“My idol is Chen Ou of China,” says Ian Chua, the founder of Malaysia’s Hermo Company, indicating his admiration for the founder of Jumei, a wellknown Chinese online cosmetics retailer.
Hermo, founded in 2012, has done much to meet a growing demand for female makeup products in Southeast Asia. For Chua, however, the inspiration behind his business and its business model can be attributed to Jumei, a retailer that has done much to set the standard for successful online makeup retailing.
In recent years, startups have popped up all across Southeast Asia. Many entrepreneurs, such as Chua, regard Jack Ma, the founder of Alibaba (a Chinese e-commerce giant) and Pony Ma, the founder of Tencent (a Chinese social networking firm) as role models. In fact, in their early stages, both Alibaba and Tencent implemented a business model very similar to that of startups like Hermo.
In addition to strength in both ideas and business models, the establishment of the ASEAN Economic Community has done much to overhaul the region’s traditional economic model. Mobile Internet is making its way to the “forgotten” markets in Southeast Asia, leading to a boom in startups and e-commerce that is only just getting started.
The ‘First’ for 560 Million
When the founders of China’s early tech firms talked about their aspirations to be listed on the New York stock exchange and Indian software engineers began an era of prominence in the world of information technology, many people in Southeast Asia had yet to use a computer for the first time.
“Many young people in Southeast Asia have never owned a traditional computer,” said
Cao Jiatai, a manager at Gobi Partners, a digital media and technology investment company. “Their first computer is their mobile phone. Many firms do not have a website, so they use mobile phones when presenting their business plans to potential investors.”
For investors like Cao, Southeast Asia in recent years has become a land of fantastic opportunity. Market gaps have proven a boon to those looking for opportunities in the region. In 2010, Cao founded Gobi’s first Southeast Asian fund and moved to Malaysia. A native of Shanghai, he said he enjoyed adapting to the vast array of Southeast and South Asian cuisine available across Kuala Lumpur. Just as he felt excitement in his new culinary exploration, Cao felt excited by numerous opportunities for investment across the region.
“For Tuniu, one of China’s largest online travel service providers, 15 percent of its total income comes from Southeast Asia,” Cao explained. “Camera360, an Internet video app, has 500 million subscribers. One-third of them are in Southeast Asia. Fifty million are Indonesian, and 15 million are Malaysian. The total population of Malaysia is only 30 million, which means that one in every two Malaysians is a Camera360 user.”
As China’s technology firms have seen massive success in their domestic mobile Internet market, they have begun to look outside of China to develop new markets. Huawei, the largest telecommunications equipment manufacturer in the world, has established
new training schools in Myanmar. Lenovo, a computer maker, has established extensive operations in Malaysia and is pushing into the Middle Eastern market. Phones made by Asus, a hardware manufacturer, make up around 15 percent of Indonesia’s mobile phone market.
Southeast Asia in recent years has become a land of fantastic opportunity. Market gaps have proven a boon to those looking for opportunities in the region.
Cao points to a variety of factors that make Southeast Asia such a vibrant place for technology companies. The populations of China and Japan are aging, while Southeast Asian populations are generally very young. Internet penetration in the region remains fairly low, but continues to grow. In addition, many experts predict Southeast Asia’s developing economies to achieve leapfrog development in the near future.
Although most of the region’s economic development is slower than China’s, demographics and growing Internet penetration are the factors that point to growth taking off soon. For example, 30 percent of Indonesia’s 250 million people currently have mobile Internet access, and that number is growing all the time.
Over the past six years, Gobi has done well in Southeast Asia. It invested in 22 companies, including online-to-offline, fashion, online retailing, online tourism, enterprise services, new media and mobile Internet companies. Three of the first eight investment projects have achieved 68 percent profits, a rate of return considered extremely strong in the industry.
In March, Gobi announced the establishment of its second Southeast Asian fund, this time in cooperation with Malaysia Venture Capital Management Berhad (MAVCAP). The two firms established a super seed fund of $15 million for investment in startups across the Southeast Asian market.
In China, $15 million is likely to cover only the very early financing of one project. In
Southeast Asia, however, that amount can be enough for a few projects. According to Qiu Jiamu, a Gobi partner, the focus of the super seed fund is on the markets of Indonesia, Malaysia and Singapore. At the same time, it will explore opportunities in other Southeast Asian markets.
At present, the fund has been used to finance five projects in Malaysia, Indonesia and Vietnam, including Nuren (a wedding and child-rearing products e-commerce platform), Offpeak (a restaurant reservation platform), RecomN (on-demand services), Triip (tourism crowdsourcing) and YouthsToday (a youth related activities platform).
Risks & Opportunities
Distinctive features of the Southeast Asian market have brought about distinctive opportunities for investors.
Tripfez is a website which focuses on tourism services for Muslims. Its business model is not dissimilar to that of Qunar, a large Chinese tourism services site. According to Cao, the current annual consumer demand of the global tourism industry exceeds $1 trillion. However, Muslim consumer demand is estimated to only account for 4.8 percent of the current total.
“Muslims make up one-fourth of the world’s population, but tourism-related products for Muslims are extremely limited, especially online,” Cao said. “Startups like Tripfez are finding great opportunities in starting business focusing on the Muslim tourism market. It’s a blue ocean industry with virtually zero competition.”
High returns usually go hand in hand with tremendous challenges. If investors treated the Southeast Asian market the same as the Chinese or Indian market, their investments would evaporate. The gigantic Southeast Asian market has been divided by investors into 11 independent markets, each with its own culture, laws and religions.
The professional teams set up by Gobi are mostly localized. Its Southeast Asian team has eight members, Cao being one of them. Qiu is Chinese-Singaporean. Cai Guohao, the investment director, is Chinese-Malaysian. Gobi also uses cooperative projects with local partners to expand its market share. These local partners include MAVCAP, the Media Development Authority of Singapore (MDA), Kamar Dagang dan Industri Indonesia (KADIN), and the Malaysia External Trade Development Corporation (MATRADE). Such partnerships give Gobi access to a variety of local projects through reliable local partners.
The Malaysia Digital Economy Corporation Sdn Bhd (MDeC) is a science and technology service platform supervised by the Malaysian government which plans to turn the country into a regional center for e-commerce by the year 2020. MDeC owns a network of more than 40 Malaysian agencies whose major responsibility is to assist foreign enterprises investing in the country.
This approach is similar to China’s in earlier stages of its reform and opening up. Instead of providing capital, MDeC provides services related to the application of intellectual property rights, customs duties and corporate loans. MDeC offers preferential treatment to foreign investors by exempting them from customs duties for a number of years.
According to Najat Ahmad Marzuki, a manager at MDeC, in order to enjoy such benefits, investors have to be registered with MSC Malaysia – Malaysia’s national Information Communication Technology (ICT) initiative designed to attract world-class technology companies while grooming the local ICT industry. Currently, there are 229 foreign enterprises registered and eight percent of them are Asian – including 54 from the Chinese mainland. Huawei, along with Zhongxing Technologies (ZTE) and Tsinghua Tongfang, are notable Chinese investors.
ICT accounts for 16.4 percent of Malaysia’s GDP, according to MDeC statistics. For the most part, the ICT industry has been made up of firms registered with MSC Malaysia.
These investment incentives, along with a young population that has embraced mobile Internet with gusto, point to a coming e-commerce and mobile Internet boom in Southeast Asia. Investment in the region’s technology firms has never looked so promising.