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Business  13, Feb 2014

SEA expansion on your mind? Look out for these pitfalls!

South East Asia has huge growth potentials; but if you want to take your startup there, here are five real problems you need to watch for


South East Asia has been dubbed as an exciting region for startups. Industry data tells stories of untapped growth potential, contributed mainly by larger countries such as Indonesia, Philippines and Thailand. This attractive proposition is the selling point for many startups, with founders boasting about South East Asia’s potential to venture capitalists.

However, many founders overlook the real problems and differences inherent within each country in the region. Yes, these countries are similar location-wise, but government systems, infrastructure and culture vary tremendously. We see evidence of many startups that succeed in Singapore, yet fail when they venture to other South East Asian countries. Simply put, a business model that works in one region of South East Asia is not guaranteed to succeed in another.

Startups fail when expanding across South East Asia because they don’t entirely understand the local landscape in each country. In my opinion, capital backing is often insufficient for expansion. Startups should find ways to localise themselves by finding the correct partners or taking their time to study the new market environment.

Watch out!
There are a few pitfalls that many startups face when trying to venture into the larger South East Asian countries. Founders should look out for these when planning their expansion strategy.

Different strokes for different regions
Marketing in countries such as Indonesia and the Philippines involves understanding the differences between each region in the country. For example, in Indonesia, marketing strategy in Sumatra should be approached completely differently than in Java. Between the regions, people behave differently, have varying cultures, and believe in contradicting ideas.

Also Read: Five hot industries for Singaporean entrepreneurs to jump into

Hence, to expand nationally, startups should test out concepts in each of the individual regions separately. Many startups fail to successfully venture beyond capital cities like Jakarta because they don’t adapt their business models to the different regions. Founders should expand patiently using a step-by-step approach, instead of attempting to conquer the entire market blindly and all at once.

The black market is not a myth
The black market and underground deals that occur in these nations are not myths — they are real. Depending on the business concept, many startups forget that in many developing countries, the underground business landscape is vibrant and backed by powerful players, who may not abide by the law. Founders may believe that their business concepts are safe from such matters. However, ignorance of the business undercurrents that exist in a country can result in hampered growth. The key here is for founders to talk to enough local business players in the specific industry in order to fully understand potential undercurrents, before venturing into the country.

It is all about networking
Relationships mean everything in developing countries, and many startups underestimate this point at their own peril. For instance, many startups in Indonesia, especially those that focus on B2B growth, face difficulty closing deals due lack of networks. I have seen many startups spend months building products, but they forget the importance of networking and connecting with the right individuals. Failure to network effectively hampers business development tremendously, because in developing countries, closing deals often involves connecting with well-connected individual.

Flexible business models needed
Many startups fail due to unexpected government instability and regulations that change on a whim. Regulations in countries like Indonesia shift rapidly and often affect startup founders without prior warning. Regulatory barriers are difficult to predict and can unsettle many startup founders, who are unfamiliar with the country. All startups are prone to these regulatory changes, but only those that understand how to pivot their business models around them will survive.

Also Read: Can entrepreneurship be taught?

In Indonesia, I have seen many startups fail disastrously due to regulatory issues. To avoid this pitfall, founders must learn to remain flexible with their business models by focusing on a variety of revenue sources instead of just one. This way, disruption to sales from one stream will not affect the entire business.

What’s in a name? Everything!
As in all Asian countries, reputation is expensive and all startups should learn the importance of maintaining a good name. A company that encourages unethical business practices will face dire penalties in the long-run, as business development will be largely hampered. Founders should maintain healthy habits of good customer service and responsible business practices to avoid permanently damaging the reputation of the startup.

In Celebes Capital, we help founders understand the risks behind expanding to other countries. We encourage founders to strategically partner with the correct organisations in order to minimise risk and increase chances of success.

The views are of the author, and e27 may not necessarily subscribe to them

e27 invites members from Asia’s tech industry and startup community to share their honest opinions and expert knowledge with our readers. If you are interested to share your point of view, please send us an email to writers[at]e27[dot]co

Marcellina Claudia Kolonas

Marcellina Claudia Kolonas

Shareholder of Celebes Capital, a venture capital fund that invests in financial services, agriculture, infrastructure and mining companies. Recently, Celebes Capital has diversified into investments in the technology space, with a large focus on ventures that span our industry verticals.

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