Digitalisation in Philippines

published on June 25, 2018

Interview with Dr. Marian Norbert Majer

 
If the topic of digitalisation in Germany is written on the agenda, it can be expected that you will not just get a plain definition for the term. The repeatedly mentioned keywords are “disruptive technologies”, “innovative business models” or “autonomization”, which in turn is often summarized under the term “Industry 4.0”.

But today we want to talk about the Philippines. Please give us a brief insight into what is meant by the term digitalisation in the Philippines.

• The Philippine´s digital development may be traced back to the country´s Constitution of 1987. Referring to the fundamental national values, article 24 of the Philippine Constitution stipulates the following: „The State recognizes the vital role of communication and information in the nation-building” – which is being interpreted as a clear statement in favor of the promotion and development of information technology.
• In an international comparison, the „Philippine Strategic Road Map for Information and Communication Technology 2006-2010” has been published at a relatively early date.
• This early action plan was followed by the “Philippine Digital Strategy 2011 – 2016”.
• Lately, subjects like data protection, data security and the expansion of the IT infrastructure have been more and more focused on by the Philippine government, which is particularly expressed by the „National Cybersecurity Plan 2017-2022”, the “Philippine Development Plan 2017-2022”, the “Philippine Data Privacy Act 2012” as well as the “National Broadband Plan 2017”.
• Additionally, the Philippines take part in the corresponding ASEAN initiatives, like e.g. the “ASEAN-ICT Masterplan 2020” being part of the member states' combined ambitions to achieve the “AEC Blueprint 2025”.

Digitalisation is a cross-industry and cross-company topic. How do you assess the current situation in the Philippines - Has society already internalized the topic, do companies understand the change or is it more likely to try and endure the topic? Which sectors are already on the road to success, which are lagging behind, maybe even traditionally? 

Though the Philippines belong to the ASEAN countries struggling with the slowest internet connection, digitalisation in terms of using digital media and hardware has long conquered the archipelago. This phenomenon may certainly be related to the extraordinary young and dynamic population of 103 million inhabitants, which – exhibiting an age median of 22 – belongs to the youngest working populations in Asia. The World Economic Forum´s Global Information Technology Report 2016 places the Philippines in an overall midfield position as to the country´s innovation potential with regard to digital economy. Looking at individual and personal factors like education, qualification and training though, the Philippines show a significantly better performance.
 
As to their consumption behavior, the Filipinos exhibit the largest amount of time per day spent online by international comparison. The majority of this time is accounted for by social media – representing the global peak value. In 2016, the Philippines were the number one growth market for mobile phones on a global scale. The CEO of Lazada, one of Asia´s largest online shopping platforms, considers the Philippines to be one of the future E-commerce hotspots.
 
From a business point of view, the Philippines are rated among the world leaders in the (crossborder) BPO sector which has been particularly propelled by globalization and digitalisation. Furthermore, the Philippines are holding the leading position in the field of voice based services.  As to the non-voice services, the Philippines are currently ranking second place, with a good chance on taking  the lead. 
 
As far as E-governance is concerned, the Philippines are currently experiencing a transition period. Many of the paper-intensive manual administration processes are currently being digitalized, setting up the necessary data bases and successively linking the different public authorities and their data pools.
 
Looking at the digitalisation progress in the field of manufacturing (i.e. Industrie 4.0), the Philippines are still standing at a relatively early stage. This is partly due to the fact that the development of the  industrial sector, which has traditionally been rather underrepresented in relation to the GDP, has only been promoted in recent years. There are some quite positive examples though to be stated in this field, too, like e.g. the manufacturing of electronic parts. The Philippines continue to increase their market share as a supplier in this sector, and modern manufacturing processes are becoming more and more essential.

Can you give us an example from the Philippines on how German (or other foreign) entrepreneurs deal with digitalisation locally? How can companies be supported by external consultants and experts in the transformation, where do you see more on-site consulting needs? 

German entrepreneurs are usually among the pioneers when it comes to digitalizing working processes on the spot. On one hand, they are very engaged in transferring international standards and innovations into their production sites in the Philippines. On the other hand, German entrepreneurs frequently support Philippine companies in successfully managing the digital transformation by acting as consultants or suppliers for machinery and hardware solutions.
 
Rödl & Partner Philippines is actually advising quite a number of IT and BPO companies which are located in the Philippines, developing programs here which are supposed to support the worldwide digital transformation process. In the BPO sector, intragroup services (e.g. Shared Services Center) and external services alike are provided to the German/global market by companies located in the Philippines, taking advantage of the local technical developments.
 

Rödl & Partner itself does also contribute to the digital transformation in the Philippines, e.g. by introducing market standards in the field of data security or by implementing tools like RDox.

Where do you see the best chances for German and European companies to position themselves in the market with disruptive business models in the Philippines?

As already stated above, particularly large potential for German and European companies to successfully develop and offer services and products from the Philippines into the global markets continues to be seen in the field of BPO and IT (internal/external outsourcing). Digital solutions for the future (particularly with regard to the speedy development of Artificial Intelligence), will at least for a certain initial phase need the support of qualified employees – for tasks requiring highly skilled personnel as well as for resource intensive activities (like e.g. “feeding” the intelligent machines with the required data, controlling the output or supervising processes which may not yet be fully mastered by technology). Talking about continuously automized call centers for example or further customer support centers requiring a human hand where IT reaches its limits.
 
Furthermore, German and European companies may provide valuable support in all sectors of service and industry by supplying highly appreciated expertise as advisors or suppliers – which is both already being practiced.

What challenges and opportunities do you see for companies that already work locally to master this rather difficult mammoth task?

There is a variety of challenges and chances ahead - depending on the individual business field of the company. Challenges are related in particular to the rather poor (technical) infrastructure, an antiquated regulatory framework and a partially dragging reform movement. Taking into consideration the importance of the BPO/IT industry for the entire economy (i.e. 10 per cent of the GDP) though, we may soon expect some strong political support to improve this situation.  In the months to come, companies in the Philippines would be well advised to keep an attentive eye on the development of public subsidies as well as on the implications of the tax reform “TRAIN II”. 
 
As to the chances, we may definitely say that – in addition to the general benefits of the digitalisation itself which, of course, depend on the direction the digital transformation will take in the years to come – the digital revolution already found its way into the minds of consumers, employees and responsible leaders alike. So far. the Philippines already took advantage of the digitalisation as it generated new jobs.  The Filipinos show a positive attitude towards accepting and adapting to changes. This is further supported by a good pool of young, flexible. qualified and English speaking workforce at low labor costs.

What points must be given special attention in the transformation in the Philippines (for example: cybersecurity, data protection, change management, cloud computing, ERP systems, (tax) compliance systems, digital payroll, value change, blockchain technologies, etc.)? Do you see local cultural, social or economic advantages that speak in favor of an easier transformation?

Besides the technical and operative aspects of the digital transformation in the Philippines, we should not fail to keep an eye on the regulatory framework and its further development. This refers for example to individual reporting and permit requirements with regard to certain IT based programs/processes (e.g. payroll and accounting systems) as well as to data protection and data security aspects (e.g. the general requirement to appoint a data protection officer or the obligation to keep data protection guidelines at hand for companies with more than 250 employees or more than 1,000 secured data sets). 

 
Furthermore, the Philippines are currently experiencing a period of transition in many fields, which requires constant monitoring with regard to its political, economic and regulatory impact (e.g. the government´s major investment in infrastructure programs vs. its consequences with regard to the current tax reform – which is primarily supposed to provide the necessary funds for the investment projects while improving the Philippine´s competitiveness at the same time).

The digital change needs to be lived up to and promoted by the company leadership in order to prevent the transformation from being jeopardized. Does the local government provide support and funding opportunities for the first steps towards digital transformation? Are there investment programs to attract ambitious digital pioneers? Have incubators been installed in order promote innovative business models and to accelerate e.g. the establishment of start-ups?

According to the view represented in this insight report, the Philippine BPO/IT sector has been benefiting from the digital development in recent years. This has been promoted by the investment incentives granted by the Board of Investment or the Philippine Economic Zone Authority (i.e. corporate tax exemption for a period of up to 7 years, reduced corporate tax etc.). In the course of the current tax reform endeavors, all existing incentive systems are being revised – inter alia in order to simplify the award procedures. This development certainly needs to be thoroughly monitored.