Karel Holub – Growth of E-commerce in the Philippines

Hi and welcome to another episode of the Outsource Accelerator podcast. My name is Derek Gallimore. And this is episode number 39. Today I’m joined by Karel Holub of Argomall which is an online electronics retailer here in the Philippines. He comes from the Czech Republic and has really good insights into the both corporate and e-commerce worlds of the Philippines so there’s a lot to learn here. I hope you enjoy, if you want any show notes, please go to our website and that is at outsourceaccelerator.com/podcast/episode39. Enjoy.

Derek: Welcome back everyone. Today I’m with Karel Holub and he is in Manila Philippines and he originated from the Czech Republic.

He originally came over to the Philippines with Nokia and is now with Argomall which is an online foreign electronics retail concept which is really looking to explore the online retail market. So quite an interesting guy and knows a lot about the both corporate and tech world within the Philippines. So, hi Karel. How are you?

Karel: Hello. Thank you for having me Derek.

Derek: No, pleasure, pleasure. And Karel I suppose initially then are you able just to introduce yourself and your perspective of the Philippines from your corporate involvement and then also maybe why you decided to stay.

Karel: Sure. Sure. So basically, I spent 20 years in around mobile phones, in smartphones in various roles working grids, startups like the Nokia, Vodafone and back to Nokia having on startup for mobile content. And prior to Philippines, I was based in central Asia in Mongolia Central Asia and in association for Nokia.

Back in 2013 I came to the Philippines as GM of Nokia to help basically right size the company here in the Philippines during the time when Nokia was struggling to keep the position in the smartphones.

Derek: Interesting. So, you came into the Philippines at a very difficult time for Nokia which is a very different process to manage anyway. And then you are also coupling that with a new culture and new work environment.

Karel: Correct. What I when I arrived here basically the, I was amazed by the attitude of the people and the team and we went through a tough time. A lot of pressure business wise at the same time basically right sizing the team and the business that has been number one in the Philippines. Nokia has been having a great position in the Philippines in 2010 Philippines were called Nokia nation because pretty much everybody had only Nokia and we had to go basically through, through that nine months down the road, Microsoft bought our divisions. So, we went also sort of the integration process of being acquired by Microsoft.

Derek: Right. So, in terms of I mean my experience and also what I hear the Filipinos have very strong community in their work place which is a double-edged sword in that if, if they get spooked then it can very quickly turn into quite a negative environment where people are worried for their jobs and their security. And did you experience that? And if you how did you manage that aspect?

Karel: So, I would say basically that like in any company the company culture is critical to the success of the business. Here in the Philippines yes, the environment basically, the fact that the families here are quite big. Philippines are a Christian country. English speaking country here in Asia. So, from that perspective. I would say that the people here are sensitive to the changes yet making sure they are able to embrace them and what works for them. But you are absolutely right. It’s basically the managing through these changes and making sure that people know what is happening and are informed. It is critical basically to the success.

Derek: Sorry about that guys we got cut off. And that is something that maybe we would just have a quick chat about the Internet in the Philippines is a little bit patchy and is probably one of the biggest infrastructure issues that is facing the booming technology sector. What is your experience in terms of having worked in telecom. What does your experience with the general online thing.

Karel: If I’m not mistaken seven internet providers for the fixed line fixed line internet connection then the quality also varies. It’s hard to basically generalize and say this one is better over the other because it really depends on the location and in some location, you will hear that people will say this. This is the best connection or that is the best but it really varies through the city and in many ways, you know comprising of several cities actually. So, its 20 million people and that’s the challenge the density of the population.

Whereas electrical meter plus the fact that the main cities, the customers have a smartphone in their pocket it’s usually connected to data. Perhaps coupled with the free offering of Facebook which is available by both operators. That then basically causes the internet to somewhat be slow

Derek: Where you notice it seep into the business equation is that it is very expensive isn’t it. And this is often the hidden costs of BPOs that they have to foot because you know they need to provide good internet. Significantly if you are looking at outsourcing service providers in the provinces, you’ve got to ensure that they have good internet supply. And also, redundancies are very important in the Philippines because things go down quite frequently and again for other business people considering outsourcing also assess what the needs are in terms of bandwidth. If you’re just doing a bit of virtual assistant and spreadsheets then you don’t need a lot of bandwidth. But if you’re doing video processing then you’re going to need a supplier or you know a cable connection that will be able to support that. Yeah. So, you did herculean task with Nokia and you managed the staffing and then you switch from Nokia over to Argomall. Now, do you want to tell us a little bit about Argomall and your decision of heading over to that and also your decision of why you stayed in the Philippines.

Karel: So basically when Microsoft acquired our division I had basically about one year with the team in Microsoft and then I was looking basically what to do next. My passion basically was still in the sphere of smartphones. So, I was looking on various other options and one of them basically stopped me was the huge opportunity in the Philippines from the perspective of lowest smartphone penetration in whole Asia. And also, booming e-commerce.

Well, booming would not be the right word. At that time, basically the Internet e-commerce was really starting. There was one. One big player and the smaller ones.

Derek: There’s no Amazon here is there and there’s none of the big market places here. Does eBay function here?

Karel: Correct. There is. There’s basically Lazada which is basically taking on role of local kind of Amazon. It’s a German based company that is last chairman more Chinese. And basically, I saw basically being near to the internet in my career. Back in 1997 when I was selling advertising in the Czech Republic and seeing basically internet here it seemed pretty similar and a huge opportunity. So, I decided basically that it would be great to combine those two passions and look at starting something on the internet. Especially combined with the smartphone so that basically the idea was born then I was fortunate to find a local company transaction diversified group that basically took the project. And basically allow me to work on my passion.

Derek: And why the Philippines?

Karel: So, that’s basically how we started.

Derek: Did you see it as a good economic opportunity. What is your opinion on the direction of the Philippines both economically and in terms of their engagement with technology?

Karel: You know there’s a lot of bad press in the media like in the media you see basically exaggerated things about well. So, when somebody looks in the Philippines like a foreign company or a foreign investor what he sees basically is pictures of CNN of extrajudicial killings and the martial law in the Mindanao. A lot of mixed things but effectively the Philippines’ economy is booming and growing. And there is a lot of potential as basically the country is growing in terms of average labor costs as well as other parameters. The people that are looking at buying, buying the stuff but the money is going.

Karel: Yes. Correct, correct. So, if you take that basically I would say rather than basically basing something on the media it’s better to buy a plane ticket fly to the Manila spend here and maybe week meeting with the businesses and talking to the people and make your own assessment of what is happening compared to watching the CNN. That is just my personal…

Derek: Yeah absolutely. And we spoke to Paul Paco of the hackathon scene in Manila in an earlier episode and he provided a great insight into the high growth and exciting community of all the tech startups and the young kids that are you know hacking and coding. And there’s really one of the top environment and quite a big opportunity for people that want to invest in this burgeoning economy really you know.

Karel: Correct. Correct.

Derek: And how do you see the penetration of online retail. This may be quite a lot of infrastructure holding it back at the moment is that right. Like there’s not a lot of online payments there’s not that many people still functionally on.

Karel: There’s still a lot of moving parts for the online commerce and at the same time I would say Philippine, Philippines are basically the it’s built here around the malls and the malls basically you have to understand that if you have 30 degrees outside and the malls provide air-conditioning. It’s like a natural place for people to go and especially in the cities it’s kind of substituting the parks by the convenience. So, from that perspective the e-commerce is basically battling two battles. One is to win over the customers to make it more convenient for them than to buy the item in the mall to buy it online. And at the same time basically fixing a lot of moving parts which are huge traffic basically causing the logistic hurdles and issues and overcome basically all these payments that you mentioned. So, for example the huge opportunity is there’s only about 10 percent of population having a credit card at the moment. So that basically poses challenge the same time opportunity how to make sure that these potential customers can use the e-commerce in the right way. And that’s also why there’s a lot of credit companies these days trying to basically figure this out. Offer affordable installment loans and help consumers basically to overcome these, these barriers.

Derek: It’s an exciting market in that regard isn’t it because it is likely that it could hit a tipping point soon where you know currently there’s only 10-20 percent with banking. There’s only 10-20 percent with great internet and mobile penetration. And once the newer technologies more easily enable penetration of payments and internet access then it could very quickly get another 100 million people online and in the economy.

Karel: Sure. One insight for example the Philippines, the penetration of the mobile phones and let’s say the mobile device is connected to the internet is relatively high. So pretty much everybody has mobile phone or smartphone in their pocket. The connectivity to the internet that’s kind of like a hundred percent of the population that’s on the internet. If I’m not mistaken now they are close to 60 percent of the Philippines is divided basically into two groups. There are people who are on the Internet. They can access Google for example and access Yahoo sorry or YouTube.

Derek: Just basic services.

Karel: Other services. Like normally basic services on the Internet. And then more or less that correlates with the amount of Internet connected people that are on the Facebook. And the Facebook because it’s offered free from the mobile operators. It’s basically internet on its own. So, the people who do not have access or resources to be on the Internet they are basically outside of the reach of the local WIFI. Then they are busy going to the Facebook and the Facebook is taking a role of its own here. More or less to be like the second internet or parallel internet.

Derek: Absolutely.

Karel: So that’s basically how it works here.

Derek: Good. Yeah. Now there’s a long way to go and it is an exciting fertile economies and suddenly huge amount of growth which supports a huge amount of opportunity.

Karel: I would say that.  Yeah. A lot of opportunities a lot of possibilities as well and the ability and the willingness of the local workforce to learn new things and to educate them so that new ideas and working on the new things is pretty exciting. As well as you mentioned discussion in your last podcast, there’s a lot of developers a lot of geeks who are basically trying out different things and using the opportunity of the big multinational companies which is Google and Amazon to learn about new programming languages and new concepts.

Derek: Yeah. It’s a really exciting time, isn’t it? Thank you, Karel. And if people want to get in touch with the house how can I reach out to you.

Karel: So, if people want to get in touch with me they can visit our website argomall.com and see what we do there. It’s pretty easy to get in touch with us through the website.

Okay, I apologize about the technical issues we had halfway through there but it actually provided a good segway to talk a little bit about the Internet. So, I hope you enjoyed that and if you do want to get in touch with Karel then please go to our show notes which is outsourceaccelerator.com/podcast/episode39. And if you want to ask us any questions about outsourcing please do please drop us an email to [email protected] and we will get back to you.