Property Protection
In consideration of the aforementioned risks, IP protection is a critical issue in outsourcing. This is because the service involves sharing confidential information with an external provider. The Philippines has implemented various laws and regulations to protect IP, including the Intellectual Property Code, which provides for the registration and protection of patents, trademarks, and copyrights. Additionally, many outsourcing providers in the Philippines are compliant with international data privacy and security standards such as the General Data Protection Regulation (GDPR) which is the toughest data privacy and security law in the world.
Ultimately, the Philippines—as one of the top outsourcing destinations in the world—offers a wide range of benefits from a favorable business environment, and a large and highly skilled workforce, to a well-established outsourcing industry. With its robust infrastructure and competitive cost structure, the country has become a preferred destination for organizations looking to outsource their business processes. Furthermore, the Philippines has a strong reputation for providing high-quality KPO services, making it a top choice for companies looking to outsource knowledge-intensive tasks. The country’s education system produces a large number of highly educated and talented graduates every year, who are well-equipped to handle complex tasks and provide innovative solutions.
Accordingly, considering the Philippines as a top choice for outsourcing would allow organizations to fully unleash their business potential as they maximize the country’s expertise in the KPO industry. By outsourcing to the Philippines, companies can focus on their core competencies while leaving non-core functions to expert outsourcing partners. This enables them to streamline their operations, reduce costs, and increase efficiency—ultimately leading to higher profits and better customer satisfaction. With the country’s favorable business environment and highly skilled workforce, the Philippines is well-positioned to continue its growth trajectory as a leading outsourcing destination. Organizations that choose to outsource to the Philippines can expect to reap the benefits of a strong and reliable outsourcing partner, one that can help them achieve their business goals and stay ahead of the competition.