So much of the technology world’s attention now is focused on Southeast Asia (SEA). The region is huge, with ASEAN member states ranking third in the world in population, sixth in GDP, and fourth in trade value. Technology companies see much opportunity as SEA pushes ahead to catch up to other regions. And there’s significant room to grow. ASEAN’s digital economy represents just 7% of GDP today, compared with 27% in Europe, and 35% in the United States.
Yet, despite the opportunity, many technology executives from outside the region struggle to find the right inroads. In our experience, winners often follow six tips to get their growth plans right in SEA: knowing which markets to penetrate, identifying gaps that you can plug, having the right talent strategy at the onset, staying on top of the regulations, and knowing how to play to the region’s fragmented ecosystems.
- Understand where your market is (really).
As a starting point, it’s critical to acknowledge that SEA is a diverse collection of cultures and religions, with Western and Chinese players and countries at different stages of economic development (not just across countries but even within). Because every pocket of the region is unique, it is difficult for any company simply to transfer its success formula to SEA’s various markets. This is true even for dominant players elsewhere—consider Amazon’s struggles to enter and some of the challenges faced by Lazada.
Going on the ground to truly understand the customers who may resonate with your proposition, including determining how big the base is and where these customers are, is thus crucial. Next, carefully review your business formula to ensure you have the right ingredients for local success – across topics as far-reaching as branding, pricing, supply chain, payments, and regulation. The answer may be different across countries and even within a country.
- Leverage one of the last mobile-only opportunities globally.
SEA was late to jump on the smartphone bandwagon. In fact, the vast majority of middle-class users here first held a smartphone in just the last two–three years. Commercial use is only starting to accelerate as these users begin exploring and experimenting with their mobile phones. Based on the trajectories of other markets, Southeast Asia is in the very early stages of real hockey-stick growth for technology players willing to bet on the region. However, companies need to understand that many Western-market solutions designed for desktops or tablets do not translate well to mobile. That is why native mobile solutions (and mobile-centric customer acquisition) have generally outperformed in SEA.
- Find white space.
In many parts of SEA, there is still a shortage of products that truly fulfill consumer needs. White spaces exist throughout the region. Developed markets like Singapore, for example, have a need for high-end seamless service propositions. There is pull for new services and products from the emerging middle class in Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. All told, 50 million new consumers will join the ranks of the middle class from those countries by 2022, contributing to the region’s $300 billion middle-class disposable income. Adding to the white space: Consumers in Tier 2 and Tier 3 cities will have expanded digital access in the years ahead, creating their own abundant demand. An important factor is that, in urban and rural settings alike, online brand preferences now being shaped are likely to last for many years into the future..
- Think about talent strategy early.
Competition for strong business talent in individual markets is intense, and companies need to start recruiting early and feed their organic talent pipelines. Many leading companies have only now hit their stride, with homegrown talent pipelines finally flowing after four or five years. This lesson applies to both business and engineering talent. It is important to invest in developing talent early on, building the ranks with junior hires and offering development programs to help them advance. Throughout the region, there are pockets of deeper talent that companies can tap, such as Vietnam or Thailand for engineering expertise. Bangkok, for instance, boasts a vibrant startup and developer scene and offers relatively strong business talent. By comparison, such talent is generally less available in Indonesia. Alternatively, consider “acquihires”—acquiring a business for its skilled workforce, as companies such as Go-Jek and Google have done in SEA and beyond.
- Understand written and unwritten rules of business.
Regional and country- or local-level digital regulation plays a big role in determining how and where to invest. For example, in Singapore and Thailand, regulatory intervention has spurred the adoption of real-time money transfers, a move that helps incumbent banks. However, Indonesia has been slower to enact such regulations, shifting the advantage to independents that offer e-payments.
On the less formal side, each market in SEA has an established balance of (often family-owned) local business groups and government-linked entities in the economy. Understanding where their interests are touched and how to create a win-win can mean the difference between success or failure in those markets.
The critical lesson: Stay on top of the rules and proactively manage local stakeholders, including political and other influential groups.
- Carefully manage the evolving playing field.
Will SEA go the way of China, with businesses ranging from payments to logistics to gaming linked to proprietary (and closed) ecosystems like Alibaba and Tencent? Or will it continue on its path of relatively more fragmented ecosystems, where individual players do not assume dominant control?
The region’s unique mix of countries and cultures, the distinct urban-rural divide, and the different competitive landscapes, regulatory environments, consumer tastes, supply chains and banking systems all suggest the latter. Some emerging regional players like Lazada are positioned to thrive. Many will become “multi-verticals” over time. However, they are unlikely to take over all consumer needs across markets. The best companies will focus on specific verticals, customer pockets or geographies, often leveraging their home-market experience.
Florian Hoppe, Alessandro Cannarsi, and Aadarsh Baijal are Bain & Company Partners based in Singapore and members of the firm’s Digital practice.
