Alibaba closed a deal worth over US$1 billion to expand into ASEAN. The Chinese firm bought a majority stake in Lazada, the largest e-commerce website in Asia.

It was no surprise for many since Alibaba invests in lots of foreign firms. They have a long-term plan of relying less on the Chinese domestic market for growth.

The deal between Alibaba and Lazada comes at a perfect time. In fact, the Southeast Asian e-commerce startup has its own financial problems.

A comparison of the Chinese and Southeast Asian e-commerce markets shows two very different markets. China’s e-commerce market is possibly the most developed in the world. They overtook the US a few years ago becoming the world’s largest in terms of sales.

There are not many opportunities left for e-commerce players in a saturated market like China. This is exactly the reason Alibaba shifted its focus outside of China.

Southeast Asia is clearly Alibaba’s latest target.

China now owns Southeast Asia’s undisputed retail giant through purchasing Lazada. Not to mention, Southeast Asia’s e-commerce market has much more room for growth in the future.

 

Alibaba’s Perfect Compliment to Expand into ASEAN

ASEAN’s e-commerce market is very different than China’s. Still in its infancy, the ASEAN market has lower penetration rates because of generally less developed infrastructure. Southeast Asia’s leader was just founded in 2011 compared to Alibaba’s founding in 1999.

Alibaba’s Jack Ma apparently realizes this. He took advantage of the momentum Lazada built, carrying on his quest to conquer Southeast Asia’s e-commerce market.

Lazada is the biggest regional e-commerce player, yet they welcome the acquisition with open arms. The reason is because Lazada’s financial performance is awful despite its size.

Analysts suspect the company has operated at a loss since its inception.

Their financial data wasn’t released until starting in 2015. But the latest information shows Lazada’s operating net loss is more than its net revenue. The company attributed this to acquiring users, incentives paid to merchants, and marketing costs.

With Alibaba now backing up its financials, the company now has a better future than even a few days before.

 

What Does Alibaba Gain?

For Alibaba’s part, this is its biggest overseas investment to date. Worth more than a billion dollars, buying Lazada puts the company right into the middle of Southeast Asia’s e-commerce market. This is an ideal place for expanding into ASEAN more.

Not only that, but Alibaba has a better position to capture opportunities in the rest of Asia too. Their current job is integrating business processes and turning 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.”

Will this deal turn Alibaba into Southeast Asia’s very own Amazon? Time will tell, yet one thing is certain: Asia has plenty of opportunities for e-commerce players.

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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