Philippines vs India: Which Is Best in IT Outsourcing?

Introduction

Over the past few years, Asia has emerged as one of the most preferred outsourcing destinations due to its skilled workforce, efficient communication, and cost-effectiveness. There has been a battle between India and the Philippines as both locations are top picks by global outsourcing companies. 

However, it remains an unanswered question as to which one is the best choice. India has been leading the race for several years, but the Philippines is catching up fast.

In this blog, we aim to provide deeper insights into these two locations and answer all your concerns to help you make an informed decision.

IT Outsourcing in India vs Philippines: Let the battle begin

Explore the outsourcing landscape of India vs the Philippines with a comprehensive analysis and summary of key factors that need to be emphasized.

Cost of living

India is one of the most affordable countries to live in, and one reason for this is that the cost of living there is lower than that of the Philippines. According to LivingCost.org, the average cost of living in India is $441, which is 28% less expensive than the $614 average cost of living in the Philippines.

With that in mind, the general costs of a software engineer in India as per Glassdoor and Pay scale in 2023 were $9178 and $7126, respectively, while for the Philippines, they were $9883 and $5301.

Also Read: How to Evaluate IT Outsourcing Cost in 2024?

Language and communication

Language and communication are crucial aspects that businesses consider when outsourcing. Effective communication is vital to success, and this is where both India and the Philippines excel. 

However, when it comes to proficiency, the Philippines has an advantage due to English being their official language. This makes communication easier and diminishes the risk of miscommunication. In contrast, while the Indian population is also fluent in English, the presence of numerous dialects and accents can sometimes pose a communication challenge.

As per the EF English Proficiency Index 2023, the Philippines ranks 20th with a higher level of English proficiency, while India ranks 60th with only a moderate level of proficiency.

Cultural compatibility

Every country has its own unique culture and traditions, which give them their distinct identity. However, when it comes to outsourcing, it can be advantageous to hire from a country that shares similarities with Western culture.

The Philippines is one of the few Asian countries that successfully blends Southeast Asian and Western influences. This cultural resemblance can make outsourcing with service providers from the Philippines a seamless experience.

Similarly, India has also incorporated aspects of Western culture and has become one of the prominent IT outsourcing destinations. In terms of cultural compatibility, both the Philippines and India stand out as great options.

Talent and skills

India and the Philippines are both home to a significant number of skilled professionals. However, there are notable differences in the types of expertise and skills available in each country.

India is known for its robust software development capabilities and IT outsourcing services, whereas the Philippines is renowned for its back-office support and customer service expertise. Opting to hire developers from India can prove to be a strategic decision that can greatly benefit your business in numerous ways.

Even though India has its own set of capabilities, it still offers other skills and expertise proficiently.

“According to Statista research, India was the leading country in the Global Services Location Index (GSLI) rankings in 2023. The GSLI is compiled by Kearney, a U.S.-based management consulting firm, and is based on digital resonance, business environment, people skills and availability, and financial attractiveness.”

Therefore, the choice lies in the type of requirements; while Philipines can handle the kind of skills entioned above proficiently, Outsourcing in India covers all forms of outsourcing services expertly.

Time zone

The time zone difference between the company and outsourcing location is a huge factor to consider. With minimal hours gaps compared to other countries, both India and the Philippines stand great, which certainly leads to enhanced productivity. 

Fortunately, both India and the Philippines have a large number of outsourcing companies offering 24/7 services, which means time zones won't be a problem at all. 

Government support (laws inclusion)

India and the Philippines are both known for their excellent IT outsourcing services. However, to ensure the delivery of reliable services, both countries have implemented various laws and regulations. In this regard, it's worth exploring each country's approach towards encouraging outsourcing services.

India 

India has a comprehensive range of laws that favour its outsourcing industry, making it an attractive destination for businesses worldwide. 

The Foreign Exchange Management Act (FEMA) 

This act establishes the guidelines for managing currency exchange and lays out the requirements for overseas investments and money remittances.

Intellectual Property Rights

For foreign businesses that outsource services to India, Indian law safeguards their intellectual property rights. Additionally, the Indian government guarantees the security and confidentiality of the data these international businesses provide.

Taxation

Tax laws in India are applicable to businesses that outsource their services to India. This covers tax computation, return filing, and payment of due taxes.

Employment Laws

Employees of businesses that outsource services from India are subject to Indian labor laws. This involves defending the legal rights of workers, including those to just compensation, secure working environments, and other mandated provisions.

Contractual Agreements

Companies that outsource or offshore enter into contracts with service providers, outlining terms such as service levels, payment, and dispute resolution.

Software Outsourcing

The Indian Business Software Alliance provides robust jurisdiction for protecting software outsourcing contracts.

Data Privacy and Security

Compliance with data privacy and protection laws is essential. The Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or Information) Rules, 2011, govern the handling of sensitive personal data in India. Furthermore, international clients may require adherence to GDPR or other global data protection standards.

Transfer Pricing Regulations

Transfer pricing regulations in India ensure that related entities conduct transactions at fair market values to avoid tax issues.

Foreign Direct Investment (FDI)

Foreign companies planning to establish subsidiaries or branch offices in India must comply with FDI regulations in sectors that have restrictions on foreign investment.

Special Economic Zones (SEZs)

India has established Special Economic Zones to promote exports and economic growth. Companies operating within SEZs may be eligible for certain benefits and incentives.

Philippines

Philippine Economic Zone Authority

The Philippines has implemented beneficial tax laws which attract businesses worldwide to its outsourcing industry. The Philippine Economic Zone Authority (PEZA) has been introduced by the government to provide tax exemptions to businesses, including outsourcing companies. The outsourcing activities that are eligible for PEZA registration include software development, BPO services, Information Technology outsourcing (IT), and more.

Outsourcing attractiveness

India has been identified as the most appealing destination for outsourcing due to the availability of skilled, talented, and experienced workforce. The country's top-notch infrastructure, favourable tax and regulatory environment, low labour cost and financial structure are other factors that make India an ideal location for outsourcing.

Based on the shared outsourcing attractiveness data, India scored 7.12 points in outsourcing attractiveness, while the Philippines remained at 5.45.

Recommended Read: Types of IT Outsourcing Models: How to Pick the Best One?

Where is the future of outsourcing: India vs Philippines

India has maintained its 40th position out of 132 economies in the Global Innovation Index 2023 rankings that were published by the World Intellectual Property Organization (WIPO). 

Over the past decade, countries such as Indonesia (61st), China, Turkey (39th), India (40th), Vietnam (46th), the Philippines (56th), and the Islamic Republic of Iran (62nd) have shown significant growth in their rankings, particularly in the group of middle-income economies. 

The annual ranking highlights that an increased focus on the innovation ecosystem can make a big difference and that emerging economies have shown a consistent climb up the GII ranks.

India has set a new record by overperforming on innovation for the 13th year in a row. The country has secured top positions in various key indicators such as ICT services exports (ranked 5th), VC received (ranked 6th), graduates in science and engineering (ranked 11th), and global corporate R&D investors (ranked 13th).

The emerging innovation and maintaining rank in the long run clearly indicate India's bright future in innovation and other IT solutions. 

Bottom Line

Despite all the conversations about the race between India and the Philippines to be the top outsourcing destination, India still has the largest share of the pie. 

Although the Philippines is quickly catching up and providing excellent services in some niches, India continues to maintain its top position by delivering outstanding, innovative outsourcing solutions with the desired quality.