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Southeast Asian start-ups are playing a significant role in promoting investment in the region. Despite the challenges posed by the pandemic, these innovative companies have continued to attract investment from both domestic and foreign sources. In fact, their success has contributed to the impressive growth rate of foreign direct investment in ASEAN nations, which has exceeded the average for developing economies by over 30%.
According to a joint UNCTAD-ASEAN report released in September 2022, the region's vibrant start-up ecosystem is a significant contributor to the region's strong performance.
Between 2015 and 2021, the number of Southeast Asian start-ups that had received more than $1 million in funding nearly tripled to 1,920. This is an increase of 85% higher than that of Europe and 65% faster than that of the United States.
Unicorn start-ups, or businesses valued at $1 billion or more, have also proliferated in the area, increasing from two in 2014 to 46 in 2021. The US, China, and India are currently ahead of ASEAN.
In the region, global and regional private equity and venture capital firms are rapidly expanding, according to the ASEAN Investment Report 2022.
More importantly, some of the best-funded Southeast Asian start-ups and unicorns are growing outside their home nations into critical new industries, which will encourage investment across the region. These start-ups constitute a significant factor behind intraregional investment in emerging prospects in fintech and e-commerce.
According to the research, "Start-ups, particularly unicorns, have been essential in driving these new trends and contributing to the Industry 4.0 transition in ASEAN. According to the analysis, 42 of the 100 Southeast Asian start-ups with the highest funding levels in 2022 will have a physical presence in at least one other member nation, and many will operate in two or more locations.
The rate is significantly higher for unicorns in the area. The region's digital economy is significantly boosted by the over 82% of respondents engaged in cross-border investment across many of the region's nations and farther afield.
Start-ups and unicorns, particularly those in the technology sector, "play a crucial role in connecting nations and markets in their regionalization. According to the paper, they may help to facilitate regional integration.
The report identifies market dynamics as the primary reason Southeast Asian start-ups and unicorns invest locally, even though it claims various push and pull factors are involved.
The vast majority (96) of the top 100 Southeast Asian start-ups with regional investment "extended to other ASEAN member nations primarily due to market-seeking factors," according to the study.
The report underlined the significant significance that various investment facilitation measures that ASEAN nations have implemented over the years, such as reducing administrative procedures and criteria, have played.
While the measures encourage investment generally, Mr. Zhan claims they have aided regional start-ups in increasing international investment and investing their own money abroad.
The ASEAN Investment Facilitation Framework, which was agreed upon in 2021, includes several investment facilitation initiatives. The study evaluates progress on these policies.
It concludes that all members have implemented 80% of the measures. However, it also notes that some nations still need to take action to implement the measures on "single digital platforms" and "facilitation of investment-supporting elements."
Despite the advancements, the report notes areas for improvement and urges ASEAN member states to concentrate on the actions that would have the most incredible positive effects on enabling investment.
The research states that policy measures, support, and capacity-building programs are required to solve these issues.
The region's digital and tech businesses have experienced a tremendous boom for the past few years. This marketplace is quite intricate. Many businesspeople are constrained by worries about cultural differences and a lack of knowledge on conducting themselves in other countries. However, three strong arguments regarding Southeast Asia as a significant market are here.
More than 655 million people live in Southeast Asian countries or about 8.5% of the world's population. Roughly 109 million people live in the Philippines alone, with Vietnam and Indonesia closely behind, with 273 million and 97 million people, respectively. Yet these figures are rising quickly, with Southeast Asia's population growth rate outpacing that of the Americas and Europe.
Although each nation is at a distinct stage of development, they all provide a wide range of prospects for establishing cutting-edge technologies and tried-and-true business models. A rapidly growing middle class dominates the market and is reflected in the consumption standard. By 2030, 163 million solvent families are anticipated to be established in Southeast Asian nations, according to McKinsey.
The public is becoming more involved in the digital world partly because of this rise in affluent consumer profiles. In 2020, there will be an increase of more than 40 million additional internet users, according to a study by Google, Temasek, and Bain & Co. What's more astonishing is that 94% of these consumers say they want to keep actively using digital services.
Four out of five Southeast Asian nations lacked internet access ten years ago. 90% of the area's internet users now access it, mainly through mobile phones. The mobile-first market uses the most recent open-source software and app development stacks after skipping over numerous technological waves. Thus, these nations are undergoing digital revolutions in all facets of the industry.
The current wave of expansion is an excellent opportunity to jump on board. Markets are still developing in many areas, and tech disruptors have a bright future. With its enormous GDP, it is the second most intriguing market after the United States.
In 2022, the GDP of the five largest ASEAN countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—will increase by 5.1%. The Philippines' 2022 GDP growth prediction recently increased from 6.6% to 7.1%, while Thailand's increased from 3.4% to 3.7%.
Over the past 30 years, these nations have remarkably transitioned to a high degree of economic development, surpassing the top developed nations in real GDP per capita growth. For instance, the GDP per capita in Vietnam, expressed in terms of buying power parity, was close to $918 in 1990, $1,987 in 2000, and $8,651 in 2020.
New start-up inventions are getting a massive boost from a solid innovation foundation. Another factor contributing to this is the encouragement of establishing new digital firms by governmental initiatives. Under the Thailand 4.0 program, Thailand provides tech companies with one such program that includes visa and tax advantages.
It seems sensible that major global tech companies would choose Southeast Asia to establish regional centers and offices.
In contrast to these, further businesses are growing, gaining finance, and flourishing nearby. Cento Ventures reports that in the first half of 2021, venture investors made 393 investments in Southeast Asian companies, 18 more than the previous high point. According to Golden Gate Ventures' forecasts, the region will get more than $14 billion in start-up funding by 2023.
All of this shows that it is impossible to ignore the significance of the area and the rising global interest in it. The potential of Southeast Asian markets should only increase with the rise of the middle class, macroeconomic indicators, and the support of local players. So don't wait: If you want to invest in an exciting market with a lot of room for growth and opportunity, look at Southeast Asia's IT ecosystem.
Internationally, 2021 was characterized by a start-up funding boom that more than doubled from the year before. In contrast, 2022 was characterized by a financing winter, with a general fall in deals for early-stage firms in Southeast Asia over the year's first nine months.
It will be interesting to see how Southeast Asian start-ups do in 2023 and whether a new age of venture capital (VC) investments is set to begin, which has attracted much attention.
The following six markets are the best to investigate for companies aiming to grow in or across Southeast Asia: Singapore, Malaysia, Thailand, Indonesia, Vietnam, and the Philippines.
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