Let’s explore some of the trends and how these impact startups in the country and international/regional companies looking to build a home base in Southeast Asia
Going down to the practical aspects of starting and running a business can be one of the harshest realities for a startup. While a founder or team might have a marketable idea or viable product, things become complicated when there is already the need to move forward through things like registering the business, setting up an office, transacting with financial institutions, or even something as simple as applying for electric service for the office.
This is one reason why startups converge at preferred hubs. While a startup can be founded and run theoretically from anywhere, there are practical concerns that make it more ideal to start a business from places like San Francisco, Boston, Seattle, Singapore, Bangalore, and Tel Aviv. There are also more overarching concerns, like access to funding, community, and talent.
Startup hubs becoming competitive
The notion of being a preferred startup hub has been a point of competition, especially among emerging economies. In Southeast Asia, Malaysia is a rising contender, offering businesses the benefits of speedy processing, improved infrastructure, and increased accessibility.
In the recent Doing Business 2019 report by the World Bank (PDF), Malaysia is cited as having the second highest score in Southeast Asia in terms of ease of doing business. The report stresses how a “continuous and focused reform agenda keeps an economy competitive and vigilant.”
In the 15th spot, Malaysia entered into the top 20 this year for the first time, having maintained momentum in reforms like making it easy to start a business, deal with construction permits, get access to electricity, perform cross-border trade, enforce contract, and register property.
What makes a startup hub, anyway? Several factors contribute to a city or region becoming a startup hub. These can include access to tech talent, infrastructure, environment/pollution, access to local market, access to funding, the local startup ecosystem, competition, and employee attrition.
The size of funding, or the number of high-profile startups can perhaps be an indication of how a city or country has become a startup hub. In this regard, some factors like access to funding or talent depend on human-driven factors, such as whether angels or VCs have chosen to set-up shop in that particular city. In some cases, factors like infrastructure and environment can largely be influenced by local regulations and contributions by local stakeholders and regulatory bodies.
Malaysia as a rising star
In practical terms, here are some points that have helped boost Malaysia’s status not just for startups but also for entrepreneurs looking to establish small to medium businesses:
- Construction permits now only take 54 days to secure, compared to the 133 days average in the region;
- Cost of electricity is also very accessible, at 26 per cent of income per capita, compared to 625 per cent in the region on average;
- Improved electronic submission and processing for import and export documents;
- Online registration system for goods and services tax;
- Simplified registration of property;
- Reforms in resolution of insolvency.
Also read: e27 Report: Malaysia sees more startups and deals than Indonesia, but far less money
These are qualities that the Malaysia Digital Economic Corporation (MDEC) has helped to implement from its strategy for the country to become a standout nation in the global digital world. To highlight some of the important building blocks to achieve this, Norhizam Kadir, Vice President for Growth Ecosystem Development, MDEC, writes:
These building blocks, which are important drivers of a strong online ecosystem, are: high-quality infrastructure at affordable prices; tech talent development; increased cybersecurity vigilance; development of platforms and enablers such as Digital ID, open data and so on; and the legislation, policies and industry structures to support the growth of the digital economy.
Founder and CEO of Billplz, Nazroof Hakim agrees and further adds:
I would say Malaysia is the perfect launchpad to the ASEAN market especially because of its business-friendly environment. We have found hiring world-class software developers is easy and I would advise businesses to fast track their establishment by consulting with government departments and agencies such as MDEC as these are sources of various forms of support for market expansion.
MDEC has fostered digitalisation and transformative change across industries in the country. Government itself is active in nurturing Malaysia’s startup ecosystem through incentives that encourage VC activity. These include tax breaks, reduction in minimum investment requirements, as well as focus on enhancing talent through education, and more.
Malaysia, through the Malaysia Tech Entrepreneur Programme (MTEP) also supports both new and established entrepreneurs and investors from outside the country who seek to enter the ASEAN market through a one- or five-year stay in the country. MTEP won “best ecosystem initiative” in the recently concluded ASEAN Rice Bowl awards.
What this means for the startup ecosystem
In e27’s Southeast Asia Startup Ecosystem Report 2018, we cited how Malaysia – specifically Penang – has come to be known as the “Silicon Valley of the East” mostly due to its strong manufacturing and hardware background. This places Penang at an advantage in terms of competing in the hardware manufacturing and IoT space.
Also read: Malaysia’s game plan: Improving human lives through the power of tech
Ease of starting up a business does not only impact founders and entrepreneurs who seek to start, build, and scale in the region. This is also one important consideration that investors seek in a digital ecosystem, and Malaysia is rising up to the challenge of being a top startup hub not only in Southeast Asia, but also in terms of global reach.
Norhizam Kadir, Vice President, Ecosystem Development, MDEC, pointed out:
Getting the balance right between government intervention and industry collaboration to encourage innovation is a difficult challenge for all nations engaged in building their digital future. We are approaching a tipping point with our tech startup ecosystem, which is continuing to grow and is becoming increasingly vibrant, attracting entrepreneurs from more around the world. Our vision of establishing Malaysia as a tech startup hub with global appeal is a work in progress, of course, and much more needs to be done on our journey together.
To conclude, we can echo the sentiments of the World Bank’s Doing Business report: “Governments worldwide invest substantial effort in changing business regulatory frameworks to make doing business easier for entrepreneurs.” These changes, whether small or substantial, contribute greatly to improving the startup and investor ecosystem. In Southeast Asia, there is confidence in Malaysia’s trajectory toward being a big contributor to the region’s growth.
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