What Digital Transformation Really Means for Southeast Asia’s Corporates

Digital transformation is not just a buzzword. It’s an integral part of making sure your business stays relevant, even in the face rapidly evolving technology.

In business lingo, the word moat usually refers to a company’s ability to maintain competitive advantages over the contenders so as to protect its long-term profits and market share. Just like a medieval castle, the moat serves to protect those inside the fortress — and their riches — from outsiders.

In the past, companies took generations to become corporate powerhouses, and once they did, the strategy was always to build a moat and fill it with crocodiles. Examples of this have been a variety of strategies, including positioning a brand as the lowest-cost player on the market (think Walmart) or imposing high switching costs for users, thus making it too painful to go get set up with a competitor (think J.P. Morgan Chase bank).

But now, in an era when convenience reigns supreme and newly born internet startups are toppling large corporates on an almost yearly basis, it’s clear to see that the traditional playbook will soon no longer apply. We believe that only the corporate players undergoing serious digital transformations today (not only as defense but as an aggressive offense) will ultimately own tomorrow.

In developing markets like Indonesia, digital transformation is an entirely different animal than it is in places like China or the US. Here is what digital transformation really means for corporates in emerging Asia.

Seeking out tech that you don’t understand

Giant players around the world are dumping money into corporate venture capital (CVC). The trend is clear. Data shows that 2018 saw a spike in CVC activity worldwide. There were 2,740 deals on record, while roughly US$53 billion was disclosed in CVC funding for tech startups. This is a sharp uptick from US$36.1 billion the year before.

Asia attracted 38% of all CVC deals in 2018, up from 31% in 2017. In the third quarter, Asia overtook North American deal share for the first time. CVC accounted for 38% of all disclosed funding for tech startups in Asia.

Indonesia is taking center-stage as the battleground for new tech in Southeast Asia. Chinese game-changers like Tencent and Alibaba are holding hands with the likes of Softbank and Sequoia to cultivate the digital landscape in the region. The focus for them is on necessary building blocks that make up a thriving digital economy such as ecommerce, ride-hailing, logistics, financial technology, and more.

These are spaces that local corporates have traditionally dominated but are now seeing their lunches gobbled up. Brick-and-mortar retail players are losing ground to e-marketplaces like Tokopedia and Lazada. Taxi companies are dinosaurs now that Grab and GoJek are fat cats. There is now a variety of last-mile and B2B logistics platforms, and the fintech boom may soon result in a ‘Thanos snap’ that will affect many big institutions that once championed the region’s financial game.

Corporate leaders take for granted that these paradigm shifts are happening now in Southeast Asia. But just five years ago, most of them balked at the idea of investing.

Smart corporates in Southeast Asia will do well to look into verticals that are intimidating, but which aim to solve some of the biggest challenges — all while striking a balance of short, medium, and long term strategies.

This means we’re talking completely new industries like artificial intelligence (AI), machine learning, blockchain, ‘smart city’ technology, and more. These are the things that few corporate stakeholders care to understand today, but that will undoubtedly shape the future.

Bolstering your bread and butter

We are backed by Telkom Group, Indonesia’s largest state-owned telecommunications conglomerate. While MDI Ventures operates as a fully autonomous venture capital firm, we have a track record in making investments that add new revenue streams to our benefactor.

An AI startup we invested in called Kata.ai is a prime example of this. The startup builds chatbots that can speak Indonesian to people via Natural Language Processing. These bots can live anywhere online, be it on a website or in chat apps like WhatsApp, LINE, Facebook Messenger, and more.

For years, Telkomsel (Telkom’s mobile carrier) had to employ human customer service representatives in call centers to deal with inbound inquiries from the public. Many of them asked the same questions, such as where the closest service center was located near them. This was a repetitive process that had always been capital intensive for Telkomsel. It also added serious weight to the group’s human resources and administrative departments.

We plugged Kata.ai in with Telkomsel and the team built a bot named Veronika to reply to inbound messages. As a result, to this day the number of phone credits and data package purchases through Veronika continues to grow at an average increase of 49.06% month-over-month for Telkomsel.

Customer inquiries are now handled by Veronika with minimal human interaction, offering a more efficient and quicker resolution for customers. The bot also provides an easier way to update customers with important information. Veronika is currently being leveraged as a long term project where enhancements will improve customer engagement for Telkomsel.

Apart from being an investment with massive implications for the future, Kata.ai successfully cut down on overhead costs for Telkom, while also beefing up its revenue. The startup was also able to achieve similar success for big-name conglomerates like Unilever, Bank Rakyat Indonesia, Alfamart, and others.

Empowering an independent team

If you’re going to get serious about going on the offensive with corporate digital transformation in Southeast Asia, it will be wise to get your capital into the hands of an independent VC firm that has a deep understanding of how to balance high-risk technology plays with the wants and needs of your corporate agenda.

As a fully independent firm that managed to accelerate Telkom’s corporate transformation agenda, our fund is in fact open to new investors and smart money looking to capitalize on the region. We routinely welcome new partners and investors from Asia Pacific, but also from around the world.

Our core team hails from the local and international tech investment arena, with hands-on experience and a unique culture that helps us build an evolving investment thesis and innovation initiatives.

The goal is to help investors leverage emerging tech in Southeast Asia based on what is now (current core business), new (building adjacent tech and capabilities), and next (preparing for future technology) relative to corporate plans.

If corporate digital transformation is the name of the game you need to play in Southeast Asia, then we look forward to helping build out your economic moat for the 21st century.

See: 4 Myths About Corporate Venture Capital and Why They’re Wrong

MDI Ventures is a corporate venture capital initiative backed by Telkom Indonesia, with headquarters in Jakarta and operations in Singapore and Silicon Valley. It is an independent entity aiming to bridge the gap between large corporates, smart global investors, and innovative startups in Asia Pacific.