Technology startups set for rapid growth in Cambodia

Technology-based startups are increasingly becoming a vital part of the business landscape across the globe.

By applying technologies to create new products and services, resolve existing issues, these startups can make a significant contribution to economic development while at the same time generating social and environmental benefits.

But to survive and thrive, technology startups require an enabling ecosystem that includes supportive government policy, easy access to capital, skilled personnel, quality digital infrastructure, and several other elements.

The Cambodian technology startup ecosystem is developing rapidly as private support for new ideas and innovations from incubators, local angel investors, private equity (PEs), and venture capital funds is widening. Over 300 technology startups are in the various stages of development.

Higher education institutions have begun to focus on promoting entrepreneurship and innovation, with some universities setting up their own incubation and startup centers as well as industry linkage offices.

The enactment of laws, like the Consumer Protection Law, the E-Commerce Law, and the Competition Law, has helped in creating more favourable conditions for entrepreneurship and risk-taking.

However, the National Innovation System of Cambodia is still underdeveloped. Cambodia ranked 101 out of 127 countries in the 2018 Global Innovation Index. It scored particularly low in terms of expenditure on education, tertiary enrolment, and knowledge-intensive employment.

While the new government structure for promoting STI can provide a strong basis for the development of the Cambodian National Innovation System, collaboration among stakeholders (within the government and between the government institutions, the private sector, and the academia) is currently weak. The diffused responsibility for science and technology across 11 key ministries presents challenges for effective policy development and governance, and the mandate of MISTI (Ministry of Industry, Science, Technology and Innovation) as the main coordinating institution is still to be consolidated.

Vongsey Vissoth, Minister attached to the Prime Minister, Permanent Secretary of State of the Ministry of Economy and Finance, and Chairman of the Entrepreneurship Development Fund, gave an engaging presentation on the SMEs (small and medium enterprises) and entrepreneurship ecosystem and said it would take public and private sector collaboration to uplift Cambodia’s SMEs.

“Cambodian entrepreneurs have provided support to nearly 400 new businesses and nurtured a youth entrepreneurial culture in target provinces across the country through capacity building, business networking and marketing, and business competition programmes through funding startups as well,” Vongsey Vissoth said.

Vongsey Vissoth, Minister attached to the Prime Minister, Permanent Secretary of State at the Ministry of Economy and Finance. Supplied

In addition, the Royal Government of Cambodia has been introducing the strategic framework and programmes to restore and promote economic growth while ‘living with Covid-19’ amid the new normal for 2021-23 and strengthen the potential for sustainable growth, economic competitiveness, and diversification to capture new emerging opportunities in line with regional and global trends.

Benefit of business environment ecosystem

Technology-based startups are increasingly becoming an important part of the business landscape in Cambodia. By applying technologies to create new products and services, these startups can make a significant contribution to economic development while at the same time generating social and environmental benefits.

But to survive and thrive, technology startups require an enabling ecosystem that includes supportive government policy, easy access to capital, skilled personnel, quality digital infrastructure, and several other elements.

Tan Monivann, Vice President of the Cambodia Chamber of Commerce, said in order to improve the business environment, all sectors must consider contributing towards strengthening the ecosystem.

“Business owners and entrepreneurs in all sectors need to turn to self-production, such as packaged food, which Cambodia imports almost 80-90 percent. Strengthening local production at a competitive price, it requires business owners and stakeholders to work together as an ecosystem, to integrate human resources and finance. We need to be organized as a sectorial network as business, or any production cannot cover itself almost all, have to know how to divide and invest in each section,” he said.

Recounting his experience, Monivann said, “The private sector plays an important role in strengthening the ecosystem. I urge the private sector to consider the possibility of working together to create this ecosystem.”

Tan Monivann, Vice President of the Cambodia Chamber of Commerce. Supplied

Tech startups in Cambodia

Cambodia is deepening the digitization of its economy and embarking on the Fourth Industrial Revolution (Industry 4.0). In this context, fostering entrepreneurship and startups becomes a key government priority, being addressed at the highest policy levels. Cambodia has been described as having a promising startup landscape, given the rise of technology startups and the emergence of multiple supporting actors in the ecosystem.

Tech startups start emerging in Cambodia in the early 2010s. They have grown remarkably since then, increasing in number from less than 50 in 2013 to possibly as many as 300  by 2018. At the end of 2021, around 90 startups registered under the Cambodia National Programmes. According to another source, around 150 startups that completed impacts Hub Programmes are still active and in operation.

Most tech startups are involved in Fintech (a portmanteau for ‘financial technology. It’s a catch-all term for technology used to augment, streamline, digitize or disrupt traditional financial services.), followed by media and advertising, e-commerce, development services, and digital marketplaces.

The government and other stakeholders actively support tech startups in Cambodia. Issues relating to the tech startup and entrepreneurship ecosystem are addressed in high-level policies and strategies such as the Rectangular Strategy IV; National Strategic Development Plan (2019–23); Industrial Development Policy 2015–25; Cambodia Digital Economy and Society Policy Framework; Science, Technology, and Innovation Roadmap; and the E-commerce Law and Strategy. Startups are also a focus of the Sub-Decree on Management of Digital New Incentives and the draft Small and Medium Enterprise (SME) Development Framework.

However, there is currently no separate and distinct startup policy or roadmap in place. Other government initiatives, which support startups as well as more conventional small enterprises, include the Skills Development Fund, Entrepreneurship Development Fund, the government-owned SME Bank, Credit Guarantee Corporation of Cambodia, Startup Cambodia National Program, Khmer Enterprise, and Techo Startup Center.

Many non-government organizations (NGOs) also support the tech startup ecosystem through such mechanisms as co-working spaces, incubation and acceleration programmes, mentorships, and events that expose startups to domestic and international markets. By the end of 2021, there were about 30 co-working spaces operating and around 30 incubators and accelerators run by the government, developmental partners, and the private sector. In addition, financing is provided by around 20 angel investors, venture capital firms, private equity firms, and crowdfunding platforms.

Although remarkable progress has been made in building the ecosystem, there is limited attention and support focused on the Greentech, Agritech, health tech, and edutech areas. Tech startups in these areas are small and in the early stages of development, but their number has grown over the past few years despite the coronavirus (Covid-19) pandemic. Among these areas, more attention and support have been given to Agritech and Greentech, with sector-specific incubation and acceleration programmes, while there are no sector-specific incubators for edutech and health tech.

Cambodia has many higher education institutions, but the number of graduates in science, technology, engineering, and mathematics (STEM), as well as in health science, agriculture, and extractive and natural sciences remain relatively low, thus causing a tech talent shortage. Cambodia has reportedly around 50,000 digitally talented persons in the information and communication technology sector, but digital skills are reportedly only moderate and not specialized. Startups encounter many challenges such as limited business and technical skills of their founders, inadequate networks, and a lack of information about what the ecosystem can provide and what other players exist.

Other challenges include tax compliance, inadequate financing, high staff turnover, and weak markets due to the low digital literacy of potential customers. New startups also need more qualified mentors. The composition of the founding team is often too homogenous (usually they have the same skills and background), and many founders still work at a day job, limiting time spent on their innovation. Some startups that produce physical products have difficulty finding a local manufacturer.

Meanwhile, there are many opportunities to grow startups given Cambodia’s large youth population and the interest of the government and other stakeholders.

However, constraints to growth remain. To strengthen the ecosystem and promote startups to scale up, a startup policy or road map might be beneficial. Furthermore, there is a need to increase and attract tech talent, promote positive role models, and increase the number of mentors and the quality of mentorship. In addition, more information and better information sharing among startups and between startups and support agencies would be helpful. A stronger culture of entrepreneurship and risk-taking would encourage more people to start new ventures.

Cambodian Readiness for Industry 4.0

According to a report by the Cambodia  Development Resource Institute about  Industry 4.0: Prospects and Challenges for Cambodia’s Manufacturing Sector,  “The World Economic Forum (WEF) have developed a readiness diagnostic framework to help countries understand their current level of readiness for the future of production, as well as corresponding opportunities and challenges. The Framework comprises 59 indicators across two main components: drivers of production and structure of production.

Of the 100 countries assessed, only 25, including just five Asian Countries (China, Japan, South Korea, Malaysia, and Singapore), are deemed ready. Meanwhile, Cambodia is among the countries that are least ready for future production, ranked 91st for the driver of production with an overall score of 3.63 (out of 10) and 81st for the structure of production with an overall score of 3.56.”

“Industry 4.0 relies on new and emerging technology that requires an ecosystem for supporting and maintaining fast growth. Building a strong national innovation ecosystem, with the government playing a lead role, is crucial. The industry 4.0 framework should be focused on four elements: institutional framework, technology and innovation, human capital, and public-private partnership,”

Challenges Facing Tech Startups

Apart from the different technical skills required, Greentech, Agritech, health tech, and edutech startups face relatively similar challenges as other sectors. There are both common and different challenges for early- and growth-stage tech startups as well as those with and without experience.

The common challenges reported by both early- and growth-stage startups include: (i) limited information on rules and regulations; (ii) difficulty in finding highly skilled staff, mainly in ICT and engineering, and high staff turnover because of perceived job insecurity and preference for working in large or stable companies; (iii) limited networks, a lack of qualified mentors, and weak technology support; and (iv) startups’ lack of trust in mentors owing to concerns about sharing their business ideas for fear of confidentiality breach and another startup taking up their idea.

Additional challenges are limited digital knowledge of prospective customers and clients and the latter’s unwillingness to adopt new technology; lack of cooperation or assistance from large companies that are reluctant to be business partners as they perceive startups to be new, volatile, and therefore risky; difficulty finding local manufacturers to produce the physical products–for instance, interviewed Greentech startups claimed they could not find local suppliers with the digital capacity to produce their products; and lack of skills to deal with venture capital (VC) firms and other investors, including an understanding of business valuation, legal investment issues, and the due diligence process –interviews with VC firms reveal that startups tend to overvalue their businesses.

Mechanisms to improve the tech startup ecosystem

lbert Park, Chief Economist of the Asian Development Bank (ADB) said: “The government and other stakeholders have been active in supporting tech startups. International VC firms, incubators, and accelerators have also entered the Cambodian market,”

“Although remarkable progress has been made to build the tech startup ecosystem, little attention has been focused specifically on Greentech, Agritech, health tech, and edutech. Tech startups in these areas are at the infancy stage. So far, many supporting mechanisms have been introduced, including coworking space, incubation and acceleration programmes, mentorship, and events, to expose startups to domestic and international markets. Also, various sources of funds have been made available to startups,” he said.

However, many challenges remain, including improving the investment readiness of startups, formalizing more efficient rules and regulations, creating additional information-sharing channels, deepening digital literacy, facilitating better stakeholder coordination, developing more tech talent, providing greater mentoring quality, and stimulating a richer risk-taking culture.