Driven by the copy and paste model of innovation, it’s increasingly clear that the emerging startup and investment opportunities in the Asian region are tilting toward Southeast Asia. It’s the next China opportunity, after India.
From e-commerce to ride-hailing to mobile payment and local services, business models that have worked in China can be easily adapted from Chinese startups and transplanted here. Lookalikes of China’s leading startups Didi, Alibaba, WeChat Pay and more have sprung up in India and now have emerged in Southeast Asia. They are often more advanced than western models, due to a leapfrogging over traditional payment, shopping, transit and services common in the West.
Unicorns are emerging here in the region too – 14 already, and developing more quickly than in the past. While far from the level of China and the U.S., a new report by technology advisory firm North Ridge Partners points to how Southeast Asia is embracing technology much quicker than its Western counterparts thanks to progressive governments, comparatively more affordable and reliable internet connectivity and a large, young population. The comprehensive report highlights several startups on the Asian frontier, brand names that may not be all that familiar in the West - Tokopedia and Lazada in e-commerce, GoJek in ride-hailing, Traveloka in travel bookings, and Grab in local services. All are copies of business models that worked in China, and many are founded by entrepreneurs with overseas education and experience, just like the sea turtles that fed China’s tech entrepreneurial boom some 15 years ago.
Like with China, the leapfrogging effect is a catalyst. Southeast Asia’s tech economy is centered on a mobile-first formula, the smartphone is an essential command center for a new lifestyle built on service apps for instant payments, on-demand food deliveries, travel bookings, online education, and ride hailing. Chris Tran, head of Asia for North Ridge Partners, labels Southeast Asia the most under-rated economic success story and sees growing opportunities for acquisitions and IPOs.
China’s dominant BAT companies – Baidu, Alibaba and Tencent – as well as ByteDance and JD.com are investing throughout the region. They are turning to this region after encountering challenges in further penetrating the U.S. market, as America has woken up to the possibility that China tech is a threat to its continued global dominance and is erecting barriers to more deals by the Chinese in leading technology startups in the U.S.
Softbank’s gigantic tech fund of more than $100 billion has seized upon the Southeast Asian opportunity. The Japanese conglomerate has invested in e-commerce, ride-hailing and food delivery businesses in the region, mirroring its investments in China and owning large segments of the tech economy in Asia. The regional equivalent of China’s ride-hailing leader Didi is Ola in India and Grab in Singapore while the copy of China’s e-commerce giant is Flipkart in India.
The potential to reap benefits from investing in the region is huge. Asian startups typically lag China in development by at least five years. The gap creates an opportunity for Chinese investors who made tons of money betting on China’s lead internet brands to profit from investing in next-generation tech stars in Asia.
Venture investing in India and throughout the region is growing quickly. Among the firms going after deals in the region are Jungle Ventures, Waterbridge Ventures, Qiming Venture, Vickers Venture Partners and GGV Capital.
U.S. business are deal making in the region too. For instance, Walmart swooped in and bought India’s online retailer Flipkart for $2 billion in 2018.
Venture investors see the increasing risks of funding more Chinese startups given the U.S-China tech and trade tensions, and they too are turning toward Southeast Asia. At the recent Asian Venture Forum in Hong Kong, Scott Sandell, managing general partner of NEA in Silicon Valley, still sees exciting startups in China but is taking a pause in further investments until, and if, the heated political and regulatory issues cool. NEA is not the only U.S. venture firm pulling back from China during these tense times for continued successes from China that once pumped up the funds of many of the best-known Sand Hill Road players.
