Why You Should Outsource To The Philippines and How it Works

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Why You Should Outsource To The Philippines and How it Works
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Why You Should Outsource To The Philippines and How it Works

The Philippines is rapidly becoming one of the most popular outsourcing destinations in the global market. Coming consistently at number 6 in Tholon’s Services Globalization Index Top 50 Digital Nations, the Philippines has held the title of the “Call Center Capital of the World ” since 2010.

With its biggest competitors being tech giants such as India and major eastern European countries, the Philippines is attracting clients from all across the world, solidifying its place as one of the most valuable resources for outsourcing. More and more companies have the Philippines top of mind as they consider offshoring their essential business operations. While the COVID-19 pandemic has affected many aspects of the workplace and the way in which we communicate and collaborate with one another, the Philippines continues to remain a thriving force in the global market, particularly for companies looking to outsource their services.

The State of Outsourcing

As more and more businesses turn their attention to focus on their core competencies, the decision to outsource other essential services either domestically or globally has only increased in the last few years. In the United States alone, the business process outsourcing market was valued at $232.32 billion in 2020 (according to GrandView Research) and is expected to grow by at least 8.5% over the next 7-8 years (at least by 2028). Comparatively, in 2019, Statista reports that the global outsourcing market was valued at 92.5 billion USD with this number continuing to trend upwards. Major and well-known organizations are seeing the value in outsourcing as it can produce a variety of benefits that can help support their main team. Not only that, but as more companies shift to a largely remote (or hybrid) workforce, the idea of streamlining internal procedures and seeking professional expertise in specialized areas has become one of the most important priorities in order to stay on top of pressing business needs.

Outsourcing business operations has increased in popularity for several reasons:

  • Allows the team to focus on their core competencies – An organization’s core competencies are its strengths. It’s the level of skill and experience needed in order to fulfill its mission and objectives. In order to truly scale and achieve the success rooted deep within the company’s vision, the talent that comprises the company must be focused on this true goal for this to be a reality. It’s easy for employees to feel overworked and overwhelmed, especially if they’re cross-trained in different areas of the work and are regularly pulled out of their usual job functions in order to accommodate for a gap in the process. Eventually, the team will have less focus, motivation, or desire to keep working at a breakneck pace. Unclear standard operating procedures can leave employees feeling frustrated and confused about the overall expectations for their roles. A company must review its internal staffing structure, processes, and needs in order to make the best decision about what is needed to support the team. Outsourcing is an excellent option to provide extra hands, a new level of much-needed expertise and skills, and allow the core team to focus on what they do best and improve from there. To give an organization their best work, they must be able to feel grounded in their role with abundant opportunity to grow and excel.
  • Streamline processes – The creative work is what typically excites everyone in the company, including leadership. But it’s important to not forgo the importance of the day-to-day processes and procedures that make the company run smoothly and efficiently. Outsourcing some of these services is an exercise in streamlining internal processes in order to give the team a chance to pursue the more innovative parts of their work, which ultimately can help foster a positive work environment and healthy workplace culture. Employees are more likely to stay with the company for the long term, so long as the internal procedures make sense and make a noticeable difference in the way of its business operations. For example, it’s common for companies to outsource their payroll (or other financial services), IT support, customer/tech service, R&D, Human Resources, or recruitment to third parties so that these essential functions are completely taken off their plate.
  • Diversify workplace culture – Outsourcing presents an opportunity to diversify the workplace and increase inclusivity. An increasing number of companies are looking to outsource abroad, which helps them collaborate and build long-lasting partnerships between themselves and other countries with vastly different cultures. When making the decision to outsource services globally, leadership must take into account what the impact may be on their own workplace culture. It’s not enough to simply outsource to a country beyond the border because of the lower costs of labor. Cultural competency, respect, and integration are key to achieving the success that so often accompanies global outsourcing. For instance, internal meetings scheduled at a mutually agreeable time for all parties from all across the world can result in a new way of learning, increasing understanding and awareness of what it means to be part of a cross-cultural team.
  • Opportunity for more creative innovation – Generally, another beneficial aspect of outsourcing is having access to more innovative thinking and even advanced technology due to the varying levels of experience. Collaboration between different teams, especially if on a global scale, can result in an exchange of ideas and creative processes that would have not been normally achieved in-house.
  • Larger talent pool – Companies have the opportunity to also reach their hands into a bigger talent pool, extending across the globe. By outsourcing to a different country, such as India, Romania, or the Philippines, an organization has access to professionals in a variety of specialized fields, giving them more options in a number (and sometimes very particular) areas.
  • Decreased operational costs – Cost-savings are the most common reason to outsource business process operations. Outsourcing essentially cuts out a number of standard costs of an employee including fringe/benefit rates, the cost of training, equipment, or space. Additionally, the hourly rate for a team abroad is typically much lower than it is in the United States, usually due to the lower cost of living. For example, the average hourly rate for a senior developer may range from $75-125 per hour. However, in the Philippines, the hourly rate for the same level of experience ranges from $18-$40 per hour, according to Geniusee. This drastic reduction in cost can allow a company to not only remain within the confines of its budget but have some flexibility to strategize where they choose to invest their money.
  • Less stress with hiring or firing – The recruitment process of finding the right fit for a particular role can often be considered a long-term process, especially given all the regulations in place to demonstrate fair, open, and inclusive hiring practices from the beginning of recruitment all the way into onboarding. The same goes for the firing process, which can be an HR nightmare and a headache for many managers, with all the various hoops to go through in order to demonstrate that the company has done everything in its power to support the employee in question. It’s even longer if there are illegal circumstances involved. The outsourcing process of finding the right team, and then subsequently ending that relationship when the work is no longer needed, is much simpler and moves quickly. Put simply, outsourcing can be a huge time saver for everyone involved. Once the appropriate paperwork is in place, the outsourced team can get right to work the next day without the official hassle of true onboarding procedures and HR intervention.

Outsourcing can help a company with its most important standard business operations and produce other supportive benefits. Now that we understand why many organizations choose to outsource, let’s talk about one of the most attractive and popular destinations for outsourcing: the Philippines.

Outsourcing To The Philippines At a Glance

While the Philippines has felt the devastating effects of the COVID-19 pandemic alongside the rest of the world, the Filipino economy continues to hold steady in the outsourcing market, becoming a favorite among companies looking to outsource to Southeast Asia.

The Philippine economy is being bolstered by increased support towards infrastructure, vaccinations rollouts, and social assistance and is predicted to only grow from here. According to the Asian Development Outlook 2021 (ADO), the Philippine economy was expected to grow by 4.5% in 2021 and 5.5% in 2022.

Business process outsourcing in the Philippines continues to expand. Over 1.2 million individuals are hired for companies looking to outsource and account for over 60% of the services in the United States, with Australia coming in at a close second, followed by the United Kingdom. The freelance economy has also experienced an increase, with more and more talent looking for flexible and remote ways to work given the conditions of the pandemic. Top talent is looking for reliable income, manageable work schedules, and the ability to work from anywhere in the world even in the face of time zone differences. The opportunity to gain meaningful work through digital platforms has been an accelerant for those looking to have this flexibility in their careers.

Another major contributing factor is the long-lasting, historical relationship between the Philippines and the United States. With a strong trade and investment relationship, the United States is the largest foreign investor in the Philippines. The Philippines continues to be one of the United States’ oldest Asian allies and strategic partners.

Let’s now take a look at why companies in the United States often look towards the Philippines as one of the most sought-after countries for outsourcing.

Why Outsource Work to the Philippines

The Philippines is known for hosting services in a plethora of different fields such as:

  • IT services
  • Software Development
  • Web Design
  • UX/UI
  • Financial Services/Accounting/Payroll
  • Administration
  • Data Entry
  • Chat Support
  • Banking/Insurance
  • Manufacturing

But the top area of expertise that the Philippines is well-known for is its customer support and services. This is mainly due to their natural inclination towards hospitality.

So why do companies want to outsource to the Philippines over other Southeast Asian countries? Outsourcing to the Philippines holds several notable advantages:

  • English is one of the official languages of the Philippines – The Philippines has two official languages: Tagalog and English. However, the English language is more commonly used in the media or in publications. Often, when the Filipino news is broadcasted, it’s a blend of both Tagalog and English which the audience is quickly able to understand and digest. However, in the more rural or provincial areas, English is less common. Menus, tickets, hotel information, transportation signs, and billings are more likely to be written in English. Companies looking for an easier time working around the language barrier are attracted to the Philippines for this very reason. More than 95% of its population speaks English and is considered the third-largest English-speaking country in the world. Compared to some eastern European and Asian countries, where English is a language they must actively pursue to learn, English as one of the official languages is a huge advantage when it comes to the global outsourcing market. In fact, as Filipinos become more adept at speaking English, they develop a more neutral accent, which can be helpful in particular cases such as customer service or technical support.
  • Reduced costs – One of the biggest reasons for companies to outsource outside of the United States is because of the cost-savings and impact on overhead. Generally, the cost of outsourcing services to the Philippines is at least 50% cheaper than the United States or Central or Eastern Europe. Let’s take a look at the software industry field as an example. The hourly range for a junior software engineer in the United States is $50-$80 per hour. If this entry-level professional is not a freelancer/contractor, a company will need to factor in other details such as hiring costs, training, benefit rates, and other important pay package essentials to understand the true cost of hiring an employee. Now, if we look towards Central Europe as an outsourcing destination, the range decreases to $30-50 per hour. And if we include Asia as another viable option, the average range is $20-30 per hour for the same level of experience. Overall, outsourcing to the Philippines reduces the cost of overhead, allowing the company to stay within its budget and potentially make room to invest in other areas of their business. Outsourcing also eliminates too many extraneous hiring costs and recruitment efforts. Although outsourcing to the Philippines boasts much lower rates, that doesn’t mean the quality of the work goes down, too. With the level of education and high-quality services produced from the Philippines year after year, the Philippines remains a highly competitive country for various business needs.
  • Powerful Government Support – The Philippine government is fully aware of the impact that business process outsourcing has had on its country and the benefits it has on its economy. As a result, the government has thrown its full support towards the outsourcing industry. What makes this particularly exciting for businesses abroad is that the government enacted the Republic Act No. 7916 back in 1995, also known as the Special Economic Zone Act. Basically, these are selected areas or zones that have the potential to have the most impact on economic growth. This act also grants foreign investors various tax breaks and other crucial incentives within these special economic zones.
  • Cultural Compatibility – The Philippines has had a long history of exposure to both western and eastern cultures, resulting in Filipinos adapting much of the western culture into their own through language, education, religious freedoms, and even some foods. Their understanding of western culture is integrated into the fabric of their day-to-day lives, making it easier for the Filipino workforce to seamlessly adapt to working for a western company.
  • Increased Data Privacy – One of the biggest concerns over outsourcing is data security risks. As outsourcing is a major factor in the economic growth of the Philippines, the government enacted a few data protection laws. Most notably is the Data Privacy Act of 2012. This is a law to protect all forms of information (private, personal, or sensitive). It is required that all organizations appoint a Data Protection Officer (DPO), to ensure that the company is in compliance with the appropriate data protection laws and regulations. Although, this appointment isn’t limited to only one individual. There can be more than one person in this role. Additionally, this law applies to anyone who maintains an office, branch, or agency in the Philippines. The Data Privacy Act gives a critical layer of protection against any breaches of information as a result of a partnership with an outside entity.
  • Excellent track record – The Philippines has an impressive record when it comes to business process outsourcing. Some of the largest companies in the United States have chosen to outsource to the Philippines including Amazon, Slack, Skype, and AT&T. Since 1992, the Philippines has been in the business process operating market, providing jobs for half a million Filipinos every year, and that number continues to grow. The Philippines is continuing to grow its reputation across the world, with major companies relying more and more on their many services.
  • Highly skilled workforce – In 2019, the UN named the Philippines the most literate country in Southeast Asia. Year after year, top graduates from different schools across the country join the workforce in earnest, looking to gain meaningful employment with companies that value their high level of skills and talents. With experience ranging from entry-level to more senior-level experience, there are a variety of specialized fields in which these employees can contribute, giving the Philippines a competitive edge against many other neighboring countries and bolstering the Philippines’s reputation of having a talented workforce.
  • Work ethic – The work ethic of the Philippine culture is second to none. Employees from this country have several desirable traits that make them especially attractive for business success. As respect is highly ingrained into their culture, Filipinos speak with sincerity, openness, politeness, and tactfulness. This is especially important when it comes to hiring a professional into the customer service, tech support, or virtual assistant field. Professionalism shines through in everything they do in the workplace, taking great care in delivering timely, high-quality work and always with a calm, collected demeanor and attitude even in high-pressure or high-stress situations. Well-mannered, hard-working, and equipped with a great attitude, the Filipino culture has something called “bayanihan.” This essentially translates to a group of people coming together to reach a common purpose or goal. This is reflected in every part of their culture, creating a true sense of community, which is relevant when it comes to thinking about workplace culture as a whole. If an organization wants to build a positive work environment in which everyone supports each other and is willing to step in when needed, choosing to outsource to the Philippines can contribute greatly to achieving this goal and fostering an environment that employees are proud to be a part of.

Challenges With Outsourcing to the Philippines

While there are many positive benefits to outsourcing to the Philippines, it’s important that we also go over some of the various challenges for a complete picture.

  • Time zone – The Philippines has a major time zone difference between itself and the United States. For example, Los Angeles is 16 hours behind the Philippines. With such a wide gap, it’s important for managers and project managers to stay on top of assignments, projects, and their teams. Detailed coordination is key in making sure that nothing substantial slips through the cracks.
  • Loss of control– As with outsourcing in general, a company is removing an essential business process that would normally be performed by the in-house team. By outsourcing these services, there is a loss of control over this very process. It takes a certain level of commitment and trust in the third parties’ capabilities to ensure that the process continues to run smoothly and serves its purpose of alleviating the core team so they can focus their talents on other business functions and making standard operations easier.
  • Bad weather – As the Philippines is a tropical country on the west side of the Pacific Ocean, they experience many storms, with the average being about 20 storms per year. With the frequency of the bad weather, this could ultimately lead to bad internet connection, loss of power, and cancellation of work and school in areas more prone to flooding. Additionally, the Philippines experiences about 100 due to its location within the Pacific Ring of Fire. Currently, the Philippines also has 53 active volcanoes, but no major eruptions have occurred. Despite the many storms and reoccurring national disasters, it’s important to remember that the Philippines still has to maintain business continuity. As more of the workforce transitions to a work-from-home arrangement, Filipinos are accustomed to remote work and know how to get it done even during less than favorable weather conditions.
  • Holidays – The Philippines has a total of 18 official holidays (both government and religious holidays) during the year, in which employees of the Philippines are not required to work, although, depending on the company, some individuals could be asked to come in if they’re available to do so. Comparatively, the United States has 11 official holidays. However, it’s important to remember that the Philippines is a pro-employee labor country. If they are asked to come in during a legal holiday, their hourly rate increases.

Keep in mind that similar challenges arise in any scenario concerning outsourcing outside of the United States. These are valid factors and must be fully reviewed by internal leadership in order to make the best decision for the team moving forward.

How to Outsource to the Philippines

Now that we understand both the advantages and disadvantages of outsourcing to the Philippines, let’s talk about how to begin this process.

  1. Type of industry – First, a company must assess its internal business needs. For example, if a company is looking to have general administrative support in the form of a few virtual assistants, the Philippines would be an excellent resource for this endeavor. If you were looking for a specialized professional in the field of software development, then India or Romania are other options to consider. It’s important to identify the niche markets that would best suit the needs of the company.
  2. Scope of business process or project – Another important aspect to consider before outsourcing to the Philippines is the type of process or project that requires extra support.
    • Is it a short-term project?
    • Is it an ongoing essential business process likely to be supported for an indefinite amount of time?
    • Is the current team overwhelmed and in need of more support?
    • What is the value of outsourcing?
    • Will this help the company get closer to the overall objectives and mission that it set out to achieve?These are the vital questions a company must ask and assess before they move forward with the process.
  3. Be as detailed as possible with the job description – No detail is too small. A company should be upfront and clear about its expectations for the project or process. By providing information such as the equipment needed to perform the task, anticipated deadlines, and expected communication platforms to be used when collaborating with the team, the company minimizes the amount of confusion and miscommunication that may arise.
  4. Review the budget – It’s important to review the budget in order to narrow down your search. Outsourcing to countries outside of the United States generally results in a cost-benefit for the company, but there are still other expenses to consider. The cost of posting the job ad, platforms used for recruiting and onboarding, and the potential wages that the company will be paying. Creating a realistic budget that encompasses all these small details will help build a clear picture of any existing restrictions.
  5. Start small – If a business is new to outsourcing, it’s best to start small. The smart practice is not to hire in bulk, and only start with a relatively small team – sometimes, limiting this to one individual at first or starting with a basic project. This helps the business build familiarity around the process and gain relevant experience in sourcing potential hires.
  6. Be clear with expectations and make it official – Once a company has identified a third party to take over a project over business process, it’s time to make things official with a contract. The contract should be reviewed thoroughly, with even the possibility of bringing in legal counsel to make sure the language covers all relevant areas of outsourcing from abroad. A few details to incorporate are overall expectations on deadlines, communication, and deliverables. Having all these details in writing will help smooth out all the potential issues that could come up in the future.

In Conclusion

Outsourcing to the Philippines comes with many advantages, beyond the potential cost savings. In addition to securing some of the country’s top talent, the quality of services remains high and extremely competitive in the outsourcing market.

Companies considering outsourcing to the Philippines must review their internal business needs with intention and have a full and comprehensive understanding of what will truly support their operations in order to thrive.

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