New economic warriors

New economic warriors

Tech upstarts are being boosted by government incentives, but industry veterans say quality should be the priority

The statesponsored promotional event ‘Startup Thailand 2016’ held recently seeks to promote startups, especially those that are tech-based, to help drive the economy. PATTARACHAI
The statesponsored promotional event ‘Startup Thailand 2016’ held recently seeks to promote startups, especially those that are tech-based, to help drive the economy. PATTARACHAI PREECHAPANICH

Building up tech startups as new economic warriors to help drive the country's digital ecosystem is the right course, say government officials.

The state is providing a slew of tax incentives to local tech-based startups to boost Thailand's next wave of tech growth and economic growth.

Industry veterans, however, have expressed concern that these might not be sufficient for sustainable development.

Easing government regulations for startups with friendly policies and incentives to lure global entrepreneurs and investors, as well as promoting talents and mentors, are also essential to sustainable development.

The government aims to boost the number of local tech startups from the current 2,000 to 10,000 by the year-end. It will set up a 20-billion-baht fund to help raise funds for startups this year.

The state has already offered a 10-year income tax waiver for venture capital firms and private equity trusts that invest in technology and innovation in the country's 10 core industries.

The core industries include next-generation cars; smart-electronics; affluent, medical and wellness tourism; agriculture and biotechnology; food; robotics for industry; logistics and aviation; biofuels and biochemicals; digital; and medical services.

These incentives are expected to attract more venture capital funds to invest in Thailand and help promote rapid growth of technology-based business in the country.

The government has also granted a five-year corporate income tax break to startups.

Science and Technology Minister Pichet Durongkaveroj says the government has a clear strategy to support startups.

"Our investment incentives are considered the most attractive in Asean, even better than those of Singapore and Malaysia," says the minister.

But industry experts say the incentives would build a "bubble-like market" that will only create an oversupply, instead of building quality startups.

According to a Global Entrepreneurship Development Institute report, Thailand ranked 65th out of 132 countries analysed in the 2016 global entrepreneurship index. Singapore was 11th, Hong Kong 40th, Malaysia 56th, Vietnam 84th and the Philippines 91st.

Thanachart Numnonda, president of the Association of Thai ICT Industry, says the policy to promote the startup industry is a good move. But the state should focus on building and promoting the local tech ecosystem.

A startup ecosystem is formed by startups in various stages and various types of organisations in a locale, interacting as a system to create new startup companies. These organisations can be further divided into categories: universities; funding organisations; support organisations such as incubators, accelerators and co-working spaces; and service providers offering legal and financial services.

Mr Thanachart urges the government to raise the quality rather than the quantity of startups in order to prevent a bubble similar to the '90s dot-com bubble.

He points to South Korea where local startups are the most successful, thanks to the quality of startup founders and a global outlook. Additionally, there has been significant backing from the government, through venture capital infusion and many entrepreneurship programmes, co-working spaces and accelerators.

He says the South Korean government has allowed local startups to participate in many intensive acceleration programmes. There are also networking and matchmaking events to promote international cooperation between startups, local entrepreneurs, distinguished researchers and engineers and large conglomerates such as Samsung, Hyundai, LG and SK Corporation.

In South Korea, every startup has intellectual property rights, giving the creator exclusive rights over the use of their creations for a certain period.

Mr Thanachart cites another report, jointly conducted by Google Inc and Temasek Holdings, which found that there are about 7,000 startups in Southeast Asia. Indonesia, Singapore and Vietnam together account for 80% of the total with 2,033, 1,850 and 1,541 startups, respectively.

Thailand has 358 startups, Malaysia 759 and the Philippines 385.

In Singapore alone, there are four unicorns -- startup companies valued at over US$1 billion -- Lazada, GrabTaxi, Garena and Razer.

Panutat Tejasen, better known as Dr Jimmy, a tech entrepreneur, urges policymakers to focus on building high-potential startups to sustain the development of the small and medium-sized enterprise sector.

Ruangroj Poonpol, popularly known as Krating, the fund manager of 500 TukTuks, a Thailand-focused micro-fund spun off by US-based 500 Startups, says beginning a business and cultivating it during the early stages is difficult. Talent adaptability is also crucial for survival.

He says the government's incentives to promote startups might not represent the critical success factor needed for the industry's sustainable development.

"Understanding the nature of local startups and promoting the startup ecosystem are essential for long-term development," says Mr Ruangroj. "Startups are not get-rich-quick schemes. Working on a startup requires a strong work ethic and creativity."

Narong Intanate, the founder of Vnet Capital, a Thai venture capital firm, says Thai culture is not conducive to hard work -- a crucial component of the entrepreneurial spirit at the startup level.

To encourage a sustainable startup industry, he says the government needs to develop entrepreneurial skills programmes for young people in order to inculcate the entrepreneurial spirit.

Patai Padungtin, former president of the Thailand Tech Startup Association, says the government must encourage entrepreneurs to embrace new technologies and digital platforms to pave the way for the digital economy.

As high-growth tech startups become the primary growth engine of the new information economy, the recent development of startup ecosystems all over the world will have major consequences for the future of the global economy.

"Developing a strong local startup ecosystem will help local entrepreneurs compete with global startups," says Mr Patai, adding that only 20% of existing startups in Thailand will survive.

The Thailand Tech Startup Association recently submitted a white paper suggesting critical ingredients to foster a thriving startup ecosystem.

The proposals include a capital gains tax exemption from the sale of company stocks and limiting foreign equity ownership in the startup sector.

Mr Patai says Singapore and Hong Kong exempt capital gains tax on the sale of company stocks.

He urges the government to set up a working committee to screen startups and investors for their eligibility for state support.

The requirement of 20 million baht in paid-up registered capital for a venture capital company to list on the Market for Alternative Investment is also a major barrier hindering the startup sector.

He says the white paper also suggested the state formulate national incubators and accelerator programmes dedicated to supporting startups.

"If the government supports our proposals, we expect to promote at least three tech startups worth $1 billion within five years, as well as create 10,000 jobs and generate supply chain revenue of 8 billion baht a year," says Mr Patai.

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