Author(s): Raghu Gopal
This week, Chinese e-commerce giant Alibaba agreed to buy a controlling stake in Lazada, a Singapore-based online retailer. Lazada operates a leading online shopping platform in the major markets of Southeast Asia, such as Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. As part of the deal Alibaba bought about $500 million of new shares and took some of the stakes previously owned by Tesco and Germany-based Rocket Internet.
According to Alibaba president Michael Evans, Lazada will provide Alibaba with "access to a platform with a large and growing consumer base outside China, a proven management team and a solid foundation for future growth in one of the most promising regions for e-commerce globally."
China's e-commerce market is the largest in the world, but it has become crowded with competition from JD.com, the number-two retailer, currently growing faster than Alibaba. In 2015, JD.com's gross merchandise volume, the total value of goods and services sold online, jumped 79 percent over the previous year, compared with Alibaba's 30 percent growth in business-to-consumer operations. Alibaba's investment is a clear effort to push into other major markets neighbouring China. Last year, Alibaba together with Foxconn and SoftBank took part in a $500 million investment in Indian e-commerce start-up Snapdeal.
In recent years, both India and Indonesia have seen increases in smartphone and Internet users. Alibaba is positioning itself to meet its own goal of getting at least half of its revenue from overseas markets. CCS Insight predicted this type of expansion beyond China as giants like Alibaba look to diversify their international reach to gain new revenue from markets with further growth potential.
Alibaba is now well-represented in India and Indonesia, the world's second-largest and fourth-largest online markets by number of people. As income and Internet adoption rise across the region, a mounting percentage of these populations are shopping online. In Lazada, Alibaba will be well-served by a partner that understands and can navigate each country's nuances.