Alibaba bolsters SEA biz with $1B Lazada deal

Chinese e-commerce giant pays US$1 billion to acquire a controlling stake in Lazada, in a move aimed at beefing up its presence in Southeast Asia and expand beyond its domestic market.
Written by Eileen Yu, Senior Contributing Editor

Alibaba Group has acquired a controlling stake in Southeast Asian e-commerce operator, Lazada Group, in a deal aimed at beefing up its international presence.

Worth US$1 billion, the deal would see Alibaba forking out some US$500 million for new shares and another US$500 million to take over shares from some existing shareholders, according to the Chinese e-commerce giant. Lazada's crop of investors included Rocket Internet and Tesco.

Founded in 2012, Singapore-headquartered Lazada operates retail websites in Singapore, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines, peddling some 10 million active SKUs (stock keeping units). In third-quarter 2015, mobile transactions accounted for 57 percent of its GMV (gross merchandise value).

Alibaba said the deal provided the company significant new footprint outside its domestic market and would help existing merchants and brands on its e-commerce platforms reach the Southeast Asian consumer market.

Its group president Mike Evans said in the statement: "With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base, a proven management team, and a solid foundation for future growth in one of the most promising regions for e-commerce globally."

Lazada Group CEO Max Bittner noted that Southeast Asia, while an "attractive, mobile-driven consumer market", was highly fragmented and diverse, presenting significant barriers to entry. He added that Alibaba's industry knowledge and technology would help enhance Lazada's shopping and selling experience.

The latter runs local marketing sales operations and online payments, and operates 76 last-mile distribution hubs as well as 10 fulfilment facilities.

Its presence in the Southeast Asian region would give Alibaba access to a mobile-first market, where competitive dynamics were more favourable than those in Europe and North America, according to Forrester's forecast analyst Satish Meena.

The New Delhi-based analyst said acquiring a controlling stake in Lazada would allow Alibaba to focus on bringing more merchants to its platforms, while leveraging the former's brand name to further grow its business. "Setting overseas expansion can be very expensive when you include the cost of building the brand and investment in logistics," Meena said.

"Some of the key challenges in Southeast Asia for e-commerce includes use of cash-on-delivery, insufficient logistics infrastructure, and inconsistent customs and import duty," the analyst explained. "In particular, the lack of warehouses outside Singapore and Thailand is a key concern as e-commerce players that want to penetrate further into the rural areas and support the last-mile delivery will have to invest more in non-metropolitan areas to ensure efficient time to market."

He added that Alibaba would tap Lazada's infrastructure alongside its investment in SingPost to further build out the logistics network required to support its expansion across Southeast Asia.

Alibaba in May 2014 committed S$312.5 million (US$227.91 million) for a 10.35 percent stake in the Singapore postal service operator, before investing another US$206.45 million a year later.

That same year, in July 2015, Alibaba sold off its US e-commerce venture to online marketplace OpenSky as well as three US companies it had acquired for their logistics and fulfilment services.

The Alibaba-Lazada deal comes months after Rakuten in February announced plans to shutter its online stores in Singapore, Indonesia, and Malaysia. The Japanese e-commerce operator said it would focus on increasing its footprint in growth markets, specifically, Taiwan as well as its domestic market.

Just this week, it was said it have opened a business office in Bengaluru, India, where it had been operating a development centre since 2014, reported The Economic Times.

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