Jun 15, 2016
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Alibaba expands reach with $1 bn investment in Lazada

Jun 15, 2016

The Alibaba Group has agreed to acquire a controlling stake in Lazada Group, a top Southeast Asia e-commerce platform, thus boosting its drive to generate more business from international e-commerce.

Founded in 2012, privately owned Lazada, based in Singapore, runs retail websites in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. The company, which operates its own logistics networks, has an established presence in a region where online shopping is relatively undeveloped but is growing fast as consumers learn to use their smartphones to purchase products that are unavailable in local shops.

The deal calls for Alibaba to invest about $500 million in newly issued equity capital of Lazada and acquire shares from certain of the company’s shareholders, for a total investment of approximately $1 billion, Alibaba said in a press release.

Through its stake, Alibaba establishes an important new foothold outside China. The company said the transaction is expected to help brands and distributors around the world that already do business on Alibaba’s online marketplaces, as well as local merchants, to reach the Southeast Asian consumer market.

“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,” said Alibaba Group President Mike Evans in a statement. “This investment is consistent with our strategy of connecting brands, distributors and consumers wherever they are,” Evans added, noting that the deal will “support our ecosystem expansion in Southeast Asia to better serve our customer base.”

The countries served by Lazada have a combined population of about 560 million and an estimated internet user base of 200 million, according to Internet Live Stats. With only 3 per cent of the region’s total retail sales conducted online, Southeast Asia has plenty of upside as internet penetration continues to rise, Alibaba and Lazada officials said.

“Southeast Asia is an attractive, mobile-driven consumer market that is highly fragmented and diverse,” said Lazada Group CEO Max Bittner, adding the region is characterized by “significant barriers to entry and a nascent modern retail sector that has large headroom for growth.”

“Leveraging Alibaba’s unique know-how and technology will allow us to rapidly improve our services and provide an even more effortless shopping and selling experience,” Bittner said in a statement.

Lazada founded its business by selling inventory to customers from its own warehouses, later adding online-shopping marketplaces that allow third-party retailers to sell their products through Lazada’s sites. The company has local operations in areas such as marketing and sales, fulfillment and online payments, as well as established logistics and last-mile delivery.

Lazada is the only e-commerce platform that operates across the entire Southeast Asia region, making it a potential “one-stop shop” solution for global brands wanting to expand in the region, according to Alibaba.

The investment provides a boost to Alibaba’s efforts to expand its businesses outside China. Alibaba’s China marketplaces accounted for 86 per cent of the company’s total revenue in the quarter ended December 31, with international wholesale and retail businesses contributing just 6 per cent. Alibaba Group Executive Chairman Jack Ma has said he would like to see the company’s international operations ultimately to contribute up to half of total revenues.

“Globalization is a critical strategy for the growth of Alibaba Group today and well into the future,” Evans said in announcing the Lazada deal.

In addition to the $1 billion investment, Alibaba reached an agreement giving it the right to purchase the remaining holdings of certain Lazada shareholders at fair market value during the 12 to 18 month period after the transaction closes, the press release said.

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