Beyond Manila: The Rise of Tier-2 and Tier-3 Cities in the Philippine Call Center Industry

For many years, the Philippine call center industry was a story of one city: Metro Manila. The sprawling capital region was the undisputed epicenter of the BPO boom, attracting the lion’s share of investment, talent, and international attention. However, the narrative of the industry has become far more complex and geographically diverse. A quiet but powerful wave of expansion has been taking place, with BPO providers increasingly looking beyond the congested and competitive landscape of Manila to the untapped potential of the country’s tier-2 and tier-3 cities. This strategic dispersal is not just a trend; it is a fundamental reshaping of the industry that is creating new opportunities, enhancing resilience, and unlocking significant new value for both providers and their clients.

The rise of these “next-wave” cities is driven by a compelling set of economic and strategic advantages. As the operational costs and competition for talent in Manila have intensified, cities like Cebu, Davao, Bacolod, and Iloilo have emerged as highly attractive alternatives. They offer a potent combination of lower operating costs, a large and untapped talent pool, and a more stable and loyal workforce. Furthermore, the government’s ongoing investments in infrastructure and the arrival of new technologies like satellite internet have made it easier than ever to operate a world-class BPO facility from virtually anywhere in the country.

What follows explore the rise of the Philippines’ next-wave cities, providing a data-driven look at the advantages they offer. We will examine the key factors driving this geographic diversification, provide a real-world case study of a successful expansion into a tier-2 city, and discuss the strategic implications for businesses looking to optimize their outsourcing footprint. The future of the Philippine call center industry is no longer concentrated in a single metropolis; it is a nationwide network of excellence, and the opportunities are more widespread than ever before.

The Economic Case for Diversification

The initial driver behind the BPO industry’s expansion beyond Manila was a straightforward economic calculation. As the industry boomed, the demand for office space and skilled labor in the capital skyrocketed, leading to a significant increase in operating costs. Real estate prices in prime business districts soared, and the competition for top talent became fierce, leading to wage inflation and higher rates of employee attrition. For BPO providers operating on thin margins, this created a significant challenge to their long-term profitability.

In contrast, the tier-2 and tier-3 cities offered a far more favorable economic environment. Office rental rates were significantly lower, and the cost of living was less, which allowed providers to offer competitive salaries that were still below the Manila average. 

This created a powerful win-win situation: providers could reduce their operating costs, and employees could enjoy a higher quality of life with more disposable income. This economic advantage remains a primary driver of the industry’s geographic diversification, allowing providers to offer more competitive pricing to their clients while still maintaining healthy profit margins.

Tapping into New Talent Pools

While the cost savings were the initial catalyst, the strategic advantages of tapping into new talent pools have become an equally important driver of the expansion into next-wave cities. For years, talented individuals from the provinces had to migrate to Manila to find opportunities in the BPO industry. This created a significant brain drain from the regional areas and contributed to the overcrowding and congestion of the capital. The establishment of BPO operations in the tier-2 and tier-3 cities has reversed this trend, allowing people to build a rewarding career without having to leave their hometowns.

This has unlocked a vast and previously untapped talent pool. These regional talent pools are not only large, but they are also characterized by a strong work ethic and a high degree of loyalty. Attrition rates in the provinces are often significantly lower than in Manila, where the hyper-competitive job market leads to a great deal of “job hopping.” A more stable and loyal workforce is a massive strategic advantage for BPO providers. It reduces recruitment and training costs, leads to a higher level of institutional knowledge, and results in a more consistent and higher-quality service for clients. The ability to tap into these loyal and dedicated talent pools is one of the most compelling reasons to consider a next-wave city for an outsourcing operation.

The Rise of Cebu and Davao

Among the next-wave cities, two have emerged as clear leaders: Cebu and Davao. These two cities have successfully transformed themselves into major BPO hubs in their own right, with a thriving ecosystem of providers, a deep talent pool, and a world-class infrastructure.

Cebu, located in the central Visayas region, has long been the second-largest city in the Philippines and has a well-established reputation as a center for commerce and education. The city boasts a large and highly-educated population, a modern international airport, and a vibrant, cosmopolitan culture. It has attracted a wide range of BPO providers, from large, multinational players to smaller, niche specialists. The city’s success has been so profound that it is now facing some of the same challenges as Manila, including rising costs and increased competition for talent. However, it remains a highly attractive and viable alternative to the capital.

Davao, located on the southern island of Mindanao, is a more recent but equally compelling success story. The city has a reputation for being one of the safest and most well-governed in the country. It has a large and rapidly growing population, a number of excellent universities, and a government that is highly supportive of the BPO industry. The city has attracted significant investment in recent years, and its BPO sector is growing at a rapid pace. For companies looking for a location that offers a combination of low costs, a large talent pool, and a high degree of stability, Davao is an increasingly attractive option.

Case Study: How a Provider Achieved Lower Attrition in Bacolod

Beyond the major hubs of Cebu and Davao, a number of smaller cities are also emerging as viable and attractive locations for BPO operations. One such city is Bacolod, located on the island of Negros. Known for its friendly people and its rich history, Bacolod has quietly become a significant player in the BPO industry.

Consider the case of a mid-sized BPO provider that was struggling with high employee attrition at its Manila facility. The constant churn was driving up their recruitment and training costs and was having a negative impact on service quality. Seeking a more stable workforce, the company decided to open a second facility in Bacolod. They were attracted by the city’s reputation for having a loyal and dedicated workforce, as well as its lower operating costs.

The results of the expansion were dramatic. After one year of operation, the Bacolod facility had an employee attrition rate that was 50% lower than the Manila facility. The agents in Bacolod were not only more likely to stay with the company, but they were also more engaged and more productive. The lower attrition rate had a significant positive impact on the company’s bottom line, and the improved service quality led to higher client satisfaction. The success of the Bacolod expansion has led the company to adopt a “multi-city” strategy, with plans to open additional facilities in other next-wave cities.

“The attrition differential between Manila and tier-2 cities is one of the industry’s best-kept secrets. I’ve tracked this data for 15 years, and the pattern is consistent: Bacolod, Iloilo, Baguio—they all run 30-50% lower attrition than Metro Manila. Why? Because agents in these cities aren’t job-hopping every 18 months for a 500-peso raise. They’re building careers, buying homes, raising families. That stability translates directly into better service quality and lower total cost of ownership.” – Ralf Ellspermann

The Future is Distributed

The rise of the Philippines’ next-wave cities is a trend that is set to continue and to accelerate in the coming years. The economic and strategic advantages are simply too compelling to ignore. For BPO providers, a multi-city strategy that combines a presence in Manila with operations in one or more next-wave cities offers the best of both worlds: access to the massive talent pool and infrastructure of the capital, combined with the lower costs and higher loyalty of the provinces.

For businesses looking to outsource, this geographic diversification is a major positive development. It means more choice, more competition, and more opportunities to find a partner that is perfectly aligned with their specific needs and budget. As the leading call center outsourcing advisory firm in the Philippines, PITON-Global has a deep understanding of the unique strengths and weaknesses of each of the country’s BPO hubs. We can help you to navigate this complex and evolving landscape, to identify the location that is the best fit for your business, and to build an outsourcing partnership that is both cost-effective and sustainable for the long term. The future of the Philippine call center industry is a distributed one, and the opportunities have never been more exciting.

“Here’s my advice after placing operations in 23 different Philippine cities: stop thinking ‘Manila versus everywhere else. Start thinking ‘what does each city do best?’ Cebu for scale and sophistication. Davao for stability and government support. Bacolod for loyalty and cost. Baguio for specialized back-office work. Iloilo for rapid growth potential. The Philippines isn’t one outsourcing destination—it’s a portfolio of destinations, and the smart money is building a multi-city strategy that leverages the unique strengths of each.” – Ralf Ellspermann

Iloilo and Baguio: Emerging Outsourcing Destinations

While Cebu, Davao, and Bacolod have established themselves as major players, other tier-2 and tier-3 cities are rapidly emerging as attractive outsourcing destinations. Two cities that are particularly worth watching are Iloilo and Baguio, each offering unique advantages that make them compelling options for specific types of operations.

Iloilo, located in the Western Visayas region, has been experiencing a remarkable economic transformation over the past decade. The city has invested heavily in modernizing its infrastructure, including the construction of a new international airport and the development of modern business districts. It has a large and growing population of college graduates, many of whom are eager to pursue careers in the BPO industry. The city’s cost of living is among the lowest in the country, which allows providers to offer very competitive salaries while still maintaining low operating costs. Iloilo has also developed a reputation for producing agents with excellent communication skills and a strong customer service orientation.

Baguio, located in the mountainous Cordillera region of northern Luzon, offers a completely different value proposition. Known as the “Summer Capital of the Philippines” due to its cool climate, Baguio provides a unique and attractive work environment that can be a powerful tool for employee recruitment and retention. The city is home to several prestigious universities and has a highly educated population. The cool climate is not just a lifestyle benefit; it also reduces the need for air conditioning in BPO facilities, leading to significant energy cost savings. Baguio has become particularly popular for back-office operations and for specialized services that require a high degree of focus and concentration.

The emergence of these diverse regional hubs demonstrates the depth and breadth of the Philippine outsourcing ecosystem. Each city has its own unique character, strengths, and advantages, allowing businesses to select a location that is perfectly aligned with their specific operational requirements and strategic objectives.

“I remember when Cebu was considered ‘risky’ because it wasn’t Manila. Now Cebu is the second-largest BPO hub in the world. I’m seeing the exact same trajectory with Iloilo and Baguio. In five years, these cities will be handling Fortune 500 accounts that today wouldn’t consider anywhere outside Manila. The geographic diversification of this industry isn’t just about cost—it’s about resilience, scalability, and tapping into talent pools that competitors don’t even know exist.” – Ralf Ellspermann

Infrastructure Parity: Leveling the Playing Field

One of the most significant enablers of the rise of tier-2 and tier-3 cities has been the dramatic improvement in infrastructure across the entire country. As discussed in a previous article, the Philippines has undergone an infrastructure revolution over the past decade, with massive investments in telecommunications, data centers, and power systems. Critically, these investments have not been limited to Metro Manila; they have extended to regional cities as well.

The arrival of high-speed fiber-optic internet, the rollout of 5G mobile networks, and the availability of satellite internet services like Starlink have created a level of infrastructure parity that would have been unimaginable just a few years ago. A BPO facility in Davao or Bacolod can now access the same level of connectivity, speed, and reliability as a facility in the heart of Manila’s central business district. This infrastructure parity has fundamentally changed the calculus of location selection, making it possible to choose a location based on talent availability and cost advantages rather than being constrained by infrastructure limitations.

Furthermore, the national government and local governments in these regional cities have been highly supportive of the BPO industry, offering tax incentives, streamlined permitting processes, and investments in supporting infrastructure such as roads, public transportation, and housing. This public-private partnership has created a highly favorable environment for BPO investment and has accelerated the growth of these emerging hubs.

The Multi-City Strategy: Building Resilience and Flexibility

For many BPO providers, the geographic diversification of the industry has led to the adoption of a “multi-city strategy,” where they operate facilities in multiple locations across the country. This strategy offers a number of significant strategic advantages that go beyond simple cost optimization.

First, a multi-city strategy provides operational resilience. By distributing operations across multiple geographic locations, providers can mitigate the risk of disruptions from natural disasters, local infrastructure failures, or other unforeseen events. If one facility is temporarily offline, operations can be quickly shifted to another location, ensuring business continuity for clients. This level of resilience is particularly valuable for mission-critical operations where downtime is simply not an option.

Second, a multi-city strategy provides greater flexibility in talent sourcing. If one location is experiencing high attrition or difficulty in recruiting for a specific skill set, the provider can shift recruitment efforts to another location. This reduces the risk of talent shortages and ensures a steady supply of qualified candidates.

Third, a multi-city strategy allows providers to offer clients a customized solution that is optimized for their specific needs. For example, a provider might locate voice-based customer service operations in a city known for excellent communication skills, while locating data processing or technical support operations in a city with a strong technical education infrastructure. This level of customization can lead to better service quality and higher client satisfaction.

Strategic Implications for Businesses

For businesses evaluating their outsourcing options, the geographic diversification of the Philippine BPO industry presents both opportunities and complexities. The traditional approach of simply selecting a provider in Manila is no longer the only option, or even necessarily the best option. A more strategic approach involves carefully evaluating the unique advantages of different locations and selecting a partner and a location that is optimally aligned with your specific business requirements.

Key factors to consider in this evaluation include:

• Cost Optimization: Tier-2 and tier-3 cities typically offer lower operating costs, which can translate into more competitive pricing for clients.

• Talent Availability: Different cities have different talent profiles. Some are known for excellent voice skills, while others excel in technical support or back-office processing.

• Attrition Rates: Regional cities typically have lower attrition rates than Manila, which can lead to higher service quality and lower total cost of ownership.

• Scalability: Consider the size of the local talent pool and the provider’s ability to scale operations quickly if needed.

• Infrastructure: Ensure that the location has world-class connectivity and redundant systems to support business continuity.

As the leading call center outsourcing advisory firm in the Philippines, PITON-Global has deep expertise in evaluating these factors and in helping clients navigate the complex landscape of location selection. We conduct detailed market assessments, evaluate potential providers in multiple locations, and provide objective recommendations based on our two decades of experience. The geographic diversification of the industry is a powerful positive development that creates more choice, more competition, and more opportunities to find the perfect outsourcing partner. The future of Philippine outsourcing is not concentrated in a single city; it is a nationwide network of excellence, and we are here to help you find your place within it.