Philippines Update: Changes to PEZA & Rise of Pogos Threaten Call Center Site Selection Activity in Region

Over the last 20 years the call center industry in the Philippines has literally gone from nonexistent to a $26 billion industry employing over 1.2 million Filipinos and accounting for roughly 10% of the Philippines’ gross domestic product. Site Selection Group’s founders were lucky enough to stumble onto the country in its infancy and located some of the very first call centers into the region for companies like RMH Teleservices, Infonxx and VXI Global. Fast forward to today and the call center industry in the Philippines is now facing new challenges primarily due to politics and gambling.   

Changes to PEZA ecozones to limit call center growth in Metro Manila

During the site selection process in the Philippines, a building’s PEZA certification is one of the first things you look for when trying to find a call center site. PEZA is the acronym for the Philippine Economic Zone Authority, which grants the certifications. A building that is PEZA certified ecozone provides a value-added tax (VAT) exemption on gross sales and waiver on government fees. The tax exemption and fee waiver have been utilized by nearly all of the call centers in the Philippines. These tax exemptions equate to approximately 12% cost reduction on a company’s cost of doing business in the Philippines.

Historically, most companies and developers have been able to get PEZA ecozone accreditation on their buildings relatively easily. As a result, the call center and business process outsourcing (BPO) firms are heavily clustered in Manila not just because of the tax perks, but also because of the infrastructure and the talent pool. However, President Rodrigo Duterte recently signed Administrative Order No. 18 ordering the Philippine Economic Zone Authority to stop processing applications for ecozones in Manila.   

The government is trying to shift the growth of the call center industry from Metro Manila to rural areas of the country utilizing these political strategies. The big question is whether these rural areas can support the scalability and talent needs of the call center industry. These changes could greatly impact the future growth of the call center industry in the Philippines.  

Chinese online gambling operators are leasing huge amount of call center space

The next challenge facing the Filipino call center industry is the rapid growth of the Chinese online gambling operations — often referred to as “Pogos,” which stands for Philippine Offshore Gaming Operators. Gambling is illegal in China so the Pogos set up their online casinos in Manila. There has been tens of thousands of Chinese flown in to staff online gambling companies catering to Chinese. There are now an estimated 350,000 workers employed at around 75 Pogo facilities.   

According to Leechiu Property Consultants, Pogos are expected to unseat the call center and backoffice sector as the top office space occupier in Metro Manila by the end of the year. The Pogos are taking Manila’s available buildings, at the expense of the call center companies. As a result, call centers are going to have a more challenging time finding buildings and are at greater risk of rent escalation as the Pogos battle the call centers for office space.

Conclusions

The Philippines has had a strong run for the last 20 years. The region has successfully battled typhoons, labor unions, wage inflation, employee attrition and major political shifts. The new changes to the PEZA program and the fanatical growth of the Chinese online gambling industry are two more to add to the list. The region will survive; however, companies will have to adapt to new site selection strategies as they seek to find that optimal location for their new call center facility.