Tencent, ByteDance and Alibaba are reportedly planning regional hubs in the city-state, with ByteDance in particular expected to add hundreds of jobs over the next three years. They will join an international coterie of tech giants like Google, Facebook, Amazon, Stripe, Salesforce and Grab, that already have headquarters or significant operations, including engineering and R&D centers, in Singapore.
This means startups will have to compete more aggressively for talent. But having a diverse cluster of big tech companies helps the ecosystem by providing more resources, including mentorship and early funding opportunities, say Singapore-based investors. In the longterm, the presence of global tech giants, coupled with homegrown unicorns like Grab, Sea (formerly known as Garena) and Trax, may also mean more exit opportunities for startups.
While the United States-China trade war may have promptedChinese companies like Tencent and ByteDance to move more of their operations to Singapore, it’s not the only reason, said AppWorks partner Jessica Liu, who oversees the venture firm and accelerator’s programs in Southeast Asia.
Many already had investments in Southeast Asian companies and were eyeing markets there as well, particularly Indonesia. “Some of it is probably due to the trade war over the past two years and other difficulties they’ve faced in theStates,” she told Extra Crunch. “Strategically, they also have to find another big market with long-term potential for growth, and I think that’s why they are targeting Southeast Asia.”
Government policy pays off
Proximity to important growth markets isn’t the only reason tech companies find Singapore desirable. Regulations also play a role. Liu said, “The Singaporean government has already done a good job, from a policy and tax perspective, for startups and big tech companies to set up and incorporate in Singapore,” making the country an “intuitive” choice for regional headquarters.
A lot of what makes Singapore attractive to tech companies today can be credited to government initiatives that have been in play for more than a decade, said Kuo-Yi Lim, co-founder and managing partner at early-stage investment firm Monk’s Hill Ventures.
Before Monk’s Hill Ventures, Lim served as chief executive officer of Infocomm Investments from 2010 to 2013. Infocomm Investments is backed by the Infocomm Development Authority (IDA) of Singapore, a government agency that is responsible for promoting the IT industry in Singapore.
“One of its explicit mandates was to look at bringing in top-tier tech companies to set up shop in Singapore, and ideally focus on product development activities, in addition to marketing activities like sales,” said Lim. “That’s always been a very explicit part of the government’s strategy to grow the tech industry.”
Over the past few years, companies like Google and Facebook have set up substantial operations in Singapore, along with fast-growing startups like Twilio, which came in after receiving investment from Infocomm.
“That strategy has been in play for almost 10 years, even longer, and I think we’re seeing the fruits of that now, with ByteDance, as well as Tencent, et cetera,” Lim said. “In terms of impact, I would say in general it has been very positive in terms of the vibrancy of the ecosystem, bringing in more depth of talent across multiple functional areas and bringing more richness in the different types of players across different verticals.”
Other factors made Singapore an attractive base for tech companies, including the fact it is a primarily English-speaking country, has a large number of international schools and was already filled with other multinational companies.
Timing was also crucial.
“Between 2010 and 2020, Southeast Asia went through a sea change, a lot of mobile first, which made it more meaningful for companies to set up local operations,” said Lim. “All those dovetailed nicely during that time.”
The Singaporean government continues to create new initiatives that make it attractive to tech companies and entrepreneurs. For example, it recently launched the Singapore Blockchain Innovation Programme (SBIP), with the aim of helping companies commercialize blockchain technology.
Competing for the same talent pool
All this means that the pool of tech talent in Singapore, which has a population of 5.6 million, is in especially high demand. Moving teams of employees to Singapore can be expensive, said Liu, and as a result, many companies have satellite engineering teams in Vietnam, India andTaiwan, especially for front-end engineers.
International companies often do internal transfers when they set up in Singapore and the government is trying to attract tech talent from other countries with visa programs like Tech.Pass.
While many global tech companies send talent over from their home countries when building their Singaporean bases, as their operations grow, many (including Google)start hiring more local talent for their product teams.
Lim said this means that there is more competition for entry-level engineers, or those with a few years of experience. Salaries for engineers in that group has increased significantly over the past five years and will continue to rise, he added.
“I don’t think we can avoid that there will always be a limited pool of talent that people can hire from. My view is that there will always be the need to bring in folks who are not from Singapore because we’re just not big enough,” he said.
“The competition is more on a global basis, because even local startups will always be looking at global talent, from the region, Australia, India, China or beyond,” he added. “I think it actually cultivates the instinct for startups to really compete for talent in a thoughtful way. I think startups will have to become more creative and sharper in terms of how they position themselves as an attractive employer to spend time with, as opposed to the big companies.”
On the other hand, startups and big tech companies aren’t necessarily competing to hire from the same group of people, said Shiyan Koh, a managing partner at pre-seed and seed stage firm Hustle Fund.
“Obviously there will be more competition for talent, but I largely see that competition happening in different tiers anyway. A pre-seed startup isn’t really competing with Facebook or ByteDance. You’re never going to win on comp. That’s not the game you’re playing,” she said. “I think it’s more about relative competition and the various tiers that these people operate in.”
But if the government’s initiatives to attract more talent toSingapore work, it benefits all parts of the ecosystem, Koh added.
“The government’s vision is that you can eventually turn Singapore into a place where people go because they know there’s opportunity there,” she said.
“I think that’s another benefit of having more companies, because it will make people more willing to take jobs in Singapore if they know there are other similar jobs. It’s like, ‘Hey, if this thing doesn’t work out, I can go get a job somewhere else, I’m not just tied to this one thing if I’m going to uproot my life and my family.’ I think that’s part of the magic of Silicon Valley because there is a lot of fluidity.”
Nurturing a startup community
When international tech companies like Google, Facebook or Stripe set up operations in Singapore, they tend to develop ties with the local startup ecosystem, too.
“I would say they are pretty well-connected,” said Lim. “Gone are the days when multinationals would set up shop in Singapore, hire a bunch of salespeople, and fly in and out of Singapore. They spend more time here, a lot of of what they do is rooted in consumer acquisition, which means plugging into local ecosystems and leveraging partnerships.”
“It’s pretty plugged in, not separate at all,” he added
This closeness paves the way for knowledge transfer, with ideas filtering from large companies to startups at different stages, and aspiring founders.
“I think that happens at every position,” said Koh. “If I’m a performance marketer and I’ve only managed $10,000 of budget, I want to see people who’ve managed $50,000, $100,000 or millions of dollars of budget. I want that up and down the stack. So I think it will be good for the ecosystem, just having more people.”
For some overseas tech companies currently expanding their operations in Singapore, their offices bring them physically closer to high-profile investments they’ve had for a while. For example, Tencent is a major investor in Sea (formerly known as Garena), while Facebook recently backed Gojek. Other notable alliances include Alibaba’s controlling stake in Lazada.
Giant players also contribute valuable resources toSingapore’s tech ecosystem. For example, Google’s Next Billion Users, a product-development program, is based in Singapore, as is a branch of Launchpad, its accelerator. Facebook, Shopify and Amazon Web Services also run various startup programs. This is largely to build the userbase for their services, Koh said, but at the same time it also gives potential founders a chance to gain exposure to a global network and learn about scalability.
Like former employees of FAANG in the United States orBAT in China, alumni of major tech companies also havean impact on Singapore’s startup ecosystem.
Some of them become founders. For example, Prithvi Rai, who was head of global security before holding the same position at Uber while it was expanding globally, including in the Asian Pacific, founded Singapore-based cybersecurity startup Borneo in 2019. Another example is e-scooter startup Beam, which is based in Singapore and operates in South Korea, Malaysia, Taiwan New Zealand and Australia. It was founded in 2018 by Alan Jiang, who launched Uber’s operations in Vietnam, Malaysia and China, and was country manager of Indonesia before moving onto a stint as head of Southeast Asia at Ofo.
Startups like that benefit from founders who “get access to higher-level executives, have a bird’s eye view from operating in different regions or countries and are also some of the first people to launch a position in a country, so they have a lot of hands-on experience,” said AppWorks’ Liu.
From angel funding to exits
The presence of major tech companies also creates a larger network of angel investors and mentors.
“I totally think that a community has been built up in the last few years,” said Liu. “It’s natural because if a startup founder was one of the project managers at a giant tech company, they definitely have supervisors or managers that have worked on their team, worked with this person for quite a long time. From an angel investment perspective, they know this person better, so they have more confidence to chip in the first angel round or whatever money they need to kick it off.”
In the longer term, there is the question of exits. Homegrown unicorns, like Grab, Gojek, Sea, Trax, Tokopedia and Traveloka, have already made several acquisitions. The question now is, will international tech companies like Tencent, ByteDance or Facebook also keep an eye out for potential M&A targets?
Liu thinks there will definitely be more M&A opportunities because once companies have larger operations on the ground, they get a closer look at startups.
The opportunity for acquisitions is especially likely in the fintech sector, because each country has different regulations, so one of the fastest ways to expand inSoutheast Asia is through mergers and acquisitions, she said. Telemedicine and health tech also hold potential.
On the other hand, Koh thinks it will take longer for exits by international tech companies to start appearing, perhaps on a “10-year horizon.” But in the meantime, the Singapore tech ecosystem will evolve more quickly.
“I’ve talked to tech people who graduated maybe 10 years ago, and they said, ‘There wasn’t really any technology here, so I just went to work for Goldman Sachs.’ No Stanford grad who majors in computer science is like, ‘Oh, I’m going to work for Goldman Sachs in their IT department,’” she said. “So I think having ByteDance be here and aggressive, that’s great, because then we have more people who can actually see what scale looks like, and they will go onto build things as well.”
This article, written by Catherine Shu, was first published on Techcrunch on 14 December 2020. Monk's Hill Ventures' co-founder and managing partner Kuo-Yi Lim is quoted in this article.