Much has been said about the Philippine’s competitive edge in the business process outsourcing (BPO) industry. It has been identified as one of the priority growth sectors in the 2004-2010 Medium Term Philippine Development Plan (MTPDP) that is being tapped to generate high-value jobs. But what are BPOs? How do they function? And how much do they contribute to the economy?

Business Process Outsourcing (BPO) is defined as "the delegation of one or more IT-intensive business processes to an external provider that, in turn, owns, administrates, and manages the selected process or processes based on defined and measurable performance metrics." ¹ Since it is dependent on information technology, it is also referred to as information technology enabled services (ITES).

BPO services are generally categorized into horizontal or vertical services. A horizontal BPO involves function centric outsourcing - the vendor specializes in carrying out particular functions across different industry domains. Examples of horizontal BPO are outsourcing in procurement, payroll processing, human resources, facilities management and similar functions. On the other hand, a vertical BPO focuses on providing various functional services in a limited number of industry domains. Healthcare, financial services, manufacturing and retail are examples of vertical BPO domains ¹

In the Philippines, the major components of the BPO industry are (1) contact center – provides a number of inbound and outbound services for sales, technical support, directory, etc. (2) software development – analysis, design, customization, etc. of systems software, (3) animation/creative services – process of giving illusion of movement to cinematographic drawings or models thru 2D, 3D, etc. (4) data transcription – provision of transcription services for interpreting oral dictation of health and legal professionals (5) back office processing – services related to finance and accounting, and HR administration, and (6) engineering design – includes design for civil works, buildings, electronics, etc. ¹

To determine the contribution of an industry to the economy, we look at the Philippine System of National Accounts (PSNA), being compiled by the NSCB. It is a coherent and integrated framework that measures economic activity, and generates macroeconomic indicators, such as gross domestic product (GDP) and gross national product (GNP).

The PSNA captures business process outsourcing under the Gross Value-Added (GVA) of Private Services (production side) and Exports of Services (expenditure side). The GVA of private services is made up of services produced in education, medical and health, recreation, hotel and restaurant, personal and business services – which includes BPOs. On the other hand, Exports of Services covers all services –purchases, transactions, etc – provided by the country to foreigners. These may include that of transportation, insurance, travel, government and miscellaneous services, which takes into account BPOs.

Comparative analysis for Q1 2004 to Q2 2007 shows that on the average, accounting for the contribution of the BPO industry has increased the country’s GDP growth by as much as 0.2 percentage points! ². In Q2 2007, as GDP grew by 7.5 percent, the BPO industry contributed 0.3 percentage points.

Figure 1: GDP growth, with and without BPOs

Source: NSCB

Capturing the robust performance of the BPO industry has likewise expanded the growth in Private Services, on the average, by 2.6 percentage points ². It contributed 4.1 percentage points to the 8.6 percent growth in Private Services for Q2 2007.

Figure 2: Growth in GVA of Private Services, with and without BPOs