The World Economic Forum predicts that 70% of new business value over the next decade will be via digital platforms which connect buyers, sellers, and other market participants.
However, it is surprising that Asia Pacific’s (Apac) largest enterprises are not looking to pivot faster to capitalise on this growth potential. In fact, the size of the platform economy in Apac decreased slightly in 2023, declining $2.225 billion, down by 9% from the previous year.
The benefits of a platform business model are clear. In 2019, a team of academics from MIT Sloan School of Management, University of Surrey, and Harvard Business School, found that the top 43 publicly-listed platform companies had nearly twice the operating profits, growth rates and market capitalisations of the 100 largest firms in the same businesses over a 20-year period, with half the workers.
So why aren’t more Apac companies making this shift?
For one, compared to digital-native firms, it can be challenging for traditional Apac businesses to drive the transformation required to embrace platforms, not least in transitioning from legacy business models and technologies.
At the same time, companies who have made the shift face significant challenges in scaling newly created platform services across the region and globally.
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Embracing digital and business transformation
The first challenge to overcome is the prevailing sense that the platform business model is better suited for digital native companies and more challenging for non digital-native incumbents (even if they are pursuing digital transformation). While these incumbent companies are only half as likely as digital natives to have launched their own platform, some of the world’s largest organisations have already launched their own platforms as their business models mature, according to McKinsey and Company.
This requires new strategies, new technologies, and new relationships. But when these companies make the transition successfully, they too can achieve the rapid growth and customer loyalty that the digital native platforms have achieved.
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In Asia Pacific, we are seeing numerous examples of platform business model innovation from some of the region’s largest non digital-native companies.
Toyota, founded in 1937, recently launched a marketplace designed to relieve the growing burden on auto repair shops in Japan while also reducing their carbon footprint. With the computerisation of vehicles, mechanics need to perform a larger range of repairs than they did in the past, and that has dramatically increased the capital costs of outfitting a shop. Toyota’s platform Mechacomi (powered by Stripe) enables auto repair shops to trade used equipment and tools directly with each other, reducing their costs and contributing to carbon neutrality.
Meanwhile, the platform launched by Lux Group, an Australian e-commerce company, gives its 7 million global members the option to pay when, how, and where they want for their trips. The self-service platform helped the company to reduce quarterly call volume by hundreds of hours, while increasing its conversation rate by 20%. Overall, the transformation has helped to maximise conversions, prevent fraud, and reduce pressure on the company’s in-house team.
Finding international scale
Once these new platform services have been created, the next challenge is scaling them — particularly across international borders. Apac businesses face increasing complex operational burdens due to new tax laws, data protection and localisation policies, and other regulations.
Digitalisation is enabling enterprises in Apac to ramp up international sales. A 2023 Stripe study showed that the number of enterprises selling internationally increased by 61% in Singapore, 39% in Japan, and 24% in Australia between 2022 and 2023. However, the expansion of platform models cross-border is not without challenges. More than half of businesses that operate platforms (53%) doubt their ability to operate across jurisdictions without tax and employment law challenges.
This complexity will increase in 2024 as the Organisation for Economic Co-operation and Development’s Base Erosion and Profit Shifting (BEPS) 2.0 Pillar Two takes effect. The new global minimum tax regulations will necessitate major updates to companies’ operating models to prepare for new financial reporting and compliance requirements.
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Platform companies that can navigate these international challenges will achieve significant rewards. This is exemplified by Australia’s health start-up Eucalyptus, which connects patients with doctors and pharmacies through its digital healthcare platforms.
When the company looked to expand beyond Australia’s borders into Europe, it needed to undertake careful research and fulfil important obligations to meet financial and health service standards in other countries. To do so, Eucalyptus opted for a single, centralised platform for billing and payments through Stripe to ensure transactions flow correctly from patients to Eucalyptus, and from Eucalyptus to doctors and pharmacies. This also enabled the company to prepare for Strong Customer Authentication, a European regulatory requirement for businesses processing online payments in the EU and UK markets.
The tipping point
The success of the platforms that have already been launched in Apac by both digital-natives and incumbents will likely lead to more enterprises exploring and scaling new platforms.
After all, the most impactful tipping point in each industry is often competition. According to a 2023 study by EY, only 20% of organisations currently have a platform strategy fully implemented across their business, but 38% expect to reach that level within the next year. Half of the companies that have transitioned to a platform mode did so to keep pace with their competitors as they recognise that staking out a platform leadership position in some markets can be a winner-takes-most proposition. Whatever the driver, platform business model transformation will continue to define the Apac operating environment in the coming years.
Paul Harapin is the chief revenue officer for Asia Pacific and Japan at Stripe
