Procurement Intelligence Unit

Few countries in the globalised business world have recovered as rapidly from the economic downturn as the Philippines. Thanks to the swift intervention of the country's republican government – and helped, in part, by the natural conservatism displayed by financial institutions operating inside its borders – a dip in economic growth in 2009 appears to represent a temporary blip on an otherwise upward curve that shows little signs of slowing.

And thanks to an enviable labour pool that is seeing the Philippines churn out over half a million graduates every year, the world's largest archipelago – consisting of a staggering 7,100 islands – looks well set to cash in as companies look to exploit opportunities away from the more traditional offshore powerhouses of China and India.

With the US leading the charge into the country – the Philippine Software Industry Association (PSIA) estimates that 45% of its offshore work emanates from the US – the future for outsourcing in the country looks bright. A major factor in its rise is its large English-speaking population, although a favourable business environment, helped enormously by a raft of incentives and regulations aimed at attracting foreign business and investment, has also played a key role.

Relatively stable inflation rates also make the Philippines attractive to those firms looking east for their global sourcing requirements. According to estimates, inflation is expected to remain steady at a rate of 4.5% throughout 2010, less than half the 9.3% figure recorded in the country in 2008.

However, despite its manifest advantages, the Philippines does, like many of its near neighbours, have more than its fair share of problems.

In comparison to other major players in South-East Asia, it is, relatively speaking, an expensive place to do business. Wage rates in the capital Manila, for example, ensure that, with the exception of Singapore, talent in the Philippines comes at a far higher price than almost any other country in the region.

In a country well known for its expertise in software and hardware development, wage rates in the BPO industry do, however, lag well behind. The average BPO salary in the country in 2009 was US$5,100, considerably down on the US$13,900 figure recorded for those workers involved in product development.

The Philippines has a long history of volatility and in election year this could dissuade further potential suitors from operating inside the country. The May general elections have been overshadowed by accusations of corruption and vote-rigging levelled at current president Gloria Macapagal Arroyo. The president also came in for heavy criticism over the handling of Tropical Storm Ketsana, which decimated large parts of the country in September 2009.

The omnipresent terrorist threat, particularly from the southern island of Mindanao, has also brought risk management to the fore and, although talks aimed at ensuring a long-term peace are underway, few hold out hope of a lasting, or meaningful, agreement.

In short, the country's burgeoning talent pool and improving infrastructure make it an ideal location – particularly for those firms involved in the IT industry. However, the unstable political situation in addition to high labour costs could prove a turn-off for companies looking to invest in a country that could, over the next decade, rise to challenge the likes of Vietnam and Singapore as one of South-East Asia's premier business locations.

As Ketsena once again proved though, the Philippines is susceptible to ill-winds - and few would bet against the country experiencing more in the future.