Fifteen years ago, Fort Bonifacio in the Philippines was a former military base still dotted with barracks built in World War II. Thanks to an aggressive privatization and conversion program, Bonifacio Global City — as the base is known today — is a modern, bustling financial district lined with blocks of skyscrapers, shopping malls, and luxury condos.
The Southeast Asia city’s rapid growth echoes the story of the so-called “unicorns” — technology start-ups that rapidly grew to a billion-dollar valuation and beyond. So far, 2015 has produced 30 unicorns. But as start-ups mature, the grow-at-all-cost narrative will be replaced by a flight to capital efficiency and profitability.
In this next chapter, the Philippines — the world’s second-fastest growing economy — will play a crucial role in helping tech companies access the talent to scale efficiently and sustainably.
The Philippines has a huge business process outsourcing industry. It employs over a million workers and is expected to hit $25 billion in revenues in 2016. That’s significant for a country with a GDP of $270 billion. Technology-enabled services are the backbone of this industry, and the fastest growing sectors have demand for high-end skills, such as mobile app development and data analytics, as well as middle-level skills, such as video production, copywriting, and financial analysis.
Technology start-ups are the Philippines’ latest customers, and more are flocking to the country’s beach-laden shores each year. Beyond the obvious labor cost savings, the Philippines is an attractive destination for tech jobs, particularly for American companies, because of its young, educated workforce and its English-speaking population (the fifth largest on the planet). Unlike other outsourcing hubs, Filipinos are intimately familiar with American culture, a legacy of more than 30 years of American colonial rule. Generations of Filipinos have been raised on Hollywood movies, Friends, the NBA, and of course, Facebook.
The median age is 24, and local universities produce over 130,000 graduates in information technology and engineering each year. Most are skilled in the more ubiquitous programming languages and producing iOS and Android apps. A great web developer with at least five years’ experience can cost less than $25,000 a year.
Combine these basic building blocks with the rise of cloud computing and you have new ways of building a flexible, distributed workforce as a start-up rapidly grows. For example, American services marketplace Thumbtack leverages close to 1,000 home-based contractors in the Philippines to help with business operations. This virtual set-up and access to on-demand talent helps the company scale much faster than it could if it were geographically constrained.
But alongside the skill, there’s the shift in mindset among younger workers in the industry. Traditionally, business process outsourcing was associated with high-volume, low-price work. Today, the mainstream appeal of Silicon Valley is turning young Filipino workers who might have been satisfied with a call center job a decade ago into a creative and entrepreneurial class seeking a deeper connection with innovation-driven and mission-focused companies. Working for a venture-backed start-up is the new status symbol. As a start-up founder, my biggest competitors in the talent market are no longer the local family conglomerates. They’re tech companies from the U.S., Germany, Singapore, and Japan coming to the Philippines.
This cultural shift is a great thing for start-ups. No longer satisfied with back office support work, this fresh cadre of talent wants to be part of the front line and build new products and services. When Jessica Mah, founder of inDinero needed to turn around her Y-Combinator-backed online accounting start-up, she decided to deliver a SAAS-based product with a high-touch service component. So she built a team of accountants in the Philippines that is familiar with U.S. General Accepted Accounting Principles. In combination with its proprietary B2B software, this team plays a critical role in delivering inDinero’s suite of accounting, payroll, and tax preparation services.
Over time, local outsourcing vendors can evolve into strategic partners and recipients of venture capital investment. Many local entrepreneurs that started in outsourcing eventually moved on to found technology companies backed by Silicon Valley investors, such as Y-Combinator, the Omidyar Network, and 500 Startups. These growing companies provide great opportunity for their overseas counterparts. Take Rocket Internet’s strategic partnership with PLDT, a Philippine telco and IT company, for example. Rocket operates some of the largest e-commerce platforms in emerging markets. It partnered with PLDT in a $445 million investment deal that involves deploying PLDT’s mobile payments solution to Rocket platforms outside the Philippines, and codevelop digital services using teams composed of Filipino and Rocket engineers.
In addition to investment potential, there are opportunities to move into new markets, given the Philippines’ unique strengths in Southeast Asia. Because of the ubiquity of English, product managers have found it relatively quick and easy to use the Philippines as a test market to deploy and iterate new applications without the need for translation into a non-English language. For example, Facebook quietlypiloted a feature during the Philippine typhoon last year that allows users to leverage on their social graph for real-time information in disaster situations. Uber tested an on-demand courier service last holiday season.
“The Philippines is a natural gateway to the broader Southeast Asia market. Filipinos share a common ethnicity with other Southeast Asian countries. But it’s also the most westernized country in the region. This makes it a fertile testing ground for a product that can scale to other emerging markets,” wrote Nix Nolledo, CEO of Xurpas, a mobile content company that builds apps and games for Southeast Asian markets, in an email.
Emerging markets are a popular place to outsource cheap labor. But the talent that some of these areas house can provide benefits for technology start-ups that go beyond simply cutting costs and offering low-skill work. Filipino workers are proving themselves to be valuable partners in the growing tech industry, and start-ups should take notice.