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China’s tech titans wage war in Singapore in scramble for Southeast Asian markets

Written by Low De Wei Published on     9 mins read

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They are turning Singapore into their latest battleground in a pursuit for primacy in the region of Southeast Asia.

A new war to be China’s top tech giant has begun, with the first salvo being fired thousands of miles away from its shores in Singapore, as they compete against each other to carve a bigger piece out of Southeast Asia’s burgeoning tech markets.

The city-state is now host to an intense three-way battle for primacy and talent among three Chinese tech behemoths—ByteDance, Alibaba, and Tencent—with the COVID-19 pandemic having done little to dent ambitious expansion plans.

It marks the next chapter in a push by Chinese firms to seize opportunities in Southeast Asia, which has attracted a sharp influx of capital and talent into the business hub amidst growing interest in one of the fastest-growing tech markets in the world.

Social media giant ByteDance has led this charge among its Chinese peers after announcing late last year that it would expand its operations in Singapore. It has since embarked on a hiring spree, as first reported by the Financial Times. A source with knowledge of the firm’s operations said the company is now spending more on its Singapore operations than any other global office.

Tencent, China’s largest social media and gaming company, has also chosen Singapore as a regional hub for its overseas operations, according to a Bloomberg report published in September last year. It followed a similar decision by e-commerce powerhouse Alibaba Group to snap up office space in the city.

Global ambitions thwarted

China’s tech companies forged an uneasy co-existence in the past decade, even as their operations and revenues exploded, driven by positive economic growth within the country.

But the monopolization of the domestic market by big players such as China’s three tech giants, colloquially referred to as BAT—Baidu Inc, Alibaba, and Tencent—have also hindered young tech upstarts from finding a firm footing. Nearly three-quarters of all online searches in China go through the search engine operated by Baidu, which attracts over a billion users annually, while Tencent’s WeChat mobile messaging app remains ubiquitous.

Some, like Alibaba, have faced serious competition over the years from e-commerce rivals like JD.com and Pinduoduo. But the breakout success of ByteDance’s TikTok in the West, coupled with a desire to find a one-up over entrenched rivals, has attracted tech firms to turn their sights towards overseas markets.

ByteDance has eked out an early lead in this effort. It is currently valued in private at more than USD 200 billion, long surpassing the USD 67 billion market capitalization of Nasdaq-listed Baidu.

But China’s ambitions in the West have been dealt with serious blows amidst rising tensions between the U.S. and China. Despite the new Biden administration declining to support attempts to ban TikTok and WeChat in decrees signed by former President Donald Trump, relations between Beijing and Washington remain at a low ebb, with many Trump-era restrictions on Chinese tech firms set to stay.

The global backlash against Chinese tech continues to grow. U.S. allies like the U.K. have moved to ban the use of 5G technology developed by Chinese telecom giant Huawei, while India has introduced a spate of bans on Chinese mobile apps including WeChat and TikTok since June last year.

ByteDance’s focus on Singapore came after it was forced to retreat from the Indian market in the wake of these bans. But it also reflects the shifting priorities of the company amidst global uncertainties.

Last month, these plans were made clear by the naming of Singapore-born Shouzi Chew as the new CEO of TikTok. The move, which was announced as part of a strategic reorganization by the company to “optimize TikTok’s global teams,” was an implicit recognition of the growing importance of Singapore as a base for driving TikTok’s global expansion, compared to global offices in cities like New York, Tokyo, or London.

Singapore is an ideal gateway for firms seeking to establish a foothold in Southeast Asia, said Xu Ruicheng, an investor with Shanghai-based venture capital fund Grand View Capital. The region’s economic output is forecast to grow by over 40% in the next five years, according to estimates by the International Monetary Fund, with its internet market expected to triple in size to USD 240 billion by 2025, according to a report by consulting and accounting firm PricewaterhouseCoopers.

Large youth populations in countries like Indonesia, which is also the world’s fourth-most populous nation, provide an ideal target for TikTok, which launched its first shopping feature in the country last month.

The Battle for Talent

The dilemma that faced Zhang Xuan, a psychology student who will graduate from a Singaporean university next month, reflects on how intense the battle for local graduates by Chinese firms has become.

Zhang had to choose between offers from Tencent, TikTok Shop, the app’s e-commerce arm, and Shopee, an e-commerce platform based in Singapore. She ultimately chose Shopee and is set to become one of the 40 new graduates joining the company this year.

As a project manager responsible for handling merchant relations on the platform, such as promotional activities, her position is an unorthodox offer for a graduate of her background. But firms like Shopee have broken all the traditional certainties surrounding job recruitment in Singapore.

It regularly hires new graduates with degrees not directly pertaining to the job description while requiring little in the way of professional qualifications or internships, which is often a prerequisite for even tiny local small and medium enterprises. Graduates like Zhang can expect a starting monthly salary of SGD 6,000-7,000 (USD 4,517-5,271), nearly twice the median pay of a graduate in Singapore today.

Locals are taking notice. A report in The Straits Times, a local broadsheet, found that applications for IT-related university programs have surged by 17% in the last three years, with nearly 8,000 admissions last year alone.

Still, local universities are not churning out enough new graduates to meet a growing manpower shortage among tech firms. According to local job-hunting site NodeFlair, which helps companies like Shopee and ByteDance recruit new staff, more than 500 new job openings are posted weekly in the tech sector.

Graduates like Zhang are more cautious now before accepting a job. “I rejected Tencent because I don’t want to travel to Shenzhen or stay with the company for more than five years, which many of my peers eventually do,” she said. Zhang believes she will be able to deal with more engaging challenges at a fast-growing firm like Shopee compared to a mature firm like Tencent.

A source at a tech firm in Singapore echoed this sentiment, saying that most of the staff at firms like Shopee are made up of Chinese expatriates, with few local employees willing to work overtime just to earn extra bucks.

This has pushed tech firms to offer talent in mainland China or Hong Kong more than a 30% pay raise just to take up a new job in Singapore or poach them from a competing firm, said Xu Lei, a programmer working for streaming service Spotify in Singapore. A programmer in Singapore can earn more than those in senior positions in China while enjoying other benefits, such as being spared from China’s notorious “996” working culture.

“Technically, software developers in China are more skilled than their counterparts at a tech company in Singapore. The only real challenge for those working here is the need to overcome the communication barrier,” said Xu. The fact that English is the default language of communication in Singapore also creates other benefits for Chinese programmers who can converse in the language. With major western tech firms like Google and Facebook also expanding their reaches in Singapore, programmers can hone levels of technical expertise previously achievable only in Europe and the U.S.

War by proxy

Beyond recruitment woes, a more intense battle for primacy in the e-commerce space between Shopee and another local e-commerce site, Lazada, has laid the template for future battles to come.

Behind the two firms’ clash lurks a traditional tech rivalry. Tencent is one of the largest shareholders in Shopee’s parent company, Sea Limited, with a 34% stake. Lazada is majority-owned by Alibaba, which has pumped over USD 4 billion into the company since the e-commerce site was founded in 2012.

A series of missteps by Lazada, including regular clashes between the company and management in Alibaba, which led the company to go through three CEOs over two years, poor understanding of unique local conditions, and a botched switch in the back-end interface in 2018, which alienated merchants and disrupted operations, caused the company to lose its early e-commerce lead to Shopee, which cultivated good ties with low-price wholesalers in countries like Indonesia.

Shopee is now the top e-commerce platform in Singapore and other Southeast Asian countries as of 2020. With ByteDance’s TikTok now seeking to break new turf, it is adding new impetus to the war of attrition on the e-commerce front.

The woes of Lazada are also a reflection of the fate of Singapore firms that have become collateral damage in the tech war between Chinese firms. Promising local companies risk becoming part of a pawn in a wider battle as Chinese investors pump in large capital with strings attached, or acquire the company completely.

Ride-hailing app Grab is one such example, having attracted a prominent USD 2 billion investment from Chinese counterpart Didi. In direct competition is Indonesia-based Gojek, which is backed by Tencent to the tune of USD 1.2 billion. Both operate ride-hire services, directly competing with each other in markets like Singapore and Thailand, and both are seeking to break into the digital payment space.

One Southeast Asian internet service insider said that Singapore’s market provides a low-risk but high reward destination for Chinese tech firms to experiment with changes to local companies via investments, rather than a costly direct foray into the market itself.

But another observer, who requested anonymity, warned against any early conclusions about an easy ride for Chinese firms in Singapore or identifying a clear winner. Rivals from the West may ultimately prove to be a more formidable foe, with U.S. e-commerce giant Amazon having a presence in Singapore with its popular Prime delivery service subscription. Social media usage in Singapore is largely monopolized by Facebook and Instagram, depriving Chinese firms and their subsidiaries of a key promotional tool for e-commerce.

Moreover, the observer said, the battle between the tech titans is still happening in the shadows and is largely confined to questions of who is spending the most or poaching the best talent. At the end of the day, it will take a better understanding and adaption to local conditions for one company to land a pivotal blow to the other rather than making small chinks in each other’s armor.

The early clashes in Singapore have yet to answer a bigger question looming over Chinese tech firms’ ambitions for Southeast Asia, said venture capitalist Xu. “Southeast Asia is not a homogeneous market, with conditions varying significantly from country to country,” he warned. The complex conditions of each country mean that tech giants cannot expect to simply invest in a local firm and expect them to do the hard legwork for them.”

Instead, more internet companies in China are finally embracing the need to understand local conditions before expanding into the market. “In the past, Chinese tech firms used to believe that they needed to succeed in the domestic space before going abroad, letting their successes at home speak for themselves,” he said. “The new generation of internet entrepreneurs are focused on the goal of creating a global enterprise from day one.”

The next big battle in Singapore may be on the horizon. Singapore announced the results of a hotly-contested application for licenses to operate digital banks last December. Tencent-backed Sea Group was successful in its bid, along with Didi-backed Grab, although the latter was part of a consortium with local telecom company SingTel. Ant Group, the payment arm of Alibaba, only managed to obtain a wholesale license, which will limit it to serving corporate clients. Meanwhile, a direct bid by ByteDance fell short, although future bids have not been ruled out.

With each company taking a different approach towards expansion, few analysts are certain about who will ultimately pull ahead on this new front. But one thing is certain: in the battle for tech supremacy in Southeast Asia, all bets are off.

 

The original article was written by Yan Junwen for Burning Finance, a series published in 36Kr, the parent company of KrASIA.

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