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Southeast Asia comprises almost a dozen countries, with cultures so beautifully varied and unique that there are hundreds of languages spoken across the region. However, this can present a growth challenge to southeast Asian startups and their investors. Unicorns looking to expand throughout the region find that no one-size-fits-all approach will do.
Some of the region’s largest Unicorns are therefore moving to a three-pronged approach. They’re building a foundation anchored in three key markets: those of Singapore, Indonesia and Vietnam. For example the ride-hailing company Grab—southeast Asia’s first decacorn—operates in eight countries but gets most of its Web traffic from these three. The trio are so vital that our venture capital firm now refers to them as the region’s “Startup Golden Triangle.”
Each of these markets contributes something unique in terms of present-day startup appeal and future potential. Singapore, though small, stands out for its governance and its access to funding and international talent. Indonesia offers sheer market size (a population of 280 million) and is known for business-model innovation. Then we come to the third and perhaps most surprising member of the Startup Golden Triangle: Vietnam, which I’d like to focus on here.
One asset that leaps out right away is Vietnam’s rising middle class. It is by far the fastest-growing in southeast Asia, per BMI’s latest market report. Moreover this middle class includes large numbers of young, highly educated persons who have a tremendous appetite for digital services—along with the skills to create and deliver such services.
This factor has helped to drive Vietnam’s startup ecosystem toward an “inflection point,” a favorite spot for VC investors. It’s a point where startup growth accelerates even faster, fundamentally changing the growth curve, and Vietnam’s entire ecosystem now appears to be reaching that stage. Recent government figures show that the rate of enterprise formation in the first four months of 2022 was up 32 per cent over the same period two years ago, pre-pandemic.
But a middle-class boom alone doesn’t explain how a nation becomes both a prime market for startups and an active generator of them. Let’s take a quick deep-dive into why Vietnam shines as a bright corner of the Startup Golden Triangle.
Why Vietnam? Some Key Ingredients
To start with a few statistics: Vietnam is big—nearly 100 million people—and it’s a young country, with a median age of about 32 versus 38-plus in the US and China. For over three decades, GDP has been growing at a compounded annual rate of 5-7 per cent. Further, Vietnam’s 95 per cent literacy rate is paired with high and growing rates of tech literacy. The country has more mobile phones than people; they’ve used cyber extensively to navigate pandemic lockdowns; activities like e-commerce and gaming are now ingrained in the everyday culture.
Meanwhile high-end contract manufacturing has multiple impacts. Apple AirPods are now assembled in Vietnam, along with half the output of the world’s leading smartphone manufacturer, Samsung. Operations like these provide blue-collar to white-collar employment for the emerging middle class. They also stimulate the building out of new infrastructure, and they help to create a country where software developers can work hand in hand with people who know hardware, logistics, and more.
On the global stage, the government has struck a host of free trade agreements to go with business-friendly internal policies. Foreign direct investment is climbing. A record high of $1.4 billion was invested into Vietnamese startups in 2021, almost double the figure two years prior.
Now consider a factor that can’t be captured in economic statistics. National spirit runs strong in Vietnam—as shown recently, when the country won over 200 gold medals at the 31st Southeast Asian Games—but it’s not a mindlessly rah-rah spirit. Optimism mixed with a healthy skepticism seems to be part of the national character. You can expect people to question you about everything. News reporters are skeptical. When I talk to potential employees and partners for our VC firm, they tell me that while startup investing looks hot right now, they want to know about the longer-term prospects.
I like this attitude of being cautious around one’s optimism. It matches our firm’s approach, and it is essential for the portfolio companies we choose to work with. Young companies need to aim high in order to grow big, but they also need to utterly understand the market environments they’re entering, and they have to weigh risks and rewards at every step.
What Supports Growth in a Nation? 4 Pillars of Success
For a concise sum-up of what makes Vietnam go, I would point to four foundational pillars that have coalesced in this country. Together they project Vietnam to be the largest growth driver ahead within Southeast Asia’s Golden Triangle.
The first pillar is education. As one typically sees in socialist countries with market economies, education is highly valued. The government spends about 4 per cent of GDP on schooling at all levels, higher than that of Singapore, and there is strong demand for learning enhancement from private-sector firms in the edtech (education technology) vertical.
The second is female entrepreneurship. Women’s participation rates are already fairly high, and boosting the picture further is part of the government’s National Strategy on Gender Equality for 2021-2030. This is a key to overall growth because innovation is bred from diversity. When people from different perspectives see the same problem, they will have different solutions, and that’s where the magic happens.
The third pillar is raw enthusiasm and hustle. Whether it’s from a tech-startup founder or a young foodie entrepreneur opening a banh mi shop, you see it everywhere in Vietnam. The culture strongly promotes and supports this entrepreneurial passion.
Lastly, Vietnam’s quality of talent, specifically software engineers, is unmatched around the region. Much of this can be attributed to education, but also to the diaspora of Vietnamese abroad. Emigrants and their kin living overseas have set up a robust outsourcing framework much like we saw in China and India in years past, providing opportunities for local talent to cut their teeth on global software products.
When you combine the above, you can see why Vietnam is becoming a jewel of the region. Vietnamese startups also can benefit from a situation found in many other Southeast Asian countries. Most do not have legacy industries and institutions that are as big, or as firmly established, as those in the West. In areas from financial services to healthcare and education, the future is being invented more from scratch on the basis of today’s technologies and market preferences—not those of the past. Good startups can thus leapfrog the state of the art while facing lower entry barriers.
Against the global economic outlook, this is Vietnam’s time to shine. Domestic consumption is forecast to increase at a rate of 20% per year. In fact, Vietnam looks set to be a significant driver of Asia’s consumption story over the next decade. Couple that with the young, educated workforce and you have a recipe for success. The global investment community is now paying attention to Southeast Asia’s Startup Golden Triangle, and Vietnam is poised to be the region’s most impactful driver of growth.