Southeast Asia’s growing technology market holds enormous promise due to the region’s massive young, tech-savvy population. But navigating the market to unlock this promise is not easy. That’s because more than any other global region, Southeast Asia represents a grouping of culturally, economically, and commercially distinct countries. Entrepreneurs and investors alike must consider the localization paradox facing startups in Southeast Asia: companies must simultaneously build hyper-locally and regionally to effectively scale and make their positions defendable.
How are Southeast Asia’s leading startups overcoming this challenge? Which has been able to succeed where others have faltered, and why? Here’s a guide to staking a claim for Southeast Asia’s tech riches, including first-hand insights and lessons from executives of many of the biggest startups in the region.
The first and foremost lesson is to expand early–to develop and activate a market expansion strategy from the onset as opposed to waiting to scale and becoming entrenched in a single country. The reason this is crucial is that so much of the experience of a startup scaling in Southeast Asia is determined by the rate at which it expands across multiple countries, from its relationship with regulators to its partner network to its product development (more on these topics later).
Southeast Asian e-commerce giant Lazada and transportation/financial services superapp Grab are two prominent examples of companies adopting a regional mindset and scaling from day-one. Founded in 2012 by European venture builder Rocket Internet, Lazada launched as a regional company from the very beginning with e-commerce sites across Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam. This ‘big bang’ launch afforded Lazada the chance to grow each market individually while applying learnings between markets to optimize the overall model. It also granted Lazada the infrastructure needed to support key differentiators like offering users 2-day delivery.
This strategy attracted China’s Alibaba, which acquired a controlling stake in Lazada in 2016 and has invested US$4 billion into the business in recent years. As a former Rocket Internet executive noted to me, the fact that Lazada had established roots in many Southeast Asian markets at the time of the Alibaba acquisition and was operating across cultures and geographies made it easier for Lazada to adapt successfully to a ‘foreign takeover’ by the Chinese firm and continue to grow.
Grab similarly scaled quite early in its journey, an approach largely responsible for its rise to superapp – its rapid growth not just in other countries, but across different services and products including ride-hailing, fintech, and delivery. GrabTaxi launched in Kuala Lumpur, Malaysia in June 2012, and rather than expand to other Malaysian cities, founder Anthony Tan made the decision to quickly expand to the Philippines, Singapore, Thailand, Indonesia, and Vietnam all within the span of two years.
Grab’s early expansion enabled its team to understand how each local market worked and importantly how to stitch operations together. As Russell Cohen, Grab’s Head of Regional Operations, explained: “we employed a regional lens from day-one, which is what has allowed us to scale and roll out hyperlocal services quickly and effectively.” From a technology perspective, Grab operates at a regional level, although its technology is built to allow for localization in each market, as is its marketing. Grab’s tech teams determine which portions of its stack are localized and handled by in-market engineering teams and which are centralized and handled by Grab headquarters.
This approach serves in stark contrast to the approach taken by Grab’s competitor Go-Jek, an Indonesian ride-hailing company that waited nearly eight years until 2018 to expand beyond its native country. For many years, Go-Jek’s product, team, and operational structure focused exclusively on Indonesia, making it increasingly hard to adapt and successfully expand into different markets.
The results of these disparate approaches speak for themselves. By many third-party accounts, Grab is the region’s true superapp: by far the most regularly used ride-hailing service across the region, it is the number one regional food delivery provider in several markets, and is on track to be two to three times larger than any competitors in this space by the end of the year. Go-Jek has had immense success in Indonesia but has struggled in its new markets. In Vietnam, the local chief executive and chief growth officer stepped down only months after the country launch. Potential driver earnings have also been cut by more than 20% in markets like Singapore.
Expanding early does not mean companies should expand to countries at will without properly researching which markets make the most sense. As mentioned above, localization is particularly pronounced in Southeast Asia. Each country contains its own version of the regulation, consumer habits, and geography. For instance, consumer spending power in Singapore is radically different from that in Myanmar, and geography in Vietnam is radically different from that in Indonesia–an archipelago of hundreds of islands leading to significant logistical challenges for certain industries.
Carousell, a mobile-first marketplace for consumers to buy and sell items akin to Craigslist, has had great success in its native Singapore since its founding in 2012. Its second-hand marketplace business model fits extremely well in a country like Singapore–a market with limited living space and a developed economy in which people constantly buy and sell possessions (although are not always willing to buy new possession as the cost can be expensive).
This dynamic does not hold true in other markets Carousell has entered, such as Indonesia. In a developing market like Indonesia, people do not have excess items to sell. Moreover, many things people buy are produced cheaply and are inexpensive, making them difficult to sell second hand. Within Indonesia’s vast population of almost 270 million, there is surely a niche of consumers who find value in a product like Carousell. However, the value proposition is much less compelling than in a market like Singapore, making the Indonesian market not nearly as competitive for the company. While Carousell remains near the top of the app charts in Singapore across iOS and Google Play, it is far lower on the Indonesian app charts as reported by App Annie.
Particularly for companies based in Southeast Asia’s less developed markets with fewer resources and capital, it’s crucial to be capital-efficient and make sure they are getting the greatest return for each dollar spent. With this in mind, selecting the right markets for early expansion has far-reaching implications for scalable company growth.
Engage With Regulators
Each time a company enters a new market or rolls out a new service, it should engage in a dialogue with national regulators in advance. One of the primary benefits of expanding early is it allows a company the opportunity to build trust with regulators and develop a relationship rather than reaching out after the fact.
Grab and Go-Jek both have complicated histories with regulators. Grab took advantage of the chance to grow relationships and long-term engagement with regulators across Southeast Asia given its early expansion. Because it expanded as a relatively small entity, it did not attract nearly as much attention as Go-Jek did when it expanded regionally as an established unicorn startup with multi-billion dollar funding.
In the past, Grab had particular success working with regulators in Singapore to roll out and pioneer new technologies. As Russell Cohen detailed: “we’ve tried out many of our new innovations in Singapore, like JustGrab (our dynamic pricing solution for taxis), and GrabShuttle, (our on-demand shuttle service). In fact, GrabShuttle was made possible thanks to a partnership with the Government Technology Agency of Singapore. These innovations are now available in many of our other markets.”
However, this relationship took a hit in 2018 following Grab’s acquisition of Uber’s Southeast Asian operations. Regulators in Singapore, Vietnam, and the Philippines all scrutinized and delayed the deal, questioning Grab’s pricing model given newly implemented pricing changes. Had Grab been more communicative earlier, these issues could have been avoided. Go-Jek has also run into regulatory issues lately, having had its ride-hailing license rejected twice by regulators in the Philippines, thwarting its expansion plans.
The difference between success and failure in scaling to new markets could very well boil down to transparency and mutual understanding with national regulators–to the trust that technology is secure, that it promotes the best interests of users, and that its goals are aligned with national objectives.
Maintaining a positive relationship with regulators is vital to launch a new market or service. However, for a company to then grow that market or service, especially considering limited resources, it’s imperative to leverage local businesses rather than starting from scratch and building everything in-house. Partnerships facilitate rapid market growth and allow companies to roll out services more efficiently in each market. Conversely, building in-house takes longer and is oftentimes more expensive.
Establishing partnerships is particularly valuable in Southeast Asia given its diversity as a region. Because each market is unique, it’s impossible for a business to know and build everything optimally. Rather, companies should partner with either best-in-class global companies or national companies. This is another area in which Grab and Go-Jek diverge. Grab has always employed a partnership-driven approach to growth, building technology through an open platform–GrabPlatform–and collaborating with partners like Booking Holdings (accommodations), HOOQ (entertainment) or Ping An Good Doctor (healthcare services) to launch relevant services in the region. Conversely, Go-Jek takes a different approach, developing technology in-house, acquiring companies to fill gaps, and building its own brands including Go Tix (event tickets) and Go Life (lifestyle).
A partnership success story worth noting is the partnership between Hong Kong-based logistics startup Lalamove and popular chat app Line in Thailand starting in 2016. Combining forces to power LINE MAN, Line leveraged Lalamove’s delivery network for its first foray into the delivery space, while Lalamove leveraged Line’s over 30 million Thai users to effectively scale in a new market.
Adapt The Product
While the ‘when’ (expand early) and ‘who’ (regulators, partners) of scaling across Southeast Asia must be top of mind, companies cannot lose focus on the development of their core products, and specifically the adaptation of those products in each market. Often, companies that are focused for several years on a particular country take a narrow view of product development and do not invest the budget and time to properly differentiate the product experience within new markets.
Chinese chat startup WeChat is a primary example of a company that fell into this trap. WeChat, which was developed by Chinese tech company Tencent, has an incredibly strong product in China with over 1 billion monthly active users. In 2013-2014, the company invested heavily in international expansion. However, because of the product’s huge success in China, the WeChat product owners were resistant to implement any product adaptations in new markets that would detract their focus from their top priority–the Chinese market. As a result, users in new markets such as India had a hard time using the product, including frequent reports that users could not identify how to add friends on the app.
As a former senior Tencent employee involved in the international expansion told me: “the International Business Group (IBG) of Tencent had no say over the product…so lots of features were very much catered to Chinese social needs…IBG team had challenges comprehending local markets [as] many of their country managers were based in Shenzhen, China instead of the destination market.” Because of these shortcomings, WeChat has not experienced anywhere near the success of its home market in other countries, and in many cases has lost out to Facebook’s chat apps.
The aforementioned Hong Kong-based logistics app Lalamove, which has successfully scaled operations across several Southeast Asian countries and recently raised a US$300 million Series D round, avoided these pitfalls by separating its product development in each market. From its early stages, Lalamove focused on both China and Southeast Asia. As Blake Larson, Lalamove’s Managing Director of International noted: “We only really scaled Mainland China and SEA (Southeast Asia) once we were profitable in a couple of cities. This gave us the confidence that we could focus on opening more cities without also wondering whether we would run out of funds. I might call our approach pragmatically aggressive.”
What distinguishes Lalamove is that it has always employed separate market product and tech teams. This translates to distinct end-to-end experiences, covering everything from the name to logo to the user interface. As Lalamove has demonstrated, having a separate product/tech team and product strategy focusing on each market avoids the pressure of forced market prioritization, and allows for nimble and fast product development.
Invest In Talent
The last lesson surrounds experienced talent, which is hard to find in Southeast Asia. When a company expands to new markets, it becomes paramount to invest in solid senior talent. As Professor Guoli Chen, Professor of Strategy at INSEAD, noted: “the leader who manages the new market is very critical, needs to be cross-culture sensitive, know the core competence of the original business model, and be vigilant enough to learn from the local market and respond accordingly.”
The goal is to successfully blend local leaders with the market knowledge and international leaders with experience given the shortage of native experienced tech leaders in Southeast Asia. Lazada struck this balance and from the beginning made use of both its Rocket Internet management team from Europe and its local Southeast Asian talent. Grab has also taken a hybrid approach to talent: all of its country heads are local apart from Vietnam’s lead who is Singaporean. At the same time, the company has invested in recruiting global talent by opening up three global research & development centers outside of Southeast Asia: one in China, one in Bangalore, and one in Seattle, Washington.
These lessons provide a path to startup success in Southeast Asia, including the key factors that determine a company’s ability to operate across multiple countries concurrently. The challenges and considerations referenced above will only become more complex as more companies attempt to scale regionally, and as they compete in each other’s native markets. The good news is that in a dynamic region like Southeast Asia, the sky’s the limit for those who are able to create and scale technology the smart way–the right way.