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Philippines - Country and IT Market Study (Summary)
 

Philippines - Country and IT Market Study (Summary)

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Philippines’ growing youth and working class population will contribute to “demographics' sweet spot”

Philippines’ growing youth and working class population will contribute to “demographics' sweet spot”

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    Philippines - Country and IT Market Study (Summary) Philippines - Country and IT Market Study (Summary) Presentation Transcript

    • 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 This report is solely for the use of Zinnov Client and Zinnov Personnel. No Part of it may be quoted, circulated or reproduced for distribution outside the client organization without prior written approval from Zinnov Zinnov Management Consulting
    • Table of Contents Summary Macroeconomic Environment Infrastructure Overview Vertical Insights IT Market Landscape International IT majors / Indian Companies Landscape 2
    • Table of Contents More than Summary ~ 40 mn strong Labour force ~ 20 mn Youth ~ 816K SMEs No.1 Destination for Voice BPO Soon to reach 100 million mobile subscribers Increasing Consumption & Disposable incomes World’s 4th largest Ship Builder 3
    • Summary - Macroeconomic Environment $ GDP 2012-16 6.7% CAGR 44% Debt/GDP ratio Driven by increased government spending, foreign remittances and Positive increasing personal consumption Government is reducing debt burdens; Inflation and Lending rates are expected Neutral to reduce Philippines’ growing youth and working 22 Median Age class population will contribute to Positive “demographic sweet spot” 6.8% Unemployment Typical of developing nations, Philippines has high levels of unemployment and Negative poverty 4
    • Summary - Infrastructure Overview World’s 4th Shipping is a key mode of transport largest ship owing to geographical location of builder Philippines – 7000 islands Investment - National highways are majorly paved; $10 bn 2013-16 however local city roads not well Positive Neutral maintained / paved 112th Rank – Tourism a key driver; Poor quality of Airport quality airports an issue 1,060 km Low investments in Railways; Poor Railway Lines quality & limited reach inhibits Negative Negative movement of goods and people 5
    • Summary - Vertical Insights (1/2) Cars sales grew by Mainly import dependent industry; Free imports on 10% in 2012 cars would impact the local manufacturing market Estimated to grow by ~12% CAGR till 2016 $19.5 Billion to be invested till 2016 Contributes 0.4% to country’s GDP Total deposits grew by 6.3% in 2011 Positive Mass grocery retail dominates the retail market; Organized retail is concentrated only in prominent Positive business districts 2nd largest Geothermal energy producer in the world; Very high electricity rates in the country; Positive Privatisation bringing huge investments Very poor airport infrastructure; Over-congestion in the main airports; Budget airlines dominate 60% of Negative the aviation market Lowering of interest rates driving loans growth; Capital Adequacy requirements may impact balance Neutral sheets 6
    • Summary - Vertical Insights (2/2) Highest exporter of Nurses in the world; Medicines are one of the Current ratio of 1 Doctor to patient 26,493 costliest in the country patients is very poor; Counterfeit drugs cause Negative for concern IT-BPO currently a $13 Billion market Ranks top destination for BPO outsourcing; BPO alones contributes $11 Billion; Scarcity of Positive employable IT professionals Real Estate and related One of the fastest urbanizing countries in activities contributed East-Asia; Office space stock projected to 11% to country’s GDP reach 7 Million sq. m in 2014 High mobile penetration ratio of 106% High adult literacy rate of ~95% Positive ~98 Million mobile subscribers; 8th largest Facebook users in the world; Mature mobile Neutral market with low growth forecast $5.9 Billion(2011) budget approved; Poor quality of education system producing unemployable graduates; Direct foreign investment not allowed in Education Neutral 7
    • Summary – IT Market Landscape Total Domestic IT Market PC Installed Base Internet Users Mobile Subscribers Smartphone Users Over US$ 3.6 Bn ~10 Mn Hardware (61%), IT Services (27%), Software (11%) ~2.2 Mn annual new PC shipment Over 30 MN Over 98 MN Over 29 MN ~ 8 Mn broadband connections SMS capital of the world ~ 2 bn SMS sent daily by Filipinos To increase to >50 Mn by 2015 8
    • Basic Facts & Figures Presidential Form of Governance, Multi party Financial Year - Calendar year i.e. ending 31 December of each year Filipino and English Philippine Peso, (sign: ₱; code: PHP) Capital City – Manila Key Services hotspot, manufacturing hub and port Manila International Cargo Terminal and the Eva Macapagal Port Terminal Cebu City, BPO hotspot Major Port Davao City Catholic 82.9%, Muslim 5%, Others rest Source: Philippines Government 9
    • Table of Contents Summary Macroeconomic Environment GDP Forecasts Financial Performance Governance scores Demographics details Infrastructure Overview Sector Overview IT Market Landscape International IT majors / Indian Companies Landscape 10
    • Table of Contents Summary Macroeconomic Environment Infrastructure Overview Infrastructure Spending Aviation Roadways Railways Sector Overview IT Market Landscape International IT majors / Indian Companies Landscape 11
    • Infrastructure Overview Infrastructure Spending Forecast (in $ Billions) 16 14 12 10 8 6 4 2 0 13.9 10.5 14.8 5% 5% 5% 4% 5.8 6% 4% 3% 2% 2% 1% 0% 2012 2013 Infrastructure spending Current status Current infrastructure spending at 2.4% of country’s GDP is one of the lowest 2014 2015 % of GDP Proposed initiatives Infrastructure spending to be increased to 5% of GDP by 2016 High cost of electric power in the country Private investments allowed and promoted in Power sector Years of neglect and under investments Government encouraging private investments across power, infrastructure, roadways etc. $10.1 Billion worth infrastructure projects approved for Metro Manila Source: Philippines Government, The National Economic and Development Authority 12
    • Infrastructure Overview - Aviation 85 ~111 Public Airports Private Airports With over 7000 islands, air travel is the preferred choice of travel Passenger seats available on flights grew by 16% to reach 28.26 Million in 2012 Total carrier departures worldwide(2010)-1,69,405 112th Rank Low airport infrastructure raking Budget airlines dominate 60% of the aviation market Government focus on PPP’s for efficient implementation of projects Total Airline passengers 2012(in Millions) 20.5 Domestic Passengers More than 90% of air traffic served by NAIA (main international) airport alone 12.5 International Passengers *(Q3) Source: Civil Aviation Authority of Philippines, IATA Dominated by six players: Cebu Pacific, Philippine Airlines, Airphil, Zest Air, Sea Air & Air Asia 13
    • Infrastructure Overview - Aviation Growth of tourism acting as the main catalyst Number of tourists grew by 18% in 2012 98% of foreign tourists travelling by airlines Investments for improving current airport infrastructure $41 Million $50 Million Rehabilitate Ninoy Aquino International Airport’s Terminal 1 Albay airport’s runway and taxiway development New airport projects approved $111 Million Bicol international airport project in Daraga, Albay $172 Million Panglao airport project in Bohol Source: Civil Aviation Authority of Philippines, IATA, Ninoy Aquino International Airport $4 Million $20 Million Development of access point to Central Mindanao via Cotabato Leyte’s Tacloban Domestic Airport infrastructure improvement 14
    • Infrastructure Overview - Roadways ~$ 10 Billion to be spent for improving national roads till 2016 Spending on national roads infrastructure (in $ Billion) 2.3 2.1 Ranks 87th for overall state of public infrastructure $3.1 Billion for road improvement till 2016 2.9 2.7 Poor roadways infrastructure hampering agricultural sector 2013 2014 2015 2016 Mindanao which produces ~70% of total vegetables and fruits has very poor roadways infrastructure 80% 31% 34% 7% National Roads / Provincial Roads Municipal Roads Small Village / Highways paved paved paved District paved Source: Philippines Government, Department of Public Works and Highways 15
    • Infrastructure Overview - Railways 1,060 km’s of total railway lines in Philippines Very low reach of network lines considering the geography Under-investment in railways sector affected growth Corruption within the Government caused delays in various railways projects Over 7000 islands makes it difficult for developing long distance train lines Source: Philippine National Railways Manila Light Rail Transit serves 605,000 passengers each day State of the art monorail system to start operations soon Government investing on improving railways infrastructure $28 Million Improving commuter train service in $77 Million Building 11.7 km’s of railway lines Manila from Baclaran to Bacoor 16
    • Infrastructure Overview - Seaports Presence of over 7000 islands make water transport very important 25 main ports, more than 1000 ports across the country Manila International Container Terminal accounted for 10.6% of total cargo shipped All ports serviced ~331,455 ships in 2011 2011 58% Share of Cargo Shipped in 2012 Foreign cargo shipped increased by 2% 2012 42% 40% Foreign cargo Domestic cargo Foreign cargo 60% 53.2 Million ~8% growth World’s 4th largest ship builder Share of Cargo Shipped in 2011 2012 49.4 2011 Million Total passengers (in Millions) Government inviting PPP’s for improving port infrastructure DOTC approves $12.5 Million for key sea-ports upgrades Domestic cargo Source: MARINA, Philippine Ports Authority , Department of Transportation and Communications Budget airlines causing shift of seatravelers to air travel 17
    • Table of Contents Summary Macroeconomic Environment Infrastructure Overview Sector Overview IT Market Landscape International IT majors / Indian Companies Landscape 18
    • Automotive Industry – Market Overview 4% GDP contribution by Automotive Manufacturing Vehicle Sales Figures 2011 2012 96,754 7.7% Growth 44,862 1,08,321 Contributes ~ 12% of the industrial sector output Generates ~ $3.2 Billion in export revenues Employs ~ 75,000 skilled workers 48,328 12% Growth Passenger Car 2012 1,56,649 Units Commercial Vehicle Growth of 26.5% Import oriented market with 54% of cars sold are imported 2016 Market share of Top players in 2012 1,98,100 Units Toyota 35% Mitsubishi 19% Hyundai 12% Projected Vehicle Sales Figures Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers and Distributors) 19
    • Automotive Industry - Drivers • Plan to replace old Land • 8% discount for car Transport vehicles with exports locally made ones • Export zone locaters get exemption from Government initiatives • Banks providing easier auto loans which grew by ~21.5% in 2011 • Low interest rates Supportive policies Easier Banking norms Improving roadways infrastructure duties on imported equipment • 3884 Km’s of roads added in 2012 • Introduction of PPP’s in roadways infrastructure projects offered Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc.), TMA (Truck Manufacturers Association) and AVID (Association of Vehicle Importers and Distributors) 20
    • Automotive Industry - Inhibitors Inhibitors More than 54% to cars purchased are still imported Import friendly trade policies Signed ASEAN trade agreement allowing free import of cars Large low income group population Foreign players preferring to import cars Inadequate supply network Ford closing their manufacturing plant citing inadequate supply network and economies of scale Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines, Inc. Manufacturers may choose to put plants in bigger / mature neighboring markets like Thailand, Malaysia etc. 21
    • Automotive Industry - Emerging Trends Hatchbacks to dominate car sales Hyundai’s hatchback Eon became the fastest selling car in 2012 Emerging trends in Automotive industry Investment Priorities Plan focusses on manufacturing alternate fuel vehicles Passed special bill providing incentives for manufacturers, distributors of alternate fuel cars Source: CAMPI (Chamber of Automotive Manufacturers of the Philippines), AT Kearney Report Changing customer purchasing behavior and preferences Consumer do a lot of research before purchasing and looks for best after sales services 22
    • Retail Industry - Market Overview ~13% GDP contribution from Retail industry Retail Sales Forecast(in Billions) 36.3 32.4 ~12% Growth 2012 2016 Mass grocery retail to contribute $13.9 Billon sales in 2013 2017 2013 $ 13.9 Billion 41.5% Growth $ 19.7 Billion Mass grocery retail sales growth forecast Source: Philippine Retailers Association, Business Monitor Report Constitute 33% of the services sector ~50% of total retail sales concentrated in Manila Metropolitan Area Registered ~ $32.4 Billion Sales in 2012 Employs ~5,000,000 people ~30% of total retail sales from franchisee retail More than 124,000 franchisees employing ~1.1 million people Dominant Players: SM Group, Ayala Corporation, Robinsons and Rustans 23
    • Retail Industry - Drivers 1 Easier Banking Facilities Growth of organized retail 3 Rise in consumer spending Banks financing up to 60% of capital for franchising concepts 2 Growth of franchisee retail (contributes 30% total retail sales) Unemployment ratio decreased from 7.1%(2011) to 6.8%(2012) Entry of foreign brands in the market (Forever 21, Uniqlo ,etc.) Huge overseas remittances ($21.3 Billion in 2012) Increase in dual-income and middle class families Source: Philippine Retailers Association, The National Statistics Office (NSO), National Economic and Development Authority 24
    • Retail Industry - Inhibitors Foreign investments need 54% of total retail space to have paid up capital of concentrated in Manila $2.5 Million or more ~51% of total Parent company should population belong to have net worth of more rural areas Traditional retail outlets still preferred in rural Untapped rural areas Restrictive government regulations than $200 million Minimum investment of $830,000 per store is required areas In-efficient logistics system Absence of efficient logistics system and courier service affecting online retailing Source: Philippine Retailers Association, PwC report 25
    • Retail Industry - Emerging Trends Growing entry of foreign brands in the Philippine market Brands like Forever 21, Uniqlo, APPLE & Bee , etc. entering the market Growth of Online shopping among young Filipino population Emerging Trends Franchising of brands evolving as an emerging trend Filipino’s top in online shopping research in Asia Pacific region 30% of retail sales contributed by franchisee retail Awareness of global brands among young BPO crowd and overseas travelling Filipino’s Retail sales of global brands driven the young working crowd Source: Philippine Retailers Association, A.C Neilson 26
    • Energy & Utilities Industry - Market Overview Philippine Power Industry 1 2 $ 19.5 Billion to be invested between 2013-2016 3 Generation Electricity generation estimated to grow by 4.3% CAGR till 2021 83% of the total households are electrified as of 2011 Placed in top 5 most energy efficient countries in Asia Transmission Distribution Growth in Power Consumption 2009 2010 10.2% 8.7% 9.2% 7.6% 5.2% 4.8% 4.4% 0.3% Residential Commercial Industrial Others Players: NPC, Western Mindanao Power Corporation, Meralco, Aboitiz Energy, Meralco Players: NTC, National Grid Corporation of Philippines Players: Meralco, Total Power generation capacity of ~ 67,743 Gwh Presence of ~ 20,129 Circuit Kilometers of transmission lines Meralco is largest power distributor with $ 400 Mn in Revenue Focusing on Gas powered plants which are cheaper than oil based plants Around $ 2 Billion allotted to expand transmission lines nationwide Meralco partnering with Japanese company to set 3000 MW LNG powered power plant Source: Department of Energy, Business Monitor Report, The Asian Development Bank Abiotiz, VECO, DAVAO Light, PECO 27
    • Energy & Utilities - Market Figures Electricity Production from different sources 73.7% 34.4% 28.9% 10.4% Hydro and Other Renewable + Focusing on Gas powered plants which are 14.7% 11.7% Geothermal Energy needs met from Non-renewable sources of energy cheaper than oil based plants Oil Based Coal 2021 Natural Gas 2nd Largest producer of Geothermal energy in the world Electricity Generation from different renewable sources 2012 37.7 % 44.7 % 0.5% 26.3% 43.8% 55.7% Energy needs met from Renewable sources of energy Hydro Geothermal Estimated growth of Electricity production through gas powered plants Other Renewable Sources Source: Department of Energy, Business Monitor Report 28
    • Energy & Utilities Industry - Drivers Increasing Investments Increasing Demand Govt. Initiatives Formalised long term Energy Plan(2012-30) Plan to electrify 90% of total households by 2017 Investments of ~$19.35Bn required by Energy sector Measures to increase production of fossil fuels of IT-BPO offices Encourage private sector through Build-own-operatetransfer (BOOT) and buildown-operate (BOO) type of contracts Aboitiz, a local player, to invest $2.13 Billion over 4 years Rapid growth in the number Meralco to build the largest Natural Gas powered plant by 2016 partnering with a Japanese firm Feed-in tariff rates (linked to variable cost of production) to encourage Renewable Energy projects Rapid Urbanization and growth of economy Ayala, a regional player to invest $500 million in next 5 years Source: Department of Energy, Business Monitor Report, Aboitiz Strict rules and penalties to curb power thefts 29
    • Energy & Utilities Industry - Emerging Trends Renewable Source of Energy Focus on power production through Renewable Sources of Energy Smart Cities & Smart Grids Energy Efficiency Introduction of Focus on Plans to develop investing in end- Smart Cities and to-end Smart Smart Country- grids solutions by sides especially various players BPO’s Source: Department of Energy, Business Monitor Report, Free distribution of energy efficient CFL’s and phasing out incandescent bulbs energy efficient e-trike electric vehicles replacing traditional petrol based vehicles 30
    • Aviation Industry - Market Overview Aviation industry contributes 0.4% to GDP Domestic Aviation Market Share 45% Generates $4.8 Billion in catalytic benefits through tourism Employs ~123,000 people Budget airlines dominate 60% of the Philippines aviation market 21% 22% 10% 2% Cebu Pacific Philippine Airlines Airphil Express Zest Air Sea Air & Air Asia International Aviation Market Share 55% Total Airline passengers in 2012 (in Millions) 15.5 24% 12.5 16% 2% Domestic Passengers International Passengers Source: Civil Aviation Authority of Philippines, IATA Foreign Carriers Philippine Airlines Cebu Pacific 3% Zest Air Sea Air & Air Phil 31
    • Aviation Industry - Drivers • • • Grew by 18% in 2012 98% foreign tourists by airlines Luzon, Visayas & Mindanao rated top tourist destinations Country’s geography Over 7000 islands make air travel the most convenient Growth of Outsourcing & Offshoring Tourism Drivers IT-BPO to grow by 18% till 2016 To and fro journey of ~2.2 Million overseas Filipino’s Oversea’s Filipino Workers Drivers Source: Civil Aviation Authority of Philippines, National Statistics Office Large Government infrastructure projects Large investments to improve airport infrastructure 32
    • Aviation Industry - Inhibitors Poor airport infrastructure (Ranks 112) Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, World Economic Forum Future plans to improve current state 33
    • Aviation Industry - Emerging Trends Foreign carriers expanding operations Emirates starting direct flights from Luzon to UAE Airlines modernizing flights Emerging Trends Cebu Pacific adding 20 more Airbus A320 and 30 Airbus A321neo aircraft Philippines Airlines ordered additional 10 Airbus A330-300 Focus on modernization of airports $8 Million worth modernization drive at Tacloban and Dipolog airports Source: Civil Aviation Authority of Philippines, Cebu Pacific Report, The Department of Transportation and Communications 34
    • BFSI Industry - Market Overview Philippines Banks rated ASEAN region’s Best Performing Bank stocks prices Total deposits grew by 6.3% in 2011 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 ~$96 Billion ~$101 Billion 2010 2011 Total banking network of 9,207 Non Performing Loans ratio declined to 2.9% in 2011 from 3.6% in 2010 Total deposits in Banking Institutions ~$65 Billion ~$75 Billion 2010 2011 Loans for production activities comprised around 84% of commercial bank’s total outstanding loans Loans Outstanding in Banking Institutions Source: The Bangko Sentral ng Pilipinas, Business Monitor Report 35
    • BFSI Industry - Drivers Low interest rates being offered Growth in economy driving SME & Corporate loans Bank loans grew by 14% in 2012 Increasing foreign investments in the BFSI industry Maybank plans to invest $100- $200 million to its local subsidiary Maybank Philippines Source: The Bangko Sentral ng Pilipinas, Business Monitor Report Drivers Drivers Rates were lowered to 3.5 percent for overnight borrowing and 5.5 percent for overnight lending Government effort to merge rural banks with other players One Network Bank (ONB) and Iloilo-based Rural Bank of San Enrique Lifting restrictions on number of branches As long as their capital supports, banks can now put up as many branches 36
    • BFSI Industry - Inhibitors Financial problems in foreign countries Country’s Commercial and universal banks required to put in more equity capital Philippine Central Bank regulations & initiatives Reduced lending rate to 5.5% to boost domestic economy Source: The Bangko Sentral ng Pilipinas Resulted in 5 Foreign banks closing down operations in Philippines Inhibitors Encouraging mergers PNB and Allied Bank merge with combined assets of $ 12.2 Billion(2012) 37
    • BFSI Industry - Emerging Trends 1 Internet based banking services 2 Mobile based banking services Online banking usage in Philippines grew by 39% in 2011 Philippine Postal Savings Bank adopting 3i Infotech’s core banking solution Philippine Resources Savings Bank chooses IBM Power Systems Rizal Commercial Banking Corporation deploys Infosys’s Finacle Core Banking Solution 3 Adoption of latest technologies Rural areas benefitting from mobile payment solutions in micropayments services Source: The Bangko Sentral ng Pilipinas, ComScore, XMG Global 38
    • Healthcare/Pharmaceutical Industry - Market Overview Expenditures projections(in Billions) 2010 2011 2013 ~$3 Billion $3.9 Billion 8.4 2012 9.1 Pharmaceutical Industry Growth Forecast 2.9 2.8 Presence of ~1,500 hospitals (2011) ~21,500 Healthcare units and centers(2011) Highest exporter of Nurses in the world Budget of $1.1 Billion approved for healthcare Source: Business Monitor Report 0.3 Pharmaceutical Expenditure Healthcare Expenditure 0.35 Medical Devices Expenditure Key Players in the market: Unilab, Pascual Labs, Pfizer, Novartis, Merck & Co, Sanofi-Aventis, Abbott Laboratories etc. 39
    • Healthcare/Pharmaceutical Industry - Drivers Government assigning $1.1 Citizens above 65 years to Billion in their 2012 budget grow at CAGR 1% till for healthcare Foreign drugs dominate the healthcare market Source: Business Monitor Report Government focused on improving healthcare scenario Increasing number of senior citizens Growing market for foreign healthcare players Top pharmaceutical companies have manufacturing plants in the country 2020 resulting in high healthcare spending 14 of the top pharmaceutical companies in the world have manufacturing plants 40
    • Healthcare/Pharmaceutical Industry - Inhibitors Philippines ranks as one of the most expensive countries for drugs Government Laws for healthcare industry Same medicine in Philippines would cost 5-30 times more than in India, Pakistan Counterfeit drugs creating a roadblock Special Law with Criminal Sanctions against selling counterfeit drugs ~ 30% of the medical shops in Philippines sell fake medicines Government initiatives to improve healthcare situation Rotavirus Vaccination program for vaccinating children Source: Bureau of Food and Drug, Department of Health PINOY Health Insurance Act for healthcare to benefits to the poor 41
    • IT / ITeS Industry - Market Overview 3rd Largest supplier of IT Talent in Asia Pacific region BPO industry alone is valued at $11 Billion Estimated to grow by 18% ~$13 Billion 2012 IT-BPO Growth forecast Worlds top destination for BPO outsourcing IT-BPO industry employs ~772,000 people(2012) Healthcare Outsourcing industry contributed ~$433 Million Produces ~90,000 Technical graduates annually ~$16 Billion 2016 2012 2013 Hardware $2.2 Billion $2.4 Billion Software $401 Million $460 Million $1 Billion $1.2 Billion IT Services IT Products/Services Sales figures Source: Business Monitor Report, Philippines Software Industry Association 42
    • IT / ITeS Industry - Drivers Rising PC penetration in rural areas Government ICT initiatives driving IT adoption Various e-governance projects driving IT adoption across country Rapid growth of Outsourcing and Offshoring Industry Growth in Animation & Gaming, Accounting & Finance outsourcing, Healthcare outsourcing Computer hardware sales grew by ~10% Rise in wage structure Drivers Drivers Enabling consumers to spend on PC’s Growth in number of Graduates Produces ~90,000 Technical graduates annually Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association 43
    • IT / ITeS Industry - Inhibitors Scarcity of employable high/middle-end IT professionals Financial crisis faced by US & European Banks which account for 30% BPO spending Lack of skilled IT graduates due to poor quality of education Government initiatives to bring businesses from foreign countries Financial crisis might prevent foreign banks from outsourcing their work US-Philippine Business & IT delivery council launched in Silicon Valley ICT related regulations introduced by Government Data Privacy Act of 2012 signed to prevent illegitimate use of data Cybercrime Prevention Act 2012 for tackling cybercrimes Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association 44
    • IT / ITeS Industry - Emerging Trends 1 E-governance initiatives driving IT adoption 2 $11 Million iGovPhil project Criminal tracking across all police stations by Philippine National Police (PNP) using modern technology Integrate existing government networks together to run government applications TV White Space (TVWS), to tap unused frequencies between TV channels to deliver broadband services Develop payment gateway catering to possible payment gateways Source: Department of Science and Technology (DOST), Business Monitor Report, Philippines Software Industry Association 45
    • Real Estate Industry - Market Overview Land value growth rate Prominent Business Districts 15.1% 8.5% 6.1% Makati Central Business District Ortigas Center BPO sector takes up ~4.5 Million Sq. feet annually One of the fastest urbanizing countries in East Asia Bonifacio Global City New residential units supply 8,669 ~11% GDP contribution from real estate, renting and related business activities 23,600 new units to introduced by 2016 in Makati CBD 6,261 Average hotel occupancy rate exceeds 70% in 2012 compared to 67% in 2010 New office supply forecast Office space stock projected to reach 7 Million sq.m in 2014 4,66,760 6,01,219 3,007 2012 2013 2014 Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang & other locations Major urbanized locations Source: CBRE, Business Monitor Report, Colliers Research 2,39,831 2012 2013 2014 Makati, Ortigas, Fort Bonifacio, Eastwood, Alabang & other locations Major urbanized locations 46
    • Real Estate Industry - Market Overview BPO sector accounts for ~85% of the total office space which grew by 25% in 2011 Residential, gaming and leisure sectors also grew Interest rates for the Growth of Outsourcing and Offshoring industry Home Development Mutual Fund reducing interest rates Growth of retail sector aiding real estate Growth of tourism low-income group reduced from 6 to 4.5 percent Tourism aiding in growing demand for hotels Large remittances from Overseas Filipino workers($21.3 Billion) Source: CBRE, Business Monitor Report, Colliers Research 47
    • Real Estate Industry - Inhibitors Political unrest in the middle-east Causing decline in remittances Financial crisis faced by US & European Banks Housing backlog Affecting outsourcing industry with 5 banks closing down operations in the country Limited options for low income group Government Regulations for Real Estate industry Foreigners are barred from taking a majority interest in land Source: CBRE, Urban Land Institute, Business Monitor Report, Corporations or partnerships with 60% Filipino ownership are entitled to acquire land in the Philippines. 48
    • Real Estate Industry - Emerging Trends Emerging Trends Growth in economy and purchasing power Real estate purchases by Overseas Filipino’s Growing trend of purchasing Vacation homes among Filipino’s 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 Source: CBRE, Business Monitor Report, Colliers Research 49
    • Telecom Industry - Market Overview ~10% Contribution to the country’s GDP 3.5% 9.6% 0.01% Mobile Broadband Fixed Line Estimated growth rate till 2016 $5.3 Billion in Revenue (2011) Philippine Mobile market share Other Players Presence of ~103 Million mobile subscribers High mobile penetration rate of 106% 8th Largest Facebook users in the world Filipino’s account for 10% of world’s global SMS’s 30% 70% Smart phone sales estimated to grow by 60% till 2016 PDLT & Digitel Source: PwC Report, National Telecommunications Commission 50
    • Telecom Industry - Drivers Huge potential broadband market Expansion allowing addition of more customers from rural areas Current broadband market has a low penetration rate of 7.4% Network expansion by telecom operators Social media popularity Drivers • World’s 8th largest Facebook population • Growing use of internet services on mobile Consists of four 3G license holders Liberalized and competitive telecom sector Government ICT plans Source: PwC Report, National Telecommunications Commission, *ARPU(Average revenue per user) PDS 2011-16 plan to create further demand for telecom services from corporate segment 51
    • Telecom Industry - Inhibitors Inhibitors Geographical constraints for expansion and operations Rural market comprising 51% of total population still untapped Mature mobile market with low growth rate projections (3.6% p.a till 2016) Mobile market dominated by Pre-paid constituting 92% of total users which brings low ARPU Source: CBRE, Business Monitor Report, Colliers Research 52
    • Telecom Industry - Emerging Trends $141.5 Million Smart Communication to modernize its 2G/3G network and mobile broadband networks. $790 Million Globe Telecom network modernization plan Launch of WiMAX 1 WiMAX enabling greater network access to remote areas 2 Investing in modernizing infrastructure 3 Growing use of Smartphones Smartphone penetration to grow to 50% till 2015 4 Telco Operators investing in 4G Adoption of new technologies and LTE technologies Source: PwC Report, National Telecommunications Commission 53
    • Education Industry-Market Overview $5.9 Billion budget approved for Education Sector ~58,914 (2011) public and private schools and 2011 projection: 500,783 graduates, 3.9% growth learning centers Total Graduates produced annually College Degree Graduates Employs ~316,000 people 2010 Very high adult literacy rate of nearly 95% 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 Produces more than 500,000 Graduates annually Medical and natural sciences, allied fields 12,269 2.9% Total Source: Philippines Software Industry Association, Board of Investments ~ 417,000 54
    • Education Industry - Drivers Huge young population Fuelling demand for employable graduates Growth of Outsourcing & Offshoring industry Drivers $5.9 Billion(2011) budget approved Source Bureau of Immigration, Board of Investments Average median age of 22 Affordable Education Attracting foreign students with 26,000 enrollments in 2012 Government initiatives 55
    • Education Industry - Government Policies Government initiatives for education sector Restrictive Government Regulations in Education sector Free kindergarten education to five year old children all public schools Foreign Investment Act does not allow direct investment Procuring more than 31.1 million Textbooks Foreign investment possible through corporation and partnerships Initiated K+12 curriculum for quality education Focus on PPP’s for construction of school buildings and infrastructure Source: Philippines Software Industry Association, Board of Investments, Government of Philippines 56
    • Telecom Industry - Emerging Trends 1 Growing use of e-learning solutions Use of E-Learning product and solutions grew by ~33% in 2012 2 Use of cloud based solutions 3 Growing use of cloud based tools and learning platforms Vibal Publishing House and Microsoft partnered Modern technologies in education to create e-textbooks Vibal distributed 1,000 tablets to public school students in Laguna Source: PwC Report, National Telecommunications Commission 57
    • Philippines Government - Initiatives Various Government reforms for industry growth Focus on various Public-private partnerships Government signing agreements with various Asian countries • Government inviting 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 Government focus on improving education standards Billion in 2012 • Introduction K-12 curriculum to quality of students Philippines Digital Strategy 2011-16 to maximize use of ICT for national development • Use ICT technologies to collaborate across departments for better e-governance • Create additional demand for ICT services from corporate segment Source: Philippines Software Industry Association, Board of Investments, Government of Philippines, PwC Report 58
    • Philippines Government - Initiatives Various Government reforms for industry growth Bringing peace to the country Efforts to bring the high corruption level down • Reaching an agreement with the country’s largest Muslim group in Mindanao • Corruption level in public sector decreased to 42%(2012) from 64%(2009) • Introduction of locally manufactured electric Government stress on healthier environment public transport vehicles • Stress on using the vast renewable sources of energy for power production Focus on using modern ICT enabled services for agriculture, transport and smart grid • Signed Memo of Understanding between ASEAN and the International Telecommunications Union on Joint Cooperation on ICT development in ASEAN Source: Philippines Software Industry Association, Board of Investments, Government of Philippines, PwC Report 59
    • Philippines Government - Using modern IT Government to implement a National Justice Information System (NJIS), an integrated Big Data criminal justice database system The Philippines Bureau of Internal Revenue Reduces Federal Deficit, Improves Tax Collection Processes with SAS, Realizing 400 Percent ROI Department of Finance’s implements financial analytics and data warehouse Department of Transport and Communication’s Infrastructure and Information Systems Project Source: Government of Philippines 60
    • Table of Contents Summary Macroeconomic Environment Infrastructure Overview Vertical Insights IT Market Landscape Connectivity - PC, Broadband and Mobile Penetration Social Media Penetration IT Spending estimates and SMB status Government ICT Plans International IT majors / Indian Companies Landscape 61
    • Table of Contents Summary Macroeconomic Environment Infrastructure Overview Vertical Insights IT Market Landscape International IT majors / Indian Companies Landscape 62
    • Zinnov Point Of View 63
    • Philippines 1990’s Sick Man of Asia, Low GDP growth Positive Philippines presents an exciting space with a 95 million strong domestic market. The world’s second largest outsourcing destination 2010’s Positive One of potential started on journey of strong macro-economic development. Breakout Nations With an estimated IT market of ~ USD 3.6 bn, beating growth expectations with its young and English speaking population has Positive companies would have potential to grow and expand in Philippines. The government which was rated inefficient and Negative corrupt recently, is focussing on increasing transparency and promoting the business environment. 64
    • However there are some pitfalls Growth vs. Potential Saturated Growth Areas Areas Buy vs. Grow vs. Partner Competition – Market Current and Potential - Potential $$$ Government Regulations Cloud vs. hosted vs. inhouse Partner Ecosystem 65
    • Which Zinnov can help you navigate We help organizations globalize their business and improve people performance Growth Strategy Definition Risk management Organization Restructuring & Change Management Portfolio Analysis & Talent Peer Group Benchmark Network Innovation Research Eco-system Connect Value analysis & Maturity model Vendor Selection, location Cost Analysis & Optimization Audit Globalization Council Shared Services Contract Structuring Benchmark Global Leadership Optimize Operational efficiency 66
    • Zinnov Management Consulting For more details and complete copy of the report, write to us at info@zinnov.com Thank Thank You You 69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 First Floor, Plot # 131, Sector - 44, Gurgaon – 122002 Phone: +91-124- 4420100 3701 Patrick Henry Dr. Building 7 Santa Clara CA – 95054 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773 info@zinnov.com www.zinnov.com @Zinnov This report is solely for the use of Zinnov client and Zinnov personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the client organization without prior written approval from Zinnov