AI’s impact on Philippines, the world’s call center capital shows what’s to come

The same relentless drive to cut labor costs that saw back-office roles shipped to the archipelago in the first place is now starting to turn over some of their duties to bots. All of the major players in its vast outsourcing industry, which is forecast to cross $38 billion in revenue this year, are rushing to rollout AI tools to stay competitive and defend their business models.

Over the past eight or nine months, most have introduced some form of AI “copilot.” These algorithms mainly work alongside human operators, doing tasks like summarizing all previous contact a customer has had with the company, whether that’s via call or email to prevent the need for a lengthy explanatory conversation — theoretically at least. Such a process requires the chaining together of advanced speech recognition technology, content processing, sifting through vast amounts of data, analyzing sentiments and providing contextual responses — all in real time. It would have been the stuff of science fiction only a few years ago.

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For some, the rapid deployment of such tools has been a harsh awakening. Christopher Bautista, 47, had worked in the call center industry for nearly two decades. In his last job on a tech support desk he’d watched as AI took on more responsibility in gatekeeping customer calls and asking questions before routing to human agents. Then last November, along with about 70 other people, he says, he was abruptly put on so-called floating status — no work, no pay, but still on the books — after the client pulled the contract. He quit six months later for a job in sales while still waiting for reassignment. “AI will take over our jobs,” Bautista said. “It’s cheaper and more efficient.”

Tales like Bautista’s remain relatively isolated, with headcount in the industry still on the rise. But they might not be for long. Avasant, an outsourcing advisory firm that works extensively in the Philippines, estimates that up to 300,000 business process outsourcing (BPO) jobs could be lost in the country to AI in the next five years.

“This poses a once-in-a-lifetime risk and opportunity for the industry in the Philippines,” said Akshay Khanna, managing partner at Avasant, whose analysis estimates AI could also create up to 100,000 jobs in new roles like training algorithms or curating data. “It’s not all doom and gloom.”

It’s hard to overstate the importance of the BPO sector to the Philippines. It’s the country’s biggest source of private sector jobs and the biggest sectoral contributor to gross domestic product. Socially, the centers are a source of decent money for non-university-educated Filipinos that doesn’t require them to work abroad. The government had been banking on the industry to help it move up the value chain, propel its 100-million-plus citizens into the middle class and kickstart the creation of other white-collar jobs. But AI arrived before that’s happened.

While there’s been plenty of obituaries written for the call center industry over the years, historically the real-world technological solutions were underwhelming, to say the least. There were annoying text bots on websites that simply regurgitated an FAQ page you’d already read, or voice menu systems that couldn’t cope with even the slightest off-script query.

But things are changing rapidly. In February, payments company Klarna Bank AB announced AI bots were conducting two-thirds of all customer service interactions, equaling the work of 700 full-time agents, sparking a plunge in the shares of a number of major call-center operators. In May, OpenAI Inc. demoed a sighing, chuckling ChatGPT-4o that adroitly troubleshot a call to customer support about a new iPhone that wouldn’t power up.

The threat to the sort of back-office jobs like customer service agents and tech support that the Philippines specializes in is obvious. Experts like Carsten Jung, head of macroeconomics and AI at the London-based think tank the Institute for Public Policy Research, say that policymakers need to be preparing now to avoid a disruptive transition. “Social security and tax systems need to evolve to make sure the benefits of AI are widely shared,” he said.

Rather than going down this route though, the choice the Philippines has made is to try and lean into the tech revolution. As the world’s second-biggest outsourcing center after India, it’s already where many of the new AI tools are being tested. The government has set up an AI research center and multiple training initiatives are underway, some government supported, others industry backed, to try and boost the capabilities of the sector’s 1.7 million employees.

“If you don’t upskill, obviously, AI will replace you,” said National Economic and Development Authority Secretary Arsenio Balisacan. “That’s the challenge for us.”

AI in Action

At [24]7.ai’s busy contact center in Manila’s Bonifacio Global City tech hub, the current slightly uneasy coexistence between the old and new is on full display. On one floor are old-school agents, many dressed in customer-branded polo shirts. They’re tasked with trying to persuade customers not to cancel their mobile plans. From time to time, the floor reverberates with hooting and hollering, as agents cheer themselves and colleagues on for hitting their daily targets.

But on another floor, ChatGPT is training customer agents. It’s being used to provide the other end of roleplaying calls for new hires, as they learn how to handle a tense or distressed customer on the verge of canceling. And it does so in the guise of many different personas, whether that’s a Gen Z female, a boomer male, an irate caller or a tough bargainer.

Company co-founder and Chief Executive Officer PV Kannan said the AI training has slashed the time it takes new staff to get up to speed with what they’ll have to do on live calls to about a month, compared to the previous 90 days. He’s sure there will always be a need for some agents because the world is too messy for bots to handle on their own whether it be travelers frantically calling to cancel flights amid severe weather, extreme situations like the pandemic or simply clients introducing new features, new pricing models or new bundling.

But the future for humans, Silicon Valley-based Kannan said, is now more as “middleware” — and he for one is sure that redefined role means fewer jobs.

“The unknown is at what speed AI will disrupt the industry. Two years?” said Kannan, whose company employs 12,000 people globally, with 5,000 in the Philippines. “Half the players are in denial and pretending there will be zero impact.”

Other major players have also undertaken extensive AI rollouts. At Nasdaq-listed Concentrix Corp.’s 23-floor main Manila office, its AI assistant is operating alongside tens of thousands of agents. It listens to conversations, summarizes chats for other agents, analyzes negative sentiments and stands ready to flag to managers any non-compliant staff utterances, or caller requests to speak to the legal department.

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Chris Caldwell, chief executive officer of Concentrix, which employs 100,000 workers in the Philippines across 51 sites, says it’s just the start. “This technology isn’t waiting for anyone,” he said. “And I’m not sure many countries are moving as fast as the tech companies are moving.”

Caldwell, like many executives in the industry, doesn’t want to talk in terms of jobs lost. He says AI will create different roles, such as in data annotation or correction, which many of the existing talent pool of workers would be well suited for.

Indeed, local trade association forecasts are still for outright growth in both headcount and revenue over the next few years. Jack Madrid, president and CEO of trade body IT and Business Process Association of the Philippines, says he’s met with at least 80 companies interested in setting up or scaling up BPOs in the Philippines, largely because of the rising costs of operating in the US.

“We are at an interesting juncture,” Madrid said. “The uncertainty and paranoia over jobs has been replaced with a realization that the cost of integrating genAI [generative AI] is still steep, and we need to grasp the one- to two-year window and get our workforce skilled.”

And there is certainly no shortage of people who want to enter the industry despite its darker side, which includes the disorientation of working frequent overnight shifts — there’s a 12-hour time difference between New York and Manila — and regular verbal abuse from customers.

Facebook groups remain full of discussions of ways to get a job in the industry and at Manila’s huge BPO tech parks — which include cafes, karaoke rooms, clinics, laundries and recruitment hubs — walk-ins as young as 18 go through a series of tests and interviews, and exit a couple of hours later with a job offer in hand, at a salary of at least 13,300 pesos ($236) a month, plus allowances. Do well and that can climb. (The average contact center salesperson earned 20,869 pesos a month in 2022, comparable to a private sector nurse, according to the Philippine Statistics Authority’s latest annual survey.)

Yet signs of change and angst are visible. Jihan Elijah Paloma, 32, and her brother, husband and three-year-old daughter, live a two-hour drive southwest of Manila’s downtown in the neighboring city of General Trias.

All of the adults in the household work in the call center industry, just one example of how the BPO rush has brought jobs and prosperity to not just the capital but also its suburbs and far-flung islands. Once short of money for food, the family table is now full. Paloma, who works on Capital One Financial Corp.’s credit card helpline, is saving to buy her own home and can also afford a nanny, allowing her to sleep during the day. “The industry has changed my life,” she said. “If AI takes away my job, I don’t know what I’d do.”

More than many, she’s aware how rapidly things are moving. After 17 years in the industry, her husband earlier this year got a new job in quality assurance at AI startup Sanas, one of many that are blurring the line between where the tech starts and the human ends. Its software helps harmonize accents and eliminates background noise — crowing roosters, ambulance sirens, office chatter — helping conversations flow smoothly.

That might sound like it will help operatives, rather than displace them, but the implication of tools like this carry a risk for the Philippines. Since the 1990s, it’s built a market-leading position not just on being cheaper than the US, but by having a preponderance of high-quality English speakers culturally attuned to the West. If things like accent are no longer a competitive factor, what’s to stop foreign-owned corporations moving to even lower-priced places like Egypt or Ghana, where the BPO industry is starting to expand?

“The last generation tools didn’t learn but these bots are always listening, learning, understanding the context, the accent and the customer,” said Christine Caballero, 37, who heads Sanas’s Philippines operations. “It’s likely soon that customers won’t even be able to tell they’re talking to an AI bot.”

Client Concerns

Giving hope to those counting on the continued need for humans, there are plenty of signs that despite all the progress, technological solutions are still far from infallible. A number of companies have undertaken splashy rollouts, only to backtrack later either when the tech malfunctioned, or still needed substantial human help.

Consider Air Canada. In November 2022, its chatbot assured passenger Jake Moffatt that he could book a full-fare flight for his grandmother’s funeral and then apply for a bereavement fare later, though no such retrospective discount was available. When Moffatt challenged the airline in court, its lawyers argued the company wasn’t liable because the chatbot was “responsible for its own actions.” That cut no ice with the judge, who this year ordered the airline to pay damages. It’s unclear exactly what technology was powering the bot — a spokesperson for Air Canada said it wasn’t AI but declined to answer any other questions about the incident.

Or Amazon.com Inc., which made a big stir about using AI systems in its Just Walk Out cashier-free grocery stores. The stores were found to rely heavily on plain old human labor, with workers in India labeling the data for object recognition and standing by to review problem transactions. (An Amazon spokeswoman pointed to a previous comment in a blog, that most AI systems require continuous improvement.) In April, Amazon said it would be pulling the system from its US stores.

Sidharth Mukherjee, San Francisco-based chief executive officer of TP Infinity, the digital services arm of Teleperformance SE, says his clients frequently cite the Air Canada incident as a cause of nerves about more widespread deployment of AI. “Clients are excited about driving efficiency but anxious about the risks,” he said.

Still, many are pressing ahead. Yusuf Tayob, Accenture Plc.’s US-based CEO of operations which employs over 85,000 workers in the Philippines, says legacy contact centers are ripe for disruption. He cites the example of one center operated by a client in the Middle East where AI is already deflecting 20% of call volumes from humans.

“We could conceivably triple that in a year,” Tayob said, adding that the challenges are less about the technology, and more around data and human behavior. He estimates that about 40% of all working hours across industries will be impacted by AI models and bots, and says clients are scrambling to be on the front foot. Accenture made its speediest run to a billion dollars in sales for any new technology for its generative AI suite of products, and has clocked $2 billion in sales so far this year. “It’s one of the fastest adoption rates of tech we’ve ever seen,” Tayob said.

The question is whether despite all the talk of training, the Philippines is remotely ready. The government has yet to put a figure on how much it is ultimately planning to spend, and politicians like opposition senator Risa Hontiveros worry it’s moving too slowly. “The government should be more concerned and draw up a range of scenarios — including worst-case scenarios,” she said. “The Philippines, unfortunately, is ill-equipped to protect our workers from getting swept away by the AI wave.”

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Sitting in a coffee shop in Manila, Joniel Godino, 32, says that’s his concern too. In 2021, after 12 years in the BPO industry, he lost his job at Australian telecoms company Telstra Group Ltd. Over the next few years, he watched as Telstra embarked on a series of AI trials to try and make customer service agents more efficient. In February, the company publicly announced the results — AI tools had resulted in 20% fewer follow-up requests from customers, and it would now be rolling out the tech to all call centers. Just months later, Telstra announced it would be cutting 2,800 jobs across its operations.

The company said the two issues are unconnected. “While AI is absolutely helping us be more efficient and deliver better outcomes for our customers, we have not announced any job reductions that are linked to AI,” a Telstra spokesman said in a statement.

Godino though has already quit the call center industry for good, convinced that that no matter who the employer, his compatriots working in customer service and other back-office roles are now on borrowed time. He’s no technophobe: In his new freelance role as a virtual assistant he’s using AI to help him write marketing material for his clients, including a short-term-rental executive in the UK. “One time the CEO caught me and said, this sounds too American. Now I prompt ChatGPT to make it more British,” he said.

But he’s still worried about the future. “It’s the nature of businesses to find efficiency,” said Godino. Many workers are “wearing headphones not just physically but also metaphorically.”