That rumoured $3-billion cheque from Alibaba to Grab would be hefty by any standard.
It is equivalent to the net profit that Ant Group, Alibaba’s financial services unit, raked in during the first six months of 2020.
What Alibaba may get for it remains to be seen, but the potential is vast.
Grab has extensive reach in Southeast Asia. It offers its 187 million mobile users convenient city commutes, financial loans, insurance coverage, food delivered to the doorstep, and more. Over the last two years, the Southeast Asian ride-hailing giant has taken a leaf out of the Chinese unicorn playbook to transform itself into a super app for the region.
In its IPO filing in Shanghai and Hong Kong, Ant Group delineated its growth plans and how Southeast Asia is an integral part of its strategy. An investment in Grab then appears to check all the right boxes.
“Southeast Asia is a very important part of the strategy for both Alibaba and Ant Financial. They need this market to prove they can become a successful international company. Investing in the most valuable startup in Southeast Asia, which has a number of key resources, is a useful step in this drive,” said Jianggan Li, the founder and CEO of tech venture consultancy Momentum Works.
Alibaba’s efforts to penetrate Southeast Asia have delivered mixed results. Critics are quick to point to Southeast Asian e-commerce platform Lazada, in which the Chinese tech titan invested a whopping $4 billion between 2016 and 2018. Since taking control of the e-commerce player, Alibaba has replaced its CEO three times, reportedly due to its mediocre performance.
According to research firm iPrice, Shopee pipped Lazada to emerge as the most downloaded e-commerce app and the most used in Southeast Asia as of 2019-end.
The Alibaba-Grab tie-up could see Grab leveraging Lazada’s existing e-commerce and logistics expertise and giving the latter a boost when it comes to reach, fulfilling orders and transactions. This could result in the consolidation of similar or complementary businesses between the two, suggests Joel Shen, a technology lawyer at international law firm Withers.
“We may, for example, see the integration of Alipay functionality into GrabPay, or the introduction of Yu’ebao products for Grab users and merchants or indeed, the usage of Grab’s last-mile delivery capability for the fulfilment of Lazada orders,” said Shen.
But there are also lessons to be learnt from Alibaba’s acquisition of Lazada, where observers have noted a clash of management styles and corporate culture.
“Alibaba and Grab will have to find a balance between importing best practices that may have worked in China, but are untested anywhere else, and retaining the local knowledge and “secret sauce” that made Grab one of the most successful technology companies in Southeast Asia,” added Shen.
What about Grab?
According to Bloomberg, which first reported Alibaba’s interest in investing $3 billion in Grab, some Uber-held stock will be traded in the process.
In 2018, Uber had taken a 27.5 per cent stake in Grab as part of a deal that saw it exit the Southeast Asia market. According to an Uber investor update in August, that stake is now down to around 18 per cent.
The US company can redeem those shares for cash under certain conditions, including if Grab does not list on the public market by March 2023, according to Uber’s own initial public offering filing. That arrangement means Grab could be on the hook for more than $2 billion.
If Alibaba buys Uber-held Grab stock, it would ease off some of the pressure on the Singapore-headquartered firm to list.
Meanwhile, brewing in the background is another major deal — a potential merger with Gojek, its Indonesia-based arch-rival.
According to multiple sources in the know, both Grab and Gojek are throwing all their chips on the table in what are early discussions. How to carve out or not to carve out businesses in Indonesia? Who deserves a greater say in management? What becomes of their fintech plans and expansion?
One industry observer speculates that Alibaba’s $3 billion bid is really about Grab and Gojek.
“This looks like a power play before the merger. It’s to gain more bargaining power which will determine who will win the fight for control if the merger between Gojek and Grab happens. Having more backers will provide an upper hand in negotiations,” said Kenneth Li, managing partner at venture capital firm MDI Ventures.
The Bloomberg report suggests SoftBank’s Masayoshi Son is the one driving these discussions. Son, an investor in leading ride-hailing companies across the world, has previously used his might as a major shareholder to push Uber to unload stakes in Grab, China’s Didi Chuxing and Russia’s Yandex.
If these consolidations go according to plan, Alibaba will be the biggest winner in this equation, opines Farid MN, chief strategy officer at Avana Social Commerce. “Alibaba will have control in Indonesia through transport (Grab and Gojek), payments (OVO, Dana and GoPay), e-commerce (Lazada and Tokopedia) and other services (GoFood, GoPlay, etc.),” said Farid.
“My question is whether the Indonesia government will allow such Chinese dominance over consumers’ daily activities. How will this dominance across the value chain impact the Usaha Mikro Kecil Menengah (UMKM) or micro, small and medium enterprises?”
Ardi Wirdana contributed to this story.