The Southeast Asia region is among the fastest growing regions in the world, with many experts estimating it to become the fourth largest economic zone globally. With a diverse number of nations, industries and cultures, Southeast Asia and its accompanying trade organization (ASEAN, the Association of Southeast Asian Nations) are becoming attractive business opportunities across the globe. With the unprecedented growth this region is experiencing, the role of HR across organizations is also evolving massively.

Given this context, HR today is facing fierce challenges in helping organizations become top destinations for talent, building the workforce of the future, managing an agile organization and retaining top employees, all while providing strategic insight to key decision makers. 

Today’s dynamic HR technology and services market is aligned to achieving these challenges. People Matters estimates that the extended segment of work (that includes workforce productivity, gig economy, enterprise benefits, workforce healthcare and robotics) would be approx. of 300 Bn USD.

In this exclusive People Matters report, we bring together some of the key insights into what makes the Southeast Asia region the ideal destination for HR Tech solution providers from across the globe and how businesses in this region are turning uncertainty into opportunity. We also dive deep into cutting-edge research and gather expert inputs to gain incisive insight into how the HR and Work Tech market looks in Southeast Asia today, alongside a picture of what to expect in the future. 

HR today is facing fierce challenges in helping organizations become top destinations for talent, building the workforce of the future, managing an agile organization and retaining top employees, all while providing strategic insight to key decision makers

Southeast Asia: The Business Hub in the Making

Southeast Asia is one of the most rapidly expanding regions for growth, a hub for innovation, favorable digital environments and technological transformation, according to a study(1). SEA countries are a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world. With the third-largest labor force in the world, behind China and India, ASEAN has outpaced the rest of the world on growth in GDP per capita since the late 1970s. Income growth has remained strong since 2000, with average annual real gains of more than five percent. This proximity combined with government initiatives and a diverse talent pool means the region is one of the world’s most robust and cutting-edge talent ecosystems in constant, rapid movement. Perhaps most important, almost 60 percent of total growth since 1990 has come from productivity gains, as sectors such as manufacturing, retail, telecommunications, and transportation grow more efficient. 

Capacity building has helped the national economies to adjust to the changes and advancements in technology, challenges associated with globalization, and work practices.  

Southeast Asia is also one of the best places for startups, with four of the world’s most innovative unicorn companies Grab, Go-Jek, Traveloka, and Tokopedia making enormous economic strides in the region. The region’s investment ecosystem(2) has developed critical mass and is entering a new phase of growth. Since 2012, Southeast Asia has given rise to 10 unicorns with a combined market value of $34 billion. It is expected the deal value over the next five years will total $70 billion—double the level of the previous five years—and that the region will produce at least 10 new unicorns by 2024. 

SEA countries are a major global hub of manufacturing and trade, as well as one of the fastest-growing consumer markets in the world. With the third-largest labor force in the world, behind china and india, asean has outpaced the rest of the world on growth in gdp per capita since the late 1970s

Though Singapore remains Southeast Asia’s investment hub with over 160 active HR tech providers(3), vibrant start-up ecosystems are emerging across the region. The number of companies in Indonesia raising the first round of funding in 2017 rose more than 300 percent from 2012. Together, Indonesia and Vietnam generated 20 percent of the region’s private equity deal value over the past five years, and that percentage is likely to grow. In fact, a survey(4) showed nearly 90 percent of investors said the hottest Southeast Asian market outside of Singapore in 2018–19 will be Indonesia and Vietnam.

State of HR Technology in Southeast Asia

The global human resource management market is anticipated to reach USD 30.01 Bn by 2025, registering a CAGR of 11 percent from 2019-2025. The HR technology market too is changing at a faster rate than ever.

According to the People Matters State of HR Technology Report 2019-20, the extended segment of work (that includes workforce productivity, gig economy, enterprise benefits, workforce healthcare and robotics) would be an approx. of 300 Bn USD.

With an array of new-age tools and technologies at its disposal, HR leaders have moved ahead of simply automating routine administrative processes like attendance and payroll. Today, the application of intelligent technology permeates workforce management, career planning, talent acquisition, L&D, employee engagement, and business intelligence. Leaders all over the world, including the APAC region, are striving to formulate policies and processes wherein technology plays a central role.

As a matter of fact, HR leaders are no longer simply ‘digitizing’ their work, but ‘digitalizing’ their entire work process to integrate technology into the core of job roles(8). This critical shift indicates that organizations are now embracing the possibilities of intelligent technologies by using HR Tech to redesign recruitment, employee engagement, and training with an unequivocal focus on the employee experience. 

Categorically speaking about Southeast Asia, the investment in newer HR tools and systems has been rising steadily in the region. As a matter of fact, the HR Tech adoption in nearly 70 percent of the organizations in the APAC region intends to increase their spending on HR technology(9). For the last three years, the adoption of HR Tech has been in double-digits and small organizations are the fastest-growing segment among all new HR Tech adopters.

People Matters studied the major economies of SEA - Singapore, Malaysia, the Philippines, Indonesia, Thailand, Vietnam and interviewed the global consulting firms, venture capitalists, business advisors and curated the top trends driving the HR tech industry. The following trends will help you make informed investment decisions in the HR Tech industry of SEA.

The experience economy: There lies an opportunity across all aspects of HR as far as technology is concerned. Part of it is driven by aspirations of organizations like:

• To become more digital and hence automating as much as possible
• Improving employee productivity and efficiency
• Responding to changing business and work models

However, according to our report, we found that the whole HR Tech opportunity in SEA is being created because of a clear focus of organizations around employee experience.

According to Puneet Swani, Partner, Career Business Leader - International Region, Mercer, organizations are increasingly looking to attract talent and focusing on creating a consumer mind ‘internally’ which is forcing them to look at everything on employee experience and hence they are looking forward to adopt technologies in all the functions be it Talent Acquisition, Learning & Development, Performance Management, Payroll, etc. in order to offer a great employee experience.

It is predicted that by 2020, nearly half of Southeast Asia’s population will be under 30 and more than 55 percent of its working-age population will be comprised of tech-savvy millennials. It is no news that the new-age generation put a lot of stress on workplace experience. Supporting the fact, Tiang Lim Foo, Partner at SeedPlus said that this demographic opportunity marks a key shift in the region as these young professionals expect consumer grade technologies that they are used to outside of work, at work.

SMEs, MSMEs and state-owned organizations will become the largest consumers: The maturity journey of the HR Tech industry is not linear as countries are evolving differently based on economy and unique market demands. Gauging market maturity on the basis of the region's economy wouldn't suffice. For example, Singapore is growing at two percent, Malaysia and Thailand at four-five percent and Indonesia at six to seven percent. Going by this data, the favorable choice of investment would be clearly Indonesia. However, the maturity of employers and HR tech adoption is probably the highest in Singapore, which is not quite the same in the other markets.

Saikat Chatterjee, Senior Director and HR Advisory Leader - Asia, Gartner shares, “One way of looking at investing in a particular region would be the segments one wants to cater to.” He shares that SMEs and state-owned/homegrown companies are the biggest opportunities for investment right now. If we talk about Singapore, if you were to segment companies into four, you will have government-owned organizations, large enterprises based out of Singapore, western multinationals based out of Singapore, and SMEs. Considering the first two options which are government-owned organizations and large organizations, these two categories constitute a very small percentage. Hence, paving the way for western multinationals and SMEs to be the area of opportunities for HR Tech service providers. However, a major constraint with western multinationals with APAC headquarters is that all the decisions with technology adoption and investments are carried by the global headquarter. Hence, in Singapore, SMEs become the biggest opportunity for the HR Tech companies.

However, the case is different in countries like Indonesia and the Philippines which are mostly populated by state-owned organizations. These organizations which are generally large organizations and conglomerates are a great opportunity for investments.

Continuing with the above findings, Swani shares, “Traditionally, the local multinationals/conglomerates seem to be following best practices that some of the companies in the west implemented. That is no longer a case now. Some of these companies are leading with the HR practices and the advantage they have is that the decision making is much faster having their HQ in the same region.”

Recruitment and Learning are the two burgeoning areas of growth: Recruitment and Learning & Development were unanimously selected as two areas of highest potential for growth in the HR Tech market, as per our report. 

Recruitment for some years has been continuously evolving and will continue to evolve. Dhritiman Chakrabarti shares, “The reason recruitment technology including sourcing, assessment, recruitment and onboarding has been more historically the most prominent is because it has helped demonstrate a tangible outcome towards improving recruitment efficiencies. Given that recruitment still happens to be a significant source of HR spend, that has obviously been helpful.”

Adding to this, Vidisha Mehta, Managing Director, Talent & Rewards, Singapore, Willis Towers Watson shares, “Recruitment will observe high growth, particularly in the early stages of sourcing and screening. There are several solutions in place, and these are continuing to evolve in terms of the use of AI to make the process faster, of higher quality and to minimize bias.”

Another function that has observed an instrumental growth in the last few years is Learning & Development and experts are optimistic about the function evolving at a much faster rate in Southeast Asia. The reasons are multifold but what is really driving a lot of investments into the area of L&D is preparing “the workforce for the future”. The governments in the SEA region, especially in Singapore are constantly implementing reforms and initiatives to upskill the workforce to keep up with the dynamics of evolving business needs. 

Today, learning is no longer about having a learning management system which was built many years ago with intent to track learning data. The focus now is on providing a continuous learning experience embedded into the employee’s workflow to make learning accessible, easy and experiential. 

Opportunities and Challenges

The HR Tech industry is one of the most sought after industry in Southeast Asia. If one considers Singapore alone, there are about 200 HR tech companies and most of them don’t even operate outside Singapore. Accelerating the efforts, the Singapore government is putting a lot of effort in preparing the future workforce, which is further giving mileage to HR Tech startups to grow. Additionally, the ease of doing business in Singapore has made it tremendously easy to set up or operate business in the country. Adding to the advantages, the overall emphasis on offering a great employee experience throughout the employee life-cycle is a favorable condition for investing in the SEA HR Tech industry.

But it is equally important to note that how HR Tech startups plan their next wave of growth/evolution has some important strategic choices to be made. Here are some steps which you should think about while investing in SEA HR Tech industry:

• Single-use case: HR Tech startups have been largely successful in building ‘Single Use Case’ applications for one or more geographies within SEA. Single use case examples could include recruitment automation using virtual assistants, employee pulse surveying, assessments/psychometric tools, etc. This has helped startups to gain early traction in the marketplace, win clients, grow revenues, etc. 
• Explore horizontal adjacencies across employee lifecycle: Another strategy for startups could be exploring horizontal adjacencies sideways across the employee lifecycle which will improve their stickiness with current clients as well as provide a more holistic offering which will not be prone to disruption by another advent of technology in the year ahead.
• Think about the problem: While organizations in SEA are investing a lot in HR Tech adoption, it has been noted that most of the time investors and HR Tech companies invest in this industry just because the market is hot! Achieving ROI from adopting technology still persists to be a struggle. If you plan to invest in HR Tech, you need to think about why are companies even investing in HR technology? Get to the core of the problem that HR is tackling right now.

While it suggests a huge opportunity for HR tech providers and investors within the sea region, the key to success lies with the tech companies which will offer a product that offers a great employee experience

The Way Ahead

Across the globe, the world of work is changing at an unprecedented rate due to new technologies, increased digitization and automation. Every aspect of career lifecycle - from recruitment to retention to retirement plan will be impacted by these shifts in how organizations do business. While it suggests a huge opportunity for HR tech providers and investors within the SEA region, the key to success lies with the tech companies which will offer a product that offers a great employee experience.

In the near future, organizations in the SEA region will have a much younger workforce as compared to their European and North American peers. This presents a unique opportunity for leaders in the region to implement a strategic digital culture of work as younger employees, who have been born in the digital age, will adopt new-age tools seamlessly. 

The investment and innovation in the industry have also been a result of favorable domestic policies. The governments of APAC nations like India, Singapore, and China have extensively campaigned for the use of digital technologies in everyday life and businesses by creating policies that favor the digital ecosystem. 

Additionally, providing mobile-enabled HR tech solutions is no longer a choice but a necessity. A growing body of evidence shows that a majority of organizations already offer mobile-first HR services to their employees and facilitate talent acquisition, payroll and leave management, and other critical workplace communication using the mobile. 

All of these developments also mean that the role of HR will also evolve and new tech-enabled roles will emerge in the industry. HR leaders and professionals will have to learn new topics, like data security and analytics, and will be expected to create a new framework of working that combines the best of technology and unique human skills.

Reference:

1. Vinayak HV, Fraser Thompson, and Oliver Tonby (2014) Understanding ASEAN: Seven things you need to know, Mckinsey Data Viewed: 01-11-2019  
2. Suvir Varma and Alex Boulton (2018) Investing in Southeast Asia: What’s Behind the Boom, Bain & Company Data Viewed: 01-11-2019
3. Singapore HRTech Market Map, 2019 Data Viewed: 01-10-2019
4. Suvir Varma and Alex Boulton, 2019, Bain & Company The Next Private Equity Hot Spots in Southeast Asia Data Viewed: 04-09-2019