Indonesia adapted and furthered the successful business models that created unicorns in China. Now, it's exporting its own to the rest of Southeast Asia, even beyond
Indonesia's five unicorns – Gojek, Bukalapak, Tokopedia, Traveloka and OVO – may seem to be the most successful startup ideas the country has produced so far. Yet, there is also a sense of deja vu. That's perhaps not so surprising: after all, the business models underpinning these unicorns were first hatched in China.
Online-to-offline (O2O) on-demand services, e-commerce marketplaces and digital payments are some of the key models developed and defined by Alibaba and Tencent that were later adapted and took root in Indonesia and other parts of Southeast Asia. Most famously, the so-called super app – exemplified by Tencent's omnipresent WeChat – is today ubiquitous in urban Indonesia, thanks to the expansion of ride-hailing rivals Gojek and Grab.
"Taking into account success stories from China, startups in Southeast Asia have been adopting Chinese business models and localizing them according to each specific Southeast Asian country," Karissa Adelaide Salim, Associate at Venturra Discovery, the seed investment arm of Venturra Capital, said. Notably, many have gone to great lengths to understand local cultures and demands to achieve quick market penetration and brand loyalty, she added.
Southeast Asia's socioeconomic situation mirrors China's in many ways. Both regions have experienced massive economic growth fueled by industrialization. Lack of infrastructure development in years past was followed by rapid proliferation of internet and smartphone connectivity, allowing digital-based businesses to leapfrog conventional ones – a phenomenon most apparent in banking and financial services. This parallel development may help explain why similar business models have succeeded in both places.
Investors like validated models
The comparable market conditions aside, more capital flowing into the region from investors seeking validated business models has also helped these local startups flourish.
"Alibaba demonstrated the viability of doing e-commerce marketplaces, so then investors bet on [Southeast Asian] companies like Tokopedia and Shopee," said Pamitra Wineka, President and co-founder of Indonesian agricultural technology startup TaniGroup, noting identical trends in ride-hailing, fintech and, more recently, big data.
TaniGroup began as TaniHub in 2016, before mainstream investors got excited about agtech. Then "agtech became a hot topic because of China's Meicai," Pamitra said, referring to China's first agtech unicorn. "The investors now see that the next big thing is agtech, and so they're entering the space."
In that sense, local startup founders may not necessarily be inspired by Chinese business models. But because investors often only start valuing certain new companies after their model is proven in China or elsewhere, these "imported" ideas have become the dominant force in the Southeast Asia ecosystem.
TaniHub sells fruits and vegetables to household consumers, whereas Meicai sells to restaurants. Both startups source their products directly from farmers. Like Meicai, TaniHub has begun establishing its own supply chain – starting by building its own packing houses – and standardizing farming processes through close supervision and guidance of its partner farmers.
The Indonesian laboratory
Among Southeast Asian countries, Indonesia has been an ideal testbed for "imported" business models, as well as a target for overseas expansion. The country's growing population, currently around 260m, and the diverse socioeconomic conditions across the archipelago create many different niches and a big sample size with which founders can experiment, all while creating new sources of revenue.
Startups from all over Southeast Asia have tried their luck in Indonesia. P2P lending startup Funding Societies, where users fund business loans and get quick returns, was established in Singapore, but it has successfully expanded into Indonesia under the Modalku brand. Meanwhile, Moxy, a Thai e-commerce platform for women's products, merged with Indonesian mother-and-child goods marketplace Bilna to form Orami.
Despite the many differences between each country's political, legal and socioeconomic situations, Southeast Asian markets share similarities. Amit Anand, Managing Partner and co-founder of regional VC Jungle Ventures, describes the situation on his company's website: "A young middle-class woman in Singapore probably has more in common with her counterpart in Ho Chi Minh City – in terms of consumer profile – than with someone from a different socioeconomic class in their own country.
"As a result, there is now a fairly homogenous addressable market of about 200m middle-class consumers in the top metro areas across Southeast Asia that didn’t exist less than a decade ago."
The similarities between these countries is also something that B2B startups can take advantage of. Georg Baunach, Managing Partner and co-founder of Ireland-based accelerator Hatch, said Southeast Asia's aquaculture industry is a prime example of how founders and investors should focus on what the countries have in common.
"There are, of course, differences [between countries in the region], but I don't think [the problems in the industry] are specific enough that you would say that one solution is only for Indonesia or any other country. If an entrepreneur develops a solution for aquaculture or farming in Indonesia, it is quite likely that you can take this to other markets," he said.
In 2018, Indonesian startup JALA, which produces a sensor and data analytics system for shrimp farms, joined the first batch of Hatch's accelerator program. The company has since trialed its system in Malaysia, Thailand, Vietnam, China, India and Ecuador.
From importer to exporter
Just as Indonesia has "imported" business ideas and become a proving ground, the country may be starting to turn into an exporter of startup ideas. Thanks to the success of its first unicorn Gojek, app-based motorcycle taxi services can now be found across Southeast Asia, although Singapore-headquartered Grab is currently slightly ahead in the game. But Gojek has taken its game plan farther afield, investing in ride-hailing startups Pathao and Safeboda, from Bangladesh and Uganda, respectively, and is expected to replicate its in-app services model in them.
Other Indonesian founders have considered expanding overseas, in part because the local market is already saturated and because foreign markets provide an opportunity to diversify their income streams and offset any losses at home.
"Overseas markets mean new untapped customers, presenting the company with a larger potential customer base and additional revenue," Venturra Discovery's Salim said.
Expanding overseas is not an easy task for anyone, and Indonesian startups are no exception. Startups often have to expend millions of dollars to develop a new subsidiary, gain market share and make any meaningful impact on a new market. Localization efforts go beyond translating the apps: startups need to understand each country's unique culture, consumer demands and regulatory landscape. Any company wishing to tackle these obstacles must recruit highly capable local staff and build teams that can run independently.
In the end, however, even best-laid plans could often go awry. Salim stressed that startups going into new markets need to have the agility to learn and formulate new strategies. "Even though you have conducted extensive research, sometimes the situation on the ground requires you to [adapt and] iterate your expansion strategy," she said.
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