Another Round on Expanding in Asia

Today: Martin Pasquier’s insights on Asia and the opportunities it represents for European startups.

A picture I took in Wuhan 🇨🇳 in 2019!

The Agenda 👇

• Coming back to Should European Founders Look to the East?

• Martin Pasquier, who’s based in Singapore, reacted to some ideas

• Below are the insights he shared with me

• Americans seeking a second passport

• My son just turned 9 🎂🎉

A while ago, I wrote about European startups and how too few of them seize the opportunity of expanding in Asia. You can read the whole essay here.

I shared the essay with a few people in my network who know a thing or two about Asia, including my friend Martin Pasquier. Martin lives in Singapore and now works with Fast-Track, an investment firm that supports its portfolio companies’ expansion efforts in the East. In his reply, Martin shared interesting insights, and kindly agreed that I could pass them on to you here.

• Below are numbered extracts from my original essay, followed by Martin’s remarks (slightly edited for clarity and confidentiality).

1/ Economic development is slowing down in most parts of Asia, especially Eastern Asia. Hence the renewed interest in India—not because the Indian economy is doing well, but rather because most decision makers in the Western business world think India is the next frontier for piggybacking on fast-paced economic growth in developing countries.

I would nuance this. There still are huge reserves of growth in the following:

• Tier-3 and tier-4 Chinese cities, as demonstrated by the success of PinDuoDuo or TikTok: these are apps targeted at this segment rather than tier-1 and tier-2 cities.

• South-East Asia: In a past Google/Temasek study, the cumulative e-commerce economy was expected to reach around $300B there by 2025; it’s actually likely to happen already in 2021!

• Even in countries like Japan, though it’s easy to underestimate them, there’s a shift in mindset at companies. For example, at Shiseido English is compulsory for all at the HQ; the new CEO isn’t from the industry; they’ve been pushing to get management up to at least 30% women—all showing that they aren’t to be put aside.

• On the other hand, I would be very wary of India, which has around 50M people living at the level of a developed country, followed by a huge gap. By sheer volume, yes, there is money to be made, but I don't think India will ever beat China or South-East Asia. Below-par work ethics + a nightmare bureaucracy makes it immovable.

• In the region, everyone who was in China in the late 1990s and its WTO moment says Vietnam feels exactly the same—the way they managed the pandemic compared to the others in the region is another good sign.

2/ Many Asian countries are revealing an idiosyncratic cultural identity that only bears a vague resemblance with the Western way of life. As Bruno Maçães wrote about the concept in The Attack Of The Civilization-State, “As a civilization-state, China is organized around culture rather than politics. Linked to a civilization, the state has the paramount task of protecting a specific cultural tradition. Its reach encompasses all the regions where that culture is dominant.”

Even more simply put, and again Covid has shown this vividly, in the “Chinese” and industrious parts of Asia, the sense of collective is stronger than everything. In South Korea, Japan, Taiwan, China, Singapore, Vietnam, Thailand, no one understands why/how the US and Europe can be so individualistic, selfish, and short-termist on managing this crisis. Here, the ants are clearly coming together to defend the queen, no matter what.

3/ What about international trade? Well, there’s what I call The Great Fragmentation: trading with each other might be in everyone’s best interests, but for many (mostly contingent) reasons, most countries are opting to erect trade barriers and relocate production on their territory.

Yes, this is rather new and important. I was talking to [...] the other day, they lost 30% of their business when their main customer [...] stopped ordering from them + China waged a not-so-nice political war on their top management. I visited them in [...], it felt like a modern-day Babel with maybe 80 different nationalities on the campus and the drive of doing business at scale for clients everywhere.

Some of the CMOs/GMs we have interviewed for another project at Fast-Track mentioned this “re-regionalisation” or deglobalisation: Australians can't work with the Chinese, who can't work with the Indians, etc. The way large companies “cut” the APAC region in their governance was already pretty bad (China became a new region only very, very recently; and, to put it bluntly, who could say that South-East Asia, India and East Africa are the same?). Now with regional teams losing people (no more budget for expensive expats) and purpose (no more flights to push the teams and act as a two-way communication platform), I think it will get worse. Maybe local conglomerates will buy out some international local business units.

4/ Finally, today’s economy is less about shipping tangible goods and more about getting people to install online applications for their desktop or mobile phone. And this, as I’ve been explaining since at least 2012, comes with a much higher degree of intimacy: online applications are so ingrained in the everyday life of everyone, you really need to tread carefully. In theory, software is easier to scale up to a global scale; in practice, well-designed software resonates so much with the user’s identity and sensibilities that it really must account for the local culture.

Plus, in Asia, you can't just launch your app, you have to recognize the local superapp kingpins and abide by their rules! It's not like the field is open and local ecosystems are waiting for them. Each country now has 1-2 dominant superapps and the way they leapfrogged everyone, bringing users 10x the convenience, especially for users who never had proper retail, payments, services… they’re going to stay for a while.

Maybe one last important point is that in Asia, local governments clearly want to be and do act as the boss. What happened to Ant Financial’s IPO was actually what the US left AND right want when they talk about antitrust and breaking down the tech giants. China wouldn’t accept killing its crappy banking industry for the sake of Jack Ma (and from what I read, almost everyone online is now turning against Jack Ma for his selfish attitude—a rather interesting twist).

I was reading the other day about Singapore’s digital banking licence framework—they are about to give out 5 licences next month. According to Fintech News Singapore, quoting the Monetary Authority of Singapore (the local financial regulator):

“The MAS will wholesale reject any bank, digital or otherwise, which will engage in value-destructive competition to gain market share.”

Value-destructive competition here means when an established sector that has a lot of value is replaced and loses value. An example is how the entry and popularity of ride-hailing destroyed the value of the taxi industry.

The implication is that MAS will focus on companies that add value to the existing ecosystem rather than acting as disruptors, as MAS does not want to compromise the anchoring position of local banks, which hold significant market share. The goal would be to keep systemic balances in place.

Finally, I have the feeling that the tech for good agenda will also be solved in Asia first—because governments and people genuinely care about the greater good. I am not sure that in Europe it’s anything more than a VC buzzword.

I’m grateful that Martin agreed to share these insights. You can contact him via his website HERE. Let me know what you think, and I’ll make sure to cover that topic again in the future!

A while ago I discussed a tough question: Is Being American Worth It Anymore? It turns out wealthy Americans are asking themselves the same question, if we are to believe this article: Rich Americans Are Increasingly Looking for Second Passports. Here’s an extract:

In previous years, U.S. citizens rarely sought to buy so-called golden passports. The business mainly thrived targeting people from countries with fewer travel freedoms than the U.S., such as China, Nigeria or Pakistan.

But that’s changing. People close to the industry say they’ve been inundated with inquiries from citizens of the world’s richest country.

“We haven’t seen the likes of this before,” said Paddy Blewer, a London-based director at citizenship and residency-advisory firm Henley & Partners, referring to queries from U.S. individuals. “The dam actually burst -- and we didn’t realize it -- at the end of last year, and it’s just continued getting stronger.”

🇩🇪 More than one week in Bavaria! However, my son and I are still quarantined since we came from the COVID-risky zone that is France 🦠 so I haven’t seen much of the surroundings. Everything’s fine, however (we’re not sick)—and yesterday was Ferdinand’s 9th birthday! 🎂

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From Munich, Germany 🇩🇪

Nicolas