Is the Philippines a Third World Country?

The label “third world country” is often associated with underdevelopment, poverty, and political instability. For many businesses exploring outsourcing or expansion, this outdated perception may cause hesitation when considering the Philippines as a viable business hub. However, in today’s globalized economy, it’s crucial to challenge these misconceptions and recognize the Philippines as a rapidly evolving market with tremendous business potential. 

In this article, we’ll address these myths, explore the Philippines’ economic realities, and outline why it’s becoming a preferred destination for outsourcing and business ventures in the 21st century.

1. The Obsolete Classification of “Third World”

The term “third world” was originally coined during the Cold War to categorize countries that were not aligned with either the capitalist or communist blocs. Over time, this label became synonymous with developing nations. Today, however, this classification is no longer relevant. Modern frameworks for assessing a nation’s economic development—such as those used by the World Bank and the United Nations—focus on measurable indicators like GDP, human development, and income levels, which paint a much clearer picture of a country’s current status.

The Philippines once considered a developing economy, now falls into the category of an emerging market, experiencing steady growth and development in key sectors. The term “third world” no longer applies to the Philippines, especially given its evolving infrastructure, burgeoning workforce, and expanding business opportunities.

2. Economic Growth and Emerging Market Status

One of the most pervasive myths about the Philippines is that it remains economically stagnant or underdeveloped. Contrary to this belief, the country has experienced robust economic growth in recent years. The World Bank reports that the Philippines’ GDP grew by 6.4% in 2023 and is expected to maintain a growth rate of 6.0% in 2024, outpacing many developed countries.

Further evidence of the Philippines’ economic vitality can be found in its foreign direct investment (FDI) trends. In 2023, Bangko Sentral ng Pilipinas reported a significant 25% increase in FDI, particularly in sectors such as IT, business process outsourcing (BPO), and manufacturing, which are driving the country’s economic expansion.

When compared to other outsourcing powerhouses like India, Vietnam, and Mexico, the Philippines stands out due to its strong economic fundamentals, political stability, and favorable business environment.

• India still leads as a larger outsourcing hub but faces infrastructure challenges and a complex regulatory environment that can make it less attractive to foreign investors.
  
  
• Vietnam, though growing rapidly, lacks the well-established BPO infrastructure that the Philippines has spent decades cultivating.
  
  
• Mexico’s proximity to the U.S. makes it appealing, but it falls short in areas like English proficiency and cost-efficiency, where the Philippines excels.
  

3. Infrastructure Development: A Rising Business Landscape

In recent years, the Philippines has undergone significant infrastructure upgrades that have enhanced its attractiveness as a business destination. Cities such as Metro Manila, Cebu, and Davao have seen massive improvements in transportation, communication, and energy, creating a more conducive environment for business operations.

For instance, Metro Manila has benefited from large-scale infrastructure projects such as the MRT-7 extension and Skyway Stage 3, which have alleviated traffic congestion and boosted connectivity across the region. Meanwhile, Cebu and Davao are quickly establishing themselves as alternative hubs for BPO and tech companies, thanks to their modern office spaces and international connectivity.In 2023, the Philippine real estate sector recorded a 3% year-on-year growth in demand for commercial spaces, largely driven by BPO and IT companies seeking office space in these emerging business districts.

4. A Highly Skilled, English-Speaking Workforce

The Philippines is home to one of the largest pools of highly educated and English-speaking professionals, which is one of the key factors driving its success in the outsourcing industry. Each year, more than 800,000 students graduate from universities, with many specializing in fields like STEM and business, ensuring a steady supply of qualified talent.

The country’s English proficiency further differentiates it from other outsourcing destinations. Ranked 2nd in Asia and 22nd globally in the EF English Proficiency Index 2023, the Philippines stands out for its ability to deliver high-quality services in customer support, IT services, and technical support.

Compared to countries like India and Vietnam, the Philippines has an undeniable advantage in industries requiring fluent English communication, especially in customer-facing roles such as call centers and IT help desks.

5. Government Support: A Pro-Business Approach

In recent years, the Philippine government has rolled out a series of business-friendly reforms designed to attract foreign investment and streamline operations for companies. The country’s Ease of Doing Business ranking has improved, thanks to measures that simplify processes such as business registration and tax filing.

In addition, the government has launched programs like the Philippine Economic Zone Authority (PEZA), which offers tax incentives and customs duty exemptions to businesses in certain sectors, particularly in IT and BPO. The CREATE Act, which reduced the corporate tax rate from 30% to 20%, further enhances the Philippines’ appeal as an investment destination.

4. The BPO Sector: Philippines as a Global Leader

The Philippines continues to dominate the global BPO market, and is on track to generate USD 38 billion in revenue in 2024. With a strong focus on voice-based services such as customer support, alongside IT and back-office services, the Philippines has earned its place as the second-largest outsourcing destination globally, behind India but ahead of other competitors like China and Malaysia.

The country’s skilled workforce, cost-effective operations, and superior English proficiency make it an attractive option for businesses looking to outsource customer service, IT support, digital marketing, and more.

7. The Philippines as a Global Business Hub

The Philippines’ increasing importance as a business hub is further evidenced by its growing presence in global business forums and trade agreements. Additionally, the Philippines’ appeal extends beyond cost efficiency. The country offers an excellent quality of life for expatriates, along with an environment where multinational companies are flourishing. This includes global giants like Accenture, Teleperformance, and Concentrix, which have established significant operations in the Philippines to take advantage of the country’s competitive advantages.

Success Story: Spot Ship Collaborates with a Reliable A-List Filipino Team

Spot Ship is a growing start-up based in the United Kingdom. It started its business after the pandemic. Filipinos help them to serve their clients who need 24/7 assistance. The nimble team grew to over 100 people of Filipino professionals across varied specializations. The company saves on salaries and focuses on important business decisions and pivots. Know the full story here:

The Philippines Is a Business Powerhouse, Not a Third World Country

The outdated term “third world” does not accurately reflect the modern-day realities of the Philippines. With its solid economic growth, skilled workforce, expanding infrastructure, and business-friendly environment, the Philippines is undeniably an emerging market with vast opportunities for businesses. Its thriving BPO sector, continued investments in infrastructure, and attractive tax policies further position the country as a prime location for business expansion and outsourcing.

Penbrothers: A Partner in Seamless Business Expansion in the Philippines

At Penbrothers, we understand that successfully navigating the complexities of outsourcing to the Philippines requires a strategic, hands-on approach. That’s why we take a consultative approach with each client, working to understand their unique needs and tailoring our services accordingly.

Our Hypercare Framework ensures that your business receives continuous support throughout its outsourcing journey, providing personalized attention, compliance guidance, and seamless integration into the local business environment.

Whether you are considering outsourcing or planning an expansion in the Philippines, Penbrothers is your trusted partner in ensuring a smooth and successful transition into one of the world’s most dynamic and promising business destinations.

By partnering with Penbrothers, you’ll gain access to a team that is dedicated to ensuring your business operations are efficient, compliant, and cost-effective. Let us help you unlock the full potential of the Philippines as a business hub and growth destination.