Internet firms take their fight to new arena for expansion
A NEW battleground is emerging for China’s Internet companies: a fast-growing market with almost double the U.S. population.
As China grapples with a slowing economy, the country’s top technology firms are spending aggressively to expand in Southeast Asia, home to 620 million people. The region is becoming an important growth area for Alibaba Group Holding, Tencent Holdings, ride-hailing firm Didi Chuxing Technology and e-commerce company JD.com as they expand in online retail and mobile payments.
Alibaba and Tencent have led deals with a combined value of more than US$1 billion to advance their e-commerce, logistics and social network businesses. Southeast Asia is the third-largest region for China’s outbound technology mergers and acquisitions this year, behind Europe and North America, with US$1.9 billion in deals, compared with US$193 million last year, according to Dealogic. Industry executives say Chinese tech investments are likely to accelerate.
“What we have learned in China, we can apply the fastest in Southeast Asia,” Poshu Yeung, Tencent’s vice president of its international business, said in an interview. “Everything in Southeast Asia, particularly in Indonesia, you will experience a pretty good growth rate.”
Southeast Asia’s US$2.5 trillion economy is attractive for its growing incomes and rates of smartphone ownership. Research firm eMarketer projects smartphone users in the six largest regional economies will exceed 257 million by 2020, more than in the United States.
Alibaba’s US$1 billion acquisition of Lazada Group in April gave the company instant access to six markets: Indonesia, Thailand, Singapore, Malaysia, the Philippines and Vietnam. Beyond the exposure, Lazada gave Alibaba access to a wide logistics network to deliver parcels ordered by Southeast Asian consumers on Alibaba’s Chinese platforms.
Lazada improved its technology and logistics operations after sending at least 100 of its employees to Alibaba’s headquarters for knowledge-sharing expeditions, said Maximilian Bittner, its chief executive officer. Lazada also attracted several international brands such as Unilever and Mattel to open retail storefronts on its website after introductions by Alibaba.
Shenzhen-based Tencent jumped in by investing in Garena Interactive Holding, a Singapore-based startup valued this year at US$3.75 billion. Garena entered e-commerce last year through a peer-to-peer marketplace app called Shopee, whose built-in payment, chat and delivery services smooth transactions. Shopee is going head-to-head with Lazada in the same six markets by allowing consumers and small merchants to sell products online.
Garena President Nick Nash said Shopee is on track to exceed US$2 billion in gross merchandise volume — a closely watched metric for e-commerce companies — this calendar year and counts Indonesia, Thailand and Vietnam among its largest markets. Lazada doesn’t disclose its figure.
JD.com, China’s second-largest e-commerce provider behind Alibaba, entered Indonesia’s online sales market last year and intends to use it as a launchpad for the rest of the region, its chief executive said in an interview.