The motorcycle diaries: Startups and innovation
By Justin Hall December 19, 2014
- Motorbikes represent a defining trend of emerging economies
- Technologies, services and business models are being leapfrogged
MOTORBIKES are the most ubiquitous form of personal transport in South-East Asia. Amble along the streets of Jakarta, bravely plunge headlong into traffic in Ho Chi Min City, navigate the back-alleys of Bangkok – in these places you’ll find an overwhelming, even stupefying number of motorbikes.
Small, accessible, quick, and above all, relatively cheap, over half of all the motorbikes in the world can be found in South-East Asia.
So why is this important?
Because motorbikes will define innovation in South-East Asia for the foreseeable future and, subsequently, will determine where venture capital goes – and who receives it.
Of course, I don’t mean this literally, although it's certainly not a small market. Instead, motorbikes represent a defining, fundamental trend that is not only unique to emerging economies, but is a key driver of growth and development in South-East Asia: Leapfrogging technology.
By this, I refer to the technologies that are emblematic of this shift away from the so-called “linear" path of technological development, at least as defined by the West.
In simplistic terms, it’s that evolution from the simple to the complex; the cheap to the expensive; the practical to the luxurious.
More meaningfully, that transition from offline to online; from cash to credit; from dumb web portals to smart mobile applications; and, lastly, from motorbikes to automobiles.
This progression is simply a result of improving technology, growing household income, or some other combination of factors, but the result is the same: The transition from a good solution to a better one.
That sort of linear progression is not happening in South-East Asia, at least not as rapidly as we’ve come to expect in the West. The reasons are now considered so prevalent and oft-repeated they're hardly worth mentioning: The almost total absence of credit cards in the region; disparate rates of Internet and mobile phone penetration; and relatively modest consumer purchasing power, to name a few notable examples.
But while it might be reasonable to assume that this would slow, or even restrict, economic growth, the exact opposite seems to be true: South-East Asia has some of the fastest growing markets in the world, a flourishing venture capital industry, and globally-competitive companies that are raising and closing incredibly large rounds.
All of this is due to leapfrogging technologies: Technologies, services and business models that are often considered fundamental to the sustainability and scalability of modern economies are being leapfrogged.
Consumers are purchasing online goods with cash without any need for credit; navigating the Web through smartphones in lieu of desktops; and consuming more online content through mobile phones than any other respective medium.
Or, to reference the daddy of leapfrogging technology in South-East Asia, opting for motorbikes instead of automobiles.
It shouldn’t be a surprise that the most widely distributed platforms and services in the region are mobile, quick, and inexpensive.
What is surprising is how much better or more acceptable these solutions are compared to their Western alternatives.
That’s not to say inefficiencies no longer exist. In many instances, they continue to be rampant, especially in the payment and logistics space, and this can have a pronounced effect on the profitability, growth, and long-term sustainability of any venture in South-East Asia.
But as a result of economic, technological, and even societal circumstances, startups have been forced to develop innovative products, services, and tools to survive, grow, and, in many instances, actually improve on comparable products often considered cutting edge in the West.
Leapfrogging startups have been the source of some of the most innovative products and services in South-East Asia, but more importantly, they are companies that could have never been started anywhere else.
It makes for an amusing discussion when speaking to sceptics and pessimists – they’ll often lament that South-East Asia cannot hope to be competitive on a global scale, especially against larger, better funded competitors from the United States or Europe.
Or even more cynically, that the aforementioned weaknesses handicap regional markets, making large, profitable companies a rarity, if not an outright impossibility (although recent success stories like GrabTaxi, Tokopedia, and Viki has effectively laid to rest the latter prediction).
These critics are missing a key point: South-East Asia has some of the fastest growing markets, the most innovative tech companies, and the most active investors in spite of its fundamental weaknesses.
And those weaknesses are becoming more and more inconsequential as technology improves.
This trend will dictate where most of the venture capital being raised now will eventually end up. Startups that do not understand the regional circumstances affecting their long-term viability will die; startups that do will survive; and those that turn them into advantages will become outrageously wealthy.
It’s the last cohort, the ‘motorbikes’ that will take a lion’s share of investment in the region, and entrepreneurs should take note of this.
The technology scene in South-East Asia, especially Singapore, Indonesia and Malaysia, has matured tremendously fast. Most entrepreneurs understand that they need to account for local disadvantages to survive; the real opportunity is turning them into advantages.
For those who can, look out: These ‘motorbike’ companies will become the future winners of South-East Asia.
Justin Hall is an associate at Golden Gate Ventures, an early-stage fund based in Singapore. A former Rakuten Network manager and scholar at NUS, he sources investable early-stage technology companies from South-East Asia. You can reach him via Twitter at @JVinnyHall.
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