Driving development with business targeting underserved segments

Introduction

Ayala Corporation, founded in 1834, is one of the most diversified conglomerates in the Philippines. Ayala set up the first pharmacy, bank and tram system in the Philippines and has since partnered with the government to facilitate national development by helping develop the Philippines’ strategic industries. With business interests in various sectors including real estate, banking, education, health and energy, Ayala has played a key role in fuelling the economic and social development of the Philippines.

Opportunity/Business Case

Over the last few decades, the Philippine economy has grown rapidly, leading to job creation and higher income for many people. However, the development of necessary infrastructure and social institutions has often struggled to keep pace, particularly with regard to access to essential services such as finance, healthcare and education, as well as water and electricity. Addressing these issues required sufficient resources and expertise from both the government and the private sector.

Ayala recognised the Philippines’ struggles and the group’s vested interest in building strong communities in which the business could thrive. Ayala’s leaders saw an opportunity to leverage the firm’s own resources and expertise to help develop the necessary infrastructure and further drive the country’s social and economic progress. Moreover, the diversified conglomerate had played a significant role in shaping the real estate, banking and telecommunications sectors in the Philippines, and as such was well placed to create social and economic value.

Whilst Shared Value principles had always been a part of Ayala’s investment philosophy, these developments ultimately culminated in a shift in Ayala’s corporate strategy, starting in the ‘90s and continuing up to the present, to one that formally adopted Shared Value with regard to corporate innovation and development. Indeed, this decision was driven by a desire to solve pressing social and economic issues in the Philippines. Taking a Shared Value approach, Ayala adopted the idea of ‘reverse innovation’, which sought to unearth new business models targeting challenging social issues but that crucially were financially sustainable to be scalable. Such models would both generate and in turn be sustained by local markets, subsequently catalysing socioeconomic development until they became more mature, highly profitable businesses. This was achieved by pulling in the necessary resources through a strong partnership with the government to create the required infrastructure for business success.

Ayala’s premise was simple – innovate in areas where key social needs remained underserved and create new economic growth for companies through affordable and replicable business models. This required strong leadership from the top with a long-term vision for the country’s potential and the group’s capacity to drive change. Starting in the ‘90s with an entry into water distribution and telecommunications, this later on evolved to successful entries and ongoing ventures in the fields of healthcare, education, inclusive finance, and energy.

CSV Strategy

Healthcare

Ayala identified healthcare as a high-impact sector in the Philippines due to three major trends that it spotted around 2015: 1) Healthcare was emerging as an important part of the national agenda, given the government’s focus on institutionalizing major healthcare policies and infrastructure. 2) Healthcare is a growth area for the future, given rising healthcare expenditures by both public and private sectors, as well as an expanding share of wallet. 3) The Philippine healthcare sector is ripe for disruption, considering fundamental issues throughout the industry, and across a Filipino’s life – from infant mortality maternal deaths, nutrition issues, persistent illness, and quality of palliative care.

Ayala - Groundbreaking Ceremony

As its contribution to this challenge, Ayala (through its subsidiary AC Health) entered the space with the aim of providing accessible, affordable, quality healthcare to 1 in 5 Filipinos by 2030. Its first foray into this sector was an innovative model of 3-in-1 clinics, called FamilyDOC, that housed a clinic, laboratory, and pharmacy, offering key services at an affordable price point. Ayala intended that these clinics be located at places where they can create the most impact – within high-density communities that were underserved by grassroots-level public health institutions and were quite some distance from larger (and more expensive) facilities. This model targeted ‘non-consumers’ – people who were willing to pay if they trusted they would receive the correct diagnosis and treatment. The majority of the required treatments being quite basic, nurses were perfectly able to administer them with a lower staffing cost for the clinic compared to doctors. Significantly, these required treatments were also some of the critical healthcare needs of its target patients that they either put off treatment until it becomes worse, or would spend a high amount to have treated in tertiary level hospitals. This price saving was passed on to patients allowing a low access fee to basic healthcare. This model proved a great success and was able to scale and serve more than 20,000 grassroots patients by 2017, providing an average 40% saving in consultation fees relative to private healthcare.

Building on this success, AC Health’s FamilyDOC clinics merged with Healthway Philippines Inc., one of the country’s leading primary care clinics networks, in early 2020 to expand the reach of its healthcare footprint. Incorporating 7 specialty clinics and an additional 40 corporate clinics, AC Health is now able to cater to an increasingly broad consumer base, offering a range of out-patient services including specialty consults, specialised diagnostics and ambulatory surgical services to name a few.

FamilyDOC model served 20,000 patients by 2017.

 

This integration with the Healthway network further boosts AC Health’s investments in generic pharmacies and the medicine supply (Generika Drugstore and IE Medica), health technologies (HealthNow), and a tertiary hospital network (QualiMed). AC Health has also broken ground on a specialty cancer hospital, hoping to apply this thinking of affordable, accessible, and quality oncological treatments as a response to the government’s cancer control program. By enabling greater universal healthcare coverage and providing a more holistic scope of care, Ayala was able to meet an essential social need whilst creating a scalable business model.

Education

As unemployment and underemployment are major societal problems and education can bring part of the solution, Ayala entered the education sector through AC Education in 2012. In the same year, it launched an innovative solution called the Professional Employment Program (PEP).

PEP is the bridge between academe and industry. The goal of the program is to significantly increase the employability of graduating students. In a market with stark skills mismatches, where graduates have difficulty in finding good jobs, whilst employers have difficulty in finding properly prepared employees, the key objective of PEP is to help graduates stand out with all the skills (both hard and soft) that are needed for success in industry.

PEP students undergo five months of rigorous training improving their ability to secure and retain a good job. It is a tech-enabled training experience designed to fully simulate the workplace. There are no lectures, homework or tests and the professors role-play as employers. Students are put into real work situations where they are given work-related projects to complete and problems to solve. Outcomes are evaluated against work standards.

Data is a key element in PEP. It allows the program to continuously innovate. Graduates are monitored after graduation to capture the performance of graduates against a range of employability metrics. Strategic partnerships with employers provide visibility on emerging struggles and help forecast future skills requirements.

All these insights allow AC Education, which subsequently merged with iPeople and now has 7 schools with approximately 50,000 students, to understand the evolution and emergence of business needs and prioritise high-demand capabilities in each subsequent iteration of PEP.  As a result, PEP is able to identify gaps and adjust last-mile programs toward the emerging and evolving skills that employers need.

Since its launch, PEP has graduated thousands of students who have gone on to successful careers in sales and retail, banking, finance, IT and BPO, with partners such as Accenture and Ayala Group companies, BPI and Globe.

PEP graduates have achieved very high employment rates and starting salaries. In the school year 2019-20, despite entering the workforce during the first year of the pandemic, PEP graduates at iPeople’s National Teachers College achieved a 94% employment rate within 90 days, at an average monthly wage of Php18,222, a 30% premium over the Metro Manila minimum wage of Php14,007 per month.

AC Education has 7 schools and 50,000 students. 

 

To date, one of the most active partners of PEP is Accenture, whose technology capability lead reported that iPeople is a top partner because of the quality of hires from PEP. He reported that students are equipped with the full package from good attitude and work habits, to good English-speaking skills as well as technical skills. Given the quality of the students, Accenture is working with iPeople to create a longer version of PEP that will include Accenture’s Technology Learning Program. It will be strategically embedded in the curriculum to ensure full integration and alignment. The main objective is to achieve quality scale and support the rapid growth of Accenture.

PEP works because it sits in an innovative employment system that provides workforce development training, recruitment and placement plus labour market intelligence. Beginning in the school year 2021-22, iPeople will have about 2,000 college seniors graduating every year, who will have undergone PEP. PEP is set to scale up significantly as it is now fully embedded in the curriculum of the schools. Through PEP, Ayala has found a sustainable formula to ensure that its graduating students are able to undergo an employability bridging experience that delivers real employment results.

Inclusive Finance

Bank of the Philippine Islands (BPI) is one of Ayala’s core interests and was the first bank in Southeast Asia. Having traditionally served higher-income segments, Ayala had steadily expanded its services to a much broader market, specifically the rising middle-income class as well as the growing number of micro, small and medium enterprises (MSMEs). Ayala recognised that access to financial services in the Philippines represented a significant pain point that had not been adequately addressed so far, hindered social mobility, and prevented the country from becoming a dynamic entrepreneurship hotbed. For instance, only 5% of people had access to credit cards whilst approximately 65% of the population remained unbanked in 2018.

To contribute to the solution, BPI launched BPI Direct BanKo (a play on words, meaning ‘my bank’; and is also the direct Filipino translation of ‘bank’) providing micro-finance to SMEs and social entrepreneurs that were not fully covered by established microfinance institutions and traditional banks. Self-Employed Micro Entrepreneurs (SEME) constitute 99.5% of the total number of businesses in the Philippines – employing 63% of the workforce – and Ayala sought to unlock the productive power and entrepreneurial energy of this significantly underserved segment of the population by enabling access to affordable credit. From its previous iteration as a mobile banking app, BanKo transitioned to a more high-touch model that was relevant to their target clients.

BanKo provides micro-finance to SMEs and social entrepreneurs.

 

BanKo provides convenient and affordable loan products to about 145,000 unique borrowers within their network, facilitating the growth of their operations and in turn the income of young entrepreneurs, ultimately contributing to economic growth. As of 2020, BanKo had 304 branches located in 74 provinces across the country.

Moving forward BPI as an enterprise is looking to partner with startups and larger institutions to enhance its digital service offering and increase revenues.

Energy

Set up in 2011, AC Energy represented Ayala’s first foray into the energy sector to assist in alleviating a power supply gap issue then, as well as harness opportunities brought about by newly enacted laws promoting open competition and renewables. Initially, AC Energy invested in several coal-fired power plants to answer the high demand for energy, which renewables at the time were unable to fully provide. Ayala soon anticipated the unsustainable nature of fossil fuels and saw that the cost and energy efficiency of renewables had significantly improved. The company embarked on a strategic pivot in 2017 to heavily shift towards a renewable and low carbon portfolio.

Towards this end, AC Energy started to gradually divest its thermal coal assets, which reached approximately 500 MW and worth US$574 million, to reinvest in renewable energy, including several wind and solar farms. AC Energy currently aims to fully divest from coal generation assets by 2030. This commitment to decarbonise the portfolio is supported by the issuance of two green bonds – the first being a US$410 million offering, which was the first such bonds in Southeast Asia and was certified by the Climate Bond Initiative; and a subsequent US$400 million green bond offering, certified under the ASEAN Green Bonds Standard and successfully listed in the Singapore Exchange.

AC Energy invested US$574 in renewable energy, including wind and solar farms.

 

From a standing start in 2011, AC Energy has grown rapidly and is now one of the largest energy companies in Asia, with investments in Australia, India, Indonesia, Myanmar, the Philippines, and Vietnam. It aspires to be the largest listed renewables platform in Southeast Asia, with a goal of reaching 5,000 MW of renewables capacity by 2025.

Future Outlook

Digitalisation is a keystone of development for Ayala moving forward, and there is a significant push to adopt and integrate digital technologies throughout their portfolio of companies where relevant. For instance, in the healthcare space, AC Health’s HealthNow telemedicine app has exponentially grown in terms of services offered and userbase, and has proven quite valuable as a teleconsultation, medicine delivery, and COVID-19 vaccination scheduling platform. Similarly, iPeople continues to expand its educational platform and leverage digital technology to adapt the educational offering from preparatory school to university to the future of work.

Moreover, despite the various challenges posed by the COVID-19 pandemic, Ayala has remained steadfast in its determination to partner with the government in addressing key social issues in the Philippines. Working alongside the government, Ayala has procured over 1 million doses of COVID-19 vaccines to be allocated to employees and their dependents, has set up at least 24 vaccination sites across the country, and continues to be a catalyst and convenor of fellow Philippine corporates, civil society groups, and even the Catholic Church for food aid and financial assistance initiatives.

Societal Benefits
Business Benefits 
Development of National Infrastructure – Historically involved in driving the Philippines’ economic growth via investments in key social infrastructure.
Increased Revenues & Profit
Accessible & Affordable Healthcare – Established the leading network of primary care clinics and pharmacies, enabling universal and more affordable healthcare coverage, and serving over 20,000 grassroots patients.
Diversified Businesses – Portfolio including core interests in real estate, banking, telecoms, utilities & infrastructure, as well as healthcare, education and water.
Inclusive Banking – Pioneer of Philippines’ banking system and currently enabling greater financial inclusion through micro-finance to SMEs.
Leader in the market – Set up multiple pioneering business models (healthcare, education, banking) that targeted underserved populations, solved crucial social issues, creating significant economic value in the process.
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