AN ONLINE business may have been more apt for Senate star witness Rodolfo ‘Jun’ Lozada, an engineer and self-described IT expert who somehow wound up heading a state-owned forestry firm. Then again, with the country’s electronic commerce (e-commerce) economy still lingering at the bottom, it’s not surprising that Lozada chose to worry about propagating tuba-tuba and jatropha instead of, say, selling roses online.
Which in turn may have turned out to be good for Island Rose, now among the few lucrative Pinoy businesses online, in part because of the lack of competition in its sector. For the last seven years, Island Rose, which pioneered in the commercial production of flowers under greenhouses in the 1980s, has been shipping flowers — more than half a million stems annually — straight to its customers. Late last year, the company opened Flower Circle to expand its delivery market to Hong Kong. Thirty-seven-year-old Dustin Andaya, founder of the online service, says Island Rose is also looking to widen its operations to include the whole of Asia sometime soon.
Today, 80 percent of online flower delivery services in the Philippines are connected to Island Rose. And as the country’s first online retailer to offer delivery services on a national scale, Island Rose has also paved the way for many thriving local e-commerce retail businesses.
ISLAND Rose website
Since going online in 2000, Island Rose has been able to realize revenues that have allowed the company’s profits to grow by 150 percent. But that figure may shoot up some more, now that industry insiders and observers are betting on 2008 as a turnaround year for e-commerce. This is because of an expected dramatic rise in the use of the Internet, as well as the alternative modes of online payments that have been developed over the years — not to mention the long-delayed entry of PayPal, the global leader in online payment solutions.
“Players now are fortunate that all components to put up an online store are available locally — from hosting to shopping carts, payment systems to online marketing,” remarks Monching Romano, founder of Divisoria.com, the Filipino equivalent of Amazon.com.
Romano launched his popular online shopping site offering all sorts of Philippine-made products at the turn of the new millennium. He recalls, “Back in 1999, in the days of the dial-up, all of these services were only available abroad. To put up (a commercial site), one has to set it up in the United States. A trip there was essential to establish linkages.”
NO WONDER then that the scale of e-commerce remains very much a big business affair, the bulk of which are business-to-business (B2B) transactions involving major retailers and multinational corporations. And while there are the likes of successful dotcom upstarts as Divisoria.com and Pinoydelikasi.com, business-to-consumer (B2C) transactions, most of which is online shopping, are lorded over by the likes of myAyala.com, an Ayala Group of Companies venture that claims to be the largest online shopping mall in the country. Now called myRegalo, myAyala started out with two other components: a virtual flower shop (myflowershop.com.ph), the first of its kind in the country, and a ticket reservation and information center for Ayala cinemas (Sureseats.com).
Small and medium enterprises (SMEs) continue to lag behind big business and multinationals in e-commerce adoption. “In other countries, e-commerce is the way of business,” says Russelle Trinidad, sales and marketing head of SME.com.ph, an electronic community for SMEs. “In the Philippines, it’s only during the last quarter of last year to early this year that SMEs have become aware of e-commerce.”
Since 2000, in fact, only three out of SME.com.ph’s 300 members have been conducting business online: Godiva Skin Care, VMV Hypoallergenics, and recently Regalo Service.
As late as 2006, too, a Philippine Institute for Development Studies (PIDS) paper pointed out that the country’s e-commerce economy would continue to be in the doldrums mainly because of four reasons: One, local SMEs still lack the capacity and knowledge to adopt and effectively use e-commerce. Two, our e-commerce law is silent as far as domain names, intellectual property rights, and a host of other security issues. Three, there is low telephone density and Internet and PC penetration compared to other countries despite existing infrastructure. Fourth, there’s an absence of a more comprehensive set of indicators for measuring usage, readiness, and the impact of e-commerce.
The PIDS study also noted that the Philippines had been left behind by its Asian neighbors, with Thailand and Indonesia ranking higher in terms of e-commerce usage by businesses, particularly in the areas of online banking and e-buying. This is even though all three countries began using the Net at about the same time in the mid-1990s (and actually much later in the case of Indonesia).
There is even a low level of adoption of computers in business — particularly by SMEs — that is reflected in the country’s PC penetration rate. According to an April 2006 paper by the British-based Economist Intelligence Unit (EIU), that rate was just over two percent in 2005, or 1.75 million PCs for 87 million Filipinos. Of this number, only half were in business establishments, says Janette Toral, owner of the e-commerce research site DigitalFilipino.com.
Toral argues, however, that e-commerce in the Philippines is underrated. She says that B2B and B2C transactions are only half the picture, and points to business to government (B2G) transactions, primarily tax collections of the Bureau of Internal Revenue from about 15,000 companies through its electronic filing and payment system, that generated nearly P275 billion in 2005 alone.
Yet it seems more accurate to look at e-commerce performance from the private sector’s view. According to the International Data Corporation, the value of e-commerce in the country in 2005 was at $3.5 billion, and that was on the strength of less than 5,000 companies that were actively using e-commerce in their business.
Dominating the e-procurement scene was BayanTrade.com, a joint venture involving six leading local conglomerates: Philippine Long Distance Telephone Company, Aboitiz, Ayala Corporation, United Laboratories, JG Summit, and BenPres Corporation. There was also SourcePilipinas.com, a multi-industry B2B e-marketplace joint venture, while procurements of the pharmaceutical and medical supply industries are handled by a regional online medical marketplace called Asiarx.com.
Meanwhile, B2bpricenow.com has emerged as a trading portal of over 4,000 member-cooperatives that provide them with price updates and other market information in the areas of agriculture, consumer products, and industrial manufacturing.
As for B2C transactions, myAyala.com has been joined by other retail big boys like SM Supermarket and Rustan’s, both of which sell groceries online. (At present, though, both have temporarily discontinued their services to address issues with their online payment systems.) B2C exchanges also involve online banking (of which the Ayalas’ Bank of the Philippine Islands is a pioneer and industry leader), travel bookings (for Philippine Airlines, Cebu Pacific, and Air Philippines domestic and international flights), bills payments, auctions in the mold of Ebay, and book retailing a la Amazon.com (Powerbooks, Goodwill, and PhilbookClub).
YET INDUSTRY insiders are not the only ones who are suddenly gung-ho over e-commerce in this country. Even the EIU has predicted e-commerce to grow dramatically in the next three to five years, the rapid increase in Internet use being its main driver.
In 2006, there were already 14 million Internet users, or 16 percent of the country’s total population, according to Yahoo! This was expected to grow to 20 million by last year. (International Data Corporation already put the number of Internet users at 19.2 million by mid-2005. It is expected to grow to 24 million this year, says AC Nielsen.)
Internet users include all those who access the Net regularly, whether at work, home, in school, and in Internet cafés. Contributing to the growth of Netizens is the rise in the number of mobile-phone subscribers, numbering 47 million at the end of 2006, already more than half of the country’s total population.
KABAN, Yehey!’s online payment solution.
Broadband Internet use by businesses is also increasing as gleaned from the 22,500 connections in 2005, as reported by the Commission on Information and Communications Technology (CICT), up from 10,500 connections in 2004. By 2009, Siemens estimates broadband subscribers to reach one million.
Another important factor fueling the renewed optimism in Pinoy e-commerce is PayPal’s entry into the country, along with the improved alternative modes of online payments that creative Filipinos came up with while waiting for the global leader to come in.
One of the reasons why e-commerce has not been able to take off is due to the lack of a reliable system to process online payments. When it started, for instance, Island Rose had to use a U.S.-based merchant account to accept credit-card payments.
Owing to the prevalence of fraudulent transactions traced to the Philippines, PayPal became available to Pinoy Net users only in October 2006, and even then obliged them to sign up for an account using U.S.-accredited credit cards. Then last September, PayPal finally opened its Philippine office. Today local users are allowed not just to load up their accounts through their credit cards, but also to receive funds and withdraw these into their local bank accounts.
Fortunately, in PayPal’s absence, payment schemes that ranged from the use of banks’ ATM (asynchronous teller machine) facilities to remittance services, to mobile-phone payment platforms thrived. These alternatives also took into account the small credit-card market in the country. Thus, in lieu of credit cards, overseas buyers pay for products via remittance services offered by YesPinoy, Xoom, MoneyGram, and Western Union. Or if the amounts involved are small, they issue payments through their mobile-phone credits like PayFree, Globe Telecom’s G-Cash, and Smart Padala.
Lifestyle portal Yehey! even launched its initial e-commerce service, PayPlus+, in 2001 in partnership with BancNet, and later with MegaLink. Payplus+, explains Yehey! e-commerce manager Jonas de los Reyes, was a payment solution in consideration of the 18 million Filipinos who have ATM cards as compared to about six million who own credit cards. Last year, it was rebranded as Kaban, a one-stop payment solution enabling online entrepreneurs to accept payments through ATM, credit card, and e-cash.
Kaban has since become the payment system of choice of 13 online merchants, offering a diverse array of products and services from pastries (Goldilocks with its Padala Program) to shoes (Melissa Philippines), to training for call-center applicants (Powers Inc.). Medicard Philipines, a health-maintenance organization, allows membership applications online via Kaban. So does Outbound Asia, a staging and multimedia production house, for online registration for the events it manages. SMEs like Qube PC, a Quezon City computer shop, also provide Kaban in its menu of payment options.
OF COURSE, there have been systems developed for users of credit cards — which is, after all, the universal payment mode for e-transactions. Among the local crop are Union Bank’s The Port, Mozcom’s PayEasy, and Equitable-PCI Bank’s Equitable Card Network. Other regional and global third-party providers now servicing online merchants locally are AsiaPay, CCNow, Website Wizard, YesPayments, Your One Stop Shopping Network (YOSSN), Payment Processing Corporation, and Asia Pacific E-Serv Corporation.
But it’s still a relatively tiny market, says ex-banker Mary Anne Tolentino, board chairman of the Philippine Internet Commerce Society, a nonprofit group of small entrepreneurs and big corporations. She adds that the state of the country’s credit infrastructure is a major problem.
“To do business internationally,” she also says, “you need a credit card. But the market of credit-card companies in the Philippines are people who are employed, not SMEs.” For the credit card-holder base to expand, Tolentino says a centralized credit bureau like those in the United States, Europe, and Singapore should be set up. This would gather consumer-credit information from banks, credit-card companies, and government lending institutions. Without reliable credit information, financial institutions have been hesitant to extend credit to small borrowers like SMEs. (Such a centralized credit information system is the subject of a proposed bill authored by Senator Edgardo Angara.)
All these mean that significant amounts of investment are needed to get into e-commerce. As Toral writes in her website, a “fully blown e-commerce website with a full blown e-payment, staffing, marketing tools, logistics program, and risk management in place can easily cost $20,000 as first-year investment.”
This, she adds, is on top of back-end software applications like spreadsheet programs for their accounting, sales, and resource planning needs. But Toral says e-financing programs are now available to facilitate participation of SMEs in e-commerce. The Department of Trade and Industry’s SME-FIT program, for one, provides credit lines to accredited IT companies for use in financing hardware, software, website, and customized application development to be made available to SMEs in easy payment terms.
SMEs wanting to ride the e-commerce train would also do well to take heed of the learning curve that the likes of Island Rose and Divisoria.com have gone through. For Divisoria.com’s Romano, there’s a better chance of success for those who can offer any or all of the following: convenience, availability, and price.
“In terms of convenience, Cebu Pacific made headway by offering an online ticketing system,” he says. “As for availability, why do Filipinos shop with Amazon even with the added cost of shipping? Because they offer books that are not available locally.”
As for price, the 42-year-old marketer cites the case of local professional photographers who shop in Ebay or B&H Photo because the items there are still much cheaper even with added shipping charges.
BUT ROMANO also stresses the importance of advertising and promotions, since potential clients should first know that a particular website exists, and how to access it. When he launched Divisoria.com, Romano made sure he had advertising support in the form of a banner ad on Inquirer.net, which, he says, remains the “most cost-efficient and fastest medium to generate awareness (about products and services) among overseas Filipinos.”
Island Rose’s Andaya, for his part, believes that having a solid business model, a clear value proposition, and good customer service can only help an online business thrive. “To make e-commerce viable,” he says, “all we need is more entrepreneurial spirit. We already have everything we need.”
Such entrepreneurial drive is actually at play in many personal sites and blogs hosted in social networking services as Multiply where users are selling and buying items among their network of contacts. Yehey!’s de los Reyes says this is the beauty of the Internet at work — and proof that anyone, however small, can go head to head with big companies online. He even says individual entrepreneurs and SMEs have an edge because they can easily adapt to new technologies. There’s also no big capital needed, unlike having an actual store. “The secret,” says de los Reyes, “is in finding a niche, a product that is not competing with another store or brand.”
Romano can only agree. He says the best tasting sans rival, the famous siomai along McKinley — products people hear only by word-of-mouth — can now be widely distributed through the Net. His site, he shares, gets frequent requests for the most peculiar of Pinoy items like a kudkuran ng niyog (traditional coconut grater), panghulma ng polvoron (mold for powdered milk candy), and a local brand of women’s underwear.
But security is still an issue, especially if one’s online store is targeting overseas clients. In 2003, fraudulent credit-card transactions by members of a Filipino community website were uncovered after the access point was traced to an Internet service provider in the Philippines. This led to the arrest and filing of cases against three individuals.
That is why among Toral’s to-do list include batting for an efficient cybercrime program. This entails providing law enforcement agencies with a regular allocation in their budgets so these could help citizens and merchants in combating fraud and cybercrime.
For Tolentino though, security is not a major stumbling block. “Yes, you need more secure tools, and laws, but even without those, people were not discouraged from engaging in e-commerce.”
She says what is key is educating everyone about e-commerce. And it surely won’t just be about security measures, but on the whole issue of conducting business online.