Verdict of Momentum Works 2021 Predictions – Southesat Asia & Chuhai

A very happy and prosperous 2022!

Come December, it has become customary to end the year with a review of our yearly predictions. Though we are a tad late for 2021 (the team has taken a well-deserved 3 week holiday!), we haven’t forgotten to analyze our yearly predictions for Southeast Asia and Chuhai (Chinese companies/entrepreneurs/investors venturing overseas).

As has become the norm, the predictions we got right are in green, the ones we were wrong about are in red and those which aren’t clear are in blue.

Let’s see how we fared for the year 2021.

Southeast Asia

1. SEA Group market cap reaches $200b; one more unicorn goes public

We made this prediction in December 2020 when Sea Group’s total market value was only around $98 billion. By October 2021, Sea Group indeed reached a market cap of $200 billion, making it one of the largest tech companies in the world. Although, when tech and growth stocks stumbled in December, Sea Group’s stock price also took a hit. You can read more about Sea Group and Shopee in our reports.

We were also right about unicorns going public. More than one unicorn from Southeast Asia went public – Grab and Bukalapak are now public companies in New York and Jakarta respectively. We know more tech companies in Southeast Asia are currently working towards public listing (including a few SPAC deals)- expect some action here in 2022. 

2. Grab and Gojek finally merge

When we made the prediction in 2020, there was news that Gojek could merge with Tokopedia instead of Grab, but we went ahead and published it anyway. We thought the Grab-Gojek merger would be the rational choice, but we were off the mark. Now Grab and Gojek are still competing in Indonesia – food delivery, ride-hailing and financial services – and Tokopedia is still trying to fend off Shopee. 

We will be releasing the 2022 update of the Food Delivery Platforms in Southeast Asia report later this month, which will give an in-depth understanding of the dynamics in this key segment of both Grab and Gojek.

3. The region’s tech majors expand on financial services, squeezing smaller players

Financial services have been a major focus for most of the tech players in Southeast Asia. SeaMoney’s moves in payment (ShopeePay), digital banking (SeaBank) and paylater/lending (ShopeePayLater, ShopeePinjam) are especially aggressive; Grab, on the other hand, has dedicated a lot of resources in not only payment, but also paylater. 

While many independent fintech players competing directly with the tech majors suffered – the whole fintech scene is booming, thanks to the investments as well as infrastructure (such as real time settlement systems and standardised QR codes) put in place by various governments.  

According to the Southeast Asia Tech Investment report we published in collaboration with Cento Ventures, investments in financial services have grown by 340%.

4. Big Chinese companies snap up more tech assets in Southeast Asia; Chinese enterprise/SaaS companies enter in droves

Chinese tech companies had a tough year back home, which became another impetus for their global commitments. In the enterprise/SaaS space, we have seen companies in Robotic Process Automation (e.g. Laiye), eommerce seller CRM (e.g. Keyouyun, BigSeller), real time communications (e.g. RongCloud) setting up a presence in Southeast Asia, following the space of financial technology (e.g. TongDun, Ping’an OneConnect) and artificial intelligence (e.g. SenseTime, Yitu). 

In addition, Singapore and Indonesia remain the top destinations for Chinese investors, especially in financial services and retail.

5. Complete boom of e-commerce ecosystem: cross border, supply chain and delivery infrastructure, content/live-streaming/influencer agencies and other service providers

COVID-19 resulted in everything going digital, boosting the tremendous growth of e-commerce. This growth spurt continued in 2021 with a lot of logistic players receiving funding as well – NinjaVan received $578m funding in 2021. Another logistics player J&T Express received $2.5bn for its pre-IPO funding in 2021 and is already expanding to Latin America and Middle East.

Though there was a backlash against Chinese cross border sellers earlier this year in Indonesia, overall the cross border ecosystem grew significantly in Southeast Asia, which we will discuss more in detail in our upcoming reports (we tackled the topic in our Blooming Ecommerce in Indonesia series in 2021).

Other sectors such as live streaming and influencer marketing saw a huge boom in 2021. TikTok invested a lot to improve its live streaming services and customers in other regions while Shopee also hired people to develop its video platform and technical capabilities. However, there is still a long way to go to match the live streaming scene in China – including supply of SKUs, influencer agencies (MCN) and also the whole value chain.

6. Edtech/healthtech hype wanes, stronger players survive

The recent Chinese crackdown on edtech firms could potentially affect the edtech space in Southeast Asia – naturally it should be positive because capital (as well as experienced teams/entrepreneurs) would migrate from China. LingoAce, which raised $160m in December 2021, is a case in point. 

But Singapore-based LingoAce is targeting global markets. In Southeast Asia, the bigger issue is how big the market demand for edtech really is. Though investment in the sector improved, we do not see the scale and enthusiasm we did in 2019. This is the same for healthtech. 

7. More innovative business models emerge, built on top of accelerated digitisation and infrastructure in 2020

Just look at all the fintech companies built on improved payment and settlement infrastructure, as well as all the new business models in the ecommerce ecosystem. 

8. Investors return to Vietnam and Malaysia; Thai ecosystem becomes more open

The pandemic continued to impact these three countries. Vietnam suffered particularly badly in the 3rd quarter as at one point of time, the whole city of Ho Chi Minh was shut down and even food delivery was not allowed. We are not convinced that the astonishing successes of Sky Mavis and Amanotes represent a general trend. 

Malaysia, however, produced its first unicorn – used car marketplace Carsome. The company has raised multiple rounds of funding, and we have indeed seen its showrooms popping up across the country. We have covered the used car industry in our 2020 report, and we intend to launch an updated version in early 2022. 

We have to reiterate that we like Malaysia and Vietnam: one as the best test ground for the region (think about Grab and JobStreet) while the other just has fabulous tech talents.  

With regards to Thailand – it is still largely an ecosystem that is functioning well on its own. Very few external venture capital investors are able to make a splash there. 

9. Investors explore more creative ways to exit; haste to deploy capital raised to make room for larger funds

Over the past year, news of companies raising funds has proliferated (we feel sorry for our friends at tech news outlets – they have been truly busy). Investment activities are picking up pace across regions. 

Going public has indeed become a viable path – instead of the traditional US IPO, many have explored other ways, such as SPAC (e.g. Grab, PropertyGuru, FinAccel), and listing on Indonesia Stock Exchange (e.g. Bukalapak, and a few are on the way). 

10. Competition for talent in the region becomes more aggressive; more Chinese tech veterans join the region’s tech majors

With increasing investments, especially from Chinese companies looking to set up operations in Southeast Asia, the demand for talent has skyrocketed. Many Chinese tech majors such as ByteDance and Ant Group offer very competitive salaries and benefits to grab talents, including fresh graduates. This competition for talent is expected to continue in 2022 as well.

As for more Chinese tech veterans joining the region’s tech majors – look no further than Shopee.

Chuhai

1. Southeast Asia remains the hottest region for Chinese companies

Southeast Asia continues to hold prominence for overseas operations of Chinese companies owing to its proximity both geographically and culturally. However, there is potential for other regions to emerge, in particular Latin America, (broader) Middle East, and Europe (yes there are lots of opportunities there as well). 

2. E-commerce ecosystem players and B2B/enterprise companies are particularly bullish about Southeast Asia

Refer to number 4 of Southeast Asia predictions.

3. TikTok resumes its growth path; ByteDance further expands its overseas footprint

Even though there were a few hiccups at the beginning of the year, TikTok grew by 40% in 2021 and reached 1 billion users in 2022. Southeast Asia is the second-largest region for TikTok with 198 million users while North America and Europe rank third and fourth respectively.

ByteDance is one of the fastest-growing Chinese companies in Southeast Asia. As of the end of 2021, there were more than 400 job vacancies listed by ByteDance on various job portals. ByteDance’s extensive hiring is worldwide. There were more than 1,000 new hires globally from January 2021 to August 2021 – in contrast to the constant rumours of retrenchments in China. 

4. Alibaba still struggles with its foreign subsidiaries and joint ventures

One of the major examples of Alibaba’s struggles abroad is its Southeast Asian e-commerce venture – Lazada. It continues to face tough competition from Shopee, which is now also challenging AliExpress, the cross border focused platform under Alibaba Group, in Europe and Latin America. 

5. India allows Chinese investors back, though Chinese tech companies still cool

India’s wide investigation into Chinese companies in the country started in 2020 and is still continuing. Recently, they also launched an investigation into Chinese mobile companies in India. This has left businesses worried about the environment in the region and serious, reputable Chinese companies are now sceptical about entering the market. However, there are a few clandestine players from China operating there, making good money.

6. Latin America becomes popular for lending, games and cross border e-commerce

Latin America gained popularity in 2021 and investments have started to flow into the region. Shopee has made great inroads in Brazil and is also expanding to other regions in Latin America (Mexico, Chile, Colombia – with Argentina launching in early 2022). 

Latin America has also become a great region for online gaming players – Shopee’s sister company Garena created a huge buzz in the region with its game, Free Fire. It also paved the way (payment, marketing, user operations etc.) for other players to enter the market.

7. Cross border, as opposed to direct overseas, deals remain the focus of China-based VCs; Chinese PE & M&A activities in local foreign companies keep growing

Cross border investment was really hot in the beginning of 2021, but it is waning a bit now. This is not necessarily a bad thing – it creates infrastructure, experience and the talent base that good companies can tap on. We will issue a joint report with a VC partner this month (January) to examine cross border investment in more detail. 

8. Chuhai becomes a mainstream career choice for experienced tech talent, many of whom with experience in one of the tech majors; Shopee and SeaMoney attract more experienced talent from China

We were partially right about this one. We are seeing a lot of talent moving to Chuhai-focused companies, but with the exception of Shopee, we are not sure whether this has become a mainstream career choice. 

The second part is true – you can verify on LinkedIn 🙂 

9. Singapore further strengthens its role as the hub for Chinese companies’ global operations

Over the past year, several Chinese companies decided on Singapore as their headquarters for global operations. ByteDance and Tencent were also expanding their presence (and headcount) in Singapore. Singapore will continue to remain the ideal place for Chinese companies’ global operations because of its economic stability, regional/cultural proximity and its neutral position in the Sino-US cold war.

10. Hong Kong starts to become a viable listing destination for tech companies in emerging markets, particularly those of Southeast Asia

The Hong Kong stock market was caught in the storm of the Chinese crackdown on tech companies. Chinese companies, fearing crackdowns by the US government, will choose Hong Kong more; however the same can hardly be said about tech companies from emerging markets.