WHAT’S DRIVING ECOMMERCE IN THE PHILIPPINES?

Written by: Katrina B. & Benedict L

What’s Driving eCommerce in the Philippines?

Like its neighbouring countries in Southeast Asia (SEA), the Philippines is poised to undergo tremendous growth in eCommerce over the next few years. Figures from Google and Temasek’s e-Conomy SEA 2018 report show that in 2018, the country’s Internet economy, which includes eCommerce, online travel, online media, and ride-hailing, was valued at approximately US$5 billion, growing 30 per cent from US$2 billion in 2015. Furthermore, these industries are estimated to grow by more than 4x to US$21 billion in 2025.

Image source: Hootsuite and We Are Social

But the real reason you should be excited about the Philippines is that it’s a relatively untapped market by regional players. This is a country with 76 million active Internet users, the second largest in Southeast Asia. What’s more, practically all of these users are on social media, according to research by Hootsuite and We Are Social. This makes it easy for you to reach out to this audience and promote your cross-border offerings on Facebook, Twitter, Instagram, and on online marketplaces like Lazada, Shopee, and Zalora, among others.

These factors come together to paint an exciting future for eCommerce in the Philippines. Here are a few positive and negative factors driving eCommerce opportunities in the country.

These factors come together to paint an exciting future for eCommerce in the Philippines. Here are a few positive and negative factors driving eCommerce opportunities in the country.

Factors Supporting eCommerce

A growing middle class

The International Monetary Fund projects a 6.6 per cent economic growth outlook for the Philippines in 2019. This is consistent with the upward trajectory of the country’s gross domestic product (GDP), which grew by 5.6 per cent in Q1 2019.

A bullish economy is also propelling an emerging middle class of tech-savvy millennial spenders, the oldest of whom are now assuming managerial positions in organisations. In fact, the World Economic Forum predicts that this middle-class segment will outspend Italy’s middle class by 2030.

Meanwhile, the stream of foreign currency sent by overseas Filipinos to their families in the Philippines continues to break records with each passing year. In 2018, overseas remittances reached US$32.21 billion, which, for the average Filipino family, is spent on food, clothing, entertainment, mortgages, rent, and other basic necessities.

The Philippines also has the second largest average online shopping basket size in Southeast Asiaaccording to iPrice, which only goes to show how eager local consumers are to find and buy products online.

Growing government support

Recognising the importance of eCommerce for the Philippine economy, the country’s Department of Trade and Industry (DTI) developed the Philippine eCommerce Roadmap 2016–2020. Its primary goal is to get online business activities to account for 25 per cent of the country’s GDP by 2020, up from 10 per cent in 2015.

The government is committed to seeing through this roadmap, and has made headway especially in the areas of:

• Infrastructure — improving Internet access, e-government systems, e-banking, e-payment, tax systems, consumer protection, and logistics
• Investments — supporting and promoting opportunities such as foreign direct investment and capital flows
• Innovation — helping digital startups enter the commercial market

Overall, this means the Philippines is in the process of building clear rules and support systems for you and other online merchants. There are some kinks, as with any other country adopting digital transformation, but the government understands the importance of opening its doors to both domestic and foreign players in the eCommerce industry.

Interest in goods found abroad

Filipinos are prolific shoppers, hungry for goods and services not found in the Philippines — a fact you can leverage when figuring out which goods consumers in this market would be interested in. A typical Filipino holiday itinerary to nearby cities like Hong Kong and Singapore isn’t complete without a day or two set aside for shopping alone. In fact, going abroad used to be the only way Filipinos could shop at stores like H&M and Uniqlo, which only opened stores in the country in 2014 and 2012, respectively.

The desire for products not found locally was also cited by a Nielsen report as one of the primary reasons driving eCommerce consumers in the Philippines to shop online. The opportunity here for online sellers is obvious: you can stand out in this market by offering products Filipino consumers don’t have access to locally.

Digitalised shopping experience

The Philippine population of 107 million people skews towards a young, tech-savvy group of Millennial and Gen Z consumers (the country’s average age is 24.3 years). Unsurprisingly, these consumers are prolific users of the Internet, spending an average of 10 hours and two minutes browsing the Internet each day. Nearly half of that time — four hours and 12 minutes — is spent on social media.

Like other countries in Southeast Asia, the advent of powerful and affordable mobile devices is at the heart of this surge of Internet usage among Filipinos. The Philippines has been a mobile-first nation since 2014, and this can be seen in Hootsuite and We Are Social’s findings that 89 per cent of adult Filipinos use mobile phones of any type. In contrast, only 38 per cent have access to a laptop or desktop computer.

As such, it’s important for you to provide an online shopping experience that’s optimised for the smartphone screens of mobile-first shoppers. That means simpler navigation requiring fewer clicks, clear call-to-action buttons, vivid but lean images that load quickly, an intuitive browsing experience, and even eCommerce ads optimised for mobile screens.

Challenges of eCommerce in the Philippines

Cash-based payment methods dominate, for now

One of the reasons behind the relatively slow uptake of eCommerce in the country in the past few years is the continued dominance of cash-based transactions. According to the Philippines’ central bank, cash accounted for 99 per cent of all local transactions as of January 2018. In addition, the country has been slow to adopt e-wallets, with only 1.3 per cent of Filipinos owning electronic money accounts based on Bangko Sentral ng Philippines’ 2017 Financial Inclusion Survey. Meanwhile, merely 1.9 per cent of Filipinos over the age of 15 have a credit card.

As such, over 80 per cent of online retail players in the Philippines have had to offer cash-on-delivery or payment centres (like paying at a 7/11) as a payment option. This can be a headache for international sellers given the ease of cancelling or returning orders that buyers have not yet paid for, compared to those they have paid for in advance.

However, local e-wallets have been aggressively marketing their services in the country. Popular ones include GCash and SMART Money, which are offered by two of the country’s largest providers of mobile accounts and Internet connections. Social commerce, especially through Facebook and Facebook Messenger, has also been found to drive the adoption of e-wallet payments in the Philippines, according to a report by PayPal.

What’s clear is that online merchants should be willing to accept cash-on-delivery, while also educating consumers about e-wallet payment options.

Logistics concerns due to unique geography

The Philippines being an archipelago of more than 7,600 islands, logistics naturally presents a challenge you will have to prepare for when serving customers in this country. Consumers living in the sprawling capital of Metro Manila enjoy access to huge shopping malls, flagship brick-and-mortar stores, and even same-day online delivery from large marketplaces like Lazada and Shopee.

However, suburban and rural areas with fewer shopping malls are an underserved market where you can cater to customers who can’t find the products they want or need in nearby brick-and-mortar stores. To do this, you will need a reliable cross-border shipping partner and last-mile delivery service provider that can deliver packages nationwide, without drastically increasing your shipping fees.

But even with a logistics partner, it’s important to set realistic expectations on how soon customers can receive their orders. For example, online marketplaces like Lazada make it clear that they can deliver to all serviceable areas, with a few limitations due to geographic restrictions. For orders outside of Metro Manila, the promised turnaround time is 12 days, even if deliveries don’t necessarily take that long.

You should also take note of the Philippines’ most popular eCommerce shopping events to anticipate supply and demand well in advance. In the Philippines, shopping season typically starts during the “ber” months (i.e. September to December).

This is also a good time to research sale wishlists to get an idea of what Filipino consumers are eyeing, especially during the end-of-year holidays. This will help you plan for timely delivery during the festive season.

Growing pains with Internet connectivity

The Philippines has one of the slowest and most expensive Internet connections in Southeast Asia. Coupled with high mobile phone and social media usage, this means online merchants must pay attention to mobile optimisation, particularly when it comes to the sizes of their product images, This ensures that consumers can easily load on a smartphone on a 3G data connection.

Keep in mind that Facebook, the country’s most popular social media network, has a free version for mobile phone users in the Philippines. That means online merchants can leverage the network to advertise and sell their products.

In fact, PayPal’s research shows that 87 per cent of Filipino merchants sell products on social media. Facebook also drives traffic and engagement on Lazada, Shopee, and Zalora.

Changing eCommerce perceptions

A universal challenge for any online merchant is gaining buyers’ trust. For eCommerce, this means using a combination of strategies, ranging from prompt delivery to accurate product descriptions.

You also need to account for the low trust Filipino consumers have in credit cards. According to a MoneyMax survey, many Filipinos are reluctant to get credit cards because they fear it will lead to overspending and debt.

Considering the challenges in Philippine eCommerce, online merchants can also build trust by offering alternative payment options to credit cards. This may be in the form of cash-on-delivery and local e-wallets.

Given the popularity of branded products, eCommerce merchants can also capitalise on consumers’ trust in major brands. This does not mean that you must sell only branded items. Merchants can sell non-branded or less popular products in bundles with major branded items, or sell similar products that provide the same features and functionalities.

When it comes to eCommerce in the Philippines, there are a few critical factors to remember:

• Pay attention to local economic conditions and plan your supply chain accordingly.
• Filipinos shop online to find products not found locally or in brick-and-mortar stores. Social media listening will go a long way towards understanding the unmet needs of Filipino online shoppers.
• The majority of Filipinos access the Internet on mobile devices, so be sure to optimise your eCommerce shopping experience accordingly.
• Cash is king in this country. Check if your cross-border shipping specialist has partners or recommendations for last-mile-delivery service providers who have COD as a payment option.
• The Philippines’ geography presents challenges in terms of keeping shipping fast and affordable. Again, find a reliable logistics partner and be sure to set expectations ahead of time to ensure shoppers know how soon they can receive their orders.

The Philippines offers massive potential for eCommerce players who can beat the competition in establishing an online foothold in the country. However, doing so means responding to the challenges mentioned above. With planning, targeted marketing, and the right cross-border shipping partner by your side, you should be able to adapt to the needs and preferences of eCommerce consumers in the Philippines.

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