The Time-tested Strategy of Asian Startups to Win Cross industry investments and interests may look new but they have been a successful bet of titans like Apple
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The startup ecosystem is thriving by the day. Entrepreneurs across the world are breaking the confines of industry walls and foraying into multiple business sectors. From Singapore's ride-hailing giant Grab's foray into insure tech to China's entertainment app Bytedance's interest in the education sector, firms are tapping relatable as well as non-relatable sectors to capture the market by offering variety of services to consumers. This has, however, raised a question within the ecosystem: Is cross-industry expansion a good idea?
Although, considering the past expansions, the cross-industry ecosystem is not a new phenomenon. For instance, consider how the smartphone maker company Apple leads an ecosystem that spans at least four industries—personal computers, consumer electronics, information and communications—and now encompasses even more, such as music and TV. Considering today's Wolf of the Wall Street, the e-commerce player Amazon expanded into cloud computing through its entity Amazon Web Services (AWS) and last year it moved into healthcare. Companies from round the world are seeking to create differentiated offerings and capture value they could not reach alone by cross-pollinating audience.
Taking a tour of the complete situation, an Accenture study on "Cross Industry Ecosystems: Growth Outside the Box" said, "Because of today's advanced connectivity solutions and value-laden emerging markets, many companies have never been better positioned to engage in multi-industry collaborations. But few have broken out of the static industry box."
Not only that several Accenture studies suggest that future growth opportunities will increasingly emerge outside a company's traditional business. And each of these opportunities will require disruptive new approaches and collaborative models. But it depends how they execute it.
Cross pollination helps, says Viral Jani, former Twitter India head and senior vice president (investment operations) of investment firm Times Bridge. "Most of these companies have reached a certain stature and user base, and they have a very loyal user base, once they have that, they want to build a network of products.
A platform like TikTok, once they have a large audience base, they try to keep the audience within their ecosystem of apps. But it all boils down to the choice of market need-gap they are targeting, and how they are executing it," says Jani. Look at ride-hailing startup Uber's entry into food tech, for example. "If you look at, it's a good move from the perspective of their business model. They are in the business of mobility, so they expanded into broader level," says Jani. He stresses on how China has a history of building companies that are doing multiple things in Asia.
On the recent move of Grab and its Indonesian rival Go-Jek's entry into the digital payments, Jani says, "They have a huge head start if they want to foray into other sectors. It gives them an advantage to have a certain base of audiences, which they can cross-pollinate to make a mark in other sectors."
"From Google to Microsoft, lot of companies have done so, which has helped them in driving audience into different sectors," he adds.
Counting the technical advancements of today's rising Internet economy, Roger Lim, founding partner, NEO Global Capital, says, "Internet economy has challenged companies to diversify and go beyond their initial offerings. This has resulted in the emergence of tech heavyweights like Amazon and WeChat, that are following a platform approach." While cross-industry diversification model is still in its early stages, apps like Go-Jek and China's Didi have taken a hyper-localized approach.
Should startups look at additional sectors? Or stay focused? Lim replied, "It is essential that organizations consider the risks and returns of diversification relative to the market position it occupies."
"My view is startups should dominate one industry first and master the fundamentals - whether in terms of operation, product, or leadership - before looking to grow horizontally or expand to other regions," he said.
Lim says firms should consider the risks and returns of diversification relative to the market position it occupies. "Diversification has to be built upon and supported by a robust internal ecosystem before it can provide a comparative advantage, even in rapidly moving industries like technology."
(This article was first published in the February 2019 issue of Entrepreneur Magazine. To subscribe, click here )