We often speak of a golden age of technology. This innovative sector has driven much of the world’s economic growth in recent years. Despite this global narrative, the lucrative shine of technology value has largely been concentrated in two major regions of the world — the eastern coast of China and western coast of the US.
These so-called "gold coasts" were home to seven of the world’s top 10 companies by market cap as of May. These areas have accumulated massive wealth and power, and a valuable reputation for success in driving technology opportunity.
Yet while Apple and Alibaba duke it out for triumphant tech primacy, there is a quiet confidence growing in emerging regions around the world. Technology companies from Africa to Southeast Asia are bringing exciting new products and services to the market, representing the spark of thrilling opportunity for a nation like Singapore.
In the 2020 Boston Consulting Group (BCG) Tech Challengers report, we dived into the digital and technological opportunities emerging in markets around the world. It reveals a fascinating picture of players revolutionising industries, rapidly growing in both size and scale, and presenting disruptive new threats to incumbent tech giants.
More than 10,000 technology companies have been founded in emerging markets since 2014, almost half (47%) of them outside China. Singapore is a powerhouse punching above its weight in this arena. Of the 10,000 companies identified, 7% of them are located in our tech-friendly nation. That compares to 2% in Indonesia, a country with approximately 60 times the population of Singapore. Only India outperforms Singapore, home to 16% of emerging technology companies. However, Singapore now rivals mature hubs such as Japan and Australia, and is growing at a faster rate.
The city-state has long been committed to a business-friendly approach to technology start-ups. The Technopreneurship Investment Fund (TIF), launched in 2000, established US$1 billion funding to transform Singapore into a regional venture capital hub. The Singapore Block 71 start-up centre established in 2011 is a more contemporary example, home to hundreds of tech-related start-ups, investors, and incubators today. It seems for Singapore, those commitments have paid off.
It is clear that the technology ecosystem is evolving and diversifying, both in terms of innovation and geographical location. Just 12% of first-generation technology companies are located in emerging markets outside of China. One-third (33%) of emerging-market technology unicorns are located outside China. Today, 47% of wider emerging-market tech companies are outside China’s borders.
Emerging tech challengers in 2020
The diversity of technology challengers in 2020 is truly remarkable. They are active in a wide range of technologies, including hardware, software, cloud computing and services, social media, gaming, AI, advanced analytics, and cybersecurity. They deliver solutions in innovative ways, penetrating non-traditional industries such as healthcare, logistics and energy.
Local unicorn Grab is a perfect example of this disruptive innovation. It grew from a plucky contender against incumbent giant Uber to become a dominant force in Southeast Asia by understanding and responding to local needs such as traffic congestion, and cash payment or e-wallet preferences.
Through analysis of emerging technology companies, BCG identified 100 influential emerging market tech challengers that reflect the promise of this new wave of companies. They are chosen for their adoption of technology, industry position, business models, and proven market traction. This global group of aspiring innovators covers 14 countries from every major region of the world. Eight of them are home-grown here in Southeast Asia — half of which (Grab, Razer, Lazada, Sea Group) were all either born or headquartered in Singapore.
The companies chosen all represent a market value of over US$500 million ($665.81 million), positioning them as significant technology challengers. They represent a broad spectrum of operating models, from Gojek and Grab’s ride-hailing roots to Lazada and Tokopedia’s e-commerce success.
More than half of the 100 exemplars have grown beyond their home markets, and 40% are active in developed markets. Singaporean-American company Razer is one local example with widespread business in mature markets.
Southeast Asian challengers largely look to expand within the region. Half of the identified regional tech champions see the region as their primary market over their initial home market. Major challengers such as Grab, Gojek and Lazada view Southeast Asia as their natural playing field. This is an increasingly affluent region of almost 700 million citizens, offering remarkable market opportunity for tech companies to scale.
These emerging market challengers have an average valuation of US$6.3 billion, putting them well beyond unicorn status. Those companies based in Southeast Asia have the highest average valuations of any other region outside China. The combined valuation of Southeast Asia’s eight challengers stands at US$50 billion, US$34 billion ahead of India and South Asia’s 17 challenger companies.
Perhaps more remarkable still is the average growth of these companies. Average revenue is US$2 billion, growing at an annual rate of 70% per annum. That’s six times faster than technology companies in developed markets. In Southeast Asia, that growth rises to eight times faster than developed markets, with winners like Singapore’s Sea Group increasing its revenue by 163% between 2018 and 2019. Even Covid-19 has failed to dent the optimism in the sector, with technology largely riding the waves of this crisis.
Technology companies in emerging markets take diverse routes to growth. Gone is the myth of growth driven by stolen innovation and low labour costs. These are ambitious and innovative companies driving varied roads toward success. Many of these challengers are backed by conglomerates, foreign technology companies, and sovereign wealth funds. This provides valuable funding, alongside expert know-how and resources.
These companies adopt ecosystem approaches early on, helping accelerate the path to growth. Many transcend industry boundaries. Grab and Gojek were both quicker than industry leaders Uber and Lyft to enter lucrative areas such as food and parcel delivery with the help of ecosystem partners. The latest BCG research shows that the more partners in an ecosystem, the better the ecosystem will fare.
Incumbent technology companies need to face up to these emerging challengers. The path ahead is not necessarily defined by adversity. Where such adversity emerges, it comes from challenges to market share, battles for emerging value pools, and ultimately the possibility of competition for global presence.
However, mutually beneficial partnerships are possible. Their ecosystem-focused approach makes challengers receptive to collaboration. They can boost opportunities through shared value chains, unlocking potential for emerging and existing players alike.
Competition or collaboration remains a significant question for technology players in this evolving landscape. What’s not in question is the continued growth potential of these remarkable technology challengers in emerging markets such as Southeast Asia.
Michael Meyer is managing director and partner and Olivier Rival is partner. They are both with the Boston Consulting Group.
