THE BLOG
07/10/2014 05:30 pm ET Updated Dec 06, 2017

Is it Time to be Bullish on E-Commerce in the Philippines?

This post is the first of the "Digital Marketing Insights" series. Co-authored by Joey Alarilla.

Filipinos love going to the mall, which for decades has been a big part of the everyday lifestyle, where the youth congregate, families bond, and everyone hangs out to escape the sweltering heat. It's no wonder, then, that the country is home to three of the world's biggest malls, including the biggest one in Southeast Asia - the SM Megamall.

In recent years, the love for shopping has spilled over in a big way to the online world, as more and more Filipinos are starting to embrace e-commerce. Having been one of the most active online users especially for online research and social media activities, Filipinos are starting to spend lesser time at the malls with online stores mushrooming over the past few years offering a more convenient alternative to shopping making Philippines.

While topping the online activities and mainly sharing of online deals, is the Philippines really ready for e-commerce?

We've looked at various factors such as logistics, consumer readiness, payment systems among others and interviewed some of the e-commerce and digital marketing experts in the Asia Pacific particularly in the Philippines to learn more about what they think are the main challenges for e-commerce in the country and where they think its future in the Philippines will be headed.

2014-07-10-5b8688cf52ef49ebbf51edff1486fc8dwallpaper.jpg

Filipinos active online, but need to overcome a few hurdles

Inanc Balci, CEO and co-founder of Lazada Philippines, is bullish that it's only a matter time before the Philippines catches up with other countries in terms of e-commerce penetration.

"The Philippines is already a leader in social networking sites. It is just a matter of time for people to adopt to e-commerce and make their lives easier," Balci said.

It's not hard to see why Balci is optimistic, as Rocket Internet-backed Lazada is one of the most successful online retail sites not only in the Philippines but also across other markets in the region and establishing itself as the Amazon of Southeast Asia. He does point out, though, that the country has to overcome some hurdles before e-commerce can truly take off.

For one, credit card penetration is still low in the Philippines. "To get over this hurdle, we have introduced nationwide cash on delivery in the country in which customers pay in cash when they receive their items. This also helps in order to increase trust in online shopping since no credit card information is needed and the customers only pay when they see the items."

Laws, infrastructure and technologies are already in place

Janette Toral of Digital Filipino and one of the most active e-commerce advocates in the Philippines thinks that "most of the factors are already in place especially with the upholding of the Cybercrime Law that can further secure our e-commerce space in the country."

However, she believes that there are several things that needed to be improved such as:
"better internet infrastructure, simplified tax registration-filing-payment-reporting-correction system that is less bureaucratic to lessen issue on non-compliance".

Other factors which she sees that could use some improvement include "making it mandatory for banks to offer affordable inter-bank fund transfer services to make it easier for buyers and sellers pay each other without being reliant on manual or third-party bank deposit services, credit cards and the likes".

Other issues which Mon Lizardo, E-Commerce Consultant and Head of Digital Audience Management for ABS-CBN Corporation sees which contribute to the challenges "are a sizable number of people who are afraid of fraud, identity theft, and other things they learn from horror stories involving security, although many of them really do not emanate online but offline".

Besides the issues of security and awareness for consumers, Lizardo highlighted some issues which traditional businesses may have in mind. "The challenges of brick-and-mortar stores to go online are common across most if not all categories everywhere in the world regardless of size of the business. For example, a store or group of stores that invest much of its resources into growing foot traffic and store sales will always have the natural tendency to be afraid that going into e-commerce will cannibalize their offline business."

Lizardo explains that "although, this could be true to some extent, those who have this mindset may be getting it all wrong. The main problem in such cases is that e-commerce is being considered by the business as a silo. And in so doing, it ends up being treated as a threat to the 'other silos' of the business, which are the stores. But in reality, from a macro perspective, the success of any of these so-called silos contributes to the success of the entire company, whether it is online or offline".

SM Investments Corporation, owners of largest malls, eyeing web shoppers

While many business are still hesitant to expand their offerings and include online transactions, Henry Sy of SM Investments Corporation, owner of the largest malls in the country, is targeting web shoppers as the internet usage surges in the country.

Scott E Bales, Author of Mobile Ready, believes that such move from big players such as SM Megamall, whose main operations are done through its various branches nationwide, will help push e-commerce in the country. "When traditional businesses get into the e-commerce space, they tend to throw large resources into driving success, which includes enabling partners, driving consumer choice and addressing market concerns. So, if SM Investments was to enter the market, they will clear the road for other players to enter the space as well which is a hugely positive shift forward in driving the overall e and m-commerce success".

Philippines taking the "slow but sure route" to e-commerce

Donald Lim, Chief Digital Officer of media conglomerate ABS-CBN Corporation, however, believes that the reality of poverty in the Philippines means that most Filipinos will simply have no access to e-commerce. Still, he said that the Philippines is seeing a "slow but sure route" to e-commerce in recent years.

"E-commerce will really move ahead if the large malls and retail establishments do major launches of their online stores and heavily promote it. That is the tipping point we all want to see. However, retail should make it easy for people to receive and return goods," Lim said.

"The government should also ensure that the rule of law, that punishment on e-commerce fraud and violations are strictly implemented," Lim added.

For his part, Timothy Go, Head of Operations of A-Solutions, which provides digital storefronts for businesses, said that the Filipino demand for e-commerce will continue to grow because consumers have come to value the convenience of online shopping.

"We have a growing population that is getting access to more disposable income and they have access to the Internet. They are aware of what is happening abroad and many are slowly wishing the same products and services could be enjoyed locally. As we've seen online retail grow dramatically over the past two years -- I think this is a testament to where the industry is going," Go said.

Go, however, said that to drive this growth, two key areas have to be addressed, namely the online payment system and logistics.

As previously discussed, credit card penetration is still not as high in the Philippines. While concerns over security remain, through education and the growth of online retail and group deal sites, Filipino buyers have become more comfortable with paying.

Public and private sectors help establish trust between sellers and buyers

To address the security concerns, Robertson Chiang, COO and CTO for Dragonpay Corporation, mentioned the steps being taken by the Digital Commerce Association of the Philippines (DCOM) by spearheading the adoption of a DCOM Trust Seal, in partnership with the DTI of which "the goal is to increase e-commerce growth by establishing trust between buyers and sellers."

Logistics, however, might be an even thornier issue.

"Fulfillment must be solved. Most logistics companies in the Philippines are used to doing bulk fulfillment," said Nix Nolledo, director and partner of venture capitalist and tech incubator Hatchd Inc. and chairman and partner of A-Solutions.

"The other problem is fulfillment outside of Luzon (the largest island in the Philippines where the country's capital, Manila, is located). We are an island nation and the cost of fulfillment gets especially more complex because you are relying on these freight fulfillment companies that charge a huge amount," he added.

This is one area, according to Nolledo, where the public sector can help drive the growth of e-commerce: "They should support the startups in the e-commerce space, not necessarily the retailers but the ones who provide the enabling technologies around payments, logistics, etc."

'Blended e-commerce transactions': Solution to logistics and payment issues

However, Jojy C. Azurin, Regional Director for Continental Asia, Freelancer.com, thinks that this can be addressed through options like cash on delivery and 'blended e-commerce' transactions.

"The fact that Indonesia has a lack penetration for credit cards did not stop the e-commerce industry to continuously prosper. With a current market transaction of $1.2B, the Philippines is e-commerce ready".

With the absence of credit cards, the e-commerce companies were able to prosper by using Cash on Delivery. Payments are only done when delivered by the messengers who also act as payment collectors. In true Filipino fashion, it created a very local 'blended e-commerce' setup where leads are generated online, prices are negotiated via email or private messages and meetups are done in malls where money and goods are exchanged to finalize the transactions. [Online] transactions are believed to be more than $1B alone", Azurin added.

Philippines can learn from China's success in distribution

Jack Madrid, CEO of Lovable Commerce and Board Director of the Digital Commerce Association of the Philippines, said the key factor would be integrating and providing end-to-end solutions.

"Challenges will lie in the integration of offline and online components of the buying and selling experience, specifically in the logistics/fulfillment areas and making payments safer and more convenient. As product quality and availability is critical, merchants will need merchandising and retail expertise and a focus on making the customers' shopping experience as convenient as possible," he said.

"Distribution is another important component. This is how Amazon became the behemoth it is, which took many years to perfect. For the Philippines, we can also gain a lot of insights from looking at the success of China's enormous e-commerce industry," Madrid added.

For his part, Jon Santico, general manager of 701Search, Inc., the company behind online classified ads site AyosDito.ph, one of the popular e-commerce sites in the Philippines, cited the need to improve the Internet infrastructure to spur the growth of e-commerce in the country.

"E-commerce will be more successful in the Philippines when infrastructure improvements provide faster and more reliable Internet connections, more people begin to trust that online transactions are safe, and more products and services are made accessible by this medium," Santico said.

What will drive more Filipino consumers to make the digital leap into e-commerce?

Nix Nolledo noted that the seeming ubiquity of group deal sites has helped create more first-time online shoppers.

"Whenever you are exposed to a new experience or something, the question is always why will you try it? What is the incentive for me? What deal sites have done is create a compelling reason for non-online shoppers to shop online to get a steep discount that they would not find offline. They serve as the training wheels to smoothen the transition of a non-online shopper into an online shopper," Nolledo said.

Meanwhile, Go said he is eager to see the next step as online shoppers become more sophisticated and graduate from these deal sites and online stores, which at the moment are discount-driven.

"I'm hoping that as consumers become more savvy, they look at online shopping less for the big discounts and more at how they can easily get great products without the inconvenience of leaving your home or office. I want to see online retail, the space where I operate in, become at par with a brick-and-mortar experience. I want them to buy stuff because they want it and enjoy shopping, and less because they found it online at 70% off," Go said.

Infrastructure developments together with improved consumer literacy will boost e-commerce

Me-anne A. Bundalian, Head of Business Development and Sales and Marketing of online classified ads site OLX Philippines Inc., formerly called Sulit.com.ph (one of the 10 most popular e-commerce sites in the country), suggested that infrastructure development must go hand-in-hand with educating Filipinos and changing their mindsets about online transactions.

"It all starts with education and equipping Filipinos with the means to buy and sell online. Even if all sectors are ready, but users don't have the sense of security, trust and knowledge to push them to transact online, then all efforts will be useless," Bundalian said.

She added that the Philippine government must also lead the way in embracing e-commerce.

"Government agencies should also adopt and learn the business. At the end of the day we need them in the business and what a better way to have this but a mutual cooperation and understanding between the private and public sector," Bundalian said.

If the last two years have shown anything, it's that Filipino consumers have a hearty appetite for online shopping if you give them the means. Despite a few hurdles, many e-commerce and digital marketing experts in the Philippines are bullish that consumers and companies are poised to take on the next level of e-commerce industry.

So what happens when you mix the Filipino love for shopping with convenient, reliable and secure ways to purchase online? Sounds like a great recipe for success for the Philippine e-commerce industry.

About the Authors:

Jonha Revesencio is a digital marketer and social media strategist currently working for RebelMouse. You may follow her on Twitter @jonharules.

Joey Alarilla is the Director of Social Media and Engagement of Tribal Worldwide Philippines. Follow him @joeyalarilla and check out his blog Life as a Catalyst.