Indonesia represents almost 40% of the economic output of Southeast Asia and is now rising as the next market for Chinese companies looking into Southeast Asia market Convergence ventures and Weihan Liew, CEO and founder of Mainspring Technology, concluded that Indonesia needs more talent. They said Chinese entrepreneurs and investosr should look into this booming market, with Adrian mentioning “China will be to Indonesia what US was to China.”. In the “Startups in Indonesia” panel, Adrian Li, managing partner at
is one of the largest VCs in Indonesia with an early stage technology venture fund that has invested in 30 companies in Indonesia over the years.
Mainspring Technology is a mobile apps and games company based in Jakarta focusing on the Android platform in Indonesia. The company made an AI-driven news app that works like Jinri Toutiao in China and is actually backed by Jinri Toutiao.
Why should Chinese startups look to the Indonesian market?
Adrian: When you look at any market, you start with the fundamentals. Indonesia is a big country and naturally a large economy. Official census says that there are 260 million people in Indonesia. On top of that, you have the opportunity to have a market that is a follower market. In the same way that China was industrializing rapidly and the internet economy came along with US companies replicating and localizing their product to prove their business model in this market, there is a same opportunity in Indonesia. So from those fundamentals, Indonesia is an attractive market not only for Chinese companies but for entrepreneurs and investors from all over the world that are looking to invest in a high potential country.
Weihan, you’re from Malaysia. How did you decide to focus on the Indonesian market?
Weihan: I spent time in China many years ago, working at consulting firm BCG, where they assigned me to Jakarta in the late 90s. When I got back to Indonesia a few years ago, I saw a lot of opportunities. Just like how China was rising in the 2000s, Southeast Asia is rising now. There are less people doing business in Southeast Asia, compared to China. The market is very large and seeing its progress, it’s like you have a time machine. You can think about what you could possibly work on in Indonesia. That’s what motivated me to move to Jakarta.
There are now a lot of Chinese companies moving to Indonesia. Can you share some Chinese companies that are successful there?
Adrian: Chinese companies have been pretty successful in the market. Huawei is running one of the biggest digital and telecom infrastructure in Indonesia. A more mature product-based company is Cheetah Mobile—they have tens and millions of customers in Indonesia. More recently, we are seeing Chinese companies coming to Indonesia for a mixture of reasons. They move to Indonesia in conjunction with the Chinese market, or instead of the Chinese market.
Even though you have success in a market like China, and you have capital, it doesn’t take away the fact that you have to localize in Indonesia, like any other market. You have to localize and understand the people. Unless you can solve that part and build for this kind of opportunities, you won’t be successful.
Weihan: In general, hardware companies in China in tech were successful. Almost all the infrastructure in Indonesia is run by Huawei. Xiaomi went from being very small to 10 million users and has done very well within a year or two. On the other hand, within internet services, Alibaba is the most successful right now because of the strategy they took in terms of investment.
Chinese internet software and service players, in general, have been less able to penetrate the market. We used to ask, “Why can’t big US tech companies do well in China?” Now it’s “Why can’t Chinese companies do well in Southeast Asia?” I think one reason is that models that work in China require scale. In fact, each market in Southeast Asia is sub-scale. It’s not easy to build the model that works for a large scale in Southeast Asia. The other big thing is the people. People in SEA are different in how they treat their work and motivation.
What strategy should Chinese companies take to monetize?
Weihan: History doesn’t repeat itself. Looking at the size of the market, this is how I do things differently. For example, you can advertise because the pool is large. In Southeast Asia, it’s still a market highly driven by Google and Facebook in many aspects, so you should be able to maneuver around that. You don’t have to do the same as in China. The model can be different.
Which sectors are promising?
Adrian: The first time I went to a tech conference in Indonesia was in 2012 and they had a few hundred people. When I went to the same conference a month ago, there were 6,000 people. You can see how much the market has matured. Back in 2012, one of the companies I met was , an online travel company. It’s now one of the most stable and strongest unicorns in Indonesia.
In the first wave, it was horizontal e-commerce like a marketplace platform. Now looking forward at other sectors that are gaining traction, we invested in vertical e-commerce like female fashion and furniture which can scale, build a sustainable business, and be acquired.
In media, TV still dominates this country. Prime Perkins reports that per capita hours spent on digital media is one of the biggest in Indonesia. There is a great advantage to build a model in the media space.
This year, in particular, there has been a lot of interest in fintech including payments, banking, and lending. Let’s talk about lending because that’s what Chinese companies are interested in. Only about 30% of people have a bank account in Indonesia. Even then, the largest bank in Indonesia,is one of the largest market company in the whole of Southeast Asia. You can come up with a business model not seen in China to address this 70% of the population that doesn’t have a bank account.
We recently backed a company using agents which allow people to make a mobile ATM enabling those who don’t have an account bank to be banked. Only 3% of the population has a credit card in Indonesia. How do these people access credit when banks are not willing to lend money to those who don’t have credit scores? There can be an alternative credit scoring mechanism. In order to lend and enhance huge interests in the sector, hundreds of Chinese companies are coming to Indonesia. The financial sector is not heavily regulated now in Indonesia, while financial services are regulated in every country. Secondly, lending, in particular, is not a global business. It’s not like an app. People can find different ways to create an algorithm. It’s a local business—you have to be there and execute well.
What advice do you have for startups entering Indonesia?
Weihan: Patience to start with. It takes a while to make things happen. Also, you need local people to help you. How do you find the right people, and how to motivate them really matters.
Adrian: I would take a step back, and ask startups why they want to enter Indonesia. This is because a number of Chinese companies entering Indonesia don’t ask that question. Some have lost the market in China, and cannot make a business here, so they go to Indonesia. There are all these push factors such as regulation in China. Or even pull factors like other people going there or investors saying it’s a good market to go to.
You have to find the answer first, then go there. I have seen the country, met the people, and I really believe in 10 years, you can build a good company in this area. Then I believe you can build a big company. If you cannot understand that economic opportunity and expand there, you will burn out. You need to have that patience.
Tokopedia has been building a model for 10 years to be a dominant company in the county. Ten years is what it takes to build a good company. Be fully committed to this market. I would literally move there. You can’t have the advantage of being a cross-border team because technical talent is difficult to come by in Indonesia. I would even look out for a local co-founder. If you are serious about the market, offer a big equity to the co-founder and find the best local person in the market. Speak to local VCs and contact the government to be successful. Last but not least, really commit to the market.
Original articleby Tech Node.