WHICH PHILIPPINE

CITY WILL LEAD

SERVICES INTO
THE NEXT DECADE?
AN EVALUATION OF KEY IN-COUNTRY
DEVELOPMENTS AND OPPORTUNITIES
For global organizations in search of scalable locations that offer language,
skills, plenty of talent and a service-oriented work ethic, the Philippines has
long been an obvious choice. With multi-nationals today seeking scalable
solutions, however, and Metro Manila feeling the strain of explosive growth in
service delivery centers, there are a number of interesting and opportune tier
two and three cities emerging that offer plenty of capability at costs up to 40%
lower than Manilas. Its making many center leaders sit up and pay attention

WHICH
CITY IS
WINNING?
Manila
Cebu
Bacolod
Dasmarinas
Malolos
Iloilo City
Baguio

www.ssophilippines.com

he growth of shared services and BPO

continues to accelerate, although
still trailing the predominantly
voice-base contact centers that have long
been the calling card of the Philippines.
According to Everest Group, voice services
accounts for two thirds of the total market,
while shared services constitute roughly
15% of the market. As service centers
mature and customers demand more
value, however, both BPOs and inhouse
shared services are continuing to expand
the scope of services supplied.
With more than 15.5 billion dollars
of revenue and total employment
nearing 1 million FTEs [source: Everest
Group] the Philippines global services
market continues to expand and offer
opportunities. Much of this growth is
being underpinned by IT business process
services, as centers recognize and
integrate the potential of technology-led
value add.
While North America remains the key
investment group [accounting for 68% of
total business in 2013], the local markets
strengths to date are in the banking and
financial services industry as well as
high-tech and telecommunications. Over
the past two years, however, both energy
& utility and the healthcare sectors have
been growing steadily.
For many organizations it is the highgrowth potential of tier two and tier three
cities that will really drive the sectors
growth. The risk of natural disasters,
as witnessed over the last decade, is an
additional inducement for organizations
to diversify their operations across the
country and away from the traditional
(tier one) locations in Manila, for example.
The pressure of high attrition and wage
inflation, as competition increases in
Manila and Cebu, both traditional first
choices, is also driving activity out across
the country.

ASSESSING TIER TWO

AND TIER THREE
OPPORTUNITIES FOR
SERVICE CENTER EXPANSION
If you consider IT business process services alone, which is a good
reflection of current services trends, over 75% of current activity is
concentrated in Metro Manila. The resultant pressure on costs and
talent means that inflation is slowly eroding the arbitrage opportunities
of these operations. And when you add in the appreciation of the peso
relative to the US dollar, organizations are actively looking for lowercost delivery locations as part of their global services strategy.
Across the Philippines there are three main locational opportunities
(see also map):

ESTABLISHED LOCATIONS

EMERGING LOCATIONS

NEWLY EMERGING LOCATIONS

These include places like Metro Manila, Metro Cebu, Metro

Clark, and Bacolod

These include areas such as Malolos, San Fernando,

Dasmarinas, Dumagueta, Iloilo, Baguio and Santa Rosa
all based near or around Manila

These include cities like Cagayan De Oro, Laog, and Davao

city located in the South as well as the North of the
country.
Laoag

Baguio city
Metro Clark
Malolos
Metro Manila
Dasmarinas

Bacoor
Santa Rosa

Iloilo

Bacolod
Metro Cebu
Dumaguete
Cagayan De Ore

Davao

Source: Everest Group (2014)

www.ssophilippines.com

While only just emerging onto the marketplace, the tier two and three cities of the emerging and newly
emerging locations mentioned here all offer attractive opportunities to multinationals, especially given the
proactive incentives offered by the governments to inward migration (see table below).

ANNUAL RELEVANT POOL

2013; Number of graduates
RELEVANT TERTIARY GRADUATE POOL
2013; 000s

RELEVANT VOCATIONAL GRADUATE POOL

2013; 000s

Emerging

Established

Manila
44-46
120-130
22-24

Cebu
Bacolod

5-6

Dasmarinas

5-6

44-46
4-6
14-16

16-17

Malolos

9-11

12-13

Iloilo City

1-3

14-16

Baguio

16-17

Source: Inputs from recruiters, investment support agencies, and market players; Everest Group (2014)

What these emerging locations offer in particular is the opportunity to scale up. What is attractive for
multinationals is that these tier two and tier three cities offer 10 to 25% savings on operating costs over
Metro Manila. For example, many of the emerging locations offer real estate rentals at rates that are 20 to
40% lower than Manila, and salaries that are 20 to 25% lower (see table below). What is notably lacking,
however, is experienced staff to lead an operation. That means that for the foreseeable future it will be
necessary to import senior leadership teams into the area.

ANNUAL OPERATING COSTS PER FTE FOR IT-BPS SERVICES DELIVERY

2014; Indexed: Metro Manila = 100
100

90-95

80-90

85-95

85-95

80-90

75-85

Manila

Cebu

Bacolod

Dasmarinas

Malolos

Iloilo City

Baguio

Salaries are 3 to 7% lower

than Metro Manila
Costs of real estate and
utilities are 15 to 20%
lower compared to Metro
Manila

Salary differential (~10%)

from Metro Manila/Cebu
Real estate rentals are
20 to 40% lower than
Metro Manila

Source: Investment agencies, inputs from players, Everest Group (2014)

Salaries for entry-level positions

are nearly 20 to 25% lower than
Metro Manila
However, senior staff (team leads
and managers) needs to be
relocated during the initial years of
set-up
Real estate rentals and cost of
utilities (e.g., power) are 30 to 40%
lower than those in Metro Manila

www.ssophilippines.com

BPO AND SERVICE PROVIDERS

LEADING THE CHARGE
A number of BPO providers have already discovered the arbitrage opportunities
that emerging cities in the Philippines offer. According to Everest Group research,
for example, the following providers have already established service delivery
centers across many of these emerging cities:

CITY

KEY PLAYERS1

Bacolod

Convergys
Teleperfomance
Transcom
Teletech
Panasiatic

Dasmarinas

Convergys
Teletech - Bacoor
Sutherland - Carmona

Malolos

Menza Teleservices - Marilao

Nestle - Meycauayan

Iloilo

Hinduja Global
Spi Global
Transcom
Teletech

Baguio

Aegis People Support

Covergys
Sitel

SUMMARY
To meet the growing needs of
multinational organizations in search
of scalable resources, operations in
the Philippines will need to focus on
adding more value across their service
delivery operations by incorporating
social media, considering additional
channel delivery models, leveraging
robotic process automation, and
driving knowledge-based insights.
Faced with the significant pressures of
an appreciating currency, the number
one challenge for in-country delivery
centers will be to maintain their
cost competitiveness and shifting
operations out to emerging locations is
a strategy that will help.

1
Includes leading offshore and regional BPO players across service providers and GICs of large
companies

Source: Investment agencies, inputs from players, Everest Group (2014)

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