A tale of two countries: the Philippines and Vietnam in the rise of e-commerce
The rise of e-commerce in the Philippines 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 shopping. This addresses the convenience and ease, which many of us prefer to pay a premium for. Besides the Philippines, the development of Vietnam is also significant in recent times.
Below are the parallel comparisons between the Philippines and Vietnam and the impact they create in the process in the areas of e-commerce and logistics.
The first similarity is both countries continue to experience growth in its population. With the latest statistics, the Philippines is at 108 million and Vietnam is at 98 million people.
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 the Philippines and 6.6 percent for Vietnam - the highest rates in Southeast Asia.
Secondly, 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 Philippines is at 1.6 percent, which translates to a growth of 21 percent with roughly about $0.6 billion. On the other hand, 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 Philippines has 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.
With the flourishing of e-commerce business, there is a need to have a robust infrastructure set up to maximize the profitability e-commerce can bring.
Two areas of significance here are
1) internet infrastructure
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 the internet, with only 15mbps on average for internet speed. Vietnam, on the other hand, has 21.6mbps with a 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 a 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.
Many top Philippines companies are already investing in the infrastructure to support necessary improvements, namely:
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 the internet;
2) Conglomerates such as Ayala, SM, and Cebu Pacific, among others, are already investing in logistics companies.
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, the Philippines should see major improvements in its 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.
Source: Manila Times.