Tue. Feb 18th, 2020

Exploring Southeast Asia’s uncharted rural economy

How a new generation of startups are digitally enabling Southeast Asia’s rural economy

Going back to basics

Heavyweight marketplaces in the region have broken ground in transforming the consumer experience online. This ushered ecommerce into the region at an unparalleled pace, projected to hit $300B GMV in 2025 from $5B in 2015.

However, these transactions are concentrated in urban areas, with around 52% of SEA’s internet economy limited to major metropolitan areas in the region. Much of Southeast Asia still lacks reliable access to basic services and infrastructure like banks, hospitals, schools, and this has created barriers to the adoption of internet services and digital tools.

At the same time, and precisely because of this lack of access, these market segments present huge opportunity for growth, with online consumption in areas beyond metros projected to grow twice as fast as urban centers moving into 2025. 

This is because more technology companies are venturing into the rural economy, akin to expeditions sailing across uncharted oceans or traversing unmapped lands. Whether they make it out alive or thrive in such environments is another matter entirely, but what is clear is tapping into the rural economy means going back to basics.

It’s less about competing for eyeballs, bandwidth or wallets, and more setting up channels first for them to access basic services more efficiently and at lower costs than makeshift alternatives. Small businesses, for example, would resort to loan sharks without the presence of dependable platforms for financing. Enabling access to these immediate needs and addressing these glaring pain points can pave the way for more services to be introduced down the road.

Leveraging on what’s already there

When travelling, maps always help to plan out itineraries. But what if there’s no map or prior records that exists in the area? When in unfamiliar territory and with nothing else to depend on, explorers make use of what’s within reach and try to acclimatize as fast as possible to their environment. 

To succeed in the rural economy, technology companies are also taking this approach. Conventional wisdom dictates build the product first then support it with a strong distribution plan. But in the rural economy, where the population is largely offline or not as tech-savvy, the reverse is proving to be more effective for digital products and services. Unlocking a deeper understanding of the resources available not only enables product development and delivery at a lower cost, but also sets up a competitive advantage against potential market entries and even bigger players. 

Hendra Kwik, co-founder and CEO of Payfazz, a fintech company leading in Indonesia’s rural economy, shares how they started out.

“In order to become the best distribution channel for the offline rural population, we needed to have a very strong distribution network in the offline space — in the same way that apps go on Google Play. That Google Play for us is the warung (neighborhood retail stores), followed by small town restaurants. We brought these retail stores and restaurants inside of our own distribution network by building a platform with features catering to each of their needs. Essentially we’re creating for financial services in the offline market what Google Play and App Store are for the online market — financial apps distributed through warungs.”

These features, primarily financial services, filled in the lack of banks in many rural communities across the archipelago, but didn’t require the same infrastructure and human resource costs that come with setting up a physical bank.

Figuring out distribution first is also economical because it avoids the unnecessary costs that come with introducing a pure digital product or even the physical alternative, say a bank or warehouse. 

Going distribution-first leverages on what is already there in these rural communities — what infrastructure or information is under-utilised and what capabilities are untapped. It catalyzes the adoption of these products and strengthens customer stickiness, as user engagement already involves elements they are familiar with. People and data native to these areas become valuable resources for innovation to take root. 

In the case of Shipper, an Indonesian logistics platform for ecommerce, they leveraged on the presence of people looking for flexible, part-time work from the comfort of their homes, like stay-at-home parents, to scale their courier services, essentially turning these homes into micro-fulfillment hubs. And this not only applies to infrastructure but data as well. AwanTunai digitizes transaction data in Indonesia’s traditional supply chain to underwrite micro-merchants at very low cost.

Explorers survive, pioneers thrive

As technology startups race to capture more of the region’s rural economy before bigger players come in, it’s also a competition to build on top of these basic services to maximize distribution and stretch out the breadth of available services for users. While innovating in the rural economy begins by uncovering foundational needs and addressing these with digital technologies, it is ultimately about pioneering new ways of living, with which communities become more productive, financially secure, and healthy. 

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