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Zinnov Management Consulting
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Philippines Country and IT Market Report (Summary) Global Market Expansion Advisory
For more details and complete copy of the report, write to us at
info@zinnov.com
2
Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
International IT majors / Indian Companies Landscape
3
Table of Contents
Summary
More
than
~ 40 mn strong Labour force ~ 20 mn Youth ~ 816K SMEs
No.1 Destination for Voice BPO
World’s 4th largest Ship Builder
Increasing Consumption & Disposable incomes
Soon to reach 100 million mobile subscribers
4
Summary - Macroeconomic Environment
GDP 2012-16
6.7% CAGR
Government is reducing debt burdens;
Inflation and Lending rates are expected
to reduce
Philippines’ growing youth and working
class population will contribute to
“demographic sweet spot”
Typical of developing nations, Philippines
has high levels of unemployment and
poverty
$ Driven by increased government
spending, foreign remittances and
increasing personal consumption
44% Debt/GDP
ratio
22 Median Age
6.8%
Unemployment
Positive
Positive
Negative
Neutral
5
Summary - Infrastructure Overview
World’s 4th
largest ship
builder
National highways are majorly paved;
however local city roads not well
maintained / paved
Tourism a key driver; Poor quality of
airports an issue
Low investments in Railways; Poor
quality & limited reach inhibits
movement of goods and people
Shipping is a key mode of transport
owing to geographical location of
Philippines – 7000 islands
Investment -
$10 bn 2013-16
112th Rank –
Airport quality
1,060 km
Railway Lines Negative
Negative
Neutral
Positive
6
Mainly import dependent industry; Free imports on
cars would impact the local manufacturing market
Mass grocery retail dominates the retail market;
Organized retail is concentrated only in prominent
business districts
2nd largest Geothermal energy producer in the world;
Very high electricity rates in the country;
Privatisation bringing huge investments
Very poor airport infrastructure; Over-congestion in
the main airports; Budget airlines dominate 60% of
the aviation market
Lowering of interest rates driving loans growth;
Capital Adequacy requirements may impact balance
sheets
Summary - Vertical Insights (1/2)
Cars sales grew by
10% in 2012
Estimated to grow by
~12% CAGR till 2016
$19.5 Billion to be
invested till 2016
Contributes 0.4% to
country’s GDP
Total deposits grew by
6.3% in 2011
Positive
Positive
Positive
Negative
Neutral
7
Summary - Vertical Insights (2/2)
Ranks top destination for BPO outsourcing;
BPO alones contributes $11 Billion; Scarcity of
employable IT professionals
IT-BPO currently a $13
Billion market
One of the fastest urbanizing countries in
East-Asia; Office space stock projected to
reach 7 Million sq. m in 2014
Real Estate and related
activities contributed
11% to country’s GDP
~98 Million mobile subscribers; 8th largest
Facebook users in the world; Mature mobile
market with low growth forecast
High mobile penetration
ratio of 106%
$5.9 Billion(2011) budget approved; Poor quality of education system producing
unemployable graduates; Direct foreign investment not allowed in Education
High adult literacy rate
of ~95%
Highest exporter of Nurses in the world;
Current ratio of 1 Doctor to patient 26,493
patients is very poor; Counterfeit drugs cause
for concern
Medicines are one of the
costliest in the country
Negative
Positive
Positive
Neutral
Neutral
8
Summary – IT Market Landscape
PC Installed
Base
~2.2 Mn annual new PC
shipment ~10 Mn
Smartphone
Users To increase to >50 Mn by 2015 Over 29 MN
Mobile
Subscribers
SMS capital of the world ~ 2 bn
SMS sent daily by Filipinos Over 98 MN
Internet Users ~ 8 Mn broadband connections Over 30 MN
Total Domestic
IT Market
Hardware (61%), IT Services
(27%), Software (11%) Over US$ 3.6 Bn
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Basic Facts & Figures
Source: Philippines Government
Capital City – Manila Key Services hotspot, manufacturing hub and port
Filipino and English
Catholic 82.9%, Muslim 5%, Others rest
Davao City
Financial Year - Calendar year i.e. ending 31 December of each year
Presidential Form of Governance, Multi party
Cebu City, BPO hotspot Major Port
Philippine Peso, (sign: ₱; code: PHP)
Manila International Cargo Terminal and the Eva Macapagal Port Terminal
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Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape
GDP Forecasts
Financial Performance
Governance scores
Demographics details
11
Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape
Infrastructure Spending
Aviation
Roadways
Railways
12
Infrastructure Overview
Infrastructure Spending Forecast (in $ Billions)
Current infrastructure spending at 2.4% of country’s GDP is one of the lowest
High cost of electric power in the country
Years of neglect and under investments
Source: Philippines Government, The National Economic and Development Authority
5.8
10.5
13.9 14.8
2%
4%
5% 5%
0%
1%
2%
3%
4%
5%
6%
0
2
4
6
8
10
12
14
16
2012 2013 2014 2015
Infrastructure spending % of GDP
Infrastructure spending to be increased to 5% of GDP by 2016
Private investments allowed and promoted in Power sector
Government encouraging private investments across power, infrastructure, roadways etc.
$10.1 Billion worth infrastructure projects approved for Metro Manila
Current status Proposed initiatives
13
Passenger seats available on flights grew by 16% to reach 28.26 Million in 2012
Infrastructure Overview - Aviation
Total carrier departures worldwide(2010)-1,69,405
20.5 12.5
Domestic Passengers International
Passengers *(Q3)
Total Airline passengers 2012(in Millions)
With over 7000 islands, air travel is the preferred choice of travel
Source: Civil Aviation Authority of Philippines, IATA
Dominated by six players: Cebu Pacific,
Philippine Airlines, Airphil, Zest Air, Sea Air & Air Asia
85 ~111
Public Airports Private Airports
Low airport infrastructure raking
112th Rank
Government focus on PPP’s for efficient implementation of projects
Budget airlines dominate 60% of the aviation market
More than 90% of air traffic served by NAIA (main international) airport alone
14
Infrastructure Overview - Aviation
Investments for improving current airport infrastructure
$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
Rehabilitate Ninoy Aquino International Airport’s Terminal 1
$41 Million
Albay airport’s runway and taxiway development
$50 Million
Development of access point to Central Mindanao via Cotabato
$4 Million
Leyte’s Tacloban Domestic Airport infrastructure improvement
$20 Million
New airport projects approved
Number of tourists grew by 18% in 2012
98% of foreign tourists travelling by airlines
Growth of tourism acting as the main catalyst
15
Infrastructure Overview - Roadways
~$ 10 Billion to be spent for improving national roads till 2016
2.1 2.3 2.7 2.9
2013 2014 2015 2016
Spending on national roads infrastructure (in $ Billion)
Source: Philippines Government, Department of Public Works and Highways
Ranks 87th for overall state of public infrastructure
$3.1 Billion for road improvement till 2016
Mindanao which produces ~70% of total vegetables and fruits has very poor roadways infrastructure
Poor roadways infrastructure hampering agricultural sector
80% 31% 34% 7%
National Roads /
Highways paved
Provincial Roads
paved
Municipal Roads
paved
Small Village /
District paved
16
Infrastructure Overview - Railways
1,060 km’s of total railway lines in
Philippines
Source: Philippine National Railways
Improving commuter train service in
Manila
$28 Million
Building 11.7 km’s of railway lines
from Baclaran to Bacoor
$77 Million
Government investing on improving railways infrastructure
Over 7000 islands makes it difficult for developing long distance train lines
Manila Light Rail Transit serves 605,000 passengers each day
State of the art monorail system to start operations soon
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
17
Infrastructure Overview - Seaports
Government inviting PPP’s for improving port infrastructure
Source: MARINA, Philippine Ports Authority , Department of Transportation and Communications
DOTC approves $12.5 Million for key sea-ports upgrades
World’s 4th largest ship builder
Manila International Container Terminal accounted for 10.6% of total cargo shipped
All ports serviced ~331,455 ships in 2011
Budget airlines causing shift of sea-travelers to air travel
42%
58%
Share of
Cargo Shipped in 2011
2011 40%
60%
Share of
Cargo Shipped in 2012
2012
Foreign cargo shipped increased
by 2%
Foreign cargo Foreign cargo Domestic cargo
Domestic cargo
Presence of over 7000 islands make water transport very
important
25 main ports, more than 1000 ports across the country
~8% growth
49.4 Million
53.2 Million
Total passengers (in Millions)
2012
2011
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Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Sector Overview
IT Market Landscape
International IT majors / Indian Companies Landscape
19
Automotive Industry – Market Overview
7.7% Growth
44,862
96,754
48,328
1,08,321
Passenger Car Commercial Vehicle
Vehicle Sales Figures
2011 2012
1,56,649 Units
1,98,100 Units
2012
2016 Growth of 26.5%
Projected Vehicle Sales Figures
Generates ~ $3.2 Billion in export revenues
Employs ~ 75,000 skilled workers
Contributes ~ 12% of the industrial sector output
4% GDP contribution by Automotive Manufacturing
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers and Distributors)
Hyundai Toyota
35%
Mitsubishi
19% 12%
Market share of Top players in 2012
12% Growth
Import oriented market with 54% of cars sold are imported
20
Automotive Industry - Drivers
• 3884 Km’s of roads
added in 2012
• Introduction of PPP’s
in roadways
infrastructure projects
• Banks providing
easier auto loans
which grew by
~21.5% in 2011
• Low interest rates
offered
• 8% discount for car
exports
• Export zone locaters
get exemption from
duties on imported
equipment
• Plan to replace old Land
Transport vehicles with
locally made ones
Government initiatives
Supportive policies
Easier Banking norms
Improving roadways
infrastructure
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers and Distributors)
21
Ford closing their manufacturing plant citing inadequate supply network and economies of scale
Automotive Industry - Inhibitors
More than 54% to cars purchased are still imported
Large low income group population
Inadequate supply network
Signed ASEAN trade agreement allowing free import of cars
Foreign players preferring to import cars
Manufacturers may choose to put plants in bigger / mature neighboring markets like Thailand, Malaysia etc.
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.
Inhibitors
Import friendly trade policies
22
Passed special bill providing incentives for manufacturers, distributors of alternate fuel cars
Hyundai’s hatchback Eon
became the fastest selling car in
2012
Consumer do a lot of research before purchasing and looks for best after sales services
Changing customer purchasing behavior and preferences
Automotive Industry - Emerging Trends
Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines), AT Kearney Report
Emerging trends in Automotive
industry
Hatchbacks to dominate car sales
Investment Priorities Plan focusses on manufacturing
alternate fuel vehicles
23
Retail Industry - Market Overview
~13% GDP contribution from Retail industry
Source: Philippine Retailers Association, Business Monitor Report
Constitute 33% of the services sector
Dominant Players: SM Group, Ayala Corporation, Robinsons and Rustans
~50% of total retail sales concentrated in
Manila Metropolitan Area
Employs ~5,000,000 people
~30% of total retail sales from franchisee retail
Registered ~ $32.4 Billion Sales in 2012
32.4
36.3
2012 2016
Retail Sales Forecast(in Billions)
Mass grocery retail sales growth forecast
$ 13.9 Billion
$ 19.7 Billion
2013
2017
41.5% Growth
Mass grocery retail to contribute $13.9 Billon sales in 2013
More than 124,000 franchisees employing ~1.1 million people
~12% Growth
24
Entry of foreign brands in the market (Forever 21, Uniqlo ,etc.)
Growth of franchisee retail (contributes 30% total retail sales)
Increase in dual-income and middle class families
Huge overseas remittances ($21.3 Billion in 2012)
Unemployment ratio decreased from 7.1%(2011) to 6.8%(2012)
Banks financing up to 60% of capital for franchising concepts
Retail Industry - Drivers
Growth of organized
retail
Rise in consumer spending
Source: Philippine Retailers Association, The National Statistics Office (NSO), National Economic and Development Authority
Easier Banking Facilities 1
2
3
25
Absence of efficient logistics system and
courier service affecting online retailing
Foreign investments need
to have paid up capital of
$2.5 Million or more
Parent company should
have net worth of more
than $200 million
Minimum investment of
$830,000 per store is
required
~51% of total
population belong to
rural areas
54% of total retail space
concentrated in Manila
Traditional retail outlets
still preferred in rural
areas
Retail Industry - Inhibitors
Restrictive government regulations
In-efficient logistics system
Untapped rural areas
Source: Philippine Retailers Association, PwC report
26
Retail sales of global brands driven the young working crowd
Filipino’s top in online shopping research in Asia Pacific region
Brands like Forever 21, Uniqlo, APPLE & Bee , etc. entering the market
30% of retail sales contributed by franchisee retail
Retail Industry - Emerging Trends
Source: Philippine Retailers Association, A.C Neilson
Growth of Online shopping among
young Filipino population
Franchising of brands evolving as an
emerging trend
Growing entry of foreign brands in
the Philippine market
Awareness of global brands among
young BPO crowd and overseas travelling Filipino’s
Emerging Trends
27
Energy & Utilities Industry - Market Overview
Philippine Power Industry 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
Generation Transmission Distribution
Total Power generation capacity of ~ 67,743 Gwh
Presence of ~ 20,129 Circuit Kilometers of transmission lines
Around $ 2 Billion allotted to expand transmission lines nationwide
Meralco is largest power distributor with $ 400 Mn in Revenue
Players: NPC, Western Mindanao Power Corporation, Meralco, Aboitiz Energy, Meralco
Players: NTC, National Grid Corporation of Philippines
Players: Meralco,
Abiotiz, VECO,
DAVAO Light, PECO
Focusing on Gas powered plants which are cheaper than oil based plants
Meralco partnering with Japanese company to set 3000 MW LNG powered power plant
1
2
3
Source: Department of Energy, Business Monitor Report, The Asian Development Bank
$ 19.5 Billion to be
invested between 2013-2016
5.2% 4.4%
0.3%
9.2%
7.6%
10.2%
8.7%
4.8%
Residential Commercial Industrial Others
Growth in Power Consumption
2009 2010
28
Energy needs met from Non-renewable sources of energy
Energy & Utilities - Market Figures
Estimated growth of Electricity production through gas powered plants
37.7 % 44.7 %
2012
2021
11.7% 14.7%
10.4%
34.4%
28.9%
Hydro and
Other
Renewable
Geothermal Oil Based Coal Natural Gas
Electricity Production from different sources
2nd Largest producer of Geothermal energy in the world
43.8%
55.7%
0.5%
Electricity Generation from different renewable sources
Hydro Geothermal Other Renewable Sources
Focusing on Gas powered plants which are
cheaper than oil based plants
73.7%
Energy needs met from Renewable sources of energy
26.3%
+
Source: Department of Energy, Business Monitor Report
29
Energy & Utilities Industry - Drivers
Aboitiz, a local player, to
invest $2.13 Billion over 4
years
Rapid growth in the number
of IT-BPO offices
Investments of ~$19.35Bn
required by Energy sector
Rapid Urbanization and
growth of economy
Plan to electrify 90% of
total households by 2017
Ayala, a regional player to
invest $500 million in next 5
years
Feed-in tariff rates (linked
to variable cost of
production) to encourage
Renewable Energy projects
Meralco to build the largest
Natural Gas powered plant
by 2016 partnering with a
Japanese firm
Increasing Demand Increasing
Investments Govt. Initiatives
Strict rules and penalties to
curb power thefts
Measures to increase
production of fossil fuels
Encourage private sector through Build-own-operate-transfer (BOOT) and build-own-operate (BOO) type of contracts
Formalised long term Energy Plan(2012-30)
Source: Department of Energy, Business Monitor Report, Aboitiz
30
Energy & Utilities Industry - Emerging Trends
Focus on power
production
through
Renewable
Sources of
Energy
Focus on
investing in end-
to-end Smart
grids solutions by
various players
Plans to develop
Smart Cities and
Smart Country-
sides especially
BPO’s
Free distribution of energy
efficient CFL’s and phasing out
incandescent bulbs
Introduction of
energy efficient
e-trike electric
vehicles
replacing
traditional petrol
based vehicles
Renewable
Source of Energy Smart Cities & Smart Grids Energy Efficiency
Source: Department of Energy, Business Monitor Report,
31
Aviation Industry - Market Overview
Aviation industry contributes 0.4% to GDP
Source: Civil Aviation Authority of Philippines, IATA
Generates $4.8 Billion in catalytic benefits through
tourism
Employs ~123,000 people
Budget airlines dominate 60% of the Philippines aviation market
45%
21% 22%
10%
2%
Cebu
Pacific
Philippine
Airlines
Airphil
Express
Zest Air Sea Air &
Air Asia
Domestic Aviation Market Share
55%
24%
16%
2% 3%
Foreign
Carriers
Philippine
Airlines
Cebu
Pacific
Zest Air Sea Air &
Air Phil
International Aviation Market Share
15.5 12.5
Domestic Passengers International
Passengers
Total Airline passengers in 2012 (in Millions)
32
Over 7000 islands make air travel the most convenient
Large investments to improve airport infrastructure
• Grew by 18% in 2012
• 98% foreign tourists by airlines
• Luzon, Visayas & Mindanao rated top tourist destinations
Aviation Industry - Drivers
Drivers
Source: Civil Aviation Authority of Philippines, National Statistics Office
Drivers
Country’s geography
Growth of Outsourcing & Offshoring
Large Government infrastructure
projects
Oversea’s Filipino Workers
Tourism
IT-BPO to grow by 18% till 2016 To and fro journey of
~2.2 Million overseas Filipino’s
33
Aviation Industry - Inhibitors
Future plans to improve current state
Poor airport infrastructure (Ranks 112)
Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, World Economic Forum
34
Aviation Industry - Emerging Trends
Emerging Trends
Focus on modernization of airports
Foreign carriers expanding operations
Airlines modernizing flights
Cebu Pacific adding 20 more Airbus A320 and 30 Airbus
A321neo aircraft
Philippines Airlines ordered additional 10 Airbus A330-300
Emirates starting direct flights from Luzon to UAE
Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, The Department of Transportation and Communications
$8 Million worth modernization drive at Tacloban and Dipolog airports
35
BFSI Industry - Market Overview
Philippines Banks rated ASEAN region’s Best Performing Bank
stocks prices
Source: The Bangko Sentral ng Pilipinas, Business Monitor Report
Loans Outstanding in Banking Institutions
~$65 Billion
Total deposits in Banking Institutions
Total deposits grew by 6.3% in 2011
~$75 Billion
~$96 Billion
2011 2010
~$101 Billion
2011 2010
Moody’s 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
Non Performing Loans ratio declined to 2.9% in 2011 from 3.6% in 2010
Total banking network of 9,207
Loans for production activities comprised around 84% of commercial bank’s total
outstanding loans
36
As long as their capital supports, banks can now put up as many
branches
Rates were lowered to 3.5 percent for overnight borrowing and 5.5
percent for overnight lending
One Network Bank (ONB) and Iloilo-based Rural Bank of San Enrique
Bank loans grew by 14% in 2012
Drivers
Maybank plans to invest $100- $200 million to its local subsidiary Maybank
Philippines
BFSI Industry - Drivers
Low interest rates being
offered
Growth in economy driving SME & Corporate
loans
Government effort to merge rural banks with
other players
Lifting restrictions on number of branches
Increasing foreign investments in the BFSI
industry
Source: The Bangko Sentral ng Pilipinas, Business Monitor Report
Drivers
37
Resulted in 5 Foreign banks closing down operations in Philippines
PNB and Allied Bank merge with combined assets of $ 12.2 Billion(2012)
Country’s Commercial and universal banks required to put in more equity capital
Reduced lending rate to 5.5% to boost domestic economy
BFSI Industry - Inhibitors
Inhibitors Philippine
Central Bank regulations & initiatives
Encouraging mergers
Financial problems in
foreign countries
Source: The Bangko Sentral ng Pilipinas
38
Philippine Resources Savings Bank chooses IBM Power Systems
Rizal Commercial Banking Corporation deploys Infosys’s Finacle Core Banking Solution
Philippine Postal Savings Bank adopting 3i Infotech’s core banking solution
Rural areas benefitting from mobile payment solutions in micropayments services
Online banking usage in Philippines grew by 39% in 2011
BFSI Industry - Emerging Trends
Internet based
banking services
Mobile based banking services
Adoption of latest
technologies
Source: The Bangko Sentral ng Pilipinas, ComScore, XMG Global
1
2
3
39
Healthcare/Pharmaceutical Industry - Market Overview
Pharmaceutical Industry Growth Forecast
$3.9 Billion ~$3 Billion
Presence of ~1,500 hospitals (2011)
~21,500 Healthcare units and centers(2011)
Highest exporter of Nurses in the world
Source: Business Monitor Report
2013 2010
2.9
8.4
0.3
2.8
9.1
0.35
Pharmaceutical Expenditure
Healthcare Expenditure
Medical Devices Expenditure
Expenditures projections(in Billions)
2011 2012
Budget of $1.1 Billion approved for healthcare
Key Players in the market: Unilab, Pascual Labs, Pfizer, Novartis, Merck & Co, Sanofi-Aventis, Abbott Laboratories etc.
40
Healthcare/Pharmaceutical Industry - Drivers
14 of the top
pharmaceutical companies
in the world have
manufacturing plants
Foreign drugs dominate
the healthcare market
Citizens above 65 years to
grow at CAGR 1% till
2020 resulting in high
healthcare spending
Government assigning $1.1
Billion in their 2012 budget
for healthcare 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
Source: Business Monitor Report
41
Same medicine in Philippines would cost 5-30 times more than in India, Pakistan
~ 30% of the medical shops in Philippines sell fake medicines
Special Law with Criminal Sanctions against selling counterfeit drugs
Rotavirus Vaccination program for vaccinating children
PINOY Health Insurance Act for healthcare to benefits to the poor
Healthcare/Pharmaceutical Industry - Inhibitors
Philippines ranks as one of the most expensive countries
for drugs
Counterfeit drugs creating a roadblock
Government initiatives to improve healthcare
situation
Government Laws for healthcare industry
Source: Bureau of Food and Drug, Department of Health
42
IT / ITeS Industry - Market Overview
3rd Largest supplier of IT Talent in Asia Pacific
region ~$16 Billion
IT-BPO Growth forecast
~$13 Billion
2016 2012
IT-BPO industry employs ~772,000 people(2012)
Healthcare Outsourcing industry contributed ~$433 Million
Worlds top destination for BPO outsourcing
Hardware
Software
IT Services
$2.2 Billion
$401 Million
$1 Billion
$2.4 Billion
$460 Million
$1.2 Billion
2012 2013
Estimated to grow by 18%
BPO industry alone is valued at $11 Billion
IT Products/Services Sales figures
Source: Business Monitor Report, Philippines Software Industry Association
Produces ~90,000 Technical graduates annually
43
Enabling consumers to spend on PC’s
Computer hardware sales grew by ~10%
Various e-governance projects driving IT adoption
across country
Produces ~90,000 Technical graduates annually
Drivers
Growth in Animation & Gaming, Accounting & Finance
outsourcing, Healthcare outsourcing
IT / ITeS Industry - Drivers
Rising PC penetration in
rural areas
Government ICT initiatives driving IT
adoption
Rise in wage structure
Growth in number of Graduates
Rapid growth of Outsourcing and
Offshoring Industry
Drivers
Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association
44
Lack of skilled IT graduates due to poor quality of education
Financial crisis might prevent foreign banks from outsourcing their work
US-Philippine Business & IT delivery council launched in Silicon Valley
Data Privacy Act of 2012 signed to prevent illegitimate use of data
Cybercrime Prevention Act 2012 for tackling cybercrimes
IT / ITeS Industry - Inhibitors
Scarcity of employable high/middle-end IT
professionals
Government initiatives to bring businesses from foreign
countries
ICT related regulations introduced by Government
Financial crisis faced by US & European Banks which account
for 30% BPO spending
Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association
45
TV White Space (TVWS), to tap unused frequencies between TV channels to deliver broadband services
Develop payment gateway catering to possible payment gateways
Integrate existing government networks together to run government applications
Criminal tracking across all police stations by Philippine National Police (PNP) using modern technology
IT / ITeS Industry - Emerging Trends
E-governance initiatives driving IT adoption
$11 Million iGovPhil project
Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association
1
2
46
Real Estate Industry - Market Overview
~11% GDP contribution from real estate, renting and related business
activities
One of the fastest urbanizing countries in East Asia
Source: CBRE, Business Monitor Report, Colliers Research
Office space stock projected to reach 7 Million sq.m in 2014
Average hotel occupancy rate exceeds 70% in 2012 compared to 67% in 2010
8.5%
6.1%
15.1%
Makati Central
Business District
Ortigas Center Bonifacio Global City
Land value growth rate
Prominent Business Districts
4,66,760 6,01,219
2,39,831
2012 2013 2014
New office supply forecast
Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang & other locations
8,669
6,261
3,007
2012 2013 2014
New residential units supply
Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang & other locations
Major urbanized locations Major urbanized locations
BPO sector takes up ~4.5 Million Sq. feet annually
23,600 new units to introduced by 2016 in Makati CBD
47
Real Estate Industry - Market Overview
Tourism aiding in
growing demand for
hotels
Residential, gaming and
leisure sectors also grew
Interest rates for the
low-income group
reduced from 6 to 4.5
percent
BPO sector accounts for
~85% of the total office
space which grew by 25%
in 2011
Growth of Outsourcing
and Offshoring industry
Home Development Mutual Fund
reducing interest rates
Growth of retail sector aiding real
estate
Growth of tourism
Large remittances from Overseas
Filipino workers($21.3 Billion)
Source: CBRE, Business Monitor Report, Colliers Research
48
Affecting outsourcing industry with 5 banks closing down operations in the country
Causing decline in remittances
Limited options for low income group
Foreigners are barred from taking a majority interest in land
Corporations or partnerships with 60% Filipino ownership are entitled to acquire land in the Philippines.
Real Estate Industry - Inhibitors
Political unrest in the middle-east
Financial crisis faced by US & European Banks
Government Regulations for Real Estate industry
Housing backlog
Source: CBRE, Urban Land Institute, Business Monitor Report,
49
Real Estate Industry - Emerging Trends
Emerging
Trends
Growing trend of purchasing Vacation
homes among Filipino’s
Real estate purchases by Overseas Filipino’s
Growth in economy and purchasing power
Growth in organized retail like Malls,
Shopping Centers etc.
Source: CBRE, Business Monitor Report, Colliers Research
Strong desire among Overseas Filipino’s to
buy/build home in their native land
Strong desire among Overseas Filipino’s to
buy/build home in their native land
50
Telecom Industry - Market Overview
~10% Contribution to the country’s GDP
$5.3 Billion in Revenue (2011)
Other Players
PDLT & Digitel
30%
Philippine Mobile market share
Presence of ~103 Million mobile subscribers
High mobile penetration rate of 106%
8th Largest Facebook users in the world
Filipino’s account for 10% of world’s global SMS’s
Smart phone sales estimated to grow by 60% till 2016
Mobile Broadband Fixed Line
Estimated growth rate till 2016
3.5% 9.6% 0.01%
Source: PwC Report, National Telecommunications Commission
70%
51
Current broadband market has a low penetration rate of 7.4%
Expansion allowing addition of more customers from rural areas
Consists of four 3G license holders
PDS 2011-16 plan to create further demand for telecom services from corporate segment
• World’s 8th largest Facebook population
• Growing use of
internet services on mobile
Telecom Industry - Drivers
Huge potential
broadband market
Social media popularity
Government ICT plans
Network expansion by
telecom operators
Liberalized and competitive
telecom sector
Source: PwC Report, National Telecommunications Commission, *ARPU(Average revenue per user)
Drivers
52
Telecom Industry - Inhibitors
Mature mobile market with low growth rate
projections (3.6% p.a till 2016)
Rural market comprising 51% of total population
still untapped
Geographical constraints for expansion and
operations
Mobile market dominated by Pre-paid constituting 92% of total users which brings low ARPU
Source: CBRE, Business Monitor Report, Colliers Research
Inhibitors
53
Telco Operators investing in 4G and LTE technologies
Smart Communication to modernize its 2G/3G network and mobile broadband networks.
Globe Telecom network modernization plan Smartphone penetration to
grow to 50% till 2015
WiMAX enabling greater network access to remote areas
Launch of WiMAX
Investing in modernizing
infrastructure
Growing use of Smartphones
Adoption of new technologies
$141.5 Million
$790 Million
Telecom Industry - Emerging Trends
Source: PwC Report, National Telecommunications Commission
1
2
3
4
54
Education Industry-Market Overview
~58,914 (2011) public and
private schools and
learning centers
Employs ~316,000 people
Produces more than 500,000 Graduates annually
Very high adult literacy rate of nearly 95%
$5.9 Billion budget approved for Education
Sector 2011 projection: 500,783 graduates,
3.9% growth
Source: Philippines Software Industry Association, Board of Investments
Total Graduates produced annually
College Degree Graduates 2010
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 ~ 417,000
55
Education Industry - Drivers
Fuelling demand for employable
graduates
$5.9 Billion(2011) budget approved
Attracting foreign students with
26,000 enrollments in
2012
Average median age of 22 Huge young population
Affordable Education
Government initiatives
Growth of Outsourcing
& Offshoring industry
Source Bureau of Immigration, Board of Investments
Drivers
56
Education Industry - Government Policies
Government initiatives for education sector
Free kindergarten education to five year old children all public schools
Procuring more than 31.1 million Textbooks
Restrictive Government Regulations in Education sector
Foreign Investment Act does not allow direct investment
Foreign investment possible through corporation and partnerships
Initiated K+12 curriculum for quality education
Focus on PPP’s for construction of school buildings and infrastructure
Source: Philippines Software Industry Association, Board of Investments, Government of Philippines
57
Vibal Publishing House and Microsoft partnered
to create e-textbooks
Vibal distributed 1,000 tablets to public school
students in Laguna
Growing use of cloud based tools and learning
platforms
Use of E-Learning product and solutions grew
by ~33% in 2012
Telecom Industry - Emerging Trends
Source: PwC Report, National Telecommunications Commission
Use of cloud based
solutions
Modern technologies in education
Growing use of e-learning
solutions 1
2
3
58
Philippines Government - Initiatives
Various Government reforms for industry growth
Focus on various Public-private
partnerships
Government signing agreements with
various Asian countries
Government focus on improving education
standards
• Government inviting PPP’s 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
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
59
Philippines Government - Initiatives
Various Government reforms for industry growth
Bringing peace to the country
Efforts to bring the high corruption level
down
Government stress on healthier
environment
• Reaching an agreement with the country’s
largest Muslim group in Mindanao
• Corruption level in public sector decreased to
42%(2012) from 64%(2009)
• Introduction of locally manufactured electric
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
60
Philippines Government - Using modern IT
Source: Government of Philippines
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 Finance’s implements financial analytics and data warehouse
Department of Transport and Communication’s Infrastructure and Information Systems Project
61
Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
International IT majors / Indian Companies Landscape
Connectivity - PC, Broadband and Mobile Penetration
Social Media Penetration
IT Spending estimates and SMB status
Government ICT Plans
62
Table of Contents
Summary
Macroeconomic Environment
Infrastructure Overview
Vertical Insights
IT Market Landscape
International IT majors / Indian Companies Landscape
63
Zinnov Point Of View
64
Philippines
Philippines presents an exciting space with a 95
million strong domestic market.
Sick Man of Asia,
Low GDP growth
One of potential
Breakout Nations
beating growth
expectations
1990’s
2010’s
The government which was rated inefficient and
corrupt recently, is focussing on increasing
transparency and promoting the business
environment.
The world’s second largest outsourcing destination
with its young and English speaking population has
started on journey of strong macro-economic
development.
With an estimated IT market of ~ USD 3.6 bn,
companies would have potential to grow and expand
in Philippines.
Negative
Positive
Positive
Positive
65
However there are some pitfalls
Growth vs.
Saturated
Areas
Market
Potential -
$$$
Buy vs. Grow
vs. Partner
Cloud vs.
hosted vs. in-
house
Potential
Growth Areas
Competition –
Current and
Potential
Government
Regulations
Partner
Ecosystem
66
Which Zinnov can help you navigate
We help organizations globalize their business and improve people performance
Peer Group Benchmark
Growth Strategy
Definition
Organization Restructuring & Change
Management
Cost Optimization
Vendor Selection, location
Analysis & Audit
Value analysis & Maturity model
Portfolio Analysis &
Talent Contract
Structuring
Risk management
Innovation Eco-system
Connect
Operational efficiency
Global Leadership
Network Research Benchmark Optimize Globalization
Council
Shared Services
Zinnov Management Consulting
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