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Articles > The Right Connections – Key to Growing in Southeast Asia

The Right Connections – Key to Growing in Southeast Asia

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Kah Jun
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Southeast Asia is on the cusp of entering a golden age for economic growth and technological innovation thanks to rising mobile internet penetration rates, adoption of digital lifestyles and the number of start-up investments in the region. These factors, alongside the large percentage of unbanked and underbanked citizens, create new opportunities for financial technology (FinTech) companies to flourish as there is a demand for alternative financial solutions. This makes Southeast Asia a strategic region for market expansion for FinTech companies, according to Fitch’s South-East Asian Digital Banking report.

However, breaking into foreign markets can be difficult, especially when it comes to a region as diverse as Southeast Asia. What works in Singapore may not necessarily work in Indonesia.

This is where the power of a good network comes in.

Being well-connected is always an advantage for any business, but it is essential when you are looking to expand. This is because knowing the right people can open up a web of opportunities that would be inaccessible to you if you were operating alone without support. Advisory units, trade agencies, investors, and even other tech companies can support your business expansion plans in different ways:

Access Deep Local Knowledge

The most common mistake any FinTech or tech company can make is grouping Southeast Asia into one big market. The region is made up of many different cultures, languages and regulatory bodies that have their own unique sets of laws and operating environments. This makes it difficult for start-ups to scale in the region.

The key to expanding in any country within Southeast Asia is to “think hyperlocal.” This is how ride-hailing unicorn Grab was able to scale so rapidly, according to the company’s former chief technology officer, Theo Vassilakis, in an interview with marketing insights company WARC.

By taking a hyperlocal approach, Grab was able to apply its ride-hailing business model to individual markets. In Singapore, for example, Grab leveraged car taxis and in Indonesia the use of mopeds.

For companies looking to expand, thinking hyperlocal is not as simple as meeting with potential end-customers and handing out surveys. Not all companies have deep pockets either to invest in extensive, on-the-ground market research. A more accessible way for companies to harness nuanced market insights is to tap an advisory unit.

Advisory units are organisations that offer professional services to foreign start-ups looking to set up shop in the region. They have extensive networks across certain regions and deep local knowledge of markets in which they have a presence. They can help you develop business solutions, inform your market entry strategies and offer the market insights that you need to understand how your company can succeed in its expansion plans.

Tapping an advisory unit prior to market entry can save you the trouble of iterating your product, only to find out it may not be suitable in that market.

Open Up More Business Resources

Expanding into a new market can also offer companies with valuable business resources such as funding and highly skilled talent, if you know who to call.

Southeast Asia, after all, is home to a variety of talents that specialise in highly sought-after skills. For example, start-up founders have found that Vietnam is a good source of engineering talent. According to the 2020 Vietnam IT Market report by TopDev, around 50,000 information technology (IT) students graduate each year, contributing to a pool of 400,000 IT engineers. The region has also been making progress in developing its tech ecosystem, offering grants and incentives to new tech solutions.  

To access these resources, companies can approach either local or foreign trade agencies – government-funded bodies tasked with promoting the growth of companies in their market as well as supporting those scaling in Southeast Asia. Enterprise Singapore, Thailand Board of Investment, and Thailand’s Digital Economy Promotion Agency are examples of trade agencies.

These agencies differ in size, services and approach to nurturing businesses in their home market. Some of these agencies host programmes that help entrepreneurs access government funding, such as Enterprise Singapore’s Start-up SG Tech programme.

Others are tasked with grooming the next generation of tech talents. In 2019, Thailand’s Board of Investment began offering tax exemptions to companies investing in educational and vocational training institutes specialising in science, technology, engineering and mathematics – also known as STEM subjects – in line with the country’s Thailand 4.0 vision. 

In addition, these trade agencies can also help with local introductions, marketing events, lead generation, business matching, incorporation advisory and more.

Tap Investors for Funding, Mentorship & Support

There are two schools of thought when it comes to expanding a business: either you sustain your operations through revenue or you tap investors for funding. While each has its pros and cons, the latter route provides you with the additional benefit of that investor’s existing network.

As investors have a stake in your company, they also have an incentive to ensure your company grows and succeeds. You can tap your investors to get a fresh perspective on important decisions, advice based on personal experience and make new connections too.

For example, you could request an introduction with a portfolio company from another region and explore partnerships there. Or you could request a meeting with other mentors and advisers from that firm. Venture Capital (VC) firms have robust networks for funding and other business opportunities that could propel your start-up into the next stage of growth.

Investors can also double as mentors, sharing their advice and support when it comes to your expansion plans. These investors can serve as high-value advisers, especially if they have extensive experience working with successful tech companies. For instance, former Intel-employee turned investor John Doerr introduced Intel’s concept of Objectives and Key Results (OKRs) to Google in 1999. This goal-setting approach has supported the tech giant from its first year of operations until now and skyrocketed the popularity of OKRs among Silicon Valley companies. The likes of LinkedIn, Netflix and Amazon have all adopted OKRs.

If you plan on engaging a venture capital firm for investment, you should know what that firm specialises in to understand how it can support your business outside of funding. For instance, some VCs specialise in FinTechs while others boast a strong understanding of Asian markets. There are even those that engage with start-ups through venture lending, specifically for start-ups that have already received some form of VC capital and are looking to minimise equity dilution. This means you can tap these VCs for unique resources. However, this also means that not every mentor, adviser or VC may be appropriate for your specific objectives or growth stage. Each has its own knowledge, expertise and growth and expansion philosophies. There’s a risk of partnering with an investor who is not a good fit for your company. If you are unsure of where to start, you can tap your own network and get a referral. 

Create Win-Win Partnerships with Local Organisations

Forging partnerships with local organisations is another option for expanding into the region. Not only will it give you access to the partner company’s existing customers and resources, but it can also strengthen your presence in new markets organically.

For example, Lazada partnered FMCG company Danone to strengthen its brand visibility among Southeast Asian online shoppers. Another good example is Hong Kong-based logistics start-up Lalamove’s partnership with chat app Line in Thailand, which led to the launch of LINE MAN, a motorbike delivery service whose riders wear green jackets embroidered with LINE characters.

These partnerships should offer win-win benefits so find one that fits into your overall expansion strategy.

Another partnership to consider is one with a co-working space provider as they offer connections to an ecosystem of start-ups and tech companies that co-work in their establishment. It may be worth hosting and attending events and getting to know other companies using the space.

Work with Local Regulators

According to The ASEAN FinTech Ecosystem Benchmarking Study 2019, FinTech firms in the region recognise that an enabling regulatory framework is essential for expansion in other markets in ASEAN. ASEAN regulators, too, exhibit a great willingness to support the growth and development of FinTechs in their markets.

However, the pace at which technologies are advancing is so fast that regulators too are moving quickly to constantly adapt or introduce policies in response to these new developments in the FinTech sector. This is in addition to a whole range of regulations that FinTech companies need to comply with such as licensing restrictions tied to foreign ownership caps and data privacy laws among others.

In this case, it pays for FinTech companies to engage with regulators early on through regulatory sandboxes. These sandboxes enable FinTech start-ups to experiment with new technologies in a controlled environment, which can then inform and accelerate the development of the regulatory framework in that country. Another benefit of sandboxes is that they offer exemptions for FinTech companies that do not meet all regulatory requirements—the Monetary Authority of Singapore, for instance, may exempt FinTech companies from specific regulations for the duration of the sandbox so they can experiment with new products and services.

Going through a sandbox approach can set the foundation for a positive relationship with regulators—more so than entering a market, committing a regulatory faux pas and then asking for forgiveness. Getting on the wrong side of regulators could also lead to fines, penalties and other headaches.

Southeast Asia is a promising market for FinTech companies, but its fragmented nature poses a few challenges. Tapping the appropriate networks can help overcome these challenges and fast track growth.

It Is Not What You Know, It Is Who You Know

Having the right connections can go a long way for your business, especially in a region such as Southeast Asia that requires a nuanced understanding of different markets. However difficult finding that product-market fit may be, the potential returns are tremendous.

The region’s digital economy has experienced significant growth over the last few years, jumping from US$20 billion in 2016 to US$100 billion in 2019, according to the e-Conomy SEA 2019 report. E-commerce, ride-hailing and digital payments have led the charge in Southeast Asia’s growth. The latest 2020 e-Conomy SEA report shows that the Covid-19 pandemic has accelerated digital adoption even further, with e-commerce and digital payments experiencing a surge in usage.

If you are looking to capture this opportunity, now may be the right time to start building those connections.   

Don’t know where to start? UOB has an extensive network of ecosystem partnerships across geographies and industries to help you seize the right regional growth opportunities. If you are interested in expanding your start-up across Southeast Asia, send us a query and we can help you out.

This article is jointly written by The FinLab and UOB.