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More support needed for infrastructure’s post-pandemic recovery

FREEPK

By Luisa Maria Jacinta C. Jocson, Reporter

THE government will need to create a more enabling environment for investments to support the infrastructure sector’s post-pandemic recovery, analysts said.

“On the national front, hard-earned gains might still be lost and global opportunities missed. For instance, our failure to build the manufacturing sector, made worse by the government’s inability to lower energy costs and cut the bureaucratic red tape, has made a lot of investors look elsewhere for opportunities,” Megaworld Corp. First Vice-President for Marketing and Sales Noli D. Hernandez said in a Viber message.

Infrastructure development is one of the Marcos administration’s priority areas. The government is targeting to spend 5-6% of gross domestic product (GDP) on infrastructure annually.

This year, the government plans to spend 5.3% of GDP on infrastructure, equivalent to about P1.29 trillion.

From 2010 to 2018, developing countries used only about 70% of infrastructure investment budgets, according to the World Bank.
A recent note by Nomura Global Markets Research said Philippine infrastructure development is seen to accelerate in the medium term.

“We remain optimistic that infrastructure development in these countries will accelerate in the next few years. Despite the recent improvement, there remains substantial scope for more progress, and governments are setting more ambitious targets to narrow this gap, building on earlier successes,” Nomura said.

Colliers Philippines Research Director Joey Roi H. Bondoc said the construction sector has yet to return completely to pre-pandemic levels.

“Construction activities have yet to revert to pre-pandemic levels but we are definitely seeing glimmers of hope. In our view, return to pre-pandemic construction levels will likely hinge on interest rate movements, prices of construction materials,” he said in an e-mail.

Mr. Bondoc said that external headwinds will also continue to have an impact on the recovery of construction activities.

“Colliers also believes that overall recovery in demand will also partly rely on sustained business and consumer confidence across the Philippines. The country’s growth trajectory presents enormous opportunities for developers with office, residential, retail, and leisure footprint,” he added.

SUPPORT NEEDED
Sustained growth in government spending will be crucial for the rebound for the sector.

“The most important underlying reason for the recovery of the infrastructure sector has been the sustained and broadening government spending on public infrastructure in the last few years,” Terry L. Ridon, a public investment analyst and convenor of think tank InfraWatch PH, said in an e-mail.

Infrastructure spending rose by an annual 7.8% to P507.2 billion in the first half. Overall infrastructure disbursements in the first six months were equivalent to 5.3% of GDP.

“Despite the coronavirus pandemic and economic headwinds, the government has continued to spend on new roads, bridges and flood control projects in various parts of the country,” he added.

Under the proposed 2024 National Expenditure Plan, the “Build, Better, More” program has been allocated P1.418 trillion. The bulk will go to physical connectivity infrastructure such as seaports, airports, and mass transport.

The National Economic and Development Authority (NEDA) Board has approved 197 flagship infrastructure projects worth P8.71 trillion.

“The government’s massive infrastructure program should benefit the Philippine property market and developers should seize opportunities by strategically launching more office projects, residential enclaves, and hotels in major growth areas,” Mr. Bondoc said.

However, the government’s massive infrastructure commitments are not enough to support the rest of the construction sector.

There is still a need to expedite permitting processes, cut red tape, and create a more enabling environment for investments.

“The challenge of the government is not about allocating the budget, but I think it’s implementation of projects. Some of the projects we are doing today were approved even during Marcos Sr.’s time, and we’re only doing it now,” Phinma Corp. Executive Vice-President Eduardo A. Sahagun said in a Zoom call interview.

“If it takes the same amount of time to do it, we will lag behind. I hope that’s where the bottlenecks must be addressed, how to speed up implementation of projects,” he added.

MORE PPP PROJECTS
The government should pursue more public-private partnerships (PPPs) and joint ventures (JVs) to accelerate the implementation of projects.

“The openness towards public-private partnerships has been an important reform in the infrastructure sector. It is bearing fruit today with the decision to implement a P170-billion solicited bidding for the rehabilitation of the Ninoy Aquino International Airport (NAIA),” Mr. Ridon said.

The government recently invited local and foreign investors to bid for the PPP project to upgrade and operate the NAIA. This will be under a rehabilitate-operate-expand-transfer arrangement, as provided for under the Build-Operate-Transfer Law.

“Local developers should explore firming up JVs with other homegrown players or even foreign property firms. In our view foreign players benefit from their partnership with local players given the latter’s experience in tapping and catering to the preferences of the domestic market,” Mr. Bondoc said.

“What’s notable is that these JVs are likely to result in a more competitive Philippine property landscape, eventually benefiting Filipino investors and end-users,” he added.

The government is hoping to attract more foreign investments after recent economic reforms allowed full foreign ownership in telecommunications, airlines, railways and renewable energy projects.

POST-PANDEMIC STRATEGIES
Meanwhile, companies involved in infrastructure are looking to revamp their internal processes to integrate post-pandemic strategies.

“One of the lessons we’ve learned coming out of the recent downturn, indeed coming out of all the previous downturns, is the primacy of a resilient, innovative, customer-centric and forward-thinking company culture, which fosters not just the aggressive seeking of opportunities but the creation of those opportunities where they seem nonexistent,” Megaworld’s Mr. Hernandez said.

Phinma’s Mr. Sahagun said firms should decentralize their decisions.

“We have to develop internal capabilities. As a company, we have to be agile in adapting to change. The first thing we did was to delegate authorities in different areas so they could make decisions on their own. If you’re just centralized in (one) office, you have no people on the ground, it will be difficult for you to continue doing business,” he added.

The shift to digitalization is also key in the post-pandemic recovery.

“Like most companies, we believe that the only way forward is to leverage our strengths with more human innovation and technological adoption and advances, either by leaps or small increments,” Mr. Hernandez said.

“The advent of artificial intelligence (AI) will definitely and definitively revolutionize and transform not just the way we do things, but ultimately determine exactly what things we are able to do and to what degree of sophistication. In the end however, AI or any other systems or technologies will only always be a tool. The key will always be the company’s culture,” he added.

CLIMATE RESILIENCE
The impact of climate change should also be considered in infrastructure planning, according to Institute for Climate and Sustainable Cities Director for Urban Development Maria Golda P. Hilario.

“The Philippine infrastructure industry must proactively address the risks and projected impact of climate change in its entire supply and value chain. It is important to not only acknowledge the threats posed by extreme weather events — such as typhoons — but also to factor in the creeping impacts of slow onset events — such as sea level rise and increasing temperature,” she said in an e-mail.

The Philippines is among the most disaster-prone countries in the world, experiencing typhoons, flash floods, earthquakes and volcanic eruptions. The Philippines ranked first globally in terms of disaster risk, based on the World Risk Index 2022.

A study by the Asian Development Bank (ADB) showed that developing Asia will need to invest $26 trillion from 2016 to 2030, or $1.7 trillion annually in infrastructure to maintain its growth momentum, eradicate poverty, and adapt to climate change.

“Infrastructure designs especially in urban areas must also be responsive to the risks and projected creeping impacts of slow onset events. Infrastructure development must already look at innovative and sustainable solutions such as green and energy efficient buildings and build around nature-based solutions, such as trees as temperature regulators to trap urban heat, and sinks to arrest flooding,” Ms. Hilario added.

The public, particularly the most at-risk and vulnerable to climate change, should also be included in the process of designing resilient infrastructure.

“The industry must also welcome the voice and participation of the public, especially the most vulnerable and most affected sector in the design, as well as be more responsive in ensuring that infrastructure projects contribute to the broader goal of connecting more people, rather than creating barriers,” she said.

“Sustainability can only be fostered through partnerships not just between the industry, private sector, and the government, but with the buy-in of the Filipino public, who are the main users of infrastructure projects in the long-run,” she added.

Transit-oriented township developments

OJ SERRANO-UNSPLASH

By David Leechiu

WHEN I started in real estate about 28 years ago, the battle cry then was “Location, location, location.”

Metro Manila was the hub of commercial activity, and the business districts that generated a significant commercial interest were the Makati and Ortigas central business districts (CBDs). At that time the primary locators were what we now consider as traditional tenants.

Workers gravitated to Metro Manila where they had convenient access to higher-paying jobs. Generally, the focus in commercial real estate development was to acquire commercial lots in locations with road access, the nearer to a corner the better for the project. It was more of a passive approach, where it was considered advantageous for office or residential projects to be located near retail areas to add to marketability.

However, in the mid-1990s, more real estate developers started to adopt an active masterplanning approach for projects with larger land areas in greenfield locations. They conceptualized integrated townships that were intended to create communities whose stakeholders were attracted to the live, work, play, pray concept where all their needs are within a short walk away and all within the district. More importantly, these townships have carefully planned pedestrian and vehicular infrastructure strategically located near transport hubs or infrastructure developments.

This wasn’t a new idea, though; it just wasn’t a prevalent approach. Makati CBD and Ortigas CBD were already established large-scale townships at the time. But even then, it was evident that transit-oriented township development was the future direction of real estate.

I was fortunate to see the birth of Bonifacio Global City (BGC), from when it was still being conceptualized to the execution of the masterplan. The designers of BGC envisioned carefully arranged development zoning for BGC, anticipating the types of land use complementing each other.

Even then, they already envisioned transport and people mover systems like a monorail and a bus system transporting workers, employees, residents, and visitors both within the district and into transport stations outside. Connectivity to roads and rails, with a multimodal station to transfer from the different transport types was already contemplated then.

As part of a pedestrian-first approach to infrastructure, underground utilities, wide sidewalks and covered arcade walks or cantilevered building covers were included in the design guidelines of the future buildings. While not all plans envisioned for BGC materialized, I’m happy that BGC has now claimed the spot as the premier business district of the country and a township in its own right.

I am a believer in township projects. If we do a comparative study of land and capital values of properties within townships versus those in the fringes or outside of these townships, the premium buyers and developers attach to townships becomes quickly apparent. The integrated development as well as the connectivity townships to other areas creates an ideal working ecosystem, where locators can live, socialize, create experiences, study, worship, shop, and work.

In Metro Manila alone, there are approximately 45 townships scattered in the 17 cities that comprise the National Capital Region ranging in size from one hectare to 800 hectares. In the provinces, it is an even bigger trend with around 180 townships.

To maximize property values, developers built vertically, with smaller residential units for sale and larger commercial spaces for lease. I remember when condominium units started shrinking in size. Some units were almost only big enough for a bed. These developments did provide retail floors where residents can dine, unwind, and entertain. Amenity areas did increase in size as shared living spaces.

BPO BOOM
Rising land costs and limited availability of large plots of land also convinced developers to build township projects outside Metro Manila. These developments became possible because of the growth of business process outsourcing (BPO) companies.

The need for Grade B office spaces for these typically call center or voice company tenants, and the corresponding residential demand created made it possible for such townships and even mini cities to grow.

As these townships started to be developed, this created an opportunity for the growing number of BPO companies to expand operations outside the National Capital Region.

Provincial locations offered cost savings for BPO companies from lower salary levels resulted in reduced operational costs. Some Manila-based employees found it attractive to return to their hometowns due to the lower cost of living. Provincial sites also enabled the BPOs to widen sources of talent or qualified employees.

When BPO firms came to the Philippines, their site selection was anchored on strategically located properties that had access to a large talent pool, sufficient support facilities for their operations and their employees. In the past, these office spaces were normally only found in Metro Manila, and only in the core CBDs.

With the newer townships, support facilities for operations came in the form of BPO-ready developments, with redundant connectivity and standard fit-outs. Support for employees came in the form of retail establishments for food, drink, and recreation, as well as nearby residential developments for employees who want to minimize transportation costs, reduce travel delay risks and ensure security (as most BPOs operate 24/7).

And thus, township developments became highly attractive options for these locators since they checked all the boxes, and then some. Traditional locators also found the characteristics of townships convenient. After all, businesses would want to have operations where everything is within walking distance; it would motivate their employees to stay with them for the long haul.

IMPACT OF PANDEMIC
When the coronavirus disease 2019 (COVID-19) pandemic hit and the country underwent the world’s longest lockdown period, people were limited to the claustrophobic confines of their homes for extended periods.

This meant taking school classes, doing office work, shopping — all online. This was extra challenging given that Filipinos commonly live with extended families under one roof. For those who lived in condominiums, units were usually space-efficient (read: small), so occupants felt restricted in such a small space with no open area. Residents felt the need for more space, more breathing room, more areas to recharge within the home.

When the lockdown was lifted, we saw the trend of potential home buyers moving out of the cities towards low-density developments within townships. The preferred choice was low-density residential subdivisions and homes outside of Metro Manila. Growth of townships offering these residential types accelerated. More pronounced were projects near transport hubs or major highways that let employees get to their offices with ease.

FUTURE OF TOWNSHIPS
What I foresee for townships in the future are the increased importance and prevalence of more transit-oriented developments. These townships will have the added advantage of high accessibility linking to an urban network of roads and rails to nodes of activity or other townships and major city centers like CBDs.

Transit-oriented townships sell the convenience, comfort, and lifestyle in a zone that is accessible to other cities or districts through major highways. These provide high mobility to future residents allowing them to traverse the connected network. These will also have the added benefit of decentralization, helping alleviate the heavy traffic and high daytime population the central business districts experience due to the daily commute of employees.

Today, a township project is a destination in and of itself where utilities are carefully laid out, locators can have access to jobs, homes, entertainment and shopping options, schools, places of worship, and guest accommodations, possibly closer to their hometown with lower cost of living.

Add to that the connection to the urban network, transit-oriented townships are strategically positioned to spread out commercial activity to multiple nodes and decongest historically highly populated areas. For instance, in 2000, 9.8 million or 13% of the population was in Metro Manila.

In Cavite-Laguna-Batangas (CALABA) — among the first areas that benefited from the spillover demand from Metro Manila — there were about five township developments 23 years ago, and their population was at 5.3 million.  This year, there are approximately 35 township developments available in CALABA and the projected population is 11.75 million, 10.29% of the total population.

Meanwhile, the population in Metro Manila is projected at 14.2 million or 12.4% of total population in 2023. Transit-oriented township development seems to be effective in decentralizing development by providing opportunities outside Metro Manila.

Transit-oriented township development is a forward-looking strategy. It provides synergy through integrated living. It also spreads out economic growth by creating connected nodes of commercial activity.

The Philippines has experienced development at a rapid pace over the last 25 years. Today, the country is likely one of the fastest-growing economies in Asia. And while the remittances of the overseas Filipino workers (OFWs) have been consistently growing and is now at $32 billion, the income from the BPO sector has already surpassed the OFW remittances and is expected to hit $35.9 billion this year.

The value of real estate is not just in the physical development, but also in the relationships, experience, lifestyle, and connectivity that locators get to access in the community. We are lucky to have witnessed the rapid changes that brought development focus from just brick-and-mortar occupancy to include the overall experience and connections over such a short time.

Who knows, the next 10 years may bring even more changes that further expand the dimensions of real estate development. It may involve net zero impact or positive impact on a large-scale development strategy that looks to give a better world, not just in terms of technology but in working with nature so our resources are renewed and preserved for future generations.

 

David Leechiu is the president and chief executive officer of Leechiu Property Consultants, Inc. (LPC). LPC is a premier real estate advisory firm that commits to deliver strategic real estate solutions to its clients and partners through its expertise in tenant and landlord representation, investment sales, general brokerage, research and consultancy, and property valuation.

The key to office sustainability

By Maricris Sarino-Joson

THE pandemic has been disruptive to the Philippine economy. Many businesses closed, the economy suffered, and a lot of Filipinos lost their jobs. These factors adversely affected the office market starting in 2020. The vacancies increased across Metro Manila and as a result, rents corrected.

The years 2020 and 2021 were indeed unsettling for the office market. The good news is that we are starting to see some positive trends, with the number of vacated spaces gradually declining and rents in major business hubs starting to recover as we have been recording sustained transactions across Metro Manila.

But what the coronavirus disease 2019 (COVID-19) has ultimately taught us is to be more mindful of our health, whether in public spaces, at home or at work. The health crisis highlighted the need to be in a safe and healthy space, that we shouldn’t let our guard down when it comes to health, and that being in a clean and constantly sanitized environment is a must in a post-COVID world.

For office spaces, there is definitely no compromise. Companies must ensure that employees continue to enjoy the perks of a collaborative workspace, while maintaining their overall health.

This only strengthens the argument for sustainable and healthy office spaces, especially that anti-COVID protocols have been lifted and we are all trying to thrive in a new, hopefully better, normal.

Colliers has seen major occupants, including multinational corporations taking up space in these high-quality, sustainable and healthy office towers. Major information technology and business process management companies are also looking for these office spaces as they encourage employees to gradually return to the traditional office setup; and to heed global management’s directive of occupying sustainable office spaces.

With close contact amongst employees no longer an issue given the availability of healthy workstations and meeting rooms, Colliers believes that taking up spaces in these buildings contributes to fostering a more collaborative work environment.

ENTICING COMPANIES TO LOCATE IN SUSTAINABLE BUILDINGS
Colliers sees an estimated 57% of new office supply in Metro Manila from 2022 to 2024 likely secured Leadership in Energy Environmental Design (LEED), WELL or Building for Ecologically Responsive Design Excellence (BERDE) certifications.

In our view, benefits such as 35% lower carbon emissions, 40% lower water use, 50% lower energy use should encourage more companies to locate in a green or sustainable building. Practicing green architecture can translate into energy savings as well as lower construction costs. Colliers believes that these savings are likely to entice more firms to locate in high-quality and sustainable office towers across Metro Manila.

ADOPTING THE SUSTAINABLE ROUTE TO OFFICE DEVELOPMENT
In 2009, Quezon City implemented a Green Building Ordinance which required the design, construction and retrofitting of buildings, other structures and movable properties to meet minimum standards of green infrastructure that would be eligible for incentives.

Colliers is optimistic that other local government units (LGUs) will follow suit, as these would provide landlords with enough incentives to develop more green buildings.

In our view, there should be a strong public-private partnership in promoting a more aggressive development and utilization of sustainable office spaces across the Philippines.

SUSTAINING DEMAND
Occupiers are now more discerning with design considerations. Sustainable features such as filtered air circulation, lowered density ratios, and high glass ratios for natural lighting are among occupiers’ key considerations when choosing a new location.

Other long-term benefits of having sustainable workspaces include a 15% reduction in operational costs due to energy savings (which will likely outweigh the 15% increase in capital expenditure).

DIFFERENTIATING PROJECTS IN A COMPETITIVE OFFICE MARKET
Colliers believes that product differentiation plays a crucial role in ensuring that buildings are appropriate to the needs of the tenants as more options are available in the market and as more landlords pursue sustainable developments.

Developers should be aggressive in highlighting their building certifications and should actively chase occupants that are on the lookout for these sustainable office towers. Aside from offering sustainable office spaces, landlords may consider bundling other concession such as fit-out allowance to entice new and long-term tenants.

NEW SUSTAINABLE OFFICE OPTIONS ACROSS METRO MANILA
Among the sustainable buildings completed across Metro Manila from 2022 to the first half of 2023 include Studio 7, Makati Commerce Tower, and NEX 54.

From the second half of 2023 to 2026, we expect the completion of 1.1 million square meters (11.8 million square feet) of new and sustainable office space, providing enormous options to potential tenants. The additional supply will come from M3 Corporate Center, Hudspace (GH Tower), Pioneer House BGC, Camaro Square, and Columna.

Outside traditional office buildings, developers should ramp up construction of more sustainable office towers to capture demand from large occupiers that put a premium on sustainability.

At present, most of these developments are concentrated in Metro Manila but developers outside the capital region have also started to take the sustainable route to office development.

BEING IN A SUSTAINABLE OFFICE SPACE IS A ‘MUST’
Colliers Philippines believes that these healthy, sustainable office towers play an important role in reigniting interest in the Metro Manila office market post-pandemic. Tenants now see the need to be in these office spaces while developers are actively capturing demand in the market.

We definitely see the urgency to be in these office towers. Being in a sustainable office space used to be a “nice-to-have,” now it is a “must-have.”

For now, we can conclude that when it comes to office leasing and development, sustainability is everyone’s responsibility.

 

Maricris Sarino-Joson is the director for office services-landlord representation at Colliers Philippines.

Digitalization to boost Philippine banking growth

THE continued adoption of digitalization and open finance in the Philippine banking industry is expected to transform the delivery of financial services, enhance lenders’ revenue-generation capabilities and boost economic growth.

Digitalization in the sector was accelerated when banks were forced to find new ways of delivering financial services to the public amid the mobility restrictions imposed at the height of the coronavirus pandemic, Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said.

“The increased digital transformation of BSP Supervised Financial Institutions (BSFIs) and the financial consumers’ growing preference for digital payments and financial services brought about tremendous gains in terms of BSP’s advocacy on financial inclusion and digital payments transformation roadmap,” she said in a Viber message.   

One of the central bank’s priorities is to ensure the delivery of payment solutions aligned with consumers’ needs, she said, and digitalization has enabled increased efficiency, stability and confidence in online payments.   

“As technological innovations become mainstream in financial services, financial consumers can avail of accessible, affordable and convenient digital financial services,” Ms. Fonacier said. “To further cement this positive development, the BSP implemented regulatory and supervisory frameworks covering digital banking, open finance and regulatory sandbox, among others.”

The BSP wants 50% of retail payments done digitally and to onboard 70% of adult Filipinos into the formal financial system by the end of this year.   

Latest data from the central bank showed the share of digital payments in the total volume of retail transactions in the country rose to 42.1% in 2022 from 30.3% in 2021. 

Merchant payments, peer-to-peer remittances and business transactions of salaries and wages were the key contributors to the increase in digital payments.

Meanwhile, about 22 million Filipinos gained access to formal financial accounts between 2019 and 2021, bringing the country’s banked population to about 56% of adults in 2021, up from just 29% in 2019.   

The increase was driven by faster growth in digital payments, the central bank earlier said, as 36% of all Filipinos had e-money accounts in 2021, up from the 8% share in 2019.

However, the Philippine central bank is also aware of the risks associated with digitalization, Ms. Fonacier said, including cyberattacks.

“Thus, the BSP employed various regulatory and supervisory responses to manage such risks,” she said, adding that they issued BSP Circular No. 1140 to mandate institutions to adopt fraud management systems to address increased cybercrime incidents.

The circular issued in March 2022 amended risk management regulations to help strengthen cybersecurity and minimize losses from online fraud and illicit activities.

The BSP has also issued several memoranda on application programming interface (API) security, security of retail electronic payments and financial services, and e-mail security to address emerging threats that affect BSFIs, Ms. Fonacier said.   

Amid the rapid digitalization of the sector, banks and financial institutions are tweaking their business and operational models to keep up with “new normal,” she said.

“BSFIs are increasingly migrating to the cloud to address capacity demands and scalability. We’ve also noted growing interest in the areas of artificial intelligence (AI), including generative AI such as ChatGPT, digital marketplace and open finance, among others,” she said.   

The BSP launched the Open Finance PH Pilot in partnership with the World Bank and the International Finance Corp. The initiative aims to build financial profiles and credit histories for unbanked Filipinos.

The pilot is a voluntary pledge of financial institutions to co-develop an interconnected ecosystem that would allow consumers to take more control over their financial data and to use various financial products and services from different providers.

“Moving forward, we still see a lot of growth opportunities to deepen digital innovation and transformation in financial services delivery, to capture or retain customer base and maintain competitiveness while enhancing revenue-generation capabilities,” Ms. Fonacier said.

“Nonetheless, the BSP and the industry players must continue to support the digital expansion by making sure that technologies and systems remain safe, robust, accessible and resilient against cyber and IT related risks,” she added.   

MANAGING RISKS
Using Threat Intelligence technology will help financial institutions strengthen cybersecurity, Siang Tiong Yeo, general manager for Southeast Asia at Kaspersky, said in an e-mail.

He added this technology can help allow internal cybersecurity departments to focus on objectives with higher priorities.   

“Also, having a Managed Detection and Response solution that allows a cybersecurity team to employ the help of external experts to detect and stop complex attacks on company infrastructure at an early stage would be a great defensive measure,” he said.

Mr. Yeo added that financial data sharing and open banking initiatives are not new concepts, with Singapore being among the early adopters in Southeast Asia.   

“In a study in 2022, 85% of professionals in Singapore agree that open finance is giving consumers access to a greater range of financial services,” he said.

“Additionally, 76% agreed that open finance has the potential to bring about fairer and more equal financial services, while 90% agreed that open finance is already having a positive impact on the industry and making it more collaborative.”

However, data and third-party security should be fully covered in any data-sharing business model, especially in the financial industry.   

“As there are potential opportunities for growth in the industry for both players and consumers with the adoption of open banking, our experts at Kaspersky are predicting that this may lead to more opportunities for cyberattacks,” Mr. Yeo said.

He said open banking is vulnerable to risks such as financial fraud and identity theft.

“We also predict that the continued adoption of open banking systems will result in API abuses shifting from an infrequent to the most frequent attack vector, resulting in data breaches for enterprise web applications,” he said.   

Thus, Kaspersky said banks should adopt a unified cybersecurity approach with process-based security implementation, employee and user/consumer awareness and education, and technologies created specifically for the industry.

DIGITALIZATION TO BOOST GDP
The further adoption of digital platforms can boost the Philippines’ gross domestic product (GDP) if done in a manner that provides equitable access to the internet access and digital services, Swarup Gupta, industry manager at the Economist Intelligence Unit, said in an e-mail.

“Digital transformation of enterprises and governance processes has the potential to substantially boost GDP, and this is why the Marcos administration has rolled out several initiatives in this area,” Mr. Gupta said.

“A major positive is the fact that, according to recent statistics, the Philippines has some of the best internet speeds in the world, which is a crucial factor when it comes to aiding the process of digital transformation,” he said.   

However, digitalization also makes data vulnerable to theft and other illicit activities if not monitored effectively.   

“Late last year, the BSP launched a regulatory and supervisory solution in order to lighten the burden of regulatory compliance while automating the central bank’s supervisory role on cybersecurity,” Mr. Gupta said.   

“This solution catered to 150 supervised financial enterprises as of end 2022 and will soon be expanded to 600,” he said.   

Despite having a young population and a relatively high internet penetration rate, the Philippines faces multiple challenges to digitalization, Mr. Gupta said.   

“Philippine banks have to launch and persevere with services which can cater to a population which remains relatively underbanked apart from being less fortunate economically,” he said.   

Based on the central bank data, 34.3 million adults remained unbanked in the country. Farmers and agriculture workers were the least banked among all types of workers, with 73% having no accounts, the highest financial exclusion level seen in 2021.

Other segments that had a high percentage of unbanked adults were workers for private households (48%) and self-employed individuals (45%). Non-working adults without accounts stood at 52%, equivalent to 15.6 million adults. 

Still, the outlook for digitalization and open banking in the Philippines remains bright, Mr. Gupta said.   

“The opportunities are numerous in terms of a spurt in financial innovation, leading to higher economic growth, and the evolution of personalized products and services to cater to specific need sets,” he said.

“Risks include an increasing prevalence of cybercrime and the consequent need for regulators to strike a balance between helping to foster innovation and protecting customers,” he added. — Keisha B. Ta-asan

Five principles for generative AI in financial services

FREEPIK

By Mohan Jayaraman, Philipp Rindler, Velu Sinha
and Maria Teresa Tejada

THANKS to recent technological advances in generative artificial intelligence (AI) foundation models and record-breaking rates of consumer adoption, it’s no longer a question whether your company will use this technology. It’s a question of when and how.

Trained on enormous volumes of data and adapted to many applications, foundation models are more sophisticated, complex and capable than prior AI tools, especially at handling unstructured data. Increasingly offered as a service, they are also much easier and economical to adopt. But concerns about unforeseen consequences and potential misuse of the technology make it urgent for business leaders to understand the privacy, fairness, ethical and social implications of generative AI, and to balance those risks against its promising commercial potential.

Managing and mitigating the new risks that come with technological advance is familiar terrain for financial service institutions. Generative AI will amplify some well-known concerns but will also present new ones. The risk faced by any individual company will depend on two things: first, where and how it applies generative AI, and second, the maturity of its AI governance. Whatever their level of risk, any company using generative AI must identify relevant and emerging risks; understand how their applications map to existing and new regulations; and enhance internal functions, such as machine learning engineering, technology and legal, in anticipation of new risks.

Generative AI has the potential to significantly improve the productivity and quality of many types of knowledge work, increase revenue and reduce costs. Consequently, financial service organizations are likely to use it in a variety of ways. These may include augmenting the productivity of their workforces, personalizing content for consumers and, eventually, improving consumer self-service. Traditional AI has already been used extensively in financial services, typically with structured data for prediction and segmentation. Today’s foundation models could be used for converting unstructured data like text, images and audio, as well as data sets such as communications, legal documents and written financial reports into structured data, which could then be used for strengthening these existing AI risk models.

The breadth and scale of generative AI’s likely uses combined with its evolving social and ethical risks make creating and managing a comprehensive governance program complex (see Figure 1).

REGULATORY RISKS
Regulators are clearly still catching up to the rapid evolution of generative AI and foundation models. In the coming months, executives will have to watch out for upcoming regulations and proactively manage them. These will come from existing regulatory bodies that are forming their perspectives, as well as from new regulatory entities that may be created specifically for this technology, such as those envisioned in the European Union’s AI Act.

Generative AI also exposes organizations to increased legal risk from inadvertent or unintentional exposure of customer data by employees experimenting on public or shared systems, uncertainties in the provenance of data used in training foundation models, and potential copyright risks on content generated using these technologies.

Additionally, the economic risks from regulatory noncompliance must also be considered — the draft European regulations are suggesting stiff financial penalties, similar to fines for noncompliance with data privacy regulations.

OPERATIONAL RISKS
Given the rapid pace of advances in generative AI, many features and capabilities are being launched to support experimentation. Until these solutions are hardened to support scaling, control privacy, monitor performance, manage security anomalies, follow data sovereignty, access regulations and meet enterprise service levels, their commercial use must be very carefully considered.

Excessive complexity can make these systems brittle and more vulnerable to new vectors of cybersecurity attack, like training data poisoning and prompt injection attacks. It is likely, too, that the technology’s ease of use may enable generation of malicious e-mails, phishing attacks and “deepfakes” of voices and images, among other issues. Vendor risk relates both to locking into a “walled garden,” especially as the vendor ecosystem grows, and to the possibility that some vendors will not survive in this increasingly busy space. Open-source models may have their own complexity of maintenance and upgrades.

MODEL RISKS
The financial service industry has well-developed policies of fairness, accuracy, explainability and transparency built in compliance with regulatory guidelines. Generative AI intensifies some existing risks associated with AI while requiring a different approach to others. Given the large amount of data that goes into creating foundation models, for example, it is likely that bias will creep into some aspects of the data. And with foundation models mostly available as a service, new and derivative applications will inherit their risk of bias. Earlier machine learning models produced structured output for specific tasks, while generative AI creates novel results whose fidelity and accuracy can be difficult to assess. One particular concern: It can “hallucinate” output that was not present in its training data. That’s a desirable result when looking for innovative content, but unacceptable if presented without verification or qualification.

ECONOMIC RISKS
As with any new technology, unless planned correctly, generative AI initiatives run the risk of becoming expensive experiments that don’t deliver shareholder value. There is a risk of underestimating the extent to which an organization and its people will need to transform in order to realize the benefits of generative AI. Given the technology’s evolving nature, companies risk investing in the wrong technology or failing to hit the right balance between what they choose to build in-house and what they buy from outside vendors. Ultimately, every executive worries they might lose out to a competitor that deploys the technology in a way that is so appealing to customers it renders their business model obsolete.

REPUTATION RISKS
The tectonic shift generative AI is precipitating brings fear of automation and the potential impact on employment, employees and society at large. Stakeholders including customers, employees and investors have all demonstrated, as they have with ESG (environmental, social and governance), that they place a high level of emphasis on social responsibility, and this technology will be no exception.

5 DESIGN PRINCIPLES
Building the organizational capability to responsibly design and deploy generative AI will require an investment of significant resources. By focusing that investment on five principles, companies can begin to mitigate risk and achieve their responsible AI goals while delivering on their strategic ambitions (see Figure 2).

1. Be human-centric — design for transparency and explainability. Generative AI systems must be built with audit trails and monitoring that fit their end use. This will help ensure that the systems are accessible and fair, are not unfairly biased and do not discriminate. All stakeholders should be adequately informed when they interact with a machine and should be able to reach a human to escalate any issues they have with a decision made by the system.

For AI to be trustworthy, it must be designed for human agency and oversight. It is critical that financial service institutions ensure that a human is in the generative AI loop, whether to review feedback or address an escalated problem. End-users or other subjects should always know when a decision, content, advice or outcome is the result of an algorithm.

2. Know where you stand —ensure that data privacy and infrastructure are robust. With a growing choice of foundation models and providers, organizations will need to select the right service and vendor. Some companies will choose a fully cloud-hosted software-as-a-service approach, while others will opt for models with privately managed infrastructure. As with other cloud technologies, companies will need to balance the simplicity of single sourcing against the risk of becoming locked into one vendor, and be aware of their vendor’s data security, privacy and data residency standards.

Whichever choice is made, companies can build their technical infrastructure to be foundation-model agnostic so that they have the flexibility to change with the evolution of the ecosystem. Financial service firms can specifically mitigate customer and organizational data privacy concerns as well as security and performance risks by opting for the right technology architecture and focusing on building capability in prompt engineering, embeddings and outputs.

3. Earn trust — prepare for regulation. Regulators are playing catch-up on generative AI, but organizations can prepare by proactively monitoring for, evaluating and addressing risks and taking a forward-looking approach to governance, risk management and compliance reporting.

4. Employ agility — ensure oversight and disclosure, before and after deployment. Given the fast-evolving nature of this technology and its scale, companies will have to keep monitoring their applications for new and developing risks after deployment and build a human override. They must also have explicit criteria for testing and evaluating the model. Tools that provide information about the AI, such as model cards, will need to evolve to ensure that foundation models can be quantitatively evaluated and tested at industrial scale before deployment.

5. Act with intention — consider organizational maturity and AI governance when selecting applications. When companies first develop generative AI, it makes sense to focus on uses with low risk. Later, as their responsible AI capabilities mature, companies can work up to those with higher risk. It may be ideal for organizations to start with internal applications, then move on to applications with a limited set of external users. Once those applications have built detailed feedback loops, they can expand to a wider audience.

Generative AI is no longer futuristic but an imminent reality, one offering financial service leaders both unparalleled opportunities and new business and societal risks. Financial service firms can responsibly embrace this transformative technology by building robust governance frameworks and upskilling and reskilling employees to adapt to the AI-driven workplace.

This starts with a conscious decision to prioritize responsible AI practices that are designed with their broader impact in mind and aligned with the organization’s core values and long-term strategic objectives. By pioneering an appropriate model for deploying generative AI, financial service organizations have the opportunity to not only gain competitive advantage in an increasingly digital world, but also set an example of responsibility and foresight.

 

Mohan Jayaraman is Bain & Company’s expert partner based in Singapore; Philipp Rindler is an expert senior manager based in Zurich; Velu Sinha is an expert partner based in Amsterdam; and Maria Teresa Tejada is an expert partner based in Atlanta.

Gov’t digitalization push to sustain demand for fintech services

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DEMAND for financial technology (fintech) services is expected to be sustained following the increase seen during the coronavirus pandemic, driven by the government’s digitalization initiatives.

“With the Philippine government prioritizing the digitalization of financial transactions and showing strong support for the fintech industry, we are highly optimistic that Filipinos will not only continue to embrace cashless payment methods but also emerge as one of the fastest adopters of financial technology in the region,” Robin Wong, president and chief executive officer of fintech firm Mocasa, said in an e-mail.

The industry’s sustained growth will also be driven by digital payments, Rizal Commercial Banking Corp. (RCBC) Executive Vice-President and Chief Innovation and Inclusion Officer and Fintech Alliance PH Chairman Angelito “Lito” M. Villanueva said.

“There will be no way by which Filipinos will be going back to the usual cash or manual means of payment transactions,” he said.

A 2020 study by the Cambridge Centre for Alternative Finance at the University of Cambridge Judge Business School, the World Bank Group and the World Economic Forum showed the global fintech industry saw an increase in demand during the coronavirus pandemic, making it an outlier as most sectors were hit by the health emergency.

“In 2020, firms saw an average rise of 13% compared to 11% growth in previous years. The expansion of transactions was noticeably higher in countries with strict COVID-19 lockdown measures, where growth was 50% higher compared with firms who were operating in countries with looser lockdown measures,” according to the study.

Fintechs related to digital asset exchanges, digital payments, digital savings and wealthtech saw significant growth.

In the Philippines, digital lenders and e-wallets are leading the fintech industry’s expansion, said Enrico P. Villanueva, senior lecturer of economics at the University of the Philippines Los Baños (UPLB).

As of June, 40% of retail transactions in 2022 were done digitally, higher than 30.3% seen the prior year, according to central bank data.

Moving forward, the fintech industry will need to develop a sustainable credit scoring system, especially when rates begin to ease, UPLB’s Mr. Villanueva said.

“There will always be room for platforms that allow cheaper and more convenient ways to remitting money or doing fund transfer. The fintech companies that can do better will likely enjoy fast growth,” he added.

Fintechs have recalibrated their long-term goals amid the increased demand and fast growth seen by the industry, RCBC’s Mr. Villanueva said.

“Digital now becomes at the forefront of any strategic corporate plan — in terms of having to scale your operations, scale your business and definitely how to ensure that you can make yourself relevant,” he said.

Due to the pandemic, fintech firms had to tap new technologies to cope with demand, such as artificial intelligence (AI), he added.

However, he said AI is a double-edged sword as it could take over jobs done by humans, which means companies should help upskill and educate their employees.

“Going digital is not just about technology. It’s also about culture… Technology is just a portion of the whole proposition. Because for any digital transformation to survive, to be successful or even thrive, you need to have a change in culture or a change in mindset in the whole organization,” RCBC’s Mr. Villanueva said.

However, fintech adoption could be hampered by the high costs of smartphones and internet connections, said Calixto V. Chikiamco, Foundation for Economic Freedom president.

“The cost of smartphones and of data connectivity will have to fall further before more C and D segments of the population can make use of fintech. Accessibility is also an issue as many parts of the country, particularly in the countryside, have spotty signals,” he said. — A.M.C. Sy

Public policy and private sector participation 

FREEPIK

By Diwa C. Guinigundo

FOURTEEN years ago, Robert B. Reich, professor of public policy at the University of California at Berkeley and former Cabinet member in several Democrat administrations in the US, published an extremely interesting paper titled “Government in Your Business” in the Harvard Business Review. He made the point, and it made perfect sense even before then and now, that “managers in the private sector, accustomed to ducking behind corporate- and government-relations professionals, will need to develop a new mindset and skill set that will allow them to partner with government rather than fend it off.”

It is public trust that would define the dynamics between government and the private sector, that in the last century, it has swung from government to business, and then business to government. Reich cited the experience in the US at the end of World War I and the beginning of the Great Depression. Business was failing, and the capacity of the private sector to initiate economic recovery was clearly limited. Since public money was critical to jumpstart the economy from the time Franklin D. Roosevelt was elected president in 1932 until the late 1970s, public trust in government was the highest.

But the regulatory framework started to get complicated and ubiquitous so that it evolved into sands in the wheels of economic progress. Even the public was repelled at the size of government and its extent of intervention in business. Too much of it started to pull in growth and excessive public spending abetted high price inflation. To finance higher public spending, taxes were raised, which undermined business innovation.

President Ronald Reagan had to absorb the pendulum of public trust against government. Business and finance regained public trust after the government committed some excesses in public policy against industry. At the time of Reich’s publication, the transition reversed in favor of government again. Public policy began to shape business and investment again in the US, and might even have been in a bigger way in Europe and Japan. After all, Americans were usually litigious, more suspicious in fact of any form of meddling by public servants.     

This was an ultimate expectation because no less than government action and public money were crucial in resolving the global financial crisis starting in 2008. In the US most especially, without the decisive action by financial authorities, the crisis could have been more prolonged and more debilitating for business and investment. As Reich admitted, the malfeasance in financial services triggered the erosion of public confidence in the Enrons, Adelphias, Global Crossings, Tycos, HealthSouths, Sunbeams, WorldComs, Waste Managements and ImClones of the world. Chartered accountants had admitted some negligence or paid substantial fines without admitting guilt. It cannot be denied that in the aftermath of the global financial crisis, it was reported that every major investment bank had some involvement in defrauding investors who were encouraged to invest in junk bonds.

As Reich disclosed, public opinion stood against business at the time.

The annual Trust Barometer in 2008 showed that only 38% of adult respondents trusted businesses, or a 20-percentage-point decline over a year, the lowest in a decade. Public Strategies and Politico showed that more than two-thirds of their respondents thought business regulations should be tightened.

In the past 20 years, however, it has been observed that business interests and those of society are increasingly becoming more related and more intertwined. Pressing social challenges that range from reduction of carbon emissions in the greater context of climate change; digitalization, financial technology and artificial intelligence; mitigation of poverty, income inequality and justice; financial inclusion and education; credit availability and capital market development, have influenced how private businesses design their goods and services for public knowledge and consumption.

Even in the Philippines, the long-term Philippine vision and aspirations of the Filipino people as appropriately captured in the Ambisyon Natin 2040 blueprint must have served as a long-term template for business and industry. A picture of the future that addresses such question as “Where do we want to be?” Ambisyon Natin 2040 anchors the government’s plans and programs, guided by a group of experts and representatives of the government, private sector, academe and civil society.

It would be most profitable for business and industry to similarly build their business plans around the direction of the general economy until 2040. To be sure, not everything in the blueprint will be put on stream; some will be deprioritized and some will be conveniently forgotten altogether. Some will not even be allocated the budget in favor of some fancy-sounding line items like confidential and intelligence funds, and most recently, the Maharlika Investment Fund.

With the vision of Ambisyon shaped thus, “Filipinos enjoy a strongly rooted, comfortable and secure life,” the way one should grow his business in the next decade and a half should be anchored on the following sectors that are expected to have a direct impact on the fulfillment of the blueprint. They include housing and urban development, manufacturing, connectivity, education services, tourism and allied services, agriculture, health and wellness services and financial services.

It is good that the national blueprint sounded the call not only for foundational literacies such as reading, arithmetic and science, but also for other types of personal competencies like critical thinking, problem-solving, creativity, communication and collaboration — skills many Filipinos today seem to be lacking. Character qualities are also desirable, and they include curiosity, initiative, persistence and grit, adaptability, leadership, social and cultural awareness.

What is key here is whether the requisite learning opportunities could be made accessible to as many Filipinos as possible given appropriate public policy and private sector initiative and support. Institutionalization is only possible when competencies are continuously upgraded, but this will require greater public goods. Incurring democracy deficit therefore subverts whatever learning opportunities are available given limited public funds.

The Marcos politics will make sense only if it adheres both to its Medium-Term Development Plan 2023-2028 and the Eight-Point Socioeconomic Agenda. Perhaps even only substantial, not even complete, compliance with these national economic development blueprints should be strategic enough for the private sector to be motivated and be guided accordingly. The six-year plan is more than a complete program of development covering the areas for economic and social transformation in the context of health, economic, geopolitical, environmental and technology trends and developments.

What is different from the current plan is the inclusion of the legislative agenda, or what kind of legislative interventions will be required to institutionalize the proposed changes to promote health and social development, improve education, establish livable communities, ensure food security, strengthen social protection, increase income-earning ability, modernize agriculture and agribusiness, revitalize industry, reinvigorate services, advance research and development, promote trade and investments, promote competition and improve regulatory efficiency, promote an inclusive financial sector, ensure sound fiscal management, expand and upgrade infrastructure, ensure peace and security, enhance the administration of justice, practice good governance and bureaucratic efficiency, and accelerate climate action and strengthen disaster resilience.

These are a mouthful, but required to advance economic growth on many fronts to make it sustainable and self-sustaining, high and inclusive. Being broad-based is critical to economic resiliency.

For the private sector, the inclusion of result matrices of the development blueprint should make it plain and easy to pursue the implementation of these proposals. There is greater likelihood of success if government support is assured beyond the letters of the blueprint.

The development plan could be meaningful only if the government succeeds in pursuing it within the new medium-term fiscal framework aimed at helping the Philippines attain “a faster, greener and more inclusive growth that will benefit all Filipinos.” In short, what is on the plate of the Philippines’ political leaders is to be able to deliver on both strong and inclusive economic growth and fiscal sustainability — that rare combination of boosting the economy without impoverishing the Filipino people with more taxes and higher public borrowings.

One way of looking at this public-private collaboration is in terms of the private business and industry following up on the government’s success in enacting laws liberalizing the economy particularly through the amendments to the Public Service Act, Retail Trade Liberalization Act and Foreign Investment Act. If convinced, the private sector can respond with higher levels of capitalization and investments in specific economic and financial sectors consistent with public policy and vision.

This synergy was demonstrated recently when industry groups welcomed the amendments to the implementing rules and regulations of the Corporate Recovery and Tax Incentive for Enterprises (CREATE) Act, which clarified once and for all that export-oriented companies, or those located in Philippine Economic Zone Authority or in any special zone, are exempted from paying the value-added tax. Unfortunately, some members of the House of Representatives have this wrong idea that once the CREATE law was enacted, a huge stream of investments would necessarily come. Even the implementing rules have to be thoughtfully and cleverly crafted.

Let the annual budget process also establish the platform for greater collaboration between the government and private sector, and public trust to grow. Private economists and analysts should try and drill down the slogans of the Budget department to find out whether the priorities in the development blueprints are carried over to the budget priorities, and properly budgeted. Civil society could only hope against hope that public spending is excised of unnecessary fat and of opportunities for corruption.

Almost two years ago, we wrote that based on some estimates, corruption or for some, “rent seeking,” could deny us a 6.6% increase in investment to GDP ratio or a 1.65% increase in annual per capita GDP (ES De Dios and RD Ferrer, “Corruption in the Philippines: Framework and Context, January 2000). One year before this publication, we also cited then Deputy Ombudsman Cyril Ramos who computed that the Philippine government had lost about P1.4 trillion in the previous two years, or P700 billion a year, or about 20% of the national budget. With higher levels of corruption over the years and inflation, the numbers could only overwhelm. The cost of doing business in the Philippines is inflated by corruption.

Thus, good governance is critical to restoring public trust and in soliciting private investment here and abroad. It’s something that does not magically appear from slogans or foreign trips, but says a lot about return on investments.   

It would also be useful for policy makers to be cognizant of the various global risks including the more volatile and more fragmented world economy. What we could expect from such setting is the wider amplitude of capital flows that is more destabilizing of emerging market economies like the Philippines. Their governments had resorted to different strategies and policy tools in the past. On this, the International Monetary Fund (IMF) in the past three years pioneered in developing both theoretical and empirical bases for what it calls “integrated policy framework.” This is a systematic analytical approach in selecting the most appropriate policy mix for managing large and unsteady capital flows and preserve macroeconomic and financial stability. The role of monetary, exchange rate, macroprudential and capital flow management policies has to be reconciled with one another as to their impact and challenges.

Our economic managers are challenged to sharpen their analytical tools in making judgment on the nature of shocks, country characteristics and initial conditions. Research on these elements is quite in abundance. Those tools, according to the IMF, are no substitute for economic adjustments, development of deep capital markets, robust corporate and bank balance sheets and of course, strong institutions. Costs and benefits must be weighed, and the uncritical pursuit of new and untested approaches avoided.

All that we are after in strengthening public and private partnerships and growing public trust is to ensure resilient and inclusive economic growth. We have a lot of development blueprints and a long list of tools of analysis and policy options. It’s the human variable that makes those blueprints either workable or simply a pipe dream. It’s the human variable that choosing among the better options becomes cryptic.

Didn’t Sir Isaac Newton say: “I can calculate the motion of heavenly bodies, but not the madness of people.”

 

Diwa C. Guinigundo is a former deputy governor for the Monetary and Economics Sector of the Bangko Sentral ng Pilipinas (BSP). He served the BSP for 41 years. In 2001-2003, he was alternate executive director at the International Monetary Fund in Washington, D.C. He is the senior pastor of the Fullness of Christ International Ministries in Mandaluyong.

Listed companies consider ESG

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COMPANIES are expected to pursue more environmental, social, and governance (ESG) initiatives amid rising climate risks and as the Philippines continues to recover from the coronavirus pandemic.

More firms are integrating ESG principles into their operations, said Roderick de Castro, executive director for the Business for Sustainable Development.

“What prompted this is the global call for a worldwide approach to climate change, the pandemic, and regulators adopting an ESG framework for due diligence and audit,” Mr. De Castro said in an e-mail.

The coronavirus pandemic showed companies how they can improve the social aspect of their operations, he added.

“The pandemic also revealed issues related to gender equality and livelihood programs which companies could further improve on,” he said.

For its part, Aboitiz Equity Ventures, Inc. (AEV) said in its 2022 annual report that it would be focusing on improving its sustainability initiatives through risk assessment and strategy development.

The company has businesses in power generation, distribution and retail electricity supply, financial services, food manufacturing, real estate, and infrastructure.

“As the COVID-19 pandemic risks began to be managed, other risks emerged that shaped the global landscape, including geopolitical tensions that led to soaring inflation and supply chain disruptions. These underscored the importance of a commitment to sustainable business practices,” Ana Margarita N. Hontiveros-Malvar, AEV first vice-president and chief reputation and sustainability officer, said in an e-mail.

“Aboitiz has made strides in making a robust process of group-wide business environmental scanning and scenario planning for risks and opportunities,” she added.

The company is also using data science and artificial intelligence to improve its operational efficiency and reduce carbon emissions by approximately 35,000 tons of carbon dioxide equivalent, she said.

One of AEV’s environmental initiatives is the implementation conservation efforts by preserving water in its communities through watersheds and rehabilitated rivers and estuaries, she said.

The company also spent P521 million to plant 12.44 million trees in 2022, she added.

“The workflows adopted have been designed to keep people at the center of our initiatives, with environmental initiatives balanced to meet long-term social equitability,” Ms. Hontiveros-Malvar said.

AEV also came up with supply chain management strategies for its core businesses.

“ESG risks critical to the supply chain are being reviewed based on supplier compliance requirements that may vary depending on the industry sector where our strategic business units belong,” the company said in the report.

Meanwhile, Filinvest Development Corp., which has businesses in banking, utilities, real estate, and infrastructure, has invested in digitalization, as well as sustainable designs and building practices by creating “people-centric and nature-sensitive” spaces with water security solutions, Filinvest Chief Sustainability Officer Mark Tom Q. Mulingbayan said in an e-mail.

“We strive to operate our business with careful thought about our impact on the Filipino customer and community. Our focus is to strike a balance between serving our customers’ needs and aspirations and supporting local economic development, while being mindful of the environment,” he added.

According to the company’s 2022 sustainability report, it has identified “green, inclusive, and resilient” action areas.

One of Filinvest’s green initiatives is to include energy, water, and resource efficiency in the designs of its buildings and townships.

The company has also committed to allocating at least 60% of its projects for open spaces, with parks and natural waterways integrated into the designs.

“The Filinvest group pushes the envelope to being resilient as part of its strategy to ensure long-term ability to generate value, which defines sustainability,” the company said. 

“We believe in continuous improvement and adaptation to remain competitive in the corporate ESG space. A significant step towards maintaining this mindset is enhancing our sustainability disclosures. Sharing our environmental, social, and governance practices and achievements allow us to build trust among our stakeholders,” Mr. Mulingbayan added.

However, Sustainable Fitch, a specialist ESG unit of the Fitch Solutions group, said in a report that companies tend to highlight only positive things in their sustainability reports without acknowledging the challenges that could affect their plans.

It said the Philippines remains unable to come out with clear details about its ESG and decarbonization strategies.

“A large swathe of people in the Philippines live in poverty and depend on brown-industry jobs to survive, with effective strategies being critical to helping these groups keep up with transition efforts,” the report said.

Business for Sustainable Development’s Mr. De Castro said conglomerates “have enough resources for ESG-related activities as they have economies of scale.”

“Other than that, transformation and change will be difficult because of diversity of interests. Add on to that the existing mental models of leaders and the organization that has to transform as well,” he added. 

Regulators like the Securities and Exchange Commission (SEC) have been introducing policies and guidelines that promote responsible business practices and ESG reporting among companies.

The SEC earlier said it is looking to update its sustainability reporting guidelines to make sustainability reports mandatory for listed companies. — AHH

Lessons not from the classroom 

JOSH CALABRESE-UNSPLASH

By Sherisa P. Nuesa

STRATEGIC maneuvers during crisis times have been truly instructive, especially to boards and leadership teams. In the heat of the recent pandemic, landmark moves included ACEN Corp.’s bold expansion in the renewable energy space (locally and abroad, supported partly and aptly by green financing), Manila Water Co., Inc.’s $500-million sustainability bonds and a strategic alliance with Trident Water Co., as well as Ayala Land, Inc.’s launch of AREIT, Inc., the country’s first real estate investment trust.

While much has been said about large publicly listed corporations, it is equally worthwhile to delve into the story of a moderately sized listed company, Far Eastern University or FEU. This 95-year-old institution demonstrated resiliency and imagination, even as the whole education space, specifically private schools, faced sweeping challenges then that struck at the very core of their business model. Moreover, these began long before the era of COVID-19.

The legislated transition to K-12 starting in 2016 triggered industry-wide, prolonged (five-year) dips in student enrollments. As bottom lines of affected private schools headed south, the law on free tuition for state colleges and universities quickly followed in 2017. These statutory stresses were compounded by the tidal wave impact of technologies and their concomitant methodologies and processes that schools in the country then were just starting to imbibe.

Thus, when the pandemic and lockdowns hit, many private colleges and universities were simply caught off guard. In September 2020, the Coordinating Council of Private Educational Associations of the Philippines (COCOPEA) reported that of 756 schools surveyed nationwide, an overwhelming majority registered 20% to 60% declines in enrollment. A few closures happened. How FEU silently navigated through this backdrop has been an interesting learning journey, which can be dubbed as “lessons not from the classroom.”    

The following ideas are not necessarily novel, but in examining prescriptions for a recovery roadmap, a few applied learnings from the past could contribute to a simple refresher course.

1. Reinvent a relevant, compelling value proposition as a constant process 

A value proposition, defined by “Blueprint to a Billion” as the fundamental benefit delivered to customers, should outlast any financial crisis. Thus, companies should not freeze in a squeeze, and think as much of a rebound even as firefighting is going on. If an organization is starting to think only now about reigniting growth in this economic upswing, it is probably late. Companies should constantly think of staying ahead of the pack, especially as competitors within and outside most industry playgrounds have multiplied exponentially. Technology innovations, pandemic shocks and supply chain gaps have unleashed thousands of fresh or rehashed players, new entrepreneurs and product and service innovators, online or not. “Work-from-home” or “work-anywhere” setups have expanded geographical markets. Industries are being reshaped everywhere and more transformations are likely forthcoming.

Companies could reformulate, repackage, redistribute or even totally revamp their products and services, and those who understand their customers intimately will know the value, functional or emotional, as ascribed by the market. They should also be reading signals and readying for the next wave, the next frontier. More than ever, businesses should protect and enhance the current and potential value benefit — whether in the content or quality, the mode of delivery, the image proposition or the response time. Rethinking one’s fundamental advantage does not stop.

Embracing technology and addressing environmental threats, FEU launched at least three years before the pandemic a leading online learning management system, Canvas, and later added others, both in the academic and administrative spheres. It likewise trained its faculty and students on digital literacy, not without difficulty at first, and set up the support infrastructure as well for both online and blended learning systems.

With keen awareness that students would eventually clamor for the campus experience, the university did not halt school renovations and campus additions either. A senior high school was added in four locations, while construction at FEU Filinvest-Alabang progressed. The Roosevelt schools, acquired in 2016, were also renovated and expanded, and this 90-year-old brand added three campuses to the FEU Group of Schools (now nine school campuses nationwide, plus three joint ventures). And right during the pandemic, key investments were made in the Good Samaritan Colleges in Cabanatuan City and in a nursing school in Brunei, the first foray outside the country.

2. Reprioritize strategic risks as paramount 

“A car has brakes so it can run faster.” Make risk analysis a strategic tool. There will always be opportunities even in downturns. Resist the urge to slash costs or alter the growth path simply to conserve cash, without balancing financials against the more impactful threat of eclipsing a hard-earned business advantage. A blemished brand value or one that is no longer as heavily differentiated will take time to recreate. A financial approach is a crucial leg of any strategy, but it is the business strategy, the overall business model, that drives or dictates the financial strategy, not the other way around. Even in the middle of uncertainties, a company can step on the business accelerator, provided the risk threshold boundaries are drawn. Knowing the danger zones (what is the worst that could happen?) and managing them can unlock game-changing, audacious ideas.

At the height of the health crisis, the COCOPEA survey showed that as of September 2020, about 3 million students in the country had not returned to school. The industry saw layoffs and cutbacks in investments and other expenditures. FEU similarly tightened its cost watch, but understood risks beyond operational or financial, and set its course for a strategy-based expansionary response. 

3. Repower leadership through teams and teamwork

“None of us is as smart as all of us,” goes a saying by global author Ken Blanchard. The big ideas and, more importantly, their coordinated and smooth execution can best happen through effective and motivated teams. The level of confidence also rises dramatically when the key functional units are fully in sync. The one at the helm should possess an ability and feel to choose the right leaders around him or her, to form a cohesive team that can execute well. Execution is key, because a vision stays on paper unless it is carried out in the market.

FEU attributes its mix of new learning modalities (asynchronous remote lessons, fully online or hybrid applications) to each school group designing and implementing its own system approach. From this empowering policy came experimentations, an Innovation Center and a mastery-based individualized learning enhancement system (called MILES) that was developed in-house. FEU continues to reap benefits from an aligned Board and management stewardship and a reinforced faculty and workforce. 

4. Revisit the organization’s understanding of governance themes

Certain governance themes are pervasive and inescapable — artificial intelligence (AI) or machine learning, DEI (diversity, equity and inclusion), climate change and social missions. Make sure that the organization-wide know-how and articulated policies for these fields go beyond what are prescribed in governance manuals.

AI, especially generative AI, and data science, can and should work for us, far more than we can imagine right now. These should be part of boardroom discussions. Gender diversity has demonstrated in certain studies that it can enhance performance in measurable ways, and many have seen it work (including highly respected male champions). Climate impacts have been staring at all of us, with the recent months seeing the hottest temperatures globally, and sea divers witnessing the sad bleaching of valuable corals, even locally. Finally, citizenship duties and social governance must find their way in the business case — improvement only for the balance sheet is not sustainable for the long haul.

Among the happy accolades for FEU, whose board has three female directors, are World Universities of Real Impact rankings (among the top 100 global innovative universities, for three years in a row); the first academic EDGE Green Building certification in the Philippines; and continuing Golden Arrow Corporate Governance awards. Its FEU Public Policy Center remains a haven for socially relevant topics. The university remained profitable all through the extended crisis years. As early as 2022 and continuing through June 2023, its system-wide enrollment, revenues and net income have already exceeded pre-pandemic levels, an unmistakable rebound. 

In a wave of recurring volatility and dynamic movements, businesses should also be constantly reimagining and relearning — unlocking valuable insights, developing fresh knowledge and capabilities, and delivering lasting outcomes.

 

Sherisa P. Nuesa is a board director of Far Eastern University, Manila Water Co., Integrated Micro-Electronics, Inc. and AREIT. She is also a board adviser of Metro Retail Stores Group and Vicsal Development Corp. and a trustee of the Nextgen Organization of Women Corporate Directors.   

Her past directorships include Ayala Land, Inc., ACEN Corp. and ALFM Mutual Funds Group. She also served as chairman and co-founder of the Justice Reform Initiative, and as director of the Institute of Corporate Directors and the Financial Executives Institute of the Philippines (Finex). She was awarded the ING-FINEX CFO of the Year for 2008.

Small businesses embrace technology to stay competitive in face of risks

TIM MOSSHOLDER-UNSPLASH

By Miguel Hanz L. Antivola

THE micro, small, and medium enterprise (MSME) and startup ecosystem is becoming more attuned to the need for adaptability and sustainability by assigning more weight to lean, efficient operations, industry experts said, noting that the realignment of priorities is becoming more pronounced as tough times loom.

“With so much global uncertainty, everybody is back to their conservative stance,” Dan I. Siazon, co-founder and senior vice-president of venture capital firm Kickstart Ventures, Inc., told BusinessWorld. “The challenge is to go beyond that and seek opportunity.”

The Asian Development Bank (ADB)  reported that 73.1% of Philippine MSMEs faced a sharp drop in domestic demand and operational standstills due to the quarantine imposed at the onset of COVID-19. While businesses continue to deal with the tail end of the crisis, new challenges have emerged in the form of supply chain disruptions caused by the Russia-Ukraine war, as well as surging oil and food prices.

“Many businesses are under pressure to address cost management, pricing dynamics, supply chain diversification, and alternative ways to be creative and productive,” according to Rosemarie B. Ong, chairman of the Philippine Retailers Association (PRA), who also cited the impact of the adverse inflationary environment.

“They don’t want to pass on the costs to the price-sensitive consumer, while maintaining profitability,” she added.

These enterprises have recalibrated to recognize the need for transformation appropriate for the times, reimagining workflows and offerings to become more sustainably competitive. From leveraging e-commerce platforms to implementing automation, MSMEs have embraced technology as a key enabler of an efficient resurgence.

“There is an awakening,” according to Jason Christian Gaguan, co-founder of market insights startup Agile Data Solutions, Inc. and assistant vice-president for commercial at SM Supermalls, referring to MSMEs and startups. “I’m excited about it because everyone now is starting to innovate, which is good for the ecosystem.”

“What we’ve seen now is as we go back to normal and embrace new technology, it’s really more of adapting,” Ms. Ong said on the MSME recovery. “So they can leverage new avenues for their marketing and sales (to become more efficient).”

MSMEs are the backbone of the economy — accounting for 99.58% of all business establishments, 63% of the workforce, and 40% of gross domestic product, according to the Philippine Statistics Authority (PSA) and the Department of Trade and Industry (DTI). Small businesses created 5,461,731 jobs and generated P2.09 billion in sales in 2021.
According to the 2023 World Competitiveness Yearbook of the International Institute for Management Development (IMD), the Philippines was 52nd out of 64 economies, down from 48th in 2022. This year marked the sixth straight time the Philippines was in 13th place out of 14 economies in the Asia-Pacific. The yearbook’s ranking of business efficiency put the Philippines at 40th, from 39th last year.

The Philippines dropped two places to 59th out of 100 the countries in the 2023 edition of the Global Startup Ecosystem Index compiled by research house StartupBlink. With a score of 2.469, the Philippines remained the seventh-worst scoring country in the Asia-Pacific.

How do MSMEs and startups innovate and compete while in survival mode? Where should their focus be directed while dealing with the dynamic environment?

BACK TO BASICS
Ms. Ong said MSMEs are starting to explore more local sourcing instead of relying on imports as a means of lowering costs.

“Many domestic suppliers are being supported to create a resilient supply chain,” Ms. Ong said. “(MSMEs) are performing this balancing act of managing their expenses while continuing to grow revenue.”

In these conditions, scaling down has become a plausible option for some. The former growth mindset has had to be dialed down in favor of sustainability, according to social entertainment and livestreaming platform kumu.

“We had to adjust our growth expectations and ambitions to a timeline of three to five years instead of 12 to 18 months,” according to Rexy Josh L. Dorado, co-founder and president of kumu. “This required focusing on cost optimization, scaling back infrastructure, and finding a pathway to profitability.”

A reassessment of strategy becomes necessary to keep up with the market, as investment wanes in Southeast Asia after an uptick in 2021, according to Deal Street Asia and Kickstart Ventures. The first quarter of 2022 racked up about $5 billion in deals, down from a peak of $8 billion in the fourth quarter of 2021.

“We had record fundraisings in 2021, and things were looking good in the Philippines, ” Mr. Siazon said. “The next year, we were on our way down. And not just in the Philippines.”

“As the threat of the recession looms, people put their money in safer investment vehicles,” he added, as businesses rethink their core needs.
“Profitability — that needs to be the goal right now, the true north,” according to Brian P. Cu, chief executive officer and co-founder of hyperlocal e-grocery platform SariSuki. “The degree of freedom given to a startup today is much smaller than what was given last decade where money was cheap and interest rates were low.”

Mr. Gaguan noted that incentive- and discount-driven business models have begun exiting the scene, due to the unsustainability of a pure focus on growth. Resiliency and self-sufficiency have become the hallmarks of successful businesses.

“For all the previous excitement generated by ‘sexy metrics’… startups now are becoming more proposition-oriented, which I think is a good direction,” Mr. Gaguan said. “And smaller startups have a chance at getting funded.”

“It’s no longer just a story of selling fantastic growth at the expense of basic financials,” Mr. Siazon said. “Generally, growth used to be sustained by throwing money at things — the topline grows, but your margins don’t make sense.”

“That expectation has changed. The unit economics must make sense now,” he said, adding that businesses need to go back to the basics like product-market fit and a realistic profitability and self-sufficiency time frame.

“Competitiveness is achieved by just getting the basics right. If you get the basics right, you’re already far ahead of your peers,” he said.

DIGITAL TRANSFORMATION
Digital transformation continues to open up new ways for MSMEs and startups to be viable, but they also raise some concerns.

With full implementation by 2030, digital technology could create up to P5 trillion in economic value, equivalent to about 27% of GDP in 2020, according to a study conducted by global tech advisory firm Access Partnership and commissioned by Google. This requires the Philippines to embrace digital skills training and education, accelerate digital adoption and innovation, and tap opportunities for digital trade.

The pandemic “forced everybody to learn how to use their mobile apps. Nothing like a life-death crisis to really burn things into your system,” Mr. Siazon said, noting the increased adoption of e-commerce and e-wallets.

President Ferdinand R. Marcos, Jr. said in his second State of the Nation Address that digital payments accounted for 42% of retail payments made in 2022, putting the central bank in position to achieve its target of a 50% digital share of payments by this year.

“As digital wallet usage became much more prevalent, a strong base has been put forward,” Mr. Siazon said. “It also helped B2C (business to consumer) businesses. Online businesses thrived.”

According to the GoDaddy 2023 Data Observatory, 62% of Philippine small business respondents make up to half of their annual revenue from online sales channels.

“In just the past months of 2023, there has been a 117% year-on-year surge in the number of sellers joining our platform,” TikTok Philippines said of the growth of its Shop feature. “Notably, within the same timeframe, there was a 53% year-on-year increase in sellers achieving breakeven status, who are poised for more long-term success.”

Building community viewership through more creative campaigns is being touted as a new sales model for businesses, especially those engaged in shoppertainment. The segment is projected to be worth over $1 trillion globally by 2025, according to the Boston Consulting Group.

Social media algorithms and more democratized data analytics have also paved the way for making it easier to operate a small-scale businesses, which can move faster than larger competitors. “Data analytics empowers MSMEs to make well-informed decisions due to real-time insights and fast reactions,” Ms. Ong said.

“The difference between a big company and a startup lies in execution. Even though they have the budget, big companies move a little slower,” Mr. Gaguan said. “As a small team, we can immediately listen to our customers and change.”

While e-commerce is all the rage, technology is often taken for granted or overestimated, according to SariSuki. “A lot of the communities that we work with — simply pinning their address on a map, they don’t know how,” Mr. Cu said. “So we had to make it as simple as possible.”

Understanding the user demographic and having a good product manager become key to leveraging technology while also making it easy to adopt by stakeholders. Digital literacy initiatives must be pursued to grow the channel.

“It’s a hard thing to do — to have tech adoption be done by a startup,” according to Manuel Florencio A. Mejia IV, chief commercial officer and co-founder of SariSuki. “There’s desire. You just need to tap that desire.”

The ultimate technological hurdle might be artificial intelligence (AI), which presents both a threat and an opportunity.

The global AI market is expected to top $407.0 billion by 2027, with a compound annual growth rate of 36.2% during the forecast period of 2022-2027, according to analytics firm MarketsandMarkets. “This large TAM (total addressable market) leads us to believe that there is significant opportunity for growth and profitability in AI technology,” Brian Dy, head of research at Kickstart, said.

Anna Irmina B. Navarrete, co-founder and president of Kickstart, noted the importance of skepticism when assessing TAM, as there are many data providers available online for such information. “It is very easy to look and be impressed,” she said.

“We must also look at the direction of growth and the trends surrounding the market,” she added, noting that the technology tends to go through a “hype cycle” during which the belief spreads in its potential to revolutionize the world.

Mr. Siazon noted that AI should encourage more efficient business workflow and further exploration of its applicability beyond the initial “hyped” fields to arrive at a more sustainable level of doing business.

“Over the long run, there’s also an opportunity to liberate people who may otherwise be stuck in that kind of role to explore other potential areas where human creativity cannot be matched by AI,” he said.

“We hope that in a country full of creative talent like the Philippines, they can employ that to expanding their creative abilities. Maybe introduce new areas for people like us to invest in, as well as new industries where the country can excel.”

Jack be nimble: Hoteliers keep best practices as COVID wanes

PROXYCLICK VISITOR MANAGEMENT SYSTEM-UNSPLASH

By Joseph Emmanuel L. Garcia, Senior Reporter

AFTER stagnation throughout the years of the coronavirus disease 2019 (COVID-19) pandemic, hotels around the country are showing optimism for the hospitality industry, with some developers about to open, or have just opened, new properties. Meanwhile, established hotels are retaining pandemic-borne safety practices, as well as utilizing online and remote capabilities that became a necessity during the worst days of the pandemic.

When the first lockdowns were announced in March 2020, several hotels evacuated guests to conform to government lockdown policies. After the initial evacuation, some hotels were used as quarantine facilities for health workers and repatriated overseas Filipino workers (OFWs). The Chroma Hospitality group, under the Filinvest Hospitality Corp., offered its facilities for this purpose. The Chroma Hospitality group includes the Crimson Hotels in Mactan, Boracay, and Alabang, as well as the Quest Hotels in Clark, Tagaytay, and Cebu. They are slated to open a new property in Baguio either late in 2024 or early in 2025.

“The pandemic has taught us to be resilient,” said Carmela Bocanegra, vice-president for Sales and Marketing for Chroma Hospitality in an interview with BusinessWorld. “Even during the pandemic, all our hotels were open, actually, because we were serving the OWWA (Overseas Workers Welfare Administration),” she said. “We had to be flexible with our rates, help each other, help the government. Iyon ang bumuhay sa amin eh (that’s what enabled us to live).”

To this day, they still apply the sanitation practices made a necessity by the pandemic, such as the frequent handwashing (they have dispensed with masks). She said that they had internally published a cleaning manual that was different from their normal cleaning operations from before the pandemic. New rules include holding rooms for a few hours after their cleaning before handing the keys to the next guest, as a health and safety precaution.

George Reynoso, director of Rooms for Diamond Hotel Philippines (a hotel which was also used as a quarantine facility, according to the website of the Bureau of Quarantine) sees a vestige of the pandemic in the continued requests for quarantine accommodations. “At the start of this year, we no longer accommodated quarantine guests even if we still had a number of requests,” he said in an e-mail to BusinessWorld.

THINGS ARE LOOKING UP
Both the Diamond Hotel and Chroma Hospitality use 2019, the last year before the lockdowns, to gauge their performance. Mr. Reynoso said, “Occupancy, rates, and profits have not reached what we achieved in 2019 because international tourism is not the same as pre-pandemic times, but the hotel’s performance is still better than what we expected.” Ms. Bocanegra gave a similar answer, saying, “The international market is not yet 100% there, but slowly, it’s coming in… We compare it to the last normal year before the pandemic, 2019. We’re almost there. That’s our gauge… of course, we’re targeting bigger than that.”

She added that the properties in resort locations (as opposed to the city-based hotels) are doing better at reaching their 2019 targets. “The domestic market is really full throttle. It’s there; they’re traveling, and they’re going places.”

This can be seen in the Discovery Hospitality group’s newly opened property in Samal Island in Mindanao, Discovery Samal. Situated on six hectares of land, the resort offers luxury accommodation as well as a convention center that can seat 1,200 people. “From the point of view of sales, foreign travelers are now coming back, and also the revenge of the domestic travelers,” said Dianne Santos, director of Sales for Discovery Samal.

Ms. Santos noted that since the pandemic, they have used more video conferencing tools for practical reasons, such as touring the property virtually. “Not a lot of people can go to Samal and the property… now we can do virtual tours,” she said. “Before, it wasn’t a thing.”

Melco Resorts and Entertainment’s property in Manila, City of Dreams, consists of three hotels: the Hyatt Regency Manila, Nobu Hotel, and Nüwa Manila. Of these, Nüwa is also on the Bureau of Quarantine’s list of accredited quarantine facilities. Geoff Andres, property president of City of Dreams Manila told BusinessWorld in an e-mail, “With our operations in full swing, the occupancy of all City of Dreams Manila’s three hotels are in the high 90s, back to pre-pandemic levels. Our F&B outlets, ballroom, and entertainment venues such as DreamPlay are also performing remarkably.”

GOING ONLINE, UPGRADING
Mr. Andres detailed the recognitions they received for the safety and health measures they had undertaken during the pandemic: “We instituted stringent sanitary measures during the pandemic. These efforts enabled us to be Safety Seal-certified by the Department of Tourism, which also presented us with the Safe Travels stamp of the World Travel and Tourism Council. Our three hotels were also recognized by international hygiene experts for the initiatives we undertook.”

City of Dreams Manila also concentrated on placing many of their services and operations online. “We also focused on digitizing and streamlining processes in operations, harnessing technology in our supply chain procurement systems, and using technology to make our products, services, and reservations more accessible to our guests, such as the use of the dynamic Melco app,” said Mr. Andres.

Other improvements to their operations include sourcing sustainable ingredients for their restaurants, a reduction in the use of single-use plastics (through the installation of a glass bottling and water filtration system and replacing food and beverage containers and utensils with sustainable alternatives). “As we sustain the initiative, we are currently reaching about 30-40% waste reduction and waste diversion,” he said.

Meanwhile, The Diamond Hotel has implemented some structural changes: they have improved their heating, ventilation, and air-conditioning (HVAC) system (“already installed so we have better ventilation and air exchange rates,” said Mr. Reynoso). He added, “We installed vents in all bathroom doors so that the increased ventilation will cover the entire room.”

The Diamond Hotel has also retained the use of online facilities, which became necessities during the pandemic when person-to-person contact had to be reduced. These include contactless web check-in and check-out, and more options for online payments. “The hotel also continues to capitalize on its existing e-commerce website — Diamond Online Shopping Site, with offers to further expand the food take-out operations and by developing creative online marketing strategies to engage existing and potential customers,” said Mr. Reynoso. He also pointed out that the website has been operating since 2015, “which made it easier to transition to online selling of Diamond Hotel’s culinary specialties since the restaurants (were) not allowed to operate on full capacity (during the lockdowns).”

These same practices extend internally, with Mr. Reynoso saying, “Options for meeting on-line/off-site instead of face to face are still valuable even if there is renewed interest in holding meetings face-to-face.”

KEEPING EMPLOYEES
On the subject of workers, Ms. Santos said that in her previous job (prior to joining the Discovery group), she performed the task of three people due to layoffs, resignations, and the like. “Now, what I see, it’s really hard to look for people now, because they have the option to work from home. People now are looking for that kind of arrangement. People are moving to a hybrid work arrangement, which is hard for hoteliers like us (who cannot) work from home. We really have to be onsite to be with our clients and guests.”

As for City of Dreams Manila, the property won the Work Here, Work Happy award from the Forbes Travel Guide in 2022.  Initiatives to help workers during the pandemic included giving financial assistance through paid leaves from April 2020 to December 2021 to those unable to work; giving bonuses and providing in-house accommodations, full meals, and vitamins to workers who were required to work during community quarantines; and providing assistance for colleagues’ vaccination needs, including offering two-way limo services for pregnant employees.

Mr. Andres added, “We took the pandemic as an opportunity to further train colleagues through our own learning academy called Melco Absorb, where various courses and programs are continuing and available non-stop. Qualified managers were also enrolled in ECornell courses for free. We promoted colleagues and prioritized internal over external hiring.”

“I think it’s an industry problem, until now,” said Chroma Hospitality’s Ms. Bocanegra, reporting resignations and reshuffling at work. “We’ve had some problems there, but I wouldn’t say it’s really that much.

“The way to do it is just really be more competitive. Instead of thinking of the negativities, we just have to move forward and look for more people. Encourage more fresh graduates, and training — in our properties, training and mentoring are very important. I think that’s where we should move forward.”

How technology helped retailers beyond the pandemic

MELANIE LIM-UNSPLASH

By Revin Mikhael D. Ochave, Reporter

TECHNOLOGY has allowed retailers to survive the pandemic while boosting their operations to meet changing consumer behavior. From supermarkets to restaurants, the retail industry has embraced advances in e-commerce, positioning businesses for further growth.

“The sector heavily leveraged various technologies. Retailers integrated user-friendly websites, mobile applications, and secure payment gateways to enhance the customer experience and facilitate seamless transactions,” Rosemarie B. Ong, Philippine Retailers Association (PRA) chairperson, said.

“These adaptations have not only helped retailers survive during the pandemic but have also positioned them for long-term growth and success in the post-pandemic era,” she added.

The shift to e-commerce channels ensured faster transactions and better customer experience.    

“Retailers recognized the importance of reaching customers virtually and established robust online platforms to cater to the growing demand for digital shopping experiences,” Ms. Ong said.   

Beyond the pandemic, retailers have moved forward by using technologies such as artificial intelligence (AI), virtual reality (VR), and the Internet of Things (IoT) to ensure profitability in the coming years.

“Local retailers are actively embracing cutting-edge technologies to enhance their business operations and improve efficiency. AI is used to analyze customer data and behavior, enabling personalized offerings and targeted marketing. VR, like virtual dressing rooms, is transforming the retail experience,” Ms. Ong said.

“Additionally, IoT devices are modernizing supply chains and logistics, ensuring efficient product delivery. By staying at the forefront of technological advancements, retailers aim to remain competitive and drive innovation in the industry,” she added.    

Eric Teng, president of the Restaurant Owners of the Philippines or RestoPH, said the local restaurant industry turned to technology as a result of the pandemic.   

“We have new applications that restaurants use all the time like customer service apps and menu apps. There is also AI,” he said. “It is a new way of doing business, a new way of getting information.”

“Technology will affect many of the reasons why we travel since travel is one of the things that tell us where we eat because when you’re out of [your] home, you eat in the restaurant. That is travel mobility. That is very important with regard to the food industry,” he added.   

Data from the Philippine Statistics Authority (PSA) showed that the gross value added in retail trade reached P713.40 billion in the first quarter, up 16% from P615.66 billion a year ago.   

CHANGING CONSUMER BEHAVIOR
Dennis G. De Jesus, country head for the Philippines of global e-commerce solutions provider Anchanto, said the e-commerce sector has the potential to grow even after the pandemic following the change in consumer behavior.

“The potential for e-commerce growth is still there because in terms of our experience and consultation with the retail players, what they are saying is that there has been a change in the behavior for a lot of the consumers because they were exposed to the convenience of online shopping during the pandemic,” Mr. De Jesus said.   

“That particular experience stuck with them and the behavior has suddenly shifted into an omnichannel type of buying behavior wherein they now have the decision and access to buy the things that they need at an online or a physical store. Customers have redefined their buying behavior and pattern before making a purchase decision,” he added.   

Mr. De Jesus added that the easiest entry for small businesses to e-commerce is via the leading online marketplaces.   

“Anyone can sell in Lazada, Shopee, and Zalora. There is no hurdle at this point in time. Right now, there is no barrier to entry. I don’t think it is a challenge for small businesses to embark on e-commerce initiatives,” Mr. De Jesus said.   

The Department of Trade and Industry, citing data from British consulting firm GlobalData, is expecting the e-commerce sector to sustain its growth with a projected annual increase of 15.8% in transaction value from 2022 to 2025.   

It estimated e-commerce transactions to reach P495.2 billion or $9.7 billion by 2025, higher than nearly P270 billion recorded in 2021.   

Laurice Padlan-Obana, Kantar Philippines Worldpanel Division Consumer and Shopper Insight director, said in a media briefing that Filipinos still prioritize value and convenience when it comes to shopping, as shown in the company’s Shopperscope 2023 report.

She said it is important for shops to make their customers feel that they are spending their money wisely.

“Promotions should be offered. The specific kind of promotion that tops their preference would be the price off/discounts,” Ms. Padlan-Obana said.

“Now that people are out and about, when they speak about convenience, they also talk about access,” she said.

She said people also talk about longer store hours and nearness to other facilities, which are not necessarily their home. The location should be accessible to public transport and near other stores they visit, she added.   

Filipino consumers are now prioritizing ease of shopping when buying in local shops, Ms. Padlan-Obana said, citing organized shelves and visible promotions.

“Shopping is already more purposive and [customers] don’t want to waste a lot of time going around the store, at least for a majority of the Filipinos,” she added.   

RECOVERY PROSPECTS
Meanwhile, PRA’s Ms. Ong said local retailers are cautiously optimistic about the future of the retail sector.   

“Despite facing challenges such as rising inflation and shifts in consumer spending patterns, the local retail industry remains focused on growth and aims to regain the momentum seen before the pandemic,” Ms. Ong said.   

“Retailers are open to adopting multiple strategies and leveraging different channels to navigate potential headwinds and seize emerging opportunities,” she added.    

RestoPH’s Mr. Teng added that the local restaurant industry is already back to normal following the effects of the pandemic.   

“For the restaurant [industry], it’s actually back to normal. There is not much memory of the pandemic, although all the protocols became habits. People sanitize and wash their hands. As far as the comfort of people to go out, they are already back. We want normalcy back and we got normal back,” Mr. Teng said.    

He added that the government should push for stability in the food supply to avoid disruptions.   

“Generally, we need more stability in everything. If things keep changing left and right, that’s very hard for businesses to grow. We hope that there is more stability with regard to the food supply,” Mr. Teng said.   

This year, there have been shortages of either vegetables or major commodities, which have caused disruption, but restaurants have remained focused on recovery, he said.    

“We just have to deal with it. The only important thing that we learned was that even through the worst crisis, the world survived, the food industry survived,” Mr. Teng said.   

“We went through it and right now, just like any other crisis, after that, it is recovery,” he said. “When it happens, we hope we’re prepared for it but we will focus on the normal.”

Steven T. Cua, Philippine Amalgamated Supermarkets Association president, said supermarkets made adjustments after the effects of the pandemic.   

“As the pandemic slowly released its hold on the economy, supermarkets began sprucing up their merchandise, rationalized merchandise selection, worked on offline sales as online sales receded, and relied on innovative marketing to take the lead in enticing the market back into its doors,” Mr. Cua said.   

However, supermarkets have been slow in employing the number of personnel they used to have before the pandemic.

“Just visit your favorite supermarket and count the percentage of checkout counters existing compared to pre-COVID days, as well as the percentage of those retained open to service customers. To this day, I see retailers opening only 25% to 66% of retained counters even during rush hour,” Mr. Cua said.   

Mr. Cua urged the government to address the rising inflation as prices of grocery items have surged.   

“Inflation is one issue the government has to address before it leads to a state of stagflation, which is a deeper hole to get out of. Retail should find relief if prices become more stable and people have jobs and salaries to avail of commodities,” Mr. Cua said.   

“Additional taxes, increase in salaries, higher power costs, low demand all add up to inflation. Opportunities will be plentiful once the economy relatively stabilizes,” he added.   

Beyond the pandemic, local supermarkets should prepare for the “The Big One” or a magnitude 7.2 earthquake on the West Valley Fault, he said.   

“What we have to prepare for is ‘The Big One’ just in case it arrives even if it doesn’t during our lifetime. Retain the lessons learned from COVID-19 and always be vigilant of future shocks like this tsunami of a pandemic,” Mr. Cua said.   

Mr. Cua added that the government should focus on assisting various industries to support the growth of the retail sector.    

“The government should provide incentives for the manufacturing industries to invest, reinvest, expand and flourish. This provides employment and fuels a consumer-driven economy. Look after the needs of industry for power and water, physical infrastructure. Get the farmers who supply fresh produce more informed, inclusive and empowered to enjoy the fruits of a growing economy,” he added.

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