In 2019, Asia was the world’s shining showcase, with its rising regional 5.2% GDP, investment stock, urbanisation, consumer middle class, 650 million digital-savvy young Asians and digitisation. With Covid-19, will the tech sector still perform well in weakened Asia? And how will Asia tech start-ups fare?
The fundamentals of sound economic and innovation underpinnings are still present, although suffering some interim damage: smaller regional GDP growth (the ADB projects a 2.2% in 2020 and a 6.2% rebound in 2021). But estimates are for ever-growing middle class consumption, with Asia representing 66% of the global middle-class population and 59% of middle-class consumption by 2030 (according to the Organisation for Economic Cooperation and Development) and rich capital markets.
In addition, the ADB also identified other innovation drivers such as education systems, innovative entrepreneurship, conducive institutions and vibrant cities. These factors auger well for the tech sector.
As of April 2019, McKinsey reported that Asia produced more than a third (119) of the world’s 331 ‘unicorns’ (start-ups valued at more than $1bn). Of this, 91 companies are from China, 13 are in India, six in South Korea and four in Indonesia.
China, Japan, South Korea and Singapore are among the world’s most digitally advanced countries, largely due to their governments’ supportive policies. In 2019, China’s ministry of finance required local governments to lower the requirements for start-ups applying for entrepreneurship guaranteed loans and bear the interest subsidies, as part of the country’s inclusive finance special funds management.
In Japan, a joint project of JETRO and the Japanese ministry of economy, trade and industry (METI), J-Startup, was launched in 2018 to push for the overseas development of local start-ups.
South Korea’s ministry for small and medium-sized enterprises and start-ups has been created with the mission to promote business growth, foster business start-ups and support micro enterprises. Besides the Smart Nation initiative launched by the Singapore government, Enterprise Singapore has also provided Startup SG Founder grants for technology startups.
Covid-19 has nudged more companies and citizens to go digital in the face of travel and Work At Home restrictions, which has already benefited some tech and e-commerce companies. So long as the fundamentals of recovering GDP, middle class consumption, 650 million tech-savvy young audience and digitisation remain sound, Asia’s tech start-ups should see continued growth from 2022 onwards, once Covid-19 is over.
Will tech start-ups lead Asia’s recovery? No one knows, as it depends on the extent of the impact on consumption, investment and net exports. At this point, government expenditure seems to be the sole GDP hero in public finance.
Lawrence Yeo is founder and principal consultant of AsiaBIZ Strategy, a Singapore-based management consulting firm providing Asia market research, business strategy development and export/FDI promotion services.