1. Industry Structure
Outsourcing is contracting out some work or particular function to another company or person. This is done to save on cost and time since the third party provider or the service providers usually agrees to render services at lesser expense. During the economic boom in mid 1990s, outsourcing has increased because most of the economically advanced countries send work to businesses in other developing nations.
The Offshore and Outsourcing (O&O) industry in the Philippines first started in the 1990s, but really started growing in earnest at the start of this decade (http://www.sourcingline.com/). As late as 2004, the industry was only about $1.5 billion, but grew at almost 50% for several years and is now estimated to be growing at about 30% annually. The O&O industry is generally divided into four major segments: the Business Process Outsourcing (BPO), Information Technology Outsourcing (ITO), Engineering Services Outsourcing (ESO) and Knowledge Process Outsourcing (KPO). The BPO companies comprise 76% of the total O&O industry, while the ITO and ESO companies are about 19% and 5%, respectively. The figure below (Figure ) shows the percentage of each of the outsourcing segment except for KPO. The market composition of BPO is further detailed in the figure.
Note: No data available for KPO.
The Philippines is a leading nation in the business process outsourcing (BPO) market, both in contact center services and the non-voice sector. In the past 7 years, BPO has been one of the fastest growing sectors in the Philippines. It is an emerging player in the IT services market (Web design, software development, application maintenance, etc.) with companies focusing on niche segments such as animation. It is also a home to a USD $350 million offshore outsource software services sector (www1.american.edu/). The primary focus of the Philippines software development firms is on systems and application development and maintenance of legacy applications. Its command of English and cultural affinity for the US makes it easier to attract companies seeking to transition at their low-level maintenance work offshore. (http://www.awsys-i.com).
The primary activity of Software Development segment is to undertake complex software development projects focused on the development of customized, sophisticated software in areas requiring a tailored approach by teams of programmers located at offshore development centers or at the customer site (http://www.ibsgr.com). Software Development Outsourcing is raising interest to more overseas IT companies due to various reasons. Outsourcing of software development offers a combination of reduced cost, better quality and faster time to the market services. Aside from cost, the methodology, ability and core competition are playing the key role in software outsourcing.
Software Development Outsourcing has been famous in the past time, or as early as the 1776s. In 1990, Indian government followed this program of economic and was able to control all the systems through policies and regulations. The global Information Technology Services (ITS) exports by country in 2008 (Figure ) shows that the major providers of offshore software development are India, Philippines, China, Mexico, Russia and Brazil.
Two of the biggest competitors of the Philippines outsourcing industries are its Asian neighbors – India and China. From the chart above, India dominates the global ITS markets by taking on 72% of global market shares. The Philippines takes 10% of that pie beating China at 4%. Compared to both countries, the country’s population is staggeringly lower. But key factors such as a closer affinity to western culture and the more affluent English-speaking skills of the Philippine workforce, places the country at par in the competition and in gaining market share.
Sources: Locsin (2006), Cu (2006), NeoIT (2004), Deutsche Bank Research and NASSCOM (2005)...
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