Looking at Vietnam as Indonesia's Startup Expansion Destination

Successful expansion is one of the benchmarks for business growth; no wonder a lot founder has clearly expressed his ambition on various occasions. Starting from national, regional, then global expansion. In the Indonesian startup ecosystem, several players have shown their teeth to expand overseas. The level is still regional, trying to work on the market in Southeast Asian countries.

Judging from the existing trends, generally expansion is carried out for two purposes. First is the strengthening of business operations, Singapore and India are by far the most favourites. Startups create operational offices or R&D centers. Second, expansion opens new market share, increases users, and business traction. For this purpose, Vietnam looks more promising and becomes a priority.

Currently, there are already several local startups that are also peddling their services in Vietnam. Just say it Gojek, Ruangguru, Traveloka, and PasarPolis. In a virtual discussion opportunity held by the Indonesian Embassy in Hanoi on August 12, 2020, Traveloka representatives said that before the pandemic their business had good growth and after the pandemic, various plans had been made, including collaboration with various parties.

Indonesian Ambassador to Vietnam, Ibnu Hadi, in a discussion entitled "Digital Economy Opportunities in Indonesia and Vietnam" said the government would help "open up pintu"for Indonesian startups who want to open the market to Hanoi. Efforts that have been made include intensively starting collaborations with players in the startup ecosystem there.

Several venture capitalists from Indonesia have also provided funding for Vietnamese startups. In the early stages there are Venturra, East Ventures, and Alpha JWC Ventures; while in the advanced stage there are Openspace, Northstar, EV Growth.

About Vietnam market

To DailySocial, East Ventures Partner Melisa Irene said, the potential of Vietnam's internet market is currently promising. When compared with Indonesia, according to him, ecosystem development there is 3-4 years behind Indonesia. East Ventures itself has invested in two startups there, namely CirCo (operator co-working space) and Kim An Group ( for SMEs).

"Vietnam has potential because its population is the second largest after Indonesia, the majority of the population is very young, and Vietnam has only opened its economy to the global market in the last few years. This will accelerate the growth of the digital economy in Vietnam in the next few years," added Irene.

Kim An Group's Series A funding actually just closed last week. Apart from East Ventures, Patamar Capital was also involved in the round. Patamar Capital itself is also a venture capitalist that is quite active in the Indonesian ecosystem. They operate in several countries in Southeast Asia and have representatives (partner) in each region.

We had the opportunity to interview Patamar Capital Partners, namely Dondi Hananto (Indonesia) and Shuyin Tang (Vietnam).

Working daily with the ecosystem there, Shuyin admits that conditions in Vietnam are still several years behind Indonesia. But if he looks at the progress, he feels optimistic about the future of his digital startup. The development of solid infrastructure and talent underlies this argument.

Related fintech, the most developed business landscape in the region, Shuyin believes that in Vietnam the sector tends to be more controlled compared to other countries. The State Bank of Vietnam released a license for fintech with very limited amounts, both for payment platforms, loans and other business models.

"However, digital payments is a fairly active space in Vietnam, with Momo recently announcing that it had reached 20 million users since launching 10 years ago. Another well-known player is Moca (having partnered with Grab) and ZaloPay. Gojek also announced that it has taken a majority stake in WePay, which means we will finally be able to enjoy GoPay," explained Shuyin.

The business climate is also different compared to Indonesia. As of August 2020, in Indonesia there were 158 startups p2p loans registered with the OJK. Meanwhile in Vietnam, from Shuyin's observations, the situation is the opposite, it could be said more complicated. Related startups must collaborate with pre-existing financial institutions, both banking and non-banking. There is no “multifinance company” model in Vietnam, nor is there a specific legal framework for it p2p loans.

"So I have to say that it is more difficult for companies that focus on loans to start in Vietnam. These companies operate in a 'grey zone' or have to partner with banks. And once you reach a certain scale, operating in that zone is not an option, it has to be "Find a way to get a license quickly. Usually this process will be long and expensive," he added.

apart fintech, in Patamar Capital's thesis there are also several priority startup landscapes in the Vietnam market, namely healthtech, editech, logistics, and SME empowerment services.

Vietnam market characteristics

Venturra is one of the venture capitalists from Indonesia who has set foot there and has a dedicated team in that country. To DailySocial, Venturra Partner Raditya Pramana provided the analysis about why Vietnam is attractive to founder who are planning expansion.

He said, when talking about market share, once an Indonesian startup wants to expand regionally, they will be presented with two choices: the Philippines and Vietnam.

"After Indonesia, a country that has a large population, the Philippines and Vietnam. If we compare the two options, the complexity is decisive. The Philippines is an archipelago, separated; while Vietnam is only divided into two large regions, one is Hanoi in the north and the other is Ho Chi Minh City in the South entry point "which makes it easier for companies to build their presence," said Raditya.

An interesting thing that Raditya also highlighted was talent. If in Indonesia startups tend to find it easier to get business talent and it is difficult to get technical talent, Vietnam is the opposite, business talent is more difficult to find there, while technical talent is easier and more affordable. This can also be a consideration for digital startups who want to build a base in that country.

"In terms of market size, it's not as big as in Indonesia, but development can be very fast. As is known, they also get momentum as a result trade war between the United States and China. Many manufacturing companies there. "The political reforms that have occurred in the last few years have provided many opportunities for economic growth, including making it easier for foreign companies to be present there," continued Raditya.

Venturra's seriousness has been demonstrated by placing a team in Vietnam since March 2020 to be directly involved in its ecosystem. In Q1 this year they have invested in two Vietnamese startups, while the target is to reach 5-7 startups. The pandemic required Raditya and the team to make many adjustments to their investment plans.

"Our main focus is clearly in Indonesia, because we are a company in Indonesia and understand this market better. But if we talk about foreign markets, we have two targets, namely Vietnam, then Singapore [because it is hub business in the region]," said Raditya.

As a country with potential for market expansion, Shuyin gave his views. Vietnam is a naturally growing market that needs to be considered in regional expansion. Interestingly, from his observations in Vietnam, after Covid-19, interest in investment in that country shot up. Including because of Vietnam's successful strategy in containing the impact of the pandemic.

"I think at the top level, yes, of course Indonesia and Vietnam have similar characteristics. The population is young, incomes continue to increase, the technology ecosystem is increasingly mature, and so on. But one thing the team has seen time and time again is that there are many local nuances, and these differences important," said Shuyin.

Another Patamar Capital partner, Dondi Hananto, added that he agreed that there were many similarities. "When you're in Jakarta or Ho Chi Minh City, or you're in Hanoi or Surabaya, you'll find traffic jams everywhere, and millions of motorbikes. But if you look closer, local nuances will be very important in understanding customer behavior."

"For example on my trip to Vietnam, I never set foot in one template even. Yes, we have met in cafes or restaurants, but not in shopping centers. Different from everyday life in Jakarta, usually before the pandemic I often do it meeting di template, even our office is in co-working space in the template. "While this may seem trivial, I believe things like this influence the way customers behave and perhaps shape how businesses approach the market," added Dondi.

Tips for startups

Under these conditions, there are several tips for startups planning to open a market in Vietnam. First, according to Irene, understanding local business conditions needs to be a strong foundation for everyone founder. From East Ventures' analysis, there are three challenges that must be considered, namely related to limited talent at the level mid-management and above, regulations are still changing, and business practices are based on relationships. All three require business executors who really understand local dynamics.

If you look at the steps taken by Indonesian startups that are already present in Vietnam, it seems that this is appropriate. For example that conducted Gojek by appointing local person Phung Tuan Duc as CEO to localize the company's business strategy there. Something similar was done Ruangguru by developing brand and a special platform with local elements, Kien Guru.

Radit added that managerial style must be adapted for Indonesian startups that want to expand there. He saw, strategy community-driven could be relevant, looking at existing digital trends. Like the growth of the model bisnis social commerce, Facebook popularity, etc. "Clear, playbook Indonesia cannot be fully replicated there. Customer behavior different from Indonesia, you have to have it strong leader there."

According to Dondi, based on these similarities, founder You also need to really understand the similarities in market share between countries, find out what differences need to be adjusted. "In my opinion, expanding from Java to other islands in Indonesia alone is very complicated because of differences in population density, infrastructure, behavior, recruitment, etc. Expanding to other countries is 100 times more complicated because you have to think hard about legal and operational obstacles , including language."

And what is also emphasized is the selection of the right local team and partners. The realization varies, for example through acquisition or acquire like Traveloka or Gojek, but it does require expensive costs.

The push to expand into Vietnam

In the Venturra portfolio, one startup has already arrived in Vietnam, namely Ruangguru. However, Raditya did not really encourage his startup to quickly expand outwards. He will recommend Vietnam as a destination, provided that the startup is truly ready and feels that it has reached the best point in running its business on a national scale.

Meanwhile, according to Dondi, it is natural that Indonesian companies must have the will to expand regionally. Businesses must be prepared to face these consequences, otherwise they will waste valuable resources and time. For some businesses, the Indonesian domestic market is already large enough, so they can increase their maximum scale without expanding to other countries.

"We do have several business portfolios that have developed and plan to expand to Vietnam, but we want to ensure that this is done carefully," explained Dondi.

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