7 major factors holding back Asia’s tech ecosystems

Despite the strength and diversity of Asia’s tech ecosystems, there are a lot of problems and peculiarities that hold back these countries’ web industries in some ways. A new report from The Economist’s Intelligence Unit gives a great overview of these challenges and how some are being overcome.

We’ve embedded the 30-page report below, but it’s worth summarizing the seven key findings that show how the industries and consumer markets differ so greatly from Silicon Valley and the West – and even vary wildly across borders among the packed-in cultures and languages across Asia.

1. “Asian internet businesses typically focus on home markets”

That’s The Economist’s quote to summarise the grow-at-home ethic that’s very prevalent among tech startups and even major web company across Asia. Of course, there are exceptions, and it’s interesting to note that ecommerce — well, who doesn’t love shopping? – is the best vehicle for overseas ventures. Japan’s Rakuten and China’s Alibaba stand out — Rakuten with its global marketplaces for consumers, and Alibaba with its worldwide platform for business outsourcing from Chinese manufacturers.

Social media, notes the report, has created a few instances of “accidental globalisation” where something has taken off quite organically in new countries, such as NHN Japan’s Line app, a social messaging service that’s cuter and has more features than Whatsapp. As we’ve noted before, about 70% of Line’s users are outside Japan. But it’s not always so easy, with Tencent’s WeChat recruiting top footballer Lionel Messi this week to promote the messaging app beyond China; WeChat now has 70-million users outside of China and should grow more with help from its celebrity backer.

As we’ve pondered and poured over a lot on this blog, smaller nations in Asia — especially Southeast Asia, and particularly Singapore — have such small home markets that they’re forced to look more closely at neighboring populaces. But languages are often an expensive and tricky barrier, especially when trying to break into, say, Thailand, Vietnam, or China.

2. “Monetization is an uphill battle for many entrepreneurs”

Now that you have a bunch of users online, how to monetize them? “As a market leader it’s relatively easy to get people to work with us,” says Satoshi Yajima, a senior manager at NHN Japan, which runs Line. “We have a user base of 40 million (in Japan), which is difficult to build, so companies want to access that.” And that’s where Line’s platform of stickers, e-books, and social gaming tie-ins give it plenty of monetization options. But for most, it’s a struggle to make users pay.

Factors like piracy, e-payment issues or a lack of credit card adoption, and rivals copying your ideas – they all come into play across Asia.

3. “Online payment channels are fragmented and under-developed, hindering business”

Speaking of online payment issues… While Japan has 45 percent of the populace using e-payments online, and Singapore 42 percent, it drops as low as two or three percent in Indonesia, Vietnam, and India. That’s a massive barrier. While e-commerce sites can resort to cash-on-delivery for such customers, that’s not an ideal solution for the app economy or online subscription services, such as ones for streaming music.

Yesterday, India’s Flipkart launched its Paypal-like PayZippy platform, so it’s clear that new and localized solutions are popping up to deal with this huge issue.

Admittedly, we’ve seen some novel solutions, like 2C2P leveraging on convenience stores as a payments channel for online shoppers, and social gaming platform Mig33 taking payments via a network of merchants. Better e-payments will never be fully solved, so niche solutions will always be needed.

4. “There is global demand for Asian content and platforms, but few entrepreneurs are thinking globally”

This ties in to the first point made in the report. We don’t totally agree with this particular point – there are a lot of globally-minded startups out there right now, especially ones centered around fairly simple app-based services, like Pakistan’s Artsly.

One option for easier global roll-out is to focus on your home country’s global diaspora, such as Tohfay delivering Pakistani delicacies to expats; MelonFriends combining Chinese and western social media into one convenient app; and Spuul taking Bollywood and Indian dramas to the world.

5. “Asia’s market for tech talent is being fought over globally”

Visas, education, brain drains. Those are all factors in the human capital pool of tech talent. The lure of an education in the US or the UK often deprives Asian nations of potential entrepreneurs, who might well end up in Silicon Valley. Some do return to their home nations, where big holes in online markets are too tempting to resist. Also, to offset that imbalance, some foreign entrepreneurs make a move into Asia. It’s a complex push-pull between desires, demand, and supply.

As is often the case across Asia, country-by-country solutions are needed. In the report, the founder of India’s HolidayIQ suggests the country offer tax breaks to Indian software engineers and others with needed skills to encourage them to return home; while over in South Korea, KakaoTalk’s Sirgoo Lee applauds his government for allowing IT specialists to fulfil their mandatory military service by working for startups.

6. “A culture of collaboration is slowly replacing suspicion in Asia”

While Silicon Valley has a strong community feel, Asia’s various tech hubs tend to be more standoff-ish in dealings with rivals. It’s partly cultural conservatism, but also one of many survival tactics in industries where your product could be copied and implemented very quickly – and perhaps more successfully – by a rival. On the bright side, attitudes are changing as the tech ecosystems mature in the region. HolidayIQ’s Hari Nair says of India:

People now see that, if you feed something into an ecosystem, you don’t lose anything. In fact, it helps. In the old days someone would think ‘why should I give my content away?’ but now it’s your calling card [someone who sees his reviews elsewhere might well visit his site].

7. “Internet regulation is on the rise”

As if all those six challenges aren’t enough to deal with, there will often be varying legal, regulatory, and even censorship hurdles to deal with in individual Asian nations. From fears of imprisonment in Thailand over user-submitted material that might offend the monarchy, to Vietnam’s unclear and shaky laws, to China’s micro-censored web – there are plenty of unique pain points. As explained by Jamie Lu at Taiwanese e-commerce platform PCHome Online, a nation’s government can be more of a hindrance than a help:

Our government is quite conservative and traditional. Whether it is the seven-day trial period/return policy mandate for consumer protection, or web payment thinking, the Taiwan government demonstrates they don’t understand the power of the internet. They are still using an old modus operandi of a traditional business. They think the internet is just a tool, but they don’t see that it’s a business in itself, as well as a way of life.

Still, Asia is home to 50% of the world’s web users, and it still has way more room for growth. For example, China will surpass the US in terms of e-commerce spending this year yet it still has a long way to climb. It is estimated that Chinese e-shoppers will spend US$457-billion online in 2016.

You can download the full report (as a PDF) from the Economist Intelligence Unit here.

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This article by Steven Millward originally appeared on Tech in Asia, a Burn Media publishing partner.