Southeast Asia’s Biggest Internet Economies Part 4: the Philippines

By Sharon Lewis and Bobo Chan

*This article is the fourth of a five-part series on burgeoning digital economies in Southeast Asia. Part 1 | Part 2 | Part 3

Southeast Asia is home to stunning coastal vistas, delectable food, and a long history of cultural tradition. Today, however, Southeast Asia is known for one other thing–a region that is growing its innovative capabilities at full speed.

It would be wrong to see the region as a uniform, homogenized market. For instance, as one of the top 20 global startup ecosystems, Singapore has made its mark in Southeast Asia as a hub for innovation, owing to ease of doing business in the country as well as access to capital networks.

However, even companies in Singapore have to look at the wider Asia Pacific for markets to grow in, as Singapore is simply too compact a market for companies to scale. And Singapore is not the only one; as businesses start to exit China amidst global tensions, Southeast Asian countries are well positioned to seize the opportunity.

Southeast Asia also has a booming Internet economy. A massive 70% of Southeast Asian consumers are expected to go digital by the end of 2020, with a pool of 310 million users accounting for the region’s US$100+ billion Internet economy, although the numbers vary according to country.

In recent times, Southeast Asia has emerged from the shadows in tech and is accelerating the transformation of its digital landscape. Here’s a low-down on where its biggest economies have reached so far.

Philippines

The second most populous country in Southeast Asia, next to Indonesia, the Philippines’ GDP (according to purchasing power parity) is a feather over a trillion dollars, standing at $1.04 trillion.

The island nation’s tech landscape has blossomed in recent years. According to a study commissioned by Microsoft, digital products and services will contribute to a sturdy 40% of the Philippines’ GDP by 2021. Emerging technologies lead the way here, facilitated by artificial intelligence (AI) and the Internet of Things (IOT), among other innovations.

Moreover, the Philippines is one of many places that could benefit from a complete digital overhaul. A study commissioned by Microsoft suggests that digital transformation will contribute as much as $8 billion to the country’s GDP in 2021.

Digital Technologies at the Forefront

The Philippines partially owes its quick growth to the fintech and digital commerce solutions at the helm of its digital transformation, which have proved more important than ever in the midst of the COVID-19 pandemic.

“Before the ‘new normal’, payment through QR codes and apps like GCash were deemed optional. Nowadays, having a digital wallet is considered necessary,” VP and Chief Corporate Affairs Officer at the online payment company GCash, Ney Villasenor, told Crowdfund Insider.

He adds that fintech has benefited people living in rural areas of the Philippines, with more people gaining access to modern technology.

As the need for online financial services grows, fintech startups may be facing more lucrative possibilities in the market. For instance, fintechs alone form 15% of Manila’s startup ecosystem, and 45% of investors predict that this will be the most successful sector in the country in the next two years.

The ecommerce market is not far behind, predicted to reach $3.5 million in 2020, with 38.9 million users.

Filipino Startups Being Left Behind?

Looking at the fintech and ecommerce sectors, it’s evident that the Philippines’s technology landscape is rapidly expanding.

Yet, the Global Startup Ecosystem Report (GSER) observes that the world average of startup ecosystem valuations is $10.5 billion, whereas Manila’s ecosystem falls short at just $1.6 billion, despite ranking in the top 40 growing startup ecosystems globally.

Furthermore, a mere 7% of organizations based in the Philippines are categorized as ‘leaders’ and the rest as ‘followers’. ‘Leaders’ are organizations that have fully adopted or are in the process of implementing digital transformation strategies, with a third or more of their revenue gained from digital products.

In fact, over half of Philippines-based founders are only in the beginning stages of digital transformation. This suggests that the Philippines still has a ways to go in its digital transformation journey, but perhaps it is on its way.

By 2017, there were 900,000 micro, small and medium enterprises (MSMEs) based in the Philippines, many of which were formed between 2016 and 2017. This serves as a reminder of the Philippines’ startup ecosystem’s quick growth despite picking up pace in only the last few years.

Crossing Over to the Digital Side

Across multiple surveys, business leaders and founders acknowledged the importance of digital transformation in growing a modern business. In a 2017 survey commissioned by Epson, over eight out of ten SMEs in the Philippines recognized the use of digital technology as a business tactic to improve customer experience.

Despite the enthusiasm surrounding digital transformation, however, many respondents based in the Philippines’s industry sectors believed that the cost of new technology, as well as developing new systems to replace their legacy technologies, hindered them from investing in new technologies.

Similarly, 65% of investors in a PwC startup survey observed that “financial constraints” were the biggest impediment against startup growth in the Philippines.

To resolve this, Eduardo Bonoan, Epson Philippines General Manager for Marketing, encourages SMEs to maximize the benefits of digital technologies by using them for purposes beyond managing the customer-facing aspects of the business.

He suggests that as SMEs gain further “access to information and industry support, SMEs can overcome the perception that deploying new technology is beyond them.”

The Filipino Department of Trade and Industry (DTI) has also been taking measures to promote entrepreneurship and innovation.

The DTI has launched a slew of initiatives and programs, such as Slingshot Philippines, a “two-day summit” for youth, investors and creators; P3 Program, which funds microenterprises; and Kapatid Mentor Me Program, a mentorship initiative designed to encourage entrepreneurial spirit amongst young minds, and support early-stage SMEs.

Now, what remains to be done is to foster a digitized culture and advanced information system that can aid companies in analyzing trends and discovering insights through AI.

“To remain competitive, organizations must establish new metrics, realign organization structures, and re-architect their technology platform,” says IDC Asia/Pacific’s Research Director for Digital Transformation Daniel-Zoe Jimenez.

For the Philippines, a long road lies ahead in its journey to achieving full digital transformation–but if the country’s youths, innovators and government take the right steps, a fresh and vibrant tech landscape awaits.

Header image by Cherry Bueza on Unsplash

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