Why Malaysia is a good test bed for innovation despite funding hurdles

Prime Minister Mahathir Mohamad said he aims for Malaysia to be ranked among the top 30 countries on the Global Innovation Index by 2025, reported The Star last year. Both innovation and the digital economy have become key pillars in pushing Malaysia forward on a global scale, with government schemes and start-up incubators such as the Malaysian Digital Economy Corporation, Cradle Fund and Malaysian Global Innovation and Creativity Centre helping to grow the entrepreneurship ecosystem.

Khairil Abdullah (pictured centre), CEO of Axiata Digital Services, said during the recent Innovfest Unbound 2019 that Malaysia is a good test bed for innovation and rolling out new businesses due to its wide demographic range, from the Bangsar population which comprises high net worth individuals and digitally savvy youths, to the average Malaysian and the underserved communities. According to him, Axiata Digital has a team of venture builders in Malaysia who are aggressively experimenting, testing and building products due to the accessibility of the market. He said:

We use Malaysia as our test bed because it has this amazing demographic.

“The market is so accessible and you see such a wide range of demographic in such a small geography that allows us to experiment, build our products, test it and get the results very quickly,” Khairil said.

Khairil explained that Axiata Digital first started out as an R&D unit in late 2012, when it was experimenting with various initiatives to participate in the digital economy. Eventually, it settled on three major pillars – digital financial services, advertising tech and API gateway. Today, Axiata Digital builds, accelerates and invests in ventures across 10 markets including Malaysia and Indonesia, and owns services such as Boost, ada and Apigate.

mdec innovfest unbound

As a well known brand with a large footprint in the region, obtaining funding or investment for the businesses was not much of a challenge for Axiata Digital, Khairil explained. For example, its integrated digital advertising business ada received a US$20 million investmentlast year from global trading and business investment company Sumitomo Corporation. In April this year, it also sold its digital ventures portfolio to a Singapore-based investment fund named Pegasus 7 Ventures for about US$140 million. The portfolio comprised ownership stakes in digital businesses such as India’s rural commerce platform StoreKing and global micro-insurance company BIMA.

However, the case might not be the same for other companies that are looking to sell the ventures that they have built up or receive investment. According to Khairil, it is hard for local Malaysian start-ups to raise money beyond US$2 million. He said:

It’s not a big enough market like Indonesia to attract the funds. So, it’s very hard for us to go out and talk to the big brands and get them to look at some of the businesses that we have built.

Knowing this, Axiata Digital set up its Axiata Digital Innovation Fund which is targeted at Series A and B funding rounds of up to RM200 million to help companies grow.

[Digital Marketing Asia Conference 2019 in Kuala Lumpur Malaysia is coming back for it’s fourth year. ‘Moving Towards A Smart Nation’ will be this year’s theme with speakers from the civil service and private sector. Come join us on 26 – 28 August as we uncover the latest insights to empower digital marketers in Malaysia. Book your seats today.]

The challenge of a start-up

Despite facing the challenge of raising funds, Soft Space, a Malaysian digital payments company founded in 2012, remains undeterred. Much like Axiata Digital, it also used Malaysia as a test bed and a place to obtain talent.

According to chief strategy officer Chris Leong (pictured left) it currently operates a digital payment hub in Taiwan and leverages on the bilingual abilities of its employees to communicate with Taiwanese clients such as FamilyMart Taiwan and Cathay United Bank.

“We can venture into Taiwan and Indonesia because our employees can speak multiple languages that are applicable in the region. That’s a strength of ours,” Leong said. He added that there are plenty of opportunities in Malaysia for Soft Space to leverage on as a digital payments company to test its solutions and one example is by working with banks and merchants in Malaysia. “They use it as a basis to grow, gain traction and test out a solution. A lot of times when we test our solution, it offers very unique insights that can allow us to scale out of Malaysia,” Leong said.

Nonetheless, the journey is not a walk in the park for Soft Space. As Malaysia has been known for credit card fraud since the 1980s, Leong said banks have become “very conservative” and cautious when implementing a new solution. From his experience, there is a long list of criteria to meet before the solution is being implemented. He added:

[Malaysia] became a very good place for us to struggle and through that struggle, we made better products and scaled.

As a result of this, Soft Space was able to receive most of its funding from overseas investors, which are both Japanese – Sumitomo Mitsui Card Company and transcosmos inc., a business oursourcing service company.

Building a sustainable smart city

As Malaysia continues on its push towards becoming a smart city, a more collaborative effort is required in order to set the country on this path Chua Seng Teong (pictured right), Sunway Group’s lead in venture partner, digital economy said it seems value in working with start-ups to build the smart city ecosystem in Malaysia.

“We invest in businesses that we can use ourselves so that we can add value from a P&L perspective. Every smart city needs some sort of mobility, fintech or digital media. So we invest in these start-ups, collaborate with them and make Sunway a test bed for them,” he explained.

With the proliferation of digital media, Chua said Sunway eventually realised the need to integrate the offline and online ecosystem and invest into the digital ecosystem. As such, it launched a few venture building and innovation initiatives including Sunway Ventures, Sunway iLabs, Sun SEA Capital and the Malaysia SuperSeed Fund II.

Chua added that Sunway also wants to help mentor and grow the start-ups as it believes in sustainable development. Sunway has approximately 30,000 students under its education arm and according to Chua, they are increasingly interested in becoming an entrepreneur and are always on the look out to join reputable start-ups. As such, investing in start-ups will provide Sunway Education Group with an added resource to help train its students.

(Read also: SME growth in Malaysia: Overcoming ‘long unsolved’ problems to reach the top)

(Photo courtesy: 123RF)