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Employment Impact of Business-to-Consumer E-commerce on Philippine Workers Roberto E. de Vera PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas RESEARCH PAPER SERIES No. 2004-02 PHILIPPINE APEC STUDY CENTER NETWORK PASCN

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Employment Impact of Business-to-ConsumerE-commerce on Philippine Workers

Roberto E. de Vera

PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIES Surian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

RESEARCH PAPER

SERIES No. 2004-02

PHILIPPINE APEC STUDY CENTER NETWORKPASCN

The author, Roberto E. de Vera, is a Professor at the School ofEconomics, University of Asia and the Pacific.

Roberto E. de Vera

RESEARCH PAPER SERIES NO. 2004-02

PHILIPPINE INSTITUTE FOR DEVELOPMENT STUDIESSurian sa mga Pag-aaral Pangkaunlaran ng Pilipinas

Employment Impact of Business-to-ConsumerE-commerce on Philippine Workers

PHILIPPINE APEC STUDY CENTER NETWORKPASCN

Copyright 2006Philippine Institute for Development Studies

Printed in the Philippines. All rights reserved.

The views expressed in this paper are those of the author and do notnecessarily reflect the views of any other individual or organization. Pleasedo not quote without permission from the author or PIDS.

Please address all inquiries to:

Philippine Institute for Development StudiesNEDA sa Makati Building, 106 Amorsolo StreetLegaspi Village, 1229 Makati City, PhilippinesTel: (63-2) 893-5705 / 894-2584Fax: (63-2) 893-9589 / 816-1091E-mail: [email protected]: http://www.pids.gov.ph

ISBN 971-564-080-XRP 07-06-500

Table of Contents

List of Tables, Figures, and Appendices ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ivI. Introduction ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 1II. Review of Related Literature ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 2III. Conceptual Framework ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 14IV. Methodology ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 28V. Results ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 37VI. Conclusions ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 53VII. Recommendations for Future Research ○ ○ ○ ○ ○ ○ ○ ○ ○ 57Appendices ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 59References ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 71

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List of Tables, Figures, and Appendices

Tables1 Description of industries ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 322 Share of major industry groups to total employment ○ ○ ○ 323 Share of selected industries to total employment ○ ○ ○ ○ ○ 334 Projected increase in revenues from 1995 to 2000 ○ ○ ○ ○ ○ ○ 375 Projected increase in average total employment

per sector (1995-2000) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 386 Employment generated for the whole economy

(1995-2000) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 397 Projected revenues from 2000 to 2005 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 408 Total projected revenues attributed to e-commerce ○ ○ ○ ○ 419 Comparison of projected e-commerce revenues

of the Philippines with e-commerce revenuesof Asia and the US ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 41

10 Ratio of e-commerce-related revenues to GDPand percentage contribution to GDP growth(under scenario 2) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 41

11 Ratio of e-commerce-related revenues to GDPand percentage contribution to GDP growth(under scenario 3) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 42

12 Percentage of e-commerce-related revenues as of 2005 ○ ○ ○ 4213 Projected increase in average total employment

(2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4314 Breakdown of increase in average total employment

under scenario 3 (2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4415 Percentage of increase in average total employment

(ATE) by period or year as against total increasein ATE from 2000-2005 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 45

16 Growth rate of increase in average total employment ○ ○ ○ ○ 4517 Percentage of e-commerce-related employment as of 2005 ○ ○ ○ 4618 Employment generated for the whole economy

under scenario 3 (2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 4719 Projected average total employment with partial

substitution (2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 48

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20 Differences in employment generated for the wholeeconomy with partial substitution (2000-2005) ○ ○ ○ ○ ○ ○ ○ 49

21 Projected average total employment with adjustedcoefficients (2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 50

22 Projected employment generated for the whole economywith adjusted coefficients (2000-2005) ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 50

23 Projected average total employment assuming partialsubstitution with adjusted coefficients (2000-2005) ○ ○ ○ ○ 51

24 Estimated number of jobs affected assuming partialsubstitution with adjusted coefficients (2000-2005) ○ ○ ○ ○ 52

Figures1 Rebuilding the value chain ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 152 Determinants of employment changes ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 173 Multiple channels in the purchase process ○ ○ ○ ○ ○ ○ ○ ○ ○ 184 Purchase process in the Philippines ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 235 Purchase process under scenario 1 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 246 Purchase process under scenario 2 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 257 Purchase process under scenario 3 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 26

AppendicesA Overview of e-commerce ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 59B Input-output methodology ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 61C Sampling procedures of 1995 ASE and definition

of variables ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ 64D Methodology for revenue and employment projections ○ ○ ○ 67

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Introduction

Why are Philippine firms still far from being truly competitiveplayers in domestic and global markets? One major reason: Theyhave yet to fully tap the vast business potential offered by electroniccommerce (or simply e-commerce).

That, of course, is easier said than done. Getting fully into e-commerce means changing the way Philippine firms do business.It will also have a significant impact on the welfare of Filipinoworkers.

To date, most efforts to measure the economic effects of e-commerce—including those on workers’ welfare—focused on theUS and Europe, the considered leaders in e-commerce. ThePhilippines’ public policy and private decisionmakers who promotee-commerce still need a study that measures the economic effectsof e-commerce in the country, particularly on employment growthand changes in the nature of jobs in the future.

This study thus seeks to: (1) formulate different scenariosdescribing how business-to-consumer (B-to-C) e-commerce willinfluence purchase processes; (2) estimate the effect of B-to-C e-commerce on employment levels for selected industries; and (3)assess the changes in the nature of future jobs with the coming ofe-commerce. Inherent with the advent of any new technology—aswas in the case of telephones, computers, and automated tellermachines—are the overly optimistic and pessimistic projectionsabout employment. This study, which is a preliminary attempt toquantify the impact of e-commerce on employment, could providethe needed benchmarks with which to evaluate these variousemployment projections. It also provides a framework—albeitrendered in broad strokes—that could aid policymakers toformulate programs that will prepare Philippine workers for thechanges brought by e-commerce.

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Review of Related Literature

This paper adopts the definition of e-commerce to consist of“transactions where the internet is used to gather information, toorder goods or services, and to make payments” (World Bank 2000).Here, transactions refer to “all activity that generates value bothwithin a firm (internally) and with suppliers and customers(externally)” (OECD 1998a). The latter transactions are calledbusiness-to-business (B-to-B) and business-to-consumer (B-to-C) e-commerce, respectively. The internet is a network supported bynonproprietary communication and information technologies withopen standards that support universal connectivity. Here, e-commerce is just one application of the internet, and that theinternet forms part of the broader information and communicationtechnology (ICT) sector.

This review of related literature will cover the issues andrelationships between e-commerce and (a) economic rules andtheory; (b) the way business is done; (c) its effect on industries andemployment; and (d) its trends and prospects in the Philippines.

Economic rules and the new economyVarian (1999) argues that the fundamental principles with regardto competition are very much relevant to the new economyconsidering the changes ushered in by e-commerce. These principlesinclude marketing, interconnection, and price matching. Accordingto him, marketing is very much present in e-commerce since e-tailers use versioning,1 loyalty programs, and promotions to increase

__________________1 Versioning, also called quality discrimination, consists of offering different versions/qualitiesof a good that sell at different prices with the view of sorting consumers according to theirwillingness to pay.

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their market shares. Interconnection is also of the utmostimportance as consumers want to be connected to as large anetwork as possible. Finally, intense price competition would alsoprompt merchants to look for ways to increase customer loyaltyand adopt pricing strategies that reduce the intensity of competition.

Changing the way business is doneWhether or not the economic rules are applicable to the neweconomy, e-commerce is definitely affecting the conduct of business.An evidence is the changing cost structure of firms as discussed bythe Organisation for Economic Co-operation and Development(OECD 1998a). This involves the following: the cost of executingthe sale; the procurement of production inputs; and themanufacture and delivery of the product.

Cost reduction via e-commerce, when compared with atraditional bricks-and-mortar store, covers first the physicalestablishment. It is true that starting a website can cost a lot.However, it is more expensive to maintain a physical storecompared with a virtual store that is open 24 hours a day, sevendays a week, and can be accessed by anybody, anywhere.Moreover, e-commerce also has few variable costs so that it canscale up to meet demand. By maintaining one virtual store, insteadof a number of physical stores, duplicate inventory costs and otherfixed costs are eliminated.

Second, order placement costs are also lessened whenoperating under a clicks-and-bricks model. E-commerce merchantscan transfer some of the transaction costs to the customer by placingthe necessary information about a product online. For example,after a prospective customer searches for the product (togetherwith its specifications) that he wants and compares prices withother brands, he is now more likely to buy when he comes to thephysical store. The efficiency of the sales process is thus increased.With the pure virtual store, costs are also minimized since advertisingcan be cheaper and more focused on a target market. Merchantscan also easily track orders, receipts, and delivery.

Third, apart from transaction costs, firms are also able totransfer customer support online so as to give customers access to

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databases or manuals directly, thereby significantly cutting after-sales service costs and improving the quality of service.

Finally, the need for employees may decline as firms turn toe-commerce, as evidenced by the experiences of US companies suchas Amazon.com, Federal Express, CISCO, and General Electric.Nevertheless, the skills required from employees may be higher.

The cost reduction in the procurement of production inputsmeans lesser need for high-volume inventory. The faster an inputcan be ordered and delivered, the less the need for a large inventory.For instance, through orders from its website, Amazon.com neednot stock up on books and videos. They merely order straight fromthe publishers and ship them to customers as soon as they receivethe orders. More importantly, e-commerce gives firms the abilityto forecast demand more accurately. Consumers who customizetheir orders or select from different choices give merchants valuableinformation about their preferences, thereby improving themerchants’ ability to forecast demand. Merchants can now attunetheir product lines with the preferences of their customers.

The costs of distributing a product are significantly reducedfor digital products such as e-books, software, and audio CDs.Since these products can be downloaded into the customer’scomputer without incurring shipping costs, these are the sectorsthat have migrated to e-commerce early on.

The US Department of Commerce (1998), in describing howfirms can benefit from e-commerce, also utilizes the concept behindthe changing cost structure of firms. Apart from having lowerpurchasing costs, reduced inventory, efficient customer service,lower sales and marketing costs, e-commerce was found to givenew sales opportunities. Today, businesses on the web can reachnew markets that they could not previously reach effectivelythrough its sales force or advertising campaigns. Since e-commerceprovides no bounds in terms of time, space, and distance, firmsare thus able to expand their target markets. In fact, the studyreveals that companies using the internet to sell their products areattracting new customers, as in the case of Dell Computers wherealmost 80 percent of the consumers who purchased from theirwebsite have never purchased from the company before.

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On the side of consumers, e-commerce is affecting businessthrough consumer empowerment. The US Department ofCommerce (1998) notes that with e-commerce, there is an increasein customer choice and convenience, more complete information,lower prices, and better customization. With various websites tochoose from, consumers are not anymore limited to the physicalstores near their homes or offices. They can shop even in storesfrom different countries. For instance, with most newspapers goingonline, readers can now access information from newspapersaround the world.

The number one reason cited by consumers for making anonline purchase is convenience. Indeed, shopping on the internetcan save time. In traditional commerce, a consumer would go tostores to look for a particular item he is interested in and thencompare the prices from different stores. With the internet, thiswhole exercise can be done in minutes. Through search portalsand shopping agents, consumers can easily compare prices ofproducts from different merchants.

Consumers also obtain better and more complete informationby shopping on the web. For instance, pertinent information whenbuying a car (such as the make and model, performance,accessories, financing and insurance options) are now madeavailable through websites of car dealers, thus serving as a one-stop-shop for consumers to lessen the time and ease theirdecisionmaking.

Some internet retailers offer discounts despite the infancy stageof e-commerce. One reason for this could be the decline in thefirms’ cost structure when selling over the web. Another source ofprice discounts is the stiff price competition on the internet becauseof the transparency brought by search engines and shoppingagents. According to the US Department of Commerce (1998)study, should retailing continue to grow in the internet, the natureof competition and favorable economics in the internet couldtranslate into lower prices for the average consumer.

Finally, e-commerce offers increased customization. Severalbusinesses over the web, particularly the media businesses, alreadyoffer this to consumers. Readers may select the type of news they

Review of Related Literature

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want delivered via e-mail. Buyers of computers may also customizewhat they will be buying to suit their needs and preferences. Thisis made possible through the concept of one-to-one marketing.While this seems to be an advantage for the consumer, firms alsobenefit since they can now seek to establish close relationships withcustomers and work toward customer loyalty.

The foregoing proves that the consumer is greatly empoweredwith e-commerce. Forrester Research, Inc. (1998a) expects theinternet to develop into another channel (aside from the traditional,catalog, and telephone channels) for purchasing products and toincrease its influence on consumers. The study particularlydescribes how power will be shifted from producer to consumer.Aside from giving consumers a new tool to gather informationand purchase easily, the use of the internet for prepurchase andpostsale is presently exploding, regardless of where the product isbought. This implies increased involvement and, thus,empowerment for the consumer in the purchase process.

Effect on industries and employmentApart from changing the cost structure of firms, e-commerce isalso changing the cost structure that is formed by a firm’srelationship with other businesses—known as the value-addedchain.2 At every stage of product processing, an intermediary oftenperforms a service, facilitating the flow but also adding both valueand cost. The OECD (1998a) argues that e-commerce may reducethe involvement of intermediaries in the value-chain(disintermediation) and thus lower costs, especially for intangiblegoods. Their study outlines two types of intermediaries—marginsand services.3 Margins typically perform three services:transporting, wholesaling, and retailing. The OECD proposes thatthe largest effect would be the elimination of the services providedby wholesale and retail trade. It was then found out that the impact

__________________2 The value-added chain traces the stages that a product travels—from the raw materials tothe final state.3 Margins are those located between the producer of tangible goods and consumers suchas wholesalers and retailers, while services are those that act as intermediaries for otherservices such as travel agents, etc.

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Review of Related Literature

of disintermediation was relatively modest—about a 6 percentdecrease in wholesale trade margins and a 9.6 percent decreasefor retail trade margins.4 The study further explains that this slightimpact of disintermediation may be because many of theconsumers’ product expenditures are allocated to products thatare already sold directly to consumers.

Moreover, a number of the sectors identified to be currentlyinvolved in e-commerce such as banking, education, and health,use relatively few intermediaries. In the case of tangible goods suchas books and CDs, the study notes that the new e-commercemerchants are merely competing with existing intermediaries forthe retail role and not replacing them. In the near term, manyfirms will sell their products in both distribution channels as theyexperiment with e-commerce. The foregoing analysis somehowreveals the complementarity of traditional commerce with that ofe-commerce. The OECD (1998a) thus concludes thatdisintermediation due to the elimination of the wholesale and retailsectors as an intermediary is likely to be important for some sectors,but relatively small on the overall.

As e-commerce might bring about disintermediation, oneimplication is an enhanced dependency on some intermediariesand a creation of entirely new intermediary functions(reintermediation). The OECD (1998a) also names threeintermediary services that have the largest potential in the future:advertising, secure online payment, and delivery.

Advertising is essential, even in e-commerce, since it isresponsible for creating brands. The trend nowadays is thedevelopment of a system of affiliates, wherein e-commercemerchants pay for referrals, direct link from portals, or techniquesthat drive traffic toward their site. For example, Etoys.com pays25 percent of the sale price of a product to the referring affiliate.Meanwhile, Amazon.com has around 30,000 affiliates that sharefrom 5 to 15 percent of the sale.

__________________4 Sensitivity tests were done on the 1992 US consumer expenditures to know the impact ofe-commerce on distribution margins (wholesale and retail trade).

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The credit card is considered to be the dominant onlinepayment method so far. Morgan Stanley (1999) foresees a limitedthreat from alternative payment systems, since consumers arereluctant to adopt a payment method that is not widely acceptedand is relatively inconvenient. Furthermore, the report predictsthat credit card issuers will rely on the internet for distributionand services following the present declining trend of direct mailresponse. In effect, e-commerce would rely heavily on the creditcard industry as an intermediary in the fulfillment of payment,but at the same time, the industry would also depend on e-commerce for its marketing.

Delivery/logistics also plays an important role since itcompletes the transaction process, especially with regard intangibleproducts. This is a main factor of convenience on the part ofconsumers since goods may be delivered right at their doorstepsand software and services downloaded into their computers.

How disintermediation and reintermediation play out will setthe tone for the demand for jobs in the future. According to theOECD (1998a) report, assessing the impact of e-commerce onemployment would depend on the understanding of whichindustries will generate new demand and growth, which type ofjobs will be destroyed, and what the overall needs are in terms ofskills. The report outlines two effects on employment—the directeffect, which is anchored on activities that have replaced existingones, and the indirect effect, which depends on the multiplier effectof e-commerce-related industries on other industries of theeconomy.

The US Department of Commerce (1998) foresees that anincrease in the share of web-related revenues of industries willbring about a change in the percentage required for productionand delivery. A follow-up study (US Department of Commerce1999a) emphasizes the increasing employment demand ininformation technology (IT) industries for the US, as these industriesare aiding in the development of e-commerce and at the same timeplaying an important role in the growth process. The study alsodescribes the churning effect of employment gains and losses inthe IT industries. Technological breakthroughs are causing job

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losses—for instance in the hardware sector where processes havebecome automated—but are also creating jobs in some sectors. Asjobs are currently being redefined, the study sees that e-commercewill pave the way for workforce flexibility—where workers havethe ability to do other jobs than their present job descriptions. Thereis also the expected increase in the demand for IT jobs and a declinein the demand for less-educated workers. Jobs identified to havegreater demand are those related to shipping and delivery services,online content, and desktop publishing. On the other hand, thoseperceived to have less demand include travel agents, stockbrokers,bank tellers, and communications equipment operators.

Databank Consulting (1998a) made a preliminary estimateon the multiplier effects of e-commerce on employment in France,Germany, Italy, and the United Kingdom. By utilizing an input-output framework and methodology, three types of economiceffects were obtained: (1) direct effects produced by e-commercerevenues in the industries directly involved; (2) indirect effectsgenerated by interindustry linkages; and (3) second-order effectsdetermined through the basic Keynesian income-consumptioncircuit from the value-added generated in the first-order round.The results reveal that indirect and second-order effects foremployment requirements are large enough to counterbalance thedirect losses of jobs (assuming a 100% substitution rate of e-commerce with traditional industries), with the exception of thecase of Germany. This also confirms the potential of e-commerceto create jobs in the future. Their estimates also show that e-commerce businesses that rely on labor-intensive intermediaries(such as those belonging to the consumer products segment) willdirectly eliminate a larger share of direct jobs. This proves that thepace of adoption of e-commerce in the different segments willimpact on the overall employment scenario.

Recent trends and prospects for Philippine e-commerceAlthough the Asia-Pacific holds much promise with regard to e-commerce, estimates for the Philippines reveal that it has one ofthe lowest number of personal computers (PCs) within Asia (MerrillLynch 2000). There were only 1.1 million estimated PC users out

Review of Related Literature

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of 75 million as of year-end 1998, accounting for a meager 1.5percent PC penetration. Merrill Lynch (2000) estimates that thereare 420,000 online users in the Philippines—less than one-tenth ofonline users in South Korea. This figure for the Philippines alsoimplies that only 0.5 percent of the population is online, comparedto Singapore’s 24.5 percent. In addition, only 0.9 percent of Filipinointernet users shop online—a stark contrast to the 40 percent forSingapore. These figures, thus, suggest a modest PC infrastructure.Furthermore, the drop in teledensity from 9.08 lines per 100 personsin 1998 to 9.04 in 1999 also implies a poor telecom infrastructure.Merrill Lynch considers the present PC and telecom infrastructureas the obstacles to the growth of the country’s internet industry.

While these factors may be considered as barriers to the growthof the Philippine internet industry, the underdevelopedinfrastructure of the multimedia also suggests that the Philippinemarket offers substantial long-term growth. The report by MerrillLynch highlights that the Philippine internet industry is at thecritical take-off stage, wherein it could become a major center fore-commerce given the country’s large English-speaking populationand its affinity to Western culture. Recent trends seem to supportthis claim.

A study done by an Australian company (www.consult.com)reveals that Filipinos are avid cybershoppers, spending hundredsof dollars each time they order goods via the internet.5 Moreover,Visa International reports that there is a sales boom in thePhilippines in terms of credit card purchases, as Filipinos arebecoming more inclined to use plastic than cash for their purchases(Torrijos 2000). Although this pertains to offline purchases, itnevertheless implies Filipinos are willing to pay in credit, which isthe dominant online payment method in e-commerce. Already, e-commerce is slowly starting to make its presence felt in the country.In Metro Manila, internet users can plan vacations, book airlinetickets, purchase clothing, furniture, and movie tickets, conduct

__________________5 “Many Asians are nervous about cybershopping, but not Pinoys.” Philippine Daily Inquirer,June 26, 2000.

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Review of Related Literature

international phone calls, bank, and have pizza delivered to theirhomes and offices via the worldwide web. However, there remainsthe skepticism over Filipinos’ willingness to embrace e-commercegiven that only a fraction of the population has computers andaccess to phone lines. Maybe Filipinos do not need computers andphone lines to conduct e-commerce after all.

Portable wireless devices, with the mobile phone at theforefront, can and will connect users to cyberspace bypassing theneed for PCs and telephone landlines. Results of a study done byMckinsey & Co. find that mobile phones will become the primarymeans by which Asians will access the internet in the near future.This follows from the fact that mobile phones have a far higherpenetration rate than PCs and that Asian consumers are showingtremendous demand for access to the wireless web.6 As of 1998,Philippine cellular phone penetration was estimated at 2.4 percent,while PC penetration was only at 1.5 percent. Overall subscribersin the cellular market also grew by 64 percent from 1998 to 1999.7

Estimates by Merrill Lynch place wireless application penetrationfor the Philippines at 4.5 percent as of December 2000. Presently,Filipinos are using their cellular phones to transact variousbusinesses and gather data. This is evident from the mobile bankingservices provided by banks such as Bank of the Philippine Islands,Equitable, DBS Bank, and TA Bank. Smart Communications andGlobe Telecom also offer bills payment through mobile phones,while Smart recently launched its online trading service. Also, theconvergence of technologies is evident in Smart Communications’recent joint venture with Mastercard—Smart Money. With theSmart Money card, subscribers of Smart may load up on airtimeand text credits, transfer funds to their card, purchase and evenorder goods from stores. Thus, banking and purchasing arecombined with the services of the cellular phone to provideconvenience to consumers.

__________________6 “On the wireless web frontier, Asia is the pioneer.” Philippine Daily Inquirer, May 29, 2000.7 Data from the National Telecommunications Commission as published by the Philippine DailyInquirer in its special project section, July 12, 2000.

Employment Impact of Business-to-Consumer E-commerce

12

The past two years have seen the emergence of cyber cafes—where an individual who does not own a PC can gain access tothe internet. In a sense, renting computers for use, together withusing wireless devices such as cellular phones, is a possible solutionto the low PC penetration in the country.

Even without a high PC penetration, there is a proliferationof e-commerce activities through the creation of B-to-C websitessuch as infinitymalls.com, Divisoria.com, Pinoymall.com,PhilShop.com, and myayala.com. The recent signing of the E-commerce Bill provides the legal framework for e-commerce andthe formation of an online purchasing firm8 enables firms to buysupplies and heavy equipment via the internet. Although onlinepurchases may still be minimal at the moment, these developmentsprove that the Philippines is slowly feeling the presence of e-commerce.

Based on the trends in the Philippines, it can be said that e-commerce is definitely here to stay. As the experiences of the USand Europe show, the effects of e-commerce are expected to be feltby all—firms, consumers, and workers. However, Filipinos are stillin the dark as to how e-commerce will impact on their lives. Thereare no e-commerce studies centered on forecasting or estimatinghow e-commerce will affect businesses in the Philippines. Neitheris there a Philippine framework that can analyze the possible effectsof e-commerce on the economy. The OECD (1998a) notes that firstand foremost, methodologies for measuring e-commerce, its growthand possible effects, need to be developed.

Sector-specific impacts of disintermediation andreintermediation were also suggested as key areas for futureresearch. Since e-commerce is only starting in the Philippines, theformulation of different scenarios as to how e-commerce will affectconsumer purchase would be key not only in measuring e-commerce but in analyzing its possible effects on several industriesas well, especially with regard employment. Although statistics

__________________8 The online purchasing firm was formed by six companies, namely: Aboitiz Equity Ventures,Inc., Ayala Corp., JG Summit Holdings, Inc., Philippine Long Distance Telephone Company,and United Laboratories, Inc.

13

show the underdeveloped stage of e-commerce infrastructure inthe Philippines, the pace of e-commerce adoption by Filipinos stillseems unclear. Different scenarios would therefore be helpful indescribing the different ways e-commerce may be used andadopted in the future. From here, one can then gain insights on itspossible ranges of effects on various industries in particular, andthe whole economy in general.

Review of Related Literature

Employment Impact of Business-to-Consumer E-commerce

14

III

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Conceptual Framework

DisintermediationAs with any other new technology, e-commerce could have impactson employment. The biggest concern is that some of the efficienciesassociated with e-commerce may result in widespread dislocationof jobs if most of the intermediary functions in traditional commerceare eliminated (disintermediation). With the entry of e-commerce,manufacturers will be able to sell directly and sellers may becomeintermediaries themselves. For instance, in the US, Dell Computerssells directly through its website. Likewise, some airline companiesact as their own travel agents by offering tickets through theirwebsites.

If intermediaries indeed make the transfer of goods andservices inefficient by merely adding business costs to both sellerand buyer, e-commerce removes these processes that intervenebetween buyers and sellers in traditional commerce. It eliminatesthe traditional middleman. In this case, disintermediation throughe-commerce is viewed as a way to make the transaction structuremore efficient by centralizing and automating routine businessprocesses.

ReintermediationApart from the disintermediation caused by direct sales bymanufacturers or wholesalers to consumers, e-commerce can alsocreate new points on the value chain such as portals that act asshopping malls and e-tailers—or online retailers (Figure 1). Forinstance, a buyer of an airline ticket may purchase a ticket fromthe airline company directly, or through an online travel agent,which he may find through a search portal (Yahoo, Excite, etc.).

15

Conceptual Framework

Early on, disintermediation brought about by e-commerce wasthought to be a good thing since it would bring savings to bothmanufacturers and consumers at the expense of those in-between.But what e-commerce is doing is changing the role and function ofintermediaries, not eliminating them.9 In the long term and in theextreme case, as e-commerce gains popularity, physical storefrontscould close down. However, this does not mean the demise ofwholesaling and retailing. Rather, one may see physical storesmoving to the internet to become virtual stores—from bookstores,banks, securities/stock brokers, travel agencies, advertisingagencies, etc. These types of firms may be regarded as those withredefined roles and functions since they now act as middlemenover the web; that is, they may not only be selling goods and servicesbut providing information about these goods and services as well.These firms may either have existing physical establishments butlater branched out into the web to expand their services (the “clicks-and-bricks” type) or are start-up companies purely engaged inbusiness over the internet (“pure play” types). The former would

__________________9 “Shopping around the web.” The Economist, Vol. 354, No. 8159 B15, February 26-March3, 2000.

Figure 1. Rebuilding the value chain

Source: The Economist (2000a)

Employment Impact of Business-to-Consumer E-commerce

16

include Barnesandnoble.com, Toysrus.com, and JCPenny.comwhile the latter has Amazon.com, Ebay.com, Etoys.com, andBuy.com as examples. Still, there are entirely new types ofintermediaries such as search sites, shopping agents, and marketplaces. The principal service provided by many of these newintermediaries is convenience for the consumer—the primaryreason consumers purchase online.

Purchase channels and purchase processTraditionally, there are three purchase channels—face-to-face,catalog, and phone. The internet is seen as another channel andits development as a fourth channel will result in an increasedinfluence for consumers.10 The face-to-face purchase is consideredas the traditional way of selling to consumers. Here, buyers visitthe physical stores, order and pay for their desired good/service,and receive the said good/service. Catalog and phone purchasesare add-ons to the traditional face-to-face method and are morepopular in North America. Through these channels, orders areplaced by mail (in the case of catalog) or by phone. These channelsadd convenience since they allow consumers to shop from theconfines of their homes or offices. Payments can be made by checkor credit card, while the goods are delivered to the consumers’doorsteps.

There are also different ways of advertising products to buyers.In the catalog channel, buyers are introduced to the products viamagazines; in the phone channel, through either TV or magazines.From here, it is already evident which industries will play asubstantial role in each channel. For instance, the printing andpublishing industries are essential in the catalog channel whiletelecommunications and advertising have greater roles in the phonechannel. Delivery services are needed in both channels. In contrast,the role of the delivery service in the traditional channel is weakersince consumers themselves receive the goods in the physical stores.

In fact, with the traditional channel, all phases—theprepurchase, purchase, and postpurchase—are done in the__________________10 Forrester Research, Inc. (1998b)

17

Conceptual Framework

Figure 2. Determinants of employment changes

physical storefront. The prepurchase phase consists of informationsearch, product comparison, and decisionmaking. Consumers gofrom one store to another to obtain information about a product,physically inspect it, and compare prices with that of the otherstores. In most goods, there is no delivery involved since theconsumer himself picks up the goods bought. There is financinginvolved in purchases made through credit card payments. Withexpensive goods such as cars, real estate, and large appliancesobtained, installment payments are availed. In some cases,postpurchase phase involves after-sales service, feedback, andmaintenance of customer loyalty.

Regardless of which channel the customer actually buys from,e-commerce can play a greater role in the purchase process. AsFigure 3 illustrates, the traditional and internet channels may beused in different combinations in the purchase process. For

Employment Impact of Business-to-Consumer E-commerce

18

instance, people may use the internet in the prepurchase, thenshift to the traditional channel for both their purchase andpostpurchase.

A shift to the internet will enable those businesses withredefined roles (the clicks-and-bricks and pure plays) to have agreater participation in the purchase process. Furthermore, as e-commerce gains acceptance and popularity, the newintermediaries’ role will consequently be highlighted. Still, all thesewould depend on which channel is used in the different phases ofthe purchase process. If the internet is more widely used in productinformation, then search portals and shopping agents would bemore in demand.

Between clicks-and-bricks and pure play companies, the typesof businesses that would be supported by e-commerce depend onthe combination of purchase channels and purchase processcustomers prefer. For instance, there will be a greater demand forpure play companies if customers do all phases of the purchasethrough the internet. A firm selling theater/movie tickets wouldhave a greater role when the transaction phase is done on theinternet, but delivery is through the traditional channel.

InternetChannel

TraditionalChannel

Prepurchase�

PurchaseProper

Postpurchase

Figure 3. Multiple channels in the purchase process

Source: Forrester Research, Inc. (1998a)

19

When all phases of the purchase process are performed online,both clicks-and-bricks and pure play firms have the incentive toenter the market. In such case, a bookstore selling wholly onlinesuch as Amazon.com and a clicks-and-bricks store such asBarnesandnoble.com can both participate and compete in bookretailing. In contrast, when prepurchase is done online but theactual purchase is done offline, retailers such as Amazon.com mayfind it hard to compete with those that have a physical store wherecustomers can pick up the books ordered.

With e-commerce, roles of some businesses may weakentriggering a possible decline in revenues and eventually causingdisintermediation. Still, new companies may be formed as theirbusiness roles are enhanced. A salient part of the interplay of re-intermediation with disintermediation (Figure 2) is the extent towhich the new intermediaries (i.e., those businesses with redefinedroles) will replace those that have been disintermediated. As someintermediaries lose their importance in the value chain, job lossesoccur. At the same time, new intermediaries can also bring in newjobs. As long as the new intermediaries generate new jobs and oldintermediaries are not fully disintermediated, there will always beoverall net creation of jobs.

Both disintermediation and reintermediation are dependenton the shifting roles of businesses. What then determines theshifting roles of businesses? With B-to-C e-commerce, business roleswill depend on first, the purchase channel and second, on thepurchase process of goods and services.

Employment effects of e-commerceAt this point, it should be useful to present a framework that showsthe employment effects of e-commerce development.11 Morespecifically, the framework attempts to explain to the reader theimpact of e-commerce growth in terms of: (a) the respectiveindustries where workers will be hired and fired; (b) the types ofjobs that will be created and destroyed; and (c) the mix of skills

Conceptual Framework

__________________11 Except for the Philippine examples, this discussion is mostly drawn from Chapter 4 ofOECD (1998a).

Employment Impact of Business-to-Consumer E-commerce

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needed to sustain e-commerce growth. Considering that e-commerce is still in its infancy, the observations made here will beof a speculative nature.

First, e-commerce will affect the employment in a wide rangeof industries. Its employment impact will be the net effect of newjobs created—directly or indirectly—and traditional jobs destroyedand substituted by jobs arising from e-commerce activities. Directlyaffected is the logistics sector—i.e., consisting of firms offeringtrucking, packaging, warehousing, and management services—since e-commerce provides a new channel of supplying anddelivering goods and services. Here, the creation of jobs due to theincrease in deliveries of goods ordered online may only be partiallyoffset by the decrease in the delivery of print documents—such ascontracts and architectural designs—thanks to the wonders of theinternet.

Indirectly affected are industries with firms that either supplyinputs to or use the products of e-commerce companies. These are:(a) information and communication technology (ICT) industries—such as firms in data networking/telecommunication equipment,internet service providers, internet security equipment, andsoftware—that build and maintain the infrastructure of e-commerce; (b) content-related industries that produce digitalproducts such as firms in applications software, enterprise andrelated software, internet/online consulting and development; and(c) transactions-related industries where firm operations areaffected by the size and type of economic transactions. Examplesof these industries are organization/aggregation, online services/information services, publication, transaction processing, financialservices, and online commerce.

These industries take a sizeable employment share. Forexample, they respectively account for about one-third and one-fourth of total employment in the US and the European Union(EU). They exhibit a wide range of employment growth rates andskill composition. In terms of relative contribution to totalemployment growth, the 1996 US and EU shares are 2.2 percentand 0.5 percent, respectively. In terms of skill composition, thefinancial sector typically has a higher share of high-skilled workers

21

than the other industries but these shares vary widely across thefive countries selected—US, Canada, Finland, France, and Japan.

E-commerce will have both direct and indirect effects onemployment. E-commerce’s direct employment impact will be interms of the balance among complementarity, substitution, andmarket size. For example, e-commerce may create jobs in onlineactivities such as web design, call support, and software designthat complement the jobs supporting traditional offline activities.In the long run, these online jobs may substitute the offline jobswhen the activity goes totally online, especially in the case ofservices and digitized information products such as videos, musicCDs, software, and round-trip airline tickets. However, in otherindustries (say, the auto and appliance industries, where cars andwashing machines are still delivered and serviced offline), e-commerce jobs complement and will not totally substitute the latter.

Since the internet enables collaborative work, e-commercecreates new markets and extends its reach, which in turn createsnew jobs. In other words, e-commerce—typically of a business-to-business type—makes it easier for firms to tap foreign markets aswell as link themselves to a global supply chain. For example, thereis a small but growing group of local firms that receive the audiofiles of doctors’ medical orders from US hospitals through theinternet. These audio files are transcribed into an electronic wordprocessing document file and then sent back through the internetto the US hospitals where they are printed, ready to be endorsedby the physicians—all at a fraction of the cost had the project beendone in the US.

On the other hand, indirect employment effects result fromdownstream and upstream interlinkages of e-commerce activitieswith the rest of the economy. For example, a firm supporting an e-commerce channel will spend on (1) infrastructure to support anonline payment scheme; (2) print and radio advertising to drawconsumers to its website; and (3) delivery and warehousing servicesprovided by a logistics firm. This spending will create jobs indirectlyand will depend on the effect of the volume of electronictransactions on prices, costs, and productivity. The magnitude ofthe effect of e-commerce transactions on the demand for goods in

Conceptual Framework

Employment Impact of Business-to-Consumer E-commerce

22

industries such as software online services, audio-visual music, andpublishing will depend on their price elasticities.

Within the context of the framework above, it might be usefulto present the jobs created or destroyed in selected industries. Asmentioned earlier, both high and low-skilled workers will beaffected by these employment changes. The magnitude of thesejob losses and gains are questions to be answered by future research.

Information services and content industries. These include firmsin software, media, motion picture, audiovisual, and publishingindustries. Jobs destroyed: those connected with the physicaldelivery of media such as CDs and printed text. Jobs created:positions connected with the online delivery of information.

Internet industry. Since the provision of internet services is notlabor intensive, job creation is not expected to be great. Jobsdestroyed will be due to changes in technology and will most likelybe minimized through retraining.

Tours and travel agencies. Jobs lost: those connected withtransaction tasks of selling standardized round-trip tickets. Jobscreated: personnel needed to man the virtual travel agenciescatering to niche markets.

Postal offices. Although the more widespread use of email isreducing the demand for mail handlers and related workers, theincreased demand for parcel deliveries due to the spread of e-commerce may create an even greater demand for these workers.Moreover, the spread of e-commerce for tangible goods will createjobs for the soon-to-boom logistics industry.

Financial services and banking. The shift from retail to internetbanking will certainly lead to losses of job such as tellers and otherfrontdesk workers. These personnel can be retrained quickly to actas customer service personnel in the bank’s call support centers.Online securities brokerage services, in the case of Charles Schwaband Co., have actually seen an increase in their workforce.

Retail. Jobs destroyed: those connected with sales,merchandising, and cashier tasks. Similar to the banking industry,these workers can, however, be retrained to man their customersupport department.

23

Skills needed in e-commerce will be mainly those that cansupport its infrastructure, produce its digital goods and services,and deliver these products electronically and physically. Certainly,there will be an increased demand for high-skilled IT workers forsophisticated design and networking tasks. However, mostcompanies will require well-trained workers that are steeped inthe use of information technology. The logistics industry willincreasingly need medium to low-skilled workers who willprobably need to handle user-friendly handheld scanners andcomputers.

ScenariosIn this section, three scenarios describe how B-to-C e-commercewould influence the purchase process.12 The use of the internetwith traditional channels in different combinations in the purchaseprocess (Figure 3) forms the basis for the three scenarios. To applythe phases to the case of the Philippines, the components of thephases were modified to include the purchase proper processes(Figure 4).

Conceptual Framework

__________________12 The concepts involved in the scenarios formulated are drawn from Forrester Research,Inc. (1998b).

Figure 4. Purchase process in the Philippines

Employment Impact of Business-to-Consumer E-commerce

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Scenario 1Under this scenario, only the prepurchase phase is done in the e-commerce channel (Figure 5). The purchase proper andpostpurchase phases are done in the traditional channel. In a sense,e-commerce is only used as a catalog to obtain information abouta product. An example would be a buyer of a car who uses theinternet to search for the type of car that meets his specifications.With the aid of search engines and shopping agents, the prospectivebuyer compares the prices of different car dealers offering the typeof car he wants to buy. The buyer then narrows down his choiceto one or two dealers and goes to the physical store of the dealersto see and inspect the merchandise. Actual ordering and paymentis done in the physical storefront. After-sales service for the car aswell as possible feedback is done in the traditional way. That is,the customer goes to the service centers to have his car serviced.

Payment under this scenario is usually in cash, since the buyeris physically in the store to order and pay for goods. The consumermay need to physically inspect the goods, particularly with regardsexpensive products such as household appliances, cars, andcomputers. Finally, the purchase is limited within the local marketonly since the consumer usually picks up the purchased goods.

E-commerceChannel

TraditionalChannel

Prepurchase�

Purchase Proper�

Postpurchase

Figure 5. Purchase process under scenario 1

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Scenario 2In this scenario, product information, product comparison, orderand payment are done online, while delivery, service and feedbackare done offline (Figure 6). Order and payment—two activitiesunder the purchase proper phase—are transferred to the e-commerce channel. Thus, the purchase transaction takes place overthe internet. The sale of an airline ticket best exemplifies thisscenario. The buyer searches for websites that might be sellingtickets to his desired destination and compares prices with otherairlines, again with the aid of search engines and shopping agents.The buyer then makes his decision, orders for the ticket online,and pays with his/her credit card. The ticket is claimed personallyand any queries he might have are done over the phone orpersonally. Payment under the e-commerce channel has the creditcard as the mode of payment and, as in the first scenario, purchasesmade are from the local market since consumers pick up their goodsfrom the physical stores.

Scenario 3Scenario 3 assumes that all phases of the purchase are done throughthe e-commerce channel (Figure 7). Under this scenario, there isfulfillment of purchase, with even delivery and service done online.Delivery may be done online as with intangibles (software, music,videos, and subscription) or entail doorstep delivery for tangibles

Conceptual Framework

E-commerceChannel

TraditionalChannel

Prepurchase�

Purchase Proper�

Postpurchase

Figure 6. Purchase process under scenario 2

Employment Impact of Business-to-Consumer E-commerce

26

(CDs, books, flowers, and electronics). It also covers services suchas banking. Here, the buyer does an online search for an item (forinstance, an anti-virus software). Order is also made online andpayment by credit card. The buyer is then able to download thesaid software. Troubleshooting and other customer questions aresent to the vendor’s website. Since product delivery is done eitheronline or to consumers’ doorsteps in the case of tangible goods, themarket reach extends even to different countries (as in the case ofAmazon.com).

Culture and Philippine e-commerceThe scenarios for e-commerce development and the correspondingemployment effects presented in the two previous sections need tobe understood within the context of Filipino culture and consumerbehavior as well as the way e-commerce is expected to develop inthe next 10 years.

For example, the following e-commerce constraints areapparent in the Philippine setting: low PC ownership, low internetusage, low credit card use, and poor parcel delivery services. Thus,the US e-commerce model—where a purchase typically consistsof a prospective customer surfing the websites for options, orderingthe goods online, paying with a credit card, and having the itemdelivered to his/her home by postal mail—may not yet be applicableto the Philippine setting.

E-commerceChannel

TraditionalChannel

Prepurchase�

Purchase Proper�

Postpurchase

Figure 7. Purchase process under scenario 3

27

Here is why: The Filipino’s shopping experience consists notonly of the actual search and purchase of the good. A Filipinoshops because he/she also needs to relax and eat a meal with friendsand family in the air-conditioned and pleasant ambiance of a mall.Moreover, a Filipino’s purchasing activity includes touching orsmelling the product as well as haggling for a lower price. On theother hand, Filipinos tend to frequently send text messages andcall through mobile phones because of cheap mobile handsets andservices.

Filipino buyers have many similarities with the Japanese. Bothhave a high percentage of mobile phone users and a low creditcard usage (i.e., most Japanese have credit cards but do not usethem). Both usually buy their groceries at their neighborhoodstores—the Japanese at a 7-11 convenience store; the Filipino at adrug store or sari-sari store. So what do the Japanese do for e-commerce? The convenience store company, 7-11, has set up e-commerce kiosks in its branches. A Japanese consumer can orderhis products at one of these terminals, return after a week to inspectthe ordered goods, and pay for it in cash at the convenience store.The Japanese e-commerce model may apply to the Filipinoconsumer’s case, too.

Filipinos following the same model may avail of the networkof drug stores. It is also possible to harness sari-sari stores as an e-commerce network, where parcel delivery may be handled by localtransport cooperatives. Filipinos may even introduce m-commerce,a variation of e-commerce, where a local buyer can order movietickets and dinner reservations via a text message to a virtual store.The adoption of this model overcomes the constraints mentionedearlier. Filipinos’ perennial need to shop in malls for the reasonsmentioned earlier may dampen local firms’ actual adoption of e-commerce and therefore soften the blow of (or even delay) the joblosses. In other words, the adoption of e-commerce could be seenas just one more supplier and delivery channel that complementsthe traditional channel. When Filipino household incomes reachthe threshold for widespread credit card usage and logistics servicesbecome more reliable, only then will the Philippine e-commerceproximate that of the US model.

Conceptual Framework

Employment Impact of Business-to-Consumer E-commerce

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IV

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Methodology

Methodological approachThe roles of businesses and how these are changing with the adventof e-commerce (Figure 2) were analyzed to estimate the impact ofB-to-C e-commerce13 on employment.14

Demand measures the need for a firm’s products and services.Demand for a product can be gauged through revenues or receiptsfrom the sale of a product. A firm’s total revenue is the number ofunits (of a product) that is produced and sold times the pricereceived per unit. At constant prices, increasing revenues wouldmean that demand for the product is increasing, since the quantityof output that a firm produces would depend on the value thatthe market places on the product. If there is increasing demandfor a product, then a firm will decide to increase its output andthis is reflected in total revenues (since revenues equal quantityproduced and sold times price per unit). In increasing its output, afirm must also increase its input. This means that the demand forinputs is dependent on the demand for outputs. Labor, being oneof the inputs of production, may thus be determined throughrevenues.

__________________13 For an overview of e-commerce, refer to Appendix A.14 Although business-to-business (B-to-B) e-commerce transactions are considered tocomprise the bulk of current and future e-commerce activity, they were excluded from thescope of this study because (1) most of the benefits derived from B-to-B e-commerce arein the form of corporate savings and product quality improvements, therefore, the collectionof this data may be tedious and difficult; (2) B-to-B e-commerce involves the internationaltrade of services and goods and forecasting this component is fraught with difficulties; and(3) since B-to-B e-commerce involves firms selling products in many industries, this makesit difficult to apply input-output analysis to estimate employment changes.

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Methodology

Similar to Databank Consulting’s (1998a) study that estimatesthe multiplier effects of e-commerce on the employment of fourEuropean countries, the input-output (I-O) methodology15 was alsoused here. The main consideration in input-output impact analysis(on employment) is that an exogenous change in final demand inone industry plus multiplier effects can bring about a change inemployment not only in that industry, but in other industries andthus, the whole economy as well.

Below are how the impact of B-to-C e-commerce onemployment from 2000-2005 was projected. The assumptions andcaveats presented here should be kept in mind when going overthe results and conclusions.

1. Since there were no 2000 employment figures for the 11industries in this study, these were estimated from the 1995employment figures. Here, we used the 1994 input-output tablesubjected to changes in final demand from 1995 to 2000 in each ofthe 11 industries so as to get the corresponding changes inemployment. These changes in employment were added to the1995 employment figures to arrive at 2000 figures.

2. The same estimation procedure was used to project theemployment impacts of e-commerce in the three scenarios describedearlier. In general, the extent of e-commerce activity was assumedto increase from scenario 1 to scenario 3. This translates to greaterannual percentage changes in final demand in scenarios 2 and 3compared to those in the baseline scenario 1.

For both estimations done in scenarios 1 and 2, the first step isto calculate for the percentage changes in revenue. Thesepercentage change in industry revenue were assumed to be equalto percentage changes in the industry’s final demand. Thisassumption is tenable because it is based on the related premisethat final demand is directly proportional to industry revenues.Such may have resulted in the slight overestimation of the 2000employment levels.

__________________15 For a detailed discussion on the input-output methodology, refer to Appendix B.

Employment Impact of Business-to-Consumer E-commerce

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3. Had the period alloted for the study allowed for it, thisstudy would have estimated separate econometric relationsbetween these two variables.

4. Revenue projections for the various scenarios were basedon the revenue-to-GDP ratios of these industries in the US. Ingeneral, the industries were assumed to have reached a certainrevenue-to-GDP ratio based on the assessment of how the firmsand consumers would adapt to increased e-commerce activity andtranslated these in corresponding annual percentage changes inindustry revenues. Had there been an alternative measure of e-commerce activity—expressed as a ratio of final demand to GDP—for the corresponding US industries and had final demand databeen available for the 11 industries in this study, then revenueprojections as well as the assumption that percentage changes inindustry revenue equal percentage changes in industry finaldemand would have been omitted.

5. Note that even if employment levels may be overestimatedin 2000 as well as in the projections from 2000 to 2005, these errorsmay have minimal impact on the differences in employment amongthe three scenarios since they will tend to cancel out. Moreover,the losses in jobs due to the substitution of traditional purchasechannels by e-commerce channels will be relatively small for allthe industries because the level of e-commerce activity in 2005 isprojected to be at the emerging stage.

Data descriptionBased on the Annual Survey of Establishments (ASE) publishedby the National Statistics Office (NSO), these 11 industries coveredby this study16 fall under four major industry groups:

1. Manufacturing- printing/publishing of newspapers, periodicals, books,

and pamphlets

__________________16 The foregoing industries were based on those classified as e-commerce-related industriesin the OECD study (OECD 1998b). Some of these industries are projected by the OECD tohave significant shares of online revenues. The US industries were then matched with thePhilippine industries classified under the 1977 Philippine Standard Industrial Classification(PSIC).

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- electrical communication equipment2. Wholesale and retail trade

- book, office and school supplies retailing- dry goods, textile, and wearing apparel retailing

3. Transportation and communication- tour and travel agencies- forwarding, packing, and crating- mail and express- telephone services

4. Financing, insurance, real estate, and business services- securities dealers/brokers- advertising agencies- engineering and technical services

These industries with their Philippine Standard IndustrialClassification (PSIC) codes are shown in Table 1. Revenue andemployment data were gathered from the ASE,17 and actual dataobtained covered the years 1990 to 1995.

The four major industry groups make up 65 percent of totalemployment as of 1995. Of these, manufacturing and wholesaleand retail trade accounted for already half of the total (Table 2).

The selected industries represent 7 percent of total employmentand 11 percent of the aggregate of the four major industries (Table3). Dry goods, textile, and wearing apparel retailing; and mail andexpress have the biggest and smallest share in total employment,respectively. Telephone services as well as dry goods, textile andwearing apparel retailing have relatively large shares in theirrespective industry groups. The Philippine counterparts of theindustries that are currently considered as aggressive users of e-commerce in the US (book and office supplies retailing, securitiesdealers, tour and travel agencies) employ a relatively smallpercentage of the labor force in the country.

Methodology

__________________17 Appendix C enumerates the definitions of the variables based on the ASE as well as anoutline of the sampling procedure used by the NSO for the 1995 survey.

Employment Impact of Business-to-Consumer E-commerce

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Table 1. Description of industries

1977 PSIC* Description of Industries Code

1) 3421 Printing of newspapers and periodicals3422 Printing and publishing of books and pamphlets

2) 38323 Manufacture of electrical communication equipment38324 Manufacture of radio and television transmitting, signaling, and detection equipment and

apparatus38325 Manufacture of parts and supplies used for radio, television, and communication

equipment and apparatus38329 Manufacture of radiographic, fluoroscopic, and other X-ray apparatus and tubes and

other electronic equipment and apparatus3) 621 Books, office and school supplies, including newspapers and magazines retailing4) 623 Dry goods, textile, and wearing apparel5) 7192 Tour and travel agencies6) 7199 Services allied to transport, n.e.c. (includes forwarding, packing and crating;

arrangement of transport; inspection, sampling, and weighing connected withtransportation; and all other services allied to transport

8) 732 Telephone service7) 731 Mail and express services9) 8214 Securities dealers/brokers10) 85131 Engineering and technical services11) Advertising agencies

* Philippine Standard Industrial ClassificationSources: 1977 PSIC, National Statistics Office

Table 2. Share of major industry groups to total employment

Average Total Employment Percentage as of 1995 of Total Employment

Agriculture, fishery, and forestry 145,693 3.3Mining and quarrying 24,443 0.6Manufacturing 1,224,342 27.7Electricity, gas, and water 71,646 1.6Construction 141,567 3.2Wholesale and retail trade 1,014,812 23.0Transportation, communication,

storage and warehousing 185,603 4.2Financing, insurance, real estate,

and business services 437,290 9.9Community, social, and personal

services 963,031 21.8Public services 209,799 4.8Total 4,418,226 100.0

Source: National Statistics Office

85201

33

Computational proceduresAs mentioned earlier, revenue projections were used to estimatecorresponding employment impacts for the 11 industries as wellas for the whole economy, using the input-output (I-O)methodology. The projection period for the study on the impact ofB-to-C e-commerce on employment is from the years 2000 to 2005.Since actual data obtained were from the years 1990 to 1995, twosets of revenue and employment projections were made—first from1996 to 2000, and then from 2001 to 2005.

RevenuesRevenue projections from 1996 to 2000 were based on proxyvariables such as revenues from the Top 7,000 Corporationspublication18 and the gross value-added (GVA) of major industry

Methodology

Table 3. Share of selected industries to total employment

Average Total Share in Major Industry Share in Total Employment Group* (in percent) Employment as of 1995 (in percent)

Printing and publishing of newspapers,periodicals, books, and pamphlets 9,325 0.8 0.2

Electrical communication equipment 71,429 5.8 1.6Book, office and school supplies

retailing 20,908 2.1 0.5Dry goods, textile, and wearing

apparel retailing 149,983 14.8 3.4Tour and travel agencies 8,617 4.6 0.2Forwarding, packing, and crating 15,904 8.6 0.4Telephone services 28,366 15.3 0.6Mail and express 1,464 0.8 0.0Securities dealers/brokers 3,032 0.7 0.1Engineering and technical services 7,146 1.6 0.2Advertising agencies 6,235 1.4 0.1Total 322,409 11.3 7.3

* Manufacturing for industries (1) and (2); wholesale and retail trade for industries (3) and (4); transporta-tion, communication, storage and warehousing for (5) to (9); and financial and business services for (10)and (11).Source: National Statistics Office

__________________18 The Top 7,000 Corporations is published annually by the Philippine Business Profiles andPerspectives, Inc.

Employment Impact of Business-to-Consumer E-commerce

34

groups. Revenue projections for the next five years (2001-2005)were based on the three scenarios of e-commerce.

The detailed methodology for the revenue projection from1996 to 2000 is outlined in Appendix D. The (revenue) projectionsfor the years 2001 to 2005 were computed using growth rates basedon the three models of e-commerce.19 The general assumption hereis that as e-commerce incorporates more phases of the purchaseprocess, demand for a particular product or service will increasesince e-commerce would provide added choice, convenience, andcustomization for the consumer as well as market extension andan additional channel of revenue for firms. As more products andservices become available in the internet, revenues are also seen toincrease since new firms can enter the market. Since the secondscenario supports more types of products and services that can beoffered in the internet, revenues for this model are expected to behigher than that of the first one. Still, the third scenario, being theadvanced phase of B-to-C e-commerce (i.e., where all purchasephases are done online), supports more products and services thanthe second model. Thus, the third scenario is seen to gain the highestrevenues among the three. The soundness of the differences in thethree scenarios’ annual growth rates was validated by estimatingthe additional revenues from e-commerce of each establishmentand/or company per industry.

E-commerce-related revenues (and employment) werecomputed only for the second and third scenarios, since the firstscenario can be deemed as a baseline scenario of B-to-C e-commerce, where the internet is used only as a wellspring ofinformation on products and services and their varied prices fromother e-commerce merchants.20

EmploymentUsing the assumption that percentage changes in revenues equalpercentage changes in final demand, and employing I-O computations,__________________19 Growth rates were also based on historical annual growth rates as well as growth ratesfor the past five years.20 The formulas for the computation of e-commerce-related revenues and employment areindicated in Box D.1 and Box D.2 of Appendix D.

35

the impact on employment on the 11 industries and on the wholeeconomy was determined.21

Two sets of projections were computed for the employmentimpacts—the first one using the technical coefficients of the 1994I-O table, and a second one assuming adjusted technical coefficientsfor wholesale and retail trade.22 Under each set of projections, twoassumptions were made—one assumes that online revenues donot substitute traditional revenues and another assumes partialsubstitution of traditional revenues by online revenues.23

For employment projections assuming partial substitution,revenue projections under the third scenario for the year 2005 wererevised to reflect partial substitution of traditional revenues byonline revenues.24 Revised revenue projections were used tocalculate employment estimates assuming partial substitution.25

In adjusting the technical coefficients26 of the I-O table forwholesale and retail trade, the coefficients were ranked fromhighest to lowest, row- and column-wise. Sectors that are expectedto increase their input contributions to wholesale and retail tradedue to B-to-C e-commerce were identified. Growth rates wereapplied to the coefficients corresponding to these sectors, most ofwhich were already heavy contributors of production inputs oftrade.27 Likewise, sectors that would be allocated more output of

Methodology

__________________21 The formulas for the computation of the employment impacts are discussed in Appendix D.22 Wholesale and retail trade was chosen since B-to-C e-commerce involves mainly retailtrade.23 Online revenues are assumed to be revenues from direct sale of goods and services inthe internet and are differentiated from e-commerce-related revenues, as discussed aboveand in Box D.1 of Appendix D.24 The adjustment for substitution of traditional employment by e-commerce-generatedemployment was applied only to Model/Scenario 3 since this is the model where all purchasingphases are done online. This adjustment was applied to industries providing intermediaryservices: newspaper/periodical publishing and printing; book, office and school suppliesretailing; dry goods, textile, and wearing apparel retailing; tour and travel agencies; mail andexpress; securities dealers/brokers; and advertising agencies.25 For a detailed methodology of the revised revenues, refer to Box D.3 of Appendix D.26 The technical coefficient of industry A and B refers to the ratio of the production input flowfrom industry A to B, to the total output of industry B.27 In determining the growth rates for the input requirements, financial statements of someretail companies (Value Plus, Inc., Uniwide Sales Warehouse Club, Shoe Mart, Inc., andPhilippine Seven Corp.) were consulted. Growth rates were based on the growth ofpercentage shares of the different components of operating expenses.

Employment Impact of Business-to-Consumer E-commerce

36

wholesale and retail trade arising from e-commerce were identifiedand growth rates were also applied to the coefficients of theseindustries.28 Revised estimates for employment impacts were thencomputed for the two assumptions—with and without partialsubstitution.

__________________28 The magnitude of growth rates for output shares was based on the growth rates of theinput coefficients and scaled upward or downward, depending on the industry.

37

V

��

Results

1995-2000 projections1. Among the 11 industries, the electrical communication

equipment, securities dealers/brokers, and telephone services areestimated to have relatively high revenue growth in the past fiveyears (Table 4). Generally, these industries did not experiencesignificant drops in revenues in the post-Asian crisis years.

2. The 11 industries are estimated to have generated a total ofabout 310,000 additional jobs from 1995 to 2000 (Table 5). Electricalcommunication equipment, dry goods, textile and wearing apparelretailing, engineering and technical services, and telephone services

Table 4. Projected increase in revenues from 1995 to 2000 (in thousand pesos)

Total Revenues Projected Increase Percentage as of 1995 in Total Revenues Increase

Printing and publishing of newspapers,periodicals, books, and pamphlets P 8,255,115 P 1,342,236 16

Electrical communication equipment 57,704,590 195,276,701 338Book, office and school supplies retailing 9,706,149 9,877,591 102Dry goods, textile, and wearing apparel retailing 82,593,943 130,145,062 158Tour and travel agencies 2,221,781 554,030 25Forwarding, packing, and crating 6,385,315 7,221,662 113Telephone services 34,627,734 65,033,369 188Mail and express 179,715 -96,381 -54Securities dealers/brokers 2,171,212 6,248,810 288Engineering and technical services 2,969,923 4,920,470 166Advertising agencies 3,160,795 1,160,526 37Totals 209,976,272 421,684,076 201

Sources: National Statistics Office; Author’s calculations

Employment Impact of Business-to-Consumer E-commerce

38

had the largest increases in employment levels (per industry) relativeto employment levels in 1995.

3. Industries that were projected to have generated the mostjobs for the whole economy between the years 1995 and 2000 werethose engaged in electrical communication equipment, dry goods,textile and wearing apparel retailing, and telephone services (Table6). For newspaper and book publishing and printing as well asadvertising, employment changes within their respective industriesaccount for a small percentage of employment generated for thewhole economy. These industries, thus, have a great capacity tocreate employment for other industries. Indirect effects are greaterthan direct effects only for publishing and printing of newspapersand books, electrical communication equipment, tour and travelagencies, and forwarding, packing and crating. These fourindustries have high forward and backward linkages.

2000-2005 projections1. For the next five years, electrical communication equipment,

tour and travel agencies, and telephone services are estimated to

Table 5. Projected increase in average total employment per sector (1995-2000)

ATE* Projected Increase Percentageas of 1995 in ATE* Increase

Printing and publishing of newspapers,periodicals, books, and pamphlets 9,325 1,020 11

Electrical communication equipment 71,429 141,877 199Book, office and school supplies retailing 20,908 9,418 45Dry goods, textile, and wearing apparel retailing 149,983 123,706 82Tour and travel agencies 8,617 1,891 22Forwarding, packing, and crating 15,904 8,820 55Telephone services 28,366 17,167 61Mail and express 1,464 -37 -3Securities dealers/brokers 3,032 652 21Engineering and technical services 7,146 5,121 72Advertising agencies 6,235 118 2Total 322,409 309,753 96

* Average Total EmploymentSources: National Statistics Office; author’s calculations

39

Results

Table 6. Employment generated for the whole economy (1995-2000)

Total Initial Direct and Direct IndirectEffect Effect Indirect Effect Effect

Effect

Printing and publishing of newspapers,periodicals, books and pamphlets 2,587 1,020 1,567 677 890

Electrical communication equipment 204,560 60,986 143,573 49,874 93,700Book, office and school supplies retailing 12,220 9,132 3,088 1,655 1,433Dry goods, textile, and wearing apparel

retailing 160,509 119,947 40,562 21,739 18,824Tour and travel agencies 2,436 1,847 589 276 312Forwarding, packing, and crating 11,453 8,791 2,662 1,295 1,367Telephone services 27,698 17,058 10,640 5,323 5,317Mail and express -71 -35 -35 -19 -17Securities dealers/brokers 1,159 647 512 334 179Engineering and technical services 6,911 5,050 1,862 1,144 717Advertising agencies 288 117 171 119 52

Source: Author’s calculations

be the top three revenue earners among the 11 industries, whilenewspaper/periodical, book and pamphlet printing andpublishing, mail and express, and dry goods and wearing apparelretailing are expected to have the slowest growth (Table 7).

2. By the year 2005, total e-commerce-related revenues (forthe 11 industries) are projected to amount to P15 billion underscenario 2 and P57.9 billion under scenario 3 (Table 8). When e-commerce-related revenues for the Philippines are compared withthat of Asia and the US, figures for the Philippines are relativelysmall. For the year 2001 alone, projections for Asia and the US are51 and 325 times that of the Philippines, respectively (Table 9).

3. Assuming three different paces of overall growth for theeconomy29 under scenario 2, total e-commerce-related revenues asof 2005 are projected to account for 0.22 percent to 0.25 percent ofnominal GDP, contributing 1.4 percent to 2.1 percent of GDP

__________________29 GDP growth was based on projections by the Asian Development Bank (ADB) for theSoutheast Asian countries, which were either scaled upward or downward to obtain threedifferent paces of economic growth.

Em

ployment Im

pact of Business-to-C

onsumer E

-comm

erce

40

Table 7. Projected revenues from 2000 to 2005 (in thousand pesos)

Projected Projected Increase Percentage IncreaseRevenues in Revenues Model Model Model

as of 2000 Model 1 Model 2 Model 3 1 2 3

Printing and publishing of newspapers,periodicals, books, and pamphlets 9,597,351 5,822,244 5,965,018 6,460,243 61 62 67

Electrical communication equipment 252,981,291 963,751,833 972,959,515 1,000,841,587 381 385 396Book, office and school supplies retailing 19,583,740 22,407,226 22,959,781 25,062,488 114 117 128Dry goods, textile, and wearing apparel retailing 212,739,005 239,373,928 240,356,783 242,353,205 113 113 114Tour and travel agencies 2,775,811 5,546,417 6,160,773 7,240,841 200 222 261Forwarding, packing, and crating 13,606,976 22,093,988 22,170,272 23,018,087 162 163 169Telephone services 99,661,103 241,404,107 244,195,158 249,862,525 242 245 251Mail and express 83,334 62,726 63,413 76,272 75 76 92Securities dealers/brokers 8,420,022 8,835,129 9,104,761 10,094,023 105 108 120Engineering and technical services 7,890,393 11,927,118 12,140,826 13,129,863 151 154 166Advertising agencies 4,321,322 4,944,348 5,066,274 5,940,737 114 117 137Total 631,660,348 1,526,169,064 1,541,142,574 1,584,079,871 242 244 251

Source: Author’s calculations

41

Results

Table 8. Total projected revenuesattributed to e-commerce(in billion pesos)

Year Model 2 Model 3

2001 1.8 7.92002 4.2 16.82003 7.9 29.92004 10.8 41.42005 15.0 57.9

Source: Author’s calculations

Table 9. Comparison of projectede-commerce revenues of thePhilippines with e-commercerevenues of Asia and the US(in billion dollars)

Year Philippinesa Asiab USb

2001 0.16 8.2 52.02002 0.34 15.6 76.02003 0.60 26.4 108.02004 0.83 38.02005 1.16

aassuming Scenario 3 and P50 = US$1bB-to-C e-commerce revenuesSources: Author’s calculations (Philippines)

eMarketer, Inc. (Asia)Nua surveys (US)

Table 10. Ratio of e-commerce-related revenues to GDP and percentagecontribution to GDP growth (under scenario 2)

Assumption 1 Assumption 2 Assumption 3Year Real GDP % of Cont.b Real GDP % of Cont.b Real GDP % of Cont.b

Growth GDPa to GDP Growth GDPa to GDP Growth GDPa to GDPGrowth Growth Growth

2001 3.3 0.05 0.5 3.3 0.05 0.5 3.3 0.05 0.52002 3.6 0.10 1.0 3.7 0.10 1.0 4.3 0.10 0.92003 3.9 0.17 1.6 4.3 0.17 1.4 4.9 0.16 1.22004 4.2 0.21 1.8 4.9 0.21 1.5 5.5 0.19 1.32005 4.5 0.25 2.1 5.5 0.24 1.6 6.1 0.22 1.4

a nominal GDPb contributionSource: Author’s calculations

growth (Table 10). Under scenario 3, revenues attributed to e-commerce are estimated to be about 1 percent of GDP, contributingfrom 5.4 percent to 8 percent of GDP growth (Table 11). Tables 14and 15 reveal that the percentages of GDP represented by e-commerce-related revenues as well as contributions to GDP growthare increasing through time. Although these figures are small, their

Employment Impact of Business-to-Consumer E-commerce

42

increasing trend implies that e-commerce has a strong potential tocontribute a large percentage to GDP growth in the long term.

4. E-commerce-related revenues under the second scenarioaccount for 0.7 percent of total revenues for the 11 industries as ofthe year 2005 (Table 12). Under the third scenario, 2.6 percent oftotal revenues can be considered as e-commerce-related, where

Table 11. Ratio of e-commerce-related revenues to GDP and percentagecontribution to GDP growth (under scenario 3)

Assumption 1 Assumption 2 Assumption 3Year Real GDP % of Real GDP % of Cont.b Real GDP % of Cont.b

Growth GDPa to GDP Growth GDPa to GDP Growth GDPa to GDPGrowth Growth Growth

2001 3.3 0.21 2.3 3.3 0.21 2.3 3.3 0.21 2.32002 3.6 0.41 4.1 3.7 0.44 4.0 4.3 0.40 3.42003 3.9 0.65 6.0 4.3 0.64 5.5 4.9 0.62 4.72004 4.2 0.80 6.9 4.9 0.77 5.8 5.5 0.73 5.02005 4.5 0.98 8.0 5.5 0.92 6.3 6.1 0.86 5.4

a nominal GDPb contributionSource: Author’s calculations

Table 12. Percentage of e-commerce-related revenues as of 2005 (in percent)

Model 2 Model 3

Printing and publishing of newspapers, periodicals,books, and pamphlets 0.9 4.0

Electrical communication equipment 0.8 3.0Book, office and school supplies retailing 1.3 6.0Dry goods, textile, and wearing apparel retailing 0.2 0.7Tour and travel agencies 6.9 16.9Forwarding, packing, and crating 0.2 2.5Telephone services 0.8 2.4Mail and express 0.5 8.5Securities dealers/brokers 1.5 6.8Engineering and technical services 1.1 5.7Advertising agencies 1.3 9.7Total 0.7 2.6

Source: Author’s calculations

Cont.b

43

Results

tour and travel agencies, advertising, mail and express, andsecurities dealers are expected to have the largest ratios of e-commerce-related revenues.

5. The first scenario is estimated to generate additional 317,734jobs in the next five years for the 11 industries (Table 13). Thisrepresents a 50 percent increase from projected employment levelsas of the year 2000. When compared with the first scenario, thesecond and third scenarios generated 4,320 and 15,440 more jobs,respectively. The two scenarios account for 51 percent and 53percent increase in employment levels from year 2000 levels,respectively.

6. Tour and travel agencies, electrical communicationequipment, and forwarding, packing and crating are the industrieswith the top three employment growth rates among the group.Industries with relatively low projections for employment growth

Table 13. Projected increase in average total employment (2000-2005)

Average Total Projected Increase Percentage IncreaseEmployment in Average Total Employment as of 2000

Model 1 Model 2 Model 3 Model 1 Model 2 Model 3

Printing and publishing ofnewspapers, periodicals,books, and pamphlets 10,345 3,806 3,899 4,223 37 38 41

Electrical communicationequipment 213,307 159,717 161,242 165,863 75 76 78

Book, office and schoolsupplies retailing 30,326 10,589 10,850 11,844 35 36 39

Dry goods, textile, andwearing apparel retailing 273,689 88,337 88,699 89,436 32 32 33

Tour and travel agencies 10,508 15,150 16,828 19,778 144 160 188Forwarding, packing,

and crating 24,724 12,663 12,707 13,193 51 51 53Telephone services 45,533 22,141 22,397 22,916 49 49 50Mail and express 1,427 52 53 63 4 4 4Securities dealers/brokers 3,684 238 245 271 6 7 7Engineering and technical

services 12,267 4,673 4,756 5,144 38 39 42Advertising agencies 6,353 368 378 443 6 6 7Total 632,163 317,734 322,054 333,174 50 51 53

Source: Author’s calculations

Employment Impact of Business-to-Consumer E-commerce

44

include mail and express, advertising agencies, and securitiesdealers/brokers.

7. The bulk of the increase in employment under the thirdscenario is seen to come in the last three years of the projectionperiod. Approximately 80 percent of the total increase from theyears 2000 to 2005 is expected to be generated from the years 2003to 2005, while the first two years account for the remaining 20percent (Tables 14 and 15).

8. The change in employment from 2004 to 2005 alonerepresents an average of 36 percent of the total increase across allindustries (Table 15). In fact, employment for each year as againstthe total increase in average total employment (ATE) from 2000 to2005 is consistently increasing throughout the projection periodfor all industries.

9. When it comes to the growth rates of employment changes,there is no general trend evident for each industry for the next fiveyears, except for dry goods and wearing apparel retailing, whichexhibits increasing growth rates for the projection period. On theother hand, office and school supplies retailing shows a decreasing

Table 14. Breakdown of increase in average total employment under scenario 3(2000-2005)

2001 2002 2003 2004 2005 2000-2005

Printing and publishing of newspapers,periodicals, books, and pamphlets 314 626 793 1,121 1,369 4,223

Electrical communication equipment 13,416 19,923 27,095 40,943 64,486 165,863Book, office and school supplies retailing 1,111 1,555 2,146 2,813 4,220 11,845Dry goods, textile, and wearing apparel

retailing 7,851 10,579 15,025 22,392 33,589 89,436Tour and travel agencies 1,516 2,275 3,639 5,254 7,093 19,777Forwarding, packing, and crating 1,248 1,674 2,198 3,230 4,844 13,194Telephone services 2,011 2,899 4,215 5,480 8,311 22,916Mail and express 5 7 11 16 24 63Securities dealers/brokers 23 30 50 69 100 272Engineering and technical services 402 594 981 1,267 1,900 5,144Advertising agencies 39 54 75 122 153 443Total 27,936 40,216 56,228 82,707 126,089 333,176

Source: Author’s calculations

45

Results

trend up to year 2004, but had an increase in the last year (Table16).

10. Printing and publishing, tour and travel agencies, andadvertising exhibit a decreasing trend in growth rates within the

Table 15. Percentage of increase in average total employment (ATE) by periodor year as against total increase in ATE from 2000-2005

2001-2002 2003-2005 2001 2002 2003 2004 2005

Printing and publishing of newspapers,periodicals, books, and pamphlets 22 78 7 15 19 27 32

Electrical communication equipment 20 80 8 12 16 25 39Book, office and school supplies retailing 23 78 9 13 18 24 36Dry goods, textile, and wearing apparel

retailing 21 79 9 12 17 25 38Tour and travel agencies 19 81 8 12 18 27 36Forwarding, packing, and crating 22 78 9 13 17 24 37Telephone services 21 79 9 13 18 24 36Mail and express 19 81 8 12 18 25 38Securities dealers/brokers 19 81 8 11 18 25 37Engineering and technical services 19 81 8 12 19 25 37Advertising agencies 21 79 9 12 17 28 35Average 21 79 8 12 18 25 36

Source: Author’s calculations

Table 16. Growth rate of increase in average total employment (in percent)

2001-2002 2002-2003 2003-2004 2004-2005

Printing and publishing of newspapers, periodicals,books, and pamphlets 99 27 41 22

Electrical communication equipment 49 36 51 58Book, office and school supplies retailing 40 38 31 50Dry goods, textile, and wearing apparel retailing 35 42 49 50Tour and travel agencies 50 60 44 35Forwarding, packing, and crating 34 31 47 50Telephone services 44 45 30 52Mail and express 53 54 38 51Securities dealers/brokers 32 68 38 44Engineering and technical services 48 65 29 50Advertising agencies 40 38 64 25Average 48 46 42 44

Source: Author’s calculations

Employment Impact of Business-to-Consumer E-commerce

46

last year. The remaining industries are projected to increase theirrates of employment changes in the last year (Table 17).

11. Tour and travel agencies have significant ratios ofemployment due to e-commerce under scenarios 2 and 3 (Table17). Book/school supplies retailing and newspaper/bookpublishing and printing are the industries with the next highestratios of e-commerce-related employment.

In general, e-commerce-related employment for the 11industries is minimal. Of the total projected employment as of 2005,only 0.5 percent (4,750) can be considered e-commerce generatedunder the second scenario, and 1.6 percent (15,268) under the thirdscenario. However, as pointed out earlier, e-commerce-relatedrevenues in 2005 were projected to reach 0.7 percent and 2.6percent of total revenues in the second and third scenarios,respectively.

12. Industries expected to generate the most jobs for the wholeeconomy (given increases in their respective final demands) in thenext five years are electrical communication equipment, dry goodsand wearing apparel retailing, and telephone services (Table 18).These are the same industries that generated the most employment

Table 17. Percentage of e-commerce-related employmentas of 2005

Model 2 Model 3

Printing and publishing of newspapers,periodicals, books, and pamphlets 0.7 2.9

Electrical communication equipment 0.4 1.6Book, office and school supplies retailing 0.6 3.0Dry goods, textile, and wearing apparel retailing 0.1 0.3Tour and travel agencies 6.1 15.3Forwarding, packing, and crating 0.1 1.4Telephone services 0.4 1.1Mail and express 0.1 0.7Securities dealers/brokers 0.2 0.8Engineering and technical services 0.5 2.7Advertising agencies 0.1 1.1Total 0.5 1.6

Source: Author’s calculations

47

Results

Table 18. Employment generated for the whole economy under scenario 3(2000-2005)

Total Effect Initial Effect Direct and Direct Effect IndirectIndirect Effect Effect

Printing and publishing of newspapers,periodicals, books, and pamphlets 10,710 4,221 6,488 2,803 3,686

Electrical communication equipment 239,143 71,297 167,846 58,305 108,541Book, office and school supplies

retailing 15,368 11,484 3,884 2,081 1,802Dry goods, textile, and wearing

apparel retailing 116,044 86,719 29,325 15,716 13,609Tour and travel agencies 25,480 19,320 6,160 2,891 3,269Forwarding, packing, and crating 17,131 13,149 3,981 1,936 2,045Telephone services 36,976 22,772 14,204 7,105 7,098Mail and express 121 60 60 32 29Securities dealers/brokers 483 269 213 139 74Engineering and technical services 6,941 5,072 1,870 1,149 721Advertising agencies 1,079 439 640 445 195

Source: Author’s calculations

for the whole economy for the past five years (Table 6), the largestprojected revenue levels as of the year 2000 and the biggest absoluteamounts of increases in revenues in the next five years (Table 7).

13. Assuming 80 percent (or partial) substitution of traditionalby online revenues, projections for employment changes are quiteminimal, affecting only 0.26 percent of total employment for theseven intermediary services as of 2000. Viewed this way, theadoption of e-commerce in these seven industries in 2000-2005destroys 865 jobs and generates 7,528 jobs. So, for every job lostdue to the adoption of e-commerce in these seven industries, eightjobs take its place. The industry with the greatest percentage ofemployees that may be affected with the substitution of traditionalrevenues is tour and travel agencies, where 1.1 percent of employeesas of the year 2000 (117 employees) may lose their jobs (Table 19).

14. With regard to employment generated for the wholeeconomy with partial substitution, dry goods, textile, and wearingapparel retailing is seen to cause the most number of jobs lost forthe whole economy—581 jobs under the extreme case of 80 percentsubstitution (Table 20). Jobs lost in this industry comprise 48.3

Employment Impact of Business-to-Consumer E-commerce

48

Table 19. Projected average total employment with partial substitution (2000-2005)

Assumed ATEb as Increase Increase Difference Affected % of of 2000 in ATE in ATE with in Projected % ofE-Commerce without Substitution Increase Employment Revenuesa Substitution (80%) in ATEc as of 2000

(Model 3)

Printing and publishingof newspapers,periodicals, books,and pamphlets 0.67 10,345 4,223 4,167 56 0.54

Book, office and schoolsupplies retailing 1.33 30,326 11,844 11,619 225 0.74

Dry goods, textile, andwearing apparelretailing 0.33 273,689 89,436 88,988 448 0.16

Tour and travel agencies 0.53 10,508 19,778 19,661 117 1.10Mail and express 1.33 1,427 63 62 1 0.07Securities dealers/

brokers 4.00 3,684 271 255 16 0.43Advertising agencies 0.33 6,353 443 441 2 0.03Total 336,332 126,058 125,193 865 0.26

a Share of online revenuesb Average Total Employmentc Increase in ATE without substitution and that assuming 80 percent partial substitutionSource: Author’s calculations

percent of 1,202 jobs lost for the whole economy in the sevenindustries. In other words, for every job lost due to e-commerce,12 jobs take its place.

15. With adjusted technical coefficients for wholesale and retailtrade, there may be 5,858 jobs generated for the 11 industries underthe third scenario (Table 21). This is in addition to the 15,440 e-commerce jobs generated in scenario 3. In sum, e-commerce replaces1,202 jobs and creates 21,298 jobs for the whole economy. Thisaccounts for just 0.93 percent of the total employment as of theyear 2000. With adjustment of coefficients, scenario 3 will have a0.61 percent difference in total jobs as of 2005 compared with theoriginal estimates.

16. As a result of adjustment of coefficients, the differences ofemployment generated for the whole economy with the original

49

Results

Table 20. Differences in employment generated for the whole economywith partial substitution (2000-2005)

Assumed Employment Employment Difference % Difference % of Generated Generated inE-Commerce without with Employment Revenuesa Substitutionb Substitution Generatedc

(Model 3) (80%)

Printing and publishing ofnewspapers, periodicals,books, and pamphlets 0.67 10,710 10,568 142 1.30

Book, office and schoolsupplies retailing 1.33 15,368 15,076 292 1.90

Dry goods, textile, andwearing apparel retailing 0.33 116,044 115,463 581 0.50

Tour and travel agencies 0.53 25,480 25,330 150 0.59Mail and express 1.33 121 118 3 2.50Securities dealers/brokers 4.00 483 454 29 6.00Advertising agencies 0.33 1,079 1,074 5 0.46

a Share of online revenuesb Substitutionc Employment generated without substitution and that assuming 80 percent partial substitutionSource: Author’s calculations

estimates are as low as 2.1 percent (of original estimates) forsecurities dealers/brokers, to 6.6 percent for printing andpublishing of books/newspapers under the third model (Table 22).Both book and school supplies retailing, and dry goods and wearingapparel retailing, which are both classified under wholesale andretail trade, have a 28.6 percent difference with the originalestimates.

17. With the assumption of partial substitution and adjustmentof coefficients, estimates remain the same, except for the twoindustries under trade—book and school supplies retailing, anddry goods and textile retailing. The former can cause 13 more joblosses compared with the estimates that assume the originalcoefficients, while the latter can cause 25 more jobs to be affected,under the extreme case of 80 percent substitution (Table 23).

18. In terms of employment in the whole economy with partialsubstitution and adjustment of coefficients, there might be 167 more

Employment Impact of Business-to-Consumer E-commerce

50

Table 21. Projected average total employment with adjusted coefficients(2000-2005)

ATEa as Increase Increase Difference Affected of 2000 in ATE in ATE with in Projected % of

without Adj. Coeff.b Increase EmploymentAdj. Coeff.b (80%) in ATEc as of 2000 (Model 3)

Printing and publishing of newspapers,periodicals, books, and pamphlets 10,345 4,223 4,223 - -

Electrical communication equipment 213,307 165,863 165,968 105 0.05Book, office and school supplies

retailing 30,326 11,844 12,512 668 2.20Dry goods, textile and wearing

apparel retailing 273,689 89,436 94,479 5,043 1.80Tour and travel agencies 10,508 19,778 19,778 - -Forwarding, packing, and crating 24,724 13,193 13,194 1 0.00Telephone services 45,533 22,916 22,956 40 0.09Mail and express 1,427 63 63 - -Securities dealers/brokers 3,684 271 272 1 0.03Engineering and technical services 12,267 5,144 5,144 - -Advertising agencies 6,353 443 443 - -Total 632,163 333,174 339,032 5,858 0.93

a Average Total Employmentb Adjusted coefficientsc Assuming the original technical coefficients of the 1994 I-O table, and the one with adjusted coefficients.Source: Author’s calculations

Table 22. Projected employment generated for the whole economy with adjustedcoefficients (2000-2005)

Original Employment Difference in %Estimatesa Generated Employment Difference (Model 3) with Adj.b (Model 3) Generated

Printing and publishing of newspapers,periodicals, books, and pamphlets 10,710 11,420 710 6.6

Electrical communication equipment 239,143 254,956 15,813 6.6Tour and travel agencies 25,480 26,059 579 2.3Forwarding, packing, and crating 17,131 17,598 467 2.7Telephone services 36,976 38,085 1,109 3.0Mail and express 121 125 4 3.3Securities dealers/brokers 483 493 10 2.1Engineering and technical services 6,941 7,091 150 2.2Advertising agencies 1,079 1,105 26 2.4

a Assuming the original technical coefficients of the 1994 I-O table.b Assuming adjusted technical coefficients of the wholesale and retail trade sector.Source: Author’s calculations

51

Results

Table 23. Projected average total employment assuming partial substitutionwith adjusted coefficients (2000-2005)

Assumed ATEb as Increase Increase Difference Affected % of of 2000 in ATE in ATE with in Projected % ofE-Commerce without Substitution Increase Employment Revenuesa Substitution (80%) in ATEc as of 2000

(80%)

Printing and publishingof newspapers,periodicals, books,and pamphlets 0.67 10,345 4,223 4,167 56 0.54

Book, office and schoolsupplies retailing 1.33 30,326 12,512 12,274 238 0.78

Dry goods, textile, andwearing apparelretailing 0.33 273,689 94,479 94,006 473 0.17

Tour and travel agencies 0.53 10,508 19,778 19,662 116 1.10Mail and express 1.33 1,427 63 62 1 0.07Securities dealers/

brokers 4.00 3,684 272 256 16 0.43Advertising agencies 0.33 6,353 443 441 2 0.03

a Share of online revenuesb Average Total Employmentc Increase in ATE without substitution and that assuming 80 percent partial substitutionSource: Author’s calculations

jobs that can be affected as a result of a change in final demand fordry goods and wearing apparel retailing, and 84 more jobs forbook and school supplies retailing under a substitution rate of 80percent (Table 24).

Employment Impact of Business-to-Consumer E-commerce

52

Table 24. Estimated number of jobs affected assuming partial substitution withadjusted coefficients (2000-2005)

Estimated Number of Jobs Difference from Previous \ Affected for the Whole Projectionsb

Economya

40% 60% 80% 40% 60% 80%

Printing and publishing of newspapers,periodicals, books, and pamphlets 75 113 151 4 6 9 6.3%

Book, office and school suppliesretailing 188 282 376 42 63 84 28.8%

Dry goods, textile and wearing apparelretailing 374 561 748 83 125 167 28.8%

Tour and travel agencies 77 115 154 2 2 4 2.7%Mail and express 1 2 2 - - - -Securities dealers/brokers 14 21 29 - - - -Advertising agencies 2 3 5 1 1 - -

a Assuming adjusted technical coefficients of the wholesale and retail trade sector.b Assuming the original technical coefficients of the 1994 I-O table.c Assuming 80 percent partial substitution (the percentage difference is computed as the difference of projections against the original estimates).Source: Author’s calculations

53

VI

��

Conclusions

Total e-commerce-related revenues as of 2005 are projected toaccount for about 1 percent of (nominal) GDP, contributing up to8 percent of GDP growth. When compared with Asia and the US,these figures suggest that the Philippines’ adoption of e-commerceis slower. Nevertheless, the steady growth of revenues due to e-commerce as well as the increase in contribution (in terms ofpercentage) of e-commerce to GDP growth also suggest that e-commerce has the potential in promoting overall Philippine growthand recovery in the long term.

Among the 11 industries studied, tour and travel agencies,electrical communication equipment, and forwarding, packing andcrating are estimated to grow the most in terms of employment inthe next five years under the three formulated scenarios. Of the 11industries, the greatest impact of B-to-C e-commerce in terms ofemployment generation may be felt by tour and travel agencies.

Business-to-consumer e-commerce is seen to provide analternative distribution channel in the value chain of industries assome intermediaries may now be bypassed. Thus, the points onthe value chain that might be affected are those involvingdistribution, particularly wholesale and retail trade. At the sametime, B-to-C e-commerce is also seen to create new points on thevalue chain with new kinds of intermediaries. This combination ofdisintermediation and reintermediation, which may bring aboutjob gains and losses, will be dependent on the shifting roles ofbusiness as well as on the purchase channels and processes thatwould be influenced by e-commerce.

Employment Impact of Business-to-Consumer E-commerce

54

Assuming partial substitution of traditional revenues by onlinerevenues, the proportion of affected jobs in the industriesperforming intermediary services is somewhat insignificant.Although the impact on employment displacement may beminimal, the nature of work may nevertheless change. Employeesof the intermediary services who may be displaced as a result ofincreasing online activities and revenues may be deployed assupport staff, where applicable. For instance, travel and advertisingagents, sales personnel from retail stores, and securities dealersand brokers may lose their jobs as these may be replaced by jobs inthe internet channel. However, agents, dealers, brokers as well assales personnel may be deployed as customer service staff attendingto the needs of online customers or retrained to monitor onlineorders and transactions. In some cases, they may also be promotedto higher management or supervisory levels. Moreover, employmentdisplacement effects may be overtaken by expansionary effects dueto the projected increases in demand and, thus, in revenues for allindustries. While it is true that some job descriptions may becomeobsolete in the coming years, it is also true that the newintermediaries and companies expected to arise with B-to-C e-commerce will bring in new jobs. Thus, overall job creation mayabsorb possible job losses with substitution of traditional by onlinerevenues.

Based on scenario 3 with partial substitution (where it isassumed that online revenues comprise 2.6 percent of totalrevenues and replace 80 percent of traditional revenues), e-commerce is projected to destroy 1,202 jobs and create 15,440 jobsfor the whole economy in the period 2000-2005. If the effect of e-commerce on the relationship between the wholesale and retailtrade sectors and the rest of the economy is factored in, the adoptionof e-commerce is projected to create 5,858 more jobs for the wholeeconomy. In sum, the adoption of e-commerce in these 11 industriesgenerates a total of 21,298 jobs and replaces 1,202 jobs. Thus, forevery job lost, 17 jobs take its place.

Since the economy is projected to expand with e-commerce,this study suggests the need for more policies that will first promotee-commerce, such as Republic Act 8792 or the E-commerce Act.

55

Conclusions

Also, it is essential to put the proper infrastructure in place,such as adequate phone lines and personal computers. Since mostpeople cannot afford these media for connection to the internet,the promotion of alternatives to PCs and the provision for affordabletelecommunications services are thus required. An example is thederegulation of the telecommunications industry, particularly thecellular phone service sector, which was already started a few yearsago. This has enabled a number of telephone companies to provideadditional telephone lines, especially in the provinces. It has alsomade the cellular phone more affordable, as evidenced by the surgein subscribers in recent years. In the same light, encouraging newentrants into internet-enabling businesses such as internet serviceproviders (ISPs) and cyber-café businesses by removing somebarriers or granting benefits will also help promote e-commerce.Likewise, encouraging investors in information technology (IT) toprovide support to newly formed companies and joint ventures isalso important.

Sector-specific policies are needed especially for tour and travelagencies, electrical communication equipment, and forwarding,packing and crating—the top three sectors that are expected tohave the largest percentages of employment increases in the nextfive years. There may be a need for more administrative staff,particularly for call support, in tour and travel agencies. Additionalproduction staff (factory workers) may be required in the electricalcommunication sector, especially in the semiconductors industry.Both computer-proficient staff who manage transactions andproduction workers are essential for the forwarding, packing, andcrating sector as firms migrate their operations into the internetand as other industries, specifically the retail trade, need more ofits services. This way, more intangible goods can now be deliveredto various warehouses and homes.

In general, there will be changes in the nature of work—fromthe front to back office—of sectors performing intermediaryservices.30 Employment demand for these industries, therefore, may

__________________30 These sectors are: newspaper/periodical publishing and printing; book, office and schoolsupplies retailing, dry goods, textile, and wearing apparel retailing; tour and travel agencies;mail and express; securities dealers/brokers; and advertising agencies.

Employment Impact of Business-to-Consumer E-commerce

56

shift from agents and blue-collared workers, and toward higher-end management and administrative staff. Industries that areindispensable for the growth of e-commerce—electricalcommunication equipment; forwarding, packing and crating;telephone services; and engineering and technical services—mayexperience a steady or increasing demand for both productionworkers and managerial level personnel. All these imply the needfor multiskilled as well as retrained employees.

Having thus identified some of the sectors that might besignificantly affected by B-to-C e-commerce, it is essential now forpolicymakers to prepare for the possible consequences of this newway of conducting business. Doing so would allow the country toreap the benefits of e-commerce.

57

Conclusions

VII

��

Recommendations for Future Research

Because of the limitations of the data and methodology of thisstudy, the need for further studies is recognized. To determine thecountry’s readiness for e-commerce, there is a need for a studythat puts together baseline data, especially with regard the numberof PCs and online users in the Philippines.

Actual industrial interrelationships can be better estimatedby availing of updated revenue and employment data as well asI-O tables, and including more industries, particularly the bankingand education sectors, in the analysis. With this, the effects ofchanges in the industrial relationships of the banking sector withthe other sectors can also be looked into. The forecast period canbe lengthened to five more years (2005 to 2010), so as to glimpsethe long-term impact of e-commerce on employment.

Since the impact on employment was computed from revenueprojections using interindustry relationships, employmentprojections were based only on the supply side. As such, industries’revenue increases may fail to capture actual changes in consumers’final demand. Further studies could incorporate the demand side,thus also factoring in consumer income. Moreover, since currentB-to-C e-commerce is limited to the local market (i.e., excludingpossible demand from abroad—from overseas workers and Filipino-Americans), further research should include demand outside thecountry so as not to underestimate the results.

This study considers the impact of only one aspect of e-commerce (B-to-C) on the 11 industries and does not include theeffects of the business-to-business (B-to-B) aspect of e-commerce.It would thus be interesting to note the effects of both B-to-C and

Employment Impact of Business-to-Consumer E-commerce

58

B-to-B e-commerce, since at present, B-to-B accounts for a biggershare of e-commerce revenues in the US.

More importantly, studies can also be undertaken� First, to analyze the implications of the results of the

foregoing study on different economic policies and issues such asthe liberalization of some industries.

� Second, to study the e-commerce laws needed and itsrelated issues of security and encryption, taxation, consumer andvendor protection, etc.

� Finally, to analyze the societal implications of e-commerce,including that on education, health, income, and quality of life.

59

Appendices

Appendix AOverview of e-commerce31

Different sources have varied definitions of e-commerce. To some,e-commerce may include electronic data interchange (EDI),electronic funds transfer (EFT), and all credit/debit card activity.Others limit electronic commerce to retail sales to consumers forwhich the transaction and payment take place on open networkslike the internet. The first definition refers to forms of e-commercethat have existed for decades and result in trillions of dollars worthof activity everyday. The second, on the other hand, has existedfor about four years in the US and is barely measurable.

This study will consider e-commerce as commercialtransactions involving both organizations and individuals that arebased upon the processing and transmission of digitized data(including text, sound, and visual images) that are carried out overnetworks using nonproprietary protocol through an open standardsetting such as the internet.

The potential of e-commerce is large because it dramaticallyreduces the economic distance between producers and consumers.Consumers can make their purchases directly without involvingtraditional retailers, wholesalers, and distributors. In the process,they benefit from improved information, lower transaction costs,translating to lower prices and wider choices. Consumers’ choicecan now be tailored to individual requirements and intangiblegoods and services may be delivered in digital form. There are alsoadvantages for producers and retailers. With e-commerce, theyare able to gain easy access to a global marketplace. Lower inventorycosts and better inventory management results from not having tomaintain any inventory at all.

__________________31 The following discussion is drawn from OECD (1998b); OECD (1997b); and The Economist,“Shopping Around the Web” (2000), Vol. 354 No. 8159.

Employment Impact of Business-to-Consumer E-commerce

60

E-commerce has four general segments: business-to-business(B-to-B), business-to-consumer (B-to-C), consumer-to-business (C-to-B), and consumer-to-consumer (C-to-C). B-to-B e-commercerefers to large-scale internet transactions between companies orgroups of them. Examples include the purchase process of rawmaterials by car manufacturers in the US, such as General Motorsor Ford. B-to-C embraces normal retail activity on the web, suchas bookselling by Amazon.com or online stockbroking by CharlesSchwab. C-to-B, a smaller component of e-commerce, takesadvantage of the internet’s power to drive transactions the otherway around. For instance, passengers bidding for airline ticketson Priceline.com. In effect, airline companies are left to decidewhether to accept these offers or not. Finally, C-to-C refers to e-commerce between individuals and covers a new kind ofconsumers’ auctions as that in eBay.com, where consumers bidagainst each other. The four different segments of e-commerce isshown in Table A.1.

Table A.1. The e-commerce matrix

Business Consumer

Business B-to-B B-to-CGM/Ford AmazonEDI networks Charles Schwab

Consumer C-to-B C-to-CPricelineAccompany QXL

eBay

61

Appendices

Appendix BInput-output methodology

The 177 by 177 input-output make-and-use matrices (obtained fromthe 1994 data of the National Statistical Coordination Board) wereaggregated into 35 by 35 matrices, taking into consideration thenine industries classified as e-commerce related and other industriesthat may be relevant to their respective inputs and outputs. Thegroupings are indicated in Table B.1.

The aggregated I-O tables for both the make matrix (industryx commodity) and use matrix (commodity x industry) were usedto obtain the technical coefficients of the industry x industry matrix.

In the analysis on employment, the individual impact wasconsidered, where one sector exhibits a change in final demand(the impacting agent). The resulting impact was seen on the sectorthat exhibited the change as well as the other sectors and the wholeeconomy. The following formulas were utilized:

(a) Initial, direct and indirect effect: ΔL = l [I - A]-1 ΔY(b) Direct and indirect effect: ΔL = l [(I - A)-1 - I] ΔY(c) Indirect effect: ΔL = l [(I - A)-1 - I - A] ΔY

whereΔL = change in employment in sector that exhibited a

change in final demandl = diagonalized matrix of labor employment coefficients

(li)32

I = identity matrixA = matrix of technical coefficientsΔY = change in final demand in one sector

The column sum of the column matrix ΔL equals the totallabor generated for the whole economy due to a change in finaldemand for one industry. Results from (b) were subtracted from

__________________32 li = Li/Xi where Li = labor employed at sector i; and Xi = output at sector i

Employment Impact of Business-to-Consumer E-commerce

62

__________________33 Items in bold face lettering are the industries classified as e-commerce related and are thefocus of this study.

Table B.1. Groupings of industries in the I-O table33

Group Columns Industries

1 1-27 Agriculture, fishery, and forestry2 28-37 Mining and quarrying3 38-68 Food, beverage, and tobacco4 69-84 Textile, footwear, and leather5 85-95 Wood and furniture6 96-98, 101 Paper and commercial printing 7 99-100 Printing and publishing8 102-110, 116 Chemical and chemical products9 111-112 Products of coal and petroleum10 113-115, 117-124 Nonmetallic mineral and rubber products11 125-136 Basic metal industries and metal fabrication12 137-142 Manufacture of other machinery except electrical13 143-144, 147-151 Electrical machinery14 145-146 Electrical communication equipment15 152-157 Transport equipment16 158-169 Miscellaneous manufacturing17 170 Construction18 171-173 Electricity, gas, and water19 174 Wholesale and retail trade20 175-184, 187 Land, water, air transport and storage and warehousing21 185 Tour and travel agencies22 186 Customs brokers and other services allied to transport23 188 Telephone service24 189-190 Postal, messengerial, and other communication services25 191 Banking26 192 Investment, financing, and nonbanking services except pawnshops27 193-195 Pawnshops and insurance28 196, 198 Real estate development and ownership of dwellings29 197 Letting, operating real estate, and other real estate activities30 201 Engineering, architectural, and technical services31 202 Advertising services32 199-200, 203-208,

210-212, 218-223 Other private business and personal services 33 213-217, 224-226 Other private recreational services/hotels, restaurants 34 209,227 Education35 228-229 Public administration and public health

Source: Author’s calculations

63

(a) to obtain the initial effects and likewise, results from (c) weresubtracted from (b) to get the direct effects.

For the formulas above, it was assumed that the percentagechange in revenues is equal to the percentage change in finaldemand, and that the 1994 I-O table (with its correspondingcoefficients and final demand values) is still applicable in thefollowing year, 1995.

Table B.2. Summary of formulas used for revenue projections (1998 – 2000)

1998 1999 and 2000

1) Printing and publishing of newspapers,periodicals, books, and pamphlets Formula 3b Formula 3b

2) Electrical communication equipment Formula 3b Formula 3b3) Book, office and school supplies retailing Formula 3b Formula 3b4) Dry goods, textile, and wearing apparel retailing Formula 3b Formula 3b5) Tour and travel agencies Formula 3b Formula 3b6) Forwarding, packing, and crating Formula 3b Formula 3b7) Telephone services Formula 2 Formula 3b8) Mail and express Formula 3a Formula 3a9) Securities dealers/brokers Formula 3b Formula 3b10) Engineering and technical services Formula 3b Formula 3b11) Advertising agencies Formula 2 Formula 3a

Source: Author’s calculations

Appendices

Employment Impact of Business-to-Consumer E-commerce

64

Appendix CSampling procedure of 1995 ASE and definition of variables

The latest data obtained from the Annual Survey of Establishments(ASE) published annually by the National Statistics Office is as of1995.34 The 1995 ASE is a nationwide survey of establishmentsengaged in the following economic activities as defined in the 1977Philippine Standard Industrial Classification (PSIC):

1. Agriculture, fishery, and forestry2. Mining and quarrying3. Manufacturing4. Electricity, gas, and water5. Construction6. Wholesale and retail trade7. Transportation, storage, and communication8. Financing, insurance, real estate, and business services9. Community, social, and personal services

The 1995 survey covered all establishments regardless of typeof ownership and economic organization, including government-owned establishments. Also included are establishments that areeither single units or part of multiestablishment enterprises.However, ancillary units (except main offices) that function onlyin support of the parent establishments, were excluded. Alsoexcluded from this survey were:

1. Agriculture, forestry, and fishery establishments with lessthan 10 persons engaged and not registered with the Securitiesand Exchange Commission (SEC);

2. Mining and quarrying establishments with less than fivepersons engaged and are not registered with the SEC;

3. Sari-sari stores with no regularly paid employees;4. Individual transportation unit (i.e., motor launches, boats,

and bancas operated by transport establishments); tricycle, jeepney,pedicab, and calesa operators;

__________________34 The definitions and procedures are based on the 1995 Annual Survey of Establishmentspublication.

65

5. Government postal and telegraph system;6. Establishments engaged in letting and operating real estate

such as residential and nonresidential buildings, including rentalof land;

7. Religious services and civic organizations;8. Business, professional, and labor associations;9. Domestic services;10. Foreign diplomat missions, international organizations,

and extraterritorial bodies;11. Individual professionals and technical workers or

craftsmen who do not maintain fixed offices or shops;12. Public education services;13. Public administration and defense;14. Public medical, dental, and other health services;15. Pseudo-establishments found in stalls, booths or stands

that could easily transfer or disappear, e.g., open market stalls,movable magazine and book stands, barbecue and pizza piebooths, bingo stands, and shooting galleries in ferias.

The establishments listed by the NSO (from the updated listof establishments in the 1994 census of establishments) wereclassified into five categories based on Average Total Employment(ATE):

1. with ATE 1-92. with ATE 10-193. with ATE 20-494. with ATE 50-995. with ATE 100 or more

The following are the definitions of some variables used inthe survey:

1. Establishment – an economic unit which engages, under asingle ownership or control (i.e., under a single legal entity), in oneor predominantly one kind of economic activity at a single fixedphysical location.

2. Average Total Employment (ATE) – is the total employmentof the pay periods nearest the middle of each quarter (February15, May 15, August 15, and November 15) divided by four (4),

Appendices

Employment Impact of Business-to-Consumer E-commerce

66

regardless of the number of quarters the establishment was inoperation.

3. Revenues – includes cash received and receivable for goodssold and services rendered.

4. Total value of output – includes total value of products sold,receipts from contract work and industrial services done for others,receipts from goods bought and sold in same condition, fixed assetsproduced on own account, and change in inventories (ending lessbeginning of finished products, work-in-process, and goods forresale).

The establishments are stratified by region, by three-digit orfour-digit PSIC code, and by employment size (average totalemployment or ATE). For each stratum, establishments wereselected using systematic sampling ratios specified in the followingtable:

Table C.1. Systematic sampling for the 1995 annual survey of establishments

Average Total Employment Size (in percent)1-9 10-19 20-49 50-99 100 or more

Agriculture, fishery, and forestry 20 50 50 100 100Mining and quarrying 20 50 50 100 100Manufacturing 2 10 25 50 100Electricity, gas, and water 20 50 50 100 100Construction 20 50 50 100 100Wholesale and retail trade

Wholesale trade 2 10 25 50 100Retail trade 1 10 25 50 100

Transportation, communication, storageand warehousing 10 50 100 100 100

Financing, insurance, real estate,and business services 5 10 25 50 100

Community, social, and personal services 2 10 25 50 100

Source: 1995 Annual Survey of Establishments

67

Appendix DMethodology for revenue and employment projections

1. Revenue projections for 1996-1998:

a) CalculateFormula 1:

where T = revenues from Top 7,000 Corp.35 ofcorresponding industry

A = revenues from ASE of correspondingindustry

i = years 1990, 1991, 1992, 1993, 1994

b) Assume thatFormula 2:

where x = years 1996, 1997, 1998.

c) Derive for Ax in the corresponding years in Formula 2 toobtain the projected revenues.

Appendices

T

A=

Tx

Ax

AVE

__________________35 Publications available for the Top 7,000 are as of 1990 to 1994 and 1997 to 1998. Data fromthe Top 12,000 were obtained for the years 1994 and 1998. Hence, this set was utilized for1994 and 1998.

Ti

Ai

Employment Impact of Business-to-Consumer E-commerce

68

2. Revenue projections for 1999-2000:

a) In the absence of actual data from the Top 7,000Corporations for the years 1999-2000, the GVA of the majorindustry group corresponding to the industry was used as a proxyvariable.

b) Assume either of Formula 3a or 3b:Formula 3a:

where g = annual growth rates of nominal GVA ofcorresponding industry group

a = annual growth rates of gross revenues ASEof corresponding industry

m = 1997 (benchmark year)x = years 1999, 2000

Formula 3b:

where G = nominal GVA of corresponding industrygroup

A = revenues from ASE of correspondingindustry

m = 1997 (benchmark year)x = years 1999, 2000

gm

am

gx

ax

=

Gm

Am

Gx

Ax

=

69

c) Using Formula 3a, derive for ax and apply this growth rateto the previous year’s revenue projection. Using Formula 3b, derivefor Ax.

Formula 2 was used for the projections for 1996 and 1997.However, possibly due to the different groupings of the industriesused in the Top 7,000 Corporations publication for 1998, revenuesfor some industries were too low for that year. Thus, for mostindustries in 1998 as well as in 1999 and 2000, either Formula 3aor 3b was used, whichever gave more conservative estimates. Thecorresponding formulas used for each industry for the differentprojection periods are indicated in Table C.1 (Appendix C).

E-commerce-related revenues and employment werecomputed, as outlined in Box D.1 and Box D.2 below:

Appendices

Box D.1. Computation of e-commerce-related revenues

E2i = A2

i – A1i and E3

i = A3i – A1

i

where E2i = e-commerce-related revenues under scenario 2 in year i

A2i = revenue projection under scenario 2 in year i

A1i = revenue projection under scenario 1 in year i

E3i = e-commerce-related revenues under scenario 3 in year i

A3i = revenue projection under scenario 3 in year i

i = years 2001, 2002, 2003, 2004, 2005

Box D.2. Computation of e-commerce-related employment

M2i = L2

i – L1i and M3

i = L3i – L1

i

where M2i = e-commerce-related employment under scenario 2 in year i

L2i = employment projection under scenario 2 in year i

L1i = employment projection under scenario 1 in year i

M3i = e-commerce-related employment under scenario 3 in year i

L3i = revenue projection under scenario 3 in year i

i = years 2001, 2002, 2003, 2004, 2005

Employment Impact of Business-to-Consumer E-commerce

70

Under the assumption of partial substitution, the revenuessubstituted by e-commerce were determined by multiplying thecomputed B-to-C online revenues36 by various substitution rates(20%, 60%, and 80%). Net revenues (adjusted for substitution) werethen obtained by getting the difference of the original projectedrevenues for 2005 and the revenues substituted by e-commerce.New employment projections were then computed (through I-O)using this revised set of revenues. Box D.3 below outlines theprocedure for calculating the revenues adjusted for substitutioneffects.

__________________36 Online revenues for the US were divided by 15 since e-commerce revenues in the US areprojected to be 12.6 percent of GDP by 2004 (eMarketer 2000), whereas e-commercerevenues for the Philippines are forecasted to be 0.8 percent of GDP (based on the author’scalculations). The percentage for the US is approximately 15 times that of the Philippines.

Box D.3. Computation of revenues adjusted for substitution effects

(1) w = wUS / 15 where w = assumed share of online revenueswUS = estimated share of online revenues for the US

(2) Aex = Ax * w Ae

x = online revenues as of year xAx = projected revenues as of year x

(3) Aqex = Ae

x * q Aqex = projected revenues substituted by online revenues, year x

q = assumed substitution rate(4) A’

x = Ax – Aqex A’

x = revised revenue projection for year xx = year 2005

71

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