Southeast Asia’s internet economy hits an inflexion point. Internet users in the region are considered one of the most engaged in the world. The region internet economy reached US$72 billion in 2018 and is on track to exceed US$240 billion by 2025, US$40 billion higher than previously estimated. Some of the strongest growing sectors are Online Travel, e-Commerce, Online Media, and Ride-Hailing, according to a Google-Temasek report published in December 2018.
However, for tech startups to scale effectively, founders and teams need to be acquainted with different local user behaviours and problems and regulatory hurdles.
Also, the ecosystem as a whole share a fragmented landscape of digital payment solutions, a lack of online consumer trust many sectors of the internet economy, and a shortage of deep tech talent!
A different market
Southeast Asia requires a nuanced understanding of users from different nations and how they use and value technology in unique ways.
The one size fits all approach for scaling up throughout the region will undoubtedly face many challenges and failures. Understanding the different cultural and economic nuances from each country will surely be the way forward.
GST conducted interviews with key tech leaders in nine different countries in Southeast Asia to understand some of these nuances and challenges.
To help conceptualise Southeast Asia region as one broad tech market, four key points emerge from our interviews. These points will also help to navigate this unique region, generate more successful cross-border expansions, build partnerships, and market expansion in the area.
1. Shared problems across the region
Mobile-first and mobile-only is a crucial principle to understand. Smartphones are the very first personal computers for many in South East Asia and other emerging markets.
As one interviewee explains, in Myanmar alone, people leapfrogged from basically using nothing to a 90 per cent mobile penetration. Similarly, smartphone adoption in 2020 is expected to hit 67 per cent in Indonesia, 71 per cent in the Philippines, and 73 per cent in Myanmar.
While it is clear that technology will provide important solutions to local problems, key infrastructure is severely needed and just starting to develop in many of the developing nations. Some areas to think about are:
--- Health care and micro-benefits that accrue over time, as commissioned work will increase, and talent will be allocated in distributed locations.
--- Common standards to create interoperability between all fragmented digital payments across the region.
--- Last-mile logistics will be key, as e-commerce user bases will keep growing and consumers will demand instant delivery services.
--- Financial inclusion for the unbanked and developing blockchain-powered applications for trade finance, cheap and secure transactions, remittance, and micro-loans.
--- B2B solutions and SAAS models that solve specific problem statements for big companies and conglomerates.
--- Off-grid power and educational technology solutions for the “unconnected.
--- Digital upskilling services and programs.
2. Talent pools and solving the tech talent crunch
Talent seems to be a critical and unresolved challenge for the development of Southeast Asia’s internet economy.
However, our findings show that matching what a company wants to build with the talent pool in a specific market could be a way forward. In Cambodia, for example, one may not find AI experts very quickly, but there is an abundance of app and e-commerce site developers.
Also Read: How to get smart capital in Southeast Asia
Meanwhile, many corporations such as Samsung and Nidec are moving their R&D centres to Vietnam due to the significant pool of talented developers available.
Singapore is already suffering from a tech talent crunch as it aims to add 1,000 fintech jobs every year. In comparison, Taiwan has a legacy in the hardware industry with an abundance of hardware and software engineers coming from their universities—as 25 per cent of all their degrees is in engineering. This talent could be leveraged substantially for Southeast Asia. Thailand also has a vast pool of web designers.
Meanwhile, in the Philippines, some tech startups are solving the tech talent crunch by investing in skilling up their engineers in data science and AI by themselves.
3. Shared regulatory issues
The startup ecosystem has been growing so fast that most governments in Southeast Asia lack legal frameworks for companies to operate efficiently. For example, Vietnam is a new market economy, and the right structures to invest in startup companies are nonexistent.
The same situation goes for the Philippines regarding investment frameworks, but its government is seriously looking into charting regulations and how they apply to SMEs and startups.
Therefore, many startups from the region choose to incorporate in Singapore as an alternative. Taiwan, on the other hand, is launching strong deregulation efforts and creating a strong public and private partnerships through Taiwan Tech Arena and with the launch of the startup visa that is possible to get within four to six weeks.
In Cambodia, as a few of our interviewees explained, there are issues stemming from a complete lack of formal regulation.
While this makes it easy and cost-effective to open an office there, the lack of regulation encourages ambiguous interpretations that could lead to corruption, inefficiencies and red tape.
The result is a lot of wasted time and resources, figuring out how to comply with this red tape and make the process smoother, which can ultimately kill margins.
4. The distributed model for building a tech startup
To succeed as a tech startup, many vital resources, mentors and partnerships are needed—and are impossible to obtain from one country alone in Southeast Asia. Therefore, startups need to leverage several countries at once, including East Asia.
For instance, total private equity and venture investments in Southeast Asia stood at US$23.5 billion in 2017, and in the region, most of these funds are based in Singapore.
As an example of a distributed model to follow, startups could be incorporating and pitching investors in Singapore, leveraging corporate partnerships and investments in Thailand, setting a programming team in Vietnam, picking AI or IoT talent in Taiwan, establishing offices in Taiwan or Malaysia and getting startup visas within four weeks. Targeting test markets such as Myanmar or Cambodia and a growth market such as Indonesia are the ways forward.
Internet technology through smartphone penetration—and increasingly with distributed ledger networks such as blockchain—will provide a platform for people to solve large-scale problems.
It will open an unprecedented opportunity for long-term sustainable growth in emerging markets constrained by the so-called “geopolitical prison”—or bounded by their own geography. And the lack of understanding of Southeast Asia as an integrated tech market will stifle an enormous growth in the tech sector.
5. A market with all key ingredients
Southeast Asia, unlike other markets, is very diverse. To succeed here, a calibrated approach will need to be employed, and startups will also need to evolve rapidly with changing consumer preferences.
While all the right ingredients are there for tech startups in the region and beyond, companies need to navigate carefully, gain local knowledge and familiarise themselves with regulatory requirements and user behaviour. It is not without reason that Southeast Asia is also called a “melting pot of cultures.”
The article originally appeared on e27.