The Role Startups Play in the Philippine Innovation Ecosystem

Despite increasing global economic uncertainty, the Philippines strives to develop globally competitive and innovative industries with the implementation of the Philippine technology transfer law. Its promulgation has allowed for innovation borne from publicly funded research to be used by industry in bringing new products and services to the market.

Different collaborative efforts between industry and academe for the commercialization of R&D outputs are already identified in the law—such as licensing, and spin-off or startup creation, but these are yet to be maximized due to various factors. For instance, collaborations between academe and industry remain weak. University policies force researchers to prioritize publication for promotion instead of industry collaboration in bringing R&D outputs to the market. Additionally, university research roadmaps place low priority to outputs that have market potential. Industry-academe collaborations are also mired with IP-related issues. Academic institutions are generally cautious in partnering with industry players because of possible disputes in IP ownership. Finally, effective IP management is seen by both parties as costly and requiring of enormous upskilling of personnel.

These issues occur against the backdrop of a difficult business environment and low prioritization of education and R&D in the national budget. In the past year, despite legal measures in place, ease of doing business in the Philippines remains a challenge while investor protection is still insufficient.[1] The allocation for education and R&D spending remains low in comparison to that of our neighboring countries contrary to the United Nations Educational Scientific and Cultural Organization (UNESCO) recommendation allocating at least one percent of GDP for R&D. As of 2021, Philippine R&D spending is only 0.2% of GDP [2] so the Philippines is investing far less than our neighboring countries on activities that drive innovation, which is why we lag behind the same neighbors in terms of filed patents.

A strong industrial growth model by which industries generate investment and employment while embracing new and emerging technologies has been suggested to overcome these obstacles.

With this growth model in mind, the government established a network of Regional Inclusive Innovation Centers (RIICs) across the country. These institutions act as innovation agents that link stakeholders from government, academe, and industry to address gaps in the innovation and entrepreneurship ecosystem and commercialize R&D outputs that have significant market demand. RIICs are also responsible in building startup accelerators that address issues relating to economic development.

Due to the establishment of RIICs, the Philippine startup ecosystem grew within the past few years. More startups emerged to play a vital role within the innovation and entrepreneurship ecosystem, particularly within the sectors of electronics, automotive, aerospace, agriculture, IT, transport, logistics, finance, education, and services. Currently, there are approximately 700 startups operating in the country. With the support of key players such as the government, accelerators, incubators, universities, and venture capitalists, total valuation of Philippine startups ballooned to US$858 million in 2021.

Despite these developments, the country’s startup ecosystem is still in the activation phase. Further investments in R&D are essential for the ecosystem to proceed the next phase, which is globalization. However, the ecosystem can only so much absorb the influx of capital. Increasing absorptive capacity requires the establishment of more startups. For this to occur, a fundamental shift in the common Filipino mindset is required—from wanting to be employees to becoming startup entrepreneurs that provide a unique solution to a particular market gap. The employee mindset is the final mental obstacle that was overcome by startup founders to eventually become entrepreneurs. This is reflected in the PWC survey of startup founders conducted in 2018 wherein 87% of them stated having started as employees before starting their own startups.

It is widely accepted that despite the greater impact in terms of technology and the unique products and services that they provide, startups face a higher risk than the usual SMEs because of the limited and unique resources the former need in presenting their solution to the market. For instance, startups require the right combination of co-founders, mentors, and employees to come up with a minimum viable product. On top of these requirements, a significant level of honesty and trust is required not only to make sure that important aspects of their unique solution are not prematurely disclosed, but also to ensure that the founders’ vision is achievable, the business expansion plan is viable, fundraising strategy is realistic, and the core intellectual assets are secure. The large risk, limited resources, and the mounting pressure to scale-up faced by startup founders are the reasons why only almost a quarter of startups survive according to the same PWC survey.

We are at the stage wherein we need to reflect whether this industry growth framework is still robust for the ecosystem post-pandemic in terms of viability or sufficiency. Perhaps, new important factors need to be considered to fully achieve the goal of creating and fostering innovation in the different industries. We leave these questions to be answered in the future.

[1] based on the 2021 Global Innovation Index(GII).

[2] GII report