One of the most dynamic and fastest growing sectors in the Philippines is the information technology–business process outsourcing (IT-BPO) industry. The industry is composed of eight sub-sectors, namely, knowledge process outsourcing and back offices, animation, call centers, software development, game development, engineering design, and medical transcription. The IT-BPO industry plays a major role in the country's growth and development.

History In 1995, the Special Economic Zone Act, thus establishing the Philippine Economic Zone Authority, was passed by the Philippine Congress. This Act provided lower area requirements for developments and tax incentives, which consequently attracted foreign investors.

In 1997, SYKES opened its doors in the Philippines, becoming the first multinational call center to operate in the country.

In the November 2001 visit of President Gloria Macapagal Arroyo to the United States, the President addressed an Information Technology (IT) Forum in New York and Six (6) Memoranda of Understanding (MOUs) were signed by the following:

1. ICP Venture Partners, Inc. and Ambergis Solutions, Inc. 2. Customer Contact Center, Inc.(C3) (Ph) and Source One Communications (US) 3. Corporate Information Solutions (CIS) and Information Builders 4. Immequire (RP) and Tele Response Center, Inc. (US) 5. ePLDT, Inc. and Echostar Communications Corporation 6. ePLDT, Inc. and Teletech Holdings, Inc.

The signing of MOUs started the growth of BPO industry in the Philippines,

Ambergis Solutions was established that year as a call center for US-based clients in the utilities, IT, travel & hospitality, telecommunications and financial services industries, and hired 5,500 employees.

Immequire was a call center based in Arlington, Virginia that came to operate one of the fastest growing contact centers in the Philippines.

Source One Communications put up a call center in Eastwood Cyberpark.

The American company Echostar and ePLDT established a $5.5- million call center in Makati City located at Reposo corner Jupiter Streets with an initial 500 seats.

Teletech, whose founder-CEO Kenneth Tuchman invested heavily and employed more than 21 thousand workers in the Philippines during President Arroyo's administration. (Ref: Department of Trade and Industry, New York Office)

Also in the same year, a US-based outsourcing center called the "People Support" moved its operations to the Philippines, generating 8,400 jobs for the country. Bong Borja, its CEO, became president of the BPO Association of the Philippines.

In 2003, the Convergys Corporation opened up two more call centers in the Philippines. It was at this time when Jack Freker, the president of Convergys Corporation, announced the incorporation of the Philippines in the revenue generation plan and the global expansion of the company. In 2005, accounting for 2.4% of the country's GDP, the Philippines acquired over 3% of the global BPO market. A year after, with ePLDT Ventus leading in the BPO industry, domestic economy increased by 5.4% and 11,000 more people were employed. In 2010, the Philippines was then declared the world's BPO capital. From this point, the BPO industry continued to grow and generate more revenue, with the industry providing the most job opportunities in the private sector.

Since the 1980s, the unemployment rate stayed between 8-11% in the Philippines. Even when the economy does gain some growth, there is always the problem of job generation. The BPO industry has had the most substantial contribution to economic growth, yet it only employs 1% of the Philippine labor force. The MTPDP (Medium-Term Philippine Development Plan 2004–2010) set a target to create "1.5 million jobs a year between 2004 and 2010, or a total of 10 million jobs by 2010." Though the government came short of this success, in 2006 the government was able to identify nine employment-generating factors, namely cyber services, aviation, agribusiness, health services, mining, creative industries, hotels and restaurants, medical tourism and overseas employment. The BPO sector only accounted for 0.075% of the GDP in 2000 but rose to 2.4% in 2005, which indicated a great potential for generating employment. In this sector alone, it reached a staggering one million workers by 2010 and accounted for 27% of all new jobs.

BPO setups (captive markets and offshoring/third party outsourcing) Due to the lower cost of producing specific goods or services in another country, outsourcing has become a common business strategy for many multinational firms. There are two common practices of outsourcing, and these are using third-party outsourcing or a captive market. These two differ based on the level of risk management, cost effectiveness or the need for managerial control. In the Philippines, Captive Markets seem to be gaining some growth although the economic landscape still has third-party outsourcing holding the majority industry presence. This is due to the fact that in recent cases of crises there have been observations on positive growth for third-party outsourcing firms as opposed to captive markets. This event led to the perception of captive markets as being less efficient than third-party outsourcing.

Third-party outsourcing Outsourcing gives a perfect job environment for the people in other nations and significantly the states with the economic issues. Additionally, it would aid the companies to save more cash. Therefore, it can also aid the interior economy. Outsourcing is explained as turning over a project to an exterior provider that will execute the project on behalf of the central companies.

Project-based outsourcing

This is primarily used for business activities with irregular frequencies or one-off projects. The usual costing method makes use of time and material costs as variable costs and fixed costs.

Dedicated development center

This is primarily used in business cases when there are hanging requirements. In this specific model it could be used for some long-term goals for developing technology or software. This is preferred when resource requirements are lower in the outsourced country than the home country, hence developing a comparative advantage. The customers (multinational firms) are charged for fixed fees, which are the wages of full-time employees.

Captive markets

This setup is preferred when core or crucial business activities are needed to be run at cheaper costs. The rationale for employing such a setup is to cater to long-term strategic plans involving high managerial control. In this case there are two major ways of setting up a captive market: these are the DIY or 'Start From Scratch' model and the Build-Operate-Transfer model. This way, the business practices and operations are still run within and by the firm, which mitigates risk of disclosure of sensitive information. In the Philippines there are examples of these setups, including Citi, American Express, JP Morgan, Wells Fargo and the currently-growing Capital One, which are all United States–based multinational companies.

Start from scratch model

The usual flow is for the company to develop all its resources in the new designated area or country of operations. This involves the beginning of the model, which includes the purchasing of property and equipment, with due diligence lasting up to the point of running the BPO center itself. The acquisition of property and equipment is done by contacting a third party liaison in the country of operation. This model is preferred by the companies that have high levels of market knowledge and analytics.

Build-operate-transfer model

In this model, the practice is to contact a third-party vendor in order to develop a contract in which the vendor is the one who develops the property, sources the employees and manages the BPO center for the first designated period or amount of time. Thereafter, the company who contracted the vendor comes in and takes over the operations. The common practice is to have managerial and training staff of the company join at some midpoint of the period of the vendor's development to have specialized training in order for the employees to meet company standards. This model is preferred by companies that do not have any specialized expertise in the new country of operations, hence needing a local partner or vendor to assist with market entry strategies.

Alternative BPO delivery models

Employer of Record An Employer of Record (EOR) is a third-party organization that formally acts as the legal employer for a workforce on behalf of another company. The EOR assumes responsibility for administrative and statutory employment functions—such as payroll, taxes, benefits, and compliance with local labor laws—while the client company directs day-to-day work. This model enables businesses to employ staff in the Philippines without establishing a local legal entity, thereby reducing administrative burden and compliance risk.

The EOR model has gained traction among firms seeking to deploy skilled professionals (e.g., software developers, data analysts, paralegals) embedded within client operations, while the EOR handles legal employment responsibilities. For instance, some providers charge a monthly fee to act as the legal employer of record and manage payroll and compliance, allowing employees to be fully integrated into the client's workflow.

Managed Services Managed services is an outsourcing paradigm in which a provider takes over full responsibility for maintaining, monitoring, and delivering a specific business function under a service-level agreement, rather than providing ad-hoc or task-based services. This contrasts with the traditional break/fix or staff-augmentation models.

While the concept originated in IT— such as infrastructure management, cloud services, cybersecurity, and helpdesk support — it has since expanded into the BPO sector. In the Philippines and other outsourcing hubs, managed services now cover areas such as customer service, finance and accounting, healthcare support, real estate operations, and education/e-learning, alongside IT-enabled back-office functions.

Staff Augmentation Model The staff augmentation model is an outsourcing strategy in which companies hire external professionals on a temporary or project-specific basis to supplement their in-house teams. Unlike the Employer of Record model, the client company retains direct management of the augmented staff, while the outsourcing provider handles recruitment, contracts, and administrative support.

Staff augmentation is widely used in information technology, healthcare, and finance, where global firms seek to fill skill gaps or scale operations without incurring the costs of permanent headcount. The model provides flexibility and access to specialized talent while keeping operational control within the client organization.

Knowledge Process Outsourcing (KPO) Knowledge Process Outsourcing (KPO) refers to the outsourcing of high-value, knowledge-intensive processes that require advanced analytical and technical skills. Services include data analytics, legal process outsourcing, market research, and financial analysis.

KPO has grown alongside the traditional BPO sector, fueled by the availability of highly skilled professionals in law, accounting, engineering, and data science. This segment complements traditional outsourcing by positioning the country as a hub not only for cost-effective labor but also for specialized expertise.

Growth and impact

Government support was key to the growth of the Philippines' business process outsourcing industry. To promote increased investment in the industry, the Omnibus Investment Act was amended to include ICT in the investment priority plan. Incentives, tax holidays, PEZA accreditation were given to the firms providing ICT services.