Amidst the ongoing pandemic, while some sectors of business are suffering enormously, others are thriving, including many startups in Southeast Asia. Recognised as a hotbed of innovation and entrepreneurial spirit, the ASEAN region has been leading the charge in recent times when it comes to investments and the exponential growth of its startup culture.
The combination of large, youthful populations with rapidly improving access to the internet, means this region has steadily built an ecosystem to support technological advances and digitisation.
However, with a global pandemic slowing economies and making industries more complicated, Southeast Asia does not remain unaffected. Global Management Consultancy McKinsey has been monitoring the situation in Asia closely and stated in a recent report that “As companies in the region resume activity, they may be the world’s first to shape the “next normal.”
They envision the four main strands of change as (a) rethinking social contracts, (b) defining the future of work and consumption, (c) mobilising resources at speed and scale and (d) moving from globalisation to regionalisation.
With this in mind, we take a look at the impact of COVID-19 on startups in Southeast Asia and the revenue and employee management challenges they, and other startups around the world, face.
One thing that most companies, especially fledgeling startups, cannot afford to lose is revenue. Without cash flowing into the business, life becomes challenging. Even with grants and support from governments, VCs or investors, managing without income is only viable in the short-term. Naturally, during this time of great instability and flux, industries are finding some revenue streams have dried up.
But it is not all doom and gloom. As has been seen during previous crises, some companies emerge more robust, and new technologies are adopted quicker than in “normal” times. Law firm Bird & Bird anticipates more mergers and acquisitions (M&A) during this time, and this might just be the golden ticket for some startups looking for an exit plan.
Again, according to McKinsey, there is to be an expected increase in corporate layoffs and bankruptcies in 2020, with most major economy’s GDPs likely to contract significantly. Their report anticipates that recovery will only start in the second quarter of 2021.
With less cash floating around, the sectors likely to find more sustainable revenue flowing through their businesses are those in the healthtech, edtech and eCommerce in areas such as grocery, technology and entertainment. Meanwhile, tourism, hospitality and clothing industries are amongst those facing the bleakest futures at present.
As some companies try to balance their books more efficiently and cut costs, one of the areas many will be looking at is employee costs. Many more prominent startups offer fantastic employee benefits and remuneration to lure the most skilled employees to their company. Competitive wages, health insurance and many other perks have become the norm, particularly in the technology sector, as it prides itself on looking after its employees.
This may no longer be sustainable for them now, and cost-cutting measures are being considered by many just to save their company. Management of employees and their expectations during this time will be crucial to the continuing success of all businesses.
At the start of the pandemic, startups in Southeast Asia acted fast, and within weeks of the virus spreading, many had implemented work from home (WFH) policies. The full impact on the productivity of this move away from offices will not be known for some time. Still, previous research shows that many employees perform better without the distractions of their work colleagues and exhausting commutes.
So, while WFH may in the short term help companies to keep going, cut the costs of running offices and increase productivity, there are potential pitfalls including mental health impacts and some less responsible employees seeing it as a time to slack off.
When the outbreak first started to impact the industry, some companies went down the route of furloughing, letting go of employees or introducing reduced hours of work. Other companies that could not implement WFH took the approach of asking their staff to use paid holiday entitlements and sick days as an interim measure. A survey conducted by research and advisory firm Gartner discovered that in the early stages of the pandemic, only 2% of Asian companies had implemented pay cuts to try to ease their financial burden.
While many are still trying to figure out longer-term plans, the remainder of 2020 looks likely to be a real litmus test of the management skills in areas relating to resources, people and finances. Those companies that survive this black swan should emerge stronger and hopefully find that 2021 will see them thrive once more.