Karel Holub – Logistics of Doing Business in the Philippines

Hi and welcome to another episode of the Outsource Accelerator podcast. My name is Derek Gallimore. And today I’m joined by Karel Holub of Argomall. So, if you haven’t heard episode 39. I spoke to Karel about his journey from being the Nokia general manager of the Philippines to building his Argomall e-commerce platform. So, if you haven’t listened to that it’s a great episode. Today, I discuss more of the build out of the Argomall platform. Karel is building an electronics e-commerce platform in the Philippines and so it’s a really interesting perspective getting something into what is a burgeoning market but it’s still quite logistically difficult and is still a relatively immature market. So that’s really interesting. Towards the end we pivot and we talk about how business people across the world can take advantage of the boom that’s happening in the Philippines. Not only if you wanna start things in the Philippines but if you want to try and harness some of the burgeoning skill and labor pool here to go and dominate your own markets. So, a good episode and I hope you enjoy it if you want any of the show notes. Go to our website on outsourceaccelerator.com/podcast/episode48.

Derek: Right. So welcome back, I’m here again with Karel Holub who came to the Philippines with Nokia and has now moved to Argomall which is an online electronics retailer. So, super connected into the kind of e-commerce now of the Philippines. Hi Karel. How are you?

Karel: I’m good Derek, thank you for having me.

Derek: It’s a pleasure. Yeah, do you wanna maybe explain a little bit about Argomall and your take on the e-commerce in a maturing market. And what are some of the biggest lessons you’ve learned from that?

Karel: So, basically what Argomall is you can basically see for yourself at argomall.com. But what we want to do is basically is we want to be like Zappos in the Philippines. The internet is taken here as discounting place so of course, the whole market is interesting deals, discounts and ways to find the stuff cheaper. But at certain point of time, like, especially the electronics it’s very difficult to get basically electronics that aim for the Philippine market with the official warranty for the discounts. I would dare to say it’s nearly impossible. Unless basically someone is willing to cut the cost and lose the money.

Derek: Right.

Karel: So, what we are doing is we are basically focusing on everything else. So, if the price is given because there will always be somebody who has a lower price. We are focusing basically on the convenience and customer service and that’s basically something different than anybody else does. We are literally outlier on the market. Everybody else is basically going after the discount deals.

Derek: How has the experience been different doing that in the Philippines versus if you’re sitting in Silicon Valley somewhere? Potentially, if you win in the Silicon Valley one would assume the gains is so much greater. So how do you compare the sort of costs and benefits of building out a big commerce platform in the Philippines?

Karel: So personally, I don’t have experience with building commerce by commerce. So why did it start here in the Philippines. I would I would ask you like just basically give my point of view. I would assume that yes you are right that could access to venture capital and to financing probably seems like we do see in Silicon Valley or elsewhere it will be much, much greater than here. We had basically the opportunity why I would dare to say that this market has far more opportunities business-wise than the Silicon Valley. A lot of people with the same place doing innovating.

Derek: Quite a saturated market at Silicon Valley now, the entire ecosystem is concentrated. Whereas here, it’s very I was.

Karel: I would dare to say that probably for the e-commerce these days it’s literally basically Amazon and Alibaba who dictate trends in the e-commerce more than anywhere else. So, yeah, so this is basically what Argomall does, we’ve been doing that for about two years. And of course, we are learning a lot and we are yet to overcome all those hurdles at the registration before. Such as how to delegate the items fast to the people from the Czech Republic. In the Czech Republic we have e-commerce websites like electronics that can deliver electronics in 20 minutes to get publicity. Here if I want to deliver it in 20 minutes I might deliver myself in 20 minutes in BGC. But how do I get over from let’s say that I am right now to Quezon City etc. That’s the challenge so, these are the things.

Derek: So yeah that’s an interesting concept, isn’t it? Because in the West in Silicon Valley you are standing on the shoulders of giants because there’s already a huge amount of infrastructure in place that you can get logistics managed. And for you to promise good customer service, good delivery and hassle-free experience within an environment that you have to build all of that yourself. That’s quite a task.

Karel: Correct. So, we basically are right now behaving kind of like Apple. If you take the largest display on the market kind of like an android or Google having working with all the merchants because it’s a market place. We want more like end to end retail. So, we do not work as a marketplace. We do everything ourselves from the platform all the way down to the customer and taking care of the customer in the best possible way. If we are allowed. Given the conditions on the market. So yeah so that’s a giant mountain to climb. Yet basically I believe in the coming years in different pieces of infrastructure will come here together and will allow us to basically focus on relationship with the customer more than on logistics services etc. It is basically more or less standard.

Derek: And in terms of your national distribution. Do you distribute nationally do you or is it just Manila or range?

Karel: Correct, correct. We distribute nationally across the Philippines. We had basically taken delivery as a main payment method available in the Philippines so customers literally pay once they receive the item and our deliveries are free nationwide.

Derek: Yeah. That is the payment structure. And how does it work then Karel because there’s seven thousand islands in the Philippines which makes logistics just awfully difficult. But then I have heard as well for a company to be considered a nationwide company. They only really need to cover the primary 12 to 14 islands within the Philippines which is still no mean feat when you’ve got to figure out the logistics of that. What, how do you see the distribution if you are nationwide? Is 90 percent of your customer base in Manila or how does it distribute throughout the country?

Karel: Yeah so, we have customers literally everywhere in the Philippines. We have not counted all the islands but I needed a map of all the places where the customers are from and look at it in the Google. We found out that pretty much basically we deliver everywhere in the Philippines. Logistics, logistics is challenging because quality and service level varies. There’s a lot of moving pieces so that basically is one of the challenges. But one thing that I didn’t mention before about the Argomall is besides taking care of trying to basically be the best convenience store and having the best service, we try also to make things as easy as possible. So, what we do is we have basically one price for the item and it includes free delivery. So, we are basically delivering everywhere nationwide all the while basically keeping the standard price of the item. And that’s a very unique proposition because it’s very simple and understandable compared to other offers where the price may vary by the region. So, we took this approach and that’s basically where we also differentiate as Argomall.

Derek:  Can I ask, cash on delivery in the Philippines is a very common model because again people don’t have access to other more advanced payment systems but what is the proportion of deliveries that don’t get paid for where you arrive at the door and they don’t have the money? Does that occur a lot?

Karel:  Yeah, so from what we hear basically, it does. We use basically our own internal systems to work on eliminating that. And I won’t go into too much into the specifics but yes from the merchants that work on the marketplaces we hear a lot of complaints about this, that they ship and the items come back. We do see also some small portion of the items coming back but proportionate to what we hear from others, it’s smaller. But of course, we are still in the growth rate, so eventually basically a CEO for that will become one of the pain points that he will have to deal with.

Derek: Yeah it is then just you have to factor that in as a cost of your trade don’t you, the return rate.

Karel: Yep

Derek: Okay, and so a lot of our customers then, sorry, a lot of our audience are not necessarily thinking of coming to the Philippines to start up here but using the Philippines to help them conquer in their sand pit in the west wherever they are sitting in the U.S. and the U.K. Do you see equal opportunity? And I actually see this as a hidden gem. A lot of people come and outsource their back office here. But the real gem is if you get the concept of actually running your entire company from the Philippines in a much cheaper cost center and accessing the world’s first world clientele from sitting in the Philippines is a huge advantage there and yet people aren’t really clicking onto. How do you see the opportunities and the services here that can support them?

Karel: So, there’s a concept in the Philippines called PEZA where basically if you are a company that has more than 70 percent business outside of the Philippines you can incorporate here. There are special license buildings and places across the Philippines where you can do the business, focus towards outside of the Philippines

Derek: Yeah, it’s a tax incentive.

Karel: And that’s a great opportunity. And what you mentioned as a concept, yes, I can imagine that. Of course, like nowadays, the new and basically concept is very small teams and basically people working from home. So, I can imagine that you can basically work, let’s say UK or US and rely on the back office that’s basically based in the Philippines. Of course, it depends on the types of the industry and the cost structure that you have. But yeah, it’s a viable way of looking at it and you are absolutely right that it makes sense.

Derek: And just finally what is your economic outlook for the Philippines? Are you fairly, fairly confident that the growth is going to keep on going and its happy days?

Karel: Well, you know, you see what’s happening with the world, but I would say basically that yes, I’m definitely optimistic in the growth. And I see every day, basically, here where I sit, the new building popping up. So definitely the development is here. And of course with what’s happening around the world it’s hard to basically say something that would basically be tangible. But I believe that the growth has been here for a couple of years and that’s redirected to you given what I see and that there are opportunities here.

Derek: Thank you so much Karel. And if people want to get in touch with you how can they find you?

Karel: They can find me at Argomall.com, we have live support for our customers, so if they are looking a contact, they can use the contact form in our site.

Derek: Fantastic. Thank you Karel.

Karel: Thank you.

Okay. Hope you enjoyed that episode with Karel. If you want to have any of the show notes then go to our Web site that is at outsourceaccelerator.com/podcast/episode48. And if you want to ask us anything, anything at all, please drop us an email and you can do that at [email protected].