Southeast Asia tech: Strategic incursions

The incursion of Chinese technology giants into Southeast Asia has become a feature of mid to late-stage funding rounds in the region. They want a piece of an internet economy that will generate a gross merchandise value of $240 billion by 2025, up from $72 billion last year, according to a study by Google and Temasek Holdings. Buying or backing local players is one of the best ways to get it.

AVCJ Research’s records show that venture capital and growth capital investment in Southeast Asia’s technology, media and telecom (TMT) space reached a record $6.2 billion in 2018, up from $3.9 billion and $2.6 billion in the two preceding years. There have been 35 funding rounds of $100 million and above since 2011. Chinese strategic players feature in eight, including four of the six largest. Include Chinese financial investors as well and the total rises to 17.

Two companies, Grab and Go-Jek, have received over half of the approximately $15 billion invested across those 35 rounds. While their businesses are built on ride-hailing, Grab and Go-Jek now reach into an assortment of transportation options as well as delivery, online-to-offline local services, and financial services. Chinese strategic investors are prominent on both shareholder registers.

It seems likely to be more of the same in Go-Jek’s Series F round with JD.com and Tencent Holdings among the returning investors. But China is not the only source of strategic interest. Mitsubishi Corporation and Astra International, controller of Indonesia’s largest automotive distributor, are also involved. Indeed, Astra and Go-Jek have a side agreement that will see them launch a fleet of several thousand cars, pre-installed with Astra’s fleet management system and the Go-Jek app. 

Grab is in a similar position. Chinese ride-hailing player Didi Chuxing is an investor, but the company also attracted the likes of Yamaha Motor, Hyundai and Toyota Motor Corporation into its ongoing Series H round. These investments are accompanied by collaborations on electric vehicles, connected car services, and autonomous driving. Moreover, Microsoft and Booking Holdings have committed capital and entered into partnerships – around artificial intelligence and tourism services, respectively – as well.

The extent of this strategic involvement is notable because it does not follow a pattern established in China. Booking Holdings did invest in Didi last year, but the approximately 30 rounds of $500 million and above in China’s TMT space over the past two years have been dominated by private equity, hedge funds, local financial institutions, overseas institutional investors, and SoftBank. Only two strategic investors consistently get a look in: Alibaba Group and Tencent.

Of course, this is part of the problem in China. Not only is the competition for places in large Chinese funding rounds intense – the target companies are more established as is the internet ecosystem itself – but two local strategic players have essentially cornered the market. Even in areas Alibaba and Tencent don’t touch, the likes of Baidu, Qihoo Technology, Meituan-Dianping and Didi might be active. And then in the ride-hailing space, Didi is large enough to direct its own collaboration with local automakers.

Southeast Asia may therefore present a unique opportunity to foreign strategic investors in Asia: a market of scale – though not without challenges – that is relatively unsaturated in terms of business development potential and scope for participation in tech start-ups. They should act while they still have the chance. 

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• Topics
• Southeast Asia
• Technology
• Consumer
• Expansion
• China
• TMT
• Grab
• Go-Jek