I’ve had the privilege of participating in a panel discussion at the ATxSG Summit, on the state of Southeast Asia’s startup ecosystem in early June 2023. The session posed a number of questions that got me thinking about many things.
Southeast Asia is quickly becoming a hotbed for innovation and entrepreneurship. With a population of over 650 million people, a growing middle class, and a tech-savvy youth demographic, Southeast Asia is ripe for startups to flourish. The region has seen a surge of unicorn companies in recent years. Below are some thoughts that were spurred by the discussion.
What makes a unicorn?
As is often seen in scrappy startups, successful unicorns solve real-world problems for ordinary people in tech-smart ways. They understand what technology can do and push the limits of possibility, disrupting traditional ways of doing things.
One of the distinguishing features of Southeast Asian unicorns is their focus on emerging markets, where they see untapped potential and a growing middle class. There is also a strong product-market fit, which is an essential ingredient for wide adoption. Unicorns also build adaptable, scalable business models that can handle rapid expansion across different markets. They are also exceptionally good at regional adaptation, understanding different cultures, languages, and preferences in the region.
Southeast Asian unicorns develop their business with their core market in mind – in other words, they are very Southeast Asian in their approach. Gojek took the native Indonesian ojek or motorbike riders and digitized the service, making it vastly more accessible to drivers and customers alike. Regional e-commerce giants Shopee and Lazada won the market through its cash on delivery (COD) strategies, appealing to users who are either unbanked or are apprehensive about online payments.
At WIZ, we understand that Southeast Asian customers prefer to speak in their local languages, which is why we design our Talkbots to speak like the local consumer. We empower local businesses to embrace AI by tailoring our products to the market.
Why unicorns matter
Unicorns, being digital and growing by network effects, promote the expansion of internet access and the adoption of digital services in the region, which in turn drives the development of digital infrastructure. They also focus on addressing unique regional challenges and promoting financial inclusion, contributing to the development of a more vibrant and inclusive digital economy.
The focus on emerging markets is an important characteristic because by it, theses unicorns broaden the coverage of the startup ecosystem. Startups from other countries may target more mature markets like the US, Europe, or China, which have established consumer segments and industries. By working in developing markets, Southeast Asian unicorns can help shape these new markets and grow them significantly. They also focus on the emerging middle class that has an increasing purchasing power, which can determine the direction these markets take.
While the ecosystem is continually growing, I believe we need to encourage the growth of unicorns by creating conducive regulatory environments, developing digital infrastructure, and supporting a culture of entrepreneurship and innovation. We also need to strengthen regional collaboration and improve intellectual property protection.
Challenges for “soonicorns”
Aside from unicorns, there are “soonicorns” – startups that have the potential to become unicorns (valued at over $1 billion) but are not quite there yet. The rise of Southeast Asian soonicorns comes with as the region’s growing middle class, improving infrastructure, and supportive government policies. But there are also challenges which are somewhat embedded into the Southeast Asian market. These include market fragmentation, regulatory complexity, lack of access to funding, competition for talent and market share, and a lack of digital infrastructure.
The lack of access to funding, particularly at the early stages, is something that can make it difficult for startups to get off the ground and compete with more established players. However, there are a number of initiatives aimed at addressing this issue, including government-backed funds and private sector investment.
Another challenge facing Southeast Asia’s startup ecosystem is the lack of talent. While there are plenty of young, tech-savvy graduates in the region, many of them lack the skills and experience that startups require. We experience this personally at WIZ. We need locals to do the work in the local languages, and we need them to have some experience in AI or at least have the capacity to grow in the space. And yet, despite this challenge, we have continued to grow and expand into markets that were practically AI deserts. We love that we can bring about this kind of change.
Southeast Asia’s tech ecosystem will likely see more unicorns emerge in the next few years, particularly in the field of AI. And with the rise of unicorns comes the inevitable growth in region’s economy.