From Where We Sit

Why set up shared services in the Philippines?

Elie Marcelo
By:
Elie Marcelo
Contents

A report by the Philippine Statistics Authority in early 2022 states that the country’s GDP posted a growth of 7.7 percent in the last quarter of 2021, resulting in 5.6 percent full-year growth in 2021. The same trend for growth is being forecasted by the Asian Development Bank, saying that the Philippine economy will grow to 6 percent in 2022. As we are near the tail end of the pandemic, it is important to refocus the business as it manages the long-term effect of such occurrence. The best, and probably the perfect, time to move on to shared service operations in the Philippines given these advantages is now.

Investing in outsourcing

Managing cost without sacrificing quality is a key goal in business. One of the best strategies to achieve this is by contracting workforce talent across the globe which allows businesses to tap on favorable labor market conditions that provide for well-educated high-quality talent at a reasonable cost.

In a nutshell, shared service in the form of outsourcing is the consolidation of business processes from third party or external providers of services that can be delivered to and used by different units in the business.

According to an article published by Outsourcing Journal, the outlook for increased use of these services is encouraging. As the world enters Industry 4.0 and continues to boost existing product lines and offerings through tech and innovation, experts still see growth in the IT-BPM industry on the back of digital transformation.

In the same article, it was cited that the Philippines accounts for 13% of the market share in the global IT-BPM sector, buoyed by its efforts in laying a solid groundwork in improving the adoption of technology. Although the local IT-BPM sector experienced sluggish growth in recent years, it was still able to post 80,000 jobs in 2017 and 2018, and remained a strong contributor to the growth of the economy. This year, although the forecast on growth in this sector is not as rosy as in the years before the pandemic, the Everest Group, the consultancy firm tapped by the IT and Business Process Association of the Philippines (IBPAP), stated that the industry is still seen to contribute USD 29 billion in revenue and offer 130,000 jobs between 2021 and 2022.

The Philippines is one of the top outsourcing destinations in the world and here are some reasons why.

Cost savings, competent talent pool and cultural capability

When asked why they prefer outsourcing services, one of the factors businesses cite is cost savings. In this area, Philippine outsourcing companies can compete, as they can do outsourcing work at a fraction of the price without sacrificing quality.

English is the official language of the Philippines taught in schools and is the third largest English-speaking country in the world. Moreover, Filipinos have the cultural capability of most western countries. These, coupled with the Philippines’ large, high-skilled world class talent pool with excellent work ethic, allow Filipino outsourcing providers to contribute well to the growth and success of their clients’ businesses.

Government Support and Active Association in the Industry

On top of these, the government has strategically put in place mechanisms for business process outsourcing to thrive in the Philippines. Moreover, the IBPAP plays a pivotal role in sustaining the rapid growth of the industry. It actively supports investors and locators in setting up operations and continues to provide guidance during their stay.

Given that it is not easy to start a business in the Philippines as there are many forms of legal vehicles available, setting-up requirements, etc., there are third party shared service outlets that could assist companies to make the whole process seamless.

Setting up the Right Legal Vehicle

One of the ways local shared service providers assist clients in their outsourcing needs is through corporate organization and registration of their business. The role of these service providers is to first determine the appropriate and tax-efficient operating business or investment vehicle and structure for the client. The next step is to address the objectives of the investor, as well as related incorporation issues.

Their services also include local registration, where outsourcing service providers appropriately register the business with the local government unit (LGU) and other government agencies concerned, as part of compliance with current business requirements.

Setting up statutory and management reporting properly

There are other considerations that outsourcing service firms can help companies with. Among them is establishing accounting and finance operations by putting in place systems, processes, and procedures that would handle payments processing, bookkeeping, revenue recording, and tax preparation and filing.

The same goes for payroll programs. While the company is newly set-up, shared service providers help ensure that flexibility of operations is captured, and employees are well-compensated

Ensuring headcount requirement is also a must. This is because for newly established companies, there are instances wherein the number of staff is limited due to hiring concerns. To address this, companies may require partnering with co-sourcing outfit to meet the desired headcount.

Setting up the Strategies, Operational Policies and Procedures

Localizing business strategy means developing methods and processes to improve performance and maximize business results through an alignment with business models, as well as management, communication, and risk management programs. This is another area in business where shared services are often deemed necessary to achieve business efficiency.

Lastly, outsourcing service providers can also help in implementing policies, procedures, and best practices of similar entities – all geared towards the objective of having the right people who will support the business strategy and move the business forward.

 

As published in The Manila Times, dated 22 April 2022

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