Despite its impressive economic performance, Cambodia needs to diversify its economy.

Over the last decade, the country has undergone a significant structural transformation, shifting from reliance on agriculture to a more manufacturing-based economy.

Benefiting from preferential trade agreements with its trading partners, Cambodia has seen robust GDP growth.

However, as Cambodia is set to graduate from Least Developed Country status in 2029, it will lose some of the trade preferences it has historically enjoyed.

This makes it even more critical for the country to pursue economic diversification to ensure resilience and sustainable growth in the future.

In its efforts to develop the economy, the Cambodian government has been actively promoting digitalization across key areas, with promoting startups a key priority.

However, the startup ecosystem in Cambodia is still young, and startups face many constraints that hinder their growth and scalability. Against this backdrop, this paper seeks to explore startups' roles in promoting economic growth while identifying their challenges.

Roles of Startups in Stimulating Growth

Startups are seen as a potential engine for growth, contributing to economic development by introducing innovation, creating jobs, increasing market competition, and attracting investment.

Startup as an agent for Innovation

A startup is defined as a business entity that incorporates innovation within the business model, exhibiting strong growth potential but operating in uncertain and risky conditions.

This entity differs from traditional businesses because it offers new business ideas and innovations that address the market gap and fulfill customer needs.

By turning challenges into opportunities, startups incorporate technology to facilitate daily activities and accelerate business operations, contributing to active economic activities.

For instance, several startups in Cambodia focus on streamlining business operations, such as accounting (e.g., Localize), online booking (e.g., BookMeBus), and tourism (e.g., Solo Landcape). These startups simplify business operations and enhance service accessibility for customers.

Startup as a catalyst for market competition

Startups introduce new products and services that offer customers greater choice, compelling businesses to improve the quality and cost of their offerings. They compete to deliver more innovative and affordable services and products.

This competition fuels market growth and further drives economic development. For example, Cambodia’s fast-growing delivery app ecosystem, with players like Grab Food, Foodpanda and WOWNOW, has improved services and lowered prices, benefiting the entire market.

Startup as job creation

As with any growing sector, an increase in startups leads to more job opportunities in the market. Due to their innovative nature, startups often require skilled workers such as programmers, developers and business professionals.

More importantly, startups provide opportunities for skill training, which further improves the workforce.

The employment opportunities created by startups are not limited to high-skilled workers. Low-skilled workers also benefit from the growing startup landscape.

For example, in the delivery sectors, companies like Grab have significantly expanded employment opportunities in the informal sector.

In 2018, Grab employed an estimated 300,000 drivers in Indonesia, demonstrating how successful startups can create substantial job opportunities beyond traditional industries. 

While the exact number of workers employed by startups in the same sector in Cambodia is hard to determine, it is clear that startups play a pivotal role in expanding job markets across sectors.  

Startup as a driving force for investment

Driven by innovation and strong scalability potential, startups are attracting significant investor interest. The capital flow enables startups to continue product development and scale operations.

Some companies have already secured funding from major investors in Cambodia's startup ecosystem. For instance, Pilltech, a health tech company, obtained strategic investment from Sanofi’s Global Health Unit’s Impact Fund.

Jalat Logistics, a Cambodian logistics startup, also received joint funding from Satori Giants and X Venture Holdings.

Challenges of startups in Cambodia

While startups can have the potential to drive economic growth, they still face constraints, including a lack of funding, talent and a young startup ecosystem.

Lack of Funding

Several discussions have pointed to a lack of funding as a primary challenge to startups’ growth. While a limited number of investors can be a reason, the investment is too early for young startups.

From the investors’ perspective, startups in the early stage are very young with insufficient experience and knowledge in business operations, making investing in such entities a very risky choice.

However, the concern here is the difficulties that startups have in managing to sustain their operation to reach the investment-ready stage without having sufficient funding in the first place.

Lack of Talent

The available skilled talents in startups are still insufficient in entrepreneurship and technical skills. The lack of knowledge on building suitable business planning, revenue models, and entrepreneurial skills among early-stage startup founders continues to hinder startups’ growth.

Limited skilled personnel in technical fields also pose a concern to startups. While the level of proficiency of required skills is inadequate, both need to be presented simultaneously within startups for startup development, especially for tech startups.

However, some startups consist of talent from only one field. Therefore, they need to hire skilled personnel in areas that they lack. Nevertheless, recruiting new members also poses another issue.

Due to their high-risk nature, being employed in startups is viewed to be insecure and uncertain, making the employment less attractive compared to employment in bigger companies.

Young startup ecosystem

Even though the startup ecosystem in Cambodia is expanding at a very fast pace, it is still very young with a small number of startups and stakeholders compared to more mature ecosystems.

Although the Startup Cambodia platform is establishing itself as a central data point, there is still minimal engagement from ecosystem actors, causing limitations in data coverage, making it difficult to determine the size of the actual ecosystem.

Additionally, the network and connection among the ecosystem actors are yet to be well established. Plus, the support programs are still concentrated and uneven, and there is still a gap in knowledge sharing within the ecosystem. Plus, the number of specialized Entrepreneurial Support Organizations (ESOs) is still limited, with the majority of them offering very general support.

Policy recommendations

Fostering startups presents a promising path for driving growth and diversification beyond traditional sectors. However, several challenges hinder startups from reaching their full potential. To tackle these challenges, the following three recommendations are proposed:

First, ecosystem actors, particularly the ESOs, should continue to enhance both the quantity and quality of their support programs. These initiatives aim to improve founders' skills and knowledge while ensuring inclusivity in the support provided.

Second, the government and the ESOs should consider increasing the funding or equity-free investments to ensure that early-stage startups have sufficient resources to operate and sustain their businesses until they are ready to seek external investment.

Third, ecosystem actors should strengthen collaboration to enhance the vibrancy of the startup ecosystem. By increasing the value of participation, they can encourage greater involvement from currently absent stakeholders.

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Srey Bormey is currently a fellow of the Adenauer Young Scholars for Excellence, a public policy training program co-organised by Konrad Adenauer Stiftung Cambodia and the Institute for International Studies and Public Policy of the Royal University of Phnom Penh.

Disclaimer: The views expressed by the author do not necessarily reflect those of the editorial team, the Konrad-Adenauer-Stiftung, or the Institute for International Studies and Public Policy. Any opinions made in the article are solely those of the author and should not be attributed to any other entity. As such, the content may reflect personal opinions and is subject to revision.