Alibaba Invests $2 Billion In Lazada As Southeast Asia Investment Spree Gains Momentum
Alibaba boasts of a diverse array of businesses ranging from media, healthcare, entertainment in addition to its core e-commerce business. Years of investment has seen the retailer rise up the charts to become one of the largest retailers in the world, as it continues to send shockwaves around the world.
Mergers and acquisitions have helped the e-commerce giant to not only make a name for itself at home, but also abroad. Just when one might have thought the company would go slow on investments and instead focus on its array of businesses, it appears its inorganic growth strategy is just but starting.
Co-Founder and Chairman Jack Ma is on record emphasizing the retailer’s globalization strategy and plans to grow each reach all over the world.
Spending billions of dollars in big investments has never been an issue for the executive, as long as it has the potential to strengthen Alibaba’s footprint and competitive edge in the various industries it operates.
In keeping up with the rampant investment drive, the e-commerce giant has confirmed or completed a string of investments as it tries to grow its footprint in South East Asia.
US$2 Billion Investment in Lazada
Alibaba is to invest an extra US$2 billion in Lazada Group as it looks to strengthen its e-commerce hold in South East Asia. The latest round will bring the e-commerce giant investment in Lazada to US$4 billion. The US$2 billion funding will increase Alibaba stake in the Singapore-based startup to an undisclosed size. It held 83% in the company prior to the latest investment.
The investment comes at a time when the e-commerce giant is entangled in a fierce battle for market share in the e-commerce space with the likes of Amazon and JD.com.
“The investment underscores Alibaba’s confidence in the future success of Lazada’s business and the growth prospect of the Southeast Asian market, a region that is a key part of Alibaba’s global growth strategy,” Alibaba said in a statement.
Veteran Alibaba executive and one of the 18 founders, Lucy Peng, has been appointed to take over as Lazada’s Chief Executive Officer. The appointment provides a clear picture of what to expect of Lazada, under Alibaba’s stewardship.
Peng is attributed to the robust growth that Ant Financial has achieved over the years to become a payment behemoth in China. The mobile payment service is now seen as the key to unlocking Lazada’s potential, going forward.
Considering that only 27% of the 600 million people in Southeast Asia have bank accounts, the mobile payment service could help Lazada shrug-off one of its the biggest hurdles. The payment service has already started to ink partnerships with local payment companies as it moves to make it easier for people to purchase goods on Lazada’s platform.
There is also the factor of growing ties between Lazada and Alibaba. Lazada has started offering products from the e-commerce giant’s Taobao marketplace across South East Asia.
Lazada, the first step into the region
The investment underscores Alibaba confidence on Lazada despite the fact that the startup has been operating under losses. It also emphasizes the retailer’s aggressive expansion drive in Southeast Asia, as it looks to be the one stop shop for e-commerce across the region.
Lazada’s investment provides Alibaba an opportunity to target a market that is rapidly expanding. Southeast Asia boasts of a young population with high levels of mobile penetration seen as a perfect fit for e-commerce.
The region is shaping up as a major battleground given the more than 640 million consumers made up of growing middle class. Consultancy Frost & Sullivan expects Gross merchandise value of e-commerce in the region to rise to US$65.5 billion by 2021 from US$20.5 billion as of last year.
The huge investment is a further testament of how South-east Asia is slowly becoming a battleground for tech giants. Consumers are poised to enjoy the benefits of greater price competition between tech giants looking to accrue market share in the fast-growing industry.
Rapid growth in e-commerce, on the other hand, spells doom for traditional retail players with small wallets. Brick and mortar stores are poised to come under pressure as consumers resort to shopping online and having their orders delivered at their doorsteps.
Lazada adds to a string of investments that Alibaba has carried out in the recent past as it looks to strengthen its highly diversified business empire. A good chunk of its investments in the recent history has been overseas as the Chinese tech giant looks to advance deeper into new markets.
Alibaba’s recent acquisitions
Sun Art Retail
Threatened by Amazon’s push to expand its empire into the groceries business, Alibaba moved quickly to acquire a one-third stake in Sun Art Retail last year. The US$2.9 billion investment expanded the Chinese giant empire on offline stores as Sun Art operates a number of well-known supermarket brands.
A US$2.6 billion acquisition of InTime last year further underscored Alibaba appetite for brick-and-mortar retail. The acquisition of the retail chain was followed by a US$100 million investment in Lianhua supermarkets. The investments have since doubled the company’s space for warehousing.
2017 also saw Alibaba take part in a financing round and investing US$1.1 billion in Indonesia e-commerce app Tokopedia, as it continued to expand its footprint overseas.
In a bid to enhance its logistics network, Alibaba invested US$1 billion to gain some stakes in leading meal delivery app Ele.Me. The investment allows the company to play a crucial role in the growing demand for food delivery services in China.
Alibaba ramped up its stakes in Cainiao to 51% with a US$799 million investment. The firm is at the center of the e-commerce’s logistics network, running a network of warehouses and trucking partners. It currently handles over 57 million deliveries a day.
Alibaba has already set its eye on India’s growing groceries business with an investment of US$280 million in BigBasket. The Chinese juggernaut will reportedly take a 25% in the country’s largest online supermarket as it moves to compete against Amazon’s Now Service.
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