MANILA, Philippines ? Software development is seen as the next battleground for business process outsourcing destinations like the Philippines.

This is largely due to maturing benefits from offshore services, according to global research group Ovum.

Samad Masood, Ovum IT services senior analyst, noted that more BPO firms get into low-cost offshore resources to complete the requirements of their clients.

However, BPO firms also have to differentiate themselves by installing ?process layer? software on their services to improve their delivery efficiency.

The benefit of this process layer software also reduces the need for the BPO operator to modify their clients? enterprise software platform, which could be a complex process.

BPO firms are now also looking to software development to create these in-house applications that they would use to differentiate themselves as well as improve the services they offer.

?Proprietary software development is key for BPO services providers to future-proof their business, and provide ongoing cost efficiencies above and beyond the standard labor arbitrage provided by off shoring,? said Masood.

The report bodes well for the Philippines? software development industry, which is expected to grow 30 percent to about US$1 billion by the end of 2010.

The Philippine Software Industry Association (PSIA) earlier reported that it estimated around US$400 million in revenues in 2007.

The PSIA currently claims a total software industry workforce of more than 21,000 workers and aims to increase to around 75,000 workers by 2010.