Editor’s Note: This post is contributed by John Dang, the founder of Zipmatch.com. ZipMatch is a fast growing startup with the purpose of becoming the #1 online real estate resource and first centralized brokerage listing in the Philippines.
Low wages..
Business friendly governments…
Good work ethics…
These are some of the assumptions a company founder may make that would entice them to do a startup in Asia. I worked in the tech space in America for about 10 years before moving to Asia (I’m currently running my first startup from the Philippines). Since I’m in my second year of running my Asian startup, I figured it would be a good time to share my thoughts on the differences between running a startup in America vs. Asia. Let’s go over some of them now.
The Fundraising Landscape
The number one advantage when it comes to fundraising in Asia is that it’s easier to stand out among other startups. For example, in the Philippines, there isn’t a big “tech/entrepreneurial” culture – so tech startups can get a lot of initial press and buzz.
The flipside is it’s hard to find bullish investors here. There has never been a major exit from a Philippines based startup, so investors are very reluctant to give you a high valuation. There have been success stories coming out of Malaysia and Singapore (but it’s only a matter of time before you will see a big exit in the Philippines). Generally speaking the investors in South East Asia are much more conservative than in the U.S.
What happens is that a lot of tech founders will look for seed funding for their concept. Many will try to find an incubator before starting and the investors will demand a high percentage of shares for little money.
Tips: Many South East Asian investors tend to be reluctant to say no so you end up getting dragged along. As a startup, time is not on your side. You have to make it a point to ask for an answer by a certain deadline or you move forward without them. If anything, this may encourage them to jump on board.
Sourcing Local Talent
Many people will ask me whether it’s better to hire people from the United States or Europe and move them out to Asia (or have them work remotely). My usual response is: “well that depends” .
For example, I’ve found that Filipinos are amazing at learning just about anything. They absorb things incredibly fast and can execute directions to a “T”. The challenge lies in inspiring my local team to find innovative approaches to tackling things.
What this means is, as a leader you will have to guide them through tasks and projects very thoroughly. If you take a look at the education in South East Asia or most parts of Asia, kids are taught mostly to memorize and copy in school. Very few go to schools where they are taught to think creatively. Not to say they aren’t creative but you have to foster and encourage it. It takes practice and it’s a lot of effort removing cultural barriers that can slow the growth of a successful startup.
Bringing foreign talent helps because it’s easier for westerners from Europe or America to be leaders. However, unless you’ve adjusted to local culture you will likely run into some friction. My partner, Kyle Wiltshire (from Vancouver) and I have been working in the Philippines for 3 years before starting our own business. Luckily we were able to get an understanding early on that the work culture is very different from America. Sensitivity runs high – so when emotions run negative, it spreads like wildfire. You have to be very careful on how you express your frustrations and you have to learn to lead more with empathy. I’ve seen many westerners come here and fail to adjust themselves causing many of their employees to leave.
One last thing on this topic: I think many people have read the Four Hour Work Week expecting it to be a breeze when outsourcing work to Asia. If you’re churning out cookie cutter work, it’s fine but if you expect any innovation to happen you have to be here to guide and teach.
Singapore vs. Philippines
In Asia, the Philippines is more challenging to start a business that caters to the local markets. Local laws, permits and taxes are not favorable to small and medium businesses serving the local market.
However if you’re a business set up as a Business Process Outsourcing (BPO) to serve a foreign country, the laws are actually more favorable.
Singapore has much better government support for startup businesses. However, the local labor cost is very competitive – comparing closely to U.S. wages. For the same comparable position in the Philippines; the cost is roughly about 25% the cost as it would be in the U.S.
Another great thing about the Singapore government is that they will give you free grants to start your business there – provided you’re incorporated there and hiring local talent.
Competition in Asia
In a competitive environment, operational excellence wins. I would have to say I have not seen a lot of local businesses where I thought there was operational excellence. In fact – far from it. Most businesses here expect their customers to jump through hoops to get what they want.
In every industry, there are one or two major players that just run the entire show so there’s no need to innovate and compete. However it offers so many prime opportunities to disrupt these fat and slow businesses. It’s not hard to be innovative and stand head and shoulders above your competition. That doesn’t mean it’s easier.
There’s actually a good reason why there is a lack of competition: the underlying ecosystem doesn’t foster startup business too well. Things like getting a business permit can take weeks to months. You almost need to hire an accountant from day one as you’re expected to pay monthly taxes (otherwise you’ll face hefty penalties). In the Philippines, you pay taxes on just about everything including paying withholding taxes on compensation and office rent. Even if your business is not profitable, you still have to pay these taxes.
Finding capital and financing is extremely challenging as the banks only lend if you have collateral assets. The SME’s who are getting a business loan tend to pay predatory interest rates. It’s not surprising to see 3%+ monthly interest rates. That’s right…monthly not annual.
As a startup business you will need to fight through basic fundamental challenges and a lot of red tape. Just make sure you have enough support to get through it.