Chinese tech giants have not had a head start in Southeast Asia, says Jenny Lee, Managing Partner, GGV Capital

In this week’s GGV Podcast, Hans Tung and Dimitra Taslim, Managing Partners at GGV Capital, spoke to Jenny Lee and Jixun Foo of GGV Capital, on the opportunities in Southeast Asia, the role of China’s tech giants in this fast-growing market, and the implications it has for local founders.

Much has been written on the growth potential of the Southeast Asia region. If you do not have the time to dig deeper, here are some quick facts. A third of the population is under 30, and about 90 percent of internet users are primarily on mobile. The average mobile users in China and the US spend 6.5 hours online per day, and the average Indonesians and Filipinos are online for nine hours per day.

In this week’s podcast, Dimitra Taslim and Hans Tung spoke to Jenny Lee and Jixun Foo, Managing Partners at GGV Capital, on the opportunities awaiting in Southeast Asia, being an early investor of Grab, the role of China’s tech giants for this fast-growing market, and the implications it has for local founders.

As a firm, we have done 10 deals in the region, and more than half of that has come in the last 2.5 years.

Jixun Foo, Jenny Lee, and Hans Tung, Managing Partners at GGV Capital

Tune into this episode of the podcast here:

Hans Tung (HT): Both of you are from Singapore. Yet, over time, you chose to spend more time in China and the US. How are you thinking about Southeast Asia now versus where it was before?

Jixun Foo: Southeast Asia benefitted for the first 30 to 40 years. Singapore, in particular, with manufacturing and FDIs, became one of the four dragons and five tigers in the rising Asian economies. But having said that, I always thought that looking beyond the MNC approach to growth, many of the Asian economies will have to figure out their innovation paths going forward. The internet has also brought about a new paradigm.

I joined DFJ and my first investment in China was Baidu. At that time, the entire internet ad spends in China was only about $30 million. I had the benefit of being part of Baidu and witness the transformation and growth. If you look at Southeast Asia, what is interesting is that mobile internet is now starting to evolve in this market. As we look for the next billion mobile users, and having seen how mobile internet transformed in China, we think the same phenomenon could happen in these markets - Southeast Asia and India.

Back in 2013, Anthony Tan, Co-founder, Grab, came in and pitched his story. The first version of Grab was called Mytaxi in Malaysia before it became GrabTaxi and then became Grab. That was the first instance where we started seeing a lot of things that we saw in China, which was now being replicated or adapted into the market here, and it was due to mobile internet. We made our first bet in Grab at a reasonably early stage. Today, Grab is a $12 billion company.

Jenny Lee: The common thread that brought all three of us to China was growth, market, and innovation. Southeast Asia is the universe we know. But when you look across the globe, the one thing that I always thought represents GGV is our partners have a constant hunger to find the next big exciting market. I think, in the last 19 to 20 years, we have been fortunate to be part of China’s growth, and fortunate to be able to invest in the likes of Alibaba, DiDi, and Bytedance.

We see similar budding and talented entrepreneurs here who are now more diversified. Firstly, the startups that we meet and see today have a mix of talent from different countries and backgrounds. Secondly, I think the business models that we have seen are exciting. I spend a bit more time on the fintech side in terms of companies that are trying to change or update the payment infrastructure on the back end for financial services.

Governments and enterprises are looking at smart city solutions, and how technology can now bring us to a different Asia. I think that is also where we see the US and Chinese business models and technology have a chance to penetrate the Southeast Asian market. That is another reason we feel that the learnings we have can put GGV in a good position to find that next unicorn.

Dimitra Taslim (DT): Jixun, being an early investor of Grab, what have you learnt about the region from its growth story?

JF: The one challenge Southeast Asia has is the fragmentation of the market, and it is multicultural. One question I tried to understand when talking to Anthony is how does he do that? With his family background and Harvard education, he was able to assemble a multicultural team. They have team members who are Vietnamese, Filipinos, and Indonesians to be on the ground and help operationalise business. Another challenge we faced was engineering. It was hard to find engineering talent in this region. So, Anthony went on to build centres outside of Southeast Asia with centres in Beijing, India, and Seattle. To assemble talent, I think entrepreneurs here have to be able to figure out ways to address these.

DT: With a country like Indonesia and the rest of Southeast Asia, what alternative paths to economic development are there?

JL: A common mistake that investors and entrepreneurs in Southeast Asia make is that they look at this as one region, but it is not one region. I do not think Southeast Asia will emerge as the backwater. What gets investors and entrepreneurs excited about is that we see this region has a consumer consumption-driven market. These countries have a big population and so we have also seen the rise of ecommerce in the last five to 10 years.

The first wave of companies that will benefit will be those who build the infrastructure and the platform to enable, facilitate, and lower the barriers to allow more of this consumption. Southeast Asia is like China in the services O2O (online-to-offline) boom five years ago. The first wave of platform companies will be service companies. I think there is the opportunity for that first few giants to emerge. After that, the market will be a bit more fragmented.

HT: In the last few trips we made to Southeast Asia, investors felt you should invest in ecommerce first and then other sectors.

In Southeast Asia, what Jenny was referring to as O2O services, like Grab going into GrabFood and other services, it all happened at the same time when ecommerce was taking off. It also means on a B2B side, it is now much more likely to collapse the supply chain and make the digital channel more efficient with the rise of mobile internet.

That is an area that we spend time looking at both in Southeast Asia and India, looking at how the efficiencies that can be part of on the B2B side can make an impact on something like kirana stores in India, Indonesia, and so forth. A lot of mom and pop shops are likely to benefit from the rise of mobile internet and efficiencies that apps and SaaS products can come out with. You don’t see it much in China, and it is not there in the US at all, except in the form of SMB tech.

So I think that makes it quite interesting for founders and VCs to invest in these B2B areas in a region.

JF: When looking at Southeast Asia, we have to look at the market in itself. What is the existing infrastructure? What are the existing pain points? What are the current frictions of the market?

We have to recognise Southeast Asia for the market as who they are. We have to understand their way of life, work style, and provide a solution that solves pain points in those markets. That is the kind of entrepreneurs we hope to identify.

DT: What are your views on the role of Chinese internet giants here?

JF: I think many of them are trying to replicate or extend some of their services beyond China itself. We saw Bytedance entering the market with TikTok in various countries. In fact, in India, they have multiple products to address their demands. For many companies in Southeast Asia, entrepreneurs and investors have to think IPO versus M&A as exits. So, when you build your company to a certain scale, you reach a certain size, and you may get consolidated by a major player.

JL: The giants from China come with capital strength, experience, and they are highly aggressive. But when you think about what they have in Southeast Asia, they haven’t had a head start. When you enter a new market, especially Southeast Asia, the local founders have an advantage. If I open up my financial regulatory framework, issue licenses too fast to international players, am I going to be depriving my local founders of a chance to grow to a local champion?

The awareness is very high as we talked to different countries, especially on the financial system side. If you are an entrepreneur, as you grow, there is a right time to get strategic money, there is a right time to align yourself with the giants to gain that knowledge.

HT: When companies go global, there are limitations to what each could do. For the older generation of Chinese Giants, Alibaba and Tencent are trying to expand beyond China. They have gone through the route of either acquisition or more commonly strategic investments. So partnering with local startups seems to be the way to go there.

Of course, there are exceptions in the case of Xiaomi or Bytedance. But having said that, we see that the younger Chinese companies are more willing to learn and adapt, even co-found companies with Southeast Asian co-founders or Indian co-founders. So we are seeing a mosaic of startups with founders coming from different backgrounds in Asia. That is extremely encouraging because that’s how you can build a regional global player.

DT: What is the one opportunity in the region that you’re excited about from an investor investing thesis perspective to solidify what we have been discussing?

JL: In the next six months to a year, I am focussing on the financial systems. So, the backend infrastructure can support better money transfer, better capital flow, or payment flow. A lot can be done there, including leveraging artificial intelligence and machine learning to assure the data is collected in a more structured way, and therefore providing more insights to all the participants who are trying to deliver goods and services to the end customer.

JF: I don’t have a particular sort of vertical or sector, but I am excited about Indonesia and the Vietnam market. Selected services, for example, in real estate services, in B2B, in logistics, in warehousing, these are areas where you can go deep into one market and do it well.

HT: I am very bullish on what is happening in India and Indonesia, especially on the B2B side, and looking at kirana stores in India. So, we led our first investment in India by investing in Udaan. We invested in a second company in India known as Khatabook. And so, we are going to do more in these regions that can benefit from the efficiency that we generate a mobile internet app, as well as SaaS products.

The B2B2C model is quite interesting because they both can aggregate demand from the consumer side and improve efficiency on the supplier side to bring lot more benefits to the participants.

The kind of growth rate possible for the new economy is tremendous because the adoption and diffusion of technologies are changing the ways that suppliers and consumers behave. That kind of efficiency released can generate empowered new economic growth. We hope to see the same in Southeast Asia.

(Edited by Megha Reddy)