This article first appeared in Digital Edge, The Edge Malaysia Weekly on January 24, 2022 - January 30, 2022

The world is still reeling from supply chain shocks due to the pandemic. Lockdowns in various countries led to labour shortages and bottlenecks in the transportation of goods. Yet at the same time, demand for goods skyrocketed as people indulged in online shopping. 

This has promoted the growth of the supply chain and mobility sectors, where start-ups are using technology to address these problems. Vynn Capital, a Kuala Lumpur-based early-stage venture capital (VC) firm, analysed the potential of these two sectors in a recently released report. It looked at VC deals in six Southeast Asian countries to understand where investment dollars are flowing.

“This problem cuts across all sub-sectors, whether you’re in retail, cosmetics or chemicals. Supply chain and mobility are sectors that saw a lot of challenges during the pandemic. There’s a lot of demand for growth, so supply has to catch up,” says Victor Chua, founding and managing partner of Vynn Capital.

“There are a lot of things that need to happen behind the scenes for every (e-commerce) order to be fulfilled. That’s why we think this is a long-term play. Wherever there is a problem, there is an opportunity.”

The old way of moving products around, he says, doesn’t work anymore. More automation is needed in warehouses to reduce the reliance on human labour, for instance. And it is a good time for investors to get into these sectors as start-ups are using technology to modernise.

The report also highlights corporate VCs pouring money into supply chain and mobility start-ups in Southeast Asia over the past few years. France’s Geopost, China’s Alibaba Group, Hong Kong’s AIA Co Ltd and Japan’s Mitsui Sumitomo Insurance Group are among the big investors. 

“The Koreans, Japanese and Americans are investing in Malaysia, Indonesia and other countries in the region. That’s an indication that supply chain and mobility are good sectors to look at,” he says. 

These corporate VCs are investing in foreign start-ups as they are interested in expanding their services to these markets. Therefore, start-ups that are interested in such strategic collaborations should assist them in market expansion and provide value, says Chua.

The total recorded investment volume in Malaysia’s supply chain start-ups was US$30 million (RM125 million) in 2021, which is a 206% year-on-year increase from 2020. The largest share of investments went to the sourcing and procurement segment, mainly due to the Series A+ funding round for Food Market Hub. The start-up is a business-to-business (B2B) e-procurement and inventory management platform. 

The second most popular investment was the last-mile logistics segment, thanks to the acquisition of online delivery platform Delivereat by Teleport, the cargo and logistics unit of AirAsia Group. The warehousing and e-fulfilment segment comes next due to investments in iStore iSend and Epost. Both start-ups offer end-to-end services for e-commerce orders.

Automation of the supply chain, in Chua’s view, is the biggest opportunity in this sector currently.

“Part of the reason why your parcels are delayed is because we lack manpower. People couldn’t work because of the pandemic. If another event like the pandemic happens, we’ll see a bottleneck. This is not something new. But we are looking at it because there is enhanced demand. There was no push factor before this,” he says.

The automation can be in the warehouse through the use of automated guided vehicles (AGV) to move products, while the last mile delivery could see the use of robots or drones. “You can see new technologies like the beacon technology or Bluetooth being used to move self-driving vehicles around the warehouse as well,” says Chua. 

The next huge area of opportunity is in data analytics. Players in this industry have a lot of data on how products are moved from one location to another and it can be used to enhance efficiency. 

“For instance, Dropee (B2B e-commerce marketplace) works with manufacturers and brand owners, who want to see more data. They want to understand the operational gaps in their warehouses so they can improve in terms of cost and managing timelines,” says Chua. 

Data analytics can also help businesses understand their target market and bring the products to them at the lowest cost possible. “All this goes hand in hand with automated processes and reducing the reliance on manpower to ensure there are fewer delays in deliveries,” he says.

In Malaysia, the first generation of supply chain companies that came up were those doing last-mile deliveries such as Ninja Van and Teleport, observes Chua. Then there is an emerging number of start-ups in the B2B e-commerce segment that are helping businesses digitalise. 

These start-ups can actually then use data analytics to offer their clients invoice factoring or lending services as well, he adds. 

According to the report, the investment volume in the supply chain sector in Southeast Asia is expected to decrease in 2022 after a bumper year. But the number of deals is still anticipated to increase. 

“The next few years will be a boom for supply chain companies. Right now, we see a lot of early-stage companies coming up. These companies will become more mature and attract funding from not just VCs but corporate VCs and even private equity firms. This will create success stories to inspire the next generation of entrepreneurs,” says Chua.

The total recorded investment volume in Malaysia’s mobility start-ups was at US$475 million, which is a 1,300% year-on-year increase in the vehicle marketplace segment from the previous year. This is mainly thanks to the Series D fundraising round of used car marketplace Carsome Group, which is also Malaysia’s first unicorn. 

The investment activity in this segment is less varied than that of neighbouring countries like Singapore, which has start-ups involved in vehicle manufacturing for autonomous vehicles, ride-hailing platforms, micro-mobility rental platforms and air mobility platforms. 

Chua acknowledges that Malaysia may be slower in this segment, but he believes that Carsome’s success will inspire other entrepreneurs. 

An area that he thinks entrepreneurs and investors should look at is data collection from vehicles, such as telematics, and the manufacturing of electric vehicles (EV), whether it’s four wheelers, two wheelers or scooters. 

“AGVs are part of the mobility segment as well. The supply chain and mobility sectors are similar. The only difference is that one transports products and the other, humans. A lot of solutions that we see in one industry can be applied in the other as well,” says Chua.

The software segment is another area that Chua thinks Malaysia can stand out in. “Because of the maturity of the technology community in Malaysia and how cost-efficient we are, we can do well here. We could focus on route optimisation software, for instance, or try to enhance existing platforms.”

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