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Entering Southeast Asia | Mainspring CEO Liew Weihan on How Southeast Asia is Different.

Mainspring's CEO Weihan Liew

Foreword

Gobi Partners has been following Southeast Asia’s venture capital scene since 2007, and is the first Chinese VC firm to enter Southeast Asia, in 2010. Now, we have a fully localized Southeast Asia team with offices in Singapore, Malaysia and Indonesia. "Entering Southeast Asia" is about Gobi Partners’ observation of the VC scene, and investments made in Southeast Asia throughout the years.

MainSpring is one of Gobi’s key investments in Southeast Asia, having invested in their Series A, B and C rounds back in 2013, 2014 and 2015 respectively. It has achieved tremendous growth since, and has gained a reputation as Southeast Asia’s toutiao.com. Interestingly, MainSpring has been working closely with toutiao.com, especially in the Southeast Asian region.

At the Tsinghua PBCSF Finance EMBA & EE New Year Ideas Exchange Forum 2018, Tsinghua PBCSF Finance EMBA “One Belt, One Road” alumni, MainSpring CEO Liu Weihan delivered a speech titled: "How is Southeast Asia Different?", in which he introduced the characteristics of the Internet industry in Southeast Asia. Liu believed that Chinese startups looking to expand to ASEAN need to embrace the diversity of Southeast Asia. Besides bringing in R&D talents from China, they should also take into account every Southeast Asian country’s uniqueness while referring to their business model in China.

The full transcript of Liu’s speech:

Good afternoon, it’s a real honor and privilege to be standing here in front of all of you. I’m from Malaysia originally, but I’ve been living in Beijing for many years. This is really my second home, so thank you for having me speak here today.

 

A few years ago, when I was still living in Beijing, I saw the rapid rise of Internet in China, I was really impressed and I asked myself, can this also happen in Southeast Asia? And if yes, where? Would it be Malaysia, where I’m from? Thailand, Indonesia or the Philippines? I betted that it would be Indonesia, for a few reasons.

 

No.1, It’s a very big country, 2 hundred million people.

 

No.2, Back then, the internet penetration was still very low.

 

And No.3. I happened to speak the language because that is where I grew up.

 

So, because of that, I started a company with my friend, in Jakarta, a few years ago. Today, we have a 200-people team. We do news and video all across Southeast Asia, countries like Indonesia, Thailand and so on, including Vietnam. We work very close with Jinri Toutiao and we collaborate with them in this region.

 

Beyond my company and what I do, what is more important is actually the rise of the Internet in Indonesia and more broadly speaking, Southeast Asia. This is the region that we are all here today to discuss. If you look at this chart here, all of these countries have rapidly risen within 3 to 4 years. There have been hundreds of and even thousands of new companies emerging in Southeast Asia, just like in China, in industries such as E-commerce, Fintech, travel, media and so on. Most of the money and companies essentially comes from Indonesia or Singapore, these nations make up the vast majority of it.

 

As a result, venture funding has gone from virtually nothing in a few years, to 8 billion dollars last year actually. This is a mass increase within a few short years. Big giants like Grab and also some interesting new start-ups from the region have emerged as well. What some people might not know is that, much of the venture money in Southeast Asia today is actually from China. 90% of the money in Southeast Asia is from China, from companies like Ali, Tencent, JD, but many start-ups have also poured money in now. They go directly to the markets like Bangkok and Jakarta to start their business. So, this is a big trend.

 

It’s not hard to understand. Maybe some of you have been to Southeast Asia, some of you have not; I am from the Belt and Road EMBA class, so half of the class is from Southeast Asia. If we combine the five countries here-Southeast Asia is actually ten countries-If we combine the big five, we have 6 hundred million people, that is roughly half of the size of China; a bit less. If we combine all Internet users in Southeast Asia today, it’s 250 million people: the same size as the internet users in the United States today.

 

So it is a big market; it’s also a very young market. If you ask someone, what is the average age in China today, it’s roughly about 37. Southeast Asia is quite a bit younger, like Indonesia, Malaysia and Vietnam, most people are roughly in their late 20s or early 30s. Many of these countries are now going into the phase which we call demographic dividends, where there is a lot of people who start to work. They have started to generate income. At the same time, they don’t have a lot of dependents, and they don’t have a lot of children or old people to take care of, so this would be a very good period for growth, not only for the Internet, but the GDP in general.

 

All these you can read from the papers, this is a quick summary. What I really wanted to share today is my personal experience: I have been doing this business for 5 to 6 years now. I have to say it is very different. Why is it different, and what can you do to take advantage of it? If you are interested in entering the market, one thing that is very different between Southeast Asia and China, is the share of diversity, the different religions, systems, cultures and people. I came here and said I’m from Malaysia. Other people come and say they are from Thailand or Indonesia. In fact, I’ve never met anyone who says that they are from Southeast Asia, because Southeast Asia is not a country, it’s not a concept, it’s not an economy block like the EU. We don’t share a currency, we don’t share interest rates, or legal frameworks, there are not many commonalities. If you look at this chart here, I know it’s a lot of colors but this one shows what I can tell you. If you take religion for example, you can see that in Malaysia and Indonesia, Islam is the major religion, the Philippines is mostly Catholic, and in Thailand, almost everyone is a Buddhist except in the south of the country.

 

In terms of political systems, the Philippines is a democracy, and so is Indonesia; Singapore and Malaysia use the British parliamentary system; You’ve got a constitutional monarchy in Thailand; and you’ve got a communist party in Vietnam, so again, very different.

 

In fact it’s not just our systems. If you take a look at even the Internet, in China you’ve got one WeChat to rule them all, but in Southeast Asia, just take a look at our messaging systems. In Indonesia you’ve got Blackberry, WhatsApp, Line. In Philippines you have Facebook Messenger. In Vietnam you have Vibe, in Thailand you have Line again. Only in Malaysia we use WeChat. So, if I am a Thai person, I don’t know how to talk to the Philippines. I have to change to different chatting systems.

 

Coming back to this point, why does this diversity matter? It matters for two reasons. No.1 is what kind of product do you do as starters, who do you build for? Do you build for Thailand, or the Philippines? Which base market  is your priority? That is a big issue. No.2, even if a product can go across the whole region, how do you manage the different teams? That’s a difficult issue for most companies, but for a start-up, it’s a very challenging issue. This is one of the big differences.

 

Secondly, maybe even more importantly, people, specifically, about people and talent and R&D. Many of you work in Indonesia, we have stories about how hard it is to hire good R&D, in Indonesia. My first story is last year, we asked a very senior developer to come for an interview. The day before he sent us a message saying he will be there at 1 pm the next day, but at 2 pm he still hadn’t shown up. So we called and asked what’s going on, was there an accident? Why didn’t he come for the interview? He said I’m sorry, actually I went to your office, but I couldn’t find parking, I circled around, so I left. That is not an unusual story. If you invite 10 people to interview in Indonesia, for example, my experience is that 2 or 3 just won’t show up.

 

I’ll share some stats, like last year, we looked at 10 thousand CVs. We invited about 4000, but only 3000 showed up, I think we made offers to less than 100 people. So, when it goes from CVs to actually hiring someone, it’s like a 1% rate. As a result, I spend a lot of my time interviewing. In fact, we reserve every Saturday just to interview and hire people. You might be wondering why that is, is it because we are too picky, or is it because there are too many IT workers in Jakarta and that people don’t care? I don’t think so. In fact, I would like to share some data about this issue, namely, the issue of why is it so much harder to find talent in Southeast Asia?

 

Come back to China for example, look at this chart. How many of you know the PISA score? It’s a program for international students assessment. The OECD gives the exam to 500 thousand students across the world. Every 3 years, they rank all the students, in reading, science, and mathematics, by country, basically. This is a result from 2015. If you look at the countries at the top, it’s red. It’s people like China, Japan, Hong Kong, Taiwan, and Singapore, mostly East Asian countries and regions. Where do Southeast Asia countries rank? We’ve got Malaysia maybe ranking at 40, Thailand at 50, and Indonesia at 10 spaces from the bottom. So as a region, we don’t have much capability in science and math and this is a big handicap for trying to build good R&D capabilities.

 

I will also go over the competition quickly. In China we have BAT, in Southeast Asia, we have FYI, which is Facebook, YouTube and Instagram. As you can see, there are 200 million users, because we do news and video. Everyday I wake up and I’m thinking about why should someone use our app and not just use YouTube or Instagram. That’s a big challenge. I think this holds true for many start-ups in this region. How do we compete with these companies that are already so large? At the same time, because they are so large, they can also prove to be your friend, you can prove your MVP, your initial base by learning how to work with Facebook in a very smart way. So anyway, we can see that Southeast Asia is very different. We’ve got diversity, we’ve got the difference in R&D talent, and we’ve got Facebook and Google.

 

I just want to wrap up today by summarizing these points, what can you really do about this, as a company (startup) from China. No.1 you have to learn to embrace the diversity of the region, you have to accept it. The region is very different, but if you want to be successful, you have to be able to scale across all countries. If you are just doing Indonesia and Thailand, it’s subscale, it’s too small. As we know, when it comes to the Internet business, you have to get to the scale, if you want to do the scale, you have to do it across the region. But that is really hard. First it takes the right product, managing it in the right way, but it is a worthy investment. No. 2, this is very unique to China. As I said before, in Southeast Asia we have a shortage of R&D talent. China has a lot of it. This is a natural strength for Chinese companies going into the region, you have the products and the technology which you can bring into the region and make a huge impact. Last but not least, many of my friends have asked, China and its products and services are a hot topic now. Can we copy a good idea from China to Thailand or Indonesia? I said, it depends, most of the time you cannot, it depends on what you have. One thing we have to accept is that, Southeast Asia is not China. They will never be as big, as rich or as fast exponentially. But it’s a market of 400 million people and if you really invest time, money, and patience to find out what users really need, I think you will find it to be a really exciting market, and also a good place to take vacations!

 

So anyway, thank you very much, thank you for your time, and happy new year.