Philippines - Country and IT Market Study (Summary)

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Philippines Country and IT Market Report (Summary) Global Market Expansion Advisory

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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

9

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

10

Table of Contents

Summary



Sector Overview

IT Market Landscape


GDP Forecasts

Financial Performance

Governance scores

Demographics details

11

Table of Contents

Summary



Sector Overview

IT Market Landscape


Infrastructure Spending

Aviation

Roadways

Railways

12


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

18

Table of Contents

Summary



Sector Overview

IT Market 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


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


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)


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.


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


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


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


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



Vertical Insights

IT Market Landscape


Connectivity - PC, Broadband and Mobile Penetration

Social Media Penetration

IT Spending estimates and SMB status

Government ICT Plans

62

Table of Contents

Summary



Vertical Insights

IT Market 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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