The Rise of Third Generation Companies in Southeast Asia
Investors looking to capture tech-sector opportunities in Southeast Asia should look for a new of generation companies that can provide a comprehensive solution to consumers' needs
Not too long ago, shopping in China was a real hassle. In the mid-2000s, buying something like a mobile phone would require going to a crowded electronics market, going from stall to stall to haggle over prices, and finally paying a pile of cash. This is why the advent of Alibaba’s online shopping platform Taobao was a revolution for an increasingly affluent population that was looking for better ways to spend their money.
It completely reinvented the shopping experience–shoppers can choose goods on a smartphone app, have them delivered via an extremely efficient logistics network, and even pay with the company’s own payments system, Alipay. It’s a perfect example of a company using technology to provide a complete end-to-end solution to its clients. Amazon has had a similar impact in the US and Europe, Tokopedia has done something similar in Indonesia, and Go-jek is an important player in the technology industry.
They represent the coming generation of technology companies, which I call the ‘Third Generation’. These companies mark a significant improvement on ‘Second Generation’ businesses that simply looked at one part of the customer journey i.e. from an offline on to an online platform. Two notable examples of this past generation are eBay and Monster.com. The ‘First Generation’ was hardware and software providers – a major focus in the eighties.
You might think that this new breed of problem-solving companies will thrive best in developed economies. However, I think that the most fertile ground for their development will be in emerging markets, such as Southeast Asia. There are several reasons why. One of the biggest reasons is that Southeast Asia already has 350 million internet users who form a rapidly growing online economy. According to a recent Google-Temasek report, this mobile-first population will be worth US$240 billion in 2025, from US$72 billion at the end of 2018.
Many of the countries that make up ASEAN have a young technology-savvy population that has leapfrogged the desktop computer into an ecosystem that is primarily driven by mobile devices. At the same time, the traditional offline economy in many of these countries is woefully inadequate to meet the evolving needs of the population due to inefficient processes and substandard products. Small businesses cannot access credit and supply chains are clogged by excessive layers of middlemen, while customers often face shoddy service.
These factors create significant opportunities to completely rethink how business is done in a particular industry. It also suggests that technology companies not bold enough to start from scratch will likely fail. This is because the relatively undeveloped level of goods and services in these countries means that so-called ‘thin-layer’ companies – i.e. businesses that only address one part of the value chain – will likely not succeed, as they do not do enough to provide a full solution to a client.
An example is Jio Health, a Vietnamese company that covers the entire spectrum of medical treatment. It starts by sending a doctor to a patient’s house, where it can test samples, prescribe drugs, and arrange for transportation to treatment in a hospital, if needed. It compares favourably with the other technology-driven healthcare companies on the market which typically just transfer one segment of the medical process to an online setting – such as remote diagnosis that cannot be followed up with treatment. In a country like Vietnam, with a population of 95 million, where people typically go to clinics or top-end hospitals for even the most minor ailments, a company like Jio can have a transformative impact on how people access healthcare.
It is a powerful illustration of why we should all care about the rise of Third Generation companies. They can have transformative effects on the provision of key goods and services – whether it is consumer goods, financial services, or even healthcare. So, it should be no surprise that governments across Southeast Asia are supporting companies that fit the Third Generation model.Investors too have a role to play. By allocating capital to companies that are able to create a comprehensive solution for their customers, they will not only be tapping Southeast Asia’s most attractive technology sector investment opportunities, they will also be enabling change that is felt at every level of society – from the farmers with their smartphone in the field to the middle class shoppers sitting on their couch with an iPad.