We all hear endlessly about the on-goings in Silicon Valley, whether it is news about novel start-ups who are out to change the world, daring investors who back these projects, once promising companies that somehow ended up in the start-up cemetery and start-ups that grew to be unicorns.
Now, more and more these innovations are shifting across the globe. US investors who once only had their sights on China or India are increasingly turning their attention to Southeast Asia (SEA) for its sheer size and potential for exponential growth.
Governments across the region are laying the foundations for a strong regulatory and financial support system to back these innovations. Alibaba’s expansion to SEA by acquiring a US$1 billion stake in Lazada, the region’s largest online departmental store, and the recent launch of a second US$50 million (S$68.52 million) “500 Durians” fund by 500 Startups’ in SEA provides further evidence that the region is moving towards a start-up boom.
With so much support in place, why aren’t there any billion-dollar start-up success stories coming from SEA yet?
- Entrepreneurship is booming, but innovation is scarce
A 2015 study by Global Entrepreneurship Monitor (GEM) reported that SEA has become one of the most entrepreneurial regions in the world. According to the report, some 66% in the region view entrepreneurship as a positive career choice, above GEM’s global average of 62.46%. This status is expected to be cemented in coming decades.
But for now, it looks like a case of quantity over quality for entrepreneurs in this region. For even as the start-up landscape flourishes, a looming concern for SEA is that entrepreneurs show only moderate levels of innovation, according to the GEM report.
Over half of entrepreneurs in the region said their products or services are not new to customers, and about 60% of businesses believe that there is high competition, which poses a significant challenge to business viability. In addition, GEM’s report found that more than half of businesses in the region do not expect to generate any jobs, and only 35% expect to create between just one and five jobs.
Ironically, Singapore, which has the lowest entrepreneurship rates in the region – with an established business rate of just 2.9% compared to Thailand’s 33.1% – is the only country that reported significant job creation.
The island republic is also the only country to have a significant percentage of entrepreneurs in fintech, communications, professional and government services. In contrast, the majority of entrepreneurs in the SEA region are in low-growth retail, hotel and F&B businesses.
Silicon Valley teems with tech industry veterans who can provide mentoring and money. In comparison, “there are few entrepreneurs and investors who have the insights on nuances of each of the countries in the region,” Stefan Jung, managing partner at Jakarta-based venture-capital firm Venturra Capital told WSJ.
“By far the biggest limiting factor (here) is the quantity of top entrepreneurs,” Jung added.
- SEA lacks a synergised entrepreneurship system
While the region’s e-commerce firms and start-ups have attracted much venture capital and media attention, many continue to grapple with disparate languages, country-specific regulations and varying consumer preferences that can hamper regional expansion plans.
As a whole, SEA also lacks reliable regionwide infrastructure for payment and logistics, factors that contributed to the explosion of online retailing in China, the report said.
While there is no one-size-fits-all formula for the diverse economies in the region, the GEM report recommends 10 key focus areas to boost entrepreneurship and innovation across the region. These include increasing entrepreneurial capacity through concerted governmental efforts, facilitating meaningful media communications, investing in good IT infrastructure and creating tailored development programmes for entrepreneurs.
- SEA needs time
For a start, SEA’s population of roughly 600 million is pretty young – many of them are under age 40 and are entering the internet economy for the first time using low-cost smartphones.
The same can be said for its start-up ecosystem, which is easily some 5 – 10 years behind the US or Europe. After all, it’s only been some 3 – 4 years since SEA’s tech start-ups became active compared to the US, which began in the early 1990s. Many of the region’s entrepreneurs still lack the experience to turn exciting ideas into successful businesses.
One thing they have to their advantage is SEA’s potential for massive growth. A May 2016 report by Google Inc. and Singapore’s state-investment firm Temasek Holdings said SEA is adding internet users at a faster rate than anywhere else in the world, with about 124,000 new online entrants every day.
Further, the report estimates that the 260 million people currently online in SEA will double to nearly 480 million by 2020 as web access becomes more common. The combined value of the SEA e-commerce and online media industry is expected to rise to US$200 billion by 2025 from the current US$30 billion.
According to Forbes, there were more than 400 active VC investors in SEA looking for their next investment in the middle of 2016. With a significant number of start-ups on large valuations, there is certainly room for greater upscale in SEA’s start-up ecosystem and of course, in producing its first unicorns.