SEA tech startups cannot simply copy Chinese models

6 min read
Petronas Twin Towers in Kuala Lumpur Malaysia (Image credit: Bigstock/ermakovep)

Sitting in a trendy open-plan office in downtown Kuala Lumpur, Anson Wang oversees around 100 employees as CEO and co-founder of Jobstore, a Malaysian AI-powered recruitment platform. Coming from a rare breed of first-generation Chinese immigrant entrepreneurs into the country, it has been a long journey for Wang to get to where he is now.

Born in Hangzhou in eastern China’s Zhejiang province, 39-year-old Wang struck gold when he sold off his ad agency back in his home country. Filled with aspirations of an exotic new market ripe for the picking, he uprooted to Malaysia. His experience in China’s internet industry held him in good stead and his expertise allowed him to make wiser decisions. However, it didn’t translate into instant results in a country geographically close but infinitely different.

Years on and Wang’s thick-accented mandarin is indistinguishable from that of Chinese Malaysians. He bears all the hallmarks of someone who has become immersed deep into a foreign culture. This mindset is key to achieving success in a culture as diversified and a market as fragmented as South East Asia.

In many ways, Wang, now a serial entrepreneur in Malaysia with Jobstore his third project, represents a case in point for Chinese businessmen and companies sitting at the crossroads between China and SEA.

Push and pull

The past three decades have witnessed changing dynamics between China and SEA in terms of economic forces. China’s exponential growth has allowed it to eclipse the neighboring region.

“When our relatives went to China in the 1980s, they’d always come back and say China is like twenty years behind Malaysia,” recalled Honwai Sim, COO of Malaysian IoT firm MDT Innovations and a third-generation Chinese Malaysian whose ancestors moved to SEA in the 1920s. The government’s early efforts to boost high-tech industries helped the country to become one of the world’s largest producers of electric appliances for a period in the 1990s. “But now China is way ahead of Malaysia,” he said.

In recent years, Malaysia and the broader Southeast Asian market are again becoming a focal point, and Chinese investors are circling for new opportunities. The region’s GDP will grow at an average of 5.2% between 2018 and 2022, according to OECD projections. The SEA internet sector is set to be worth $200 billion by 2025.

Nearly all of China’s big tech players from heavyweights like Alibaba and Tencent, to vertical unicorns such as SenseTime, are setting up shop in the region. Chinese venture capital firms are also doubling their bets in the region. Total venture funds across SEA hit $3.4 billion in the first half, more than quadruple that of the year-ago period.

The influx of Chinese companies into the region boils down to push-and-pull factors. A slowing domestic e-economy, saturated local market, aging population, rising workforce costs in China are a powerful set of push factors. These are only exacerbated by China’s recent turbulent relations with the US.

For SEA, the younger population and rising GDP per capita are the key pull factors. Rising internet penetration, in particular, has brought the attention of Chinese internet firms. The region’s internet users are outpacing those in China in their embracing of the mobile economy. A higher percentage in several SEA countries use smartphones to do their banking, shopping and ride-hailing, according to Global Digital Report 2019 from social media management platform Hootsuite and digital marketing agency We Are Social. China’s high-profile Belt and Road Initiative has also boosted the regional expansion of Chinese companies especially in building digital infrastructure.

In addition to the huge potential, the market is also attractive to Chinese entrepreneurs and VCs because they believe the region is similar to China a few years ago. They expect easier market entry by leveraging experiences learned from China. For them, the country represents a key point of reference for SEA expansion.

Caution in copying China

While Chinese voices tend to stress the similarities behind the two ecosystems, the differences between China and SEA are equally huge, if not bigger.

Using the term SEA unconsciously refers to the region as a whole, neglecting its huge diversity covering 11 countries. The region’s population of more than 655 million speak different languages, practice different religions and live under the administration of different governments.

“Even though we look at trends in China, it doesn’t mean things can be 100% replicated here,” Jamaludin Bujang, managing director for Gobi Venture’s Malaysian operations, told TechNode in a recent interview.

Andy Sitt, the co-founder of Inmagine Group, parent of Malaysian stock image site 123RF.com, breaks down the differences by countries. “Singapore is an aging developed country. Malaysia and Thailand are aging and mid-developed, while Laos and Myanmar are young and upcoming,” he said. Some key markets like Indonesia and Vietnam get a lot of attention and it can often be forgotten that the other countries differ greatly in culture, consumer purchasing power and stages of development stages, he added.

“Having 11 countries working together is almost impossible, you can’t have a standardized e-wallet nor the same data-sharing platform among different countries,” Sitt maintained.

MDT Innovations’ Sim echoed Sitt’s pointed out the industry differences in a separate interview. Singapore, with its focus on fintech, is quite advanced because it’s one city and easy to manage, he said, adding that Malaysia is a very small market centered on high-tech, IT, biotech. Compared with the rest of SEA, Indonesia and Thailand are bigger markets while Cambodia and Vietnam are quite far behind.

The tech ecosystem in SEA is also developing at a slower pace compared with that of China. “When coming to a smaller market, you really have to adjust expectations as well, you have to adjust to slower growth,” Bujang said.

Jobstore’s Wang has first-hand experience in adjusting to slower growth. His company grew from two people to a 100-strong team in less than three years. This is already a quick growth trajectory for a Malaysian startup, but nothing compared with Chinese companies, he admitted.

Local workers maintain a more laid-back lifestyle and value a work-life balance, Wang said. While it’s common for Chinese tech employees to work on 996 schedules, it’s unimaginable for locals to work to such an extreme. “Even though I want to push the project forward, I can’t do it singlehandedly without support from the team,” he added.

To cope with this, Wang clarifies with new-hires that his company doesn’t require overtime, but needs their 100% attention during working hours. “Also, we don’t hire people that smoke to avoid distractions during working hours,” he added.

Sitt expects the influx of Chinese firms in the region to press local players to catch up.

Although Chinese venture capitalists are increasingly taking notice of the region, SEA does not have the funds that Chinese companies have, Sitt said. His firm has grown without securing external funding.

“Malaysia hasn’t been attracting lots of investors,” Sim said. “We talk about a Series A in Malaysia as probably about 1 million ringgit ($250,000). Series A in the US is $5 million and Series A size in China s not too far from the US standard at $3 million to 5 million,” he detailed.

SEA as a ‘launchpad’

More and more Chinese companies are aggressively looking for global expansion in the eyes of SEA entrepreneurs.

“Growth in China is slowing down, they are looking at an alternative for what they can do especially in SEA and hopefully to build a greater Asia,” Sitt said. For Sim, Chinese firms are very open to business opportunities in far-flung markets.

The overall region is of strategic importance for expansive Chinese companies, thanks to cheap labor and the diversity of people and culture.

SEA startups have their own criteria for finding Chinese partners. Malaysian AI and IoT company G3 Global inked a deal with SenseTime to set up an AI park earlier this year. “Some companies are here only to find a reseller or partner to distribute their products. We choose to work with  SenseTime because the deal is more about having an experience of using AI in real application scenarios by which we can build an ecosystem and educate the market together,” G3 Global Executive Director Mohammad Radzi told TechNode.

“China might be scary for lots of companies, but for us China is friendly,” said Sim. He maintains that Alibaba isn’t in the region to take away opportunities but to find new ones. “They may have acquired Lazada in e-commerce, but they are also open new opportunities to other e-commerce enablers,” he explained.