Instead of just looking to expand into the US and European markets, Australian start-ups also need to consider the opportunities available right there on their doorstep in Southeast Asia.
Successful Australian start-ups eventually reach a certain size and then need to expand overseas into larger customer markets, markets where broader sources of funding and talent are also available. As all the ‘low hanging fruit’ has already been picked in the developed western markets, it will be increasingly difficult for Australian start-ups to break into these incredibly competitive markets.
All start-ups claim to have a global outlook from day one, but this rarely includes Southeast Asia and this attitude for all start-ups, not just Australian, needs to change. Southeast Asia will not be the right move for all start-ups, but the region needs to at least be in the conversation when weighing up potential expansion destinations.
On top of the more than 600 million consumers and over US$2 trillion GDP already produced, Southeast Asia is the only Asian region that was forecast to see GDP growth increase in 2016 — a development which highlights the shift in Asia’s growth story from China to Southeast Asia. Australian start-up Freelancer — which has already made the move into Southeast Asia — has seen staggering user growth of 39 per cent in Singapore and 30 per cent in Malaysia from 2014 to 2015. Freelancer’s Regional Director for Southeast Asia Evan Tan says people in the region are realising the potential of online and ‘mobile’ work, especially those who live far from cities and have less accessibility to traditional work opportunities.
Today’s Western entrepreneurs are obsessed with solving ‘first world problems’. Several companies in the United States are offering to fill up people’s petrol tanks in their work carparks while they work. The outrageous waste of resources required to provide this service notwithstanding, what margin can these firms really be making on ultra-convenient services such as this?
Young Australian entrepreneurs could try and develop the next food delivery app or fashion website, or they could instead look to the hundreds of millions of consumers in Southeast Asia without access to basic services that many Australians take for granted.
For instance, there are 3.1 and 3.8 bank branches for every 100,000 adults in Myanmar and Vietnam respectively. With millions of consumers in these countries having never been exposed to any — let alone traditional — banking services, these markets are perfect for Fintech (financial technology) companies that can offer basic banking services through various technology channels. These services could also act as a lucrative banking beachhead for companies which could then offer these new banking consumers more sophisticated banking products in the medium to long term.
Smartphone penetration and internet speeds across these countries vary, so a suite of solutions under one brand would be required to take significant market share — a business model required for most industries in Southeast Asia.
The Philippines, for instance, has a teacher shortage and the government has shown a willingness to invest in attracting high quality graduates to teaching qualifications. With online learning a huge industry in Australia, with the added enabling factor of time zone similarity, there is opportunity for Australian education technology companies to help train more Philippino teachers and fast track their learning so that they get from textbooks to classroom training much faster.
Indonesia also offers a sizeable market opportunity. With only one doctor per 3.3 thousand people in Indonesia and the added complication of 6,000 inhabited islands, tele-health solutions are going to be in greater demand as telecommunications infrastructure in remote areas improves. The recent introduction (January 2014) of a universal health care scheme (JKN) makes the imperative to quickly leverage technology solutions like that offered by Indonesian start-up HaloDoc strong. The JKN also offers many opportunities for companies that can use technology to improve the efficiency of the scheme and the distribution of its resources.
Success in foreign markets hinges on finding the right local partners, and none are more important than a local market venture capital investor. Venture capital dollars fund expansion of operations but VC local market knowledge and support are the most critical assets for any Australian company looking to enter a new region.
Pitching to investors at the ‘Tech in Asia’ conference, InStitchu (an Australian online tailoring start-up) co-founder Robin McGowan noticed that Southeast Asian investors are generally more willing than Australians to invest in businesses yet to generate profit although have clear and substantial growth potential. Big venture capital dollars are being mobilised to focus specifically on Southeast Asia. Serious VCs are setting up in the region, — such as ‘Slipi-con Valley’ in Jakarta, and are clearly signalling to the market what sort of technologies and industries they want to invest in. Australian start-ups that fit regional venture capital target lists need to put themselves on the radar in Southeast Asia.
Telstra Ventures recently invested around $10m in South East Asian venture fund Monk Hill’s first fund ($100m). This shows both their perception of the potential in the region and their understanding of their need to partner with local assets in markets that they are not familiar with.
The right local partners are everything for a start-up entering a country that they are not familiar with, and especially for any that have never expanded overseas before. Australia’s start-up ecosystem needs to understand and engage with Southeast Asia’s own nascent ecosystem and to develop relationships in the region that could potentially lead to very lucrative and mutually beneficial opportunities. Australia’s biggest technology company Telstra has seen the prevailing economic winds shifting towards South East Asia and placed their first start-up flag in the region. With speed to market a make or break success factor in the start-up sphere, Australia does not want to miss out on leveraging our proximity to the next engine room, or more accurately the next ‘server room’, for world economic growth.
Joshua Tanchel is a Partner in Deloitte Private and leads Deloitte’s Tech Fast 50 Program.