Digital Tech Adoption Incentives to Unlock the Next Growth Frontier of the IT-BPM Sector

As of end-2024, the Philippine IT–Business Process Management (IT-BPM) sector recorded USD 38 billion in export revenues, a 7% increase from the previous year, and employed 1.82 million professionals — a clear signal that the country is deepening its footprint in global digital export services.

This growth reflects years of sustained government and private-sector efforts to build the resources needed to deliver digital services to global firms. The government has successfully reallocated domestic resources to specialise in digital service exports by linking export promotion incentives, such as tax levies, to a mandatory requirement that at least 70% of annual service export sales fall under the Philippine Economic Zone Authority (PEZA) Implementing Rules and Regulations (IRR) for RA 7916 (Special Economic Zone Act of 1995).

While the government’s understanding of the country’s competitiveness is evident, it is timely to move beyond viewing IT-BPM digital service exports merely as a source of national income and towards recognising them as a channel for national innovation.

Government Support for the IT-BPM Industry

Government support for the IT-BPM sector has thus far focused on workforce upskilling and digital infrastructure expansion — both essential pillars for sustaining competitiveness. Initiatives such as the Digital Cities programme, nationwide training by the Department of Information and Communications Technology (DICT), and investments in broadband and data centres have laid a strong foundation.

However, while these measures help keep the industry running, they fall short of unlocking its next growth frontier: innovation enabled by the adoption of advanced digital technologies to support both digital exports and cross-border knowledge transfer.

Genuine knowledge transfer from global clients and suppliers increasingly depends on advanced digital technologies, including cloud platforms, AI, AI-driven analytics, and secure cross-border data systems. These tools allow IT-BPM firms to move beyond routine outsourcing and towards innovation-driven partnerships. For example, cloud platforms enable continuous cross-border feedback loops for service innovation by making IT service production and delivery accessible in real time to both providers and foreign clients. AI-driven technologies can also collect data from delivered services and generate real-time insights for immediate improvements.

To fully capture these opportunities, policymakers must complement skills and infrastructure programmes with stronger incentives for digital technology adoption and partnerships.

The Philippines’ IT-BPM services exports are also evolving alongside ASEAN’s push for deeper digital integration through the ASEAN Digital Economy Framework Agreement (DEFA). As DEFA progresses, regional interoperability — particularly in data governance and trusted digital trade — will increasingly shape the competitiveness of ASEAN’s digital services exporters, including the Philippines.

Challenges in Digital Technology Adoption

Despite strong growth, IT-BPM firms in the Philippines continue to face regulatory and practical challenges that slow the adoption of new digital technologies. Between 2024 and 2025, major projects such as PLDT’s VITRO Sta. Rosa — the country’s first AI-ready hyperscale data centre — and STT GDC’s Fairview campus signalled serious investment in digital infrastructure.

However, many firms have delayed cloud and AI initiatives while waiting for clearer rules on cross-border data transfers. Even as data centre capacity grows, most developments remain concentrated in Luzon, leaving other regions with slower or less reliable connections.

On the governance side, companies remain cautious about complying with rules for cross-border data sharing. While the Data Privacy Act of 2012 and related guidance aim to balance privacy with innovation, firms still seek practical clarity on operating across borders. The National Privacy Commission has provided model contractual clauses, including ASEAN guidelines, as a helpful reference.

At the same time, the government is advancing AI governance and capacity-building through the National AI Strategy Roadmap 2.0 to support safe and responsible AI adoption across the sector.

Policy Recommendations

1. Targeted digital adoption incentives and tax credits

One policy option is to design incentives and tax credits to reduce the cost for IT-BPM firms experimenting with cloud computing, AI, and cybersecurity solutions. Singapore’s Productivity Solutions Grant offers a useful reference, with co-funding levels varying by scheme and solution type. In the Philippine context, a comparable scheme under PEZA or the Board of Investments (BOI) could ensure that IT-BPM firms in both Metro Manila and next-wave cities gain access to advanced digital tools, particularly for R&D and innovation projects.

2.Tiered incentives to include SMEs and mid-sized firms

To avoid limiting programmes to large firms, tiered incentives could be introduced. Higher matching grants could target small and medium-sized IT-BPM firms that build in-house innovation capabilities or adopt collaborative platforms with foreign clients. This approach democratizes access to innovation tools while raising baseline digital capabilities across the sector.

3. Institutionalise digital knowledge partnerships with global tech leaders

The government could institutionalise knowledge partnerships with global technology leaders to facilitate structured knowledge transfer. India’s IT sector provides a relevant example, benefiting from collaborations with global firms establishing R&D centres in cities such as Bangalore and Hyderabad, generating spillovers in AI research, fintech, and healthtech. The Philippines could replicate this model by offering time-bound tax incentives to foreign firms that establish joint digital labs with local universities or IT-BPM firms, enabling Filipino talent to collaborate on real-world projects.

4. Establish a Philippine Digital Export Innovation Fund

A Digital Export Innovation Fund could support pilot projects in data analytics, cloud-based service delivery, and AI-driven customer experience solutions. These initiatives would showcase Filipino capabilities in higher-value services and reposition the country from a low-cost outsourcing hub to a recognised partner for digital innovation in Asia.

5. Strengthen digital governance as an explicit enabler

Digital governance can enable knowledge transfer through digital exports by:

a. translating the principles of the Data Privacy Act into practical, transparent compliance pathways;

b. extending regulatory sandbox approaches beyond fintech to AI-enabled IT-BPM and digital services; and

c. aligning domestic governance and sandbox mechanisms with DEFA to support trusted cross-border delivery and standards readiness.

Conclusion

The next growth frontier for the Philippine IT-BPM sector lies in innovation enabled by advanced digital technologies, including AI, cloud platforms, analytics, and secure cross-border data systems. These capabilities allow firms to move beyond routine outsourcing towards innovation-driven partnerships. To sustain the next phase of growth in digital services, policymakers and industry leaders must move decisively beyond skills and infrastructure development by pairing innovation-oriented incentives with enabling digital governance frameworks.

Disclaimer

The authors collaborated on this article, which highlights the findings of a study conducted by Fandi Achmad. A preprint version of the study is available here. For further information, Mr Achmad may be contacted at fandi.achmad@oriel.ox.ac.uk, and Mr Ibrahim at t4g.tmb@gmail.com.

The views and recommendations expressed in this article, published in January 2026, are solely those of the authors and do not necessarily reflect the views or positions of the Tech For Good Institute.