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App-rising Cambodia – Start-ups cash in on the growing digital sphere

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What we found different with Muuve was that it was solving a pain point for the existing Cambodian population, said Tapas Kuila. Hong Menea

App-rising Cambodia – Start-ups cash in on the growing digital sphere

While the development of the app market in the Kingdom has been steady, it is a wonder if policies and skills can retain this pace and fervour in the future

The phenomenal growth of mobile apps in Cambodia makes sense. Even with a population of 16 million, the least developed country has sustained a year-on-year gross domestic product growth of seven per cent and raised income per capita to $1,561 in 2018.

Part of this boost is driven by a fairly young population out of the 10 million adults.

And they have supported internet penetration, which stood at around 58 per cent along with 9.7 million internet users in January this year, according to DataReportal.

This makes for a massive captive audience which is exactly what attracts local and foreign start-ups and app developers alike to capitalise on the offerings.

It is evidenced by tens to hundreds of thousands of dollars that is poured in by investors every year to develop apps or concepts using technology to resolve issues, increase productivity or simply create a niche for its product in the market.

In fact, the ground is teeming with a community of accelarator programmes and tech incubators that have absorbed youths, mostly undergrads and young adults, to brainstorm on ideas and create start-ups that will develop the tech realm in Cambodia.

With what might seem like a tone set for software development growth and high internet penetration in Cambodia, investors view this as a potential to test the waters.

One of them is South Korean blockchain-based ride-hailing and grocery delivery app MVLLabs Pte Ltd’s TADA, which entered the market in 2019. In December last year, it raised $5 million in Serie A funding which helped expand its existing markets, Cambodia included.

“Our presence in the Cambodian market has been rapid within a year despite the pandemic,” attested Poly Chim, general manager of MVL TADA Cambodia Ltd, who himself is a person with start-up background.

Regionally, TADA has grown 330 per cent year-on-year with about 600,000 users in that time. In the Kingdom, the app has some 200,000 registered drivers and 20,000 on the road.

To date, Chim said, TADA has delivered almost $1 million worth of goods with several hundred merchants onboard.

Seemingly, the pandemic has helped some startups grow. As Chim pointed out, TADA’s numbers is expected to rise on the back of rising e-commerce.

To be sure, most of the consumer based online apps have been continuously working to meet customer needs and helped to drive the economy during the crisis.

Looking over the last five years, a multitude of digital apps using the social media platform or independent applications such as food, ride-hailing, payment apps, accommodation and even super apps have flooded the market.

All this helps in providing evidence to the larger digital economy model which the country aspires to fully adopt. It has implemented several policies including the Information and Communications Technology (ICT) Masterplan 2020 and Telecomms and ICT Policy but full achievement is still a long way.

For now, Cambodia falls behind Vietnam and ASEAN as a whole in terms of digital adoption and technological readiness.

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Source: International Telecommunication Union (UN), 2017 (Benefitting from the digital economy - Cambodia Policy Note by World Bank)

Fixed broadband remains low although mobile penetration is high, The World Bank mentioned in a 2018 policy note on digital economy.

“The expansion of fixed-line internet services was overshadowed by a strong focus on mobile services,” it said, adding that digital literacy remains low. Several policy recommendations were made including investment in connectivity infrastructure to close the digital divide and develop digital skills.

Game-changing law

These unsettling factors make the start-up sector a little fragile because their matchstick foundation is at risk of crumbling unless the government strengthens taxation policies, human resource and infrastructure.

It would seem that the increasingly crowded market might further compound the collapse, notwithstanding the newly passed E-commerce Law.

The law is seen as a game changer where every individual, sole proprietor, legal entity and branch office of a foreign company with an online business app must be registered and will subjected to tax if their annual turnover is over $62,500.

Most food delivery start-ups might be registered and collect value-added tax but it is not clear with e-commerce sites which are currently under the radar of government auditors.

“Earnings power astounding”

For years, online sellers avoided registration, preferring to consider themselves as a consumer business.

Now, with the new law, the authorities are expected to start swooping in on them, seeing that they could be enjoying a larger share from brick and mortar shops.

E-commerce retailer Smile Shop’s Jack Lee, who markets his business as the Amazon of Cambodia, said tech start-ups operate differently from traditional retail shops.

“But the government does not have a clear policy for tech companies,” he said.

Yet, there might not be room for discussion as the government grapples with falling revenue following the crippling of its garment manufacturing and tourism sectors.

It is the newest tax segment which officers can audit to unlock tens of thousands of undeclared tax in the coming year.

Traditionally, online businesses have operated unregistered, so there is a huge upside potential to increase tax revenues, said Anthony Galliano, the CEO of Cambodian Investment Co Ltd.

“The earnings power of these online businesses is astounding, given the growth in the online commerce segment and the fact that consumers are embracing shopping online and are less inclined to visit brick and mortar retail outlets,” he added.

It is no secret, he observed, that Facebook is not only a social media platform but also a primary source of news and now shopping.

“Given the amount of time people spend on Facebook, simply scrolling their news feed and seeing something that attracts their buying attention, can lead to an easy online sale.

“The revenue numbers a person can earn selling products such as beauty, healthcare and jewellery is stunning and surprising and given the minimal fixed cost, the bottom line margins are much healthier,” he said.

When asked, Lee concedes that business has been good for him with half a million users within a consumer landscape although earning capacities were comparatively lower than neighbouring countries.

“It is a small market compared to Vietnam, Thailand or Indonesia, but e-commerce is booming in Cambodia. Big companies such as ZTO Express and Kerry Logistics are investing here,” he said.

Buoyed by all this, he is now looking at developing a super app by merging his e-commerce with financial technology to provide a complete end-to-end user experience.

“Even though Cambodia is small, [her] people can have online platforms. This has opened up the small traders, distributors and farmers to the world. They can sell cashew nuts and other agriculture products directly to buyers instead of going through dealers and then retailers.

“They can also do cross-border trades via e-commerce,” Lee said, hence his plans to incorporate fintech to his expansion model.

However, he prophesied that setbacks, like some unlinked payment apps, could become obsolete in the near future.

He acknowledged that the payment measures are getting better but they are not as good as China or India.

“In Cambodia, there are many payment applications. Banks have e-wallets and there are third party payments, but the problem is they are not connected.

“I believe that in two or three years, only two or three payment apps will be survive. I think National Bank of Cambodia’s Bakong app, Wing and ABA might be around,” he opined.

But these apps will be exposed to challenges of scaleability and user-friendliness if they do not evolve.

“Solving a pain point”

On a wider spectrum though, this could be symptomatic of an undeveloped online platform market.

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Source: World Bank Global Findex, 2017; Mastercard e-wallet survey, 2016.

Often, a lot of the apps are not built to solve a problem. Instead, they come into the market echoing the characteristics of their peers, which effectively undermines their sustainability.

“We were looking at a few companies and Muuve came across. Apart from Nham24 and Meal Temple, there were not many food delivery companies at that time.

“What we found different with Muuve was that it was solving a pain point for the existing Cambodian population,” said Tapas Kuila (pictured), the general partner of venture capital firm Ooctane which holds a $55 million fund.

Homegrown Muuve Tech Co Ltd, co-founded by Phan Phanith and Chhoun Vathanak, solved the problem of “entering locations or directions”.

“So they made the app or interface more friendly from a location aspect of it, and for a business model, it was very asset-like. They called them movers, people who moved the stuff.

“They were not their employees, rather they were democratising [the work concept]. So anybody such as students can participate as freelancers,” said Tapas, whose firm invested a six-figure sum for a minority stake in Muuve early this year.

The freelance concept enabled the movers to earn cash whenever they wanted without being tied to a strict employment contract.

“We liked that concept, and that is the same concept that Nham24 has adopted. The Muuve team was young but they had a vision and it was not about moving food only but everything else too, and doing that at the right time,” Tapas said.

One of a handful of venture capitals in Cambodia, Ooctane, owned by Worldbridge Group founder Sear Rithy, is on the lookout to grow local tech start-ups.

Tapas, who sits on the board of Muuve, said he was alright with Muuve not being a market leader.

“We just tell the team to follow the basics, at the end of the day, as long as you are keeping things right, it is okay to be number three or four,” he said.

But survival is key. TADA’s Chim said a testament to its core value lies in the fact that it built trust, enabled fair mobility for everyone, and charged drivers zero commission.

During the pandemic, the firm offered more delivery jobs to drivers so they could earn extra despite having fewer passengers on the ride-hailing app.

Its overall strategy gained driver-partners’ support which is reflected in its comparable service to consumers and riders.

“With such a healthy ecosystem, TADA has set itself apart from the rest, enabling us to keep a sustainable business model,” he said.

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