Start-ups look north: to the next ‘server room’ of world economic growth

With the ‘low hanging technology fruit’ well picked in the developed Western markets, it will be harder and harder for Australian companies to get their breaks in these competitive technology markets in the future.

Most Aussie start-ups look west and only really consider the U.S and Europe as potential expansion markets.

But some regionally aware entrepreneurs have expanded their lens and looked to our immediate north!

South East Asia is the next China…

With more than 600 million consumers and in excess of AUD$2 trillion in GDP, S.E. Asia, according to the Asian Development Bank, will be the only region in Asia to see GDP growth pick up in 2016.

Australian start-up Freelancer is already enjoying enviable results in S.E. Asia, growing its user base by 39%, 30% and 26% in Singapore, Malaysia and Indonesia respectively in 2015. Freelancer’s regional director for S.E. Asia Evan Tan says people are realising the potential of online and ‘mobile’ work, especially those that live far from cities, with less access to traditional work.

A dearth of banking facilities in Vietnam and Myanmar…

In Myanmar and Vietnam there are just 3.1 and 3.8 bank branches available for every 100,000 adults in each country. With millions of consumers having never been exposed to the convenience and facilitation of traditional banking services, these markets are ripe for Fintechs to offer basic banking services through varying technology channels.

This could also become a valuable banking beachhead for Fintechs to then offer these new banking consumers more sophisticated banking products in the medium and long-term.

As smart phone penetration and internet speeds vary across and throughout these countries, offering a suite of technology solutions under one brand will be necessary to take significant market share across the broad S.E. Asian region. This varying technology channel and solution strategy will be important across many industries in the region.

Online education a real opportunity in the Philippines…

The Philippines has a teacher shortage and the Government has shown it is willing to significantly invest in attracting high quality graduates to teaching qualifications. With the success and growth in the online learning industry in Australia, coupled with time zone similarity, the opportunity for our education technology companies to help train more Filipino teachers and fast track their learning is huge. Australian ‘Edutech’ companies can expedite the shift from ‘textbook’ to classroom training, which will help bring down the critical ratio of teachers to students faster.

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e-Health in Indonesia…

With only one doctor per 3,333 people in Indonesia, plus the complication of six thousand inhabited islands, tele-health and e-health solutions will be in high demand as the telecommunications infrastructure in remote areas improves.

The universal health care scheme (JKN) introduced in January 2014 strengthens the imperative to quickly leverage technology solutions like that offered by Indonesian start-up HaloDoc. The JKN also offers many opportunities for companies that can use technology to improve the efficiency of the scheme as well as distribute its resources.

S.E. Asian venture capital investors are more willing to take educated risks on start-ups…

Success in foreign markets hinges on finding the right local partners, and in particular local market venture capital (VC) investors. VC dollars fund expansion but the critical  VC asset is deep local market knowledge and ongoing support as a company expands and new roadblocks emerge. Finding the right VC willing to put significant  ‘skin in your game’ is essential when it comes to being put in a position to be successful.

Pitching ideas to investors at the Tech in Asia conference, Robin McGowan, co-founder of Institchu, an online Australian tailoring start-up, noticed that S.E. Asian investors are more willing to invest in businesses with clear growth potential, but yet to generate profit.

Compare this with their Australian counterparts that McGowan says tend to favour profit and traditional metrics when assessing opportunities.

Big venture capital dollars are being mobilised to focus specifically on S.E. Asia. Serious VCs are setting up in the region. VC funds in Slipi-con Valley in Jakarta for instance, are clearly signalling to the market, the technologies and industries that they want to invest in.

Telstra Ventures recently invested around AUD$10m in S.E. Asian venture fund Monk Hill’s first fund ($100m, closed) as a limited partner. This shows both its perception of the potential in the region and understanding of the need to partner with local assets in markets with which it is not familiar.

The opportunity…

Australian start-ups that fit regional VCs’ target lists, needs to put themselves on the radar in South East Asia.

Successful start-ups eventually reach a certain size and need to expand into overseas markets for:

  • Larger markets to reach more customers
  • Funding to expand operations
  • Talent for expansion

S.E. Asia will not be the right move for all start-ups, but the region needs to be in the conversation when weighing up potential expansion destinations in the next engine room, or more accurately the next ‘server room’, for world economic growth.