A recent study by Oxford Economics, commissioned by Digital Prosperity Asia, highlights the significant impact of digital regulations on startups across Asia. The report, focusing on Malaysia, India, and South Korea, reveals that 74% of startups are experiencing increased costs due to compliance, reshaping the region’s startup ecosystem.
The study found that 88% of startups face operational constraints from digital regulatory compliance, with 42% allocating over 15% of their operating budget to these costs. This has led many startups to reorganise operations and prioritise compliance talent over growth-focused roles. “Digital regulations can strengthen trust in the digital economy, but the benefits are often realised unevenly,” said Henry Worthington, Managing Director at Oxford Economics.
Innovation is also being constrained, with 83% of startups reporting that regulations have impacted their activities. A significant 66% have redirected financial resources from research and development (R&D) to compliance, resulting in slower product development and longer time-to-market, particularly affecting younger startups.
Investment decisions are similarly influenced, with 63% of venture capitalists considering regulatory factors as key drivers. The study warns that restrictive regulations could reduce venture capital funding by over 25% in some markets over the next decade.
The findings underscore the need for well-designed regulatory frameworks that balance trust and growth. As compliance becomes a structural cost, policymakers have the opportunity to empower startups whilst safeguarding trust, according to Koh Liang Wei from the DPA Secretariat. The report calls for a collaborative approach to ensure regulations support innovation and investment in Asia’s burgeoning digital economy.
