Editors note: This contributed article was written by Cody Flores, a Venture Analyst with Plug and Play APAC. It was originally published in December 2020.
It’s common knowledge that the world is experiencing an accelerated shift to the digital age especially because of CoVid-19. With new startups emerging fast comes the need to expand, and tap markets unserved. Within Southeast Asia, ecosystems of innovation coming from the likes of Singapore, Indonesia, Thailand, and Malaysia are more than evident. But what does the market look like for those who are more nascent, such as the Philippines? And what is there to expect for those who want to explore?
Beyond the white-sand beaches and the bustling jeepneys, their internet and mobile economy, and developing startup ecosystem suggest that the market for innovation and entrepreneurship is one perhaps worthy of recognition.
The Philippine economy
The Philippine economy, with an annual GDP growth of 6.4 percent between 2010-2019, reached $355 billion in 2019, which ranked them in the top 5 among the ASEAN countries, behind Indonesia, Thailand, Malaysia, and Singapore. The contributors to the Philippines’ GDP are the service, industrial, and agricultural sectors. Making up 60 percent, the service sector is mainly driven by the business process outsourcing (BPO), tourism, and export services industries.
Among the population of 109 million people, 66 percent of them are internet users. Interestingly, the Philippines ranks first globally for heaviest internet users, amounting to an average of 10 hours a day online in 2018. Among that time, nearly 4 hours are spent on social media, like Facebook and Youtube. With the Philippine internet economy estimated to be at $7 billion, the top verticals that make that up are e-commerce, online travel, and online media, and ride-hailing.
The abundance of online activities that Filipinos engage in is surely an opportunity relevant startups should take advantage of. This year, in the Philippines alone, Lazada received 34 million monthly web visits, owning 59 percent market share, followed by Shopee at 19 million, with 33 percent market share. As for the gig economy, Lalamove has already served 120,000 customers in 2019, whereas $13.5 million has been transacted on Grab. As for Grab Food, the number one online food delivery platform in the Philippines, they have been able to onboard 12,000 more merchants in the four months quarantine period. The results coming out of these international players encourages the local startup scene to find its own success stories.
Philippine startup ecosystem
With the economy improving, and an internet and mobile-savvy market, the Philippines is also showing initiatives to encourage and advance the innovation space. For one, the country ranked 54th in the Global Innovation Index in 2019–19 places higher than they were in 2018 and 2017. Announced just on the 1st of December, the Department of Science and Technology has allotted $600,000 for the new Startup Grant Fund program.
There are over 400+ startups in the country, mostly in the verticals of enterprise services, FinTech, e-commerce, education, and transportation. Supporting and fueling these companies are their major stakeholders, mentors, and advisors, such as various incubators, accelerators, and venture capitalists, such as Technology Business Incubators, QBO, Ideaspace, MAIN.ph, and Wavemaker PH.
Though there is a lack of major tech powerhouses in the Philippines, there have been regional investments coming in, with the likes of Squadzip, a digital extension of the office and productivity platform, as well as Pearlpay, an affordable digital banking solutions provider to make financial services accessible–both of which are portfolio companies of Plug and Play APAC.
Why FinTech works
Coming out of the country’s emerging startup scene are notable companies like Coins.ph, First Circle, and Paymongo all of which are in the FinTech space. According to the PWC report, we see almost 50 percent of the funding going to FinTech startups. For e-wallets, Gcash of Globe (backed by Alipay) has over 20 million users. Coins.ph, which was purchased last year by Gojek, has about 5 million users.
It only makes sense that these success stories exist because of the huge opportunity in the financial services sector, where there are 52 million adults that are unbanked and underbanked, (making up 77 percent of the adult population), as well the 2,745 rural bank offices within the country. An example of a startup that addresses this market is Brankas, with Founder Todd having successfully set up shop in the country.
Where else does the opportunity lie?
With the largest Philippine export being its people, the 10 million OFWs (Overseas Filipino Workers) and its market is one that has yet to see significant technological advances. The $30 billion in remittances that enter the country annually, pose pain points that drive startups like Aqwire, who provide better solutions for OFWs to pay their monthly mortgage dues from abroad. Other notable industries in dire need of disruption to digitize are the BPO industry, employing over 2 million people and generating $40 billion of revenue yearly. With the service sector, making up 60 percent of the country’s GDP, processes of large volume recruitment are still highly manual and fragmented, for example.
Partaking in the journey of Philippine digital transformation
The majority of problems that are still present like the automation of our major industries, or financial illiteracy of 77 percent of the population, for example, are effects of politics, deep-seated socio-economic dynamics, conglomerates’ slow adoption, and even culture, to name a few, which makes it difficult to solve absolutely via startup efforts.
Currently, we have players like Gcash, Paymaya, Shopee, and Grab which have successfully penetrated the market and shifted the consumer behavior of 70 percent of the population of the Philippines. For new foreign startups who wish to enter the Philippines, it’s recommended to have a deep understanding of the context of the market, embracing the strengths of the industry to fully make use of the opportunities that come from the plethora of gaps still untapped.
Recommendations for setting up shop would start by consultation with legal and accounting firms like PwC, SGV, or Penborthers to name a few. Building a local team is also a must, and startups can do that with the help of engaging in communities like Startup PH, FinTech Philippines Association, or Techtalks.ph. Lastly, do immerse in the ecosystem through events and conferences like IGNITE, and PH Startup Week, happening annually.
Overall, the Philippine startup ecosystem is not quite where it wants to be yet. But the trends of its economy, the internet behavior of its people, and the results of its various stakeholders’ efforts suggest that there is potential in the market and that there are present efforts proving the ecosystem’s intention to be furthered.
Plug and Play is a global innovation platform. Headquartered in Silicon Valley, we have built accelerator programs, corporate innovation services, and an in-house VC to make technological advancement progress faster than ever before. Since inception in 2006, our programs have expanded worldwide to include a presence in over 30 locations globally, giving startups the necessary resources to succeed in Silicon Valley and beyond. With over 30,000 startups and 400 official corporate partners, we have created the ultimate startup ecosystem in many industries. Companies in our community have raised over $9 billion in funding, with successful portfolio exits including Danger, Dropbox, Lending Club, and PayPal.
TechNode Global publishes contributions relevant to entrepreneurship and innovation. You may submit your own original or published contributions subject to editorial discretion.
Featured image credit: Unsplash