Viktor Kyosev | KrASIA

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1b:T62b,{"@context":"https://schema.org","@graph":[{"@type":"ProfilePage","@id":"https://kr-asia.com/author/viktor-kyosev","url":"https://kr-asia.com/author/viktor-kyosev","name":"Viktor Kyosev | KrASIA","isPartOf":{"@id":"https://kr-asia.com/#website"},"breadcrumb":{"@id":"https://kr-asia.com/author/viktor-kyosev#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https://kr-asia.com/author/viktor-kyosev"]}]},{"@type":"BreadcrumbList","@id":"https://kr-asia.com/author/viktor-kyosev#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https://kr-asia.com/"},{"@type":"ListItem","position":2,"name":"Archives for Viktor Kyosev"}]},{"@type":"WebSite","@id":"https://kr-asia.com/#website","url":"https://kr-asia.com/","name":"KrASIA","description":"Decoding China's tech and business 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Here, he expands on that idea to indicate how a startup can break into fast-growth markets by first passing through Singapore. With a population of more than 600 million, an internet economy that has reached a valuation of USD 100 billion, over USD 37 billion worth of venture capital that has been funneled toward more than 3,000 startups, Southeast Asia is the third pillar of growth in Asia after China and India. [caption id="attachment_95887" align="aligncenter" width="681"]

The GDP and population of countries in Southeast Asia. Source: International Monetary Fund.[/caption] Entrepreneurs are mostly concerned about whether their business will be successful, as well as how expansions may impact their runaway, growth, and profitability. One of the most common strategies we have seen is start from Singapore, and then radiate through the region.

Why Singapore?

Competitiveness, innovation, and ease of doing business

KPMG runs a survey every year to seek out global tech leaders. The goal is to find out which cities outside Silicon Valley will be leading technology innovation hubs over the next four years. In 2020, Singapore ranked #1, as we see in the results here: [caption id="attachment_95888" align="aligncenter" width="678"]

This year, Singapore is considered the top technology innovation hub outside of Silicon Valley. Source: KPMG Technology Industry Innovation Survey 2020.[/caption]

"Singapore, ranked seventh last year, took the top spot this year in the global rankings and offers an advanced IT infrastructure, strong government support and IP protection laws, and a deep pool of talent. As a start to economic transformation, the government-sponsored Smart Nation program has been progressing since 2014, and the National Artificial Intelligence Strategy was announced in November 2019."
— KPMG Technology Innovation Hubs

To drive the point home, I looked through four more global studies mapping all markets around the world in terms of competitiveness, innovation, and change readiness. To drive the point home, I looked through four more global studies mapping all markets around the world in terms of competitiveness, innovation, and change readiness. Here is where Singapore ranked in each study:

The Global Competitiveness Report 2019—Singapore ranked #1.
Bloomberg Innovation Index 2019—Singapore ranked #6, and #3 in 2020.
Global Innovation Index 2019 & 2020—Singapore ranked #8.
KPMG Change Readiness Index 2019 & 2020—Singapore ranked #2.

In all of these cases, Singapore was named in the top ten spots, while three out of four positioned the wealthy city-state in the top five. The conclusions were a robust external validation for specific offerings from Singapore:

Modern infrastructure, including a high-speed internet connection.
An urban locale that attracts young professionals.
Available investment funding.
A pipeline of skilled talent.
Favorable regulatory environment.
Positive demographic growth rate.
Supporting eco-system involving banks, accounting firms, law firms, and more.
Generous tax incentives and government stimulus programs.

Another important consideration is the ease of doing business in the target geography. The World Bank runs an annual study where it compares different countries based on criteria like business formulation, construction permit acquisitions, utility arrangements, property registrations, credit issuance, minority investor protection, tax payments, cross-border trade, contract enforcement, and insolvency resolution. Countries in Southeast Asia are working hard to simplify their legal system and attract more foreign direct investment as well as domestic entrepreneurship, but no one beats Singapore. In general, it is becoming easier to do business in Southeast Asia, with Singapore leading the way. Source: The World Bank.

Internet economy

Since 2016, tech startups in Singapore have raised more than USD 23 billion. Some have become unicorns, like Grab, Sea Group, Carousell, GoBear, One Championship, PropertyGuru, ShopBack, and Zilingo. Venture capital investments have been steadily rising in Singapore. Source: The "e-Conomy SEA 2019" report published by Google, Temasek, and Bain & Company. Because of its high income per capita, Singapore is ahead on most metrics compared to other markets in Southeast Asia. For example, average order values in Singapore's e-Commerce sector are three to four times higher than those in the rest of the region. Although the population of Singapore is much lower than that most countries' in Southeast Asia, their internet economy was worth USD 12 billion in 2019, which is many times larger than that of neighboring markets. The valuations of various industries are rising rapidly in Singapore. Source: The "e-Conomy SEA 2019" report published by Google, Temasek, and Bain & Company.

Challenges

As with any other market, there are pros and cons for expanding to a particular geography. In the case of Singapore, I have observed several issues that hinder companies' growth:

Costs. Singapore is expensive. While starting a company can be pretty affordable, hiring people, renting office space, and advertising can be costly.
Talent. While Singapore has some of the most qualified talent in Southeast Asia, the competition for good people is high. All large international and tech companies have their regional headquarters in the wealthy city-state, and all of them compete for employees based on more or less the same traits.
Market size. At the end of the day, the island state's population is just 5.8 million people. Compare that to the 274 million in Indonesia, and you can see why some companies question the need to have a presence in Singapore.

Opportunities

We have observed a few strategies that foreign companies employ when expanding to Southeast Asia via Singapore:

Credibility. Some startups incorporate in Singapore just so they can add the address on their websites or sales decks, and in turn convince prospective buyers that they have an office located in the world's leading tech hub outside Silicon Valley.
Research. In other cases, companies establish a small team in Singapore to build relationships and study the rest of Southeast Asia. That way, they have time to nurture leads, validate the market, and close first sales without a massive investment in larger but more challenging markets like the Philippines and Indonesia. In fact, Singapore has some grants that support companies that have at least 30% local ownership when expanding across Southeast Asia.
Market-product fit. Previously, I wrote an essay on how companies need to consider the market-product fit as some countries may naturally be a better fit for your model than others. If you are selling enterprise SaaS, Singapore might be a suitable market. In contrast, if you are in the business of e -commerce, Indonesia and Vietnam might be better positioned as the total addressable market is much more significant.
Tax purposes. We are currently helping a business that's expanding to China, but is considering the possibility of incorporating in the Lion City, as it will bring their taxes down considerably. Singapore has agreements with multiple countries, which allows for considerable savings in the long run.

Whatever reasons you have for your expansion, it is rare to see companies regretting their presence in Singapore. However, a sound strategy and a good market-product fit are what matter and will define your options. Take your time and build relationships early on. That's the only way to learn from people who have been through this experience.

What makes a company successful when entering fast-growth markets?

Breaking into a foreign market is hard. Breaking into an emerging economy is even harder. Yet, people manage to do it all the time. In fact, in 2018, more than 250,000 businesses were incorporated across Southeast Asia. [caption id="attachment_94153" align="alignnone" width="1182"]

Image courtesy of Greenhouse[/caption] The reasons for expansion vary depending on the business, its scale, current needs, and emerging opportunities abroad. To narrow down the main reasons, I looked into a recent study where Velocity Global asked about 500 companies from the US and the UK to rank the main reasons businesses examine new markets. [caption id="attachment_94154" align="alignnone" width="1200"]

Recent Study by Velocity Global on new markets[/caption] Then I narrowed down the scope and looked into what the study concluded about landing in Asia, where some of the world's most exciting fast-growth markets like Vietnam, Indonesia, and the Philippines are located. [caption id="attachment_94155" align="aligncenter" width="680"]

Image courtesy of Greenhouse[/caption] As it turns out, western companies consider Asia mainly to access tech talent. Or perhaps, the right terminology here would be more affordable tech talent. Observing many companies that are expanding across Southeast Asia, I built a mental model to assess the likelihood of success when entering a fast-growth country, also known as "market-product fit." The market-product fit is not binary, but covers a spectrum of weak to strong. Markets don't sit still; they evolve. The same is true for companies' products and value propositions. Hence, the model considers three scenarios:

Extreme headwinds: a weak market-product-fit.
Extreme tailwinds: a strong fit.
In-between: companies with business models or products that can attain a strong fit, but the effort may not justify the reward.

[caption id="attachment_94156" align="alignnone" width="1200"]

Image courtesy of Greenhouse[/caption] Before I dive into my thoughts here, I would like to clarify that this is not based on any research, and it reflects mainly my observations and experience. I am focusing primarily on the compatibility of fast-growth markets—like Indonesia, Thailand, Vietnam, and the Philippines—with well-known products to make the examples easy to understand.

Extreme headwinds

The least fitting models fall here due to large discrepancies in customer behavior at home compared to fast-growth markets. I have chosen Wealthfront and Slack as two examples of companies that may fall into this category.

Slack

Without a doubt, Slack is one of the most popular communication tools among tech circles in developed markets. Yet, it's not as common in countries like Indonesia and the Philippines. In my experience, a platform like WhatsApp is better positioned to succeed even though it’s designed primarily for one use case—everyday personal communication. The convenience, ease of use, a critical mass of users, low friction, and no cost whatsoever have positioned WhatsApp as the dominant platform for everything ranging from personal chats to important updates between buyers and sellers. As a result, Slack struggles to capture a considerable share of the market, and most probably, their resources would be better spent in developed countries.

Wealthfront

Weahlthfront's ideal customer profile is 25–35 years old and works as an engineer at a startup that is about to be acquired or go through an IPO. Such a niche segment works very well for markets like the US, where we see many startup exits and very mature startup ecosystems. In turn, if you look at Indonesia or Vietnam, the number of exits is low, and most engineers do not receive stock options. Hence, the question such companies need to ask themselves is this: Are we willing to adapt our product significantly to serve a much more price-sensitive and fundamentally different market?

Extreme tailwinds

The majority of your target customers' habits in the new market are similar to those at home, or even better suited to your product or service. Here, I will give examples of e-commerce and ride-hailing companies:

E-commerce brings prices down, which goes hand in hand with price-sensitive behavior, which is common in fast-growth markets.

Ride-hailing replaces the lack of the transportation infrastructure, and creates jobs for a large working class that requires little or no knowledge and investment on their end. There is no need to have a university degree to be a Grab driver; you only need to buy a scooter.

In-between

Some of your products work well, others need tweaking. Here, I have listed many well-known companies because they operate with different degrees of success across the region.

Companies like WeWork, Netflix, Hubspot, and Uber have premium products that are marginally better than local competitors, but they face a lot of pressure to offer discounts.

In other cases, like Twitter, some markets' behavior clicks well with the product, like in Indonesia. Elsewhere, the platform struggles to overcome established players, like Facebook in the Philippines.

When it comes to fintech solutions like Revolut, such companies face a lot of resistance and regulations from local governments, which prefer locally grown startups over foreign businesses.

It all boils down to effort versus rewards. Would it make sense to enter a market that lacks a basic infrastructure because of a promise of revenue growth in the future? That’s a hard question to answer, and every company faces unique circumstances. Sometimes, early bets have huge payoffs almost immediately, but more often than not, it’s a long game, and companies need to be prepared for everything to take longer, from securing the necessary licenses to finding and recruiting great talent. Yet we have all seen cases like McDonald’s, KFC, Spotify, TikTok, DJI, Airbnb, and AWS that have done pretty well in Southeast Asia, despite the challenges. Always consider which way the wind blows.

Disclaimer: This article was written by a contributor. All content is written by and reflects the personal perspective of the writer. If you’d like to contribute, you can apply here. Viktor Kyosev was born in Bulgaria, educated in Denmark, and holds international experience across six countries. He started his career in the hospitality industry, where he spent seven years working across several large international hotel chains and later pivoted his journey to entrepreneurship and startups. Viktor worked as the head of marketing and business development for a travel startup in Jakarta and later joined Greenhouse as one of their first employees. 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