Southeast Asia is a highly fragmented region with many opportunities. What are some of the reasons that one should consider starting a business in Southeast Asia?
There have been a few big names like Grab, Go-Jek, Tokopedia, Sea Group and Lazada that come from a region — Southeast Asia (SEA). Why did these startups choose not to start in US or China? Why have even the renowned Alibaba Group chosen to invest in this region? Here are 10 reasons SEA is a great option for your startup.
The population in SEA in 2019 was recorded to be 662 million. This is double that of the second largest economy by GDP (PPP) United States (US) with 329 million. This presents a huge opportunity for any business that is entering to expand from its headquarter countries to this region.
Furthermore, SEA has a population growth of 1.2% in 2019, double that of US at 0.6% and nearly triple that of China at 0.43%. With the rising concern of aging populations that developed countries face, SEA is a promising target for new businesses to enter with a more sustainable market size.
Table 1: Demographics Comparison
Despite this huge advantage in population size with the US, the GDP (PPP) of SEA sits at USD 9.1 trillion, about a third of the USD 25.8 trillion the US market produces. Due to various reasons such as household income and spending habits, SEA still lags far behind the US in terms of GDP. However, its growth rate is much higher, sitting at 4.5% against the 2.1% of US, clearly highlighting the vast potential for the region to grow.
With the diverse cultural background of the region, scaling successfully across the region can be extremely difficult and time-consuming. The opportunity presented by this challenge is the lack of clear market leaders across the region. While Amazon and Apple may claim the highest ranks based on their respective industries in US, different players have only managed to conquer a few countries if not one. Entering a region where the competition is not a multi-billionaire giant has allowed local businesses to continue thriving and growing organically.
Furthermore, through digital spaces, markets which were more inaccessible physically such as villages have become open for businesses to target. In the digital age, this new market that arises could be a game changer as governments continue to expand infrastructure development such as mobile and internet access.
Cash flow problems are lethal to any startup and can even result in business failure at the early stage. The common solution for this in developed countries is to seek funding, which may not always be successful, or having extreme cost control policies that may be counterproductive.
The cost of living in most SEA countries are significantly lower than developed countries. In countries like Indonesia and Philippines, rental spaces are much more affordable for budding entrepreneurs who need time for their business to grow. Living expenses such as food and commuting are also much cheaper, giving the entrepreneur much more space and time to build the business.
Many countries in Southeast Asia have performed exceptionally on the Ease of Doing Business index. With more than half of the countries ranking in the top 100, governments of these countries have been ramping up reforms to boost their economies. This includes opening up their economies to foreign businesses and talent to improve their workforce. In the long term, this is likely to translate to an increase in income and hence household spending.
With some of the lowest tax rates and a slew of benefits to entice start-ups and investors to contribute to their economy, many SEA countries are relatively easy to have a startup compared to a developed country.
One of the trending solutions to expensive rental/leasing fees and unused office space is co-working spaces. Such spaces have exploded in popularity across the region, with entrepreneurs getting tables at such spaces for as low as $200 per head a month. This even includes facilities such as meeting rooms and reliable internet which entrepreneurs may struggle to find at an affordable price.
Ubud in Bali, Indonesia has been transformed from a tourist hotspot to a startup hotspot where entrepreneurs gather in co-working spaces to get work done.
Not only does this save on large expenses, it provides a platform for fellow entrepreneurs to meet and connect with one another. Learning from similar experiences is the best way to avoid common mistakes with minimal costs attached. It can also save valuable time to look for contacts, be it a potential customer, a solution provider or even an investor.
Talent is also significantly cheaper in SEA compared to Silicon Valley. Many SEA countries have eased visa restrictions for foreign talent to contribute to their economies, paving the route for talent to be brought in from around the world. As globalisation continues to diversify the sources of talent, SEA may seem more attractive to graduates from the Asian region.
Furthermore, in a world where skills are showing to be more pivotal than certificates, companies must stop outsourcing their scrutiny based on credentials and prestige but hiring processes. The right processes may reveal a hidden pool of skill-based talent in this region where schools may not be known to be equally prestigious.
With less claim of becoming the next Google or Apple, the investment scene in SEA is not as noisy as in Silicon Valley and poor performing startups are quickly weeded out. In 2019, the number of Pre-A deals more than doubled from 161 to 352 deals, while other stage investments only grew about 20% — 40%, displaying the interest of investors in earlier stage investments in the region.
The emergence of unicorns such as Grab, Go-Jek and Lazada have also pulled the spotlight onto the region for investors, many of which have increased their portfolios in SEA and are in search of the next mega-deal in the region. With the new injection of funds, business owners with an appealing strategy and formidable team can utilise the secured funds to push their business to the next stage.
Policy reform has been and will continue to be at the heart of the economic growth in the region. The easing of restrictions for foreign competition and talent have been essential to the knowledge transfer to these developing economies for their growth. This easing has been evident across the region, though at different paces, with governments considering the balance of protecting their local workforce and growing the economy.
However, seeing as there are still some strict restrictions, we can continue to expect further easing in the future, allowing for faster and more aggressive growth. Government schemes and grants have also helped attract investors into the region through incubator/accelerator programmes and other schemes.
Last but not least, most SEA countries provide entrepreneurs with the environment and work culture they should adopt — work hard, play hard. From beaches to a bustling night life, many SEA cultures support a round-the-clock working lifestyle with 24-hour services available including food, bars and even co-working spaces like cafes.
Keeping a balanced lifestyle without exorbitant bills to pay is definitely one less concern off the occupied mind of an entrepreneur. Having emotional and physical respites, no matter how short, is important to prevent a burnout. To build a successful business, there must be an entrepreneur to carry it far.