4 Reasons Why Southeast Asian Startups Struggle To Conquer Their Home Turf

In Asia, especially Southeast Asia, this equation looks different. Tech startups don't (or can't) yet wield this level of influence over their local markets.


Benjamin Tan

17 Oct, 2017

4 Reasons Why Southeast Asian Startups Struggle To Conquer Their Home Turf | BEAMSTART News

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In Silicon Valley, new players are emerging to disrupt established industries every day. And the large incumbents in these industries ignore the small startups until it's too late. They then resort to lobbying, investing and legal fights as final recourse. Sometimes they can battle it out, but once a tech company is worth billions -- like Uber or Airbnb -- it's near impossible to eradicate. The annoying startup has grown from a mosquito to an infestation.

In Asia, especially Southeast Asia, this equation looks different. Tech startups don't (or can't) yet wield this level of influence over their local markets due to the following four factors.

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Global tech giants

More ominous and visible than any other factor in Southeast Asia's tech landscape are the large companies from China and the U.S. entering the market. They're each playing a long-term game in their respective industries, from Facebook to Alibaba. And they have more resources than any local player. Whatever problems they face -- such as not understanding the local market -- virtually evaporate next to the amount of cash and talented people they command.

Mark Zuckerberg standing beside Facebook's flagship products. (Photo credit: Josh Edelson/AFP/Getty Images)

And while other major brands focused in brick-and-mortar must work directly with large local players to gain market access, tech giants are more flexible. They don't necessarily need to partner because they have direct access to consumers.

An immature ecosystem

Putting aside the bullish assessments of Southeast Asia's startup ecosystem as an ideal place for setting up businesses or source of engineering talent, it is still a young market. Silicon Valley, by contrast, has arguably had a century of tech development.

There is a smaller talent pool of tech and management employees to run larger companies in the region. Much of that talent needs to be either imported or retrained, which takes years. There is less venture capital and big money to put behind even the good companies. And some of the cash that is available carries baggage. From governments funding startups under their innovation agendas to Japanese or Korean investors parachuting in to local investors with little experience in tech, each income stream comes with its own strings and particular needs. It is not as straightforward as Silicon Valley where most of the money comes from older white men with experience in tech business and relationships with most of the Valley's tech giants (granted, this brings with it its own baggage).

This is true across multiple markets in Southeast Asia simultaneously, making it difficult to obtain cash as well as manage investor expectations.

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The concerns of the government

As with any region, the government and its people have their binaries as far as tech is concerned. In Europe, it's privacy and monopoly. In the U.S., it's innovation and globalization. In Southeast Asia, the question is economic growth, with startup innovation as a potential engine for it.

Governments in Southeast Asia need to maintain the status quo while working to economically uplift their people in a fragmented region. This means that not only is government regulation inconsistent across the region, but that it is also handicapped as it caters to its existing structure. They aren't ready to pave the way for tech companies yet, although there is a growing will to do so.

The power of incumbents

Central Group dominates the retail in Thailand. Each Asian country has similar magnates in their parallel worlds. Photographer: Taylor Weidman/Bloomberg

Against the backdrop of giants, immaturity and government, there are also Southeast Asia's large incumbents. This is sometimes manifested in the form of large family offices, retailers, real estate moguls and telcos -- think of them as the Southeast Asian version of companies like Borders Bookstore, Blockbuster and Walmart in the U.S. These players are naturally keen to extend their influence and empires rather than reset them.

The thing about these incumbents is they are not as brittle as American ones. Some might attribute this to the fact that these large corporates are more closely tied to the governments of their country. But it's multi-pronged. They are also more tied up in the fate of their country's success because they account for such a large part of its GDP. These companies and industries are often the backbone of other businesses and the overall economy.

Incumbents interface heavily with local governments, often partner with entering brick-and-mortar giants, and are slowly getting involved in building the local tech ecosystems. But where tech is very immature, incumbents are very old -- not in age but in mentality and business model. Southeast Asia remains emerging, not developed, and therefore most of its fruit is low-hanging. The opportunities in digital appear to hang high, in the cloud, so to speak.

Where companies can rise

As you can see, these four factors aren't exactly conducive to cohesion, consolidation and certainty. So what does Southeast Asian innovation look like?

We will always get the feeling that Southeast Asian founders are chasers rather than innovators. But this potentially ignores the new world Southeast Asia is privileged to build. China has come slowly out of the woodwork as an innovator, rewiring its society from the ground up in ways the U.S. and Europe cannot. Southeast Asia sits at a similar cusp.

Where Silicon Valley gives birth to emergent businesses that greet the times, Southeast Asia is a place that allows companies to rise.

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