AI threatens Philippines’ BPO sector, Davao bucks trend

MANILA, PHILIPPINES — The business process outsourcing (BPO) sector in the Philippines is facing potential shrinkage as artificial intelligence (AI) adoption accelerates, according to a report by Fitch Solutions’ BMI. 

Darren Tay, BMI’s Head of Asia Country Risk, noted that AI could undermine the Philippines’ economic strategy by enabling firms to reshore call centers to developed economies more cost-effectively. This shift could significantly impact the BPO industry, a key source of foreign currency for the country.

“Put bluntly, AI could invalidate the Philippines’ current economic strategy,” he added.

Despite these challenges, the Contact Center Association of the Philippines (CCAP) forecasts a 9% increase in BPO revenues, reaching $32.16 billion this year. 

In 2023, BPO revenues made up 83% of the IT-BPM industry’s total $35.5 billion revenue.

Philippines’ AI readiness and economic potential

In the 2023 Government AI Readiness Index by Oxford Insights, the Philippines ranked 65th out of 193 countries, indicating moderate preparedness for AI integration. The National Economic and Development Authority (NEDA) projects that adopting AI technologies could potentially add PHP2.6 trillion ($45 billion) annually to the Philippine economy.

Despite this promising outlook, BMI cautions that the Philippines, alongside Indonesia and Thailand, might struggle to capitalize on AI-driven productivity enhancements compared to wealthier nations. 

“The International Monetary Fund (IMF) argues that lower-income countries could eventually leapfrog older technologies using AI and catch up developmentally with richer countries… However, we think the high cost of building the required infrastructure and highly skilled labor force makes achieving such a feat highly unlikely,” BMI stated.

Concerns over increasing income inequality

BMI also highlighted concerns that AI adoption might exacerbate income inequality both within countries and internationally. 

This growing disparity could pose challenges to regional cooperation and integration, particularly among ASEAN member states, potentially hindering collective economic progress.

Davao’s IT-BPM sector defies national trends

In contrast to national forecasts, Davao City’s information technology and business process management (IT-BPM) labor force is experiencing robust growth. Xavier Eric Manalastas, president of ICT Davao, reported a 12% increase in the workforce, now approaching 85,000 individuals. This growth is largely due to the expansion of BPO companies in the city.

Manalastas highlighted the availability of a potential workforce that can be trained and employed by BPO companies.

ICT Davao, along with the Davao City Chamber of Commerce and Industry (DCCCI), conducts training programs to bridge technology gaps for fresh graduates and career changers.

Addressing training and skills gaps

A significant challenge for Davao’s IT-BPM industry is resource allocation for training programs rather than a shortage of participants. Belle Anne Torres, president of DCCCI, emphasized the importance of aligning academic programs with industry standards to ensure graduates possess the necessary soft skills.

“I think the academe should also look into certification programs, wherein they have to make sure that their graduates are ready and are certified based on the requirements set by the industry,” Torres added. 

Human resources personnel have observed an influx of applications from fresh graduates eager to join the IT-BPM sector. However, Jem Lopez, a hiring coordinator, noted that many applicants lack essential qualifications despite their enthusiasm.

“Let’s be real. Most of them, they just wanted to be in this industry for a good pay. But as the one who screens them, I could tell they are willing to know, but there is more that they need to know to qualify,” Lopez told MindaNews.

Toto Rendon, an IT graduate and team leader, suggested integrating new technological advancements into educational curricula to enhance employability. 

“For me, when graduates or potential workers are not capable of doing ICT work, it could really affect their employment trajectory as a whole,” he stated.

He urged government collaboration with educational institutions to keep pace with industry trends.

Strategic investments for future growth

While AI presents challenges to the Philippine BPO sector as a whole, regions like Davao show resilience and growth potential. 

As AI continues to reshape industries globally, strategic investments in workforce development and education will be crucial for maintaining competitiveness and fostering economic growth.