Alibaba-Lazada deal to turn SE Asia into e-commerce battleground

Employees at online retailer Lazada fill orders at the company's warehouse in Jakarta, Indonesia April 15, 2016. REUTERS/Darren Whiteside

With its $1 billion buy of online retailer Lazada, Alibaba has signaled Southeast Asia as a regional e-commerce battleground – with 600 million people, and no shortage of logistical headaches.

The region has the potential to help global retailers offset slowing growth momentum in their core markets, but it comes with complex regulatory, logistical and language barriers. Internet connections can be slow and the vast archipelago landscape can prove daunting to even hardened logistics experts.

In an interview in October, Lazada’s chief operating officer Pierre Poignant highlighted some of the hurdles in delivering packages in the Philippines, for example.

“In some places, there’s just no address. It’s like ‘take the house on the left’. And in many places you have to take a boat to get there… It can be several days or even weeks to reach some very remote island,” he told Reuters.

A study by CLSA last year showed that almost a quarter of the online orders it placed in the Philippines failed to arrive, and multiple delivery delays were reported.

Such obstacles mean the market is highly fragmented, with no dominant force. Start-up funds say international companies wanting to get in are likely to follow Alibaba’s route by buying existing operators rather than trying to go it alone.

“The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, a founding partner at Golden Gate Ventures which is invested in marketplace Carousell and online grocer Redmart.

“Lazada has done a very good job of operating in multiple countries. That’s not something Alibaba is familiar with.”

Headquartered in Singapore, Lazada also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam.

KOMODO IN THE JUNGLE”

Though Lazada more than tripled the number of active customers to 7.3 million, its losses more than doubled last year, and experts warn that investors should be prepared for a long wait before the industry turns a profit.

The region has dozens of other e-commerce players, including Amazon.com, Tokopedia, OLX, Qoo10, Zalora, Cung Mua, Blibli and Etsy – but no one platform controls more than a fifth of the market, according to Bain & Co.

And the list keeps growing, with payment start-ups such as Fastacash, Xoom and GoSwift aiming for a foothold in the region.

Lauria said it would be easier for an international player to acquire rather than “copy and paste”, especially for online marketplaces.

For those companies already scrapping it out for a small slice of the market, consolidation may be the route to survival.

“The (market) shares of smaller players are definitely going to get smaller with Alibaba jumping into the region,” said Cris Duy Tran, a consultant at Frost & Sullivan. “One way to survive is to partner with some of the other players to get bigger.”

A person with direct knowledge of the Lazada deal said Alibaba reviewed several targets before the acquisition.

“(Lazada) gives them scale. Organically, it would have taken a lot of time to build,” the person said.

An Alibaba spokesman in Hong Kong said the e-commerce giant sees the Lazada deal as a “win-win investment.”

“We see SE Asia as a strategic piece of our globalization strategy. It’s a market that shows significant e-commerce potential,” with a robust economic environment, attractive demographics, low e-commerce penetration and some 33 million Chinese, who hold potential for cross-border commerce, he said in an emailed response to Reuters inquiries.

Another source with direct knowledge of the Lazada deal said Alibaba would likely not stop at just one acquisition in the region. “It’s a $200 billion company … doing a $1 billion deal in one segment of e-commerce. Does that mean the end of it? I don’t think so. They still have appetite,” the person said.

Other existing firms were primed for more competition.

“I say today that Tokopedia is the komodo in the 17,000-island archipelago,” said William Tanuwijaya, co-founder and CEO of SoftBank-backed Tokopedia, in response to Alibaba Chairman Jack Ma’s one-time description of his e-commerce group as a crocodile in the Yangtze river.

“Fighting in a river, the komodo will lose, but fighting in the jungle on one of our islands, the komodo has a pretty good chance to win,” Tanuwijaya said.

Also Read:

Alibaba tries to shed homemarket reliance with $1b bet on Lazada

Alibaba buys Rocket Internet-controlled Lazada for $1b, expands SEA footprint

Reuters

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.