BANGKOK – Unlike Singapore and Indonesia, Thailand has so far failed to produce any national champions in Southeast Asia’s tech startup space. But the Covid-19 pandemic may be providing an unexpected catalyst for the kingdom’s laggard sector.
Singapore has Grab, a cab-hailing app similar to the US-based Uber which was actually founded by two Malaysian nationals (both Harvard graduates) who launched the service in 2012 as MyTeksi in Kuala Lumpur.
Between 2014 to 2020, Grab raised $5.5 billion in capital from groups as diverse as Softbank, Toyota and China Investment Corp, making it one of the world’s most liquid “unicorns” – startup jargon for a privately held tech company valued at over $1 billion.
Indonesia has GoJek, another cab-hailing app similar to Grab and Uber but powered more by motorcycles. In June this year, GoJek raised more than $3 billion in capital injections from various sources, including US tech giants Facebook and PayPal, along with Indonesian conglomerates Djarum and Astra.
Both Grab and GoJek have expanded rapidly into Southeast Asia, taking the region’s traditional taxi providers by storm. And they have both demonstrated their survival skills during the Covid pandemic by swiftly shifting their business models from cab-hailing, which took a dive during Covid, to food and grocery deliveries instead, which boomed, especially during the lockdowns.
Both startups have pioneered Thailand’s voracious market. Grab entered the Thai market in 2018, after buying out Uber’s Southeast Asian businesses. GoJek entered Thailand last year in the form of a joint venture with Thai tech startup Get. FoodPanda, arguably the first such food delivery startup in the region, has been operating in Thailand since 2012.
None of these food delivery platforms seem to be profitable, but that is not a prerequisite for success in the strange new world of startups and fintechs, where the business model is more about attracting capital in anticipation of future profits.
Despite being the second-largest economy in Southeast Asia and with all the elements needed for an e-commerce boom – a 68 million population with high smartphone penetration and ranking number one worldwide in terms of hours spent on social media platforms such as Facebook – Thailand has yet to produce a single unicorn similar to Grab or GoJek.
It is not for lack of local talent, nor even for a lack of a digital eco-system. Thailand, similar to other Southeast Asian nations, has been steadily building up its digital economy base since 2012, founded on a combination of both local and foreign e-talent.
“I think, personally, that a huge factor was the entrance of Rocket Internet,” said Peter Kopitz, co-founder and Chief Commercial Officer (CCO) of aCommerce Co Ltd, a Thailand-based tech startup.
Rocket Internet is a European startup incubator, headquartered in Berlin, that specialized in duplicating successful US websites and platforms and introducing them, with the required infrastructure and logistics, to Europe, Russia and Southeast Asia.
“I think Rocket Internet had a big impact on the Southeast Asia startup industry,” opined Kopitz, who was director of operations for Zalora, a Rocket Internet fashion e-commerce site that started in Bangkok in 2012, at the same time pioneering the markets of Malaysia, the Philippines, Singapore and Indonesia.
“You had thousands of people, entrepreneurs, being shipped to Southeast Asia through Rocket Internet ventures such as Zalora and Food Panda, and many of these guys quit, or were laid off, and some of them stayed on to start their own companies,” Kopitz said.
A co-founder of Indonesia’s Zalora, for instance, was one of the key founders of GoJek. Another Zalora veteran started Shopee, a popular e-commerce site that started in Singapore and has spread regionwide. Another offshoot of the Rocket Internet factory was Lazada, a fashion e-retailer that was bought out by China’s Alibaba online shopping giant in 2016.
These companies were launched in the 2012-2014 period and now comprise some of Southeast Asia’s most successful startup stories.
“The founder of Shopee, which is actually bigger than Lazada now and worth more, was started by my former colleague at Rocket Internet,” Kopitz said. “GoJek is another example, although the founder is Indonesian and Pomelo is the same story. The Pomelo guy was one of the early managers at Lazada [in Bangkok], a co-founder.”
Thailand-based Pomelo, an omnichannel fashion e-commerce startup that launched in September 2019, secured $52 million from Thailand’s Central Group, Provident Growth Fund and other investors.
Flash Express, a Thailand-based delivery service, is gearing up to become a regional e-commerce enabler after receiving funding worth $98 million earlier this year from three Thai business groups – PTTOR, Durbell and Bank of Ayutthaya Corp’s venture capital arm Krungsri Finnovate.
Thailand-based Wongnai, an online restaurant reviewer, in July set up a joint venture with Line Man, a Japan-based delivery app, after receiving $100 million from BRV Capital Management, a global growth investment platform. The Wongnai restaurant website reviews more than 400,000 Thai restaurants and boasts more than 10 million users in Thailand.
Some of these capital infusions have been spurred by the Covid pandemic, which has led to a boom in stay-at-home-eating, as opposed to going out for a meal, due to health safety concerns.
While the trend is positive, these infusions of cash are still a long shot away from creating any $1 billion-valued unicorns, but Thailand is getting close to its first major “exit,” – venture capital jargon for founding fathers selling off their shares to a major investor or getting listed on a stock market.
A major “exit” of more than $100 million is seen in the industry as a tipping point for the local startup industry, experts say.
“Singapore, in the earlier wave, they had Viki, which exited in 2013 at $200 million, and now you have tons of them,” said Ruangroj Poonpol, 43, the so-called “godfather” of Thai startups.
Viki, a Singapore-based video streaming startup founded in 2008, was acquired by Japan’s Rakuten e-commerce giant for $200 million in 2013.
“For Thailand, we have at least six companies that I know of that have a valuation of over $100 million,” said Ruangroj, a director of 500 Startups Co and also chairman of the Kasikorn Business Technology Group (KBTG), the digital arm of Thailand’s Kasikorn Bank.
“And three of them have valuations of over $500 million so it is just a matter of time before the Thai startup eco-system takes off,” predicted Ruangroj, who has invested in at least 71 tech startups in Thailand.
Ruangroj is a graduate of America’s Stanford University and worked for Google global marketing before returning to the US in 2012. He sees the Covid crisis as a catalyst for Thai startups, at least in sectors such as e-commerce, e-health and e-education.
“Some sectors were completely disrupted by Covid, but the other sectors accelerated,” Ruangroj noted. Online travel services have, obviously, suffered. E-commerce, on the other hand, is booming.
“Since Covid happened, what we’ve seen is what the market would have become in five years has accelerated into five months,” said Paul Srivorakul, CEO of aCommerce, an e-commerce enabler.
“Foot traffic has fallen off a cliff, retail has fallen off a cliff. When Covid happened, we literally saw over 100% growth in customers. First-time buyers, who have never bought online before, were forced to during Covid, and that has not stopped,” Srivorakul said.
Started in 2013, aCommerce notched up its first two profitable quarters in 2Q20 and 3Q20 and is looking for another one in 4Q20.
Srivorakul describes the startup as an “end-to-end e-commerce enabler,” providing mostly multinational brands with services such as digital marketing, web store development and getting their products on e-platforms such as Lazada, Shopee and Facebook.
aCommerce also provides the physical infrastructure and logistics – warehousing and delivery of products to customers. Such services became crucial when Thailand was under Covid lockdown for two months during April-May, and many brands had not yet put their digital business models in place.
“We do what we call end-to-end,” Srivorakul said. “Brands such as Adidas, Samsung and L’Oreal (cosmetics) outsource all their e-commerce to e-commerce enablers like ourselves.”
Over the past seven years, aCommerce has set up operations in Indonesia, Malaysia, the Philippines and Singapore, making themselves a regional player.
Srivorakul, one of Thailand’s startup pioneers who has been in the sector since 2000, believes that one reason Thai tech startups haven’t attracted as much attention and capital as those in Indonesia and Singapore has something to do with market size.
“When you think about the evolution of Thai startups, one challenge has always been, in Thailand you are an only play,” Srivorakul said. “If you are an only play in Indonesia, the domestic market is big enough.”
But Thailand has its own advantages.
“Thailand as a domestic market has really good unit economics – Thai spending power, digital savvy netizens,” Srivorakul said. “The basket size is bigger than in Indonesia, basically wealthier people and a strong infrastructure now.”
aCommerce is considering launching an initial public offering (IPO) on the Stock Exchange of Thailand (SET), which is currently revamping its listing regulations and requirements for tech companies to facilitate IPOs.
The Thai government, if it truly wants to be a regional hub for the digital industry, should review all its regulations covering the sector, industry sources say.
“I think Malaysia and Singapore have done a pretty good job,” Ruangroj said. “Singapore provides a Smart Visa, a talent visa, to graduates from MIT so you can work in Singapore for two years. And Singapore has a friendlier regulatory framework for the creation of new businesses and for protecting investors as well.”
Ruangroj sees four main challenges to Thailand’s startup takeoff: “the regulatory framework, bureaucracy, lack of talent pool and we still don’t have a success story.”
He warns that the government had better tackle these challenges soon, as the future of all businesses, not just in Thailand but globally, is going digital.
“Covid has just accelerated the disruption that was going to happen anyway,” Ruangroj told a recent panel. “I would say that every single company has to become more like a tech company, every single business is going to be a digital business.”
One of the unusual characteristics of Thailand’s tech startup scene is the huge role being played by Thai conglomerates as corporate venture capitalists (CVC).
For instance, the Thai Union Group, the world’s leading exporter of canned tuna, has become a major venture capital investor in food startups. TU has pledged to invest up to 400 million baht ($13.2 million) a year over the next five years in food tech startups, and not necessarily as a majority owner.
The company, which earns more than 80% of its revenue from operations outside of Thailand, has joined hands with the government’s National Innovation Center and Mahidol University to help build up a food tech ecosystem in the country, with TU acting as a CVC.
“TU has set up a corporate investment capital fund to invest in startups in the food tech space, specifically in areas of alternative protein, functional nutrition and processing technology along with the food value chain,” said Thiraphong Chansiri, CEO of Thai Union Group.
“Food is the core of Thailand, but we need to reach a different stage and we need large corporations to support our startups,” he said.
Kasikorn Bank, Thailand’s second-largest bank in terms of assets, in 2016 set up a special digital arm – KBTG – dedicated to buying startups or innovating new financial products not just for the bank, but for bank customers and bank corporate clients, to facilitate their businesses and digital transformations.
KBTG has an annual budget of 5 billion baht ($165 million) for acquisitions, innovation and in-house training.
Central Group, Thailand’s largest department store operator, entered into the e-commerce sector seven years ago with the purchase of Zalora from Rocket Internet. It now has its own e-fashion platform and competes with Shopee and Lazada in online sales to individual customers.
Not all the CVC investments have been winners, however.
The CP Group, Thailand’s agribusiness conglomerate and the country’s largest retailer, took a market lead in e-commerce in Thailand, with their launch of TRUEMART and WELOVESHOPPING platforms, but these have since been bypassed by Lazada and Shopee.
“They had the lead, but they couldn’t compete against multinationals entering the market,” said Srivorkul.
Siam Commercial Bank, a leading bank in Thailand’s digital banking transformation, recently branched out into the online food delivery service with the launch of its Robinhood app, competing head-on with Grab, GoJek and Food Panda.
“For everyone who understands the industry, this is like insane,” said Kopitz. “There is no competitive advantage for them whatsoever to be even remotely successful in this sector.”
In the longer run, even if some of these Thai conglomerate-driven or entrepreneur-led startups initially succeed in their domestic markets, there is a high likelihood that in the longer run they will be bought out by bigger, international players.
“The question you have to ask is: ‘will the local conglomerates be replaced by the tech giants?’” said Srivorakul, who has launched at least three tech startups in Thailand, all of which his group sold to foreign players.
“I think you are going to see multiple exits in Southeast Asia, because as a region it is so attractive now, because of the demographics, the growing middle class, the rising income, so you have the rest of the world trying to get in.”