Philippines Country and IT Market

Report (Summary)
Global Market Expansion Advisory

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Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
International IT majors / Indian Companies Landscape

Table of Contents

More than

Summary

~ 40 mn strong Labour force

~ 20 mn Youth
~ 816K SMEs

No.1 Destination for Voice BPO

Soon to reach 100 million mobile subscribers

Increasing Consumption & Disposable incomes

Worlds 4th largest Ship Builder
3

Summary - Macroeconomic Environment

GDP 2012-16
6.7% CAGR

44% Debt/GDP
ratio

Driven by increased government

spending, foreign remittances and

Positive

increasing personal consumption

Government is reducing debt burdens;

Inflation and Lending rates are expected

Neutral

to reduce

Philippines growing youth and working

22 Median Age

class population will contribute to

Positive

demographic sweet spot

6.8%
Unemployment

Typical of developing nations, Philippines

has high levels of unemployment and

Negative

poverty

Summary - Infrastructure Overview

Worlds 4th

Shipping is a key mode of transport

largest ship

owing to geographical location of

builder

Philippines 7000 islands

Investment -

National highways are majorly paved;

$10 bn 2013-16

however local city roads not well

Neutral

maintained / paved

112th Rank

Tourism a key driver; Poor quality of

Airport quality

airports an issue

1,060 km

Low investments in Railways; Poor

Railway Lines

Positive

quality & limited reach inhibits

Negative

Negative

movement of goods and people

Summary - Vertical Insights

(1/2)

Cars sales grew by

Mainly import dependent industry; Free imports on

10% in 2012

cars would impact the local manufacturing market

Estimated to grow by
~12% CAGR till 2016

$19.5 Billion to be

invested till 2016

Contributes 0.4% to
countrys GDP

Total deposits grew by

6.3% in 2011

Positive

Mass grocery retail dominates the retail market;

Organized retail is concentrated only in prominent

Positive

business districts

2nd largest Geothermal energy producer in the world;

Very high electricity rates in the country;

Positive

Privatisation bringing huge investments

Very poor airport infrastructure; Over-congestion in

the main airports; Budget airlines dominate 60% of

Negative

the aviation market

Lowering of interest rates driving loans growth;
Capital Adequacy requirements may impact balance

Neutral

sheets

Summary - Vertical Insights

(2/2)

Highest exporter of Nurses in the world;

Medicines are one of the

Current ratio of 1 Doctor to patient 26,493

costliest in the country

patients is very poor; Counterfeit drugs cause

Negative

for concern

IT-BPO currently a $13

Billion market

Ranks top destination for BPO outsourcing;

BPO alones contributes $11 Billion; Scarcity of
employable IT professionals

Real Estate and related

One of the fastest urbanizing countries in

activities contributed

East-Asia; Office space stock projected to

11% to countrys GDP

reach 7 Million sq. m in 2014

High mobile penetration

ratio of 106%

High adult literacy rate

of ~95%

Positive

Positive

~98 Million mobile subscribers; 8th largest

Facebook users in the world; Mature mobile

Neutral

market with low growth forecast

$5.9 Billion(2011) budget approved; Poor
quality of education system producing
unemployable graduates; Direct foreign
investment not allowed in Education

Neutral

Summary IT Market Landscape

Total Domestic
IT Market

PC Installed
Base

Internet Users

Mobile
Subscribers

Smartphone
Users

Over US$ 3.6 Bn

~10 Mn

Hardware (61%), IT Services

(27%), Software (11%)
~2.2 Mn annual new PC
shipment

Over 30 MN

Over 98 MN

Over 29 MN

~ 8 Mn broadband connections

SMS capital of the world ~ 2 bn

SMS sent daily by Filipinos

To increase to >50 Mn by 2015

Basic Facts & Figures

Presidential Form of
Governance, Multi party

Financial Year - Calendar year

i.e. ending 31 December of
each year

Filipino and English

Philippine Peso, (sign: ; code:

PHP)

Capital City Manila

Key Services hotspot,
manufacturing hub and
port

Manila International Cargo

Terminal and the Eva
Macapagal Port Terminal

Cebu City, BPO hotspot

Major Port

Davao City

Catholic 82.9%, Muslim 5%,

Others rest

Source: Philippines Government

Table of Contents
Summary

Macroeconomic Environment
GDP Forecasts
Financial Performance
Governance scores

Demographics details
Infrastructure Overview
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape

10

Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Infrastructure Spending
Aviation
Roadways
Railways
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape

11

Infrastructure Overview
Infrastructure Spending Forecast (in $ Billions)
16
14
12
10
8
6
4
2
0

10.5

13.9

14.8

5%

5%

5%

4%

5.8

6%

4%
3%
2%

2%

1%
0%

2012

2013
Infrastructure spending

Current status
Current infrastructure spending at 2.4% of
countrys GDP is one of the lowest

2014

2015

% of GDP

Proposed initiatives
Infrastructure spending to be increased to 5%
of GDP by 2016

High cost of electric power in the country

Private investments allowed and promoted in

Power sector

Years of neglect and under investments

Government encouraging private investments

across power, infrastructure, roadways etc.

$10.1 Billion worth infrastructure projects approved for Metro Manila

Source: Philippines Government, The National Economic and Development Authority

12

Infrastructure Overview - Aviation

85

~111

Public Airports

Private Airports

With over 7000 islands, air travel is the

preferred choice of travel
Passenger seats available on flights grew by
16% to reach 28.26 Million in 2012

Total carrier departures

worldwide(2010)-1,69,405
112th
Rank

Low airport infrastructure

raking

Budget airlines dominate 60% of the

aviation market

Government focus on PPPs for efficient

implementation of projects

Total Airline passengers

2012(in Millions)

20.5

Domestic Passengers

More than 90% of air traffic served by

NAIA (main international) airport alone
12.5

International
Passengers *(Q3)

Source: Civil Aviation Authority of Philippines, IATA

Dominated by six players: Cebu Pacific,

Philippine Airlines, Airphil, Zest Air, Sea Air & Air Asia

13

Infrastructure Overview - Aviation

Growth of tourism acting as the main
catalyst

Number of tourists grew by 18% in 2012

98% of foreign tourists travelling by
airlines

Investments for improving current

airport infrastructure

$41
Million
$50
Million

Rehabilitate Ninoy Aquino

International Airports Terminal 1

Albay airports runway and taxiway

development

New airport projects approved

$111 Million Bicol international airport project in

Daraga, Albay

$172 Million Panglao airport project in Bohol

Source: Civil Aviation Authority of Philippines, IATA, Ninoy Aquino International Airport

$4
Million

$20
Million

Development of access point to

Central Mindanao via Cotabato

Leytes Tacloban Domestic Airport

infrastructure improvement

14

Infrastructure Overview - Roadways

~$ 10 Billion to be spent for improving
national roads till 2016
Spending on national roads
infrastructure (in $ Billion)
2.3

2.1

Ranks 87th for overall state of public

infrastructure

$3.1 Billion for road improvement till 2016

2.9

2.7

Poor roadways infrastructure hampering

agricultural sector
2013

2014

2015

2016

Mindanao which produces ~70% of total

vegetables and fruits has very poor roadways
infrastructure

80%

31%

34%

7%

National Roads /

Provincial Roads

Municipal Roads

Small Village /

Highways paved

paved

paved

District paved

Source: Philippines Government, Department of Public Works and Highways

15

Infrastructure Overview - Railways

1,060 kms of total
railway lines in
Philippines
Very low reach of network lines
considering the geography
Under-investment in railways sector
affected growth
Corruption within the Government
caused delays in various railways
projects
Over 7000 islands makes it difficult for
developing long distance train lines
Source: Philippine National Railways

Manila Light Rail Transit serves

605,000 passengers each day

State of the art monorail system to

start operations soon

Government investing on improving

railways infrastructure

$28
Million

Improving commuter train service in

$77
Million

Building 11.7 kms of railway lines

Manila

from Baclaran to Bacoor

16

Infrastructure Overview - Seaports

Presence of over 7000 islands
make water transport very
important

25 main ports, more than 1000

ports across the country

Manila International Container Terminal accounted for 10.6% of total

cargo shipped

All ports serviced ~331,455 ships in 2011

2011

58%

Share of
Cargo Shipped in 2012

Foreign cargo
shipped increased
by 2%
2012
42%
40%

Foreign cargo Domestic

cargo

Foreign cargo

60%

53.2
Million

~8%
growth

Worlds 4th largest ship builder

Share of
Cargo Shipped in 2011

2012

49.4
2011 Million
Total passengers
(in Millions)

Government inviting PPPs for

improving port infrastructure

DOTC approves $12.5 Million for key

sea-ports upgrades

Domestic
cargo

Source: MARINA, Philippine Ports Authority , Department of Transportation and Communications

Budget airlines causing shift of seatravelers to air travel

17

Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape

18

Automotive Industry Market Overview

4% GDP contribution by
Automotive Manufacturing
Vehicle Sales Figures
2011

2012
96,754

7.7%
Growth

44,862

1,08,321

Contributes ~ 12% of the

industrial sector output
Generates ~ $3.2 Billion in export
revenues
Employs ~ 75,000 skilled workers

48,328
12%
Growth

Passenger Car

2012
1,56,649

Units

Commercial Vehicle

Growth of
26.5%

Import oriented market with 54%

of cars sold are imported

2016
Market share of Top players in 2012

1,98,100
Units

Toyota

35%

Mitsubishi

19%

Hyundai

12%

Projected Vehicle Sales Figures

Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers
and Distributors)

19

Automotive Industry - Drivers

Plan to replace old Land

8% discount for car

Transport vehicles with

exports

locally made ones

Export zone locaters

get exemption from

Banks providing
easier auto loans
which grew by
~21.5% in 2011
Low interest rates

Government
initiatives

Supportive
policies

Easier
Banking
norms

Improving
roadways
infrastructure

duties on imported
equipment

3884 Kms of roads

added in 2012
Introduction of PPPs
in roadways
infrastructure projects

offered
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers
and Distributors)

20

Automotive Industry - Inhibitors

Inhibitors
More than 54% to cars purchased are
still imported

Import friendly trade policies

Signed ASEAN trade agreement allowing
free import of cars

Large low income group population

Foreign players preferring to import cars

Inadequate supply network

Ford closing their
manufacturing plant citing
inadequate supply network
and economies of scale
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.

Manufacturers may choose to put plants in

bigger / mature neighboring markets like
Thailand, Malaysia etc.

21

Automotive Industry - Emerging Trends

Hatchbacks to dominate car sales

Hyundais hatchback Eon

became the fastest selling car in

2012

Emerging trends in Automotive

industry

Investment Priorities Plan

focusses on manufacturing
alternate fuel vehicles
Passed special bill providing
incentives for manufacturers,
distributors of alternate fuel cars
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines), AT Kearney Report

Changing customer purchasing

behavior and preferences

Consumer do a lot of research

before purchasing and looks for
best after sales services

22

Retail Industry - Market Overview

~13% GDP contribution
from Retail industry
Retail Sales Forecast(in Billions)
36.3
32.4

~12%
Growth

2012

2016

Mass grocery retail to contribute $13.9 Billon

sales in 2013

2017

2013
$ 13.9
Billion

41.5%
Growth

$ 19.7
Billion

Mass grocery retail sales growth forecast

Source: Philippine Retailers Association, Business Monitor Report

Constitute 33% of the

services sector
~50% of total retail sales concentrated in
Manila Metropolitan Area
Registered ~ $32.4 Billion Sales
in 2012
Employs ~5,000,000 people

~30% of total retail sales from

franchisee retail
More than 124,000 franchisees
employing ~1.1 million people

Dominant Players: SM Group, Ayala

Corporation, Robinsons and Rustans
23

Retail Industry - Drivers

Easier
Banking
Facilities

Growth of
organized
retail

3
Rise in
consumer
spending

Banks financing up to 60%

of capital for franchising
concepts

Growth of franchisee retail

(contributes 30% total retail
sales)

Unemployment ratio
decreased from 7.1%(2011)
to 6.8%(2012)

Entry of foreign brands in the

market (Forever 21, Uniqlo
,etc.)

Huge overseas remittances

($21.3 Billion in 2012)

Increase in dual-income and

middle class families

Source: Philippine Retailers Association, The National Statistics Office (NSO), National Economic and Development Authority

24

Retail Industry - Inhibitors

Foreign investments need

54% of total retail space

to have paid up capital of

concentrated in Manila

$2.5 Million or more

~51% of total

Parent company should

population belong to

have net worth of more

rural areas
Traditional retail outlets
still preferred in rural

Untapped
rural areas

Restrictive
government
regulations

than $200 million

Minimum investment of
$830,000 per store is
required

areas

In-efficient
logistics system

Absence of efficient logistics system and

courier service affecting online retailing
Source: Philippine Retailers Association, PwC report

25

Retail Industry - Emerging Trends

Growing entry of foreign brands in

the Philippine market
Brands like Forever 21,
Uniqlo, APPLE & Bee , etc.
entering the market

Growth of Online shopping among

young Filipino population

Emerging
Trends

Franchising of brands evolving as an

emerging trend

Filipinos top in online

shopping research in Asia
Pacific region

30% of retail sales

contributed by franchisee
retail

Awareness of global brands among

young BPO crowd and overseas
travelling Filipinos
Retail sales of global brands
driven the young working
crowd

Source: Philippine Retailers Association, A.C Neilson

26

Energy & Utilities Industry - Market Overview

Philippine Power Industry

$ 19.5 Billion to be
invested between
2013-2016

Generation

Electricity generation estimated to grow

by 4.3% CAGR till 2021
83% of the total households are
electrified as of 2011
Placed in top 5 most energy efficient
countries in Asia

Transmission

Distribution

Growth in Power Consumption

2009

2010

10.2%
8.7%

9.2%

7.6%
5.2%

4.8%

4.4%

0.3%
Residential

Commercial

Industrial

Others

Players: NPC,
Western Mindanao
Power Corporation,
Meralco, Aboitiz
Energy, Meralco

Players: NTC,
National Grid
Corporation of
Philippines

Players: Meralco,

Total Power generation

capacity of ~ 67,743
Gwh

Presence of ~ 20,129
Circuit Kilometers of
transmission lines

Meralco is largest
power distributor with
$ 400 Mn in Revenue

Focusing on Gas
powered plants which
are cheaper than oil
based plants

Around $ 2 Billion
allotted to expand
transmission lines
nationwide

Meralco partnering with

Japanese company to
set 3000 MW LNG
powered power plant

Source: Department of Energy, Business Monitor Report, The Asian Development Bank

Abiotiz, VECO,
DAVAO Light, PECO

27

Energy & Utilities - Market Figures

Electricity Production from different
sources

73.7%

34.4%
28.9%

10.4%

Hydro and
Other
Renewable

Focusing on Gas powered plants which are

14.7%

11.7%

Geothermal

Energy needs met from Non-renewable

sources of energy

cheaper than oil based plants

Oil Based

Coal

2021

Natural Gas

2nd

Largest producer of Geothermal energy in

the world
Electricity Generation from different
renewable sources

2012

37.7 %

44.7 %

0.5%

26.3%
43.8%
55.7%
Energy needs met from
Renewable sources of
energy
Hydro

Geothermal

Estimated growth of Electricity

production through gas powered plants

Other Renewable Sources

Source: Department of Energy, Business Monitor Report

28

Energy & Utilities Industry - Drivers

Increasing
Investments

Increasing Demand

Govt. Initiatives
Formalised long term Energy
Plan(2012-30)

Plan to electrify 90% of

total households by 2017

Rapid growth in the number

of IT-BPO offices

Investments of ~$19.35Bn
required by Energy sector

Measures to increase
production of fossil fuels

Meralco to build the largest

Natural Gas powered plant
by 2016 partnering with a
Japanese firm

Encourage private sector

through Build-own-operatetransfer (BOOT) and buildown-operate (BOO) type of
contracts

Aboitiz, a local player, to

invest $2.13 Billion over 4
years

Feed-in tariff rates (linked

to variable cost of
production) to encourage
Renewable Energy projects

Rapid Urbanization and

growth of economy

Ayala, a regional player to

invest $500 million in next 5
years

Source: Department of Energy, Business Monitor Report, Aboitiz

Strict rules and penalties to

curb power thefts

29

Energy & Utilities Industry - Emerging Trends

Renewable
Source of Energy

Focus on power

production
through
Renewable
Sources of
Energy

Smart Cities & Smart Grids

Energy Efficiency

Introduction of
Focus on

Plans to develop

investing in end-

Smart Cities and

to-end Smart

Smart Country-

grids solutions by

sides especially

various players

BPOs

Source: Department of Energy, Business Monitor Report,

Free distribution
of energy
efficient CFLs
and phasing out
incandescent
bulbs

energy efficient
e-trike electric
vehicles
replacing
traditional petrol
based vehicles

30

Aviation Industry - Market Overview

Aviation industry
contributes 0.4% to GDP

Domestic Aviation Market Share

45%

Generates $4.8 Billion in

catalytic benefits through
tourism
Employs ~123,000 people
Budget airlines dominate 60% of
the Philippines aviation market

21%

22%
10%
2%

Cebu
Pacific

Philippine
Airlines

Airphil
Express

Zest Air

Sea Air &

Air Asia

International Aviation Market

Share
55%

Total Airline passengers in

2012 (in Millions)
15.5

Domestic Passengers

24%

12.5

International
Passengers

Source: Civil Aviation Authority of Philippines, IATA

16%

Foreign
Carriers

Philippine
Airlines

Cebu
Pacific

2%

3%

Zest Air

Sea Air &

Air Phil

31

Aviation Industry - Drivers

Grew by 18% in
2012
98% foreign
tourists by airlines
Luzon, Visayas &
Mindanao rated top
tourist destinations

Countrys
geography

Over 7000 islands make air

travel the most convenient

Growth of
Outsourcing
& Offshoring

Tourism

Drivers
IT-BPO to grow by 18%
till 2016

To and fro journey of

~2.2 Million overseas
Filipinos

Overseas
Filipino
Workers

Drivers

Source: Civil Aviation Authority of Philippines, National Statistics Office

Large
Government
infrastructure
projects

Large investments to
improve airport
infrastructure
32

Aviation Industry - Inhibitors

Poor airport infrastructure
(Ranks 112)

Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, World Economic Forum

Future plans to improve current

state

33

Aviation Industry - Emerging Trends

Foreign carriers expanding

operations

Emirates starting direct flights

from Luzon to UAE

Airlines modernizing flights

Emerging
Trends

Cebu Pacific adding 20 more

Airbus A320 and 30 Airbus
A321neo aircraft
Philippines Airlines ordered
additional 10 Airbus A330-300

Focus on modernization of
airports

$8 Million worth
modernization drive at
Tacloban and Dipolog airports
Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, The Department of Transportation and Communications

34

BFSI Industry - Market Overview

Philippines Banks rated ASEAN
regions Best Performing Bank
stocks prices
Total deposits grew by 6.3% in 2011

Moodys rates Philippines Banking

system as Positive in creditworthiness
Loan growth increased by 14% and
profit to 15% since 2011
Consists of 730 players in the Banking
Industry

~$96 Billion

~$101 Billion

2010

2011

Total banking network of 9,207

Non Performing Loans ratio declined to

2.9% in 2011 from 3.6% in 2010

Total deposits in Banking Institutions

~$65 Billion

~$75 Billion

2010

2011

Loans for production activities comprised

around 84% of commercial banks total
outstanding loans

Loans Outstanding in Banking Institutions

Source: The Bangko Sentral ng Pilipinas, Business Monitor Report

35

BFSI Industry - Drivers

Low interest rates being

offered

Growth in economy
driving SME & Corporate
loans
Bank loans grew by
14% in 2012

Increasing foreign
investments in the BFSI
industry
Maybank plans to invest $100- $200
million to its local subsidiary Maybank
Philippines

Source: The Bangko Sentral ng Pilipinas, Business Monitor Report

Drivers
Drivers

Rates were lowered to 3.5 percent

for overnight borrowing and 5.5
percent for overnight lending

Government effort to
merge rural banks with
other players
One Network Bank (ONB)
and Iloilo-based Rural
Bank of San Enrique

Lifting restrictions on
number of branches
As long as their capital supports,
banks can now put up as many
branches

36

BFSI Industry - Inhibitors

Financial
problems in
foreign
countries

Countrys Commercial
and universal banks
required to put in
more equity capital

Philippine
Central Bank
regulations
& initiatives

Reduced lending rate

to 5.5% to boost
domestic economy
Source: The Bangko Sentral ng Pilipinas

Resulted in 5 Foreign banks

closing down operations in
Philippines

Inhibitors
Encouraging
mergers

PNB and Allied Bank merge

with combined assets of $
12.2 Billion(2012)
37

BFSI Industry - Emerging Trends

Internet
based
banking
services

2
Mobile based
banking
services

Online banking usage in Philippines grew by 39%

in 2011

Philippine Postal Savings Bank

adopting 3i Infotechs core
banking solution

Philippine Resources Savings Bank

chooses IBM Power Systems

Rizal Commercial Banking

Corporation deploys Infosyss
Finacle Core Banking Solution

Adoption of
latest
technologies

Rural areas benefitting from mobile payment

solutions in micropayments services

Source: The Bangko Sentral ng Pilipinas, ComScore, XMG Global

38

Healthcare/Pharmaceutical Industry - Market Overview

Expenditures projections(in
Billions)

~$3 Billion
2010

$3.9 Billion

2011

2013

8.4

2012
9.1

Pharmaceutical Industry
Growth Forecast

2.9

2.8

Presence of ~1,500 hospitals

(2011)
~21,500 Healthcare units and
centers(2011)

Highest exporter of Nurses in the

world
Budget of $1.1 Billion approved
for healthcare
Source: Business Monitor Report

0.3
Pharmaceutical
Expenditure

Healthcare
Expenditure

0.35

Medical Devices
Expenditure

Key Players in the market:

Unilab, Pascual Labs, Pfizer, Novartis,
Merck & Co, Sanofi-Aventis, Abbott
Laboratories etc.
39

Healthcare/Pharmaceutical Industry - Drivers

Government assigning $1.1

Citizens above 65 years to

Billion in their 2012 budget

grow at CAGR 1% till

for healthcare

Foreign drugs dominate

the healthcare market

Source: Business Monitor Report

Government
focused on
improving
healthcare
scenario

Increasing
number of
senior citizens

Growing
market for
foreign
healthcare
players

Top
pharmaceutical
companies
have
manufacturing
plants in the
country

2020 resulting in high

healthcare spending

14 of the top
pharmaceutical companies
in the world have
manufacturing plants

40

Healthcare/Pharmaceutical Industry - Inhibitors

Philippines ranks as one of

the most expensive countries
for drugs

Government Laws for

healthcare industry

Same medicine in Philippines

would cost 5-30 times more
than in India, Pakistan

Counterfeit drugs creating a

roadblock

Special Law with Criminal

Sanctions against selling
counterfeit drugs

~ 30% of the medical shops

in Philippines sell fake
medicines

Government initiatives to
improve healthcare
situation
Rotavirus Vaccination program for
vaccinating children

Source: Bureau of Food and Drug, Department of Health

PINOY Health Insurance Act for healthcare

to benefits to the poor

41

IT / ITeS Industry - Market Overview

3rd Largest supplier of IT
Talent in Asia Pacific
region
BPO industry alone is
valued at $11 Billion

Estimated to grow by 18%

~$13 Billion
2012

IT-BPO Growth
forecast

Worlds top destination for BPO

outsourcing
IT-BPO industry employs
~772,000 people(2012)
Healthcare Outsourcing industry
contributed ~$433 Million
Produces ~90,000 Technical
graduates annually

~$16 Billion
2016

2012

2013

Hardware

$2.2
Billion

$2.4
Billion

Software

$401
Million

$460
Million

$1 Billion

$1.2
Billion

IT Services

IT Products/Services Sales figures

Source: Business Monitor Report, Philippines Software Industry Association

42

IT / ITeS Industry - Drivers

Rising PC penetration in
rural areas

Government ICT
initiatives driving IT
adoption
Various e-governance
projects driving IT adoption
across country

Rapid growth of
Outsourcing and
Offshoring Industry
Growth in Animation & Gaming,
Accounting & Finance
outsourcing, Healthcare
outsourcing

Computer hardware sales

grew by ~10%

Rise in wage structure

Drivers
Drivers

Enabling consumers to
spend on PCs

Growth in number of
Graduates

Produces ~90,000 Technical

graduates annually

Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association

43

IT / ITeS Industry - Inhibitors

Scarcity of employable
high/middle-end IT
professionals

Financial crisis faced by US &

European Banks which account
for 30% BPO spending

Lack of skilled IT graduates

due to poor quality of
education

Government initiatives to
bring businesses from foreign
countries

Financial crisis might prevent

foreign banks from
outsourcing their work

US-Philippine Business & IT

delivery council launched in
Silicon Valley

ICT related regulations

introduced by Government
Data Privacy Act of 2012 signed to prevent
illegitimate use of data

Cybercrime Prevention Act 2012 for

tackling cybercrimes

Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association

44

IT / ITeS Industry - Emerging Trends

E-governance
initiatives
driving IT
adoption

2
$11 Million
iGovPhil
project

Criminal tracking across all police stations by

Philippine National Police (PNP) using modern
technology

Integrate existing government networks together to

run government applications

TV White Space (TVWS), to tap unused frequencies

between TV channels to deliver broadband services

Develop payment gateway catering to possible

payment gateways

Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association

45

Real Estate Industry - Market Overview

Land value growth rate
Prominent Business Districts

15.1%
8.5%
6.1%

Makati Central
Business District

Ortigas Center

BPO sector takes up ~4.5 Million Sq.

feet annually
One of the fastest urbanizing
countries in East Asia

Bonifacio Global City

New residential units supply

8,669

~11% GDP contribution from real

estate, renting and related business
activities

23,600 new units to introduced by

2016 in Makati CBD
6,261

Average hotel occupancy rate

exceeds 70% in 2012 compared to
67% in 2010
New office supply forecast
Office space stock projected to reach 7 Million
sq.m in 2014
4,66,760

6,01,219

3,007

2012

2013

2014

Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang &

other locations

Major urbanized locations

Source: CBRE, Business Monitor Report, Colliers Research

2,39,831

2012

2013

2014

Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang &

other locations

Major urbanized locations

46

Real Estate Industry - Market Overview

BPO sector accounts for
~85% of the total office

space which grew by 25%

in 2011

Residential, gaming and

leisure sectors also grew

Interest rates for the

Growth of
Outsourcing
and
Offshoring
industry

Home
Development
Mutual Fund
reducing
interest rates

Growth of
retail sector
aiding real
estate

Growth of
tourism

low-income group
reduced from 6 to 4.5
percent

Tourism aiding in
growing demand for
hotels

Large remittances from Overseas

Filipino workers($21.3 Billion)
Source: CBRE, Business Monitor Report, Colliers Research

47

Real Estate Industry - Inhibitors

Political unrest in the

middle-east

Causing decline in remittances

Financial crisis faced by US

& European Banks

Housing backlog

Affecting outsourcing industry

with 5 banks closing down
operations in the country

Limited options for low

income group

Government Regulations for

Real Estate industry
Foreigners are barred from taking a
majority interest in land

Source: CBRE, Urban Land Institute, Business Monitor Report,

Corporations or partnerships with 60%

Filipino ownership are entitled to acquire
land in the Philippines.

48

Real Estate Industry - Emerging Trends

Emerging
Trends

Growth in economy and

purchasing power

Real estate purchases by

Overseas Filipinos

Growing trend of
purchasing Vacation
homes among Filipinos

Growth in organized
retail like Malls,
Shopping Centers etc.

Strong desire among

Overseas Filipinos to
buy/build home in their
native land

Strong desire among

Overseas Filipinos to
buy/build home in their
native land

Source: CBRE, Business Monitor Report, Colliers Research

49

Telecom Industry - Market Overview

~10% Contribution to
the countrys GDP
3.5%

9.6%

0.01%

Mobile

Broadband

Fixed Line

Estimated growth rate till 2016

$5.3 Billion in
Revenue (2011)
Philippine Mobile market share

Other Players

Presence of ~103 Million mobile

subscribers
High mobile penetration rate of
106%
8th Largest Facebook users in the
world
Filipinos account for 10% of worlds
global SMSs

30%

70%

Smart phone sales estimated to grow

by 60% till 2016

PDLT & Digitel

Source: PwC Report, National Telecommunications Commission

50

Telecom Industry - Drivers

Huge
potential
broadband
market

Expansion allowing
addition of more
customers from rural
areas

Current broadband market has a

low penetration rate of 7.4%

Network
expansion by
telecom
operators

Social media
popularity

Drivers

Worlds 8th largest

Facebook
population
Growing use of
internet services
on mobile

Consists of four 3G
license holders

Liberalized and
competitive
telecom sector

Government
ICT plans

Source: PwC Report, National Telecommunications Commission, *ARPU(Average revenue per user)

PDS 2011-16 plan to

create further demand for
telecom services from
corporate segment
51

Telecom Industry - Inhibitors

Inhibitors

Geographical constraints
for expansion and
operations

Rural market comprising

51% of total population
still untapped

Mature mobile market

with low growth rate
projections (3.6% p.a till
2016)

Mobile market dominated by Pre-paid constituting 92% of total users

which brings low ARPU

Source: CBRE, Business Monitor Report, Colliers Research

52

Telecom Industry - Emerging Trends

$141.5
Million
Smart Communication to
modernize its 2G/3G network
and mobile broadband
networks.

$790
Million
Globe Telecom network
modernization plan

Launch of
WiMAX

WiMAX enabling greater

network access to remote
areas

Investing in
modernizing
infrastructure

3
Growing use of
Smartphones

Smartphone penetration to
grow to 50% till 2015

4
Telco Operators investing in 4G Adoption of new
technologies
and LTE technologies

Source: PwC Report, National Telecommunications Commission

53

Education Industry-Market Overview

$5.9 Billion budget

approved for Education
Sector

~58,914 (2011) public and

private schools and

2011 projection: 500,783 graduates,

3.9% growth

learning centers

Total Graduates produced annually

College Degree Graduates

Employs ~316,000 people

Produces more than 500,000

Graduates annually

Very high adult literacy rate of

nearly 95%

Medical and natural sciences, allied

fields

1,19,378

28.7%

Business, accounting, and related

fields

1,17,339

28.2%

Social and behavioral sciences,

education

68,811

16.5%

Engineering and architecture

50,734

12.2%

IT-related and mathematics

47,928

11.5%

Fine arts, masscom, humanities

12,269

2.9%

Total
Source: Philippines Software Industry Association, Board of Investments

2010

~ 417,000
54

Education Industry - Drivers

Huge young
population

Fuelling demand
for employable
graduates

Growth of
Outsourcing
&
Offshoring
industry

Drivers

$5.9 Billion(2011) budget

approved

Source Bureau of Immigration, Board of Investments

Average median age of 22

Affordable
Education

Attracting foreign
students with
26,000
enrollments in
2012

Government
initiatives

55

Education Industry - Government Policies

Government initiatives for

education sector

Restrictive Government Regulations

in Education sector

Free kindergarten education to five

year old children all public schools

Foreign Investment Act does not allow

direct investment

Procuring more than 31.1 million

Textbooks

Foreign investment possible through

corporation and partnerships

Initiated K+12 curriculum for quality

education
Focus on PPPs for construction of
school buildings and infrastructure
Source: Philippines Software Industry Association, Board of Investments, Government of Philippines

56

Telecom Industry - Emerging Trends

Growing use
of e-learning
solutions

Use of E-Learning product and solutions grew

by ~33% in 2012

2
Use of cloud
based
solutions

Growing use of cloud based tools and learning

platforms

Vibal Publishing House and Microsoft partnered

Modern
technologies
in education

to create e-textbooks
Vibal distributed 1,000 tablets to public school

students in Laguna
Source: PwC Report, National Telecommunications Commission

57

Philippines Government - Initiatives

Various Government reforms for industry growth

Focus on various Public-private

partnerships

Government signing agreements with

various Asian countries

Government inviting PPPs across education,

infrastructure, construction, transportation,
e-governance etc.

Signed the ASEAN agreement for duty

import of cars within ASEAN countries

Allocated an increased budget of $5.95

Government focus on improving education

standards

Billion in 2012

Introduction K-12 curriculum to quality of

students

Philippines Digital Strategy 2011-16 to

maximize use of ICT for national
development

Use ICT technologies to collaborate across

departments for better e-governance
Create additional demand for ICT services
from corporate segment

Source: Philippines Software Industry Association, Board of Investments, Government of Philippines, PwC Report

58

Philippines Government - Initiatives

Various Government reforms for industry growth

Bringing peace to the country

Efforts to bring the high corruption level

down

Reaching an agreement with the countrys

largest Muslim group in Mindanao

Corruption level in public sector decreased to

42%(2012) from 64%(2009)

Introduction of locally manufactured electric

Government stress on healthier

environment

public transport vehicles

Stress on using the vast renewable sources
of energy for power production

Focus on using modern ICT enabled

services for agriculture, transport and

smart grid

Signed Memo of Understanding between

ASEAN and the International
Telecommunications Union on Joint
Cooperation on ICT development in ASEAN

Source: Philippines Software Industry Association, Board of Investments, Government of Philippines, PwC Report

59

Philippines Government - Using modern IT

Government to implement a National Justice Information
System (NJIS), an integrated Big Data criminal justice
database system

The Philippines Bureau of Internal Revenue Reduces Federal

Deficit, Improves Tax Collection Processes with SAS,
Realizing 400 Percent ROI

Department of Finances implements financial analytics

and data warehouse

Department of Transport and Communications Infrastructure

and Information Systems Project

Source: Government of Philippines

60

Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
Connectivity - PC, Broadband and Mobile Penetration
Social Media Penetration
IT Spending estimates and SMB status

Government ICT Plans

International IT majors / Indian Companies Landscape

61

Table of Contents
Summary

Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
International IT majors / Indian Companies Landscape

62

Zinnov Point Of View

63

Philippines
1990s
Sick Man of Asia,

Low GDP growth

Positive

Philippines presents an exciting space with a 95

million strong domestic market.

The worlds second largest outsourcing destination

2010s
Positive
One of potential

started on journey of strong macro-economic

development.

Breakout Nations

With an estimated IT market of ~ USD 3.6 bn,

beating growth
expectations

with its young and English speaking population has

Positive

companies would have potential to grow and expand

in Philippines.
The government which was rated inefficient and

Negative

corrupt recently, is focussing on increasing

transparency and promoting the business
environment.

64

However there are some pitfalls

Growth vs.

Potential

Saturated

Growth Areas

Areas

Buy vs. Grow

vs. Partner
Competition

Market

Current and

Potential -

Potential

$$$

Government
Regulations

Cloud vs.
hosted vs. inhouse

Partner
Ecosystem

65

Which Zinnov can help you navigate

We help organizations globalize their business and improve people

performance

Growth
Strategy
Definition
Risk
management
Organization
Restructuring & Change
Management

Portfolio
Analysis &
Talent
Peer Group
Benchmark

Network

Innovation

Research
Eco-system
Connect

Value
analysis &
Maturity
model

Vendor
Selection,
location
Cost
Analysis &
Optimization
Audit

Globalization
Council
Shared
Services

Contract
Structuring

Benchmark
Global
Leadership

Optimize
Operational
efficiency

66

Zinnov Management Consulting

For more details and complete copy of the report, write to

us at info@zinnov.com

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Thank You
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