Going global is not an option – it’s a must. The path to success leads out into the big wide world – and particularly to China. When it comes to blockchain startups and Asia: Not so fast.
- China Investment Group: AI and blockchain are key areas for development in Southeast Asia
- Vietnam alone accounts for 4% of worldwide searches on leading crypto-data site CoinMarketCap.
- Italy’s ex-Finance Minister Tremonti: “The Chinese system is all about absolute control”
No wonder so many blockchain startups and established companies pursue bold visions of securing a global presence at a very early stage – if not from day one. The same goes for backers like VCs and crypto funds with investment strategies focusing on blockchain startups and Asia or projects that aim to go global in general. For western businesspeople, going global means going east with eyes on the prize: China’s 1.4 billion consumers with their irresistible lure of growing buying power and openness to new concepts and technologies.
This China-centric globalization strategy is logical, widely accepted – and has ended in tears for the biggest western digital players.
In my view, there is much more to the project “Go east” than meets the eye. First of all, the part of the world we call the “Asia-Pacific region” is a vast and highly heterogeneous collection of geographies. Its blockchain and cryptocurrency markets are also widely diverse in terms of dynamics, maturity and regulatory frameworks. To me, a single-minded fixation on China’s 1.4 billion is a distraction from the regions where the most potential can be found and where the most dynamic growth is happening. But first, let’s look at China.
China: graveyard of digital expansion dreams
Some of the world’s biggest, best capitalized and most innovative companies have tried and failed to set up shop in China. These include Amazon, Facebook, Google and Uber (which tanked in Southeast Asia too, but that’s another story). The reasons for these disasters include regulatory issues like the government firewall that blocks access to Google, Facebook and Twitter. But above all, the US-based digital giants have had bad timing and a dismally insufficient understanding of Chinese consumers and their expectations.
For example, Amazon allows users to read seller reviews, but not to contact sellers. Chinese consumers – whether doing business online or face-to-face – are accustomed to talking with a seller, developing a relationship and negotiating. Amazon ignored these needs.
Alibaba, on the other hand, integrated a chat feature in its online sales platform “Taobao marketplace.” This forces sellers on Taobao to work hard at winning over and retaining customers, giving smaller businesses the opportunity to set themselves apart from heavyweight competitors through services, fast delivery or aggressive pricing. The result is precisely the user experience that price-sensitive Chinese consumers want.
Of course, this is just one of many different factors that have given Alibaba a huge competitive advantage and enabled it to crowd out Amazon (and eBay). Even if Amazon had tried to adjust its user experience, Alibaba was simply too strong and too fast for Amazon to beat. Amazon has two million sellers. Alibaba has 8.5 million.
Facebook would also be up against an array of immensely popular incumbents even if Beijing were to stop blocking access. These include Weibo, a feature-rich portal that combines elements of Twitter and Facebook, as well as the student-oriented options Renren and Qzone. Wechat, the social networking, messaging and payment app, has a user base of more than one billion as of 2019.
Odds would be similarly stacked against Google, which has also been blocked in China since 2009. A generation has grown up using Chinese search engines like Baidu, and users are accordingly accustomed to the experience they offer. Luring these users away from their favorite online search platforms would be a very costly and time-consuming enterprise.
Uber’s losing battle
Perhaps the most telling story of failure in China is Uber’s ill-fated attempt to gain traction in the People’s Republic. When Uber China cut its losses and sold out to rival Didi Chuxing in 2016, a two-year price war that Uber had no chance of winning came to an end. The US transportation pioneer was reported to have been losing US$ 1.2bn each year due to discounting rides by up to 90% and even offering free rides. The burn rate was high for both sides, as Didi was also using aggressive pricing, but the arithmetic clearly favored the local player: it was capitalized with US$ 10bn and owned 80% of the market, while Uber China was a newcomer that had US$ 1.2bn at its disposal. China Investment Corporation, the country’s sovereign wealth fund, is an investor in Didi, so Beijing obviously did not want to see Didi buckle.
But again, pointing to government influence as the sole cause of Uber’s demise would be an oversimplification. Didi appealed to the Chinese consumer’s love of variety, with an array of options like taxis, private cars, express travel, free rides, buses and designated drivers. It enabled users to pool together and provided affordable intercity rides during Chinese New Year. And the Didi app is designed to function well even when Internet coverage is less than optimum.
So what does all this mean in terms of blockchain startups and Asia?
First, let’s consider the country’s blockchain policies. Beijing has placed blockchain on the national agenda, but has been highly restrictive in terms of crypto exchanges. The country is poised to launch a central bank digital currency (CBDC), a move Italy’s former Minister of Economy and Finance and current Aspen Insitute Italia president Giulio Tremonti considers totalitarian. “The world is splitting between the republic of the United States and digital despotism of China,” Tremonti said at an open-innovation conference in Rome in November 2019. “The Chinese system is all about absolute control.”
Whether or not you agreed with Tremonti’s choice of words – despotism is a strong word indeed – these different stories illustrate the extreme difficulties of breaking into the Chinese digital market: cutthroat competition, highly capitalized domestic players, culturally distinct consumer expectations and a government seeks a high level of control. Although the appeal of 1.4 billion consumers with constantly increasing affluence should not be ignored, I believe China should not be the first point of entry into Asian markets.
My experience points to the vast potential in the smaller – but easier to access – markets of South and Southeast Asia. Uber is a big hit in India. Facebook is widely used in South and Southeast Asia.
The race to Southeast Asia is on
When it comes to Blockchain startups and Asia, all indications point to Southeast Asia as the place where the next big thing is happening. Here, per capita income has been growing at a higher rate than anywhere else in the world since the 1970s. Consumers are not yet pampered by an overwhelming offering of different services. Regulatory frameworks are relatively liberal. Currency volatility is high across the region and middle classes have limited access to global investment tools, which could make alternative ways of storing value such as digital assets attractive. In addition, large numbers of unbanked Southeast Asians can be expected to welcome technologies that enable easy financial services, cheap transactions and micro-loans.
Of course, the potential of Southeast Asia has not gone unnoticed. Blockchain startups and Asia are a hot topic, and Southeast Asia is no exception. It’s no coincidence that the China Investment Group pointed to Southeast Asia as a key developement region for artificial intelleigence and blockchain in its recent “Asia-Pacific Science and Technology Innovation Development Report.” The number of blockchain-related gatherings and conferences continues to increase in major cities like Bangkok, Hanoi, Ho Chi Minh City and Singapore. Coindesk recently organized a conference of its own in Singapore, which was followed by Cointelegraph’s BlockShow. The region is seeing a surge in investments in the deep tech sector, which is driving expansion of the tech ecosystem. Alongside home-grown players like Singapore-based Signum Capital and LuneX Ventures, the crypto arm of Golden Gate Ventures, a growing number of foreign venture capitalists are looking for blockchain startups in this region to invest in. Technology companies including blockchain ventures have no time to lose in gaining a foothold here, and should be prepared to face competition from – where else? – China. In fact, Chinese players are already eagerly setting up companies and building partnerships in the region. Binance, Houbi and Oked have all established a strong presence. But I am convinced that with the right knowledge and strategies, blockchain startups have excellent chances of participating in the first wave of expansion into Southeast Asia.
Know your market
Critical for success will be a strong presence in the digital media sphere surrounding crypto business. In addition, high-impact digital marketing channels need to be identified and utilized. Regional social media dynamics and online habits must be closely examined. For example, it’s important to understand that Southeast Asia is a mobile-first and mobile-only region. Across Southeast Asia, Internet penetration ranges between around 55% and 85% of the population (see chart below). Of those Internet users, 85% to 95% use mobile social media. Smartphone-friendly Internet technologies – such as blockchain apps – that take advantage of these high penetration rates could open up unprecedented opportunities. Blockchain-powered applications for financing business, cheap and secure transactions, remittance and micro-loans could offer financial inclusion to the unbanked, enabling sustainable growth.
It might also pay to remember that South and Southeast Asian Facebook users regard it as a space for business topics and networking alongside its original function as a social media platform. India alone has 270 million Facebook users, making it the single biggest market for the portal, while Indonesia has 130 million users. Facebook is also immensely popular in the Philippines (68 million), Vietnam (58 million) and Thailand (46 million). The fact that Mark Zuckerberg has announced plans to launch a Facebook currency, the Libra, is just one indication of the potential offered by social media in the digital currency space. If regulators allow the move, users will be able to transfer funds directly via Instagram, Whatsapp and Facebook. It’s not hard to imagine the appeal it could hold for populations relying on remittances from relatives abroad – especially considering that Southeast Asians already trade vigorously in cryptocurrency. Vietnam alone accounts for 4% of all searches for crypto-trading information on the globally leading crypto-data site CoinMarketCap.
Pick and choose
Southeast Asia also offers startups different advantages of multiple countries. For example, you can set up a company and pitch investors in the business hub of Singapore, enter corporate partnerships in Thailand and put together a programming team in Vietnam. The next step could then be to target the emerging markets of Myanmar and Cambodia or the growth markets of Indonesia, the Philippines or Malaysia – all within the Southeast Asian region.
To sum up, blockchain startups can still find room to boom in the east, but should think twice before entering the red-ocean market of China. The country’s huge consumer base and large proportion of digital natives are undeniably attractive, yet – as we have seen – fierce competition and regulatory hurdles make it a very dangerous place for newcomers. If you ask for my advice about blockchain startups and Asia – whether as an investor or entrepreneur – I would not say you should strike China from your list of target markets, just don’t go there first. For those who move fast and move smart, Southeast Asia can become the launching pad where startups can really take off.
About the author
Sophia Ha Ho is a Vietnamese-born technology entrepreneur living in Munich. A proud mother of a bright six-year-old Vietnamese-German boy, Sophia lives between the two cultures. She is a global citizen who believes in the power of connecting people across geographical, cultural and political borders to foster positive changes. Sophia is the founder of CryptoStories and co-founder and CEO of Blocks99. This piece reflects her personal opinions and does not necessarily represent the views of Blocks99 as an independent media portal.
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