& Infotech Matters
The Internet Strategy of the Philippines
the next decade, the market for IT-enabled services and e-commerce
worldwide is expected to be valued at billions of dollars, with
internet users growing ten-fold every five years. Andersen Consulting
estimates that global e-commerce totaled $150 billion in 1999. That
market is expected to grow to $700billion in the next five years,
with 80 percent of it accounted for by Business-to-Business (B2B)
e-commerce. In the Asia-Pacific region, B2B spending is estimated
to reach $29.9 billion in 2000, $93.4 billion in 2001, $258.5 billion
in 2002, overtaking Japan, $510.7 billion in 2003, and $1 trillion
in 2004. IBM forecasts Business-to-Consumer (B2C) e-commerce in
the region to amount to $108 billion in three years from now. By
2004, Fortune magazine estimates that the worldwide B2B market could
reach $7 trillion, where the Asia Pacific accounts for roughly 14%.
To seize IT
industry's potent opportunity for fuelling economic growth, the
government and private sector have developed the Internet Strategy
for the Philippines or ISP.COM. The ISP.COM embodies a comprehensive
strategy to develop an environment conducive for the investments
in, and growth of e-commerce. The plan identifies a focus market
where Filipino companies can concentrate initially, and immediately,
to maximize inherent advantages of the country's human resources.
At the same time, it outlines how government will create the physical,
educational, financial, logistical and legal/institutional environment
conducive for IT development and e-commerce.
This plan takes
into account previous or existing IT plans of the government, such
as IT21 (The National IT Action Agenda for the 21st Century that
was approved in October 1997 and launched in February 1998), but
is not meant as a replacement of these. Rather it intends to provide
focus on the imperative of attracting investments into the IT industry
and IT-enabled services and identify a priority list of actions
with the growth of e-commerce/e-business in mind. The government
agencies that are indicated as directly responsible are DTI, DOTC,
NTC, DOST, CHED, DECS, SEC, DBM and BSP.
ISP.COM is meant
to be a very dynamic document, one which will benefit from a constant
updating, mirroring the industry's own dynamic.
of ISP.COM is one of the more recent private-public activities to
promote and focus on the New Economy - an effort that can be traced
back to 1994. The ISP.COM is the result of a process initiated in
March 2000 by DTI to reactivate and consolidate the E-Commerce Promotion
Council. Among the various initiatives that were brought together
was an activity of the Economic Mobilization Group (EMG) to articulate
an E-Commerce/Internet Strategy for the Philippines. This proposal
was adopted by the E-Commerce Council and private-sector conveners
were designated by the DTI Secretary to lead the discussion in the
following topics: Physical Infrastructure, Financial Systems, Manpower
Development, Legal Infrastructure, Market Niche and Communications
(Conveners were Dr. Bill Torres [Niche], Gus Lagman [HRD], Ramon
Garcia and Paco Sandejas [Financial Systems], Chito Kintanar and
Ricky Banaag [Physical Infrastructure], and Rey David [Communications].
The knowledge Institute acted as "convener" for Legal) . A conference
was held on April 13 to present the groups' output and a preliminary
draft prepared by the Knowledge Institute was presented in May.
A second draft was disseminated to the members of the E-Commerce
Council for their comments in June 2000.
and monitoring of this plan now falls under the ITECC (Information
Technology and E-Commerce Council), which is jointly chaired by
the Department of Trade and Industry (DTI), the Department of Science
and Technology (DOST) and the private sector. Members include the
Department of Transportation and Communication (DOTC), through the
National Telecommunications Commission (NTC), Department of Budget
and Management (DBM), National Economic Development Authority (NEDA),
Department of Education, Culture and Sports (DECS), the National
Computer Center (NCC) and the Department of Interior and Local Government.
How the country
participates in the new economy will depend on five (+1) factors:
Physical/Network Infrastructure, Human Resources, Financial Systems,
Logistics, Legal/Governing Institutions and, as a business imperative,
Marketing/Communications, that is, its ability to position and market
itself in the global economy.
of e-commerce should be led by the private sector, with government
intervention limited to what is essential and manifested in a manner
that is non-discriminatory, flexible and technologically neutral.
The speed by which technological change takes place, the nature
and architecture of the internet, as well as other factors, points
to the efficacy of letting the market “do its thing” rather than
attempting to control or even regulate what is – by design/structure
– largely ungovernable.
Network Economy has peculiar features, which require that government
– while maintaining distance – is not absent from the game. Particularly,
the “public goods” nature of knowledge/information and the Internet,
the digital divide or equity issue, and, in this country, the practical
matter of economies of scale due to our small domestic market.
The role of
government therefore is to provide a favorable policy environment,
one that is compatible with international norms, to promote trust
and confidence among e-commerce participants, and to help jump start
e-commerce and encourage its mass use.
The market vision
is for the Philippines to be a leading regional center for E-Services
hosting a variety of global enterprises in information technology
and other professional services (E-services included tasks accomplished
for Philippine-based enterprises as well as those outsourced for
local or foreign companies. The work is done by IT-enabled individuals
or groups based in the Philippines and is (i) delivered to the client
through electronic means, (ii) largely dependent on electronic communications
for cost-effective delivery to the client, (iii) directly accessible
by end-users through the internet).
As an E-Services
Hub, companies located in the Philippines will be able to extend
world-class IT Services and IT-Enabled Services to clients worldwide.
IT Services include IT project management, application systems development,
applications services provider, web development and management,
data-base design and development, computer networking and data communications,
software development, ICT facilities operations / management, and
other services directly tied to the information technology industry.
services, on the other hand, refer to other business lines that
can be transformed through the means of information technology.
These include any business process outsourcing and shared services,
call centers and other customer services, engineering and design,
animation and content creation, knowledge management, remote education,
market research, travel services, finance and accounting services,
human resource services and other administrative services (e.g.
worldwide are expected to reach US$142.2 billion by 2008 according
to McKinsey & Co. Specifically, human resource services ($44 billion),
customer interaction ($33 billion), data search, integration and
management ($18 billion), remote education ($15 billion), finance
& accounting services ($15 billion), engineering and design ($5
billion), network consulting and management ($5 billion), website
services ($3 billion), animation ($2 billion), transcription ($1.2
billion) and market research ($1 billion). Likewise, revenues from
the traditional outsourcing market, that is, from data processing
and business process outsourcing (BPO) is estimated to increase
to US$120 billion by 2002, from US$99 billion in 1998.
is the niche where the Philippines can attain market leadership.
The Philippines is the 3rd largest English-speaking nation in the
world and has an IT skill set 2nd only to India (due to population).
At the same time, costs of technology workers (which represents
the biggest recurring costs for, say, a B2B site) in the Philippines
is only around 16% to 25% that of comparable workers from the United
and Bangladesh may have labor cost advantages for the data processing
market, the Philippines can be preferred site for business process
outsourcing (BPO). Americans and other Foreigners are already in
the Philippines for software & solutions services. America Online,
Barnes & Noble, People Support, Caltex Corp., Parsons, Fluor Daniel,
Bechtel, Procter & Gamble, Citibank, Andersen Consulting, Mitsubishi
Heavy Industries, Sumitomo Corp., Chiyoda Corporation, among others
have established backroom service / centers in the Philippines.
Business process outsourcing and e-commerce are natural partners.
of the Philippines include the inclination of Filipinos toward mobile
technology and the regulatory environment, i.e. the industry remains
less regulated than other countries in the ASEAN.
To create an
environment conducive for IT development and E-Commerce, attention
must be given to Physical/Network Infrastructure, Human Resources,
Financial Systems, Logistics, Legal/Governing Institutions and Communications.
Public Telecommunications Act of 1995 (RA 7925) deregulated the
telecom sector and kicked off rapid growth in terms of access to
and penetration of IT facilities. However, fixed-line density is
low and PC and Web penetration/access lower still (at below 1%).
The country ranks second from the bottom in terms of IT facilities,
only better than Indonesia.
Trunk Line Operators
- There was
a 570% increase between 1994 and 1998 in fixed-line density; as
of December 1999, the ratio of telephone lines to total population
(of 72 M) was 9.4 %, with approximately 43% of lines subscribed
to. Out of 12 M households, 71% had a TV and 85% had radios. The
number of ISP rose from 19 in 1995 to 160 in 1997 and Internet
subscribers also increased from 63,000 in 1997 to around 600,000
today (or approximately 2,000,000 users). Average annual sales
of personal computers were estimated at 350,000, 20% of which
was for home use.
- There are
1.01 Internet hosts per 10,000 people in the Philippines, versus
108 (HK), 37.66 (Korea), 18 (Mal), 187 (Sing), 4 (Thailand), 107
(Jap) and 975 (USA). Market size as a percentage of GDP is 0.5,
falling way behind HK (1.2), Mal (1.3), Singapore (1.9), Korea
(1.6), although it is at pace with Thailand, China and Indonesia.
On the upside,
mobile phone penetration and usage is phenomenal. There are about
2.82 M users, up from 782,000 in 1996, and Globe alone handles 10
M text/day, higher than all of Europe. Moreover, the rate of increase
in the penetration of the Internet is such that by 2003/2004, there
will be more people on the net than the entire population of Singapore.
Access and connectivity
for anyone, at any time, and at an affordable cost, is the objective
of the Philippine Information Infrastructure (PII). While there
seems to be considerable capacity to meet foreseeable demand nationwide,
local access remains a challenge, as it is too costly for the average
Resources: Filipino talents are among the best in the world.
Studies in 1999 and 2000 show that with respect to the quality and
availability of knowledge workers, the country is number 1, topping
developed countries like the USA, and the UK (Rubin Report, June
Philippines is losing its edge and may be missing out because (i)
there are not enough qualified entrants, (ii) the brain drain continues
relentlessly and (iii) new graduates are less skilled, specifically
in English and Math. Teacher competencies in core subjects are low,
e.g. about 8% for physics; 24% for chemistry; 40% for math; 60%
In the fast-paced,
unstructured world of the Network/Knowledge Economy, everyone from
students to corporate CEOs will be playing on similar parameters
where there are no barriers such as age, race, sex, size or economic
status. The only potent force will be the depth of one’s knowledge
and the ability to use it. In other words, the quality and availability
of people will be the major constraint to growth.
Systems: Capital, more than technology, is the driving force
of the IT sector. The challenge therefore is how to improve access
to capital as well as how to attract new capital.
to increasing access to capital, there are two options: Venture
Capital, which is a key success factor to the growth of the IT industry
in other countries, and the capital market, which is the most prudent
method of raising capital and distributing ownership in the widest
possible manner. Unfortunately, VC is scarce in the Philippines
and local IT firms are snubbing the local exchange and listing elsewhere.
Among the reasons listed are the uncompetitive PSE conditions and
- The required
minimum capitalization is Ps 100 M here vs. 0 in Singapore. The
required ROE is 15% for each of the last three years, whereas
Singapore only requires a 3-year operating record. Firm underwriting
is required here, whereas it is not required in Singapore. There
is an annual fee of Ps 100,000-500,000, whereas in Singapore it
is only 16,000 – 80,000.00.
- Cost and
Time: in Singapore one can register in one day with $3. Here,
it takes 3 months and several thousands of pesos.
to attracting new capital, “IT Services” has been included under
the 2000 Investment Priorities Plan of the Board of Investments.
This will qualify certain IT investments for fiscal and non-fiscal
incentives under the current Omnibus Investment Code.
1. Software development projects, e.g. (i) Application software
products – packaged software programs that provide solutions or
address problems and functions specific to an industry or business,
(ii) Middleware products – computer programs used as a) interface
among disparate application systems; b) develop and manage new applications,
(iii) System Software Products – the development of operating system-type
and software tools-type packaged programs.
2. IT-enabled services – services related to data encoding,
digital directories/catalogues, legal records, financial/accounting
records, hospital/medical records, engineering/design, customer-interaction
services, unified messaging services and voice over IP.
3. Support and knowledge – based services – consulting services,
software maintenance and other similar services.
4. Business process outsourcing (BPO) services – business
process and operating function where the services are performed
by another enterprise remotely located from it, regularly and continuously
and are delivered electronically to the recipient.). However, fiscal
incentives offered under this regime cannot compete with that offered
by other ASEAN countries. Thus, amendments to the Code have been
proposed to Congress.
Logistics includes transportation and distribution facilities by
air, sea and land. For e-business/e-commerce to prosper, “order
fulfillment” – the actual delivery of goods to a buyer – must be
as an area of concern was not on the original agenda of the working
groups convened for the ISP.COM but was later observed as a necessary
part of any e-commerce promotion strategy. Identifying the issues
with respect to logistics should be the subject of a new working
group to be convened by the Council.
regime and institutions. In 1997, 6% with Internet access bought
$1.6 M worth of goods and services from the Internet and in 2002,
it is estimated that 30% with access would buy $387 M worth of goods.
Utilization has been, until recently, largely constrained by the
absence of a legal infrastructure to govern transactions. But the
passage of the E-Commerce Act (ECA) last June is expected to address
The ECA addresses
the very basic of concerns such as validity and admissibility of
electronic documents, contracts, signatures and transactions, and
penalties for hacking and other cyber crimes. It is a legal framework
for e-commerce; as such a number of more complex issues, e.g. security,
privacy, taxation, evidentiary issues and territorial jurisdiction,
were not- by design – covered by the law. While international consensus
is being formed on some of these topics, the law’s implementing
rules and regulations provide principles to help guide the settlement
of issues as they arise. These principles cover tax treatment, user
protection, dispute mechanisms and others.
Aside from the
ECA, the Intellectual Property Code of 1997, the Public Telecom
Deregulation Act of 1995 and the Regional HQ Act of 1998 all contribute
to the legal regime for the promotion of e-commerce in the country.
On the institutional
side, much progress has been made. Short of creating a new department
(which is a very remote possibility), EO 264, which formed the ITECC,
is expected to consolidate what was described as a “fragmented”
institutional approach to ICT (Austria, 2000). EO 265, on the other
hand, promulgates the GISP (Government Information Systems Plan)
that seeks to put Government “on-line” within 5 years.
To date, attempts to articulate and popularize the “industry
scenario” have not been effective. As a result, high-level and popular
appreciation for the urgency and necessity of investing in ICT has
A number of
implementation strategies were suggested for each of the areas of
concern discussed above. However, only the few simple but high impact
actions were selected for inclusion in the ISP.COM.
In the immediate term, efforts to increase access to ICT infrastructure
will be focused on:
Promoting community access mechanisms, with focus on:
i) Schools, e.g. through the PCs for Public Schools Program
ii) Internet cafes and other commercial establishments. The use
of public calling offices or other barangay centers, such as Barangay
Health Centers, where the demand for public information/services
can be leveraged, should also be explored.
Lowering costs of access through ongoing improvements in the regulatory
Deregulating the price and technology of Convergence (Aggregating
of access, such as by the linking of IT parks, was also discussed.
Relatedly, the suggestion to e-liberalized special zones, for
example, in SUBIC, suspend the international gateway rules and
allow as many international calling providers in provided the
services do not extend beyond the base'’ boundaries. Or allow
direct satellite telecom links to other countries, and so forth.)
Enactment of Anti-trust law
Resources. To ensure a constant stream of technology workers
into industry, ensure the retention of these workers, and acquire
skills that are higher-up in the technology value chain, activities
Teacher training in Math, Science and English through IT.
b) Support and expansion of academe-industry bridging program,
e.g. of CHED, with a target of 100,000 IT professionals
in 5 years.
c) Public support for basic research.
Systems. Improving access to capital will entail:
Improving the listing conditions of the PSE and extending trading
b) Strict implementation of IPO requirement for BOI registered
c) Improving the VC and angel environment by developing
an incubator network and providing incentives for VCs, such as
RHQ incentives or government counterpart funds.
On the other
hand, attracting new capital can be facilitated through:
d) Benchmarking incentives with that of India, Israel and
others in order to identify “compensating incentives” while the
amendments to the Omnibus Investments Code are being pursued.
Removing the foreign-ownership restrictions for IT firms and amending
the BOO/BOT law to include IT.
f) Streamlining the basic regulatory functions like business
registrations and permits.
regime. A number of laws to further strengthen the existing
legal frame have been suggested, including laws to deal with privacy,
security, certification authorities, and other issues. Although
a priority list has yet to be drawn up – the sentiment seems to
be to wait and see how the ECA affects the development of e-commerce
– policy discussions continue with the private sector, e.g. PICS,
PCS, at the helm.
The more immediate
task is the implementation and enforcement of existing laws. For
instance, certain provisions of the IPC remain unimplemented and
sections of the ECA still require the issuance of implementing rules
(from the Supreme Court).
Also, note that
in most countries, the institute that began the IT boom was Government.
Not because government came in and performed the job of the private
sector, but because it was the IT industry’s largest customer. When
the government needed to upgrade itself to make it an IT-enabled
government, this was a windfall for the industry. The implementation
of “Philippine Government On-Line” – including building the
databases, setting up the web pages, using e-commerce for government
services, and so forth – is key, therefore. However, it is equally
important to demonstrate quickly the resolve of government
to go on-line and the efficacy of e-government. Rather than try
and spread out resources over the entire bureaucracy therefore,
it will be both practical and strategic to select just a few key
agencies and/or services which can be invested in for demonstration
To better articulate the industry story, including customized messages
for each segment (global and domestic, for instance, the highlighting
of role models – i.e. “from geeks to heroes.”), the following will
An inventory of human resources in IT. The industry groups pool
resources in order to undertake this inventory. A proposed design
is already available from the Philippine Software Association.
b) Inventory of Filipino e-services companies. This is
in line with the mandate to DTI by the IRR of the ECA to institute
a voluntary listing system of e-commerce participants.
c) Information from the above surveys are necessary for
investment promotions. A number of IT promotions missions are
already lined up until mid-2001. These include Japan (October
2000), Australia (November), Europe, specifically, UK, Ireland,
Scotland, An inventory of human resources in IT. The industry
groups pool resources in order to undertake this inventory. A
proposed design is already available from the Philippine Software
d) Inventory of Filipino e-services
companies. This is in line with the mandate to DTI by the IRR
of the ECA to institute a voluntary listing system of e-commerce
from the above surveys are necessary for investment promotions.
A number of IT promotions missions are already lined up until mid-2001.
These include Japan (October 2000), Australia (November), Europe,
specifically, UK, Ireland, Scotland, Germany, Sweden, Finland (January
or April 2001), and Korea (February 2001).