The rise of e-commerce in the country has disrupted many businesses, especially those in the brick-and-mortar space. It continues to do so, with Forever 21 as the latest casualty. More and more Filipinos go online to buy to address convenience and ease which many of us prefer to pay a premium.
In the region, we also see the development of Vietnam in recent times. Here we assess parallel comparisons between Philippines and Vietnam and the impact they create in the process in the areas of e-commerce and logistics.
Both countries continue to experience growth in its population, with latest statistics showing the Philippines at 108 million and Vietnam at 98 million. Economic growth as of 2019 is not too far and wide. In fact, the two countries are competing closely with each other at 6.7 percent for Philippines and 6.6 percent for Vietnam, the highest rates in Southeast Asia.
The younger generation from both countries helped raise the e-commerce business, specifically for retail and travel. The level of retail e-commerce penetration in the country is still at 1.6 percent which translates to a growth of 21 percent with roughly about $0.6 billion while Vietnam enjoys almost five times more of that at $2.9 billion with a penetration rate of 1.9 percent which translates to a growth of 16.8 percent. The growth of retail e-commerce is still more prevalent in the Philippines compared to Vietnam. We also enjoy about 53.5 percent penetration of mobile retail e-commerce compared to Vietnam’s 47.5 percent. However, Vietnam is ahead in travel e-commerce at $3.5 billion compared to the Philippines’ $1.8 billion.
Infrastructure helps support the e-commerce business and there is a need to have a robust infrastructure setup to maximize the profitability e-commerce can bring. Two areas of significance here are 1) internet infrastructure and 2) transport network infrastructure. Limitations on either of these would affect penetration and adoption rates, logistics costs and more importantly the overall revenue that can be generated.
The Philippines has about 70 percent penetration for internet, with only 15mbps on the average for internet speed. Vietnam, on the other hand, has 21.6mbps with 66 percent penetration rate.
The transportation network infrastructure relies heavily on the available infrastructure capabilities to transport goods from one point to another. According to the survey made by International Finance Corp, a member of the World Bank Group, the logistics cost as percentage of sales in 2018 is glaring: the Philippines ranks the highest among selected countries as it spends about 27.16 percent of its total e-commerce sales on logistics. Vietnam does it at 16.3 percent. This is mainly due to the challenges we face everyday on the traffic system we have in the country. According to the survey made by Numbeo, Manila is the fifth worst in the traffic management index. Comparing this to Ho Chi Minh’s 160th ranking, it is clear that traffic is a major area of improvement. Our legislators continue to face challenges in executing the much-needed traffic management plan.
The increasing population for both Philippines and Vietnam will drive further the use and adoption of e-commerce. We also see how our top companies are investing in the infrastructure to support this: 1) the growth in the telecom infrastructure is well received, with both Globe and Smart allocating almost P70 billion each on their capital expenditures to grow their infrastructure; not to mention that the entry of the third telco will help provide more options for consumers to have access to internet; 2) conglomerates such as Ayala, SM and Cebu Pacific, among others, are already investing in logistics companies, and 3)the appropriation of government funds to further build the transport network infrastructure with about 4.7 percent of the gross domestic product allocated for this and an estimated 7 percent by 2022 or roughly about P1.8 trillion. In the short term, we should see major improvements in our infrastructure system, both internet and transport, to help drive the cost of logistics down and enable more Filipinos to enjoy the convenience that e-commerce brings.
The idea is this: If a country has good internet and transportation networks, e-commerce will grow and flourish.
Kay Calpo Lugtu is the COO of Hungry Workhorse, a digital and culture transformation firm. Her advocacies include nation-building, education and financial literacy. The author may be reached at firstname.lastname@example.org.