Philippines’ BPO sector seen to shrink  amid shift to AI

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THE BUSINESS PROCESS OUTSOURCING (BPO) industry within the Philippines is prone to shrink because the shift to artificial intelligence (AI) within the workplace accelerates, Fitch Solutions’ unit BMI said.

“Within the case of the Philippines, BPO is a key source of foreign currency, and this vital sector will probably shrink as AI adoption ramps up, since it could allow firms to reshore call centers to even developed economies cost effectively,” BMI Head of Asia Country Risk Darren Tay said in a webinar on Thursday.

“Put bluntly, AI could invalidate the Philippines’ current economic strategy,” he added.

The Contact Center Association of the Philippines (CCAP) expects contact center and BPO industries’ revenue to leap by 9% to $32.16 billion this 12 months.

In 2023, CCAP members’ revenue stood at $29.5 billion, accounting for the majority or 83% of the $35.5-billion revenue posted by the Information Technology and Business Process Management (IT-BPM) industry.

BMI said the Philippines can also be among the many countries which are less prone to benefit from the transition to AI.

In line with BMI, lower-income countries are “much slower to adopt AI at a meaningful scale and the developmental gap between these countries and the remainder in Asia will probably widen.”

“The Philippines, Indonesia and Thailand are in a worse position compared with the high-income group,” Mr. Tay said.

1 / 4 of those countries’ workforces are involved in high exposure and low complementarity jobs, equivalent to elementary sales positions, he said.

“And so they have a much smaller proportion of employees which are in high complementarity jobs, leaving them less in a position to profit from AI-driven productivity gains” he added.

In 2023, the Philippines ranked 65th out of 193 countries within the Government AI Readiness Index by Oxford Insights.

The National Economic and Development Authority (NEDA) earlier said that the Philippine economy could generate P2.6 trillion annually if local businesses adopt AI.

BMI said employees in developed economies are more exposed to AI versus developing countries.

“The International Monetary Fund (IMF) argues that lower income countries could eventually leapfrog older technologies using AI and catch up developmentally with richer countries,” it said.

“Nonetheless, we expect the high cost of constructing the required infrastructure and highly expert labor force makes achieving such a feat highly unlikely,” it added.

WIDER INCOME INEQUALITY
Generating the mandatory investments to assist within the transition to AI could also be increasingly difficult if AI “cuts off existing development paths,” BMI said.

“Moreover, the proportion of employees who may gain advantage from AI is far smaller than those that stand to lose in these economies, which suggests there could well be strong public opposition to adopting AI,” it added.

BMI also noted how AI adoption can result in a wider income inequality.

“AI will increase income and wealth inequality very like previous disruptive technologies just like the web,” Mr. Tay said.

Though AI has the capability to spice up productivity and incomes, the gap between the wealthy and the poor will likely widen consequently, BMI said.

This potential widening inequality may hinder coordination and cooperation between countries.

“Social stability and international cooperation will probably deteriorate insofar as intra-country and inter-country inequality rises due to AI adoption.”

Inter-country inequality makes regional cooperation difficult, BMI said. It cited the challenges to climate change efforts attributable to the inequalities amongst countries.

“And in Asia, widening inter-country inequality can impede greater integration under such organizations as ASEAN (Association of Southeast Asian Nations). The counterargument is that developmental differences exist already and even when AI widened these gaps, the impediment to international cooperation may not increase appreciably.”

“Nonetheless, the income gaps between middle-income and low-income countries are inclined to be much narrower, and we expect that widening those (between Thailand and the Philippines for instance) may have a cloth impact on international cooperation.” — Luisa Maria Jacinta C. Jocson

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