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Regional startups eye Bangladesh as the next market to expand

A small but growing number of startups from India to Indonesia have expanded their operations to Bangladesh in the last two years. Indonesian Wagely launched in Bangladesh in 2021. Indian logistics startup Ecom Express made its first outside investment in Paperfly in January 2021 — a USD 11 million investment and the company followed up with a new investment this year. Another Indian logistics startup Delhivery launched its operation in Bangladesh a few months ago. Lalamove, a Hongkong-based logistics startup, has been actively hiring in Bangladesh. Previously, Indonesian GoJek invested in Pathao. Australian Seek International bought 35% shares of Bdjobs.com in two rounds. Several Indonesian startups including much talked about eFishery have demonstrated plans to expand to Bangladesh. There are other players. 

Multinational startups play an important role in Dhaka’s startup scene. In ecommerce, the market leader Daraz is owned by Alibaba. In food delivery, foodpanda is owned by the German multinational food delivery company Delivery Hero. Uber is in ride-hailing. bProperty in prop-tech. Hoichoi in streaming. Bikroy in the ecommerce marketplace. There are multinational players in several other verticals. 

This number is still small. Given the economic story of the country, Bangladesh should have attracted greater attention. However, all indications suggest more regional startups will expand to Bangladesh in the coming years. 

Story 

Bangladesh has an exciting economic story. From an economic basket case, the country has become one of the fastest growing economies in Asia within a few decades. While the country faces several economic challenges, it does not invalidate what the country has achieved over the years and also the potential the market offers. 

A rising middle class. An enviably young demographic. Rapid urbanization. Growing mobile phones and internet penetration. A large population in a small country. Demographic homogeneity. A growing new consumer class. Macro indicators offer a lucrative story. 

We’ve been seeing a modern retail revolution in the country in recent years with multinational retail chains expanding to the country. Although many large tech companies don’t have a significant local presence in the country, Bangladesh is a big market for almost all consumer technology companies from Facebook to Google to TikTok among others. Large tech players such as Oracle, and Microsoft have been operating in the country for quite a while. 

Over the last several years, Dhaka’s local tech scene has also gone through a transformation. Today, the country has a growing startup ecosystem. To that end, many regional and multinational tech startups also have taken an active interest in the market. 

The early days of Dhaka’s tech startup scene were mostly dominated by multinational players. German-based startup factory Rocket Internet started several companies in a number of verticals. Some of the leading players in the digital commerce space today such as Daraz, and Foodpanda were originally Rocket Internet companies. When Uber came to Bangladesh in 2016, a local ride-sharing scene didn’t exist. When Malaysian streaming startup Iflix launched a few years, streaming was in its early days. The same goes for companies like OLX, Bikroy, and several others. 

Today, the market is a completely different scenario. While the market could have grown even further, Dhaka’s startup ecosystem has come a long way. You can find almost all kinds of companies operating in all kinds of verticals. Bangladeshi startups have raised meaningful money from local and international investors. The ecosystem has grown. The diversity of startups has grown. In the first half of 2022, Bangladeshi startups have raised over $90 million in investments, highest in the recent years. Bangladeshi companies are now a regular presence in regional startup incubator and accelerator programs. 

All these have made Bangladesh a lucrative destination for regional tech startups looking for growth and new markets to expand. Before Bangladesh was mostly out of the radar. But as various verticals see healthy growth, companies are now taking an active interest in the market. 

This is only getting started and is likely to accelerate in the coming years. And it will likely transform the local tech scene in Bangladesh. 

Downsides 

This change will bring a lot of positive impacts on Dhaka’s tech scene. We’ll get to them in a moment. First, the challenges. One challenge is competition. If multinational startups get into the Bangladesh market, it will increase competitive pressure on the local startups. 

Dhaka’s funding scene remains in the early stage. Bangladeshi startups still struggle to raise meaningful capital. While international investors are eyeing the market, the speed of active capital deployment remains slow. It is more so amid the global economic slowdown. This puts local startups in a disadvantageous position and can make the competitive landscape skewed. 

Take, for instance, we’ve seen two foreign players enter the logistics sector in the last few months: Lalamove and Delhivery. Both companies have raised huge amounts of money and have access to vast resources. 

While local logistics startups including eCourier, REDx, Pathao Courier, and a few other players have raised meaningful capital and have built a strong position in the market, companies like Lalamove and Delhivery can create real competitive pressure on the local players. Being multinational players, these companies not only have access to greater resources but are also likely to have superior execution muscles. 

To that end, multinational startups entering Bangladesh can create competitive challenges for the local startups. 

More to that 

That said, access to resources doesn’t always determine the outcome of competition in a market. Superior execution does. And having more money does not mean that you can execute better. While Bangladeshi startups will be at a disadvantage in terms of access to resources, being local is an advantage that can offset that challenge for the local startups. 

Generally speaking, Bangladeshi companies should understand the Bangladesh market better. Cultural differences between markets can create meaningful competitive disadvantages for companies. This has been the case in many markets — despite being in a disadvantageous position, local companies often end up building strong market positions. 

When a company wins, resources come along. Funding happens. And it can change the competitive landscape. 

While it is true that many multinational highly funded startups start with a relative competitive advantage due to their knowledge edge and access to resources, market dynamics can erode that advantages pretty quickly. Moreover, operating in multiple markets as a company adds complexity and additional pressure on your resources. So it is not entirely an all-positive situation for multinational startups and a completely bleak condition for the local startups. 

Upsides 

While competitive challenges will be there, multinational startups entering the Bangladesh market offer far greater advantages. First, knowledge transfer and building skilled human resources. These companies come with a ton of experience from their home markets, which means they will create local skilled human resources. Many of these industries are relatively new in Bangladesh. We don’t have trained human resources for running these businesses. When multinational companies come in, they bring their knowledge-base and train local talents and it eventually helps the industry to grow. 

Obviously, this can create more economic opportunities. More jobs and investments. 

Bangladesh as a market and Bangladeshi startups get greater exposure. Almost all of these companies have a long list of prominent global investors behind them. When these companies expand to a new market, it indicates the potential of that market. Naturally, it should create interest among investors to take a closer look at the startups in that market. It should create opportunities for Bangladeshi startups to raise more capital from international investors. 

In 2021, Alibaba-owned Daraz acquired HungryNaki for an undisclosed sum. When international players come into a market, it can create M&A opportunities for the local startups. 

One of the major challenges for Bangladeshi startups in the current environment is a lack of exit options. Since the ecosystem is in its early stage, there are not many viable opportunities for mergers and acquisitions. Going public remains an elusive ambition for most startups. So local startups often find it hard to offer viable exit options to investors and other stakeholders. 

If more multinational startups come into the market, it can create greater opportunities for such mergers and acquisitions. These resource-rich companies can invest in and acquire local startups. It will also contribute to creating more entrepreneurship and funding opportunities. 

The combined force of competitive pressure, greater access to resources, and knowledge transfer can eventually scale the balance of market power and create new opportunities for the local startups.  

End note 

This is an exciting phase for Bangladesh’s startup scene. And like everything else it is complex. While I’ve tried to explain an emerging development in the Bangladesh startups scene, things often change and the reality has a surprising amount of nuances that we miss. For instance, policies have a lot to do when it comes to ensuring a fair competitive field. I’ll be eagerly following the developments in the coming days as it unfolds. 

Ruhul Kader is a Dhaka-based writer, researcher, and entrepreneur. He is also the co-founder and CEO of Future Startup and the author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about entrepreneurship, business, strategy, technology, and culture. He can be reached at [email protected]

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