The digital economy in the Association of Southeast Asian Nations (ASEAN) is likely to hit USD 1 trillion, taking advantage of the output and revenue from high-growth industries (HGIs). HGI sectors are growing at a higher than the standard rate experienced in other areas of the economy. As such, novel startups in Southeast Asia can play a significant role in innovating essential solutions for society in general.
Smartphone ownership is high, and CNBC lists internet penetration rates at over 70% in the region. Moreover, the high population numbers mean a large market and potential talent pool can offer startups opportunities for revenue and qualified tech workers to implement new ideas. Even so, ASEAN faces many challenges, including an urban-rural divide, digital illiteracy, talent problems, a complex regulatory climate, and more.
Deeptech startups in Southeast Asia that are making waves in the industry
According to a report by DealStreetAsia, startup funding fell by 58.6% in the second quarter (Q2) of 2023 to USD 2.13 billion, compared to USD 5.13 billion in Q2 2022. Gary P. Khoeng, partner at Vertex Ventures Southeast Asia & India, predicted that deal volumes would continue to go down due to macro headwinds and the unwillingness of investors to provide funding in difficult economic times. Nevertheless, he believes there is hope for the future in 2023 and 2024.
The region has industries with much momentum for development and success. Typically, the companies that can survive economic challenges like inflation and recession have the most growth potential. The shift to sustainability, affordability, social consciousness, inclusiveness, etc., contributes to a healthier startup ecosystem.
Here are a few industries outperforming other sectors:
According to McKinsey & Co., the ASEAN population will grow by 12% from 670 million in 2020 to 750 million by 2035. This population increase, climate challenges, and rampant food wastage will lead to a 40% increase in food demand by 2050.
The conflict between Ukraine and Russia affects the grain supply to other nations, complicating the food supply in places like the European Union. Innovations are vital to reducing food waste, harvesting effectively, drying the produce well, threshing, storing, processing, and transporting the foodstuff.
Vertical farming—growing crops indoors using technology—has benefited places with limited farmland, such as Singapore. Farmers are implementing tech like Artificial Intelligence (AI) for automation, collecting data on food losses, and evaluating areas in the value chain with inefficiencies. The key is to find the source of problems, mobilise resources, and work with stakeholders to fix the issues.
AI and blockchain
Startups are using AI more and integrating it into society. For example, generative AI solutions like ChatGPT provide business solutions in problem-solving, cybersecurity, marketing, content creation, data collection and analysis, and customer service.
Further enhancement will make AI work faster and more efficiently in detecting and thwarting cyberattacks, offering advanced security options like seamless face detection, guiding prospects and leads through the sales funnel, and providing valuable insights for leaders to make data-driven decisions.
Additionally, blockchain delivers benefits in areas such as healthcare, record keeping, data storage, cryptocurrency, and smart contracts.
Since the COVID-19 pandemic began, the share of consumers shopping online has increased and currently stands at 62%. This year, the projected value of Southeast Asia’s eCommerce market will be USD 110 billion. Market value will grow by 11.43% to reach USD 169 billion in 2027, with an expected user base of 485.6 million people.
Fashion and Beauty are the leading categories, and inventions like virtual fitting rooms are making a difference to buyers. Online marketplaces have become convenient platforms for browsing products and connecting with shoppers through social commerce. There is also a substantial market for reselling old goods or subscribing to various services. Innovations can help enhance cybersecurity, improve customer service, and provide reliable data storage.
Healthcare and wellness
Globally, the pandemic led to a greater search for healthy and sustainable products and packaging. People became more wary of the impact on their health and the environment. Thus, there was a renewed focus on organic items, non-pollutants in the air, mental health concerns, home self-care, analysing the source of ingredients, and working with ethical companies.
Creations for telehealth and telemedicine, wellness products, and at-home testing will make healthcare more accessible, affordable and sustainable.
Finally, manufacturing has been one of the high-growth industries despite encountering headwinds in recent years. Geopolitical tensions, lockdowns, extensive delays, inflation, high production and energy costs, difficulty obtaining raw materials, and supply chain disruptions have made operating challenging. Nevertheless, sustainable approaches, such as electric vehicle manufacturing in places like Thailand, mean there are still many development opportunities there.
Startups in Southeast Asia can contribute to the growth of these economic sectors through research and creativity. It is essential to increase funding, develop infrastructure, upskill and train the public. Governments must also provide support through grants, improved regulations and enhanced cross-border cooperation to spur economic growth in the region.