Southeast Asia is stealing the global tech startup spotlight with a surge of companies achieving the once-elusive unicorn status — startups valued at over USD 1 billion. To date, Southeast Asia has produced an impressive 52 unicorns. The year 2021 in particular saw a record-breaking number of startups achieving this coveted status, with notable examples such as Singapore’s Ninja Van and Carro, as well as Vietnam’s MoMo, among others.
As unicorn sightings become increasingly common in the region, one can’t help but wonder: what’s the secret behind their meteoric rise? Join us on this captivating exploration of Southeast Asian tech startups’ journey to unicorn status, as we delve into the driving forces behind their success and the formidable challenges that stand in their way.
Factors Contributing to Success
The ascent of Southeast Asian unicorns can be traced back to a confluence of factors, each playing a crucial role in shaping their success. To begin with, the region’s substantial population, surpassing 650 million, offers startups enormous market potential. This has spurred demand for digital services, particularly in flourishing sectors like e-commerce, fintech, and ride-hailing.
Furthermore, a burgeoning middle class with increasing disposable incomes has driven consumer expenditure on digital services. With mobile devices gaining popularity, startups have adopted mobile-first strategies to cater to this growing audience, expanding their user base in the process.
Indonesian startup Gojek is a prime example of how a burgeoning middle class with increasing disposable income in Southeast Asia is driving consumer expenditure on digital services. Initially a ride-hailing app, Gojek pivoted to a mobile-first super-app model in response to the growing popularity of mobile devices and digital services. They expanded their offerings to include digital payments (GoPay), food delivery (GoFood), grocery shopping (GoMart and GoShop), and even beauty services (GoGlam) — all made possible thanks to high demand and willingness to pay for convenience. This strategy not only expanded their user base significantly in Indonesia but also proved successful in other Southeast Asian markets such as Vietnam, Thailand, and Singapore, demonstrating how startups can leverage the region’s socioeconomic trends.
Lastly, a boom in investment from both local and international venture capital firms has fueled the region’s growth. A report by Google, Temasek, and Bain & Company projects Southeast Asia’s digital economy to reach a staggering USD 360 billion by 2025. This anticipated expansion has attracted significant investment with over USD 8 billion funneled into the sector in 2020 alone, highlighting the region’s immense potential for producing even more unicorns in the years to come.
The Role of Governments and Initiatives in Southeast Asia’s Startup Scene
Government policies, financial incentives, incubators, and accelerators have played a significant role in shaping the robust ecosystem that has empowered Southeast Asian tech startups to achieve unicorn status. Notable examples include:
- Singapore’s Startup SG initiative, which offers various support schemes for local startups
- Indonesia’s “1,000 Startups” program, aimed at nurturing new digital ventures
- The Philippines’ “Innovative Startup Act,” which provides crucial benefits such as tax exemptions and easier access to funding.
The region has also witnessed a surge in incubators and accelerators, including Malaysia’s MaGIC, Thailand’s DTAC Accelerate, and Vietnam’s VIISA. These organizations offer mentorship, resources, and funding to help startups accelerate their growth, further bolstering the startup ecosystem. These supportive measures and initiatives provide us insight into the collaborative efforts that have paved the way for the meteoric rise of Southeast Asia’s tech startups, propelling the region to the forefront of the global startup scene.
Challenges Faced by Southeast Asian Startups
While Southeast Asian tech startups are experiencing growth, they still face a multitude of challenges that need to be addressed. One such challenge is the inadequate infrastructure and regulatory frameworks, which can impede startups’ development. For instance, inconsistent internet connectivity in some parts of Southeast Asia hinders the expansion of potential markets for digital services.
Moreover, the region’s legal and regulatory landscape presents a complex web for startups to navigate. For instance, a tech startup based in Singapore may need to understand the specific laws regarding data privacy and cybersecurity in Malaysia, Indonesia, or the Philippines if they aim to expand operations across Southeast Asia.
In the context of financial technology, if the startup wants to operate in a new market like India, it may encounter varying regulations concerning digital payment systems and cryptocurrency regulations. For instance, while cryptocurrencies may be accepted and regulated in Singapore, they might be restricted or even outlawed in India. This could require major adaptations in the startup’s business model to ensure compliance.
This complexity in the legal and regulatory environment makes it much more challenging for startups to scale across the region, a crucial step towards achieving unicorn status. Startups would need to adapt their business models and practices to each new market, which can be time-consuming, expensive, and divert valuable resources away from their core operations. These constraints pose a significant hurdle for startups aiming for a rapid expansion to earn the prestigious unicorn status.
Lastly, a scarcity of tech talent in the region poses another significant hurdle for startups. Many find it difficult to recruit skilled developers, data scientists, and other tech professionals, which, in turn, can slow their growth trajectory and limit their potential to become industry giants. In fact, a study by Google and Temasek found that Southeast Asia will need an additional 40 million tech workers by 2030 to meet the growing demand for digital services. Several startups have already felt the impact of this shortage:
- Grab, a ride-hailing and food delivery company, has been forced to slow down its expansion plans due to the challenges in recruiting enough drivers and engineers.
- Sea, an e-commerce and gaming company, has had to raise salaries for tech workers in order to attract and retain talent.
- Tokopedia, an e-commerce platform, has resorted to outsourcing some of its development work to other countries due to the lack of available talent in Indonesia.
The Unicorns of Southeast Asia
Numerous Southeast Asian startups have already joined the prestigious unicorn club, skillfully navigating the region’s distinct challenges and capitalizing on the unique opportunities it presents. Here are a few examples:
- Grab, for example, started as a ride-hailing app but has since expanded into other services such as food delivery, digital payments, and financial services. This strategy has allowed them to tap into a growing market for digital services and become Southeast Asia’s most valuable startup, valued at over USD 40 billion.
- Gojek, on the other hand, started as a motorcycle ride-hailing app in Indonesia but has since expanded into other services such as food delivery, payments, and logistics. Gojek has leveraged its extensive network of drivers to become a dominant player in the region’s digital economy, valued at over USD 10 billion.
- Bukalapak, an Indonesian e-commerce platform, has focused on providing access to digital services to Indonesia’s growing middle class. By offering a wide range of products and services, Bukalapak has become a popular destination for online shopping in Indonesia, with a valuation of over USD 4 billion.
- Traveloka, a travel booking platform, has also succeeded by focusing on the unique needs of Southeast Asian consumers. By offering a range of travel services tailored to local preferences, such as flexible payment options and localized content, Traveloka has become Southeast Asia’s largest online travel company, valued at over USD 2 billion.
Southeast Asian Tech Startups Defying Challenges and Reshaping the Global Landscape
The Southeast Asian tech startup ecosystem has made remarkable progress in recent years, witnessing a surge in companies attaining the coveted unicorn status. In spite of the inherent challenges, the potential for these startups to flourish and join the unicorn ranks remains substantial. The convergence of the region’s expansive market, escalating investments, and a youthful, tech-savvy populace form a nurturing environment for startups to prosper.
As the digital economy in Southeast Asia continues its upward trajectory, it becomes evident that more unicorns are set to emerge from the region. By adeptly addressing obstacles and harnessing opportunities, Southeast Asian startups are well-positioned to make a lasting impact on the global tech startup landscape — perhaps even leaving Silicon Valley a tad envious of their unicorn-producing prowess.
All opinions expressed in this piece are the writer’s own and do not represent the views of KrASIA. Questions, concerns, or fun facts can be sent to [email protected].