Artificial intelligence (AI) is rapidly reshaping the global business services landscape. From chatbots that can answer customer queries in seconds to algorithms that process massive data sets, automation is transforming the ways that companies deliver and manage services.
For the Philippines—one of the world’s leading providers of information technology and business process management (IT-BPM) services—the current AI technological wave brings both opportunities and risks.
A key economic pillar
The IT-BPM sector has long been a key pillar of the Philippine economy. In 2024, the industry employed 1.8 million workers, accounting for 3.8 percent of total employment, and generated USD38 billion in revenue, equivalent to 8.2 percent of GDP. It was also the second largest source of foreign exchange earnings after remittances, contributing about 64 percent of total services exports in 2024. A recent AMRO analysis confirms that IT-BPM-related sectors are main growth drivers for the country, making above-average domestically generated value added per unit of production input and giving strong support to downstream sectors.
This sector is also one of the few areas where the Philippines maintains a clear global leadership. The country is the world’s second largest global service hub after India, accounting for an estimated 16 to 18 percent of global IT-BPM employment. Recognizing its strategic role, the authorities have continued to promote the industry through incentive offers and investment facilitation. In 2024, 71 percent of the 427 Philippine Economic Zone Authority (PEZA)-registered economic zones were IT parks and centers, hosting numerous IT-BPM enterprises and providing both tax and non-tax incentives.
AI disruption
However, the arrival of AI is redefining the global outsourcing model. Many routine, rule-based tasks in back-office operations—like data entry, customer support, and even parts of financial processing—can now be executed faster and more consistently by machines.
As AI tools grow more powerful, a pressing question for the Philippines is “can the country adapt fast enough to stay competitive in a world where machines are taking over most tasks once done by humans?”
A deeper look into the Philippines’ IT-BPM services finds the industry remains heavily anchored in traditional outsourcing. The services were concentrated on contact center provision which accounted for 83 percent of industry revenue and 89 percent of employment in 2024, revealing the industry’s vulnerability to automation. Beyond potential job displacement, uneven AI adoption could exacerbate skill mismatches and labor market inequality, particularly between traditional business process outsourcing (BPO) workers and higher-skilled professionals whose tasks are more complementary to AI application. Given the sector’s size and importance, such disruptions could have macro-critical spillovers on growth, employment, and consumption.
Yet the sector’s outlook is not as bleak as some observers imagine. Business processes and functions requiring empathy, nuanced communication and cultural understanding cannot be easily replaced by machines. AI adoption also offers opportunities to enhance productivity and create new lines of business. When integrated effectively, AI can complement human labor in judgment-intensive services such as data analytics and healthcare services, where Filipino professionals have demonstrated their strengths.
AI, therefore, is both a disruptor and a catalyst to the IT-BPM sector of the Philippines. While it challenges the established business models, AI also opens the door to more complex, innovation-driven functions, provided that firms and workers can adapt swiftly.
Addressing skills shortages, infrastructure gaps
AI should not be seen as the end of the Philippines’ outsourcing success story but its next chapter. The government has recognized AI’s transformative potential with the National AI Strategy Roadmap embracing a vision to accelerate digital adoption and strengthen competitiveness. In recent years, growth was seen globally in the development of Global In-House Centers (GICs) and Knowledge Process Outsourcing (KPO), which deliver more specialized, knowledge-based services and are less exposed to automation risks.
To attract more KPOs and GICs, the Philippines must address skills shortages, infrastructure gaps, and regulatory barriers. As the global race to integrate AI intensifies, policy priorities should focus on three key areas:
- Human capital. Scaling up reskilling and upskilling programs, including under the Trabaho Para sa Bayan Act, will be essential for short-term workforce adaptation. Over the medium term, strengthening STEM and soft skills education will reinforce readiness for emerging roles. The government’s proposal to raise public education spending to 4 percent of GDP annually is a welcome step, compared with an average of 3.2 percent over the past decade. Beyond technical proficiency, nurturing managerial and entrepreneurial talent can enhance the Philippines’ value proposition and build a stronger, more distinctive country brand.
- Infrastructure and innovation. Sustaining IT-BPM growth will require reliable infrastructure and a vibrant innovation ecosystem. Key priorities include improving broadband connectivity, lowering utility costs, expanding research and development (R&D) collaboration between industry and academia, and upgrading digital infrastructure to facilitate AI adoption across firms.
- Regulatory and business environment. Empirical evidence suggests that regulatory reform and liberalization in services can speed up investment and sectoral upgrading. Further easing of foreign ownership limits, streamlining business processes, and strengthening the innovation and intellectual property ecosystem will be vital to attract investment and sustain the industry’s long-term momentum.
AI adoption is an irreversible trend worldwide. With the right mix of forward-looking policies and timely investments in talent and infrastructure, the Philippines can continue to lead the global business services industry into the next frontier.