NOVEMBER 2024MARTECHOUTLOOK.COM9debilitating traffic issues or Ula's light-weight mobile app for low-spec phones and an ultra-simple user experience that caters to tens of millions of small shop owners.While China's product-led tech companies have certainly reaped considerable successes, ASEAN startups' more localized approach allows them to tap into the diverse and complex nature of their markets in a way that more universal models simply cannot. In a world that is becoming increasingly globalized yet culturally diverse, this strategy of effective localization is the key to securing a strong foothold in the Indonesian market.Asymmetrical Regulatory EnvironmentsChina's government has tightened its grip on the fintech sector in recent years, with increased regulation, fines, and forced restructuring, leading to the downfall of major players like Ant Group. Draconian regulation has also hit China's edtech sector, once a favorite of Wall Street and venture capitalists. In 2021, drastic regulations from the central government severely disrupted the multibillion-dollar industry, banning for-profit tutoring services tied to the public school curriculum and imposing strict class schedules. This resulted in significant stock value drops for companies like New Oriental Education and Technology Group and TAL Education Group, leaving them scrambling to survive.Given China's unpredictable regulatory environment and market risks, global investors are increasingly wary of investing in entire categories of the Chinese digital economy. In contrast, Indonesia presents a far more favorable landscape for fintech initiatives. The Indonesian government consistently supports fintech innovation, promoting financial inclusion, facilitating partnerships between startups and state-owned enterprises, and establishing a regulatory sandbox for new fintech product testing. This supportive regulatory climate makes Indonesia a more hospitable environment for high-potential tech plays across the board compared to China's increasingly restrictive one.The Massive MSME Opportunity and Optimizing Supply ChainsWith local startups now making neo-banking plays, underbanked Indonesians have the chance to open savings accounts, obtain car loans and home mortgages, and invest in the stock market, many of them for the first time. Banking startups can also be extremely helpful for small businesses. One such successful company, KoinWorks, focuses on providing financing and credit cards to 64 million MSMEs and, in doing so, has become a significant driver of job creation in the archipelago.On the supply chain front, China has been efficient for a long time. There really aren't many opportunities there. This makes it hard to draw a meaningful and contemporary comparison in the context of startup innovation and investment potential. Meanwhile, supply chains across ASEAN remain highly fragmented, ripe with problems that need solving, and loaded with layers of middlemen. One example of this is Indonesia's agriculture supply chain. Food wastage is a major challenge in the local B2B food supply chain. This is so much the case that the amount of food lost and wasted in the country per year between 2000 and 2019 could have fed up to 47 percent of the population.As a direct adverse effect of this, studies have found that food wastage contributes to more than 7 percent of greenhouse gas emissions every year in the country. According to Indonesia's National Development Planning Agency (2021), the economic hit of this annual waste is somewhere between US$14.3 billion and US$37.1 billion per year. A startup called EdenFarm is addressing these problems by enabling small share farmers and retail outlets to cut out the middlemen and do business directly, all while operating at near-zero food waste. The company is building an entire supply chain infrastructure for the local B2B food industry.Another company called Aruna is solving a similar problem in Indonesia's fisheries space. It solves wastage and lifts fishermen out of poverty by offering a platform that connects them to global buyers, cutting out the middlemen and increasing supplier income. Its tech is also helping local coastal communities preserve the environment and their livelihoods by mitigating the annual problem of overfishing. Investors Should Seek In-Market PartnersWhen it comes to tech investments in ASEAN, smart money from homogenized markets, like China or the US, needs to commit to going micro and doing their homework deeply on the local nuances in places like Indonesia. Institutional capital allocators can also partner with a top-quartile, in-market investment team.Be wary of any venture firm that claims to understand Indonesia intimately but relies on market comparisons from China or India in their pitch without adding any extra, on-the-ground color. INVESTORS SHOULD AVOID USING CHINA AS A ROADMAP FOR SUCCESS IN ASEAN'S DIGITAL ECONOMY
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