In 2005, Thomas Friedman’s book, “The World is Flat,” described a democratized and accessible innovation landscape shaped by globalization. That same year, University of Toronto Professor Richard Florida responded with a spikier view of the world, where the benefits of innovation and economic progress concentrate in a few metropolitan centers around the world. Southeast Asia is somewhere in between: a bowl.
Innovation “gravity well”
Investments have been flowing in this bowl, with the region drawing in international players amidst the global economic slowdown and tensions. While the M&A and investment activity opens opportunities in the region, the competitive landscape is not flat. Tech giants, regional unicorns, and key markets have been pulling these investments and innovation towards them, creating an innovation “gravity well.”
This innovation “gravity well,” akin to how Albert Einstein described heavier bodies in space bending the fabric of spacetime, bends trends towards the heavyweights like Grab, Go-jek, and Traveloka, who are themselves riding on the shoulders of Alibaba and Tencent.
The mass of these companies, measurable by their user base, draws smaller startups towards them, especially those whose solutions are in nearby verticals. Founders looking for an easy exit will likely then position themselves as prospective acquisitions, which isn’t as easy.
Not all startups in verticals critical to a unicorn’s operations are prospects. There are some services that unicorns can easily deploy on their own, like loans in the case of Tokopedia. In the case of critical services beyond their existing capabilities, then unicorns will use their momentum to pull in the right acquisition.
The “gravity well” extends to markets, with Singapore and Indonesia keeping up a significant lead in VC investments against their neighbors and drawing in more startups to launch there.
When a bowl with cracks is not broken, but valuable
The bowl can only hold so much, as cracks emerge on the frontiers of innovation. Some startups are pulling away from larger players, establishing themselves in underserved verticals or venturing into cross-border operations. They develop unique capabilities and their own networks, reducing dependencies from unicorns. Serving unicorns is not their main motivation or driver of growth.
These companies have set themselves up as their own gateways into the region for foreign stakeholders and are looking for more than just an exit. Founders on these cracks are pioneering solutions in sectors like F&B operations, where Stoqo is digitizing B2B transactions for fresh produce in Indonesia.
Markets apart from Singapore and Indonesia are also building their capacity to raise more unicorns. The recent partnership between Thailand’s Kasikornbank and Vietnam’s Business Startup Support Center signifies capacity-building beyond individual economies. Local conglomerates in the Philippines are extending more capital to local startups through new CVC funds. As other markets in Southeast Asia attract interest towards them, certain verticals will also benefit and be able to support the growth of unicorns in these spaces.
What do you do when there are cracks on a bowl? There’s the Japanese tradition of Kintsugi, where pottery cracks are filled in with gold, silver, or platinum. In the same way, investors and governments can fill in these cracks made by pioneer startups and emerging markets, raising the bowl’s value over time. Ultimately, the goal is for these startups not to stay long in this bowl but to grow out of it into the flat (or spiky) world.