In recent times, the escalating geopolitical rivalry between the United States and China has revived bipolar dynamics reminiscent of the Cold War, when much of the world became pawns in a superpower competition. Moscow’s aggression against Ukraine has only intensified pressure on developing nations to pick a side between the democratic West and authoritarian China and Russia — a choice that many resist. Meanwhile, a succession of systemic shocks — including the coronavirus pandemic, economic fallout from Ukraine, and deepening climate emergency — have underscored the gross inequities at the core of the world economy and the vulnerability of lower- and middle-income nations to political, economic, and ecological crises not of their own making.[1] Within this, there stands a nation that is uniquely positioned because of its ties to ‘both camps’ that can help bridge the divide potentially like no other — but easier said than done!
The Global South is a multifaceted concept encompassing geographical, geopolitical, historical, and developmental aspects, with certain exceptions.[2] Used since the late 20th century, the term has seen increased application as we moved into the 21st century. Carl Oglesby, a political activist, is credited with first using “Global South” in 1969. In an article for the liberal Catholic magazine Commonweal, Oglesby discussed how the Vietnam war represented a peak in the North’s dominance over the South. But it was only after the 1991 breakup of the Soviet Union — which marked the dissolution of the so-called “Second World” — that the term gained momentum.
The Brandt line, a definition from the 1980s dividing the world into the wealthy north and the poor south.
https://handwiki.org/wiki/index.php?curid=1098296 [3]
In a global context, “the North” and “the South” serve as alternative terms for “developed” and “developing” countries, respectively, based on the Brandt line. Together, these terms constitute nearly the entire global population.[4] The two groups are often differentiated by their levels of wealth, economic development, income inequality, democracy, and political and economic freedom, as measured by freedom indices. States that are seen as part of the Global North tend to be wealthier, less unequal, and considered more democratic and developed countries. Southern states are generally poorer, developing countries with younger, more fragile democracies, often reliant on primary sector exports and frequently share a history of colonialism by Northern states.[5] After colonialism, the North continued to maintain unequal trade relationships with the South, which further perpetuated the economic disparities between the regions.[6]
Nevertheless, the divide between the North and the South is often challenged and said to be increasingly incompatible with reality. For example, the differences in the political, economic, and demographic makeup of countries tend to complicate the idea of a monolithic South.[7] How can countries like China and India, each with about 1.4 billion people and GDPs of about $18 trillion and $3.4 trillion, respectively, be lumped together with the Pacific island nation of Vanuatu, with a population of a little over 300,000 and a GDP of $984 million, or the southern African country of Zambia with 19 million people and a GDP of $30 billion?[8] Furthermore, globalization has also contested the notion of two distinct economic spheres.
In 2023, many newspaper articles and reports have increasingly referenced the “North-South divide”, predominantly in the context of the war-struck era our planet is experiencing. Illustrating this point, Russia’s invasion of Ukraine sparked unity among Western democracies not seen since the first Gulf War. However, the Global South did not meet the Western expectation of global, unified condemnation and action against Russia.[9] As such, the unwillingness of many leading countries in Africa, Asia, and Latin America to stand with NATO over the war in Ukraine has brought the term to prominence once again. Global South leaders have been demanding an end to the “plundering international order,” calling for a more representative and responsive global system that caters to the needs of developing economies.[10]
Apart from this, not long ago, the pandemic also posed many challenges for the Global South. The challenges were daunting for a myriad of reasons varying across the diverse countries. They include weak public health systems, lower living standards, and a lack of services in densely concentrated cities or widely dispersed rural populations. Even amongst middle-income countries, whose economies tend to be export-oriented and commodity-dependent, the collapse of global demand puts significant pressure on their national accounts. For some, dependency on tourism and foreign remittances makes up a substantial portion of their GDP, and any losses in these sectors exacerbate unemployment and revenue losses.[11]
From a Japanese lens, the term “Global South” has become such a buzzword that it graces the daily news.[12] Japan has been actively engaging with the Global South, pursuing this engagement through various means such as frequent visits, dialogues, and regional forums, including the G20. Japan’s approach is characterized by its desire to foster a free and open international order, ensure global peace, and address global inequalities.[13]
The North-South divide remains relevant today, as global inequality continues to pose a significant challenge. This divide surrounds economic, social, and environmental disparities.[14] While some countries in the Global South have achieved considerable economic and social progress, others still grapple with poverty and underdevelopment. The divide also influences vulnerability to climate change, with developing countries in the South often facing a disproportionate share of the impacts. Factors such as limited resources for adaptation and mitigation, widespread poverty, and exposure to natural disasters contribute to this vulnerability.[15]
Addressing the North-South divide thus requires a comprehensive and coordinated approach that includes policies to promote sustainable economic development, improve governance and political stability, increase access to education and healthcare, and reduce inequality within and between countries. International cooperation and partnership are also essential for addressing global challenges and promoting equitable development. Although easier said than done, some of the ways to address the North-South divide can include:
To that end, Japan is setting a five-year investment target of more than $13 billion to support developing countries in the Global South, a move that aims to deepen ties with growing, resource-rich economies. The 2 trillion yen ($13.3 billion) in funding would come from investments by Japanese companies backed with government aid, Japan’s Minister of Economy, Trade and Industry (METI) stated.[16] As per the then METI Minister Nishimura, “We will strengthen collaboration through support and investments that lead to solutions to societal challenges facing emerging markets, such as carbon reduction and digitalization; Japan aims for ‘win-win’ relationships with the Global South, in which aid leads to economic expansion, local investments by Japanese companies, and export growth.”[17]
Japan’s focus on the Global South brings a ray of light amid an increasingly chaotic global situation.[18] As an example of the themes mentioned above, such as climate change and investment, an initiative that was recently announced is India-Japan Fund (IJF). IJF is a $600 million fund launched by the Japan Bank for International Cooperation (JBIC) and India’s National Investment and Infrastructure Fund (NIIF). The fund will be supported by JBIC-IG Partners (a JV of JBIC and IGPI) and aims to invest in environmental sustainability and low-carbon emission strategies, focusing on areas such as renewable energy, e-mobility, and waste management.[19] Interestingly, the fund will have almost equal financial contribution from the Japanese and Indian sides, which is significant in the North-South discussion as it brings in connotations of equality — one of the root issues of this historical divide.
From a global North-South lens, Australia’s role in this divide is complex due to its unique position. Geographically located in the Global South, Australia is considered part of the Global North due to its economic and political ties. If we examine Australia further, it is a regional superpower and one of the richest nations in the world,[20] situated in an important and strategic position for Global North allies with Asia-Pacific interests. Its Western-influenced political economy, combined with its relations with many Asian countries provide a unique geopolitical context.[21]
The above makes Australia’s role in the Global North-South divide crucial, and based on Australia’s worldview, including the growing importance of the Global South, Australia can contribute to the world order in a way that matches its interests. Some of the dimensions along which Australia is/can further play a role include economic, environmental, and security aspects, acting as a bridge in the divide:
1. Economic Partnerships and Aid for Development
2. Environmental & Innovation Cooperation
3. Regional Stability, Security & Cooperation
4. Education, Knowledge & Cultural Exchange
It is essential to note that the role of any individual country, including Australia, is complex and multifaceted. Furthermore, we have established that all Global South countries can’t have a ‘one-size-fits-all’ strategy due to their diverse global views and progress.
IGPI established its Australian operations in 2020 as we recognized the increasingly prominent role that Australia is playing and can play in APAC and the wider world. Although Australia is not new to corporate Japan, since business relationships go back several decades, the nature of the relationship has been evolving quickly. There are many untapped opportunities waiting to be introduced to the world — based on the fact that Australia has a relatively high quality of innovation,[22] but commercialization of those innovations hasn’t been its strong point. This is one area where Japanese expertise in globalizing businesses can complement Australia in solving global issues. On that note, IGPI supports JETRO’s J-Bridge program, which encompasses open-innovation-driven collaborations between Japanese corporations and Australian companies in their strength areas of “Green” and “Digital”.
Several Australian innovations can potentially solve issues in the Global South. As a public example of the above point with regards to innovation cooperation — Australian insurance company, Hillridge Technology helps farmers lessen the financial impact of adverse weather events by using blockchain technology to immediately and automatically pay out insurance claims as soon as a weather event occurs within a certain distance from a farmer’s operations.[23] Also, Hillridge Co is co-operating with Mitsui Sumitomo Insurance Group (MSIG) in Vietnam to launch a new agricultural insurance product that protects farmers in Vietnam from the risks of drought.[24]
In future, IGPI Australia will endeavor to continuously focus on joining more dots between Japan, Australia and the rest of the world through its business pillars of advisory and investments to play its part in making this planet a more cohesive place.
To find out more about how IGPI can provide consulting support for businesses, browse through our insight articles or get in contact with us.
[1] https://carnegieendowment.org/2023/08/15/term-global-south-is-surging.-it-should-be-retired-pub-90376
[2] https://economictimes.indiatimes.com/news/international/world-news/everyones-talking-about-the-global-south-but-what-is-it/articleshow/103453914.cms?from=mdr
[3] https://encyclopedia.pub/entry/37558
[4] https://www.encyclopedia.com/social-sciences/applied-and-social-sciences-magazines/north-and-south-global#:~:text=As%20terms%2C%20the%20North%20(also,were%20increasingly%20seen%20as%20pejorative
[5] https://encyclopedia.pub/entry/37558
[6] https://tourismteacher.com/north-south-divide/
[7] https://apnews.com/article/what-is-global-south-19fa68cf8c60061e88d69f6f2270d98b
[8] https://economictimes.indiatimes.com/news/international/world-news/everyones-talking-about-the-global-south-but-what-is-it/articleshow/103453914.cms?from=mdr
[9] https://ppr.lse.ac.uk/articles/10.31389/lseppr.88
[10] https://theconversation.com/the-global-south-is-on-the-rise-but-what-exactly-is-the-global-south-207959
[11] https://www.lse.ac.uk/international-relations/centres-and-units/global-south-unit/COVID-19-regional-responses/COVID-19-and-the-Global-South
[12] https://asia.nikkei.com/Opinion/Japan-must-take-its-Global-South-vision-forward-in-2024
[13] https://ecfr.eu/article/what-europe-can-learn-from-japans-approach-to-the-global-south/
[14] https://tourismteacher.com/north-south-divide/
[15] https://tourismteacher.com/north-south-divide/
[16] https://asia.nikkei.com/Politics/International-relations/Japan-aims-for-13bn-in-Global-South-investments-economic-minister
[17] https://asia.nikkei.com/Politics/International-relations/Japan-aims-for-13bn-in-Global-South-investments-economic-minister
[18] https://asia.nikkei.com/Opinion/Japan-must-take-its-Global-South-vision-forward-in-2024
[19] https://www.jbic.go.jp/en/information/press/press-2023/press_00102.html
[20] https://www.primecapital.com/insights/australians-are-the-richest-in-the-world/#:~:text=In%20terms%20of%20mean%20wealth,United%20States%20and%20Hong%20Kong.
[21] https://eprints.qut.edu.au/123774/1/North-In-South.pdf
[22] https://www.linkedin.com/pulse/why-isnt-australia-moving-up-ranks-global-innovation/
[23] https://research.csiro.au/aus4innovation/australian-insurer-helps-vietnamese-farmers-though-new-technology/
[24] http://bizhub.vn/corporate-news/hillridge-msig-team-up-to-protect-farmers-in-vn_344956.html
Mr. Rachit Khosla is a seasoned strategy consulting professional with rich experience in leading and executing market entry, growth strategy and open innovation/new business creation engagements for Fortune 500 businesses, large MNCs and Govt. bodies across the Asia Pacific. He has advised clients in diverse industries including green and digital areas. Before joining IGPI, Rachit was the Country Manager at YCP Solidiance, and after that, a co-founder of Conquerem — an online B2B e-bidding platform for boutique consulting firms. Rachit is an avid traveler who has set foot in 40+ countries and lived in 4 countries.
Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with a presence and coverage across Asian markets. IGPI was established by former members of the Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government.
In 2017, IGPI collaborated with the Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC, along with BaltCap, jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus on the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialization and monetization of technologies.
* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.
October 2023 findings from Deal Street Asia (DSA) reveal a notable shift in market dynamics, with Southeast Asian (SEA) startups navigating through the lowest quarterly deal volume in nearly three years. The third quarter, spanning July to September, witnessed only 151 deals being closed, representing a significant 27% quarter-on-quarter decline. Yearly, this translates to a substantial 34% year-on-year reduction in total deal volume and a noteworthy 52% year-on-year decrease in total deal value.
This market shift extends across early-to-later stage funding rounds. Seed-stage deals, in particular, hit a three-year low in Q3 2022, experiencing a volume drop of 44% compared to the same period the previous year. Additionally, the median value of seed rounds softened, falling by 22% over the last nine months. Similarly, Series A to Series D rounds have also encountered significant reductions. Series A deal volume faced a particularly challenging scenario in the initial nine months, while Series C witnessed the deepest correction in median value, plummeting by 59% from the same period the previous year.
A sector-wise comparison by quarter in Southeast Asia (SEA) reveals the following trends:
In Q3 2023, the Food and Agriculture Tech sector secured funding amounting to $254 million, reflecting a growth of 638% from the $34 million raised in Q2 2023. However, this still represents a drop of 40% compared to Q3 2022. The Energy sector, on the other hand, experienced growth with funding amounting to $89 million in Q3 2023—an increase of 482% and 1014% from Q2 2023 and Q3 2022, respectively.
In 2021, there was a notable surge in startups securing funding at inflated valuations, driven by a pursuit of rapid growth and increased cash burn. However, the trajectory shifted in 2022, signaling a return to normalcy. The market experienced a decline in deal frequency, a moderation in valuations, and a rise in flat and down rounds.
While specific statistics for Southeast Asia (SEA) regarding the proportion of up, flat, and down rounds are unavailable, insights from the U.S. market provide a glimpse into this trend. Carta’s Q3 2023 report revealed that nearly one in five investments in the U.S. was characterized as a down round. The Coller Capital Global Private Equity Barometer for Summer 2023 noted that 59% of Asia-Pacific (APAC) Limited Partners (LPs) anticipate more down rounds in the next 12 months, contrasting with 24% of APAC LPs expecting fewer down rounds.
Highlighting this shift, notable instances of down rounds in SEA in 2023 include Bitkub. As reported by Asia Tech Review, Bitkub, a Thailand-based crypto exchange, attracted a $500 million investment from Siam Commercial Bank (SCB) in 2022 for a 51% stake at a valuation exceeding $1 billion. However, in July 2023, Bitkub agreed to sell a 9.22% share to Asphere for approximately $17 million, valuing the company at $184 million. This case exemplifies the recalibration in valuation dynamics and investor sentiments that have become prevalent in the evolving landscape of startup funding in the region.
Through discussions with investors, industry practitioners, and startup founders, several key reasons have been identified as contributing to the current fundraising downcycle. These include:
– Uncertainty in macro-economic conditions
The recovery in economic performance post-pandemic has been patchy, and geopolitical tensions, such as the Ukrainian-Russian war, the ongoing trade war between the US and China, and the Israel-Gaza War, have brought uncertainty to the overall economy. This has led to supply chain issues that partly contribute to the inflation we see today.
– Higher cost of funds
As a corollary to the prevailing inflation, the US Central Bank, commonly known as “The Fed,” has undertaken a series of 11 interest rate hikes since March 2022. Presently, the Fed Funds rate stands within a range of 5.25-5.5%, while the 10-year Treasury has reached its zenith at above 5%. This upswing in the cost of funds plays a pivotal role in shaping asset allocation strategies.
The escalation in the cost of funds brings forth numerous implications, among others:
The recent lackluster performance of stock markets in October, coupled with the anticipation of prolonged higher interest rates and subdued after-market showings of recent IPOs from the summer, has created a challenging landscape. The potential for significantly reduced valuations is prompting many IPO aspirants to reconsider or delay their market debuts. The continuous rise in the 10-year Treasury yield is especially discouraging for potential deals. Those still contemplating an IPO may face the necessity of accepting substantial reductions in valuation.
– Startup performance not meeting investors’ expectations
Amidst the pandemic, a notable surge in deals at impressive valuations occurred. However, this optimistic trend did not translate universally for startups, as a substantial number faced challenges meeting these elevated expectations. Some even resorted to returning investors’ funds, while others succumbed to bankruptcy and had to implement cost rationalization measures.
One example is Zume, backed by Softbank, which ceased operations in June 2023 after an eight-year run. Initially, the startup embarked on ambitious plans to revolutionize the pizza industry by investing $446 million in equipping delivery trucks with robotic pizza-makers and smart ovens, aiming to freshly cook pizzas en route to customers. However, Zume encountered various technological challenges, including issues with cheese sliding off pizzas. These challenges resulted in increased expenses and faster depletion of funds compared to revenue generation, ultimately leading to the cessation of operations.
Another case is IRL, an event discovery and planning app. Despite raising approximately $200 million across various funding rounds and achieving unicorn status in 2021, the startup faced numerous challenges. A significant expansion in its headcount was followed by a 25% workforce reduction in 2022, indicating deeper underlying issues. The situation worsened when both an SEC probe and an internal investigation revealed that a staggering 95% of the app’s reported 20 million active users were fake accounts. This unsettling truth dealt a fatal blow to the company, resulting in its permanent shutdown. These instances underscore the intricate challenges faced by startups, even amid a backdrop of prolific deal-making during the pandemic.
– Recent IPOs of well-known startups have been disappointing
The recent post-IPOs performance of a handful of startups has been disappointing.
– VC funds have faced difficulties in raising monies, with some having to downsize aspirations
The first quarter of the year has witnessed a notable shift in the venture capital landscape, as reported by Preqin’s latest venture capital report. In a departure from the quarterly average of 460 over the past five years, only 144 venture capital funds successfully closed during this period.
Moreover, the fundraising market is displaying a growing concentration of larger funds. As larger funds have demonstrated an ability to leverage their brand, track record, and scale to secure more capital, especially during turbulent market conditions. Preqin’s findings reveal that a significant half of the capital raised by venture capitalists in the first quarter flowed into the coffers of just five funds. This trend underscores a notable shift in investor confidence and strategy amid a bear market for technology.
It is also reported that funds with a focus on the Asia-Pacific region appear to be in a more favorable position to attract capital compared to their counterparts in North America and Europe. The first quarter saw the closure of the largest fund, Primavera, an Asia-focused venture capital firm renowned for backing industry giants such as Alibaba and Bytedance, which managed to secure a $4 billion commitment, accounting for a noteworthy 15% of the total value of funds closed in the past quarter.
As the venture capital landscape continues to evolve, these trends shed light on the strategies and preferences of both investors and fund managers in navigating the current market conditions.
Given the challenging fundraising environment, it is foreseeable that there will be higher pressure from potential investors pushing for a lower valuation – a “down-round” – whereby the subsequent round of funds raised is valued lower than the preceding round. Such a down-round carries both legal and economic implications.
Often, startup founders may not have a good inventory of terms that they have agreed with in their prior funding rounds; unfortunately, some of these may come to bite them back during difficult times. One of the things that all founders need to pay careful attention to is the anti-dilution provision and specifically how this provision is worded – whether it is full-ratchet or on a narrow/wide-based weighted-average. The full ratchet provision is generally the most onerous one for the founders.
While it is a little too late to modify the provisions of the already agreed anti-dilution terms, knowing, and having a good understanding of these terms will at least let founders plan in terms of potential dilution and how this may impact different stakeholders and guide them in pursuing their future fundraising.
As the old saying goes, “Internally generated cash is always the cheapest source of capital,” so it is very important that founders adopt a “thrifty” attitude. Some of the things that we have come across during such times are for founders to focus on extending the cash runway above all else. To do so, we often see founders re-focusing on their core business. Doing so may necessitate founders closing down pilot/pet projects and non-profitable business segments. An example would be Grab, which has closed its Autoinvest and Earn+ products recently.
At the same time, one tip we have for founders to execute cost restructuring before even considering fundraising. The sooner this is done, the more confident investors are that founders can undertake tough decisions during necessary times. The ability to retain selective key staff and to let go of others is very important in such times. As to profitability, we generally see that many are not yet profitable today, unfortunately. From our feedback and experience dealing with investors and founders of such startups, we strongly advise that founders have a clear idea of how to chart for profitability. Also, some have cut back on spending, and hence growth, just to show profitability. Unfortunately, such a strategy does not work. Clearly, investors, especially VCs, understand that such businesses will not be attractive for funding as well.
We also advise founders to reach out to the investors in their cap table and consider a follow-on/extension round to raise money under the same terms. Investors who have already invested in your company should be rightfully aware and have a better understanding of your company’s situation. Hence, they are in a better position to help during a downturn. Such a round typically allows the business some room for survival to tide through difficult periods.
Besides this, investors may also seek bridge financing from current investors. The key to successfully executing this is to be very clear on the proceeds of this fund and ensure that the amount raised through this extension leads to a meaningful milestone that will allow them to get through this difficult period.
We also advise investors to look for alternative ways to gain funding – one of which has gained popularity these days is to raise debt funding (popularly known as Venture Debt or Private Credit). However, this strategy may work best for startups that have collaterals – such as receivables backed by credible paymasters or have assets that have visible liquidation value – such as land/property.
Many venture debt funders we spoke to have also mentioned that having a good VC name in the cap table and having these VC personnel heavily involved in the startup’s management team, such as being part of the board or having an oversight of the startup’s management, helps in their underwriting. These VC involvements provide some assurance in terms of follow-on funding and governance, respectively.
That said, founders need to be fully aware that the venture debt’s cost of funding today can go as high as 15% in USD term. We also advise that it is important to negotiate credit terms that work best for both parties – not only on the interest rate but also on the repayment schedules. In addition, some venture debts may consider lower interest rates in place of having an option to purchase shares in the startup in the future (Warrants) if they see the startup as promising.
We also see some banks extending a program to financestartups – in Indonesia, for example, recently we saw Superbank – a digital bank supported by Grab and Singtel secure a partnership with Genesis Venture to provide debt-funding solutions to innovative Indonesian startups. This can also be an alternative source of funding that founders need to look into. Other than this, crowdfunding platforms and government grants (where the startups can have access to such funding lines) may also be useful in this difficult time.
Other than sourcing for alternative sources of funding, startups may take away the conversation on valuation this round by having it structured as convertible debt or SAFE (Simple Agreement for Future Equity). Doing so is essentially kicking valuation further down the road.
Another alternative is to perform a structured preferred equity round – for instance, agreeing on friendlier terms for investors during this funding round like a higher liquidity preference – such as a 1.5-2.0x liquidity preference in combination with participation rights or to sweeten things up, you may also include guaranteed terms. Again, founders need to strike a balance between giving out too much and “dirtying up” the investor terms – which will save them in terms of valuation but will haunt them later if things do not go as planned.
At the end of the day, a down round may not be all too bad. Founders need to realize that it is not the end of the world when such things happen. The key is to understand that there are options to mitigate this and if all goes well, while not perfect, allow founders to keep their startups safe through the funding winter.
IGPI Singapore has worked and collaborated with players in the startup ecosystem, including the founders of startups from various stages and sectors, VCs/ PEs, fellow advisors, and strategic regional and global investors as both strategic and M&A advisors. Through our vast experience in negotiating and dealing with both up and down cycles, we offer tailored, suitable advisory solutions in different funding environments. We understand the difficulty of today’s fundraising environment and provide our independent, professional solutions suited to your startup’s funding needs.
IGPI Singapore can support your company in its business development and maximize its chances of success – Get in touch with us here!
Mr. Erwin Thio is the Senior Manager of IGPI Singapore. His areas of expertise are in M&A deal management (both buy-side and sell-side), deal structuring, valuation and commercial due diligence, market analysis, and project management. He has also spent several years working within the investment and fund management (particularly for Real Estate Private Equity Funds) division of major developers such as Mapletree, Lendlease, Savills IM, and CFLD, where he helped with deal execution and origination, capital raising, fund creation/ development, and management.
Mr. Marcus Tan is an Associate of IGPI Singapore. He has started his career with IGPI. He graduated from Singapore Management University with a Bachelor of Business Management, majoring in Finance. During his time in university, he has gained overseas internship experiences in the chartering and offshore industry.
Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai, and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit, and Sumitomo Corporation to name a few.
IGPI has vast experience in supporting Fortune 500s, Govt. agencies, universities, SMEs, and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation, etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with its making its venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with the Japan Bank of International Cooperation (JBIC) – one of JV’s initiatives is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic, and Omron.
* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.
In Southeast Asia, the rapid proliferation of the Internet and smartphones in the 2010s, combined with the emergence of a middle class that has accompanied sustained economic growth, has spawned numerous startups that provide digital services that take advantage of the internet and mobile devices. Some of these ASEAN startups, such as Grab and Gojek, have become major regional platform companies, and some Japanese companies have been trying to create innovation in the region through strategic alliances with such platform companies.
In particular, the startup ecosystem in Southeast Asia is becoming more mature in the 2020s, and the assumptions have changed from those of the 2010s.
First, from a macroeconomic perspective, the attractiveness of the region is increasing due to the demographic dividend and the rise of the middle class, and the size of the Internet economy is growing more than fivefold, from $32 billion in 2015 to $174 billion in 2021.
Moreover, investments in startups have seen a significant increase. The market, which had $0.5 billion in investments and 98 deals in 2013, skyrocketed within less than a decade to $10.4 billion and 929 deals in 2022 (Graph 1). The number of unicorns also increased to 30 as of September 2023 (Table 1).
Graph 1. SE Asia capital invested by year, $B and deals done #[1]
Table 1. The list of unicorns in Southeast Asia Region (as of September 2023)[2]
With the rise in investment amounts, deal counts, and the number of unicorns, both entrepreneurs and investors have gained substantial experience. This has resulted in a substantial support network for startups, including incubators and accelerators, with a wealth of experience to offer.
The business areas in which startups operate are also gradually shifting from the previous B2C focus on solving individual problems to B2B services such as fintech, logistics, and business efficiency, although still for SMEs. Of course, the majority of companies are still engaged in B2C businesses, but the number of companies engaging in B2B businesses is increasing.
In summary, the growth of the startup ecosystem in Southeast Asia is transitioning to the next stage. Within this transformation, Singapore, functioning as an innovation hub in Southeast Asia, has ascended from 18th place in the latest Global Startup Ecosystem Ranking by Startup Genome (2022) to 8th place (2023), further solidifying its presence.
For Japanese companies, Southeast Asia is becoming not only attractive as a “manufacturing base” but also as a “consumer market” and even as an “innovation base”. We believe there are three opportunities for Japanese companies in Southeast Asia as a base for innovation.
First, Japanese companies can leverage their technology and the local ecosystem to create business opportunities that will help solve issues in Southeast Asia.
For example, Santen Pharmaceutical provided new products and services through joint development with local research institutions and collaboration with local startups to solve the Southeast Asian issue of high myopia rates. Despite the high prevalence of myopia in Southeast Asia, there is an overwhelming shortage of ophthalmologists relative to the population, and people suffering from eye problems do not have enough access to the diagnosis and treatment they need. Santen Pharmaceutical therefore established a local R&D base and conducted joint research with the Singapore Eye Research Institute (SERI). By combining SERI’s myopia-related research results with Santen Pharmaceutical’s medicine development know-how, a new medicine was developed to suppress the progression of myopia. In addition, the company has formed a strategic alliance with Plano, a Singapore-based startup that has developed a smartphone application to prevent myopia in children, to provide a comprehensive management application to solve the issue of myopia.
Secondly, Japanese companies can utilize Southeast Asia as a testing ground for their technologies, accelerating innovation.
The strictness of Japan’s regulations and the slowness of the approval process for new business ventures is frequently highlighted. One notable benchmark to consider is the Doing Business 2020 ranking[3]. According to this ranking, Japan is placed 29th. In contrast, Singapore holds the 2nd position, Malaysia the 12th, and Thailand the 21st. This suggests that in certain aspects, Southeast Asia may offer a more favorable environment for conducting proof-of-concept projects for new businesses.
In fact, foreign startups with innovative technologies face barriers in the form of regulations when attempting to enter Japan. For instance, CarbonCure, a Canadian startup with technology to produce concrete that absorbs CO2, highlighted the challenges in business expansion in Japan during an interview with Japanese media. Compared to countries like Singapore, they mentioned that regulations in Japan, especially in terms of approvals, are notably stringent and time-consuming.
In this regard, it makes sense to conduct verification and experimentation of one’s own technology in Southeast Asia, where regulations are relatively more relaxed compared to Japan. There are also some programs that Japanese companies can make use of in conducting PoC projects in the region. Through the “Asia Digital Transformation (ADX) Project in Japan-ASEAN” supported by JETRO, which IGPI helped establish, Japanese companies collaborate with ASEAN companies and institutions, aiming to address economic and social challenges in Japan and ASEAN by leveraging digital technologies and other innovations. In the recent third call for proposals in 2022, 28 projects were selected for support (Table 2).
Table 2. The result of the call of Asia Digital Transformation (ADX) Projects in 2022[4]
Third, Japanese companies can address societal challenges within Japan by extending the approach used to tackle social issues with digital technology in Southeast Asia.
For example, Singaporean startup SWAT Mobility, founded in 2016, has been providing innovative transportation solutions primarily in Southeast Asia. Since its expansion into Japan in 2020, the company has been promoting innovation in public transportation in rural areas to address the issue of insufficient mobility options for elderly residents. Starting with a verification project in Kitakyushu City, they have continued verification experiments across various locations in Japan, including Nagano Prefecture and Osaka Prefecture. Their new mobility solution, enabling on-demand vehicle services using algorithms and technology, contributes to Japan’s efforts in promoting DX in regional cities.
In order to seize such opportunities, forming partnerships with promising local startups is an effective strategy. Initiatives such as organizing pitch events locally or investing in local funds as limited partners are seen as entry points for this. It’s important to note that we’re not discrediting the effectiveness of these initiatives themselves, but we should be mindful of not losing sight of the ultimate goal and turning these means into ends. To drive successful innovation through partnerships with promising startups, it’s essential to begin by clearly defining your company’s challenges. This entails formulating hypotheses for viable business models and identifying the necessary technologies that are lacking within your organization to realize these hypotheses.
An illustrative example of successful collaboration between a Japanese corporation and a local startup, facilitated by IGPI, involves the enhancement of the corporation’s display solution through the integration of pedestrian traffic data analysis technology of the startup. This enhancement led to a solution that generated revenue expansion ideas based on the analysis results. The Japanese corporation had initial hypotheses to improve their in-house solution. Consequently, upon discovering a startup with the requisite technology to realize their hypotheses, they promptly made decisions and advanced toward detailed partnership discussions.
Certainly, during exploration activities, there are cases where discussions about partnering with local startups begin without clearly defining your company’s challenges. Even in such cases, it’s important to formulate hypotheses as soon as possible about what your company wants to achieve using the technology of the startup. One Japanese construction giant, for instance, initiated an approach with a local startup without hypotheses about the business model. However, with support from IGPI, they managed to formulate a hypothesis of a joint venture scheme to bid on construction projects in Southeast Asia together, leveraging the strengths of both companies (the Japanese company’s brand and the local company’s license). As a result, they made progress in partnership discussions with the startup.
Since its establishment in 2013, IGPI Singapore has been supporting many Japanese companies for market research, strategy planning, execution support including partner search and approach, ideation, and related training for new business creation in Southeast Asia.
IGPI Singapore has a wealth of experience in selecting and partnering with local partners, and can lead your company to a successful alliance with a local partner through an approach that has the following characteristics:
◆ Comprehensive partnership considerations that envision the desired outcome through collaboration, based on a thorough understanding of the market and your company’s objectives/issues
◆ Selection of potential partners with a focus on achieving partnership objectives and eliminating subjectivity
◆ Involvement of local staff to conduct in-depth research on real trends in each country’s market and potential partners
Get in touch with us here on internationalization, strategic planning, and fundraising-related topics!
[1] Source: CENTO VENTURES：Southeast Asia Tech Investment – 2022
[2] Source: CB Insights – The complete list of unicorn companies
[3] Doing Business captures several important dimensions of the regulatory environment affecting domestic firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency
[4] Source: ADX Projects Briefing Materials, August 2022, JETRO
Mr. Jongwoo Lee worked for a Japanese general IT consulting firm, where he was involved in numerous projects such as business planning and implementation support, new business planning, operational efficiency improvement, and business management enhancement support in a wide range of industries including trading companies, energy, manufacturers, automobiles, and systems, etc. After joining IGPI, he has extensive experience in new business creation in Southeast Asia, including the development of new business models and strategies for expanding sales of new solutions in the Southeast Asian market, and the study of new business entries for local companies in Southeast Asia.
Graduated from the University of Tokyo, Faculty of Economics. Japanese Certified Public Accountant
Industrial Growth Platform Inc. (IGPI) is a premium Japanese management consulting and M&A advisory firm headquartered in Tokyo with offices in Singapore, Hanoi, Shanghai, and Melbourne. IGPI has 14 institutional investors, including prominent Japanese mega-corporations such as Nomura Holdings, SMBC, KDDI, Recruit, and Sumitomo Corporation to name a few.
IGPI has vast experience in supporting Fortune 500s, Govt. agencies, universities, SMEs, and startups across Asia and beyond for their strategic business needs such as market entry and growth strategies, various aspects of M&A, innovation advisory, new business creation, etc. IGPI is consciously an industry agnostic firm (work in 10+ industries) and this coupled with its making its venture investments (30+ till date) adds to its uniqueness. IGPI has a JV with the Japan Bank of International Cooperation (JBIC) – one of JV’s initiatives is a VC fund in Europe (EUR 100mn fund) with participation from Honda, Panasonic, and Omron.
* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.
This article aims not to delve into these technicalities but rather to provide insights on high-level topics, such as the “sophistication of business activities”, “transformation in the workstyle of business professionals”, and “societal shifts and business opportunities” due to the advent and proliferation of generative AI.
There are several conceivable patterns for utilizing generative AI in business. The following chart illustrates the broad overview.
As shown on the left, while there are four layers to the value proposition of generative AI, most businesses will likely engage primarily with the topmost “Application Layer”.
The diagram on the right breaks down this Application Layer further, emphasizing that, depending on the target area of operation and level of customization, there are a plethora of use cases.
It is anticipated that there will be a surge in use cases related to “Fine Tuning”. Notable strides by OpenAI and its partner companies to offer AI services for businesses mean that enterprises can soon develop AI services optimized for their own tasks and operations without security concerns by training on their own data.
Every business professional’s job can essentially be defined as “problem-solving”, which can be broken down into a five-step process:
1. Identifying the problem.
2. Formulating a solution hypothesis.
3. Testing the hypothesis.
4. Updating the hypothesis.
5. Making decisions.
Generative AI excels at steps 2 and 3 and can manage step 4, though with limitations when it comes to ChatGPT due to outdated or inaccurate data. Nevertheless, using metrics like plug-ins can ameliorate these limitations to some extent.
In the “With generative AI” era, two major takeaways emerge for business professionals. Firstly, the value of AI-non-compliant steps 1 and 5 will rise. Secondly, for 2 to 4, rather than AI entirely replacing human tasks, humans will collaborate with AI to dramatically boost productivity—a point often overlooked.
Many people often debate statements like “Job A will be replaced by AI, but Job B will remain.” However, every process requires judgment, and judgment inherently comes with responsibility. Given the current legal system, where AI cannot bear legal or economic responsibility, any task involving judgment will always necessitate human involvement. Therefore, the crucial question is not “Which jobs will be replaced by AI?” but rather “In which tasks, and how, can humans leverage AI to dramatically enhance their own productivity?”
To be a valuable leader in the future, it’s essential to: define problems, decide what not to tackle and focus on high-impact areas, and be prepared to take responsibility.
As top talents become more productive with AI tools, they may be more inclined to go independent. To retain them, businesses will need to empower these individuals with unique assets.
The potential use cases for ChatGPT are still evolving. Companies may need to innovate in-house, and leaders should encourage bottom-up initiatives for finding use cases.
– Embrace a blacklist approach over a whitelist, defining what shouldn’t be done and letting departments decide on their best use cases.
– Foster inter-departmental competition and sharing of success stories, which can catalyze a DX (Digital Transformation) culture within the company.
– Some data suggests frontline staff may be more cautious about introducing ChatGPT than executives. Ensuring psychological safety for these employees is paramount.
Everyone now essentially has an excellent AI assistant at their disposal. Work with them, and try to solve higher-level problems.
Essential skills for this new landscape include: the ability to frame issues, proficiency in one’s native language (preferably English), and the courage to provide sharp insights.
AI can be the best mentor or coach. They’re always available, always patient, and customizable in their feedback style.
On the other hand, transitioning between industries or roles might become more challenging. The future might require investing in new experiences like internship programs and reaping the benefits once one climbs the ladder.
Throughout history, numerous cutting-edge technologies have tackled and resolved societal challenges. Conversely, reflecting upon the past, we realize that while these tech innovations emerged to solve existing issues, they sometimes inadvertently introduced new dilemmas. Most likely, people from the 2010s never anticipated that the then-innovative technologies of smartphones and social media platforms could lead to pervasive feelings of anxiety and stress due to excessive interconnectedness.
Lastly, I’d like to delve into the potential societal transformations stemming from the widespread adoption of Chat GPT, a particularly notable generative AI, and the resultant business opportunities that may arise.
In the foreseeable future, it might become common for individuals to relay their messages to a generative AI, which would then reformulate them into more polished communications before delivering them to the recipient. The recipient might then utilize another AI to craft a response. For instance, when sending an email in the local language to an overseas executive, many business professionals might rely on ChatGPT to ensure their messages remain courteous and error-free. Eventually, human involvement might merely entail approving, disapproving, or requesting modifications to AI-generated message drafts. There is a school of thought that suggests that human agency might become confined to something akin to the “free won’t” concept proposed by Benjamin Libet’s experiments on free will.
The following business opportunities might arise in this scenario:
– Development of services to construct “person-specific” message/response via personal AI.
– Creation of applications allowing humans to manage and edit AI-generated content.
Technology not only supplements human abilities but often reshapes them. As interfaces evolved, so did humanity’s skills in blind typing, keyword searching, and concise writing within 140/280 characters.
With the widespread use of ChatGPT’s interface, there might be an enhancement in humanity’s skills to pose low-context questions or make requests. Paradoxically, a “prompt divide” may arise between those with high and low prompting skills. As societal systems are generally designed for the majority, services in the future might be primarily tailored for those with elevated linguistic capabilities. For example, those who can’t engage in chat-centric communications, like the trending “Chat Commerce”, might find themselves unable to access a vast array of products and services.
Business opportunities in this domain might include:
– Development of new customer journeys starting with user prompts.
– Establishment of communities where individuals compete, share, and boast about their prompting skills.
– Offering training sessions for those with weaker prompting abilities.
As previously highlighted, the explosion in productivity potential due to generative AI hints at the likelihood of top-tier managers, who previously oversaw human subordinates, embracing this cost-effective tool and venturing independently.
Prospective business opportunities here might encompass:
– Developing generative AI platforms tailored to support the jobs of freelancers.
Traditionally, a bulk of web content was monetized by integrating relevant ads, providing incentives for writers and creators.
However, the current landscape lacks a mechanism to compensate creators of blogs or web articles that have been incorporated into generative AI, leading to a situation where content providers aren’t duly rewarded.
Such circumstances might eventually cause the collapse of the ad-driven model based on search engines. Consequently, writers and creators might confine their publications to closed platforms (like online salons) that aren’t reached out to by web crawlers.
Emerging business opportunities could involve:
– Establishing platforms that manage and offer intellectual property rights and revenue-sharing incentives for writers.
– Innovating data security solutions for these enclosed spaces.
IGPI has deep experience in strategizing, developing, analyzing, and implementing cutting-edge technology into your business. We have a team that focuses on AI/Analytics strategy: IGPI Digital Intelligence. We don’t just suggest the implementation of technologies into your operation, but co-develop your business by leveraging technologies hand in hand.
To find out more about how we can support your value-creation endeavors, get in touch with us.
IGPI Singapore offers a range of services to support Singapore businesses in their overseas expansion. Services can be broadly divided into:
◆ Management consulting, where we help companies identify growth opportunities, develop strategies to establish a presence in the target market. In the process, we often employ business matching techniques to find suitable local partners which could be crucial to successful market entry
◆ M&A advisory, where we guide companies through the end-to-end deal process, ensuring successful transactions
IGPI Singapore can support your company in its business development and maximize its chances of success – Get in touch with us here.
Mr. Tadasuke Noguchi is a Manager at IGPI Singapore. Before joining IGPI, Tadasuke worked in an IT company and a think tank in Japan, where he engaged in consulting projects such as new business development in various industries: automotive, logistics, retail, finance, etc. He has experience in hands-on new business development while on loan to Toyota Motor Corporation’s R&D department. In IGPI, He mostly focuses on consulting projects such as market entry/expansion in the ASEAN market, M&A advisory, and the formulation of long-term visions. Tadasuke graduated from the University of Tokyo with a B.A. in Language and Culture and acquired a certification from the Graduate School of Public Policy of The National University of Singapore. He enjoys traveling and has visited around 50 countries.
Industrial Growth Platform Inc. (IGPI) is a premier Japanese business consulting firm with presence and coverage across Asian markets. IGPI was established by former members of Industrial Revitalization Corporation of Japan (IRCJ) in 2007. IRCJ, a US $100 billion Japanese sovereign wealth fund, is known as one of the most successful turn-around funds supported by the Japanese government.
In 2017, IGPI collaborated with Japan Bank for International Cooperation (JBIC) to form JBIC IG, providing investment advisory services and supporting overseas investment. In 2019, JBIC along with BaltCap has jointly established Nordic Ninja, a €100 million venture capital fund to focus on deep tech sectors such as autonomous mobility, digital health, AR/VR/MR, artificial intelligence, robotics and IoT in the Nordic and Baltic region. In 2019, IGPI established IGPI Technology to focus in the area of science and technology. The company invests in technological ventures and provides hands-on management support. The company also provides business development support towards commercialisation and monetisation of technologies.
* This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI.
Why are suburban coffee shops trading at such high prices? We believe there are two main reasons. The first reason is the limited number of outlets available for trading in the first place. There are about 2,200 coffee shops and similar eateries in Singapore, and about 770, equivalent to one-third, are set up by HDB on the ground floors of HDBs out of which 400 of these are sold to private companies and individuals in the early 1990s. In 1998, NEA has stopped selling them and switched to renting the owned coffee shops to private companies and individuals. In other words, only 400 coffee shops that are set up in public housing can be transacted. The second reason is that the coffee shops in Tampines and Yishun, which were sold at a historical high price, are large and scarce. The two coffee shops have 18 and 14 stalls of small-scale restaurant space, respectively, and are expected to attract a more significant number of customers as they can develop a wider variety of restaurants than many coffee shops, which typically have less than 10 plots. However, the sale and purchase of coffee shops at high prices risk becoming a social problem in the form of increased rents borne by the tenants, small restaurants, which subsequently are passed on to consumers through increased food prices resulting in a larger burden on the household budget for consumers. In this context, National Development Minister Desmond Lee, in his parliamentary reply in July 2022, emphasised that an average of 15 coffee shop transactions in public housing have occurred every year since 2010, but that 70% of these transactions are for less than S$10 million (approximately JPY 970 million), with limited impact on household finances. 
Looking further at food by detailed category, it can be seen that the average monthly household expenditure of S$437(approximately JPY 42,000) per month on categories in addition to coffee shops, including hawker centres and food courts is higher than food and non-alcoholic beverages (S$389) and restaurants, cafés and pubs (S$296) (Figure 3). 
The fact that more was spent on coffee shops and hawker centres than on food and non-alcoholic beverages suggests that eating out or taking food away from home is more common in Singaporeans’ lives than cooking for themselves. Furthermore, looking at average monthly household expenditure by income quintile in the three food service categories, including fast food, it shows that the largest expenditure is on coffee shops and hawker centres, except for the highest income quintile with an average monthly household income of S$10,070 (approximately JPY980,000) (Figure 4). It is often believed that the main customers of coffee shops and hawker centres are low-income households, but in reality, coffee shops and hawker centres are almost like a ‘second kitchen’ for many Singaporeans, who use them daily.
These food and beverage purchasing behaviours by Singaporeans will continue to grow as a result of new behaviours stemming from the outbreak of COVID-19, namely the increasing use of coffee shops adjacent to suburban HDB rather than restaurants in office blocks due to the spread of work-from-home. In fact, 30 new coffee shops are expected to be built in council housing over the next four years. A comparison of the performance of typical food service companies in COVID-19 also provides a glimpse of the reality of the assumed impact of changing consumer purchasing behaviour. Among the major food service companies listed on the Singapore Exchange (SGX), Kimly Group, which operates a total of 136 multi-brand outlets with 84 coffee shops (as of October 2021), and JUMBO Seafood, which is famous for its seafood dishes, operates total 42 restaurants under 12 restaurant brands. Looking at the sales figures for the first half of the year (ending September) over the past three years, using the example of the JUMBO Group, which operates domestically and internationally, it is possible to understand the strong performance of the Kimly Group (Figure 5). Moreover, the JUMBO Group, which has mainly targeted tourists and business customers, has announced plans to acquire a 75% stake of the shop “國記雲吞麺” in the hawker centre for S$2.1 million (approximately JPY 200 million) in November 2020 under COVID-19 and to open multiple outlets both domestically and internationally. As of August 2022, “國記雲吞麺” has expanded to eight outlets, mainly in coffee shops in Singapore, and this is an excellent example of large food and beverage companies, which until now have mainly opened outlets in street shops and shopping malls, accelerating the opening of outlets in hawker centres and coffee shops based on changes in the business environment and consumers’ purchasing behaviour. 
The fourth is to focus on digital marketing activities using social media such as Facebook and Instagram. In particular, Generation Z, born between 1996 and 2015, are also known as “digital natives” as they were born in an age where digital is commonplace, and it is not uncommon for them to decide what to eat and where to eat based on information obtained from social media. Therefore, it is essential to develop menus that stick with Generation Z while simultaneously providing effective promotional information on social media, which they are in contact with at all hours of the day. The fifth is to ensure thorough cleaning of the coffee shops, including tables, chairs and toilets as well. In order to prevent losing consumers who are unhappy with the cleanliness. Overall cleanliness of a coffee shop is an important factor that consumers subconsciously evaluate along with other factors such as the taste and price of food and beverages. 
Mr. Ryota Yamazaki is the Director of IGPI Singapore. Before joining IGPI, Ryota worked in Deloitte Consulting in Singapore, where he was a leader in the areas of Consumer Business and Supply Chain & Logistics in Southeast Asia. His areas of expertise are Strategy & Operations, such as market entry, Route-to-Market (RTM) strategy, business due diligence, and PMI. He started his career with A.P. Moller-Maersk Group as a management trainee and also worked for Kurt Salmon, where he had vast project experience, especially in Supply Chain & Logistics for the retail and consumer goods clients. Ryota graduated from the Faculty of Economics at Keio University.
There are many industries that are not suitable for countries with low population density. Cell phone base stations, EV charging facilities, retail chains, and public transportation are some examples of extremely inefficient investments when population density is low. In Australia, there are existing policies to ensure minimal unsound or unnecessary investments or operations in these areas.
For example, only Sydney and Brisbane have train services from the international airport to the city center, while other airports offer cab or bus services. In addition, many gas stations are unmanned, and retail stores are closed at times of the day when customer traffic is low.
In Australia, a number of technologies have been developed to support low population density. For example, there are innovative technologies to support the operation of gyms that are open 24 /7 or to automate agriculture. Among these, a company that provides IoT technology called Myriota is attracting particular attention. Starting as a spin-off venture from the University of South Australia in 2015, the company aims to build a large-scale, low-cost, low-power consumption satellite communications network using nano-satellites. Its technology is currently being used in a wide range of applications, from monitoring wind farms to water tanks on farms.
It has raised more than A$50 million in funding to date, and investors include Innov8, a Singapore-based venture capital firm run by SingTel, one of Asia’s largest telecommunications companies, and HorizonX, Boeing’s venture capital arm.
A key factor in creating new industries in Australia is the federal government’s management of industry portfolios and state governments’ focus on specific industries. For new industries, startups in each state’s region focus on a specific business area, such as FinTech in New South Wales, AgriTech and HealthTech in Victoria, and CleanTech and SpaceTech in South Australia.
Moreover, each state governor has made efforts to develop their cities to maximize the growth of the industries they are focusing on. For example, in South Australia, the incubation hub Stone & Chalk is located within walking distance of the University of South Australia, the University of Adelaide, and research institutes. Myriota, introduced in 2) above, is also a university startup born in such an environment.
In the past, excessive population growth was considered a social issue in Japan – today, the paradigm has shifted and key challenges include a declining population due to the falling birthrate and aging population, as well as depopulation of regional cities. Instead of viewing environmental change as a risk, let us acquire and apply the skill of analogical thinking to find reference cases that will help us solve our current problems. Looking across the world, there is an abundance of solutions and resources that we can and should tap on. **************************************************************************************************** IGPI can provide strategy consulting for multiple aspects of your business. Get in touch with us on internationalization, strategic planning and fund raising related topics!
Kohki Sakata is CEO of IGPI Singapore. After joining Cap Gemini and Coca Cola, Kohki joined Revamp Corporation, where he managed projects on global expansion and turnaround in various sectors, including F&B, healthcare, retail, IT, etc. After joining IGPI, Kohki has managed projects mainly on global expansion and cross border M&A in various sectors such as logistics, IT, telecom, retail, etc. In addition to his broad experience in implementing solutions that have been developed in Western countries, he has developed multiple methods to turnaround Asian companies with a focus on setting a clear vision and employee empowerment. He has proven the practicality of these methods by turning around Asian companies not only as an advisor but also as senior management. He graduated from Waseda University Department of Political Science and Economics and IE Business School. 
The lifecycle of introduction, growth, maturity, and decline is easy to understand if we compare it to the life of a human being. Naturally, infants and adults, as well as the young and old have different values and use money differently. In the case of business, our way of looking at sales and profits should also be different, as shown in the figure below.
This is also similar to the life of a human being. Initially, there is no income earned during our childhood and money is continuously spent on necessities such as food, education, etc. However, we can think of this as an “investment for the future” rather than a mere expense. As we grow up, our expenses increase while income rises and as we move from middle age to old age, our investments for the future decrease and our priority shifts to how to control expenses while being conscious of saving sufficient money. In business, the number of competitors also change over the different phases of the lifecycle. This number, which was small in the introduction phase, increases rapidly in the growth phase, decreases again in the maturity phase and decline phase due to weeding out and eventually is reduced to a few companies through acquisitions and mergers. This is what happens in every industry. Kohki Sakata is CEO of IGPI Singapore. After joining Cap Gemini and Coca Cola, Kohki joined Revamp Corporation, where he managed projects on global expansion and turnaround in various sectors, including F&B, healthcare, retail, IT, etc. After joining IGPI, Kohki has managed projects mainly on global expansion and cross border M&A in various sectors such as logistics, IT, telecom, retail, etc. In addition to his broad experience in implementing solutions that have been developed in Western countries, he has developed multiple methods to turnaround Asian companies with a focus on setting a clear vision and employee empowerment. He has proven the practicality of these methods by turning around Asian companies not only as an advisor but also as senior management. He graduated from Waseda University Department of Political Science and Economics and IE Business School.
Kohki Sakata Chief Executive Officer
+65 81682503 k.sakata@igpi.co.jp
However, in accordance with Paris Agreement, six major ASEAN countries are also setting their targets to reduce greenhouse gases (hereinafter “GHG”) by replacing fossil fuels with renewable energies. Nonetheless, when examining their National Determined Contributions (hereinafter “NDCs”), it is necessary to bear in mind that most countries propose two frameworks towards achieving their target, one includes financial assistance from the international community, and the other without[4]. This means that foreign companies who wish to do business related to carbon reduction need proposals tied to the financial support framework. In addition, many countries adopt future targets compared against a business-as-usual (hereinafter “BAU”) levels, meaning they pledge to reduce CO2 emissions compared to their projection in the absence of major climate change policies. Additionally, Malaysia adopts their reduction target on carbon intensity against GDP basis. The table here-below lists the NDCs and major initiatives by governments in Southeast Asia: 
The above paragraphs served as a general discussion. Internal carbon price (hereinafter “ICP”) will be used as an example to explain factors that need to be taken into consideration. Businesses use ICP to evaluate the impact of mandatory carbon prices on their operations, and as a tool to identify potential climate risks and revenue opportunities[7]. ICP was introduced in Europe and the US over five years ago, and an increasing number of Japanese companies have adopted it in the past few years. When introducing ICP, the most important thing to keep in mind is to set a clear objective and design business strategies accordingly[8]. If objectives are not properly set, the business will end up on the Carbon Disclosure Project (CDP) list as “ICP introduced” but it is meaningless to be satisfied with this. It is easy but it is meaningless to only refer to competitor’s pricing. If companies want to invest in expensive but low-carbon equipment, compared to conventional equipment, in their factories or offices, the price must be at a level that makes low-carbon equipment more economically advantageous. As an oft-cited example, Microsoft has adopted a model in which each department pays an amount based on its CO2 emissions, whose price is determined by dividing necessary investment amounts to offset annual CO2 emissions[9]. This pricing mechanism is reasonable. CO2 emissions are also reflected negatively in Microsoft’s sales departments’ internal profit and loss statements, which incentivizes carbon reduction efforts. 
In the case of business investments, it is one way to refer to price levels that may have influenced investment decisions in the past (this is a pattern called “implicit carbon price”), not only referring to market price of carbon. Many companies adopt a market price such as the EU ETS (EU Emissions Trading System). While this makes a certain amount of sense from the perspective of scenario analysis, there is no guarantee that the carbon pricing imposed in different countries in future will be close to the current EU ETS price. Moreover, ICP is not a solution for everything. Even if a project pays off economically under a scenario where ICP is applied. There remains the possibility that the project may be forced into cancellation due to opposition from activists or institutional investors. While ICP can be useful if introduced wisely, it is not a panacea, but a tool in the overall strategy for businesses looking to reduce their carbon footprint. Kohki Sakata Chief Executive Officer
+65 81682503 k.sakata@igpi.co.jp
Miyoshi Nishimura Consultant – Singapore
+61 9187 1152
m.nishimura@igpi.co.jp
Another decarbonization movement in the region is the promotion of shifting to Electric Vehicles (EVs) in the field of transportation. Traffic congestion a serious problem in many major cities in ASEAN, and the resulting air pollution caused by gas emissions is a critical issue in the region. The Thai government was one of the first to launch an investment incentive program for EVs and battery production in 2017 and has set a goal of having 30% of vehicles produced in the country be EVs by 20306. In Vietnam, VinFast, a subsidiary of one of the country’s conglomerates Vin Group, has proposed the Vietnamese government to exempt EVs from special consumption tax and vehicle registration fees for five years to incentivize the use of EVs. Vietnam’s Ministry of Industry and Trade and the Ministry of Transport are positively considering the idea7. As shown by the above initiatives, ASEAN countries are gradually following close upon Europe and other developed nations in their efforts to achieve decarbonization.IHI is developing a new CO2 recycling technology in collaboration with the Singapore Institute of Chemical and Engineering Sciences (ICES). The company has been conducting joint research and development in the fields of environment and energy since 2011. In 2019, IHI developed a device for methanation. This device produces methane from CO2 using a methanation catalyst9.
MTI is a joint research partner participating in a study on renewable tidal energy with MAKO Energy Pte. Ltd., a subsidiary of Australian tidal turbine manufacturer Elemental Energy Technologies Ltd., and Sentosa Development Corporation which develops Sentosa Island under the Ministry of Trade and Industry. The project aims for the first commercialization of marine renewable energy in the country10.
Tatsushi Sasakura Associate Manager
+65 9457 6052 t.sasakura@igpi.co.jp This material is intended merely for reference purposes based on our experience and is not intended to be comprehensive and does not constitute as advice. Information contained in this material has been obtained from sources believed to be reliable, but IGPI does not represent or warrant the quality, completeness and accuracy of such information. All rights reserved by IGPI. 
Copyright© 2024 Industrial Growth Platform Pte. Ltd. All rights reserved. Web Excellence by Verz
