As a firm that is familiar with the region, and an early investor of Southeast Asia’s super app Grab, GGV’s managing partners Jenny Lee and Jixun Foo share their thoughts and takeaways on Southeast Asia’s investment scene.
#1 Hop on the Southeast Asia Train Early
20 years ago, the internet began its penetration into China, and today, it flaunts an entirely different market. Aggressive giants have emerged, first-generation portals have risen, and innovation evolved from PC internet to mobile internet.
A look at Southeast Asia reveals how mobile internet is starting to evolve the market… and it’s entirely possible that the same phenomenon could happen here. Transformation of companies and markets will become prevalent, and even crucial to their growth.
A mistake that investors and entrepreneurs in Southeast Asia make is that they look at SEA as one region - when in truth, it is a combination of multiple countries, regulations, cultures and backgrounds.
Take Grab for instance. What started as Mytaxi became GrabTaxi, and finally the all-encompassing Grab we have come to be familiar with. Having transformed from a ride-hailing app to a super app is a familiar trend in China adapted into the SEA market, with these opportunities beginning to permeate into Vietnam, Indonesia, and the likes. Southeast Asia’s infrastructures are often old and prime for an update. Governments and enterprises are looking at Smart City solutions and are hungry for technology that can bring the region to the next level.
This is where existing, proven, and working business models and technology have a chance to penetrate the Southeast Asia market. It offers a good position to find that next unicorn and ride on the growth of the next billion users.
#2 Know What Sets This Region Apart
The one difference Southeast Asia has to China is the fragmentation of the market: a multicultural population and borders across countries. Having to scale businesses across different markets in SEA might be difficult, however, it’s an entry barrier in itself that when overcome, is half the battle won.
Grab approaches this challenge by assembling a multicultural team on the ground to manage operations. As the business scales, engineering talent might be hard to source within the region. This is where centres outside of Southeast Asia come into play. To attract and assemble talent, entrepreneurs have to figure out ways to address issues unique to the region and be able to gather resources in different regions to build their business.
#3 Avoid Common Mistakes and Generalisations
A mistake that investors and entrepreneurs in Southeast Asia make is that they look at SEA as one region - when in truth, it is a combination of multiple countries, regulations, cultures and backgrounds. With different GDPs and spending power, it’s important to avoid looking at the SEA as a homogeneous region.
Southeast Asia has a strong consumption-driven market. With a large majority of users being young and newly exposed to mobile technology, their go-to lies in entertainment, e-commerce and consumption of online content. This means, that while the first wave of platform companies offering online services might see similar success, the market might be more fragmented after that.
Different countries will see their own education companies, fintech companies, and tech-enabled businesses emerge. Many opportunities will come from the enterprise side in localised markets because each country will have a unique regulatory framework.
#4 Build On Existing Infrastructure
While it is important to draw on lessons from China’s digital boom, it’s equally crucial to take into account the context of the Southeast Asian region. A common opinion investors have is that e-commerce investment should take precedence as it did in the US and in China. However, the difference is that e-commerce happened during the PC desktop era, long before mobile internet flourished.
When looking at Southeast Asia, one has to look at the market in itself. An assessment of the existing infrastructure, pain points, current frictions of the market and other aspects have to be made. For instance, kirana stores in India and warungs in Indonesia (small neighbourhood retail stores) commonly operate on a social credit system. A customer can enter a shop and walk out without having to have any credit rated by a platform - a practice created by trust and community habits.
It is important to recognise Southeast Asia for the market it is, and not overlay a US or China model on top of it. Instead, understand the way of life, working style and provide a solution solving pain points in these markets.
#5 Make Predictions and Take Risks
If there was one takeaway from China’s success, it would be this. For companies to grow and generate value, they have to contribute to nation-building in some way. The companies have to figure out ways to improve efficiency. This is so the new economy and growth in the markets can sustain and make a considerable impact on society.
When GGV started investing in Alibaba in 2003, China’s economic growth rate was around 12% and has steadily decreased annually to its current 5-6%. While the figures may be alarming, the growth of China can be assessed in two buckets: the old economy and the new economy. While the old economy’s growth has stalled and even declined, the new economy continues to grow rapidly. Viewed this way, Alibaba and Tencent have growth at up to 50% each quarter.
This growth is made possible by the adoption and diffusion of technologies that change the ways suppliers and consumers behave. The efficiency offered by these companies generates and empowers new economic growth. And this growth is expected to be seen in Southeast Asia in the near future.
