Online engagement is on the rise in the Philippines as the country gradually transitions towards a digital economy, with its increased appetite for e-services providing a good basis for growth in the ICT sector.
Digital Landscape
As a result of a dynamic business process outsourcing (BPO) industry, the Philippines’ ICT sector has generated significant income in recent years. This has led to urban centres playing host to tech-literate communities.
However, as in the telecoms market, the general public’s enthusiasm for IT services has been constrained by a lack of infrastructure. Under the existing broadband setup, isolated communities in the more remote parts of the archipelagic country remain cut-off from the latest technologies.
Meanwhile, the tech start-up scene is playing catch-up with neighbouring countries, due to slow data speeds, outdated policies and limited funding. Despite these shortfalls, the technology landscape is poised for significant change as a number of business and policy developments begin to take shape.
The pace of the digital evolution shows no signs of slowing, and local businesses are accelerating IT capacity by identifying new technologies to advance their operations, such as reaching consumers through digital marketing campaigns.
At the same time, the rapid adoption of smartphones is closing the digital divide and providing opportunities for the previously unbanked to make secure, fast and convenient payments and money transfers with the use of e-wallets. “Online retail growth has been bolstered by the increase in smartphone adoption,” Luigi Reyes, head of business development at financial technology start-up Mynt, told OBG. “Digital wallets will continue to play a major role in financial inclusion.”
National Policies
At the beginning of 2017 the International Data Corporation, a global market research firm, forecast that for 25% of the country’s top-1000 companies, performance will depend on their ability to create digitally enhanced products and services by 2020. As a result, awareness of cybersecurity and cyberthreats is on the rise and has become a core component of corporate strategy.
To guarantee the integrity of digital services and protect the country’s telecoms infrastructure, the Department of Information and Communications Technology (DICT) launched the National Cybersecurity Plan 2022 in May 2017. Similarly, the National Broadband Plan (NBP) (see analysis), which was announced in June 2017 and is expected to be implemented by 2020, will bolster the ICT industry and serve as the blueprint for building telecoms DEVELOPMENT INDEX: Despite critical policy rollouts, the country’s internet performance remains sluggish in comparison to the region, particularly in terms of affordability, availability and speed. Likewise, the overall performance of the ICT industry has room for improvement. The UN’s International Telecommunications Union’s 2017 ICT Development Index ranked the Philippines 15th out of 34 countries in the Asia-Pacific region and 101st out of a total of 176 economies worldwide. Measured across 11 indicators, although the country improved its total score from 4.52 in 2016 to 4.67 in 2017, its global ranking fell by one spot over the same period.
According to the organisation, there is substantial room for improvement in terms of access, with 34% of households owning a computer and 39% with access to the internet. Mobile phone subscriptions continue to be a driving force for internet penetration, with 109 subscriptions per 100 Filipinos. Across the three sub-indices of access, use and skill the Philippines scored 4.87, 3.70 and 6.20, respectively, out of a possible 10. In comparison, ASEAN counterpart Singapore ranked 18th worldwide on the index, scoring 8.61, 7.45 and 8.14, respectively.
Outsourcing
Driven by a workforce composed of mainly young and educated Filipinos with strong English language skills, the BPO segment has cemented itself as a key pillar of the national economy. It demonstrated an average annual expansion rate of 20% between 2004 and 2016, contributing approximately 9% towards GDP.
In 2016 the segment generated revenue of $25.5bn and employed 1.15m-1.2m people (see BPO chapter); however while sectoral employment rose to around 1.3m in 2017, BPO revenues fell slightly to $24.5bn, according to figures from the IT and Business Process Association and the central bank, the Bangko Sentral ng Pilipinas. This decline was reflected in the Senate Economic Planning Office’s 2017 “Economic Report”, which stated that growth of trade of miscellaneous services – including BPO – dropped from 19.8% in 2016 to 9.2% in 2017, largely due to the rise of artificial intelligence.
Despite this, the Philippines continues to be ranked among the top outsourcing destinations worldwide. On AT Kearney’s 2017 Global Services Location Index, the country ranked 7th out of 55 economies for its offshore services – the same position it held the previous year – and named an industry leader, alongside India.
The call centre subsector continues to be the main driving force of industry performance and is expected to experience robust growth through until 2020, with the Philippines’ BPO industry having overtaken India in 2010 as the leading call centre destination worldwide. However, there are concerns that advances in IT and computer-generated voice services may see a growing trend towards the adoption of automated services over human ones, rendering many of the Philippines’ competitive advantages in the call centre business obsolete.
According to the Associated Chambers of Commerce and Industry of India, the Philippines has captured a significant portion of India’s outsourcing business in recent years, with the non-governmental trade organisation estimating a 70% loss in voice and call centre business in 2014.
While there are a number of different factors that have contributed to the reduction in the Indian BPO market, companies that exited in favour of the Philippines did so because of considerably lower labour costs, better English verbal skills and more support from the Filipino government.
Spending
BMI Research estimated total spending for the IT industry reached $4.4bn in 2016, a 8.3% increase on 2015. By 2020 the annual growth rate for the sector was forecast to reach 10.6% and total spending was expected to hit $6.6bn.
IT spending in the retail, consumer goods, and health industries has increased in recent years and is expected to continue its upward trajectory in line with expansion forecasts. As it stands, the largest investors within the IT industry are health care providers, with hospitals accounting for 88% of overall IT health care expenditure in 2015. According to the International Data Corporation, health care IT spending is expected to increase by 4% between 2016 and 2019 to reach $60m.
Outlook
Driven by the NBP, as well as the growing reliance on the internet for day-to-day transactions, the ICT sector’s contribution to the Philippines’ economy holds a lot of potential. Taking into account the planned and ongoing developments in telecoms infrastructure, the IT industry will continue its upward trajectory, with financial services, business process management, e-government and health services set to leverage off the expansion of the telecommunications network. While red tape and high costs have previously restricted the construction of much-needed infrastructure, such as cell sites, the adoption of the NBP should help in mitigating these issues. Additionally, rising capital expenditure from the country’s two main mobile operators, coupled with the government’s commitment to expand highspeed coverage across urban and rural areas, will support the long-term development of the industry.
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