Over the past few years, the Association of Southeast Asian Nations (ASEAN) has slowly but clearly emerged as the center for technology innovation and creativity. A number of member states of ASEAN (including founding members Indonesia, Malaysia, Singapore, Thailand and the Philippines) have embraced digital technologies more broadly to accelerate or improve economic competitiveness, and adopted regulatory reforms to create a business environment that attracts foreign direct investment (FDI) and accelerates entrepreneurship. The implementation of digital initiatives is off to a good start, with investments on multiple fronts to create an environment conducive to innovation. The success of programs such as Indonesia’s 2020 Go Digital Vision could go a long way toward building Southeast Asia’s digital competitiveness.

While creating a truly open and economically integrated ASEAN is still years away, country leaders in Southeast Asia are upbeat about the growth opportunity that lies ahead. Economically, the sub-region of Asia has been on the upswing; FDI inflows rose by 11.6% year-over-year to reach $137bn in 2017, the ASEAN Secretariat notes. The increased confidence among investors leads to heightened expectations as ASEAN is predicted to be the world’s fourth largest economy by 2030. A positive sentiment for the investment climate in Southeast Asia is echoed by young entrepreneurs as they seek to play their part in building a flourishing startup community. Southeast Asia’s fast-growing economies are home to more than 7,000 startups, with VC funding reaching a record level at more than $7.8bn. Some recent investments in Southeast Asia are seemingly bold moves for investors.

Chinese internet heavyweight Alibaba announced plans to invest an additional $2bn in Singapore-based e-commerce provider Lazada, bringing its total investment to $4bn. Meanwhile, its key rival Tencent is backing Indonesian ride-hailing unicorn startup Go-JEK in its new funding round. Grab, the top unicorn startup  in Southeast Asia by market valuation, received a combined funding of $2bn from Chinese ride-hailing provider Didi Chuxing and SoftBank in Japan. While the youthful demographics of Southeast Asia make it attractive to build an effective talent pool, the growing digital ecosystem helps entice new entrants and enables digital empowerment to transform traditional businesses. Of course, the growing number of digital players also helps to redefine competition as customers are exposed to new competitive offerings and innovative delivery models. Thus far, the startup ecosystem is primarily dominated by e-commerce, on-demand services and fintech startups, with many aspiring entrepreneurs wanting to become the next unicorn startup.

Their enthusiasm does not get unnoticed. This is especially the case as innovative startups upend traditional forms of operations and service delivery, forcing existing players to think outside the box. For example, Singtel and StarHub are increasingly engaging with partners to develop digital offerings that complement their existing product portfolios. Singtel has recently teamed up with gaming vendor Razer to link up their digital payment platforms aiming at mobile wallet users. StarHub is now better positioned to benefit from enterprise demand for business intelligence, investing in data analytics, machine learning and artificial intelligence (AI). Even hyperscalers such as Amazon Web Services (AWS), Microsoft, and Alibaba Cloud, which have made steady strides in Southeast Asia, have started shifting their conversations from cost optimization (with the most effective cloud infrastructure) to value creation (with cloud-enabled data analytics, AI and secure IoT offerings). Increasingly, digital players have incorporated cloud as a technology foundation to deliver high-value offerings such as big data as a service and AI.

The interplay of incumbent suppliers, cloud providers and a new breed of tech startups will continue to alter the competitive landscape for digital businesses and accelerate market growth for hosting and managed cloud services in Southeast Asia. According to 451 Research’s Market Monitor predictions, the hosting, cloud and managed services in Southeast Asia (including Indonesia, Malaysia, Singapore, Thailand, and the Philippines) will maintain solid growth with a compound annual growth rate (CAGR) of 21%. In addition to government-led digital transformation initiatives, a thriving partner ecosystem is being created in a number of emerging economies. By service segment, managed services generated the largest portion of the total hosting, cloud and managed services revenue, accounting for approximately 39% of the total revenue in 2017, followed by applications (32%) and infrastructure services (29%). Given that local businesses still require a lot of hand-holding when it comes to deploying cloud-enabled digital services, managed services are expected to fuel the overall market growth in 2018 and beyond.

From a micro perspective, the innovative use of technology is giving rise to new business models and vertical segments such as the fintech sector. Their existence begins to create a ripple effect; changing the way traditional financial and banking institutions interact with their customers. Bank Mandiri’s eCash program and Bank Danamon’s digital customer experience are two examples of market-driven transformation. There is a growing appetite for technologies like big-data analytics and AI, and IoT is driving the adoption of cloud infrastructure services, with a growing number of companies running workloads and applications in a hybrid and/or multi-cloud environment. As business organizations continue to migrate workloads and applications to the cloud, they are willing to work with external specialists to achieve the best possible and secure outcome, despite various operational challenges. Among a raft of managed services that are considered crucial for securing hybrid cloud infrastructure, professional and/or consulting service tops the priority list, followed by risk and compliance management.

This Technology & Business Insight report on the opportunities in the ASEAN region is based on a combination of our analysts' deep experience in the managed services & hosting industry and current, detailed interviews with key vendors and end users spanning a wide variety of vertical applications. The full report includes:

• Digital Initiatives and Their Implications in Southeast Asia: which examines these initiatives and implications by country 
  
• The Tech Startup Ecosystem in Southeast Asia: a look at tech unicorns in the region and a timeline of their initiatives
  
• Hosting, Cloud and Managed Services Sizing and Opportunity: which looks at the future possibilities in this sector and region