Opinion: To thrive in Southeast Asia, Japan and Korea should look to China

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For the past five years, Southeast Asia’s tech ecosystem has been on a tear, as more investable, value-driven companies launch products, raise funding, and scale.

There are now eight tech unicorns in the region, covering everything from ecommerce to logistics and gaming. Go-Jek recently raised a staggering US$1.2 billion. And Sea, formerly Garena, recently listed on NYSE (SE).

Much of this activity can be attributed to bottom-up, homegrown innovation from local players, not global giants. While there are exceptions—like Rocket Internet’s Lazada, Uber, and, most recently, Amazon—the majority of Southeast Asia’s most successful tech companies are local, founded to service regional markets, tastes, and consumers.

Conversely, many tech giants that initially came to dominate the region are now struggling:

• Rocket Internet has shut down or sold off almost a half-dozen properties in the region.
• Uber is losing ground to homegrown Grab.
• Amazon has only recently entered into one of the most fragmented, competitive geographies in the world.

China has shown more success in the region, making significant inroads across Southeast Asia. Unlike American companies that prefer competing directly with local incumbents, Chinese companies have taken a more nuanced approach, preferring joint ventures, local investments, and strategic acquisitions to scale across Asia.

They invest (or acquire) local brands with on-the-ground teams and localized tech. Even their payment methods follow local proclivities, permitting cash on delivery in multiple countries—something that Amazon Prime has yet to learn, and one that took Uber over a year.

Now, Japanese and Korean corporates can choose between two approaches:

1. Follow the US model to expand by pushing tech, brand, and talent into a new geography
2. Follow the Chinese model, which treats expansion as a real estate land grab

While Japan and Korea have already devoted a tremendous amount of time, energy, and resources to expanding across Southeast Asia, they haven’t been as successful as they could be.

There might have been some key missteps. In 2014, Rakuten launched a marketplace on existing Japanese tech infrastructure, which is run by Japanese management and did little to adapt to Southeast Asian nuances. Three years later, they shut down the service and wrote off US$340 million.

Korean conglomerate Kakao acquired a faltering US company, Path, for one key global market—Indonesia. But they missed the key point. In order for a company to thrive in these markets, they need an on-the-ground team, with tech localized for unique problems in this region.

There are huge opportunities for Japanese and Korean companies to make land grabs in Southeast Asia. They should look into a major investment into regional logistics companies (e.g. NinjaVan). Fashion and beauty brands should acquire the region’s many ecommerce startups (e.g. France-based Sephora’s acquisition of Singapore-based online cosmetics shop Luxola).