Wednesday, September 12, 2007

Pushing for E-commerce, the Erap Way

This article was supposed to be published at Business Online Asia. Due to unpredictable circumstances, this article didn't reach the destination on-time. As a blessing in disguise, I decided to feature this article here at My sincerest thanks and appreciation to Presidential Consultant Chito Kintanar for making it possible for me to achieve this feat of being able to write this.

[May 13, 2000] Joseph Ejercito Estrada, President of the Republic of the Philippines, couldn't have been in a much better time to become the leader of this country. With the boom of the Internet, e-commerce, world trade, and other pressuring issues, the only way for him to cope up with the challenges is to operate in Internet time. To those who thinks that the Philippines is still the typical Juan Tamad even in the arena of e-commerce, well think again, the country's CEO is embracing it more than ever. Estrada sees electronic commerce as an important driving force that could fuel the Philippines' economic growth and development. "For an emerging economy like the Philippines, this is a development we cannot afford to ignore since it presents a huge opportunity for us. This is particularly significant since we are positioning our country to serve as host to various service-oriented businesses, especially IT and related industries."

E-commerce Bill
The legal framework for the country's participation in electronic commerce is also around the corner with the passage in the Senate of the E-Commerce bill. The bill defines Philippines policies on electronic transactions and will enable us to participate actively in this global trend for trade and commerce. Currently, the bill is at the deliberation stage at the House of Representatives. The Senate version has already been passed last April 2000.

Can the Philippines government adopt e-commerce?
One of the higlights of the bill seeks to mandate the government to become e-commerce enabled by 2002. To allow it to compete with other countries in the region. But there has been a lot of skepticism about whether the government can do a full re-engineering of its business process to competitively apply e-commerce.

"I created last October 1999 the Presidential Committee for Effective Governance (PCEG), through Executive Order No. 165, which I have directed to immediately formulate and implement measures not requiring legislation to streamline, simplify, and strengthen government business processes and speed up the delivery of key services to the public. One key area that the committee is now looking at is the wider application of ICT to improve business processes in government," said Estrada.

There are already several initiatives in government in the application of e-commerce. The Garments and Textile Export Board of the Department of Trade and Industry set-up the GTEBNet, an electronic network for textile quota administration, export documentation and import authorization. The project has been operational since 1994. The Social Security System, on the other hand, is in the process of implementing on-line kiosks that will allow its members to do their transactions digitally, in lieu of the traditional over-the-counter transactions.

Last November 5, 1998, Estrada personally launched the first Internet-based low-denominated Philippine Treasury Issues Trading System. According to Estrada, "This will allow our small savers, anywhere in the country, to participate in this innovative treasury notes trading system. This is a project of the Bureau of the Treasury, in cooperation with the Bangko Sentral ng Pilipinas and the Bankers Association of the Philippines."

Are there special factors holding back the Philippines in doing e-commerce?
One of the factors identified is the limited access to and high cost of telecommunications services. He said, "Under my administration's Medium Term Philippine Development Plan, or "Angat Pinoy 2004", we have set as our priority over the next 4-5 years the development of our Philippine Information Infrastructure (PII). The PII would consist of physical telecommunications links, multipoint multimedia distribution systems, and value-added services such as Internet access and e-commerce. We have also set as our target the establishment of local exchange services in all our municipalities by the end of my term. To accomplish these, we are encouraging private and foreign investment in the telecommunications sector. We are studying the possibility of increasing foreign ownership in telecommunications and other utilities beyond the 40 percent limit."

The Philippines' Advantage/Disadvantage on E-commerce
The Philippines clearly enjoys a number of advantages in pursuing e-business, particularly with international partners.

Estrada highlights, "First, we have a policy environment fully committed to the principles of open market systems and which encourages creation and innovation, two factors that are very critical for e-business to flourish. This commitment is evidenced by the investment-related reforms that we have instituted and continue to pursue."

Investment incentives have been rationalized with the passage of the Omnibus Investment Code in July 1987 and the Foreign Investment Act of 1992, increasing the allowable foreign equity participation in non-priority investment areas up to the limits set by the Constitution.

In the area of trade and industry, the Philippines continues to pursue two major strategies, which are trade liberalization and tariff reform. These are aimed at promoting more dynamic, efficient, and competitive industries.

"Regarding intellectual property rights (IPR) protection to encourage creation and innovation, particularly in software and multi-media development, R&D, and design, we have in place Republic Act No. 8293, otherwise known as the new Intellectual Property (IPR) Code of the Philippines, which imposes stiffer penalties on IPR violations." The Intellectual Property Office (IPO), considered the guardian of IPR in the Philippines, has also been established pursuant to the said Code.

"Over and above all this, the Philippines enjoys a strong competitive advantage over most of its Asian neighbors in terms of its highly educated, easily trainable, very creative, multi-skilled, English-speaking manpower and managerial pool, all of which are essential to e-business and other knowledge-based industries. Wage and salary levels remain competitive, while worker productivity, creativity and a growing track record of successful IT work are the hallmarks of the country's labor force as known and recognized worldwide."

Philippines main disadvantages at present are limited access to and high cost of telecommunications services. "We are now addressing these by further opening up our telecommunications sector to foreign direct investments and partnerships that will further spur the development of our telecommunications infrastructure. Such development will certainly redound to the benefit of the greater mass of our people and result in the wider use and application of e-commerce and other value-added services," said Estrada.

Phone metering: to meter or not?
Estrada directed the National Telecommunications Commission (NTC) to defer the implementation of the telephone metering scheme until a more comprehensive study is conducted. To date, the NTC is conducting public hearings and soliciting policy guidance from the Department of Transportation and Communication, which is responsible for developing telecommunications policy and for supervising the bureaucracy of the NTC.

Are Filipino businessmen endangered with the near implementation of the Retail Trade Law? Will it kill local businesses?
Estrada answered, "The entry of foreign retailers, with their global experience and technologies, should not be viewed as a threat to our local retailers, or to local business in general. I have in fact urged and continue to urge our local businessmen to view this as a challenge, to re-engineer their business processes, and bring to higher levels of efficiency their operations for them to compete in a rapidly globalizing marketplace. It is clearly to their advantage, and more importantly, to the benefit of the mass of Filipino consumers that they now start re-inventing themselves and prepare for the rapid changes in the use of information and communications technology, as well as the application of e-commerce in their operations."

"The government is, nonetheless, doing everything to put in place measures to make them compete in equal footing with these foreign investors. In terms of telecommunications infrastructure, I mentioned earlier that projects are underway to ensure access to the digital world. Old policies are being reviewed and at the same time, new policies are being drafted to ensure equal protection to the providers, consumers and the government."

The amendments to the Retail Trade Law provide safety nets to protect small retailers. These include among others:

  • The imposition of a minimum paid-up capital of US$7.5 million for 100% foreign-owned retailers (category C); US$2.5 million for retailers whose foreign equity participation for the first two years from effectivity of the law is limited to 60%, but thereafter, they shall be allowed to be 100% foreign-owned (category B) or US$250 thousand for 100% foreign-owned retailers selling high-end luxury goods (category D);
  • The foreign retailers shall maintain the minimum, prescribed capital while operating in the Philippines and its actual use shall be monitored by the Securities and Exchange Commission (SEC);
  • For a period of 10 years from effectivity of the Act, at least 30% of the inventory of retailers falling under Categories B&C and 10% for category D should be locally manufactured.
  • Qualified foreign retailers shall not be allowed to engage in certain retailing activities outside its accredited stores through mobile or rolling stores or carts, the use of sales representatives, door-to-door selling, restaurants and sari-sari stores

"I wish to specifically cite the efforts made by the SM group of companies in setting up the SVI-Net to connect SM Supermarket and its 150 suppliers," Estrada commended. SM Supermarket uses the system for inventory control and to trigger the issuance of purchase orders to suppliers. The system is expected to provide electronic price catalogs, and provide dispatch and delivery scheduling and advice."

A number of large department stores and supermarkets have also banded together with five major suppliers and have set up SmartLink to handle electronic fund transfers, remittance and credit advice, and accounts reconciliation. On the supplier end, the electronic link will maximize the resources of the supplier at any given time. Upon delivery, the pullout of returns can also be done eliminating the need for special trips, translating into substantial savings in operating costs, and lower prices to their consumers.

The E-commerce Czar
Estrada announced in the recent Knowlege Economy Conference, last May 8, 2000, that is has directed Department of Trade and Industry Secretary Mar Roxas to consolidate the number of dispersed e-commerce efforts of the national government under a reactivated and expanded E-Commerce Promotion Council, of which Roxas is Chair. Foremost on the agenda is to fulfill the mandate to formulate and coordinate the implementation of a national program and strategy for the promotion of e-Commerce in the Philippines. This plan is expected to be submitted by Secretary Roxas by the end of June 2000.

The Secretary of DTI, as Chairman of the E-Commerce Promotion Council, is effectively the E-Commerce Czar. E-Commerce activities are coordinated at the level of the Council. Estrada noted, "However, we need to further strengthen the Council by providing it with full-time technical, secretariat support and the necessary funding support. We also need to strengthen the linkage between the E-Commerce Promotion Council with the National Information Technology Council to ensure consistency in policy directions."

Estrada's Vision
The Estrada E-commerce agenda revolves around the IT21 framework, the transformation of the country into a knowledge center in Asia by the first decade of the 21st century. This strategy is defined in the country's National Information Technology Plan for the 21st Century, or IT21, which calls for the exploitation of the country's potentials to become a key player in the digital business world.

These potentials consist mainly of the country's rich human resources, as well as highly trainable, hard-working, and English proficient professionals and workers. Moreover, the country's strategic geographic location and our accessibility to large and potentially rich markets with high population densities further support and reinforce this strategy.

More specifically, IT21 presents Philippines' broad strategy to spur the country to global competitiveness through information and communications technology (ICT). It sets down specific time frames for achieving its three specific goals:

  • By the turn of the 21st century, the Philippines will have laid the infrastructure to provide opportunities for every business, every agency of government, every school, and every home in the Philippines to have access to information technology.
  • By the year 2005, IT use will be pervasive in daily life. Philippine companies will be producing competitive IT products for world markets.
  • Within the first decade of the 21st Century, the Philippines will be a Knowledge Center in the Asia-Pacific: the leader in IT education, in IT-assisted training, and in the application of information and knowledge to business, professional services, and the arts.

Achievements to Date
At the policy level, the government has put in place the environment and clear directions to help develop and accelerate the use of information and communications technology (ICT), the Internet and its applications, particularly e-commerce. It has now a more focused program for ICT development in the country with the adoption of IT21, which the President endorsed when he issued Executive Order (EO) No. 125 in August 1999. The EO intends to streamline and strengthene the institutional mechanism for coordinating ICT development in the country. This is done through the National Information Technology Council (NITC). Its membership composed of key ICT players both in the government and the private sector.

The deregulation of the telecommunications industry starting in 1987, and which the government continues to pursue, paved the way for a hefty build-up in investments in this sector, estimated to exceed P130 billion over the next 5-10 years. By the end of 1999, telephone density per 100 people increased to 9.18 working lines from 1.21 recorded in 1993 and 4.66 in 1996. This is expected to reach 12.73 in 2004 as provided under our "Angat Pinoy 2004" Medium Term Philippine Development Plan to meet the growing demand for telephone and other value-added services like Internet access and e-commerce.

Internet usage in the Philippines has been increasing exponentially over the years since 1994. The number of Philippine Internet Service Providers (ISP) increased from 2 in 1994 to 130 in 1997 to over 180 by the end of 1999. The services offered include full Internet access, e-mail service and walk-in access. Likewise, the number of local web sites had increased. Furthermore, more and more ISPs are expanding their services to include not only access but content provision and the provision of e-commerce and payment gateways as well.

The number of Philippine-related web sites is increasing by over 200% annually, from only a handful in 1994 to over 500 in January 1998. Internet subscribers reached 240,000 by year-end 1997, is expected to rise to 650,000 by the end of the year 2000, and to 1.3 million by the end of 2004.

The first Philippine Internet Exchange (PhIX) was launched in July 1997. PhIX is a network access point that allows local Internet service providers to exchange local Internet traffic within the Philippines without having to connect to host servers overseas. Thus, local Internet users will have faster access to content and exchange of information. The PhIX was established by the Philippine Long Distance Telephone Company (PLDT) and interconnects the country's largest ISPs.

Early last year, the first Electronic Claims System was launched in the Philippines by Medilink, a cooperative project of the Zuellig Group and the Equitable Card Network. Medilink is a computerized claims clearing house network system for hospitals, health management organizations (HMOs), health insurers, self-insured corporations, clinics, and independent physicians associations. It is the first to provide electronic eligibility, electronic claims processing, and electronic funds transfer in the Philippines. It is expected to directly benefit some 2.0 to 2.5 million Filipinos who are presently covered by HMOs and non-life insurance plans. The country at the moment has around 40 HMOs. This number is expected to double in a couple of years. The annual business turnover of the HMO sector is estimated at P2 billion.

In October 1999, Estrada issued Proclamation No.171 creating and designating Eastwood Cyber City in Quezon City, as the first Information Technology (IT) Park in the country. This master-planned urban area, a project of Megaworld Properties, is strategically situated a few minutes away by car from Manila's major universities and is also very accessible to the Makati and Ortigas business districts and major routes to the Manila international and domestic airports. Designed mainly to cater to locators engaged in IT software and multi-media R&D companies, which could avail of special incentives under Republic Act No. 7916 (Philippine Economic Zone Act of 1995), as amended by Republic Act No. 8748, it combines residential, business, commercial and leisure components. Developers of the Cyber Park also plan to set up in the campus-like site a university of information and communications technology. "I have approved three so far, namely the Eastwood Cyber Park in Quezon City, the Northgate Cyber Zone in Alabang and the Fort Bonifacio-Silicon Alley IT Park in the Fort Bonifacio, Taguig - where competitive financial and tax incentives are offered. The first Software Development Park has also been established at the Subic Economic Zone. And the Ayala Group has announced the proposed development of an IT park in Cebu," said Estrada.

In the hardware sector, the semiconductor and electronics industry has been growing at the rate of 30% - 40% per annum since 1993. Products worth nearly $20 billion constituted nearly 70% of the country's total exports in 1998. Exports rose to $23 billion in 1999 and is expected to grow to over $47 billion in 2004. The nearly 512 companies involved in the industry have a total investment of over $7 billion and employ over 280,000 skilled and semi-skilled workers.

America Online operates a customer response system at Clark. Some 600 Filipinos, manning workstations in the Philippines, answer queries for AOL from all over the globe on a 24-hour basis.

The explicit inclusion of professional IT services in the investment priorities plan for FY 2000. This means that IT related activities will enjoy prime incentives from the Board of Investments.

The launching of a series of focused IT investment missions to the United States, Korea, Japan, Europe and Australia, which will promote the Philippines as the IT service hub in Asia.

The creation of an ICT innovation and development fund to provide venture capital for ICT business start-ups and support for ICT research. The National Development Corporation under the DTI has already identified IT as a priority and is exploring mechanisms to reach techno-entrepreneurs.

Finally, IT related activities have been highlighted under the proposed amendments to the Omnibus Incentives Act. "Our legislators anticipate that these amendments will take effect by the 3rd quarter of this year, and will feature a number of non-fiscal incentives to match, if not surpass, that offered by others in the region," said Estrada.

DOST's Comprehensive Program to Enhance Technology Enterprises or Project COMPETE seeks to develop two very important sectors of the knowledge economy: microelectronics and information technology. Over a period of five years, investments amounting to around Php 7 billion will be made for the operation of Virtual Centers for Technology Innovation, or VCTI, for the two sectors. The VCTI in microelectronics will catalyze research and development, original product design, and develop our capability in Application Specific Integrated Circuit Design, or ASIC design - while the VCTI in information technology will develop capability for content design and software development. In partnership with IT industry leaders like Oracle and Sun Microsystems, the project will produce at least 5000 internationally certified IT professionals.

The DOST is also implementing a project that will enable Philippine research and academic institutions to participate in networking research and experimentation under a Japanese research initiative called the Asian Internet Interconnection Initiative. Through this, local researchers will gain operational experience that will be used in expanding the Internet and its use in the Philippines.

"This administration is firmly behind the effort of implementing e-commerce and boost knowledge. The key agencies have been empowered to get the job done. I am confident that we as a people are up to the task," Estrada ended.

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