Strategy

Work-From-Home Future Challenges Philippine Call Centers

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(Bloomberg) — The Philippines should adopt policies for call centers that will fit the post-pandemic workplace, according to the head of the industry group, as it seeks to extend the sector’s two decades of growth.

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The Contact Center Association of the Philippines sees a shift toward working-from-home, one of several Covid-era workforce adaptations that could become entrenched. However, some tax breaks crucial to the industry are only valid if the bulk of their employees work in designated economic zones.

“No business is thinking we will just go back, after this pandemic is over, to the way we were,” Chairman Benedict Hernandez said in an interview. He urged the government to develop a long-term policy that recognizes the new reality of hybrid home-office work.

The association expects the outsourcing industry’s revenues to grow 9% this year, outpacing 6%-7% for the sector globally, as more companies shift toward digitalization.

“It’s an encouraging yet vulnerable recovery,” Hernandez said. The outsourcing industry, which includes call centers, needs “support and protection so that we can continue creating more jobs and helping the economy recover.”

With most Filipinos proficient in English, call centers have played an increasingly important role in the country’s economy since the 1990s, creating millions of jobs and driving consumption. As exporters of information-technology services are often located inside government-designated economic zones, many of the companies enjoy special tax breaks.

Call centers employ about 800,000 people in the Southeast Asian nation, or about three-fourths of the 1.3 million workers in the outsourcing sector, and add as many as 80,000 new jobs per year. As the global recovery continues more companies will look to cut costs by moving jobs offshore, creating more opportunities for Philippine outsourcing companies, Hernandez said.

Playing Catch-up

Still, the industry faces a number of risks.

Fresh Covid outbreaks are prompting clients who may have concentrated operations in a single country to reconsider that strategy. To bolster its competitiveness, the Philippines will need to play catch-up in vaccinating employees, upgrading infrastructure and implementing supportive government policies, Hernandez said.

Among the challenges are infrastructure investments by telecommunication companies to bolster at-home connectivity. “We’re very happy with how much speed and capital they’re laying out,” Hernandez said. “It’s getting better, but we’re not yet there.”

In addition, a 1994 law on economic zones must be updated for the outsourcing industry, Hernandez said. The law gives tax breaks to companies whose output is produced in the zones, which suggests employees must be working onsite.

Amid the pandemic, about 60% of total call center employees are currently working from home, with some companies now fully home-based. The government recently allowed companies in the economic zones to let as many as 90% of employees work from home through next March.

That extension “buys us time,” Hernandez said, but isn’t a durable solution.

Fiscal Caution

Trade Undersecretary Rafaelita Aldaba said in a reply to questions that the government is crafting long-term policies on hybrid work models for companies located in economic zones, and that innovative programs and policies are needed to keep the Philippines competitive in the outsourcing industry.

The Duterte administration generally has been cautious about using fiscal measures to counter the effects of the pandemic, though an order imposing 12% value-added tax on exporters’ transactions, which could affect call centers, has been deferred for now.

Earlier this year the government changed the fiscal-incentives system, phasing out certain tax breaks in the economic zones and tweaking others. Some outsourcing firms worry that reducing such incentives will make the Philippines more expensive and drive away investors.

“It’s been a resilient industry,” Hernandez said. “This year, we’re seeing a very promising recovery but that continues to be vulnerable. We still need support.”

(Updates with government’s comment in 14th paragraph. An earlier version of this story corrected the unit for employment data in the chart.)

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