For years, the Southeast Asia tech scene has experienced tremendous growth, with inspiring innovations hitting the market, local and foreign investors backing startups, and companies earning high revenues. Now, the Association of Southeast Asian Nations (ASEAN) is experiencing a slump in its tech ecosystem, and stakeholders and the public are wondering what the current state of affairs means for the once-budding sector.

In 2021, funding for the major tech unicorns—businesses with a billion-dollar valuation—went as high as USD 2.2 billion for J&T Express from Indonesia, followed by Singapore’s Ninja Van at USD 974 million and Emeritus at USD 690 million. 

How can startups and SMEs in Southeast Asia prepare for the top challenges in 2023

This year has been a little more complicated for ASEAN tech startups as global economic challenges have limited the flow of funds to the region.

Factors affecting tech startups in the region

One of the first issues became apparent when local and foreign-listed tech stocks were down by about 20% for a while, with initial hopes of success in the stock markets for companies like tech unicorn Grab encountering lowered valuations than anticipated. CNBC reported last month that initial public offerings (IPOs) in Southeast Asia were significantly lower than expected after the highs of 2021. Data from professional services firm Deloitte showed that the region received USD 13.3 billion from IPOs last year. In contrast, companies have raised USD 6.3 billion from January through week 2 of November.

Secondly, the ASEAN tech talent scene is in a mess due to the tech talent crunch, and mass layoffs continue to hit businesses. There is also a strong need to reskill or upskill employees, which is not without its challenges regarding expenses and willingness to update one’s knowledge. Many workers have had to work from home due to the COVID-19 pandemic restrictions, which has led some employees to become less productive.

The global health crisis was a third factor damaging the Southeast Asia tech scene by limiting fundraising, blocking startups from trading, reducing meetings and mentorship programmes, and hurting innovations and manufacturing. Businesses found it challenging to trade across borders and were unable to recruit tech talent from regional countries to reduce staff shortages and increase the number of experienced employees. 

Fourthly, the subsequent downturn in global economic activity led investors to withhold their cash to analyse the situation and find the best time to reinvest. That meant that the capital available in the market would be at a different level than that obtained from record funding in 2021. Financial technology (fintech) funding also dipped in 2022, according to Asian Banking & Finance (ABF). There was too much focus on the fintech sector by investors, but there is now a shift toward climate tech startups as concerns over climate change begin taking centre stage worldwide.

Southeast Asian economies have been in trouble for a while after dealing with the pandemic’s effects on trade. The global economic outlook is also bleak, with high-interest rates, inflation, a possible recession, supply chain issues, low gross domestic product (GDP), slow growth expectations, and reduced exports. However, it is not all doom and gloom as the digital transformation in ASEAN is still progressing despite adoption not reaching capacity and the infrastructure still lagging, so citizens can look ahead to the future.

What to expect in 2023?

According to the eConomy SEA report 2022 by Google, Temasek, and Bain & Company, Southeast Asia has plenty of opportunities despite many economic headwinds. The region’s digital economy will reach a gross merchandise value (GMV) of USD 200 billion in 2022. There is increasing emphasis on establishing a sustainable digital economy, reducing the year the 2030s expected 20 megatonnes (MT) of waste by 30-40%.

Investors are confident in the short and long-term potential of the ASEAN tech scene. Some nascent sectors like Software-as-a-Service (SaaS), Web3, and blockchain will provide a platform for future innovations. Moreover, investors have established funds and will have about USD 15 billion to invest in startups in 2023.

The last three years have brought 100 million internet users, an increase of 20 million users from 2021-2022, bringing the total number of users to 460 million. This uptick in internet penetration opens up a larger consumer market for tech businesses. Furthermore, Southeast Asia’s COVID-19 vaccination rates are higher than in the US, creating favourable conditions for the region to reopen for trade. 

The golden era of the Southeast Asia tech scene is not ending, despite the global, operational, and investment challenges facing the ecosystem. Founders should understand that 2023 may pose many problems for their companies due to inflation, wars, high-interest rates, inadequate funding, and other factors.

Nevertheless, ASEAN tech startups can thrive if they adopt sound organisational, leadership, and funding policies. Once the global economic climate becomes clearer as the pandemic recedes and VC firms release money from their investment funds, the tech ecosystem will adapt to the new realities, providing vital innovations and earning money.