Technology innovation has been a major driver of global growth over recent decades, as the economic opportunity becomes increasingly interlinked with digital and technological capabilities. Despite the talk of global opportunity, the truth is that technology value has largely been concentrated in two major regions—the eastern coast of China and the United States' western coast.
These ‘gold coasts’ were home to seven of the world’s top 10 companies by market cap as of May 2020. These areas have accumulated massive wealth and power and an impressive reputation for success in driving technology opportunities.
While the US and China compete for the crown of technology leader, there’s quiet confidence growing in emerging regions worldwide. Technology companies in markets such as Africa, Israel, Latin America, Russia, UAE, India, Turkey, and Southeast Asia bring exciting new products and services to the market. This trend reveals a valuable opportunity for Indonesia’s fast-growing technology sector.
Indonesia Outpaces Growth
Boston Consulting Group’s 2020 BCG Tech Challengers report explores the digital and technological opportunities emerging in markets worldwide. It reveals a fascinating picture of players revolutionizing industries, rapidly growing in both size and scale, and presenting disruptive new threats to incumbent tech giants.
These tech challengers represent 14 countries from all major regions and are active in multiple sectors. While two-thirds of the challengers focus on consumer apps or services, one-third are active in business-to-business (B2B) segments.
More than 10,000 technology companies have been founded in emerging markets since 2014, almost half (47 percent) of them outside China. Indonesia is home to 2 percent of this number, boasting a small but rapidly expanding technology sector. Emerging challengers like Indonesia and Brazil are favorably positioned behind well-known global tech hubs such as Singapore and Israel.
The number of companies founded in Indonesia is growing by 30 percent year-on-year, outpacing India, Singapore, Japan, and China. Initiatives such as Indonesia’s 1,000 Digital Startup Movement, now the 1,001 Digital Startup Movement, offer valuable pathways to accelerate this growth.
The technology ecosystem is evolving and diversifying, both in terms of innovation and geographical location. Just 12 percent of first-generation technology companies are located in emerging markets outside of China. One-third (33 percent) of emerging-market technology unicorns are located outside China. Today, 47 percent of the wider emerging-market tech companies are outside China’s borders.
Emerging Tech Challengers in 2020
These challengers are active in a wide range of technologies, including hardware, software, cloud computing and services, social media, gaming, AI, advanced analytics, and cybersecurity. They deliver solutions in innovative ways, penetrating non-traditional industries such as healthcare, logistics, and energy.
Gojek fueled its impressive growth by expanding into new markets and adding new products and services through in-house development as well as M&A and partnerships. It augmented its initial ride-hailing focus by linking its rider platform with other transportation systems in Jakarta, expanding into related businesses such as food delivery, payments, and logistics.
Through analysis of emerging technology companies, BCG identified 100 influential emerging market tech challengers that reflect this new wave of ambitious and growing companies. They are chosen for their adoption of technology, industry position, business models, and proven market traction.
This global group of innovators covers 14 countries from every major region of the world. Eight of them are home-grown here in Southeast Asia. Gojek, Tokopedia, and Visionet Internasional (OVO) are all headquartered in Indonesia.
The companies chosen reflect a market value of over $500 million, positioning them as significant technology challengers. They represent a broad spectrum of operating models, from
Gojek and Grab’s ride-hailing origins to Lazada and Tokopedia’s e-commerce success. More than half of the 100 tech leaders have grown beyond their home markets, and 40 percent are active in developed markets.
Southeast Asian challengers are keen to operate in the regional playground. This is a rapidly expanding market of almost 700 million citizens, enjoying notable income growth, providing fertile ground for tech companies to scale. Half of Southeast Asia’s tech champions identify the region as their primary market over their initial home market. Gojek’s ambitious regional expansion reveals this kind of play is already underway.
These emerging market challengers have an average valuation of $6.3 billion, putting them well beyond unicorn status. Those companies based in Southeast Asia have the highest average valuations of any other region outside China. The combined valuation of Southeast Asia’s eight challengers stands at $50 billion, $34 billion ahead of India and South Asia’s 17 challenger companies.
The revenue growth in these companies is equally impressive. The average revenue is $2 billion, growing at an annual rate of 70 percent per annum. That’s six times faster than technology companies in developed markets. In Southeast Asia, that growth rises to eight times faster than developed markets. Covid-19 has not limited this growth, and in some cases, has provided benefits for technology companies as social and economic transitions drive technology engagement.
Emerging market technology companies take different routes to growth. Many of these challengers are backed by conglomerates, foreign technology companies, and sovereign wealth funds. This provides valuable funding, alongside expert know-how and resources. Gone is the myth of growth driven by stolen innovation and low labor costs. These are ambitious and innovative companies driving varied roads toward success.
These companies adopt ecosystem approaches early on, helping accelerate the path to growth. Many transcend industry boundaries. They often target their capabilities in solving specific emerging market challenges, such as expanding financial inclusion in underbanked or unbanked populations.
OVO built its strategy on an open ecosystem approach and integrated model that creates an inclusive financial ecosystem of merchants and partners. With more than 700,000 participating
merchants, OVO has been downloaded to 115 million devices, with customers able to use it anywhere to access payments, make transfers, top-up accounts, and withdraw money, as well as to perform asset and investment management. OVO is accepted in more than 373 cities and administrative regencies across Indonesia.
Technology challengers benefit from the ambitious scope of these ecosystem approaches. BCG research shows that the more partners in an ecosystem, the better the ecosystem will fare.
Incumbent technology companies need to recognize the rise of these emerging challengers, but there is no presumed need for competition.
Where competition could emerge is around challenges to market share, battles for emerging value pools, and possible clashes for a global presence. For example, southeast Asian players like Grab and Gojek are strengthening their ‘super app’ status, encompassing an ever-growing share of consumers’ digital spending.
Mutually beneficial partnerships between incumbents and challengers are possible. Their ecosystem-focused approach makes challengers receptive to collaboration. They can boost
opportunities through shared value chains, unlocking the potential for emerging and existing players alike.
Collaboration or competition is, in many cases, a choice. What we can say for certain is that Indonesia’s vibrant technology sector is delivering on its potential for significant and rapid growth.
Michael Meyer is the managing director and partner in business consultancy firm Boston Consulting Group. Olivier Rival is also a partner in the company.