The Philippines is one of the world’s top destinations for business process outsourcing (BPO), IT (information technology), voice and back office services, according to the latest Global Service Location Index survey by consultants A.T. Kearny. A.T. Kearney pegged the country at the seventh spot, climbing two spots from number 9 in the 2011 survey. Out of 51 countries, the Philippines shared the top 10 with India, China, Malaysia, Mexico, Indonesia, Thailand, Brazil, Bulgaria, and Egypt.

A.T. Kearney used 25 metrics to evaluate the attractiveness of a destination to potentially deliver IT, BPO and voice services. The metrics were based on responses to industry questionnaires, surveys, client experience reports, and data obtained from client engagements over the past five years. The metrics were grouped into three major categories: Financial Attractiveness (40%), People Skills and Availability (30%), and Business Environment (30%).

The Philippines’ overall ranking rose from 5.65 in 2011 to 5.75 in 2014. The new ranking is the result of improvement in two key measures: business environment and people skills and availability. While the country dropped a few points in the financial availability measure, the other two metrics were enough to improve the overall score.

Outsourcing Industry Powerhouse

The Philippines has long been a premiere offshoring destination, but this ranking improvement highlights the attractiveness of the country not only for BPO and voice services, but also for back office functions like data processing and management, virtual assistance, HR support and accounting. Back office support is a mix of low-scale and high value offerings that can be bundled together to give clients maximum flexibility.

A.T. Kearney dubbed the Philippines an “industry powerhouse”, with an export sector second only to the number one destination, India. Other factors that contributed to the new improved ranking include:

• – One of the world’s most sophisticated BPO industry
• – Highly-qualified and rich labor force
• – Expansion to higher value-added IT and BPO services
• – Numerous operating centers not only in Manila but across the country
• – Steady economic growth

Philippines vs. India

India remains the top offshoring destination in the world. The country is a leader in both skills and scale, providing virtually all offshoring functions: IT, BPO and voice. According to the National Association of Software and Service Companies (NASSCOM), that industry alone is responsible for 25% of India’s total exports, with IT services raking in $40 billion in exports.

India continues its expansion into new services, including research and development (R&D), product development, and niche functions like healthcare and telecoms that require specialized skills. However, as India’s high-value offerings become more expensive and as rents skyrocket in the central business districts, more and more companies seek lower cost destinations.

While not close to matching the sheer scale that India offers, the Philippines remains a top player in offshoring. The country is extremely attractive to small and mid-sized businesses looking for low risk and maximum savings. The environment is politically stable, the workforce communicates in English with excellent proficiency, and the skilled professionals possess industry-specific knowledge. The Philippines also continues to expand its service offerings and target niche markets.

Global Services Development Markers: Late 1990s – mid-2010s

A.T. Kearney’s 2014 survey tracked the evolution of back office services, from when companies first cut their teeth outsourcing to emerging markets to the current automation trend. This dramatic development spans two decades and shows how businesses adapt to technology and refine ways to make their presence felt in a global economy.

From the beginning, it has always made sense to offshore non-core functions. It allowed companies to access rich talent pools around the world, usually at a significantly reduced cost, and gain greater exposure. For several businesses, offshoring was the stepping stone to taking their company global.

The A.T. Kearney survey identified three “waves” of sequential development that occur simultaneously today.

Before 2000. India was the pioneer market for offshoring, taking off in the late 1990s. The internet was young, telecommunications were much improved, and many companies required large-scale IT services. The first companies to set up centers in developing countries often built the HQs from scratch. Despite the lure of monumental savings, the operation back then was very complicated, involved, and expensive.

Mid-2000s. The second wave found companies passing on non-core services to third party providers. The operation was more efficient, and the companies more selective. Some brought back key roles in-house.

Mid-2010s. Automation is the name of the game, where robots perform routine tasks. ERP (enterprise resource planning) software automates repetitive, high-volume tasks for entire categories of services.

The Future of Offshoring

Businesses and entire countries are continually being transformed by the offshoring revolution. Small and mid-size businesses now join global conglomerates that take advantage of the reduced-cost BPO and back office services in countries like India and China. But as these countries deliver more high value propositions, countries like the Philippines are becoming much more enticing to companies looking to free up resources, concentrate on core functions and set up operations overseas.

Despite the automation trend, there is still plenty of room for growth. Robots can never replace tasks that require human flexibility and complex judgment. The challenge for the Philippines and other outsourcing destinations is to adapt fast enough to technology and keep evolving to avoid irrelevance.

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