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Market Bytes - February 26, 2024

Shifting Sands Across SEA in The Wake of The New Norm

As the borders open up around SEA, we are increasingly able to enjoy doing more face to face ‘milk-rounds’ across the region, meeting existing and prospecting customer opportunities. This has come as a huge boon to business as human values take precedence over the formality of VC interaction and the increasingly transactional nature of business we have been experiencing.



Whilst SEA adjusted particularly well to COVID with VC as the primary communication channel and working from home, it remains a key characteristic of the region that it’s a social and face to face ‘first’ location when it comes to building business connections. Given trust remains the essence of successful commercial engagements, such relationship building will always be best serviced through coffee, lunch or any manner of ‘makan’ based interactions that characterize meaningful human interactions in the likes of Malaysia and Singapore and long may this continue!



I recall being asked several times over the last 10 years since I have lived and worked in the region: What do you prefer, Singapore or Malaysia? Increasingly this feels like a redundant question as I feel it’s a case of apples and oranges. Both have their merits and I am just delighted to be able to travel between them both more regularly now.



So what’s changed if anything?



Singapore has clearly retained its role as an economic and growth connector across South East Asia, especially Malaysia. Singapore is very much a HQ destination based on its status as a  buoyant and sophisticated financial hub, which provides access to funding and high levels of compliance,which is supported by fertile talent pools and a robust visa system. Furthermore, this location appeals to a local and global C suite community as a high quality location for themselves and family, cementing its reputation as a ‘tier-one’ business location. So not much has changed there, but it’s worth mentioning that Singapore has come out of the dark periods in fine fettle overall.



What has adjusted, in my view, is the relationship Singapore has with the region, especially its neighbor Malaysia. Singapore remains the center of investment, though Malaysia and, increasingly, other developing locations are becoming its commercial backyard, offering bigger testing grounds with opportunities for market share. So my view is, it’s less about ‘Malaysia versus Singapore’, for example and more about how SEA nations collaborate given the innate interoperability of the region. This is clearly how many outside investors see it, as they look less at one location versus another and more at using different locations on a collective and virtual basis to leverage varying cost and talent availability considerations across the whole region.



COVID was a massive accelerator in terms of the adoption of ‘digital first’ mindset by companies and consumers alike, which led to a surge in investment and requirements in the region. As such, the market became ‘white hot’ in areas like software development. This shifted potentially towards being a bubble in areas like ‘crypto’, which perhaps adversely impacted the market – finding good developers has been a serious headache for most in the last 2 years.



It’s fair to say, the bubble hasn’t burst, but we are seeing a slight slow down in the market, which is more ‘corrective’ in its nature. How this manifests itself is, perhaps, leading to less requirements in the early stage startup and series A scene, where an air of caution seems to have set in. That said, we are seeing plenty of momentum at the series B and C level, where the business model has been more proven and some level of profitability  has been achieved. Also established enterprises like Banks and Telcos that are switching business models to ‘sunrise’ sectors are creating opportunities in new areas of capability, e.g. telcos moving to cloud integration and banks switching to digital first or even neo-banking models.



One lesson post COVID is that despite the best business ideas in the world, there is no substitute for good leadership. There has been a furnace of investment in new ideas, backing high octane individuals on a speculative basis during COVID, though one fact remains true – there is direct correlation between company’s ability to hire and retain top staff through quality leadership and their profitability and success. There have been a torrent of high profile stories emerging regarding companies that have faded into the mist that mostly lacked such qualities.



What will remain true as the dust settles and the true nature of the new morm emerges is Leadership and Culture trumps all and this is definitely a key ‘take away’ for new entrants or those going through planned transformative growth from here. There have been some obvious casualties arising from the changing market conditions of the last 6 months, though I actually question whether tougher market conditions have merely highlighted serious business design flaws, or worse still, character flaws! There are economic factors afoot globally that provide basis for caution, but structurally the market is strong enough to support good ideas on the basis it’s backed up by good leadership and culture.



This was true way before COVID ever turned up, though for me, the last 2 years have been instructive as to the significance of good leadership to weather perceived economic headwinds throughout SEA from here on.