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Jobs growth not the only winner from BPO in The Philippines
The property sector in the Philippines is rising from the doldrums thanks to the booming business process outsourcing (BPO) industry. Aside from boosting the country's labor, another clear beneficiary of the boom in the BPO industry is the property sector.
BPO is an emerging industry in the Philippines. The industry itself was regarded as one of the fastest growing industry in the world. The phenomenal BPO boom is led by demand for offshore call centers. It is estimated that over 112,000 people were working in call centers in the Philippines in 2005, bringing in revenues of US$1.12 billion for the year. This is in sharp contrast to 2000 when Filipino call centers employed 2400 people and earned US$24 million.
This emerging industry is fueled by front office customer care and back office processes including finance/accounting, human resources, and information technology services. Though customer care contact centers form the largest part of the BPO boom locally, the Philippines' English language proficiency, information technology, human resources, and available finance/accounting professionals are significant contributing factors as well.
In fact the Philippines has the largest number of accredited accountants in Asia, with the number growing yearly. Filipino accountants are also renowned for their flexibility in working with multiple accounting standards.
The Philippines' Center for International Trade Expositions and Missions (CITEM) report for 2004 cited the Philippines as among the top 10 choices for offshore operations. Major companies that already operate in the Philippines include AIG, AOL, Barnes & Noble, Chevron, Citigroup, Dell, HP, IBM, Intel, JPMorgan Chase, Motorola, Procter & Gamble, and Trend Micro.
Land Values Rocket
While the 1997 Asian financial crisis may have caused the property sector to hit rock bottom, the services industry is breathing new life into once vacant assets. Land values in the major central business districts in Metro Manila have increased because of the demand for more office space. The main underlying demand is coming from BPO growth.
In 2005, research from property group Colliers International estimated that land values in the Manila central business districts should post a 15% year-on-year increase. Prices of prime sites in Makati are expected to hit US$4,192 per square meter, while development plots in Ortigas could reach up to around US$1,893, the consultancy firm said. Anything from warehouses, shopping malls to upscale office spaces are currently up for grabs as the BPO industry has seen demand outstripping supply.
Some of the countries top property developers are earmarking sites to cater to the BPO demand. Recently, Ayala Land, Inc, a large property developer, said it is setting up two BPO campuses in Metro Manila and Luzon. Ms. Victoria Añonuevo, Ayala corporate business group head, said these two projects are the company's answer to the exponential growth of the BPO business in the country. "In the last year, BPO buildings have gone from zero of our total office gross leasable area to about 34 percent of our overall office portfolio, Ms. Añonuevo was quoted as saying.
Ayala Land is offering a unique built-to-suit model targeted mainly to address the demand for office space. Last year, it transferred its first built-to-suit building to a major BPO player. Ayala Land's built-to-suit model involves a prospective tenant who submits its specific requirements to the property firm who in turn will build the property according to the tenant's specifications. This model assures Ayala Land has a guaranteed tenant for the property. Last year, Ayala Land said it had earmarked nearly 36,000 sqm of leasable office space for construction of BPO buildings.
Not to be outdone by realtors, shopping mall developer SM Prime Holdings last February opened its doors to Dell Inc. who established a call center in one of SM's biggest malls to date, the Mall of Asia. The services sector is also coming to the rescue of "traditional" sectors such as manufacturing. While the manufacturing sector is still recovering from weak output last year, the services sector is attempting to fill in the void. "Some firms are buying warehouses because of the lack of office space," Director-General Romulo Neri of the National Economic and Development Authority (NEDA) said.
Even prior to the use of warehouses for BPO, once vacant condominium units have been rented by many companies. One board member of a Makati condominium building said that the number of tenants increased from 60 percent to 90 percent because of BPO companies. The lack of viable supply has resulted in the emergence of alternative sites such as Filinvest Alabang, the Bay Area reclamation, the site of the Mall of Asia, Fort Bonifacio, McKinley Hill and Robinsons Pioneer area.
Incentives Widely Available
One of the major developments in the government's incentive-giving policy is the recognition that commercial spaces, no matter how small or big, can be entitled to incentives. Developers of these real estate properties apply for and get incentives from the Board of Investments and the Philippine Economic Zone Authority (PEZA). Once proclaimed by government that office sites are IT investment sites, the property developers and locators in the sites were entitled to incentives. Incentives range from tax holidays to duty-free importation of equipment. Prior to this recognition, only large industrial tracts of lands were entitled to incentives. These large tracts of lands are those suited for traditional businesses, such as manufacturing sites.
Cities Not The Only Beneficiaries
Metro cities outside the capital of Manila are also cashing in on the BPO boom. Among these metro cities, Metro Cebu in Visayas, is the next preferred site for IT investments, including back office services. In fact, Cebu City is positioning itself as an alternative ICT hub in southern Philippines. Cebu currently hosts 12 call centers.
Not to be outdone, the province of Davao has also opened its doors to BPO investors. Merly Cruz, the trade department's director for Region XI, said two BPO companies engaged in the outsourcing of architecture and graphical services have already set up operations.
Nakayama Technological Corp., one of the biggest BPOs in Mindanao, operates in Digos, Davao del Sur while Menogaya Co. runs it's daily services in Davao city. "The information communications technology has been added to the priority industry in Davao," Cruz said. The incentives offered to investors are a sales tax holiday for four years and free processing of local government taxes and fees such as building and mayor's permits.
To prove that companies in Luzon have taken serious note of the skills of the residents in Mindanao, G-Com Asia Pacific Phil., which is a branch of the Cyber City in Clark, had established call center operations in Davao. "It will also start its legal research outsourcing within the year," Cruz said. Cagayan de Oro, another city in Mindanao is home to Link2Support which recently reported that it would develop an additional 800 square meters. floor area for a total of 500 seats.
---Mio Cusi
Mio Cusi is a senior reporter for the Manila-based BusinessMirror. Currently assigned to cover the macroeconomic beat, he has written numerous articles on the comparative advantage of the Philippines among other Asian countries in relation to BPO services. |
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