Chinese Internet majors compete to dominate ASEAN tech ecosystem

Investors look at an electronic board showing stock information at a brokerage house in Shanghai, China November 9, 2016. REUTERS/Aly Song

Chinese technology majors Baidu, Alibaba, Tencent and JD.com – collectively termed BATJ – are leading a wave of investment into Southeast Asia’s venture ecosystem and technology sector.

Data compiled by venture capital intelligence database CB Insights indicates that since late 2015 to H1 2017, these firms have invested at least $3.27 billion in startup ventures across the region. This is part of a broader investment push, driven by infrastructure investments from China, which saw Chinese firms invest up to $14.6 billion in Southeast Asia in 2015, according to Maybank Kim Eng.

In the Philippines, 2017 is set to see China exceed the US as the largest foreign investor with $24 billion of hard and soft investment and $2.5 billion in inflows, according to estimates from HSBC Holding.

Meanwhile, Credit Suisse estimates Chinese FDI in the six largest economies in ASEAN reached about $16 billion in 2016; the bank estimates China accounts for 30 per cent of all FDI into Thailand, and 20 per cent into Malaysia.

One of the most telling investments that marked the importance of the region to the BATJ firms was Alibaba’s $1 billion investment in Southeast Asian e-commerce player Lazada as it prepares for the entry of US e-commerce major Amazon into the region.

Tencent is already competing with Alibaba Group in the region through its investment in Thai media company Sanook and a joint venture (JV) with Ookbee, as well as its investment in transport network company Go-Jek,

Both Tencent and Alibaba also hold an indirect interest in Southeast Asian transport service firm Grab – a Go-Jek competitor – as both are investors in Chinese ride-sharing service Didi Chuxing, which recently participated in a $2.5 billion investment in Grab, the largest transaction in Southeast Asia to date.

More recently, Alibaba has been engaged in talks to acquire a stake in Indonesia’s Tokopedia while JD.com invested in Indonesian online travel firm Traveloka’s $500-million funding round.

Fundamentally, Southeast Asia represents a significant opportunity for Chinese firms to diversify their revenue base and internationalise their footprint beyond the competitive market of China. The region’s proximity to Hong Kong also represents a venue where it can realise the value of these various investments through IPOs in Chinese capital markets.

Baidu’s AI push

One sector that has been the focus of Chinese corporates globally is artificial intelligence (AI), with Baidu leading the race in terms of acquiring AI startups.

AI technologies encompass deep learning, image recognition, computer vision, robotics, collaborative systems, machine learning and natural learning process, among other things. 2017 has seen Baidu acquire three AI startups, reflecting its strong AI aspirations.

By comparison, Google and Apple have acquired two AI startups each and Microsoft has acquired only one.

According to information from CB Insights, over 250 private companies using AI algorithms across different verticals have been acquired since 2012, with 37 acquisitions taking place in Q1 2017.

February 2017 saw Baidu acquire Raven Tech, a Chinese startup founded in 2014 that specialises in AI-based smart home systems. This has synergies with Baidu’s Little Fish, which aims to become a leading smart home assistant.

The second acquisition was US-based startup xPerception, which deals with computer vision to enhance autonomous vehicles, as well as augmented reality. This acquisition supports Baidu’s California-based research unit. Its third acquisition for H1 2017 was KITT.AI, which develops natural language and speech technologies.

This pattern of acquisitions is rooted in Baidu’s search for a new business model other than search advertising, given that revenues from that particular business line are decreasing.

In an interaction with CKGSB Knowledge, Wei Wuhui, a scholar of media development at Shanghai Jiao Tong University, explains: “Baidu has been overly reliant on search ads to generate revenues, which was a realistic choice during its early development. But now, such a sales model appears to be insufficient.”

The quest to deepen its AI capabilities is also rooted in its domestic competition with Alibaba Group and Tencent Holdings, as well its limited ability to internationalise due to the presence of Google, Yahoo and Microsoft Bing abroad, while Russia, Central Asia and other Russian-speaking countries are dominated by Yandex.

More Chinese funds and businesses to come to Southeast Asia

In an interaction with DEALSTREETASIA, Catcha Group’s Patrick Grove, its chief executive and co-founder, forecasts a greater Chinese presence, saying, “The total addressable market in the region is huge. I expect more Chinese VC funds coming to Southeast Asia, along with Chinese entrepreneurs spending more time in the region. Chinese corporates (BAT and many others) will continue investing (and acquiring) in the region.”

“The growing interest from China is a testament to the potential in the region, which is also spurring local investors to start looking at the tech ecosystem – and that’s a great thing,” he added.

In Grove’s view, increasingly, corporate buyers in the West and the major East Asian economies – China, South Korea and Japan – are realising that strategic partnerships and collaborating with local entrepreneurs are a better strategy to access markets and build traction market share, rather than attempting to enter markets alone.

ASEAN views

Willson Cuaca, the co-founder and managing partner of East Ventures, a major venture capital investor in the region, tells this portal he sees a mixed situation with regards to Chinese dominance in the Asian technology space.

He says, “Yes, the Chinese are here and more are coming. But I don’t know about Chinese dominance because they need to work with locals and transfer some knowledge, so it’s going to be a win-win. Investing in startups is about disrupting both traditional and incumbent players. It is always a challenge for new companies, with or without the Chinese.”

As for Silicon Valley’s response to this situation? “In my honest opinion, Silicon Valley still has no idea what’s happening here,” Cuaca opines.

Meanwhile, Singapore-based Takashi Sano of Japan’s Global Brain Corporation sees the infusion of Chinese capital into the region as part of a “continuing and natural trend” that is basically positive.

Sano says: “The China market and Southeast Asia market are different but are able to learn from each other. The only concern is if there is too much expectation into the market, which might cause some volatility with short-term return seeking. Capital from China doesn’t mean a single player will monopolise the market.”

However, there are still risks to the current wave of Chinese investment as the country sees its firms’ acquisition spree being fuelled by rising debt levels over the last few years.

Also Read:

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Tencent’s WeChat Pay seeks licence for local payment services in Malaysia 

Grab rolls out new tech features to capture market share in Myanmar

More excited about angels than VCs in Southeast Asia: Serial entrepreneur Jeff Hoffman

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.