Alibaba closed a deal worth over US$1 billion to buy a majority stake in Lazada, the largest e-commerce website in Southeast Asia. The move was no surprise to many as Alibaba has invested in foreign companies with the goal of relying less on China for its growth.
The deal between Alibaba and Lazada comes at a perfect time as the Southeast Asian e-commerce startup is struggling with financial issues of its own.
A comparison of the Chinese and Southeast Asian e-commerce markets shows two very different markets. China’s e-commerce market is arguably the most developed in the world – overtaking that of US a few years ago to become the world’s largest in terms of sales.
In such a saturated market like China, there are not many opportunities left for e-commerce players. This is exactly the reason Alibaba has shifted its focus outside of China, the latest of which is Southeast Asia. By purchasing Lazada, China now owns Southeast Asia’s undisputed retail giant – and Southeast Asia’s e-commerce market has a lot more room to grow.
Lazada: The Perfect Compliment for Alibaba
The e-commerce market of ASEAN is very different than China’s. Still in its infancy, ASEAN’s market has very low penetration rates mainly due to the lack of internet access and proper infrastructure. With the market leader of the region only just founded in 2011, as opposed to Alibaba in 1999, the region with developing e-commerce is still ripe with opportunities.
It would seem as if Alibaba’s Jack Ma realizes this and has decided to take advantage of the momentum that Lazada has built in order to carry on his quest to conquer Southeast Asia.
While Lazada is the biggest regional e-commerce player, it welcomes the acquisition with wide open arms because despite its size, its financial performance has been spectacularly awful. Many suspect that the company has operating at a loss since its inception.
Even though Lazada’s financial data was not released until starting in 2015, the latest information shows that its operating net loss is greater than its net revenue. The company attributed this to acquiring users, incentives paid to merchants, and general marketing costs. With Alibaba now backing up its financials, the company seems to have a better future than what it had a few days before.
The deal is Alibaba’s biggest overseas investment to date, putting in an investment of a billion dollars to get itself right into the middle of the Southeast Asia’s e-commerce market. Even though the region has huge potential due to its population size and the growing proportion of middle to affluent consumers, there is still an alarming lack of infrastructure.
However, Alibaba will be now far better positioned to capture opportunities in the rest of Asia with its recent acquisition of Lazada. Its current job is now to integrate the business processes and turn around Lazada’s negative profit.
Alibaba’s President Michael Evans said in a statement, “With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team, and a solid foundation.”