Malaysia’s Corporate To Gear Up For Next Wave Of China’s Tech Investment

2018 was a high watermark year for ASEAN’s technology sector with inbound
investments in 2018 alone reaching SGD11 bilion almost doubling the SGD5.8 billion
invested in 2017, according to Singapore-based venture capital firm, Cento Ventures.
Among this, China’s tech giants have caught the lion share of the headlines with the
likes of Alibaba and Tencent Holdings entering the region, and JD.com investing into
Thai online fashion brand, Pomelo.

In Malaysia, Jack Ma launched Alibaba’s first office in Southeast Asia in Kuala Lumpur last year. A Digital Free Trade Zone (DFTZ) was also launched in Malaysia in 2017 in collaboration with Alibaba Group to enable SMEs to capitalise on the confluence and exponential growth of the internet economy and cross-border eCommerce activities.

The fact that China has begun to increasingly invest in Southeast Asia’s technology should not come as a surprise given the commercial and manufacturing potential that Southeast Asia presents.

With more than half of ASEAN’s 650 million citizens younger than 30, its young and
tech-savvy consumer base is open to trying – and buying – new things, preferably
online or via mobile devices. Indeed, according to a Google/Temasek report, ASEAN’s
digital economy is projected to exceed USD200 billion by 2025 and many Chinese
companies are looking to capitalise on this potential.

On the manufacturing side, ASEAN has been perceived as a strong production option
for multinationals given its role within existing supply chains, growing consumer base,
and strong trade and investment ties.

The rapid and all-consuming nature of digital and technology means that nearly all
sectors are impacted by technology and can benefit from the opportunities that it
presents – from medical to education to traffic. The sectors are only going to widen
into areas like construction, real estate, and logistics.

So if 2017 and 2018 have been the break-through years, what’s next for China’s tech investment into the region?

An interesting space to look out for will be investment into tier-two tech players in
Southeast Asia.

China is among the top three countries for venture capital investment in digital technologies, and ASEAN remains relatively under-represented in terms of start-ups, so the potential to scale up is huge. This is starting to happen with the likes of Malaysia-based Glueck Technologies – which develops sophisticated AI- and Singaporean e-grocery site RedMart – having both received substantial investment from mainland investors.

A further avenue could be ASEAN’s Smart Cities Network which aims to use
technology to improve urban planning in areas like transport management and other
utilities across 27 ASEAN cities. With more than 500 smart city projects underway,
China has the largest number of smart cities in the world and certainly has the
experience to make a meaningful contribution.

A third area could be improving ASEAN countries’ ability to further insert themselves
into global supply chains in areas like electronics and automotive. Chinese businesses
want to see Southeast Asia position itself as a viable alternative for lower-end
production, but Southeast Asia cannot expect a wide-scale widening of supply chains
to the region unless production technology and capacity increases. A clear example is
Chinese car-maker, Geely, being able to cut production costs for Malaysian car-maker,
Proton through technology transfer.

But for every Geely there are others staying in China. For example, Tesla sees China’s
production reliability, technological sophistication, and ease of business as
unparalleled and are moving their production from the US to the mainland.

“ASEAN’s urbanisation, digital adoption and consumer growth make it an attractive
investment destination. However, its geographic diversity, ease of business, and
different foreign investment laws can sometimes make it a tough nut to crack”, said
Stuart Milne, CEO, HSBC Malaysia.

Despite this, Chinese companies have signaled their intention to expand, and ASEAN
seems keen to reciprocate. For example, driving the digital agenda is the focus of
Thailand as part of its 2019 ASEAN chairmanship.

The digital marketplace is both an opportunity and a challenge to businesses as it
brings both customers and competitors to corporate doorsteps.

Investment and growth-hungry local companies are alive to the commercial
opportunities spinning out of ASEAN’s burgeoning digital consumers as well, seeing
the potential of China’s tech companies as potential partners or investors.

But the competition for funds is heating up.

“Attracting investment requires setting up the right environment, culture, and mindset
within the company to actively seek technology disruption before it gets thrown upon
you. More specifically, this means adopting an open and digital-first mindset to engage
the tech community, encouraging innovation, and being open to new ideas. It also
requires an openness to see investors as partners who can drive a business to higher
levels of growth and performance”, Milne added.

For many companies, beefing up their technology credentials will not be a straight-line
process nor will it be without its challenges, but it is important to start making the shift
now to capitalise on these opportunities. After all, the digital arena – like time – waits
for no one.

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