US Big Tech builds appetite for startup pie in South-east Asia

Singapore

US tech giants have made some recent high-profile investments into South-east Asian startups, the latest being Google's plans to join Indonesian e-commerce player Tokopedia's funding round, which aims to raise US$500 million to US$1 billion. Whether these investments will turn into proxy wars - as it has with Chinese tech majors - is still a question up for debate.

The strategic moves by US tech majors such as Facebook and Visa are likely to be fuelled by the rise of South-east Asia's Internet economy and favourable demographics for growth.

"The US tech giants are actively searching for friendly frontier pastures in comparison to what they are facing at home, with Trump conservatism, and in China, their previous frontier land that is now made unfriendly by inter-governmental tensions," said Jeffrey Seah, a partner at early-stage tech investment firm Quest Ventures.

"South-east Asia and South Asia represent scale, infrastructure-poor but aspiration-rich marketplaces to conquer and bring development economic benefits that are welcome by host governments."

The US tech presence in South-east Asia has been "early and powerful", said Dmitry Levit, co-founder and partner at Cento Ventures. Microsoft and Yahoo digital properties both reached more than 100 million users across the region as early as 2006 to 2007, while private equity and venture capital firms with deep connections to US corporates are among the early and prominent investors in South-east Asia, he pointed out.

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But high-profile late-stage investments or acquisitions by US tech firms have historically been sparse. "A massive domestic market and the logical next-expansion market in Europe are a natural priority for most US players; for those companies globally minded enough to have interests in Asia, Japan has been historically more attractive, and more recently India or China, or both, have presented much higher priority than South-east Asia," said Mr Levit.

He added that US tech companies appear to have a preference for building or partnering in South-east Asia, rather than acquiring or doing high-profile investments.

In contrast, Chinese tech companies, which have long seen South-east Asia as a natural place for expansion outside of their competitive homeground, tend to take a more aggressive buy-and-build strategy. This sometimes comes with dominant stakes in target startups, as in the case of Alibaba in Lazada, and Tencent in Shopee-owner Sea, said Chik Wai Chiew, chief executive at Heritas Capital Management.

That said, mega deals are becoming a more prominent feature of US tech giants' expansion strategies in South-east Asia. Some market watchers believe Google's funding of Tokopedia signals its deepened interest in capturing the e-commerce and advertising opportunity in the region.

Indonesian super app Gojek said last month that it has snagged backing from PayPal and Facebook to collaborate and expand fintech offerings, in a first for the latter in the region. Its rival Grab announced an investment from Microsoft in October 2018. The deal saw Grab adopting Microsoft Azure as its preferred cloud platform and collaborating with the US giant on technology projects that include big data and artificial intelligence.

Will such high-profile US deals eventually become proxy wars, as early Chinese investments have evolved into? Industry observers said it might be too early to tell.

For Chinese tech giants, the battle lines have mostly been drawn in the e-commerce and e-wallet landscapes. For instance, a report from DealStreetAsia found that Alibaba (or affiliate Ant Financial) and Tencent are backing at least 11 e-wallet players in South-east Asia, in addition to expanding their respective Alipay and WeChat Pay.

For US firms, the strategy for now looks to be gaining exposure to opportunities in emerging markets. Heritas' Mr Chik noted how some US and Chinese tech firms are common shareholders in South-east Asian startups. Google is with Tencent and JD.com in Gojek, for instance.

Joel Shen, a partner at law firm DWF, expects to see more investments by foreign tech companies and battle lines begin to form as these giants wage a proxy war in the region.

"This is a good thing for the development of the South-east Asian tech ecosystem, although due regard must be given to merger control, potential abuses of market dominance and consumer protection," he said.