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 to many. Alibaba invests in foreign firms to relying less on its domestic market in China 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. It overtook the US a few years ago to become 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 has shifted its focus outside of China, the latest target being Southeast Asia. China now owns Southeast Asia’s undisputed retail giant by purchasing Lazada. Not to mention, Southeast Asia’s e-commerce market has a lot more room to grow.

 

Alibaba’s Perfect Compliment to Expand into ASEAN

The e-commerce market of ASEAN is very different than China’s. Still in its infancy, ASEAN’s market has very low penetration rates due to the lack of internet access and infrastructure. Southeast Asia’s market leader was just founded in 2011. This is opposed to Alibaba’s founding in 1999. Because, companies which expand into ASEAN have access to ripe opportunities than in the rest of Asia.

It would seem as if Alibaba’s Jack Ma realizes this. He decided to take advantage of the momentum Lazada built, carrying on his quest to conquer Southeast Asia’s e-commerce market.

While Lazada is the biggest regional e-commerce player, it welcomes 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.

Lazada’s financial data was not released until starting in 2015. But the latest information shows that its operating net loss is more 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 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 to expand into ASEAN more.

Not only that, but Alibaba also has a better position to capture opportunities in the rest of Asia too. 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.”

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

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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