Tech entrepreneurship in Asia has undergone a sea change in the past half decade. While Silicon Valley has remained a barometer for the rest in terms of building a sustainable culture of innovation, Asia is closing the gap.
At the recent Asia Leaders Summit in Singapore, a panel of entrepreneurs and investors talked about the state of the tech startup scene in the region, what the differences are between countries and across time, and how the different companies have strategized their expansion.
China is still big, but it might have trouble globalizing
Like the United States, China is a great anchor market. Many large Chinese companies aren’t expanding outside of China rapidly because investors get rewarded just for investing in the country. A company with US$10 million in revenue out of China would be worth US$200 million in valuation, he says.
Chinese startups also get some “unfair advantages”. Besides being able to raise a lot more money than startups in neighboring countries, these companies also have access to talent that’s not just cheap but plentiful.
“The significant engineering resources mean that at a company you can easily have hundreds of engineers working on a problem,” he says. That explains why Chinese companies tend to prefer building their own products to partnerships or acquisitions.
But China isn’t the same as it was in 2005, when Qunar started. The market for one is getting saturated, and returns-on-investment are shrinking.
Chinese companies are well aware of this. Tencent is bringing WeChat abroad, while Xiaomi is taking its smartphones to Greater China and Southeast Asia. But some challenges might hold these firms back.
Sam Kaneda, founder and CEO of marketing company Yo-ren, says that China’s domestic competitiveness could affect its global expansion plans.
“Their anchor market is too big, so local competitors may catch up easily,” he says. As such, any disruption at home could cause the company to devote attention back to defend its home court, taking energy away from expansion efforts.
These things won’t happen to Japanese chat app Line, which faces a much tamer domestic market.
For the rest of Asia, the story is different
China’s scale dwarfs even large countries like South Korea, Japan, and Indonesia. So when startups from these countries globalize, their strategies may differ.
Shin Takamiya, partner at Globis Capital Partners, says that startups have to choose between addressing the flat global market, tackling the region, or opting exclusively for local markets. The route companies choose depends on the nature of their businesses and the size of the markets.
Paul Srivorakul, co-founder and executive chairman of Ardent Capital, says that he prefers to opt for hyperlocal strategies which involve building businesses that Google and the likes can’t match. It’s a playbook he has followed with his various startups: daily deals site Ensogo, Admax Network, and his latest venture, e-commerce services provider aCommerce.
“As you expand across the region, every market you add is like a multiple. And not just from a funding perspective,” he says. “Each country you expand into adds value to your overall business and your customers. There’s a network effect.”
Doing a startup in Asia, however, may be a matter of biding time, especially if the founder has grand plans but a localized business model.
Ryu Suliawan, co-founder and CEO of Indonesian payment processing company Midtrans, says that while his country is growing into a powerhouse, he will wait until Asia becomes global.
“Instead of globalizing, I’ll let globality come to Asia,” he says.
Ex-Rocket guys and senior executives are flooding the talent market
Startup talent is typically hard to find. But a couple of recent trends have made this less of an issue: the influx of senior executives and ex-Rocket Internet employees into the startup scene.
Ardent Capital’s Srivorakul says that he is seeing more senior staff from big tech companies like Microsoft and Google leave the fold to join the startup world. Although many startups fail due to the founders’ lack of management skills, older talents bring with them a wealth of contacts and leadership abilities.
Rocket Internet‘s arrival into e-commerce has upped the game for startups in the space. While it has been derided for blatant copying and slave-driving practices, he contends that it has actually turned out to be a good thing.
Zalora and Lazada‘s expansive marketing budgets mean that consumers are fast gaining awareness about online shopping, resulting in startups riding on their coattails to get faster adoption from shoppers.
“A lot of our guys are ex-Rocket refugees. It bewilders me why there’s so much churn, but Rocket does provide their employees a lot of exposure to e-commerce.,” he says.
(Editing by Steven Millward)