Case Study 3

Alibaba Group: Acquiring Lazada to win the

Southeast Asia E-commerce battle
Prepared by: Kim Vy Nguyen – 101155551
Prepared for: Prof. Farhan Zaidi

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Date: March 1st, 2020

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 1. Conduct a SWOT analysis.
Strengths:
 Holding a strong and dominant position in the market
 Diversified and interconnected business portfolio as well as platform ecosystem
Weaknesses:
 Profitable but imitable business model
 Logistics network is not well-established
 Unqualified merchants leading to quality management concerns
 Brand image seriously impacted by counterfeit issues
Opportunities:
 Growing Internet penetration and middle-class population

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 Growth through international expansion particularly Southeast Asia

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 Possibility of cross-border exchange within the region

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Threats:

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 Deceleration of Chinese economy
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Rising competition domestically and internationally
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 Expectations from the capital market
2. What are the pros and cons of doing e-commerce business in Southeast Asia?
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Political:
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 The ASEAN Trade in Goods Agreements (ATIGA) was adopted in 2009 to achieve free
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flow of goods and services in the region by lowering trade barriers and tightening
economic links among member countries.
 The government policies of the individual countries also encourage foreign direct
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investments with the aim to develop infrastructure and generate more employment
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opportunities. For example, the Malaysian government changed its policy in June 2003 to
allow foreign investors to hold 100 per cent of equity in all new investment projects.
 Most countries in Southeast Asia except Singapore are still experiencing political
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instability, which hugely affects the economic development and citizens’ lives. For
example, political unrest in Thailand has caused serious damage to the economy,
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disrupting operations of both local and foreign-owned businesses in the country.

Environment:
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 The increase in the middle-class population (higher disposable income) in Southeast Asia
thanks to stable regional GDP growth of 5.3 percent annually.
 Companies operating a business in Southeast Asia is dealing with foreign exchange risks
due to 11 different currencies. If those companies use the U.S. dollar as their transaction
currency, local currency exchange rates might increase the cost of trades and investments
in the region.

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 Social:
 The population in Southeast Asia is now more than 640 million so the number of
smartphone users is increasing, which contributes to the growth of the Internet economy.
 Companies may not be able to successfully apply the same business model due to the
differences of language, culture and level of literacy among countries. They should
localize their businesses to be suitable to each particular country.
Technological:
 Southeast Asia is considered to have the fastest rates of Internet penetration in the world
with the number of mobile connections exceeds the population.
 Less-developed electronic payment systems, a low number of credit card holders, low use
of online banking transactions and underdeveloped logistics infrastructures has brought
many challenges to Internet-based companies.
For those companies that are operating in Southeast Asia, there are several advantages to

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consider: technological leadership, brand loyalty, and pre-emption of scarce resources. However,

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these firms have to face some disadvantages such as high research and development costs,

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undeveloped supply and distribution systems, a lack of enabling technologies and complements,

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and uncertain customer demands.
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3. What are the motivations and strategic rationales for Alibaba to invest in Southeast
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Asia?
Situation assessment:
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As the leader in the e-commerce market, Alibaba is successful in China due to a strong business
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and platform ecosystem surrounding Internet businesses. However, Alibaba’s business model is
easy to imitate. Particularly, the company does not have an extensive logistics network and
believes in the reliability of merchants to deliver products to customers. A lack of quality control
on merchants’ product listing contributing to deteriorate the company’s brand image and lose
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trust of customers in the brand. Moreover, due to a slowdown in the Chinese economy and rising
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domestic competition, Alibaba needs to find a new source of revenue while keeping the market
share stable. Southeast Asia is an extremely potential market for the Internet economy as the
increase of Internet penetration and middle-class population facilitate the growth of e-commerce
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businesses. Investing in the Southeast Asian market will help Alibaba to expand customer base,
introduce Chinese merchants and international brands to Southeast Asian consumers as well as
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support Lazada’s financial problem.

Strategic decision:
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Alibaba pretends to generate 50 per cent of its revenue from international operations in order to
achieve sustainable growth and fulfill shareholders’ expectations.
Implementation planning:

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 Alibaba should take advantage of this opportunity to become the leader in the region while
achieving its revenue expectations. Therefore, it is sensible for Alibaba to seek growth through
international expansion and shift its focus to derive more revenue from international markets
because of the slowing China’s economic growth and the promising Southeast Asia’s market.
4. Which of Lazada’s strategic assets are useful for Alibaba?
Size of entry relative to minimum efficient scale:
Lazada’s headquarters supervised the performance of subsidiaries while giving autonomy to
local management teams. Since Lazada almost dominate the local operations, its size of entry is
believed to be close to the industry’s minimum efficient size.
Relatedness of the market entered:
Luckily, Lazada entered the Southeast Asian market when the region’s Internet economy and
regional economies were growing fast so that the company did not have to change its business

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model.

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Complementary assets:

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Understanding that the region’s infrastructure was weak, Lazada built an extensive logistics

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network and a payment gateway to make its core business operation more efficient.
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Order of entry:
Despite not being the first mover in the region, Lazada actively analyze consumers’ and the
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market’s behaviour to collect empirical information before entering the market, which allowed
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Lazada to enter the market with a better value proposition.

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Industry life-cycle stage:

Lazada entered the market at the initial growth stage so that Lazada had chances to offer a better
value proposition to its customers. Therefore, it is clear that Southeast Asian e-commerce is a
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hybrid between U.S. and Chinese models.

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Degree of technological innovation and knowledge:

Lazada understood the effect of technology on market tendency so it developed websites and
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applications that were ready for smartphones.

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5. Was the acquisition of Lazada the best way for Alibaba to enter the e-commerce
market in Southeast Asia, or should Alibaba have allied with Lazada or, instead,
made a greenfield investment in the region? What possible reactions could other e-
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commerce players have to this strategic move?

Types of synergies:
In spite of being geographically separated, Alibaba and Lazada had been working closely
together and shared their information expectation. Lazada was utilizing Alibaba’s information to

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 improve Lazada’s operations, and vice versa. Hence, the synergies between these companies
were reciprocal, they should consider acquisition tactics.
Name of resources:
Lazada had installed an great logistics infrastructure and developed a systematic payment gadget
to function efficiently in the Southeast Asian e-commerce market. However, running a
commercial enterprise in a distinctly aggressive technology-oriented enterprise requires human
sources to structure positive marketing and maintain platform efficiency. The fact that the
quintessential sources are a mixture of difficult and tender resources so acquisition is
recommended.
Extent of redundant resources:
Prior to the acquisition, Alibaba did not own any facilities or infrastructure in Southeast Asia, so
there was a medium degree of redundant resources. Under this circumstance, fairness alliances
are an splendid option, which would supply Alibaba with some control to reinforce efficiencies

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while boosting creativity and innovation in human sources in both companies.

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Degree of market uncertainty:

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The uncertainty in the Southeast Asian e-commerce market is between medium and low, which is
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envisioned to develop from $67 to $89 billion in the future and become the predominant e-
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commerce market in the world. However, there is uncertainty in terms of infrastructure
development. When facilities improvement is in line with projected growth, the market plausible
may be as expected. Therefore, market uncertainty for e-commerce companies in the region is at
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a medium level, acquisition is still need to be considered.

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Level of competition:
The region’s e-commerce development has gradually attracted many famous companies such as
Amazon Inc. (Amazon). Lazada has positioned itself as a Southeast Asian market leader by
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addressing all challenges and gaining company recognition, which was too costly to replicate.
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Global e-commerce companies like JD.com or Amazon might be interested in purchasing Lazada
in order to get legal entry to the Southeast Asian e-commerce market. Therefore, Alibaba made a
right decision when acquiring Lazada before competitors.
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6. Following the acquisition, should Alibaba integrate Lazada or employ a partnering

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approach to realize the greatest benefit from each company?

In fact, Lazada had built an effective supply chain and strong brand recognition in the Southeast
Asian e-commerce market so it would provide complementary resources to Alibaba, which help
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Alibaba to expand its presence in the region. Additionally, Alibaba was looking for growth in
revenue rather than in cost reduction so the company aimed to generate 50 per cent of revenue
from international expansion. Through the acquisition of Lazada, Alibaba had a great chance to:
share precious experiences with Lazada, access information from Lazada and learn how to
operate a successful business in the Southeast Asian market. Moreover, Lazada could also send
its employees to be trained how to manage the business successfully at Alibaba’s campus in

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 China. As a result, Alibaba should partner with Lazada and provide it with a certain autonomy
that will maximize complementarity instead of fully combining two companies together.
However, implementing a certain level of integration to improve the efficiency of Lazada’s
operations through some key activities such as the rebranding of HelloPay into Alipay
standardized the payment system, improved its credibility and efficiency, which could attract
more users and create better brand recognition.
7. After the acquisition, how could Alibaba and Lazada achieve and maintain a
leadership position in the Southeast Asian e-commerce market?
Create:
Alibaba could extend Lazada’s product options on its home page such as introducing the Taobao
collection, which could provide Southeast Asian customers with a new, wider types of product as
they are able to buy directly from the China. To differentiate itself, Lazada acquired the grocery
delivery service Redmart to diversify its business portfolio. Thanks to support from Alibaba,

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Lazada has joined forces with Uber and Netflix to create LiveUp - a new membership program

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that offers better services than Amazon Prime, which allows Lazada to compete with Amazon.

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Raise:

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Based on geographical conditions and an underdeveloped infrastructure, it is relatively difficult
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to commit a speedy delivery, which can normally take up to two to three days. Therefore, Lazada
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launched the “Lazada promise” campaign, which guaranteed that customers would receive
products 24–48 hours after their order confirmation. Besides, Alibaba signed an agreement with
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the Malaysian government to establish a centre for simplier import and export procedures across
the region, which would speed up the clearance process and encourage cross-border transactions.
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According to the payment system issue, Lazada and Alibaba need to promote harder Alipay to
encourage Southeast Asian customers to use the e-payment system.
Eliminate:
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Alibaba and Lazada need to eliminate counterfeit products from their platforms. Alibaba’s brand
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name had been affected by this issue in China and it would definitely impact Lazada as well if
two companies do not enforce strict policy and control over the quality of merchants’ products as
well as penalty for those merchants who sell counterfeit products on their platform.
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Reduce:
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Supplier networks should be taken advantage of by both companies to gain expected economies
of scale. Particularly, they can buy products directly from the manufacturers to reduce or
eliminate markup costs and the cost of goods sold. In addition, Lazada could offer customers a
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wider range of product options at very competitive prices. Due to a high dependency on
technology, Southeast Asian customers will firstly find the best offers online before making any
purchases. If Lazada can keep cost leadership position, it is likely to attract more customers and
increase the company’s market share in the region.
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