Expanding in Asia: Insights from Tractable’s journey in Japan
Hi, I am Loreley Mac Donald from Korelya Capital, a VC fund investing from Series B in European technology companies. We help our companies through our extensive network and presence in Asia. 60% of our portfolio companies already operate in Asia and leverage Korelya’s extensive network.
Today, I am sharing the first interview of a series dedicated to Asian expansion for European tech companies. We will discuss market opportunities, sales strategy, and recruiting challenges when opening an APAC market.
When considering international expansion, most European companies set their eyes on the United States and overlook deployment opportunities in Asia. Tractable is an exception, having expanded into the United States and Asia at almost the same time.
Founded in 2014 by Alexandre Dalyac, Razvan Ranca, and Adrien Cohen, the London-based company develops artificial intelligence-based solutions to assess damage to vehicles and property. Using computer vision and deep learning, Tractable automates visual damage appraisal in accident and disaster recovery. With an office in Japan, the company has succeeded in establishing itself in Asia, providing its solution to several industry leaders.
Tsubasa Hotta, Head of APAC, VP, and GM since March 2019, looks back at Tractable’s achievements.
Japan as a natural move for international expansion
Before joining Tractable, Tsubasa Hotta was already familiar with launching APAC expansion but in a completely different field as a former senior manager at iRobot, focusing on APAC Strategy and Business Development.
When he joined Tractable, the company considered expansion in Japan as its most natural move after the United States: “The uniqueness of Tractable’s strategy is its timing in entering Japan and APAC. US companies expand into Japan once they have saturated their local market. There is no such large and concentrated market for European startups like Tractable, so it’s a very natural move to enter Japan early. [At Tractable], we entered Japan when we were still at the Series B stage.”
While choosing Japan as the second destination for expansion outside Europe after the United States may have seemed surprising to many, Japan’s insurance market opportunities made it a good bet for Tractable, with its initial focus on insurers as customers for its AI solutions.
“I tend to choose a company for which Japan represents the largest market opportunity in APAC. When we talk about P&C insurance, Japan is the third-largest market after the US and China.”
Insurance came to Japan around the 1860s when the large European insurers we know today were also establishing themselves. Unlike other Asian countries, Japanese Insurance companies succeed in scaling and developing relationships with European and US insurers, leaving the Japanese market not dominated by foreign players. Today, Japan is the third-largest market in written premiums, just below US and China, with $414.8 bn in premiums written in 2020. One other typical differentiator of the Japanese market is the high concentration level, with the three-largest firms having a combined market share of c80~90% of the P&C insurance industry. These are the Tokio Marine Group, MS&AD Insurance Group, and the SOMPO Group.
Because Japan’s Insurance market is both sizable and mature, it is full of opportunities but often poorly addressed by European players. Once a conviction is made on the market opportunity, the operational challenges are numerous: from acquiring the first customer to building a team in a competitive job market.
Securing a first customer to lead the way
In a market structured around three leading players, Tractable’s first challenge was to bring on board a leading player, thus demonstrating the value-added of its solution.
This challenge was all the more important for Tractable. “For an AI company, working with a large player is important. Costs to develop and implement an AI solution are quite similar regardless of the company’s size. Working with large players enables us to deliver a great value proposition from a customer and company perspective”. Indeed, when launching in Japan, Tractable had to adapt its AI model accordingly as car types, repair methodologies, and many more factors vary from one country to another. In combination with the fact that each customer implementation requires re-training the model on new data sets to improve its accuracy.
Because it was vital for the company to secure a first customer before facing potential development costs, Tractable first tested its go-to-market remotely via its London-based team in charge of new market development. “Our first Japanese client was approached by the London team. The business relationship was created during the inter-insurer conferences that the profession can have. In a sense, we acquired our first Japanese customer remotely, and that was before Covid.”
The approach is quite unorthodox, given that experts will agree that a local presence is generally preferable to enter a new market, especially when you are a startup targeting the most prominent foreign insurance firms with >$20bn market capitalization.
As highlighted by Tsubasa, the major setback of this approach is the slow pace at which you can close deals. It took Tractable almost a year to convert its first lead and less than two years to convert three similar size deals once the Japanese office was set. With success encountered in Japan, Tractable then changed its approach, being more bullish for its upcoming Australian and Korean entry: building first a local team to convert the identified leads.
Securing this first contract was a crucial step in developing Tractable in Japan. When operating in an industry being particularly reluctant to change, such as insurance, finding early adopters is a game-changer. As a startup, your preferred prospects would be the innovative players that will not be afraid of making swift decisions and betting on your technology.
Today, Tractable works with Japan's top four insurance firms, covering a 80~90% market share. All of these firms use two or more Tractable products.
Ambitions and new markets to conquer
When discussing lessons learned from the Japan launch in 2019, one question remained: what would Tractable’s next steps in APAC? After launching in Japan in 2019 and Thailand in 2020, the 10th largest insurance market when considering premiums written, the company is now looking towards South Korea, the 7th largest market with very similar characteristics as Japan: “South Korea has always been an important market for us. We discussed with top P&C insurers for the last two years and recently decided to commit more by establishing a local business division.”
Australia is next in line, being “a natural move for Tractable. A large country where AI solutions can prove useful and save adjusters transportation time with limited language barriers.”
But Japan remains the focus of APAC’s strategy, with strong expansion and cross-selling opportunities driven directly by top management, as mentioned by the CEO himself in early April in the video below.
Challenges of recruitment
Finally, we discussed one of the most significant challenges that startups encounter when expanding abroad: recruiting. As a VC with solid ties in South and North East Asia, we were familiar with the competitiveness of the Japanese labor market, with talented individuals favoring large established and local companies rather than international startups. These concerns were confirmed by Tsubasa, who faced the challenge of structuring a top-quality team both on a product and sales level for a company yet to build a reputation as a strong employer. Nonetheless, Tsubasa managed to grow the Japan office from one to c. 40 people since its launch in 2019. When we asked him what the key factors of this success were, his answer was twofold.
“Recruitment has been my number one challenge for the last few years. I saw a huge change when I hired an expert recruiter. After he joined, he already hired about 15 people within nine months.”
First, despite facing a lack of human resources, Tsubasa was unwilling to compromise on the team quality, potentially delaying key hires until he found the right profile. A choice motivated both by a desire to maintain a level of excellence and a desire not to lose the existing hires because of poor recruitment choices. This ambitious approach has been fruitful for Tractable but also carries the risk of placing an ever-increasing workload on current teams in need of support.
Second, hiring a skilled recruitment professional proved to be decisive for Tractable. When we asked Tsubasa what he could have done earlier, his answer was blunt: having hired earlier Innokentiy Kato, current Head of Recruitment and Talent Management. In less than a year, Innokentiy performed 15 hires, leveraging his former experience at BOX JAPAN (NYSE: BOX), where he grew the team from 30 to 150 people. Tsubasa also pointed out how valuable the help of a VC could have been when structuring this high-profile team.
At Korelya Capital, this performance amazed us and demonstrated the potential of deployment in Asia for European companies when the execution is in the right hands. If we were to summarize the key takeaways we got from this interview, these would be:
● market launch can be done gradually and initially without having a local team;
● in the first months of launch, the effort should focus on acquiring a first sizeable customer, gateway to the market;
● recruitment remains one of the critical issues and can be significantly facilitated through the hiring of a local expert.
At Korelya Capital, we are deeply aware of the importance of the last two topics and provide our portfolio companies with the know-how and support to take their first steps in Asia.
If expansion in Asia is on your roadmap now or in the next few years and you want to know more about our Asian platform, please reach out on LinkedIn.
