Philippine businesses slow to adopt AI, study shows

Philippine businesses remain slow in adopting artificial intelligence (AI) despite widespread access to computers and the Internet, according to a study by the Philippine Institute for Development Studies (PIDS). The new study found that adoption is concentrated among larger firms in urban centers, particularly in the Information and Communication Technology (ICT) and Business Process Outsourcing (BPO) sectors, leaving most industries and regions behind.

The study reported that “in the Philippines, the integration of AI into business and industry is still in its nascent stages, with the country ranking below average in AI readiness compared to other Asia-Pacific nations.”

According to the 2023 Asia-Pacific AI Readiness Index, “the Philippines ranks 12th out of the 12 countries included in the index, with an overall AI Readiness score of 35.7 out of 100.”

Business readiness is also low: “In terms of business readiness, the Philippines (25.4) ranks 10th out of 12 countries with a score of 25.4 out of 100.”

The study, entitled Readiness for AI Adoption of Philippine Business and Industry: The Government’s Role in Fostering Innovation- and AI-Driven Industrial Development, highlighted a gap between basic and advanced technology use. It noted that “while basic digital infrastructure is widespread, with 90.8 percent of establishments having computers and 81 percent having internet access, advanced technology adoption remains limited.” Only “21.7%” of establishments have websites and “31.2%” engage in e-commerce.

AI adoption rates remain low and concentrated

“When it comes to specific AI adoption, the paper reports that 14.9 percent of firms use AI and ML technologies.” This places the Philippines behind other technologies: “This places AI as the fourth most adopted FIRe technology, behind Internet of Things (IoT), 5G networks, and automation.”

Overall uptake remains low: “The overall adoption rate of AI across industries was 3.02 percent in 2021.” Moreover, “Only 14.9 percent of firms use AI technologies, with adoption concentrated in urban areas and larger firms, particularly in the ICT and BPO sectors.”

Regional data shows imbalances. “The regional distribution of AI adopters reveals disparities, with National Capital Region, Region VI (Western Visayas) and Region IVA (CALABARZON) leading with 25.4, 14.3 and 11.8 percent respectively.” But “less urbanized areas like the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM), Region IVB (MIMAROPA) and Region XI (Davao Region) lag, indicating possible a widening of digital divide in the future.”

Firm size also matters. “The rate of adoption by employment size confirms that large enterprises, with a rate of 5.29 percent, surpass micro-, small and medium-sized enterprises (MSMEs).” By sector, “The BPO and ICT industry leads with a rate of 7.19 percent and 5.94 percent, respectively, significantly higher than agriculture at 1.55 percent.”

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Key barriers for businesses

According to the study, key barriers for local businesses include limited digital infrastructure, low awareness of AI technologies, significant skills gaps, and insufficient funding opportunities.

“Overall awareness of FIRe technologies, including AI, is relatively low among Philippine firms, with only about 1 in 5 firms are aware of these technologies,” The study said. It also identified education gaps. “The quality of Engineering and Technology Higher Education score of 0.00 indicates weaknesses in the education system for developing a skilled AI workforce.”

Human capital scores reinforce this weakness.

“The country faces substantial challenges in human capital development, as evidenced by its low score of 31.42 in the Human Capital dimension of the Oxford AI Readiness Index.” The study highlighted “low scores in ICT skills (5.08) and Quality of Engineering and Technology Higher Education (0.00), suggesting a significant skills gap in the workforce.”

Infrastructure challenges remain a bottleneck. “Supercomputers (0.00) are entirely lacking, which limits the country’s capacity to process large AI datasets and conduct complex AI research.” Investment is also scarce. “Limited funding opportunities present another significant barrier to AI adoption, with the country scoring only 6.00 in Venture Capital Availability according to the Asia Pacific AI Readiness Index.” This score was described as “extremely low, signaling a lack of funding opportunities for AI startups and innovation.”

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Government initiatives and role

The country scored well in some policy dimensions. “Among the highest scores, Vision (100.00) demonstrates the government’s strong strategic direction for AI, while Data Protection and Privacy Laws (100.00) reflect a solid framework for safeguarding personal data, which is an essential component for building public trust in AI systems,” the study said.

But gaps remain in ethics. “The absence of Ethical Principles (0.00) for AI indicates a gap in guidelines necessary for responsible AI development.” The Philippines also scored just 0.12 in the “Regulation and Ethics dimension.” The study emphasized that the government’s role includes “market facilitation, capability building, and ecosystem coordination.”

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Business examples highlight potential

Where adoption is taking root, companies are reporting results. The BPO industry has been at the forefront of AI adoption, implementing chatbots, natural language processing, and automated customer service solutions.

UnionBank has deployed AI across operations. Its fraud detection systems “enabled UnionBank to detect 19 percent more fraudulent transactions and achieve an 80 percent reduction in the turnaround time for identifying these transactions.” An AI credit scoring system “resulted in the doubling of the bank’s loan approval rate making financial services more accessible especially for the unbanked and underbanked.”

In retail, Lazada’s whitepaper reveals 88% of consumers use AI recommendations to make purchasing choices, and 83% are open to paying for experiences enhanced by AI.

Utilities have also explored applications. AI is a critical component of Maynilad’s Non-Revenue Water (NRW) Management Program, which aims to reduce water losses and improve supply reliability across the West Zone.

Manufacturing is testing generative AI. Mitsubishi Motors Philippine Corporation (MMPC) is redesigning its employee portal with IBM’s (NASDAQ: IBM) watsonx.ai, utilizing GenAI to enhance the employee experience and provide faster responses to inquiries by analyzing internal documentation.

Telecommunications firms are among the largest adopters. “PLDT’s Conversational AI system, powered by a natural language processor (NLP), enables automated customer interactions, such as bill payment reminders and account verification.” The company also uses Wiz AI’s Talkbot Pro, “an AI-powered voice assistant that conducted 3.7 million outbound communications and cut average call handling time from six to three minutes in its first year.”

According to the report, businesses in general have reported benefiting from the AI and machine learning applications through reductions in cost and increased efficiency in business operations.

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