The Philippines innovation opportunities

by: Maarten Koopmans, Technopolis Group

Why should I read this document?

When confronted with the differences between your own market and the market of the Philippines you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also prove to be a great opportunity for your company! Adapting to a new market, like the Philippines, will allow your company to innovate. Not only will operating in the Philippines lead to new insights to be more successful in the Philippines, you will most likely also pick up on ideas to be more successful in your home market.

This document provides a short overview of innovation aspects, business opportunities and challenges in the Philippines. It will also give advice on best practices for starting and developing an innovative business venture, considering the country context of the Philippines. May it help you to explore the Philippines and lead you to innovation and success.

Opportunities and tips for innovation and doing business in the Philippines

The country has a relatively young population of over 104 million (2017), making it the 13th most populated country in the world and the second most populated country in the ASEAN-community, with a well-diversified export market, the EU being its second-largest export markets.
The Philippines remained largely unscathed during the global financial crisis, mainly due to high domestic consumption, accounting for 70% of GDP. The Philippines is thus a good location for production and trade, with particular high demand for electronic products.
In 2017, Foreign Direct Investments (FDI) have hit a record high. The National Economic Development Authority emphasizes reforms for trade and investment and an economic transition to reduce inequality and build key sectors. Key sectors can benefit from new technologies and R&D initiatives of European companies, which is a lucrative opportunity due to fiscal and non-fiscal incentives detailed in the Investment Priorities Plan.
The government has increased both liberalisation of the economy as well as infrastructure spending, through the “Build, Build, Build” programme with 60 infrastructure projects under construction or in pre-construction.

Accordingly, in the construction sector new opportunities have risen and it has grown by on average by 12% from 2012 until 2016.

Agriculture employs 27% of the labour force and represents 9% of GDP. However, it faces important challenges, such as bad infrastructure, low productivity, and limited economy of scales. The government wants to increase food production in order to increase affordability and focus on high quality food export products. To reach these goals and increase productivity, innovative solutions related to productivity and sustainability are needed, presenting an opportunity for Europe’s SMEs.
The outsourcing of business processes (BPO) to the Philippines has added 17% to GDP for 2013 (contracting of business processes). This service sub-sector continues to grow, due to competitive labour costs and the creation of BPO hubs. However, the threat of automation is forcing the sector to look towards higher value-adding services and training and upskilling of employees, both of which can provide opportunities for European SMEs.
The newly created Department of Information and Communications Technology in the Philippines has been mandated to create 1.3 mln. jobs in the IT business process management industry, through public-private partnerships, offer opportunities for SMEs in this area.
The startup ecosystem is growing, with over 300 startups in the country, the Philippines is seen as the next hub in ASEAN. There is good support through incubators such as the QBO Innovation hub. A recent survey found that 54% of startup founders launched their startup in 2016 and 2017.

On Level 2 you can find information about the innovation climate in the Philippines, while Level 3 will tell you more about business activities in the Philippines.

This page will tell you about the innovation ecosystem, major technology sectors, innovation and business practices in the Philippines.

Innovation ecosystem

The Philippines has suffered from a lack of an integrated, strategic approach to creating an innovation ecosystem. The development of Science, Technology and Innovation (STI) in the Philippines is lagging behind other ASEAN countries. The country could benefit from more integration between stakeholders. To illustrate the level of innovation, in the period 1977-2015 around 600 US patents were registered from the Philippines, which was only a quarter of Malaysia’s patents in this period.

The Government recognises the weak STI culture, a lack of links amongst stakeholders and insufficient governmental STI spending and STI infrastructure. Accordingly, the Government Department of Science and Technology has similarly made R&D as a pillar of its activities to increase the development of the country. The Eleven-Point Agenda published in 2017, sets out the goals of improving the position of STI in the Philippines. The goal is to increase interactions between all relevant stakeholders. The Government of the Philippines also recognised the importance of startups in this regard, which it supports through programmes such as the P3Program, Kapatid mentor Me Program, Go Local Program and the SME Roving Academy.

Besides new direct investments in R&D, skills are one of the drivers of growth in the Philippines, while education levels of the population have increased. The enrolment of Filipinos in higher education was above the ASEAN average, but well behind the average of OECD countries. From the perspective of business, the skills mismatch is reported as important reasons why companies cannot fill new positions.

Innovation sectors and technology

The Philippine Development Plan for 2017 – 2022 lists manufacturing (including food processing, housing-related goods and services and transport), connectivity (including roads, ports airports, bridges and communication), agricultural development, tourism-related services, health services, financial services and education services, as some of the main focus areas for development. Science, technology and innovation are regarded as essential for developing these areas.

A major innovative sector in the Philippines is the business process outsourcing sector, normally the contracting of business processes to a service provider. The sector focuses currently on entering the ICT sector and is expected to continue to adopt new technologies on the medium term.

Innovation culture and practices

The lack of financial and human resources to turn novel ideas into products and services have been limiting the potential of innovation in the Philippines and stimulated a lack of entrepreneurial spirit in the population. Once the government of the Philippines recognised the importance of an STI-focused culture and its contribution to entrepreneurship, it launched the Young Entrepreneurship Act, promoting financial and entrepreneurship education, and stimulating students at secondary schools to take STEM and arts classes.

Due to a growing number of SMEs, the attitude towards innovation is improving. Since a large share of SMEs are engaged in the IT sector and a growing number of population are active Internet users and bloggers, the use of artificial intelligence, Internet of Things, robotics is gradually increasing. For most start-ups, technological innovation is the driver of business, hence, the population is becoming increasingly receptive of new technologies.

LEVEL 3 - Business activities in the Philippines

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in the Philippines. In addition, you will find the list of websites, which provide some hands-on information.

What is the country known for?

Sectors

The biggest sectors are machinery, particularly semiconductors and electronics assembly, such as computers. Further major sectors include business process outsourcing to the Philippines and a variety of natural resources and agricultural products. The fastest growing sector is the service sector.

The service sector represents 59.8% of GDP in 2017, while industry accounts for 30.6% and the agricultural sector for 9.6% of GDP

Iconic products

Semiconductors, integrated circuits, computers, (processed) foods and beverages, radio, television and communications equipment, rice, bananas, tropical fruits, gold, coconuts.

How easy is it to do business in the Philippines?

Based on the World Bank ranking:

	The Philippines	EU average	Emerging markets average
Overall – ease of doing business	113	30	83

An important development is that the ease of doing business in the Philippines, as measured by the World Bank Group has fallen from place 99 to place 113 compared to the year prior. Regarding the ease of doing business, the Philippines ranks considerably lower than neighbouring countries such as Indonesia, Thailand, Malaysia, and Vietnam. In the Philippines, the process of getting construction permits lasts roughly four months, involving 23 procedures according to the World Bank. Similarly, registering property takes about 35 days involving nine procedures. Furthermore, converting agricultural land for other purposes involves a two-year delay due to Department of Agriculture rules.

Positive developments, however, are also taking place in the Philippines. The time to get electricity has been reduced and that paying taxes can now be done through a newly introduced electronic system.

Business trends in the Philippines

The Philippines has an overall positive business outlook with forecasted growth of over 6 percent in the coming until at least 2020. The manufacturing sector of the Philippines will remain, according to forecasting, the main destination of Foreign Direct Investments as there will be a strong demand for manufactured goods both domestically and externally. In the agricultural sector, a shift is occurring, promoted by the Government, to higher value crops. Productivity growth in this sector is seen as essential to decrease poverty.

Overall, the service sector will remain the main economic driver of the country with the IT- business process outsourcing growing at a rate of 5.6% per year. This is however significantly slower than the decade before.

More hands-on info

EU-Philippines Business Network (EPBN) (in 2018: http://www.epbn.ph/)
Board of Investments of the Republic of the Philippines (in 2018: http://boi.gov.ph/)
The Philippines government portal (in 2018: https://www.gov.ph/)
Philippine Chamber of Commerce and Industry (in 2018: http://philippinechamber.com/)
Department of Trade and Industry, Enabling Business, Empowering Customers (in 2018: https://www.dti.gov.ph/18-main-content/static/89-bureau-of-small-and-med...)
ICCO cooperation (in 2018: https://www.icco-cooperation.org/en/countries/philippines)

Bibliography

Level 1:

CIA. (2018). The World Factbook the Philippines. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html

OECD. (2017). Employment and Skills Strategies in the Philippines. Retrieved from: https://read.oecd-ilibrary.org/employment/employment-and-skills-strategi...

Santander trade. (2018). The Philippines: Economic and Political Outline. Retrieved from: https://en.portal.santandertrade.com/analyse-markets/philippines/economi...

Oxford Business Group. (2018). Foreign direct investment hits record high in the Philippines amid uncertainty over regulatory reforms. Retrieved from: https://oxfordbusinessgroup.com/overview/diversified-market-manufacturin...

EU – Philippines Business Network. (2018). EU Manufacturing & Industry 4.0 Business Mission to the Philippines. Retrieved from: https://pracodawcyrp.pl/upload/files/2018/05/manufacturing-mission-invit...

Oxford Business Group. (2018). Building boom flagship. Retrieved from: https://oxfordbusinessgroup.com/overview/building-boom-flagship-works-pr...’s-infrastructure-gap

Fintech news. (2018). Philippines sees rising startup ecosystem: study. Retrieved from: http://fintechnews.sg/17247/philippines/philippines-sees-rising-startup-...

The World Bank. (2018). Philippines Economic Update: Investing in the Future. Retrieved from: http://pubdocs.worldbank.org/en/280741523838376587/Philippines-Economic-Update-April-15-2018-final.pdf /

Department of Information and Communications Technology. (2018). DICT produces first batch of Business Analysts graduates for the IT-BPM sector. Retrieved from: http://dict.gov.ph/dict-produces-first-batch-of-business-analysts-gradua...

PWC. (2017). Off to a great start: the Philippine startup ecosystem. Retrieved from: https://www.pwc.com/ph/en/ceo-survey/2017/pwc-qbo-2017-philippine-startu...

KPMG. (2018). IT Report: Philippines. Retrieved from: https://home.kpmg.com/content/dam/kpmg/ph/pdf/InvestmentGuide/2018KPMGPH...

Level 2:

Government of the Philippines. (2016). Philippine Development Plan 2017-2022. Retrieved from: https://iro.ph/article_doc/fc55bc53_PDP-2017-2022-Prepublication-2.pdf

Philstar. (2018). Science Technology and innovation. Retrieved from: https://www.philstar.com/business/2018/07/13/1832926/science-technology-and-innovation Republic of the Philippines Department of Science and Technology. (2017). Strategies. Retrieved from: http://www.dost.gov.ph/transparency/about-dost/strategies.html

ABAC. (2016). Pushing Boundaries Through Innovation. Retrieved from: https://mbc.com.ph/wp-content/uploads/Innovation-Paper_ForWeb1.pdf

Oxford Business Group. (2018). The Philippines is further widening its portfolio of business process outsourcing. Retrieved from: https://oxfordbusinessgroup.com/overview/one-call-away-moves-undertaken-...

Level 3:

CIA. (2016). The World Factbook the Philippines. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/rp.html

Atlas Media. (2018). Philippines. Retrieved from: https://atlas.media.mit.edu/en/profile/country/phl/

The World Bank. (2018). Ease of Doing Business index. Retrieved from: https://data.worldbank.org/indicator/IC.BUS.EASE.XQ

Business inquirer. (2017). PH ranking in ease of doing business slips from 99th to 113th. Retrieved from: https://business.inquirer.net/239704/philippines-ranking-world-bank-doin...

World Bank Group. (2018). Doing Business 2018. Retrieved from: http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Repo...

World Bank. (2018). Philippines Economic Update: Investing in the Future. http://pubdocs.worldbank.org/en/280741523838376587/Philippines-Economic-...