China’s Brand Expansion: Why Alibaba Succeeds & Tencent’s WeChat Fails

It’s no secret these days that things in China are changing fast. Whether it’s Suzhou drone start-ups like DJI, Alibaba, China’s Internet giants, or some of the world’s soon-to-be leading brands (that will come out of Asia), it’s clear that China is here to stay in regards to some of our world’s next big things.

But there’s one company that I’m sure everyone is familiar with which is doing pretty well outside China: Alibaba! So as a Chinese e-commerce giant,  what’s the secret of Jack Ma’s company to make a killing outside its home market?

How Alibaba is killing it outside China

Alibaba has clearly grown quickly in China. But even outside of a country reigning as one of the world’s oldest civilizations, Alibaba growing at insane rates: no less than 288% growth year on year!

300.PNG

Although it’s still a very small proportion of Alibaba’s total revenue, international commerce jumped in a single year from 1.9% to 5.4% of Alibaba’s total business.

The study of the Google Index of Amazon and AliExpress in Indonesia (the largest economy of South East Asia) shows a steady growth of AliExpress, catching up with a declining Amazon.

301.PNG

But things look much bleaker for Amazon once we start to include in the equation the latest acquisition by Alibaba in South East Asia (Alibaba bought a controlling stake in Lazada in April 2016 for 1 billion US$), the e-commerce platform backed by Rocket Internet: Lazada.

302.PNG

Other countries of South East Asia (Thailand, Malaysia, etc.) show a similar pattern: AliExpress is growing, and Lazada is destroying Amazon.

The bold acquisition of Lazada

The main contributor to the impressive growth of Alibaba outside China is arguably the acquisition of Lazada.

Lazada is dominating the e-commerce space in South East Asia (a region with a cumulative number of 600 million potential customers). It is however doing so at the expense of massive loss: the company recorded a loss of $334 million in 2015, twice more than in 2014.

Alibaba can afford to sink money on these long-term strategic investments, but the Lazada acquisition remains a bold move for the Chinese e-commerce leader.

A Malaysian E-commerce Hub

Torwards the end of March, Alibaba announced the development of a e-hub in collaboration with the Malaysia Digital Economy Corporation (MDEC).

This was big news for those curious about the future of South East Asia’s e-commerce ecosystem. So what’s an e-hub? It’s a combination of offline solutions (a logistics hub situated in close proximity to Kuala Lumpur International Airport), software support (for better coordination between Chinese and Malaysian vendors) and support for payments, talent recruitment and administrative processes between China and Malaysia.

alibaba-hub

Basically, Alibaba and good old Jack is hooking it up. This collaboration shows the clear commitment of Alibaba to establish a very real presence in South East Asia.

“Taobao Collection” Launch on Lazada Singapore

Another very interesting move: Alibaba is launching “Taobao Collection”, a selection of 400,000 listings from Taobao that will now be sold on Lazada in Singapore.

lazada-collection

Chinese sellers have long been plagued by issues with translation, communication and returns when selling outside China.

Now with Taobao Collection, Alibaba is working to solve all of these problems by helping Taobao sellers localize their offer with Singapore and offer their products through the familiar platform of Lazada that Alibaba just bought out.

Why is Alibaba so successful in South East Asia?

There are a few things that explain Alibaba’s success in South East Asia:

#1 South East Asia is facing the same challenges today that China was facing 10 years ago:

China’s economy has been growing faster than the rest of Asia, and has therefore figured out a lot of the logistics/payments issues which still need to be addressed in South East Asia. This is similar to China’s infamous copycatting of the West or Japan in the 80s. The West figured out all-things tech a few decades ahead of the Chinese, so all China had to do was cherry pick the things that worked, and tailor these innovations and solutions to their own country and markets. Now China is innovating on its own terms, and has been for years, which now makes it the country leading South East Asia in all things tech, e-commerce, and mobile payment solutions. Ahh, the circle of life!

#2 South East Asia is a fragmented market:

While it may be difficult for Alibaba to enter the US due to Amazon’s domination, South East Asia is a very fragmented e-commerce market. Alibaba now controls a significant slice of this market with the Lazada acquisition.

#3 Network effects are weaker in e-commerce:

It is tough for WeChat to compete against Facebook in both the East and West due to network effects: users only want to use social networks where their friends are using already. E-commerce doesn’t have such issues. You can be the first of your friends to purchase from a website, and it won’t affect your experience of it. E-commerce just needs merchants to purchase from, and Alibaba already has plenty of these.

Conclusion

Both Tencent and Alibaba are doing their best to pick the low-hanging fruits in their international expansion. Tencent (parent company of WeChat) is mostly trying to help foreign firms target Chinese tourists abroad. And Alibaba is targeting South East Asia as its first wave of consumer facing (B2C) international expansion. Both of these strategies make perfect sense and we will soon see the rise of the first wave of truly international Chinese IT giants.

The decade ahead remains exciting as these emerging markets will continue to innovate and bring some of our world’s next-up leading brands, gadgets, and ideas to center stage in a global push for expansion and integration across borders. These developing markets, as they catch up and more Hong Kong’s and Singapore’s pop up, will be the ones that bring the next wave of innovation to our world. Think China, India, and Africa. Just wait for it…

Cheers,

Demetri Savas

 

 

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s