Southeast Asia e-Commerce Trends 2017
March 8, 2017
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April 21, 2017

Southeast Asia: The New Battleground of Alibaba

Alibaba, the Chinese e-Commerce giant, is looking forward to establish its foothold in Southeast Asia. The region is home to 620 million people of which more than 250 million are smartphone users. Although online shopping accounts for less than 5% of all retail in Southeast Asia but it has huge potential and is rising rapidly.  In 2015, 150 million people searched for products online of which 100 million purchased products online.

The maturing Chinese e-Commerce market coupled with slow economic growth forced Alibaba to look outside China. It is now seriously working to get into Southeast Asia.

Image Source: CNBC

Lazada and Redmart:

In April last year, Alibaba bought controlling stake in Lazada, one of the top e-Commerce companies of Southeast Asia. Alibaba gave $500 million in fresh capital and acquired $500 million in stock. This is the biggest overseas deal of Alibaba till date. It is also the first billion dollar acquisition in Southeast Asia e-Commerce

Lazada was established in 2012 and the company operates in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The company runs 12 warehouses and 92 distribution centers. The company also has more than 100 logistics partners including Kerry Logistics Network Ltd., DHL Thailand and JNE Express in Indonesia. Lazada also forged partnership with China’s state postal service and CJ Korea Express Corp. Media reports say that if things go as planned Alibaba will fully acquire Lazada and include the company into its e-Commerce system.

After getting investment from Alibaba, Lazada acquired Singapore-based grocery site Redmart. According to Techcrunch, Lazada spent $30 million  to $40 million for the acquisition. RedMart has more than 150 trucks. Per order, they deliver 22 food items. The company plans to cut its delivery time by four to six hours  within the first half of this year. In the second half, Redmart is planning to offer express service that will deliver orders in two hours.

Lazada will sell groceries online in Malaysia, Indonesia, Thailand and it is said to be starting from this year.

M-Daq:

Ant Financial, Alibaba’s subsidiary,  invested in a Singapore-based fintech startup M-Daq.  In November 2015, M-Daq rasied $87 million in its series C round funding making it one of the top-funded startups in Singapore. According to Tech In Asia, the “issued share capital” of Ant Financial in M-Daq is worth $22 million.

In September 2015, M-Daq launched a forex product called Aladdin. The product helps e-Commerce companies to sell products to foreign buyers. Meaning it is a cross-border e-Commerce enabling product. This will help Chinese sellers, who sell their products on Alibaba’s online market places.

Ascend Money

Last year, Ant Financial also invested in Ascend Money, a Thailand-based company. It is Alibaba’s first investment in Thailand. Ascend Money is Ant Financial’s second global partner.

Ascend Money is a subsidiary of Ascend  Group. It has an online payments service called True Money. Ascend Nano is a lending service. Ascend has operates digital wallets in   Thailand, Indonesia, the Philippines and Vietnam. In Myanmar and Cambodia, it works with local banks and is applying for an online payments license.

Ascend will develop a platform like Alibab’s Koubei. Koubei is a search engine that provides users information about local businesses such as restaurants, grocery shops etc.

Ant Financial will also help Ascend build an insurance service and share its cloud computing and cyber-security technology with Ascend.

Image Source: CNBC

Quantium Solutions International (QSI) and SingPost stake:

Quantium Solutions International (QSI) is a joint venture between Singapore Post Limited (SingPost) and Alibaba Group Holding Limited. QSI is an e-Commerce logistics service provider.

Alibaba initially became a customer of SingPost. In 2014, Alibaba became its shareholder. Eventually, SingPost became Alibaba’s strategic logistics partner.

News of the joint venture first came out on July 8, 2015. The joint venture was completed in October 2016. Alibaba invested $86.2 million. It owns 34% stake in QSI while SingPost owns 66%.

QSI will help SingPost and Alibaba to grow their logistics footprints in Southeast Asia and Oceania. QSI currently operates in 11 markets and provides complete e-Commerce services such as warehousing, fulfillment and last mile delivery.

Alibaba is also the second biggest investor of Singapore Post. Last year, Alibaba invested $187.1 million and increased its stake from 10.2% to 14.4% in SingPost.

Alibaba UC Browser:

Another big tool for Alibaba’s market expansion in Southeast Asia is its UC web browser. Launched in 2004, the browser is now available in different regions of Southeast Asia. UCWeb has 420 million monthly active users, of which, more than 100 million are in India.

The UC Browser is the top mobile browser in India, accounting for more than 58% of market share according to StatCounter.

 

In Indonesia, UC was launched in local language in 2012. In just three years, it became the most popular web browser of Indonesia. According to analytics service StatCounter, as of March 2015, UC Browser recorded 28.51% of the market share in Indonesia. The browser app became the second most downloaded app at Google Play Indonesia. Android users account for 85% of its user base in Indonesia.

In 2016, UCWeb launched UC News, an application that collects news from various sources and recommends them to users based on their interests.  Five months after launch, the app went on to become the top app under the news category in Google Play.

That same year, UC Web also launched We-Media program that enables small content publishers, bloggers to publish content on UC News.

In January 2017, UC Web announced to invest $30 million into its news aggregator business in India and Indonesia over the next two years. UC Web aims to add more than 30,000 self-publishers in its platform who will generate more than 10,000 articles for UC News every day.

Alibaba in India:

India’s e-Commerce sector is getting all the attention these days. According to The Associated Chambers of Commerce of India (ASSOCHAM) 69 million people purchased online in 2016 and this year, that number is expected to cross 100 million. Top e-Commerce companies of the world are now fighting to establish their footholds in India. Amazon is already there and is now the second largest e-Commerce player. However, Alibaba is not sitting quietly.

In 2015, Ant Financial and Alibaba jointly invested about $1 billion into technology firm One97 Communications, which runs Paytm, India’s largest mobile payment and commerce platform. Ant Financial and Alibaba jointly took a 25 percent stake in February for $500 million and another 15 percent in September 2015 for $500 million.

In March last year, One97 Communications separated its e-Commerce business and created a new company called Paytm E-Commerce Pvt. Ltd. After separation, Paytm E-Commerce will be able to raise funds independently. In February, Paytm E-Commerce Pvt. Ltd. launched a mobile application called Paytm Mall.

According to latest news Alibaba will invest another $177 million in  Paytm E-Commerce Pvt. Ltd. Upon completion of this investment, Alibaba’s stake will increase to 62%.

In addition, Alibaba also owns a 5% stake in another major e-Commerce player of India; Snapdeal.

Alibaba is also planning to invest in a movie booking site in India. Alibaba Pictures, the movie and TV content business arm of the group, is in talks with Orbgen Technologies which operates TicketNew. Alibaba plans to buy 70-75% stake in Orbgen Technologies for $35 million.

Alibaba in Australia:

On February 4, 2017, Alibaba opened its Australia headquarters. From this office, the company will support 1,300 Australian and 400 New Zealand businesses that are selling products on Tmall and Tmall Global.

Alibaba will also provide other services from Australia such as cloud computing, online payments, logistics.

Alibaba’s international business-to-business website has been operating in Australia since 1999. More than 1,000 offline stores accept Alipay. In 2015, Alibaba Cloud opened a data center.

So what is Alibaba’s strategy?

All this time, I have talked about Alibaba’s acquisitions and investments in the Southeast Asian region but the million dollar question is- How Alibaba is going to take over the market? Will it only continue to pour in money in these companies? The answer is no.

Aliaba will gradually introduce its own services through these platforms. In China, Alibaba launched Taobao in 2003 and Alipay in 2004. Alipay was integrated with Taobao. As Taobao’s popularity increased, Alipay users also increased. Eventually, non-Alipay users became motivated to use Alipay. Today, Alipay is the largest digital payment service provider in China with more than 400 million users.

In Southeast Asia, Alibaba will follow this approach. It acquired Lazada. Lazada is already is a big player and has a significant number of shoppers on its platform. Now, Alibaba will gradually integrate its payment, delivery and other services with Lazada and increase its capability.

Alipay invested in M-Daq, Ascend Money, Paytm. All these are payment platforms. Alipay will eventually incorporate these services into its ecosystem.

Alibaba also bought stakes in SingPost, which is one of the top logistics service provider. Alibaba also created QSI.

Alibaba will eventually converge all these companies and build a complete e-Commerce ecosystem thus creating the biggest e-Commerce ecosystem in the shortest possible time.

Geography and other issues:

From geographical point of view, if you look at the map of Southeast Asia, you will notice that Indonesia, Malaysia, Vietnam, Thailand, India are close to China; Alibaba’s home turf. Hence, Alibaba will obviously target these countries.

Cultural similarity is another big issue. Southeast Asian countries are home 32.7 million Chinese people.

Moreover, the obstacles e-Commerce is facing in these countries are also similar to what Chinese e-Commerce faced 6/7 years ago. For example, Cash-on-Delivery is still the preferred mode of payment for online shopping in Southeast Asian countries. This was also the case in China 6/7 years ago. Chinese people are very cautious about monetary transactions and they were not big fans of credit cards or mobile payments. To address this issue, Alipay came up with escrow features which made it very popular.

Logistics is also another big problem for Southeast Asian countries. Many countries do not have good roads, e-Commerce warehouse and fulfillment centers. Internet connectivity is not good in many places. In order to popularize e-Commerce, a company must invest huge amount of money in logistics in Southeast Asia. In India, Amazon spent billions of dollars in building fulfillment centers. Alibaba, instead of building its own logistics network, is investing or acquiring  local logistics service providers. I already mentioned its investment in SingPost. Alibaba’s logistics business arm Cainiao is also working on developing its footprint in the region. Cainiao’s network covers more than 224 countries of the world. So, Alibaba will develop a sound delivery system in Southeast Asia.

Asset light approach:

Alibaba’s approach is termed as “Asset light approach.” Alibaba is not trying to build an ecosystem from nothing. It is actually picking up existing players and technology providers and integrating them to its platform. In this way, it will create a huge online marketplace in the shortest possible time. Following this approach, Alibaba has been able to build a large e-Commerce ecosystem in China.

Alibaba’s logistics business Cainiao is a good example of this model.  Cainiao is a consortium of top logistics service providing companies of China. Here is a chart showing the shareholders of Cainiao.

Through these companies, Alibaba wanted to build a Smart Logistics Network that will deliver products to all over China in twenty four hours. Each of these companies has a particular role to play in this consortium. FOSUN builds warehouses, Yintai manages warehouse operations, FORCHN is responsible for line-haul logistics, ZTO, STO and YTO work on last-mile deliveries. Alibaba, the leader of the pack, created the e-Commerce platform and controls the flow of information and financial matters.

In similar fashion, Alibaba partnered with other logistics service provider outside China.

It has partner warehouses in nine countries (including U.S., UK, Germany, Australia, Japan, South Korea). These warehouses serve as consolidation centers. Manufacturers first send their goods to these warehouses. From here they are shipped to China. In 2016, Alibaba launched global fulfillment centers in Hong Kong, Sydney and Melbourne. These centers offer shipping and inventory management services for merchants that want to outsource logistics.

Alibaba’s big challenge:

For many years, Alibaba has been condemned by top brands for selling counterfeit products. Many merchants in Taobao marketplace sell fake goods. According to the International Anti-Counterfeiting Coalition, the value of fake goods sold on Alibaba’s online platforms exceeded $1.7 trillion.

U.S. companies suffer most at the hand of brand pirates, with one in five knock-offs infringing on American products, and 63% of counterfeit goods come from China, according to the Organization for Economic Cooperation and Development.

The good news is Alibaba has become serious about this problem. Alibaba uses data and artificial intelligence to capture merchants selling fake goods. It also employs 2,000 permanent staff and 5,000 volunteers to help find counterfeit goods. In 2015, Alibaba spent 150 million yuan to test-buy suspected goods from merchants.

Earlier this year, Alibaba, for the first time, filed complaints against two sellers of fake Swarovski watches at Shenzhen Longgang District People’s Court and claimed $201,482 in damages.

Taobao also sued another pet-food seller for RMB 2.67 million in damages and legal fees. On March 3, Taobao filed civil lawsuit with the Shanghai Fengxian District People’s Court.

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