This is a best prospect industry sector for this country. Includes a market overview and trade data
Significant growth in private and public investment, upward consumer spending, and demand for better service drive the Information and Communications and Technology industry in the Philippines.
One of the Duterte Administration’s goals is to embark on a digital transformation program to innovate government agencies. Immediate priorities include a cloud data center, software development for business process improvement, the conversion of local government units into smart cities, cybersecurity solutions for data privacy protection, and improving the internet and mobile services landscape through a national broadband plan.
The Administration believes that improving ICT will promote Filipinos’ quality of life while addressing many challenges that make it difficult to do business in the Philippines. To create a better business environment and to support its digital transformation projects, President Duterte signed Republic Act (RA) No. 11032 or the Ease of Doing Business and Efficient Government Service Delivery Act in May of 2018.
The Philippines’ growing middle class and the young population are also important drivers of IT demand because their spending levels on technology products are on an upward trajectory, benefitting premium brands. Infrastructure investments in the Philippines are another source of opportunity. The road, railway, airport, bridge, and port systems build out will require, at a minimum, design software, building information modeling (BIM) for better project management, and file-sharing applications. These will drive demand for hardware, software, and services.
The Philippine Government, the business process outsourcing (BPO) industry, the financial sector, health, education, and the telecommunications industry are key vertical markets for IT. The Philippine Government showed its strong support for the industry by establishing its own Department of Information and Communications Technology (DICT) in 2016. Details on the DICT’s projects are listed under “Market Opportunities.”
There are four leading sub-sectors with commercial opportunities for U.S. companies:
The robust social media savvy Filipino population has few data protection mechanisms making the Philippines extremely vulnerable to cyber-attacks and incidents. The Philippines continues to be an underbanked country. While e-payment apps and fintech solutions are embraced, security mechanisms lag, leaving vulnerable assets unprotected. In 2016, the Philippines Commission on Elections suffered the biggest data leak in Philippine history, the data breach of 70 million voters. With the upcoming May 2021 national elections, the Philippine government is expected to improve its election measures. In 2019, one study documented that the Philippines could incur economic losses of $3.5 billion due to cybersecurity threats if measures are not improved.
The COVID-19 pandemic has changed the Philippines’ digital landscape. A February 2020 survey conducted declared that 43% of Philippine private companies had increased allocations towards cybersecurity solutions investment. Eighty-six percent use anti-malware and antivirus tools, 59% use next-generation firewalls, and 47% are starting to invest in cloud-native security. Due to the continued adoption of cloud storage and solutions, software-defined area network security is gaining market popularity.
Market Opportunities: The Philippine Government, the business process outsourcing (BPO) industry, the financial sector, health, education, and the telecommunications industry are key vertical markets for I.T. There is also growth in e-payment and fintech platforms due to the ongoing pandemic. The Philippines Central Bank aims for digital payments to reach 50% of all retail transactions and 70% of the population using fintech solutions by 2023. BMI forecasts that the Philippines software and software sales will reach $95 million by 2025.
The National Cybersecurity Plan 2022 of the Philippine Department of Information, Communications, and Technology (DICT) is now rolling out cybersecurity infrastructure from hardware to software, including a capability building program for all the national agencies and local government units. The Philippine Government continues to amplify the 2012 Data Privacy Act, set data protection standards, and recommend that all entities register with its online portal and hire a Data Privacy Officer. The rollout with allocated budget indicates opportunities for U.S. software and hardware solutions providers.
Software and Services
Philippine software and software service sales are expected to reach $95 million by 2025. In 2020, software sales benefited from the increase in demand for devices from Filipinos performing work and study remotely. Local firms have also pushed for digital transformation leading to an increase in spending for enterprise architecture projects. In 2019, enterprise application spending was the strongest segment making up two-thirds of total software spending. The purchases also were driven by Microsoft Windows 10 releases to access significant security and feature updates. Although mobile device penetration and social media usage are high, the country is behind in ICT infrastructure investment. The 2020 IMD Digital Competitiveness Ranking report listed the Philippines at 57 out of 63 countries surveyed.
Enterprise Applications: More than 400 software firms operate in the Philippines, with U.S. and European firms dominating the enterprise application segment. The Philippines’ robust business processing outsourcing (BPO) industry is a strong market customer for enterprise applications. In 2020, the local association IT and Business Process Association of the Philippines noted that the Philippine BPO industry generated $26.7 billion in revenue. Domestic consumers include sizeable private sector entities such as financial institutions, healthcare facilities, and conglomerates with various business units seeking digitization solutions in HR, accounting, business intelligence, and data warehousing. SMEs are emerging customers in this segment recording 32% of GDP. However, they are often not equipped with the digital tools necessary to efficiently expand their businesses.
Data Hosting and Processing: In 2020, the Asia Cloud Computing Association ranked the Philippines 11th in cloud readiness out of 14 Asian countries. The data hosting and processing segment is expected to grow as more firms seek to utilize cloud solutions for efficiency and resilience during the pandemic. Local telecom firms such as Globe and PLDT-Smart are increasing their data storage bandwidth to service more customers. Globe and PLDT-Smart plan to create their own data centers to service more customers. Large local BPO firms are the consumers of cloud solutions, utilizing regional hubs in Singapore. Most global cloud providers partner with a local firm to offer services.
Market Opportunities: The Philippine Government’s Digital Transformation Strategy, prioritizing the national ID system, is valued at $80 million across its implementation phases. The strategy also seeks to improve the Government’s digital infrastructure, connectivity, ease of doing business through innovative tools and solutions. Software development for revenue management systems, tax collection, and a one-stop online platform for business processing are projects in the pipeline. Government cloud data center, employee email, and national archives management are also part of the Government cloud-first policy.
The Covid pandemic spurred Philippine cities to step up and improve services for their citizens. Their constituents were vulnerable and in need during the lockdown and they relied heavily on the support of their local city governments. Cities quickly moved to digitize services, and to set standards for data storage, protection, and utilization, especially in rolling out taxation, health IT and telemedicine platforms and applications for contract tracing, distribution of financial assistance, and city-wide vaccination programs. In 2020, typhoon “Goni” and the Taal Volcano eruption also emphasized the importance of ICT solutions in providing disaster response and resilience management programs in the Philippines.
Market Opportunities: Several different approaches in applying ICT to mitigate the impact of Covid emerged during the pandemic. Efforts vary from command center development, disaster risk mitigation, resilience management, digital health and education, and data center upgrades to include cybersecurity and analytics solutions. Baguio City has also emerged as a champion during the pandemic by funding a command-and-control center valued at $1.2 million to address the demand for connectivity and emergency response.
In March 2021, the third major telecommunications firm in the Philippines, Dito Telecommunity, commercially rolled out its services. With this landmark development, the Philippine’s global ranking for mobile internet speed moved up to 86th from 111th according to market research firm Ookla. In May 2021, Philippine mobile internet speed was documented at 31.98 Mbps (versus the global average of 54.53 Mbps) and fixed broadband speed at 58.73 Mbps (global average of 105.15 Mpbs). By 2025, the number of mobile subscribers in the Philippines will reach 159 million and broadband subscribers will number 10.8 million. Legacy players Globe and PLDT-Smart will lead the 5G rollout, and they already have a combined 3,669 5G sites in country-wide locations.
The continued digital transformation is being led by local telecom firms and emerging broadband companies and these efforts are contributing to strong telecommunications industry growth. These changes are disrupting the current duopoly, and they encourage significant investments by the legacy players which will lead to better pricing of services and increased connectivity options for Filipino consumers. The pandemic has increased the demand for connectivity that supports Filipinos working and studying from home accessing online content and platforms. According to market research firm BMI, higher data revenues are expected also because of mobile video streaming and e-commerce growth.
There is also improvement in Philippine telecom regulations. In May 2020, the Department of Information, and Communications Technology (DICT) published its first guidelines for independent cell tower construction (Common Tower Policy). The Philippines currently has only 22,405 combined cell towers operated by the three major telecom companies. The introduction of the common tower policy is expected to improve the rollout of mobile networks. However, the 40% foreign ownership limitation requirement remains, and it hinders the interest of foreign investors in the market, particularly in the deployment of satellite connectivity-related services.
In addition to the Government’s efforts, DICT, along with the Bases and Conversion Development Authority (BCDA), tendered the first phase of its National Broadband Plan valued at $20 million, which is the rollout of a bypass cable and fiber optic network. The other phases of the national broadband plan include the national free Wi-Fi program, satellite overlay, and the common tower policy. The current administration only has a limited period to fulfill its ICT plans before the next Presidential elections to be held in May 2022.
Market Opportunities: The market will evolve as reforms are pursued. With full foreign ownership possibilities in the telecom sector, foreign investors would have greater control and more significant incentives to participate in the market. The 159 million mobile subscribers would readily switch carriers to get options with better coverage and more economical pricing.
Over the next three years, all telecom players are expected to upgrade their network capabilities, install fiber-optic and sub-sea systems and cables, purchase modern networking equipment/storage/servers, and utilize cloud and cybersecurity services. The 5G rollout requires digital transformation solutions including 5G ready consumer devices. The biggest purchasers for telecom equipment and related solutions are the three major telco players with an estimated combined CAPEX of $15 billion being spent on the rollout of their services over the next three years. The emerging broadband providers are also embarking on 5G, mobile services infrastructure, and satellite connectivity projects. Apart from the four leading sub-sectors, the Philippines is also considered a market to sell consumer electronic products.
Consumer electronics recorded 7.8% growth in 2020 due to increased demand, as many Filipinos worked and learned remotely. A new middle class is emerging; it is estimated that 1.5 million households will reach an annual income of $25,000 by 2024. This group will purchase consumer electronics for the first time and is eager to own mobile devices, game consoles, televisions, desktop and laptop computers, and other electronic peripherals.
Favorable factors predict continued growth for this industry. However, the market outside Metro Manila remains to be limited due to low-income Filipino households. The country’s island geography also poses logistical challenges, and retail sales are centered in major cities only. Some price-sensitive Filipinos strongly prefer brands from China, Japan, and Korea. Weak internet connections limit gaming and streaming.
A challenge in the Philippine market is the pervasive use of mobile devices limiting demand for other consumer electronic products, like cameras, printers, computers, and gaming consoles. As mobile devices perform many functions, getting consumers to purchase products with seemingly redundant functions will be challenging. Differentiating products and promoting functional utilities as well as setting appropriate pricing will be important considerations.
Market Opportunities: Consumer electronics market spending for 2021-2025 is predicted to reach $8.1 billion. The most popular subsectors would include mobile phones, computer hardware, laptops, tablets, and audio-visual devices. Analog switches will also promote further purchases. Mobile phone sales were recorded at $3.7 billion in 2020. Within the sector, the mobile device market is the largest, making up over 55% of all consumer electronics-related spending. About 44 million of the 109 million population owns smartphones. Media reports note that Filipinos spend an average of 10 hours online a day, with 144 minutes being spent on social media. Long commute times, working from home and virtual schooling and other computer-based work are major contributors. Even for those who do not have smartphones, mobile phones are necessary to send and receive money for most of the population without a bank account. An emerging market would include premium products such as smartwatches and fitness trackers, targeting young professionals living in cities who use their disposable income for such luxuries. A side note to consider is that actual purchasing power for the nation is distorted by the $33 billion in annual OFW (Overseas Foreign Worker) remittances that enter the country.
- Department of Information and Communications Technology
- Department of the Interior and Local Government
- National Privacy Commission
- National Telecommunications Commission
- League of Cities of the Philippines
John Giray, Commercial Specialist, U.S. Commercial Service Philippines