Regional Innovation Networks in Southeast Asia

Asian markets are becoming more connected and producing several innovation hubs.

Asia is becoming the world’s largest economy and unique characteristics about its markets are enticing more businesses to expand there. According to data from McKinsey, the networks that are being built by countries within the continent are helping to accelerate its development.

Intra-Asia startup investments are growing

According to data from McKinsey, Asia’s share global startup funding has increased from 16 percent in 2013 to 47 percent in 2018. And it doesn’t seem to slow down. Asia is attracting more investments for its startup sector, mostly from within the region itself.

About 70 percent of venture capital funding in Asia is intraregional — advanced economies such as China and Japan are major sources of funding, both for companies within their own, in other Asian countries and non-Asian countries too.

For example, Asian firms provided 60 percent of recent investments totaling USD 9.1 billion in Singapore’s Grab, with Japanese companies SoftBank providing USD 1.4 billion and Toyota providing USD 1 billion. Meanwhile, China’s Tencent and Alibaba are leading investors in Southeast Asia’s Go-Jek and Lazada, respectively.

Unicorns in South East Asia

In 2018, the vast majority of startup investment funds to Indonesia, Singapore, Thailand, and Vietnam came from other Asian markets, predominantly China and Japan. This indicates that regional firms are viewing Southeast Asia as an untapped market beyond domestic or Western investors.

This trend is one of the bases of Asia’s growing regional innovation network. Southeast Asia’s markets are benefiting from local companies delivering local-friendly solutions, while these companies are also supported by resources and knowledge from more advanced economies.

Innovation hubs are rising across Asia

The regional exchange of resources has allowed several urban regions across Asia to rise as new “innovation hubs” — cities that have become a center of economic and technological development in their respective countries.

Besides the usual suspects like Beijing, Shenzhen, Tokyo, and Singapore, several regions in Southeast Asia are quickly becoming the region’s equivalents of Silicon Valley.

Jakarta, Indonesia

According to McKinsey, the innovation index of Indonesia’s capital city, Jakarta, is rising at a compound annual rate of 12 percent from 2007 to 2017.

Furthermore, Jakarta’s greenfield foreign direct investment (FDI) in knowledge-intensive sectors has increased at a compound annual rate of 20 percent over the past ten years to USD 1.1 billion, on a par with investment by China’s Shenzhen.

All of Indonesia’s unicorn companies — comprising many of Southeast Asia’s unicorn startups — are also based in Jakarta. In addition, as many as 90 percent of Indonesia’s 235 registered fintech companies were registered in Jakarta in 2018.

Read more: The story of Indonesia’s unicorn startups

Jakarta’s status as Indonesia’s capital means that it serves as the local base for many multinational and local companies doing business in the country.

It is also aided by the federal government’s focus on developing startups and SMEs, as well as inflow of talent from many of the country’s top universities located within or nearby city limits.

Yangon, Myanmar

Like Jakarta, Myanmar’s commercial capital of Yangon is rapidly becoming a regional tech hub. This city’s score on the innovation index has been rising at a compound annual rate of 11 percent from 2007 to 2017.

Greenfield FDI in knowledge-intensive sectors in the city soared to $2.6 billion from 2007 to 2017. Many players from the government and private sector are supporting the city’s potential through developing its startup ecosystem.

Samsung’s Tech Institute works with local government and universities to develop training program for the region’s tech professionals, while local incubators and tech hubs such as Phandeeyar have also sprung up.

What’s the conclusion?

Asia’s interconnectivity means that even though a business is only located in one country within the continent, the business would still be able to access the potentials of other Asian countries. In Southeast Asia, for example, businesses can tap into the local talent and high-demand economies while also having resources from China or Japan available to them.

In addition, the variety of growing tech hubs in the region offers businesses many options to use as headquarters. Cities like Jakarta, Yangon, and Singapore are prospective locations where businesses can access talent, capital, and infrastructure are all available in one location.

Want to expand your business to Southeast Asia?

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