Asian tech: coming of age

This changed with the regulatory crackdown in 2021. Meanwhile, business models and innovations that emerged in China have been replicated in and adapted to the rest of Asia, where demographics and regulators are still supportive. Many young companies have become best-in-class local champions and present attractive investment opportunities.

Key messages

• Southeast Asia is entering the ‘Digital Decade’ with its internet economy expected to jump tenfold to USD 1 trillion by 2030 from USD 100 billion in 2020.
• New consumer-facing tech investment opportunities are emerging in East Asia, a region home to well-established semiconductor and ‘hard’ tech companies.
• Despite tighter regulations for consumer-facing tech companies, China’s goal of technology self-sufficiency and leadership will continue to drive opportunities in enterprise cloud software and artificial intelligence.

Southeast Asia – Entering the digital golden age

Southeast Asia, made up of 11 countries, has historically been a difficult region for global internet platforms to gain scale in, due to its diverse languages, cultures, regulations and geography, despite its large market potential. Just 68% of its ~650-million population is online.

The region is entering the ‘Digital Decade’, according to a joint report by Bain, Temasek and Google, and its internet economy could jump tenfold to reach a USD 1 trillion gross merchandise value by 2030 from USD 100 billion in 2020, driven by seismic shifts in consumer and merchant behaviour.

Investors may find increasingly rich pickings in the region as tech start-ups mature and list on public markets. VC and PE deals reached an all-time high at USD 11.5 bn in 1H21, with the number of consumer-tech unicorns doubling to 23. Meanwhile, we expect dominant regional players pursuing hyperlocal strategies to give the best investment exposure to the digital boom, such as Sea in e-commerce and digital entertainment, and Grab in deliveries and mobility.

East Asia – Old champions, new contenders

The three key countries in East Asia, namely Japan, South Korea and Taiwan, are homes to well-established technology companies like Sony, Samsung and TSMC. Thanks to their global leadership in entertainment, consumer electronics and semiconductor manufacturing segments, these companies should continue to enjoy a structural rise in demand.

The region’s 93% internet penetration suggests maturity, yet we continue to see emerging investment opportunities.

For example, whilst Korea has the highest e-commerce penetration rate globally, at 32% in 2020, the industry is also one of the most fragmented with the top two players at a combined share of 27%. Coupang, a first-party online retailer offering nationwide in-house logistics and delivery, is taking share as the market consolidates.

Meanwhile in Japan, the merger of Yahoo Japan and Line (the equivalent of WhatsApp) has created Z Holdings, the country’s largest internet company which has yet to reap the full synergies of its dominance in online search, instant messaging, mobile payments and e-commerce.

China – Opportunities in enterprise cloud software, AI

The regulatory environment for consumer-facing technology companies in China tightened significantly in 2021, after a decade of robust industry expansion facilitated by relatively few rules. Yet China’s goal of technology self-sufficiency and leadership should drive new opportunities for investors. For example, artificial intelligence and its applications in autonomous driving, natural language processing and computer vision are areas where China can leverage its unparalleled access to large volumes of real-world data to press for a global lead.

Cloud migration is another long-term structural trend driven by the increasing digitisation of Chinese enterprises, with IDC expecting SaaS spending to grow at ~30% CAGR in the next 5 years. Along with the policy direction of software localisation, domestic cloud-based enterprise software vendors should have a long runway for growth.

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