Working towards digital transformation

Organizations have transformed the way they do business to ensure that they are agile, adaptable, and innovative.

Pre-pandemic, digitization and technology were already essential for modern markets. COVID-19 catalyzed the need to harness technology to aid business efficiency, as well as to bolster disaster and economic resilience.

At KPMG, we enable digital transformation in the most seamless way possible – by fostering a culture of innovation, overhauling processes for the better, and supporting organizations in each phase of the journey.

The current state of the country’s digital adoption

The Philippines ranked 59th out of 79 countries in the 2020 Global Connectivity Index (GCI), tagging the country a “starter” in the adoption of digital transformation.

In the World Bank’s Philippine Digital Economy Report 2020, they found that despite being a country with heavy internet usage and high social media consumption, the Philippines still trails behind in the adoption of technology compared to its regional neighbors. This relatively poor performance may be attributed to the country’s inadequate digital infrastructure, organizations not utilizing digital payments and online platforms, and bureaucratic restrictions hindering the efficiency and effectiveness of the country’s logistics systems.

The government’s role in addressing the digital divide

With the pandemic testing the resilience and sustainability of businesses, the need to accelerate the country’s digital adoption and the Philippine government’s role, as both a policymaker and regulator, has never been more apparent.

Poor digital infrastructure, expensive internet connection costs

Having access to fast and stable internet connection is vital in this digital era. However, the country’s slow internet speed and high cost broadband plans amplifies the digital divide. The World Bank found that in Southeast Asia, the 3G/4G mobile average download speed stands at 13.26 Mbps while the average download speed in the Philippines is only seven Mbps. Moreover, at $6.30 per month for 500 MB of prepaid, handset-based mobile broadband, the Philippines has the fourth highest cost next to Singapore, Brunei, and Malaysia. This means that Filipinos experience slower download speed, but pay more than other consumers with faster internet speed from most ASEAN countries.

Resolving the slow internet speed and high cost in the Philippines is hindered by the lack of competition, as well as the restrictions on investments in the telecommunications markets. The World Bank suggested that the government promote competition by having less stringent requirements in deploying networks in urban and rural areas. This could then result to improved digital infrastructure through faster installations of towers and stations.

Underutilized digital payments

The recent boom in electronic payments is a step towards digital transformation. As a cash-based economy, both the public and private sector need to work towards promoting the adoption of digital payments. The government should encourage broader participation by utilizing e-signatures and mandating the use of e-invoices and e-receipts for transactions.

Bureaucratic restrictions

New players may find it difficult to enter the Philippine market because of the associated high cost of doing business, as well as the tedious procedures to obtain and maintain permits and licenses. The 2020 Doing Business Report conducted by the World Bank provided measures of business regulations and their impact on firm activities. According to the study, the Philippines continued to place among the lowest in the ASEAN region. While it takes about 33 days for start-up companies to legally begin operations in the Philippines, it only takes two days in Singapore and six days in Thailand.

New company owners must be armed with tons of patience and equally substantial amount of capital to wade through the thick layers of bureaucracy plaguing the country. This is supported by a 2019 study entitled “Cost of Regulatory Compliance for SMEs in the Philippines: Methodology and Survey Results,” where 590 SMEs across the country served as respondents. One of the interesting results of the survey was the unavoidable costs involved with the long process of putting up a company, such as taxes and local government regulations, which are perceived as the ‘most burdensome’, and the Bureau of Internal Revenue and local government units as the most difficult to deal with.

Much like the aforementioned factors impeding the Philippines’ digital transformation, this actively demonstrates the government can help by lowering regulatory constraints and barriers to market entry.

As a country whose resilience has been tested many times, the best strategy is to build a cooperative link between industry specialists, the private sector, and more importantly, the Philippine government.

Michelle Joy C. Regis is a Supervisor from the Technology Consulting Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.

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