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What the world can learn from Southeast Asia innovation

Southeast Asia is emerging as an innovation hotspot on the global map. The region now counts 10 unicorns valued at over $1 billion and over 50 companies that could reach this status in the years to come

Published: Aug 29, 2022 03:42:01 PM IST
Updated: Aug 29, 2022 03:50:03 PM IST

What the world can learn from Southeast Asia innovationGojek has taken a leadership position in the Indonesian ride-hailing market by leveraging the unlicensed ojek motorbike taxi infrastructure instead of relying on more rare and expensive cars. Image: Eko Siswono Toyudho/Anadolu Agency via Getty Images

With the likes of Grab, Bukalapak and Razer, Southeast Asia (SEA) has now emerged as an innovation hotspot on the global map. The region now counts 10 unicorns valued at over $1bn and over 50 companies that could reach this status in the years to come according to Centro Research.

Unlike the first generation of startups in the region which simply cloned proven service and business models from other geographies, these unicorns succeeded by deeply localising their offerings, far beyond multi language and currency support to also account for major cultural and market differences across the countries. A famous example is Gojek taking leadership position in the Indonesian ride-hailing market by leveraging the unlicensed ojek motorbike taxi infrastructure instead of relying on more rare and expensive cars.

Thanks to their strong execution momentum, these second-generation entrants attracted substantial funding from investors drawn by the massive untapped regional market opportunity. This allowed them to quickly crush early clones and even thwart global giants as exemplified by Grab’s acquisition of Uber regional operations. Many venture-capital-backed startups aspiring to join the unicorn club in the region are now following this trusted recipe by tackling low-hanging fruits in other verticals with proven success stories from other regions. To do so, they can tap into a growing funding pool available drawn to region by its remaining macro-opportunity as the digital sector in SEA only accounts for 4% of GDP compared to 10% in the US and 34% in China according to Zero One. But can the region create large scale innovation that goes beyond highly localized versions of innovation pioneered elsewhere and that can influence the rest of the world? I believe so for three reasons.

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First, with most low-hanging fruits inspired by other regions of the globe now being already captured or pursued, the next generation of aspiring unicorns will target different types of market verticals that are more specific to SEA and for which pre-existing solutions do not exist. For example, most SEA countries continue to have massive rural and informal economies with very different user needs and distribution channels from urban areas that require one to invent new operating models. An example of a startup tapping into such market is fintech Payfazz in Indonesia which has developed an offline distribution network comprising small retail stores and restaurants for its digital financial products accessible by rural communities.

Another massive and largely untapped regional opportunity is personal urban mobility in densely populated cities to alleviate air pollution and traffic congestion. Indonesia has over 112 million internal combustion engine motorbikes, Vietnam over 50 million and Thailand more than 22 million. Cities such as Jakarta, Bangkok or Ho Chi Min City need to quickly move away from gasoline-powered motorbikes. While established motorbike manufacturers such as VinFast in Vietnam and Viar in Indonesia have already entered the market, up and coming players like Gogoro from Taiwan is expanding across the region with startups like Dat Bike and Ion Mobility also joining the frey.

Coming up with the successful combination of product design (motorbike vs. e-bike vs. scooter), ownership model (own vs. share vs. ride-hail) and charging infrastructure at scale (swappable batteries vs. charging stations vs. at home charging) is going to drive distinctive strategies which will undoubtedly influence developments in other regions and perhaps enable a regional player to become a leader on the global stage in this strategic space for climate adaptation.

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Another unique contribution SEA can make to global innovation is more horizontal as it can apply to a large variety of industries and use cases. It involves shaping the next phase of artificial intelligence deployments beyond big data by developing a singular advantage on how to handle unstructured and mostly offline data available in small sample sizes. The region’s language fragmentation and slower digitalization in some sectors are opportunities for forward-looking startups to build unique know-how around building and training artificial intelligence models based on offline data across multiple languages. This opportunity is already embraced by startups like Wiz.ai whose talkbots for automated customer service can already understand Singlish, Bahasa and Tagalog alongside English, simplified and traditional Chinese. Another example is Bluesheets.io which can extract and process financial data from offline files such as PDFs or images through automated digitization.

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Finally, the vertical and horizontal opportunities outlined above will together result in SEA innovation having a greater influence in other high potential regions. Both Africa and Latin America are still lagging in their digitalization, yet they share striking commonalities with SEA in terms of their resource and service-led economies and their fragmented language and cultural landscapes. As these regions go through their digital take-off, their startups will tend to turn towards SEA for inspiration as to which operating models have worked (and failed). An example is Gozem which is bringing the Gojek motorbike ride-hailing operating model to Togo and Benin. Furthermore, and perhaps most importantly, the huge growth potential of these regions will make them attractive expansion targets for successful SEA companies seeking to grow beyond their home markets.

Julien Salanave-Pehe is Professor of Management Practice – Entrepreneurship & Innovation at ESSEC Business School Asia Pacific.

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