Alibaba Doubles Down On Its Lazada Investment

Chinese online retail giant Alibaba has disclosed that it will increase its investment in Lazada Group by an additional $2 billion. Alibaba has also recruited a high ranking executive as it prepares to compete with rivals in Southeast Asia. Lucy Peng, a veteran executive and one of Alibaba’s co-founders, will become Lazada’s chief executive officer. Lazada founder Max Bittner who has also been serving as the CEO will join Alibaba as a senior adviser. After the latest investment the stake of Alibaba will rise to a size that is yet to be disclosed. Before the investment Alibaba’s stake was 83% and in absolute terms comes to $4 billion.

Despite still being in the loss-making territory Alibaba’s investment in Lazada is a testament to the Chinese online retailer’s ambitious global goals of securing a larger market share in the booming e-commerce space. Alibaba and its payments unit Ant Financial have been particularly focused in the Southeast Asian region in the wake of looming competition from the second-largest online retailer in China, JD.com and U.S.-based Amazon.

Growth prospects

Part of the reason Southeast Asia is attractive to Alibaba and other e-commerce giants is because the population is relatively young, the mobile penetration is high and the e-commerce sector has a lot of room to grow as it currently only comprises about 3% of the retail sales in the region.

Alibaba’s operations span over 200 countries and there are over half a billion people using the Chinese online retailer’s shopping apps on a monthly basis. Lazada will thus have more resources from the e-commerce giant at its disposal.

Competitors to Alibaba such as Amazon are also increasing their investments in the region by putting up extensive logistics infrastructure. In 2017 for instance Amazon unveiled a 2-hour delivery service for Singapore. JD.com on the other hand has a built a logistics network located in Indonesia. Earlier in the year JD.com announced it had invested in Tiki.vn, a Vietnamese online retailer.

Key battleground

According to consultancy firm Frost & Sullivan, the e-commerce sector in Southeast Asia is expected to grow from a $20.5 billion market in 2017 to $65.5 billion in the next four years.

“If India was the first key battleground between U.S. and Chinese vertical-leaders, then Southeast Asia is surely the second,” EY’s financial technology leader in the Asia-Pacific region, James Lloyd, said.

Besides Alibaba other investors in Lazada include the company’s own management and Temasek Holdings, the state investor of Singapore.

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