BPO sector forecast to rebound in early 2018

The Philippine business process outsourcing (BPO) industry is likely to rebound by early 2018 after a “rebalancing” phase arising from a perceived escalation of “country risk” amid some concerns on the peace and order situation and a change in the tax regime, property veteran David Leechiu said.

Leechiu, president of property consulting Leechiu Property Consultants (LPC) that deals a lot with BPOs—a key driver of the office property market in recent decades, said many of his firms’ BPO clients have “decided not to grow” this 2017.

“That’s primarily because many of their clients perceive that country risk profile of the Philippines is climbing. So it’s important to make sure that they know that these country risk issues are not new. There have always been relevant, meaningful country risk issues in the Philippines since maybe the 1960s and companies have learned to adapt,” Leechiu said.

Nonetheless, he said some of the BPO operators were choosing to set up shop in more expensive territories to “divert” from the Philippines as part of their risk diversification strategy.

Some of these BPO locators have seen a contraction in clients being serviced due to a perception that it might be prudent for these clients not to put their eggs in one basket.

Asked to elaborate on the “country risks,” Leechiu said the concern on terrorism was part of this alongside certain news such as a recent shootout in Batangas, an armed attack on a resort in Nasugbu, concerns about Bohol and Palawan a few months back alongside the issues in Mindanao.

In June, a terrorist group that has pledged loyalty to the Islamic State attacked the city of Marawi in Mindanao, prompting President Duterte to put the entire island of Mindanao under a state of martial law.

“Then of course they are also quite anxious that we’ll be like China—that tax laws are being changed on them in transit. That’s what companies don’t like—they don’t like these uncertainties,” Leechiu said.

The BPO industry is hopeful that there won’t be too many changes that will make it difficult for them to expand, Leechiu said.

The information and communications technology industry has appealed to the government to keep the fiscal incentives enjoyed by the sector in the last 15 years, citing the need to generate jobs and investments especially in the countryside.

“But I remain confident that the BPO industry will continue to expand. This phase that we’re going through with them will be temporary. At the end of the day, history has shown that companies will find a way to overcome the issues that we have here and they will be back,” Leechiu said, projecting a rebound by the first or second quarter of 2018.

The last time the BPO had seen such “rebalancing” was when the stability of the Macapagal-Arroyo administration was under threat.

Leechiu said it was likewise important to point out that demand for office space from the BPO industry had not contracted. Of 650,000 square meters of leasable office space taken up in the first eight months of the year, he noted that 80-85 percent still consisted of BPO firms.

“We’re pretty much almost exactly online with how we performed in 2016. So the worst case is we end up with the same number in 2016, which is not a bad thing,” he said.

There are also a number of big names that will enter the Philippine BPO industry for the first time, with discussions ongoing on their prospective lease contracts, Leechiu said.

Meanwhile, Leechiu reported that other industries were making up for the lack of growth in BPOs, particularly online gaming, retail, shared service and co-working spaces.