Alibaba Group: Acquiring Lazada to Win the Southeast Asia

E-Commerce Battle

SUMMARY

SG 4:
Imam Firdaus 29319129
Iqbal Ilham 29319081
Laurentia Anggun P. 29319143
Max Suyatno S. 29319170
Muhammad Rizatha 29319064

Master of Business Administration Program

School of Business and Management
Institut Teknologi Bandung
2019
 Alibaba Group: Acquiring Lazada to Win the Southeast Asia
E-Commerce Battle

Executive Summary
In April 2016, Alibaba Group Holding Limited (Alibaba) acquired the cash-strapped German e-
commerce company Lazada Group (Lazada) to enter the Southeast Asian market and gain an additional
source of revenue. Lazada's value proposition of an effortless shopping experience, combined with
rising competition, had caused Lazada to over-invest in logistics infrastructure. The cash injection from
Alibaba's acquisition would allow Lazada to continue to pursue its strategic imperatives while
leveraging Alibaba's online experience and other resources in China. Given the competitive
environment in China, was Southeast Asia an appropriate destination for Alibaba’s globalization
efforts? Should Alibaba have entered the region through joint ventures or greenfield investment?
Should Alibaba integrate Lazada or use a partnering approach? Did a report that Amazon would delay
its entry to the region to a later date mean that Alibaba and Lazada had successfully built a fortress that
could pre-empt even the world’s largest e-commerce player?

Was Southeast Asia an Appropriate Destination for Alibaba’s Globalization Efforts?

Southeast Asia has a population of 618 million. Its middle class is relatively small right now. There
were an estimated 190 million people in the region who could be defined as middle class with a
disposable income of $16-$100 a day. That’s projected to grow to over 400 million in 2020, also
factoring in population growth. It equates to a growing user base for Alibaba’s Lazada, of both buyers
and merchants selling their products on the marketplace. Acquiring the market leader Lazada seemed
to be an appropriate strategic move for Alibaba to extend its geographical reach into the promising
Southeast Asian e-commerce market.

However, getting it right wasn’t easy. Southeast Asia is big. In parts it’s really undeveloped, internet
connectivity and speeds can be dire, and the populace is fragmented across thousands of islands. Each
country has its own language and distinct laws, cultural preferences, taxes, payment methods, custom
clearance procedures, and logistical setups. Each has different startups competing in e-commerce. Each
has a different rate of GDP growth and varying demographics. It doesn’t end there. In much of
Southeast Asia, infrastructure is poor or barely existent. Complicated roads and trains make the
shipping of goods bought online be slow and more expensive.
All those factors represent huge barriers to entry in ecommerce. It’s little wonder that few e-commerce
startups born in Southeast Asia expand to cover the whole region. Most stick to their own nation, or
perhaps venture only into a familiar neighbor.

Should Alibaba Have Entered the Region through Joint Ventures or Greenfield Investment?
Lazada, with its six separate sites for each country, is the e-commerce leader in the region, but it’s not
necessarily the top online store in each nation. However, Lazada’s competitive advantages in the
region, particularly its brand awareness and recognition, would take years for Alibaba if it chose to
build them from scratch, that is, through greenfield investments. Given the challenges, entering the
region early through a greenfield investment might have been costly and risky. Acquiring an
established player was a more appropriate option. Or at least, do a joint venture and then acquire the
majority of the stakes later to lessen the risk.

Lazada’s position across its six markets would cost billions upon billions to replicate, with no
guarantee of being able to beat it at its own game. Put simply, buying is cheaper for Alibaba than
building.

Should Alibaba Integrate Lazada or Use a Partnering Approach?

The acquisition provided opportunities for both companies to share their insights. But, it is the best for
Alibaba to use a partnering approach at first with Lazada, since Alibaba has less access to the consumer
base outside China. After Alibaba have a deep understanding of the consumer base in Southeast Asia,
then they could start to integrate Lazada.

For Alibaba, Alibaba’s deal with Lazada opens the possibility of Chinese merchants selling to shoppers
across Southeast Asia. As China’s economy slows down, sellers on China, such as Tmall and Taobao,
would welcome the opportunity to have wider access of shoppers in the new markets. It also gives
wide access to a huge and growing consumer base outside China.

For Lazada, the acquisition provided opportunities to use Alibaba’s strong online retail knowledge and
other resources to position itself competitively ahead of its competitors. These access could strengthen
Lazada’s value proposition in providing an effortless experience to its platform users.
Did a Report that Amazon Would Delay its entry to the Region to a Later Date Mean That
Alibaba and Lazada Had Successfully Built a Fortress That Could Pre-empt Even the World’s
Largest E-Commerce Player?
Alibaba and Lazada had to determine what this delay meant. Either that they had successfully created
unbeatable competitive advantages, or that Amazon was planning an even bigger strategic move to
counter them in this new e-commerce market frontier.

Amazon initially planned to launch local e-commerce service in Singapore, but eventually postponed
its action. Amazon delay to entry the Southeast Asian market shows how hard the challenges are in
the region. This delay could mean that Amazon is finding this part of the world is really tough to crack
than their thought.

For Amazon, entering Singapore would be an easy first step. Their spending power, ease of doing
business, business-friendly regulations, developed infrastructure and established e-commerce culture
are closely matched to Western markets where it is well established. It is really a heaven for many
businesses.

However, taking its operation region-wide will be more of a challenge. While it may enjoy some name
recognition, winning consumer trust and managing customer experience will be critical. Selection,
convenience and reliability will be key demands and exceeding customer expectations will matter
when it comes to winning market share.

Payment systems will be one major problem and Amazon will need to offer conventional options such
as cash on delivery, etc. On the supplier side, meanwhile, Amazon will need to find partners with local
knowledge, offer incentives to persuade them to join its platforms and help in gaining more market
share. One way it may be able to lure Asian vendors is by offering them easier access to Western
markets to gain more revenues.

Even though most parts of the Southeast Asia is still really undeveloped and have a really diverse
culture, It is still a very big market and really potential. Amazon would never miss the chance to entry
and even conquer the Southeast Asia market. Amazon’s delay could also mean that Amazon is letting
Alibaba’s Lazada to educate and develop the Southeast Asia market at first, and then they would strike
after the market is ready. This means Amazon doesn’t have to take the big cost and risk to entry the
market. Amazon is taking the long term game to strike, and Alibaba’s Lazada should be more careful.