Written by Yajuan Shi｜Sino Foreign Management
For 2020, we should pay attention to Southeast Asia’s venture capital space, as they are like playing the first half of the game of the Internet Economy, while China has entered into the second half.
With the turbulence caused by the US-China trade war, Southeast Asia has become a blue ocean market in the eyes of many Chinese companies. The massive demographic dividend and steadily increasing GDP of the region have drawn the attention of many Chinese manufacturers and e-commerce platforms, who have been throwing huge sums of capital to expedite their expansion into Southeast Asia.
In 2020, facing a brand new business environment and venture capital climate, for Chinese entrepreneurs who are planning to expand or have already expanded in Southeast Asia, what should they care most?
#1 You can’t export 100% of the “Chinese Experience” into Southeast Asia
For the past couple of years, it’s becoming popular for Chinese companies to expand overseas. But starting up in Southeast, even if you’re an Alibaba team, doesn’t guarantee success. The main reason for failure is due to inadequate localization.
In 2020, for startups that venture into Southeast Asia, they must innovate with localization in mind. We know a lot of Chinese companies that went to Southeast Asia, whose founders reside in China and only fly to Southeast Asia once every one or two months. This is not localization. Do outstanding Chinese entreprenuers have to determination to become locals in Southeast Asia? It’s a core weakness for some Chinese entrepreneurs.
When you want to enter Southeast Asia, firstly, you have to strategize how to use the capabilities developed and the expertise accumulated in China to complement and integrate with local teams, while in the process, localize yourself.
Secondly, you need a co-founder in Southeast Asia. Only when the Chinese and Southeast Asian founders form a joint force, can they truely form their own strategy and tactics during the project landing.
If it’s an established company that matured in China that wants to expand in Southeast Asia, then the company should be bold in using local talents – giving them meaningful equity stake and allowing them to operate independently. When it comes to business decisions in local markets, the Southeast Asian team should be encouraged to make indepent decisions so as to mobilize their enthusiasm.
#2 In 2020, the investment opportunities in Southeast Asia skew towards the consumer sector
In the consumer sector, there are huge opportunities to be exploited in both online and offline. For online consumption, the majority of investment cases concentrate on the B2C model, much like the first half of the Chinese Internet boom. However, companies that emerge in the B2C sector in Southeast Asia could be bigger than their Chinese counterparts. This is because many B2C companies in China develop independently all the way to IPO while B2C companies in Southeast Asia are highly likely to go through M&A, which naturally creates larger companies than standalone companies.
In terms of consumer e-commerce in Southeast Asia, there is no lack of growth potential or capital, but they do lack “know-how”. Companies don’t know how to work with local enterprises and find a suitable management system.
Of course, skepticism exists – can current infrastructure in Southeast Asia withstand the pressure brought upon by the rapid rise of e-commerce and investment capital deployment? The leading e-commerce players in Southeast Asia are very willing to learn from China’s experience. But as for the supporting infrastructure for e-commerce such as logistics, warehouse management and various value-added services for merchants, they hope the ecosystem or market can build it for them.
2020 Management Wind Vane:
Q: What challenges will the Southeast Asian venture capital circle face in 2020?
Patrick Cheung: Up to 2019, I’ve not seen the formation of the “exit ecosystem” in Southeast Asia. I believe that starting from 2020, and continuing into the next two or three years, the venture capital circle in Southeast Asia will face the problem of exit, and it will be a big challenge for the industry. But IPOs could be a viable exit channel for investment.