While startups, as well as SMEs in Southeast Asia, have quickly gained international recognition, the startup ecosystem in Laos is not as developed and has yet to catch the attention of institutional investors. Laos’ economy is so dependent on natural resources and farming that the mindset and infrastructure to support tech startups in Laos just isn’t what it needs to be yet. It will require a huge shift in policies, resources, and mindset.
There are several obstacles hindering a sustainable ecosystem for tech startups in Laos, and identifying and addressing these issues is vital for cultivating a better environment for emerging entrepreneurs. Research by the Emerging Markets Consulting shows the private sector development in Laos is often impeded by three main obstacles: government policies, lack of resources, and skill gaps in the population. These issues are closely integrated and reform is needed in each area simultaneously in order to successfully stimulate growth.
These issues cannot simply be solved one by one, as they rely on one another for sustainability. This makes for a slow change ahead, but despite there being so much ground to cover, that change is already beginning to take root.
Let us explore some of the key obstacles that are hindering the growth of the startup ecosystem in Laos while exploring reforms that are underway and might potentially help the nation emerge as another hub in the region.
Complex business registration
Some of the biggest issues facing the sustainability of startups in Laos are at the governmental level. With formal business registration being as complex as it is, and taxes and regulation so high and tedious, many small companies prefer to remain unregistered and under the radar to avoid dealing with the government regulations.
Those who do, have to face three components: obtaining enterprise registration from the Ministration of Industry and Commerce, tax registration from the Ministry of Finance, and an operating license specific to their line of work. Many startups simply do not have the resources or know-how to deal with the complexity and fees associated with this process. In addition, government corruption and lack of regulation makes registration even more expensive and difficult to attain.
The government is taking some steps towards reform in these areas, though progress is slow and will remain so until regulation and tax reform is enforced. There was an attempt at an online business registry system in the past to streamline the process and provide transparency, but it was met with resistance and does not seem to be operating as intended. While government reform is vital in the resolution of this issue, alleviating some of the other obstacles will, in turn, help make this one all the more attainable.
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Lack of funding
Another major setback for new startups in Laos has been the difficulty in accessing funding to help them get off the ground. Though the economy has been rising steadily over the past decade at an average of 7.8% increase each year, the country is still working on pulling itself out of developing country status. This makes for a riskier environment for international investors and accounts for the severe lack in domestic investors.
Investors like Mekong Angel Investor Network (MAIN), who are looking to support startups in Laos have noted a lack of structure and market size. This creates a catch-22. There is little interest in creating startups because there is little funding, and there is little funding because there is little interest.
Unlike the previous issue of complex registration, which would require change within the government, this issue is much more fixable. There are several initiatives making strides towards progress in financial access for potential startups. The Small and Medium Enterprise Access to Finance Project aims to create long-term funding to commercial banks to stimulate their ability to provide long-term credit and support to small-and-medium enterprises. A recent partnership between the Laos Development Bank and Everex has recently been created to boost the integration of blockchain technology to make international financial support more feasible. Alongside these endeavors, organisations like MAIN, backed by the Australian government seek to help bridge the gap between international investors and local startups looking for financial support.
Skill gaps in labour force
Perhaps the heart of the shaky startup ecosystem in Laos has to be skill gaps in the labour force — stemming from a lack of internet access, fintech, and business know-how. There is little funding and the calls for government reform regarding startups are soft — because, quite simply, there is little interest.
Laos’ startup community is very small and new, so startup culture has just barely begun to gain traction among Lao people. According to the Laos Statistics Bureau in 2017, only 20% of Lao people had access to the internet. While this has rapidly increased since then, it created a foundational lack in the use of technology and a delay in fintech, which is vital in successful tech startups.
Startup consulting groups like Tohlao Coworking Space and Asiastar seek to close this skill gap by creating a creative environment and startup culture, providing resources, and facilitating training. Tohlao partnered with Lao Telecom to create an annual competition to encourage entrepreneurs in their endeavors, spark creativity, and give top competitors the opportunity to grow through their one-year incubation program.
Successful startups that are blazing the trail
Despite these seemingly overwhelming challenges, the overall startup ecosystem in the region is beginning to thrive, and the influx of large tech companies investing in it will soon become the new normal. It is only a matter of time before Laos catches up to the rest.
Here are a few trailblazing startups that are already gaining momentum:
Created to fill the gap left by a lack of reliable taxis and absence of international rideshare services like LYFT and UBER, LOCA is Laos’ premier rideshare service. LOCA overcame immense challenges in filling a need that many people didn’t recognise needed to be filled. LOCA is more than a ride-hailing service, also providing tours, information of tourist sites, and a directory of restaurants and local favourites.
Foxpress is a delivery service aimed towards small businesses and e-commerce. Whereas the postal service in Laos is often unreliable and not secure, Foxpress offers customers an affordable and safe option for delivering parcels.
Another delivery service, GoTeddy focuses more on food delivery. The company provides an easy way to order food from local restaurants, along with bulk beverage and grocery delivery.
Laos is often overlooked by international companies and investors due to its small population and low-key image, but it is slowly making its way up and gaining international attention as it works to create a sustainable startup ecosystem. In the coming years, startups in Laos will be able to gain more traction as the country shifts from a rural-based economy to a more balanced and diverse financial ecosystem where business can flourish. As tech startups in Southeast Asia are on the rise, Laos will not be left behind.