IT Outsourcing Rivalry: India vs Philippines

February 16, 2024

When you think about IT outsourcing in the Philippines, the first thing that comes to mind is graveyard shifts, missed holidays, and very competitive salaries in comparison to other industries in the country. But aside from these perceptions, what more is there to this steadily growing industry? And why has there been a long-standing competition between India and the Philippines when it comes to outsourcing?

Before we delve into the competitive rivalry between these two countries, it’s important to know what exactly is IT outsourcing and when did it all begin?

Outsourcing has been around since the start of the Industrial Revolution, but it’s still considered as a fairly young business strategy. Furthermore, it was formally recognised as a business strategy not until the end of the 1980s. At the time of the Industrial Revolution, outsourcing only came in the form of external suppliers known as secondary services employed by companies. A perfect example would be publishers; they would often outsource printing and fulfilment services.

Nowadays, outsourcing has become a lot more diverse and touches on fundamental business processes. It’s certainly a big leap from just being an auxiliary service to becoming a business strategy in on itself.

Today, outsourcing is a diverse industry offering different types of services. These services classify into four main categories:

  • Professional Outsourcing
  • Manufacturer Outsourcing
  • Project Outsourcing
  • Nearshoring

In relation to the topic, we’ll only elucidate on the first category, Professional Outsourcing, specifically Information Technology.

Professional Outsourcing is the most common type of service offered in today’s outsourcing industry and under its umbrella are accounting, legal processing (LPO), purchasing, information technology, and administrative support. The reason why it’s so popular and a widely used service throughout the world are due to its accessibility and high-quality work offered at lower rates.

What this means is that the client only needs to pay for the services provided—essentially saving money from additional fees because these services were all done remotely. The only downside of utilising this kind of service is the impact it has on the local economy. Since companies can get quality services at a much lower cost, similar services in the client’s country can result in potential job scarcity.

Information Technology, popularly known as IT, is part of the most common outsourcing services offered in today’s technology-centric economy. It’s defined as a practice of finding technology related resources or subcontracting outside of a company for IT functions or solutions. The reason behind this is that every type of business deals with technology, one way or another, making the need for IT all the more important.

Organisations utilise IT outsourcing for various reasons, some of these are for infrastructure to software development, as well as maintenance and support. Thanks to the advent of the wireless wonder known as the internet along with low communication costs, IT activities are transferred to almost anywhere in the world with ease.

Due to its convenience, a lot of Western-based companies turn to Asia for outsourcing services. Right at the forefront of this industry are India and the Philippines.

So why are these two countries neck and neck when it comes to IT outsourcing? Before we answer that question, we need to understand the outsourcing industry of each country respectively.

India already has a firm foothold in the outsourcing industry and is considered as one of the top destinations for overseas IT projects and starts up long before the Philippines came into the picture.

The reason behind this was partly thanks to the reforms made by former Prime Minister Rajiv Gandhi that made the conditions in India more appealing for the investors and outsourcing industry to grow. He increased the government’s support for technology, science and other related sectors and reduced the import taxes on telecommunications, computers and other technology-based devices. In 1991, legislation passed that made the Indian economy more service and market-oriented which further boosted it’s holding on Information Technology and essentially securing its place as the 5th largest industry in the country.

India’s IT industry is robust that in 2016, it estimated the country’s software exports and IT services net worth at 61 billion US dollars. Majority of these were from India’s IT subsectors. The first and the one that rakes in the biggest contribution are the information technology services with over 52% share in the country’s total sector revenues. The second, and nowhere near the first one, is business management with a 19% share in the revenues while software products and engineering services, and hardware have a 19% and 9% share respectively in the overall sector revenues within the Information Technology outsourcing industry.

Now the Philippines came into the game later than India, but that doesn’t mean it’s the underdog either. In fact, the IT outsourcing industry has made considerable growth from the early 2000s to the present day, and this was made possible by the support of the government.

In 1995, the Philippines Congress passed legislation called the Special Economic Zone Act that encouraged foreign investors with tax incentives; this was the first step that made the conditions for outsourcing businesses here in the Philippines to grow. The support didn’t stop there as it continued to come in the form of another legislation passed by former President Aquino that ensured data privacy. This placed the Philippines up to par with the International Data Privacy standards which made a huge impact on the IT outsourcing industry.

To this day, Information Technology outsourcing is still considered as the fastest developing industry in the Philippines, and it predicts that this sector will continue to boost job employment with full-time opportunities in the country. Such opportunities are highly important as this ultimately helps the economy and the citizens of this developing country.

It’s apparent that both countries have obvious similarities that have made them the perfect grounds for the outsourcing industry to continually grow and boom into the major cash cow industry that it is today. So how do they differ and how does that impact them in their rivalry?

India and the Philippines both have government support in the form of legislation. The only glaring difference is the consistency of their respective governments throughout the years. India has seen the most support during the tenure of the former Prime Minister Gandhi. Whereas the Philippines has seen continued support from different presidencies, the first was the legislation passed in 1995 during the tenure of Fidel Ramos and most recently by former President Aquino.

Both countries are also proficient in English; it’s an obvious necessity as the majority of their clientele are usually Western-based companies. The difference lies in the quality of their communication with their clients.

In India, it’s common practice among developers to opt for verbal communication and opt out of writing to their clients. Solely relying on verbal communication can lead to misunderstanding and in part due to thick accents displayed by the Indian populace.

While in the Philippines, developers utilise both verbal and written communication making sure that they are communicable with their clients at all times. Also, the Philippines has a high English proficiency rate that comes with a neutral accent, and an affinity of Western culture makes verbal communication with their clients quite easy.

Another point of difference between these two countries is their culture. For most Indians, their perception of any work in the outsourcing industry is transitory, and they would later opt for local day jobs. Whereas in the Philippines, work in the IT outsourcing sector is considered as a full-time job and would often opt to leave their previous jobs for this opportunity alone.

So what else is in store for the Philippines?

The country has a booming economy, and at the forefront is the IT outsourcing industry that is leading the way with continued growth. It’s predicted that the growing trend is that more youths will either go into the BPO as high school graduates or will later attain college degrees in computer science and information technology courses which will ultimately lead them into the IT outsourcing industry as developers. This spells a bigger workforce in the Philippines that is equipped to accommodate more clientele and, in turn, influence the economic growth of the country.