Southeast Asia: Haven for Digital Startups

Despite the current global financial crisis, the Southeast Asian digital startup scene seems to be burgeoning. From economy powerhouses, like Singapore and Malaysia to the emerging economies, like Thailand and Myanmar, Southeast Asian countries have become a new battlefield for technology (tech) entrepreneurs in recent years.

While there is a significant number of startups failed to launch or take off after funding, Southeast Asia has seen more and more innovative tech startups and e-commerce businesses making headlines in the past couples of years, generating huge profits, fuelling the emerging digital economy that is expected to be worth nearly US$300 billion by 2025.

According to Cento Research on technology investment in Southeast Asia, there are more than 50 digital companies in Southeast Asia valued over US$100 million each with a combined value of more than US$10 billion. At the same time, investments in this region’s tech companies totalled US$7.7 billion in 2019, with a generated liquidity of over US$11 billion between 2014 to 2019.

Thus, it is no surprise that Southeast Asia’s digital ecosystem has immense profit growth potential. Experts predict that by 2024, the digital startup market in this region will produce at least 12 new businesses with a market value of at least US$1 billion each. This has, in turn, transformed Southeast Asia into a promising land for the digital startup, attracted the attention of foreign investors even amid the coronavirus pandemic.

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A Haven for Digital Startups

As an emerging market with lucrative profits, Southeast Asia no doubt has entered the golden era for the development of digital startups. Here are a few reasons why Southeast Asia is a haven for digital startups.

Figure 1: Why Southeast Asia is a haven for digital startups

A Favourable Business Environment

Contrary to public opinion, the economy in Southeast Asian countries has significantly improved in the past couple of years, with a booming GDP expected to reach US$4.7 trillion by 2025. This has led to higher living quality and consumers’ demands, especially in the e-commerce, online travel services and ride-hailing sectors.

According to reports from IPC and Accenture on Asian e-commerce, the Asia Pacific region is predicted to account for two-thirds of the global e-commerce market, with Southeast Asian countries like Singapore and Malaysia potentially rising as significant suppliers. The report also showed that over 50% of the e-commerce activities within Southeast Asian countries are cross-border, reflecting the frequency and demand of Southeast Asian consumers shopping overseas. This has thus enabled Southeast Asia to be the potential breeding ground for new tech unicorns, transforming the regions into a thriving nest of business productivity.

Moreover, frictions between major trading countries China and US continues to mount, the emerging markets of Southeast Asia are increasingly seen as a haven for global investors. All these conditions have thus created favourable market opportunities within Southeast Asian countries for digital startups to explore and grow beyond their limits.

Younger Consumer Demographic

Another key reason for Southeast Asia to emerge as a potential market for digital startup stems from its young consumer demographic. According to a report jointly issued by Google, Temasek Holdings, and Bain Capital, about 26% of Southeast Asia’s population is younger than 14, and the median age currently across the region is 30.7 years. This is significantly higher as compared to China and the United States, where their population under 14 is about 18% and 19% respectively.

As a generation that is being raised in the digital world, these young and upcoming consumers in Southeast Asia has allowed its societies to be more receptive of the digital shift. According to Google research, Southeast Asia population is accounted for 50% of today’s internet users and the average time for one to spend online is the world’s highest, with the Philippines leading at 10 hours a day.

This, coupled with the accelerated shift in mass behaviour towards digital during the coronavirus lockdown, has made Southeast Asia a conducive environment for digital startups and young entrepreneurs to thrive, making it an attractive investment hotspot for tech-driven business ventures.

A Lending Hand from Authorities and Tech Giants

Lastly, the influence of both government and tech giants in Southeast Asia is also a boost for digital startups. Governing bodies in Southeast Asian countries recognised the need for digital transformation and collectively and actively supported the digital scenes by implementing tech-friendly policies as well as developing better national and international strategies.

One such example would be the ratifying and implementation of digital sector-related frameworks within ASEAN countries, like the ASEAN Framework on Digital Data Governance and the ASEAN Digital Integration Framework Action Plan. These frameworks are commitments by the leaders in the Southeast Asian countries to reduce the barriers for regional integration and digital trade, and progress towards building better infrastructure in the technology sector, creating a favourable digital environment for tech startups to emerge.

Besides the support of the government, tech giants aggressive exploration for a diversified business revenue in Southeast Asian countries has also helped to create a favourable environment for digital startups to bloom.

As the domestic digital market is becoming highly competitive and limited, countless established tech companies, ranging from Chinese tech firms ByteDance and e-commerce giant Alibaba to US tech giants, Google, Facebook and Visa have been increasing their footprint in Southeast Asia through high profile investments and expansion plans. Such investments and influence have thus allowed digital startups in Southeast Asia to have the initial capital and resources to kick start and flourish, making the region a potential investment hotspot for tech-driven business ventures.

Challenges to overcome in Southeast Asia

However, it is not all rainbow and unicorn for the digital startup scene in Southeast Asian countries. Both investors and startups have to overcome various difficulties and challenges to enjoy the benefits that Southeast Asia provides fully.

Socio-cultural and language barriers are the most common challenges that investors face in Southeast Asia. It is difficult to apply a one-size-fits-all business model to the entire Southeast Asia region, given the social and economic differences among countries. Networking and negotiation strategies also vary across Asia due to cultural and language differences. These have inconvenienced foreign investors who are not accustomed to these differences, resulting in friction with the local authorities. Thus, mastering the language and understanding the socio-cultural environment of the targeted markets is essential for both investors and digital startups to enjoy the benefits that Southeast Asia provides in business venturing.

Lastly, Southeast Asia is not only home to developed countries, like Singapore, but also many emerging markets, such as Cambodia, Indonesia and Vietnam that may lack in developed infrastructure, formal regulations and local talent pool for technology and management sectors, compared to their more developed neighbours. With the lack of these fundamental resources, the growth of local digital startups in the emerging market may be affected, limiting the growth of the digital scene in Southeast Asia. Thus, it is essential for the local governments to take the initiative and establish strong legal frameworks and better digital infrastructure to attract foreign investors and talents.

Invest in Southeast Asia Now

Despite the challenges, an increasing wealth per capita, high internet penetration and interest from both the government and tech giants, the Southeast Asian digital startups ecosystem still has significant potential for investors, especially those who are willing to look beyond the early- and late-stage startups that dominate the marketplace.

Tapping on to the expertise of Desfran, a cross-border investment specialist is an effective solution to having a more comprehensive overview of Southeast Asia’s dynamic markets and the strategic options for successful tech investment in Southeast Asia. Spearheaded by one of the world’s leading management teams, our team of seasoned experts stationed in more than five cities across the globe, dedicated to providing regulatory compliance solutions across different jurisdiction.  

As a partner who grows with your business, Desfran provides a suite of business solutions which includes new market entry consultancy services, new market requirements like business incorporation and registration, bank account opening, marketing services and regulatory compliance, all of which can all be fulfilled through Desfran’s bespoke solutions.  We continuously stay on top of trends and movements in the financial industry to help your business growth by identifying, maximising your business potential while providing comprehensive customised solutions.

Contact Desfran today.

Reference:

The challenges of investing in Southeast Asia’s startup ecosystem, Techcollectivesea.com

In-Depth: Southeast Asia Becomes Region’s Next Tech Battleground, Caixinglobal.com

Southeast Asia Tech Investment in 2019 [PDF], Dean844.most.gov.vn

Southeast Asia is the promised land for tech startups. Here’s what we need to make that a reality, E27.co

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