Philippine outsourcing cuts targets as virus spurs automation

MANILA — The Philippines’ vital outsourcing industry has tempered its revenue projections for the next two years as the call center-dominated sector expects to take a hit from a wave of automation spurred by the COVID-19 pandemic.

The industry, a pillar of the Southeast Asian nation’s economy, is now bracing for the impact of the global health crisis after reeling from U.S. President Donald Trump’s protectionism and President Rodrigo Duterte’s corporate tax reform campaign that threatens outsourcing companies’ incentives.

The sector expects revenue to be flat this year amid massive cost cuts triggered by the global economic recession. In 2019, it grew 7.1%, to $26.3 billion, and had 1.3 million workers, according to the IT and Business Process Association of the Philippines, or IBPAP, the sector’s main lobby group.

“For this industry to be reporting flat growth — again, I think — is great in the broader context of where other industries are,” Rey Untal, head of the IBPAP, said during an online news conference on Friday to unveil the industry’s updated projections.

For 2022, revenue is expected to rise to between $27.9 billion and $29.1 billion, which would represent annual average growth of 3.2% to 5.5% from 2020, while the number of employees is expected to be at 1.37 million to 1.42 million.

The latest 2022 targets are lower than the $29 billion to $32 billion in revenue and 1.42 million to 1.57 million in staff announced last year. Meanwhile, last year’s revision was already sharply lower than the $38.9 billion in revenue and 1.8 million in staff projected under an original six-year road map launched in 2016.

The industry — which relies on the country’s English-speaking workforce to answer customer queries, mostly from the U.S. and Europe, day and night — has been slowed by automation and the rise of artificial intelligence. Both trends are expected to accelerate amid the pandemic.

The industry has also blamed protectionist sentiment fueled by Trump, proposed changes to local tax and incentive rules that benefited the industry, and security issues in the Philippines following a siege by Islamic State-aligned militants in 2017.

Untal declined to comment on what kind of impact a Joseph Biden presidency in the U.S. might have on the industry. “It would be premature for IBPAP to comment on the subject of Biden’s presidency, as of the moment, without a proper study to support it,” he said.

Meanwhile, the Duterte administration’s Corporate Recovery and Tax Incentives for Enterprises, or CREATE, bill is being pushed in the senate. The bill seeks to lower income tax from 30% to 20% over time but cap incentives enjoyed by outsourcing and other companies.

“If we look at CREATE specifically,” Untal said, “we are anticipating and we are pleading that the eventual outcome or model that CREATE will have should be investment-friendly … not just for new investors to come in but also keep existing investors to continue expanding.”

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