I was recently invited to participate in a discussion about the Philippine MSME Digitalization Agenda and Work Plan for 2023-2028 by the Department of Trade and Industry Bureau of MSME Development.
The digital transformation journey for micro, small, and medium enterprises (MSMEs) in the Philippines is an important step towards their survival and growth in the increasingly globalized economy.
Philippine MSMEs, accounting for over 99% of business establishments and employing 60% of the workforce, are key drivers of the nation’s economic growth. However, their contribution to areas like innovation and Gross Domestic Product (GDP) is limited, partly due to their slower adaptation to digitalization.
Various government agencies have conducted numerous learning sessions with the intent of helping MSMEs embrace digitalization. Implementation of those learnings can be a challenge as it would require investment in software, development of processes, and manpower to sustain its implementation.
In the process of coaching and teaching digitalization to MSMEs under the Kapatid Mentor Me Program, this is a reality I have to face and had to calibrate my approach to focus on what is doable and can be started without major investments.
Philippines digital economy rising
The Philippine digital economy is on an upward trajectory, with e-commerce playing a pivotal role in its growth. According to Google’s 2023 Philippine E-Conomy report, the country is expected to continue its double-digit climb towards an estimated $35 billion by 2025, with e-commerce being a significant contributor to this growth
The sector’s expansion rates demonstrate its increasing influence: In 2021, the e-commerce market was valued at $12 billion. This increased to $15 billion in 2022. It’s projected to reach $16 billion in 2023. By 2025, the projection is an impressive $24 billion.
This rapid growth is a testament to the increasing digital engagement among Filipinos and the growing comfort with online transactions.
Sector-specific growth and opportunities
Other sectors within the digital economy are also experiencing significant growth: The combined sectors of transport and food have seen a growth of 19% and 37% respectively in 2022, with an expected increase in the coming years.
The travel sector exhibited an 88% growth in 2022 and is projected to continue growing reflecting the recovery of the travel industry post-pandemic.
The online media sector, covering various digital content platforms, showed an 8% growth in 2021 and is expected to see further growth in the coming years
The findings from Google’s report indicate a significant shift in the Filipino consumer market, with digital platforms becoming increasingly integral to daily life. This shift presents ample opportunities for businesses to tap into the growing digital marketplace.
The rapid growth of e-commerce, along with the steady expansion of other digital economy sectors, suggests a future where digital transactions become the norm, influencing various aspects of life from shopping and food delivery to travel and media consumption.
Overcoming MSME challenges and building capacities
Despite the promising growth, MSMEs face challenges in digital adoption, such as limited technology access, financial constraints, and a lack of digital skills.
There’s a pronounced gap between MSMEs and larger enterprises, especially in adopting advanced backend technologies like enterprise resource planning, customer relationship management, artificial intelligence, and cloud-based solutions.
A lack of knowledge, reluctance to automate business processes, and concerns over cybersecurity and the obsolescence of technologies are major hurdles.
The government’s role in implementing capacity-building programs, improving Internet infrastructure, and facilitating partnerships to lower costs and foster collaboration are critical in supporting MSMEs’ transition to the digital economy.
Specific government policies and support programs may also be necessary. For example, even though BIR reports are now required to be submitted electronically, books and receipts are still in paper form by default. A lot of business-to-business sales and purchases, outside of the retail sector sector, are being transacted online.
However, tax reports, receipts, and books are still in paper form by default. Perhaps it is time that we should recognize that the electronic form is already the default and that paper-based is an exception or option. I hope that in making President Marcos’s digitalization vision a reality, we can see this happen in his term.
There are numerous efforts to bring Internet connectivity to far-flung areas of the country. This is a major concern I heard when I conducted digitalization, e-commerce, and digital marketing training for various DTI-Comprehensive Agrarian Reform Program personnel who are tasked to help their stakeholders.
That is why I was excited when I heard of Starlink’s availability in the country. I hope efforts like this will reduce the digital divide much sooner than later.
Empowering MSMEs with digitalization and e-commerce capabilities
The digital transformation of MSMEs, coupled with the surge in e-commerce and other digital sectors, is shaping a new era for the Philippine economy.
The MSME Digitalization Agenda and the growth of e-commerce highlight the country’s potential to become a significant player in the Southeast Asian digital economy.
This transformation offers exciting opportunities for businesses and emphasizes the importance of digital adoption for sustainable economic growth.