Technology has immense value creation potential in emerging markets, and entrepreneurs should choose to invest their energy on problems that are worth solving. While the definition of a worthwhile problem is subjective, Maslow’s pyramid can help inform our thinking. Entrepreneurs should start at the bottom before moving up the hierarchy of needs.
Many in emerging markets don’t have access to fundamental goods and services such as quality education, affordable healthcare and basic financial products. For example, 438 million people remain unbanked in Southeast Asia, or over 70 percent of the population. Governments rife with political tensions and conflicting incentives are struggling to bridge infrastructure and development gaps.
While these problems are more acute in emerging markets, they are by no means unique to them. For example, Singapore and Japan have earned high praise for their access to healthcare in the past but are struggling to keep up with rapidly aging populations today.
In addition to being impactful, it is worth noting that solutions that tackle fundamental human needs have potential for tremendous financial upside. Yet who will assume the mantle? Industries that serve basic needs also tend to be the most highly regulated (rightfully so), which intimidates many entrepreneurs. Existing regulations are difficult to navigate, while the implementation of new ones can sink entire business models. To add to that complexity, regulations tend to vary widely from country to country within a region.
However, to be blunt: that’s simply no excuse. Navigating the regulatory landscape in Southeast Asia’s emerging markets might seem daunting, yet many entrepreneurs have already done so successfully. They’ve changed lives by launching successful startups, and they’ve also blazed a trail for others to follow. The problems at stake are too big and the potential benefits too great for entrepreneurs to risk sitting on their hands. Here is a quick playbook on navigating regulations in Southeast Asia and other emerging markets so that regulations become a runway rather than a roadblock:
1. Find the path of least resistance
Government regulations don’t touch everything, even in the most regulated industries. Entrepreneurs may be able to skirt around the strictest rules by offering ancillary or specialized services that are less subject to strict oversight. Whereas formal education, for example, is highly regulated in both emerging and developed markets, informal services like tutoring and extracurricular classes are much less regulated.
Compared to the United States, whose citizens spend only 2 percent of total income on supplemental education services, Asian households spend a whopping 15 percent of their income on such services due in part to a regional preoccupation with standardized testing. According to a recent report from Technavio, the global online K-12 tutoring market is expected to grow 12.75 percent a year to reach $120.7 billion by 2021. Not bad for an unregulated fringe area of an otherwise highly regulated industry.
Startups like ELSA (English Language Speech Assistant) design products to tap into this growth. Vu Van, a Vietnamese-born Stanford graduate who struggled to improve her English accent during her first year living in the United States, founded the AI-driven language learning platform to serve people like herself. The app has over 1,200 courses and users in 100 countries; about half of those users are in Southeast Asia.
Healthtech entrepreneurs can also skirt around regulations in this way. For example, Singapore is experiencing a shortage of doctors. Rather than try to find doctors where there are none, the AI clinical assistant Bot MD helps existing doctors increase their efficiency. The smartphone-based technology enables doctors to quickly get answers to time-critical questions and to smartly tag and refer back to patient case notes, hence freeing up their time so they can cater to more patients in underserved emerging markets. In the Philippines, Lifetrack Medical takes a similar approach by effortlessly scaling radiology operations across hospitals, imaging centers and clinics in cities and rural areas.
The way these two startups go around regulation is great in its simplicity. Neither one of these startups provides medical advice, which means they don’t take on liability. In short, it’s possible for startups to serve basic human needs without meeting regulations head-on.
2. Work with regulators, not against them
A few years ago, Mark Zuckerberg changed Facebook’s internal motto from “Move fast and break things” to “Move fast with stable infrastructure.” Although it doesn’t sound as catchy, it’s a valuable lesson for entrepreneurs tempted to swiftly seize opportunities in emerging markets.
In healthtech, edutech and fintech, impulsiveness can lead to a swift end for early-stage startups. Orienting oneself to the tangled web of regulations in emerging markets takes time, and it’s also important to learn how to anticipate when they’ll change. In Indonesia, many lending startups shut down overnight when the government passed new regulations to crack down against the under-regulated fintech space.
Yet even if it feels daunting to get all the necessary licenses, other startups are doing it. The fintech lending firm Dana Cita, for example, is taking its time navigating the vast regulatory landscape—the company has registered and is currently working towards licensing, at which point it can scale accordingly.
In many emerging markets, governments are eager to work with startups. In fact, they know that there’s really no way around it: they need help figuring out ways to regulate areas of industry that didn’t exist even a few years ago such as digital lending. In Indonesia, for example, the Indonesia Fintech Association, an organization of leading fintech firms and companies with an interest in fintech, helped government regulators draft regulations that impacted peer-to-peer lending.
Many Southeast Asian governments in emerging markets are also temporarily waiving regulations by setting up sandboxes, which allow startups to launch products on a limited scale without assuming the large regulatory costs. A great example of a startup benefiting from this sort of regulatory arrangement is PolicyPal, a Singaporean insurance policy app provider that received a regular business license after first proving itself in a sandbox.
3. Anticipate your market expansion
It’s conventional wisdom that Southeast Asian startups must scale internationally to achieve real growth. Most national markets are too small to support big companies on their own, the thinking goes—and while Indonesia might be an exception, scaling a startup there presents its own challenges. It’s better to plan on expanding across national borders as soon as possible.
However, in highly regulated industries, the same rules don’t necessarily apply. Sectors like healthtech, edutech, and fintech serve basic needs relevant to most of a country’s population. That means that a startup can often find a $1 billion total addressable market within the borders of its home country.
For example, startup Jio Health is tackling the issue of access to healthcare in Vietnam by offering affordable, quality, full-stack healthcare services to the middle class. Given that out-of-pocket healthcare spending in Vietnam represents 37 percent of total healthcare expenditure, or a $5 billion market, Jio’s growth in its home market is far from being capped. While the company may eventually decide to extend beyond its home market, the sheer size of the opportunity makes regional expansion an option rather than a necessity.
For startups that do decide to scale across markets, market expansion should be strategically planned for and anticipated more so than for startups operating outside of regulations. International expansion for startups generally implies an 80/20 approach. This simply means that 80 percent of what they’re building should be scalable across markets, while 20 percent should be localized. For example, apps, digital platforms, processes, organizational structure and learnings can and should be designed for use across markets. Yet in markets as disparate as Thailand and Singapore, it’s also important to hire local leads familiar with the local context and landscape who can localize both product and go-to-market strategies.
For a startup in a regulated industry, the 20 percent of the company that should be localized also includes processes for navigating local regulations. These processes should be anticipated and kickstarted long before the startup is ready to launch in a new market; otherwise, long local regulatory processes can delay the launch. In fact, startups should start studying local regulations even before making concrete plans to enter a particular market, as regulations will factor into the decision of which country to expand to next. Any expenses related to local regulations should also be carefully budgeted for in advance.
Here again, there are numerous examples of startups that have done this well, sometimes creatively. For example, Fintech startup StashAway carefully matched its regulatory compliance guidelines to those in force in its two countries of operation, Singapore and Malaysia. Other startups find creative partnerships that help them "bootstrap" their licensing requirements. For example, despite not owning a license that enables them to hold capital, some startups work around the issue either by partnering with a bank that allows them to hold deposits in their accounts or with a company that owns a license.
As they should be, industries like healthcare, finance and education are highly regulated across emerging markets. Overeager startups that dive in without considering the endgame aren’t doing themselves any favors. By finding areas of highly regulated industries with less regulation; making smart, strategic scaling decisions; and taking time to know and abide by regulations, savvy entrepreneurs can launch a successful high-growth startup that also alleviates suffering and improves quality of life for millions of people. What’s more, by successfully navigating regulations, they’ll build a competitive moat that copycats will find hard to breach, ensuring continued growth and a defensible market position long into the future. It’s a win-win proposition and one that I hope more entrepreneurs will have the courage to take up.