The Asia Pacific (APAC) region has been an engine room of growth over the past decade. To this day, it continues to outperform the global economy, with the IMF attributing more than 60% of world economic growth to APAC. But how is SaaS performing in the region?
In short, it’s a mixed bag.
The SaaS market is already set to reach $4.4 billion by the end of this year in APAC alone. With a forecast of 34.28% compound annual growth rate (CAGR) to 2023, the future’s looking bright. While these numbers may sound impressive, it’s still some way behind the likes of North America and Europe, with Bengaluru (formerly Bangalore) being the highest ranked Asian city in the table of top startup cities, coming in at number 17.
The promise is in the projected growth rate, and there are plenty of opportunities for companies and investors in this dynamic and varied region. However, it’s essential you treat each country on its merit.
To take one obvious example, the list of differences between China and Singapore can be seemingly endless. One is a highly protected, state-dominated economy, while the other is a tiny city-state with one of the freest markets in the world.
With these differences taken into account, what other factors are affecting the region’s SaaS market?
Pool of Talent
For any technology company to thrive, it needs a positive environment in which to grow. It requires an accessible pool of talent, solid infrastructure, and supportive authorities, national or local. India’s Chennai has enjoyed strong growth in recent years to become a major SaaS hub, now generating over $1 billion a year.
The coastal city is home to major SaaS companies including Zoho Corp. and Freshworks, employing over 7,000 people between them. They are both generating annual revenues in excess of $100m, with Zoho believed to be making $350m a year.
“One of the reasons is Chennai’s large student community. With a number of science, technological and engineering colleges – including IIT Madras, Anna University, Chennai Mathematical Institute as well as a growing number of private colleges – there is a large number of freshly graduated individuals in the need of jobs.”
Government and Local Authority Support
For startups to thrive, there needs to be a supportive infrastructure in place. This can come in the form of cheap rents, tax breaks, or other government incentives to settle in the area. Singapore is a world-renowned financial center that’s investing heavily in technology companies, including SaaS businesses.
There are at least seven separate government supported schemes designed to help startups in Singapore. It also acts as a regional HQ for some of the world’s biggest SaaS companies, including Oracle and Dropbox. The giants are attracted by the relative stability and high levels of talent in the business-friendly city-state.
Emerging Singaporean SaaS companies include Ematic, an email marketing platform and Active AI which offers solutions for financial services. With so many government schemes behind these homegrown technology startups, there’s little doubt Singapore will continue to serve as a SaaS hub for the next decade and beyond.
China is a paradox. It’s a booming market, with over a billion people and a growing middle-class. On the other hand, it’s a legal minefield. Dan Harris, a leading authority on Chinese law, describes the solution for foreign SaaS businesses:
“To operate legally in China, a PRC based server is required and the arrangement requires licensing to a Chinese owned entity. This is the approach Microsoft and Apple use for their China Cloud/SaaS products. Setting up Cloud/SaaS operations in China with this sort of licensing approach is complex, but it is necessary and for that reason it has become very common.”
The advice here is always to seek out and follow legal advice, and even then, it’s not always possible to do business in China. Consider whether it’s worth the significant outlay that would likely be required, in terms of cash and resources. Assess whether the market is big enough and whether there’s domestic competition for your product. Examine all the possible consequences of entering a complex and difficult market.
APAC – A Region of Opportunities and Challenges
The APAC region is attractive to western-based businesses for a whole host of reasons; fast-growing markets, affordable, high-quality labor, and inviting government incentives. If you are feeling a little adventurous and willing to slog it out, countries such as India, Thailand, and Vietnam are proving to be solid bases for startups. In fact, 19 of the 20 most dynamic cities in the world are from this region.
The rewards are there for the taking. It gives you the perfect opportunity to launch a startup at a fraction of the cost of doing so in the US or Europe. Local initiatives will be available to support you through this critical period for your business, and most of the major cities have as good, if not better, internet connections as in the US/Europe.
Singapore and Hong Kong are more expensive options but have the benefit of a highly educated talent pool and infrastructure to rival any Western city.
However, it’s essential you do your research before setting up in the East. Ensure you go in with your eyes open and a solid understanding of local culture and customs. A thoroughly prepared SaaS business in APAC could be well-placed to take advantage of the region’s exponential growth forecast.
Ismael is an Editor at SaaS Mag and CEO of FE International, the leading M&A advisory firm for online businesses. Ismael has overseen the sale of hundreds of millions in online businesses, including the sale of the popular accounting software, Less Accounting, and the acquisition of Drip by Leadpages. He is also an active investor in SaaS businesses, sits on the board of numerous exciting SaaS start-ups, including MageMail and MRR Media and is and a member of the Forbes Finance Council. Ismael’s previous background was in large-cap M&A investment banking, where he executed several high profile public deals namely in the Technology sector.