Alibaba's "Overseas Battle": Pressure, Confusion, Can't Afford to Lose

After Alibaba split into six major groups, Jiang Fan, who is responsible for the international digital business group, has been active in the past month.

On April 13th, VentureCap Insights, which tracks Singaporean regulatory documents, reported that Southeast Asian e-commerce company Lazada has received a $353 million investment from its parent company Alibaba.

Market analysts reacted positively to Alibaba's renewed investment in Lazada, expecting Lazada to have more autonomy, more external financing opportunities, and the possibility of a separate IPO. Since 2022, Alibaba has invested $2 billion in Lazada. An industry insider close to Alibaba told Xiaguang Society that Alibaba has always been optimistic about the development of Southeast Asia and Lazada, and will continue to maintain long-term investment in the future.

In addition, AliExpress, a subsidiary of Alibaba's international digital business group, officially announced the launch of the "full hosting" model on April 19th. The news also pointed out that Lazada will launch the "full hosting" model at the end of May. The "full hosting" model is similar to Temu's operating model, where merchants become suppliers and the platform is responsible for the overall operation.

On May 4th, according to Bloomberg, Alibaba's international e-commerce department is seeking its first IPO in the United States to stimulate business growth, including e-commerce platforms Lazada and AliExpress. In response, Alibaba's international digital business group told Sina Technology, "There is no plan to go public."

Since taking over Alibaba's international digital business sector in 2022, Jiang Fan has been restructuring and adjusting overseas businesses, with Lazada responsible for localization and AliExpress serving as the "headquarters" for cross-border e-commerce.

At the end of March this year, Alibaba announced the construction of a "1+6+N" organizational structure, setting up six business groups and multiple business companies, and establishing boards of directors for each business group and business company. The international digital business group is one of the six business groups, with Jiang Fan as CEO. In addition to Lazada and AliExpress, the group also includes Trendyol, Daraz, Taobao's cross-border business, and Alibaba International Station's wholesale business.

Although Jiang Fan has been active overseas for more than a year, the results are not yet clear. From the financial report, international business revenue accounts for 7% to 8% of Alibaba's group revenue, and the business is still in a loss-making state.

Now, on the road to self-financing and independence, Jiang Fan's pressure is even greater.

Europe, a must-win battleground

In December 2022, Alibaba launched the e-commerce platform Miravia in Spain. With the help of online KOL promotion and offline advertising, it quickly entered the market in just a few months.

According to public data from data.ai, on March 19th, Miravia surpassed Shein in the App Store's downloads and became the number one shopping app in Spain. Global mobile app analysis platform Sensor Tower data shows that Miravia has been downloaded more than 1 million times on Google Play.

In January, the local Spanish startup brand Sinology Studio settled in Miravia. Founder Jing told Xiaguang Society that the new platform has certain support for merchants, such as participating in "Flash Sale" and some holiday promotions. In addition, for buyers and sellers, shipping is free within Spain.

"I have participated in several 'Flash Sale' activities. Participating in promotional activities will greatly help the traffic of the store, but recently, with the increase of sellers, the difficulty of being selected for 'Flash Sale' activities has increased." She said that as the promotion gradually spreads in Spain, the total traffic of the platform is steadily increasing, but the total amount is still relatively low, after all, the platform is very new. And, perhaps for strategic layout, it has attracted well-known brands with a certain market foundation in the local area, and these well-known brands have received traffic tilt from the platform.

According to Jing's observation, from the perspective of promotion, the recent focus of the platform is still on local well-known brands, which is consistent with Miravia's previous promotion of the "mid-to-high-end" positioning. "This will be more conducive to attracting local users. However, I personally think that the platform can increase its support for original brands and small and medium-sized merchants. The common growth of merchants and platforms is the long-term plan." Xiaguang Society learned that Sinology Studio is an original jewelry brand with a price range of 30-100 euros and is still in the early cultivation stage.

In addition, Jing learned that while Miravia is attracting local merchants, it has also invited some cross-border merchants on AliExpress who are doing well.

The industry insiders close to Alibaba mentioned above pointed out that Miravia's invitation to cross-border sellers on AliExpress can not only expand the richness of Miravia's products, but also give excellent Chinese sellers a new opportunity to expand the European market. "Miravia is still a local e-commerce platform, and its products mainly come from local merchants, but excellent Chinese sellers still have the opportunity to sell on it."

At present, Miravia has gained some popularity locally in Spain. Jing found that "local people are still in the initial stage of understanding the platform. In big cities like Madrid, there are more offline promotions, so relatively more people use it. In Valencia, where I live, offline advertising has only just begun, so local people don't know much about the platform yet. I know some young people who were attracted by the early discounts."

However, with a population of 50 million, the Spanish market is relatively small, and there are many e-commerce platforms. Jing and other merchants hope that the platform can quickly expand to the entire Europe, so that merchants can reach a wider user group.

The European market has become a must-win place for Chinese Internet giants to go global, and it has gradually "expanded its territory." Shein's main battlefield is North America and Europe, and it has become a local fast fashion brand giant, while Pinduoduo Temu, which has been overseas for half a year, has also occupied a considerable market share in Europe and the United States. Looking at Alibaba, while AliExpress has been operating in Europe and America for many years, the nature of cross-border e-commerce has made its localization advantages less obvious. As a lifestyle platform targeting fashion and beauty, Miravia is better positioned to directly compete with Shein and Temu. However, compared to Shein and Temu, Miravia is entering the mid-to-high-end market with more restraint in marketing and subsidies, and has yet to see scale effects in the short term.

According to the aforementioned data.ai rankings, AliExpress ranks third in the shopping app category in Spain, which may be the reason why Miravia entered this market first. If Miravia can open up the market in Spain, it may be able to replicate this success in other European markets.

It is worth noting that Trendyol, the Turkish e-commerce platform acquired by Alibaba, has "polished" the performance of Alibaba's international business in the past year. According to the financial report, in the fourth quarter of 2022, the revenue of the international business segment increased by 18% year-on-year to RMB 19.465 billion, "the overall order growth of this business increased by 3% year-on-year this quarter, mainly driven by Trendyol's strong order growth." In the financial reports for the second and third quarters of 2022, Trendyol's growth was also reflected.

In January 2023, according to Turkish media reports, Alibaba Group President Michael Evans stated that Alibaba plans to invest more than US$1 billion in Turkey to build logistics centers at Istanbul Airport and data centers near the capital.

It is reported that Alibaba acquired a portion of Trendyol's equity in 2018 with an estimated value of US$728 million. In April 2021, Alibaba increased its investment in Trendyol by US$350 million, increasing its stake to 86.5%. However, according to insiders who spoke to Xia Guang She, Trendyol is independently operated by the founding team, and Alibaba is less involved in decision-making.

Several Chinese people in Turkey told Xia Guang She that they usually shop on Trendyol, while locals often use e-commerce platforms such as Hepsiburada and Trendyol.

Lazada gradually "de-Alibaba-ized"

Lazada, which entered the Southeast Asian market earlier than Shopee, has been suppressed by the latter for many years. In addition to the factors of Shopee's early large-scale subsidies and market seizing, Lazada's slow localization process is also one of the important reasons hindering its development.

The team of Akang, a cross-border e-commerce seller in Guangzhou, started doing business on Lazada in 2018 and entered Shopee half a year later. With its own supply chain and a focus on household daily necessities, Akang achieved sales of 2 million yuan in 2021. In 2022, the team closed all cross-border stores and focused on local stores in Thailand and Malaysia. He told Xiaguang Society that in the early days, Lazada was still the leader in Southeast Asian e-commerce, with overall data performance and their stores doing well. After 2019, Shopee officially surpassed Lazada, and in terms of store data, Shopee began to outperform Lazada. To this day, Shopee still holds the largest market share in Southeast Asia, with Lazada in second place.

Several local Chinese sellers in Southeast Asia told Xiaguang Society that Lazada's mall pages and merchant backends are similar to Taobao's system and structure, making it difficult for local merchants to get started and adapt. In comparison, Shopee's seller center and buyer center are integrated, and merchants can open a store with just a mobile phone, making it easy to operate. Akang pointed out that Shopee has more local sellers than Lazada, which may be one of the reasons.

In 2022, after taking over Alibaba's overseas business, Jiang Fan began to tackle Lazada's localization difficulties.

For example, Jiang Fan began to attach importance to local talent in Southeast Asia. In June 2022, Dong Zheng (James Dong) became the CEO of Lazada Group and also the CEO of Lazada Indonesia. Unlike previous Alibaba personnel who were "parachuted" into Southeast Asia, Dong Zheng has been the CEO of Lazada Thailand and Vietnam since 2018 and is a long-term executive who has grown up with Lazada.

The above-mentioned industry insiders close to Alibaba pointed out that most of Lazada's team members are locals, especially the executive team. In the six Southeast Asian markets, the main business leaders of five countries are locals. "In terms of products, Lazada has language versions for different countries, each of which is responsible for daily operations by the local country team."

Bjorn, a senior certified mentor and Malaysian Chinese merchant of Lazada, told Xiaguang Society that many Chinese companies coming to Southeast Asia for development cannot achieve rapid growth because they directly transplant the Chinese model to Southeast Asia. "Lazada has also discovered this problem, although it took a long time." He found that Lazada's user experience is becoming more and more localized, and it is slowly leaning towards developing mobile apps and moving the seller center to the mobile end.

In addition, Lazada has always been hit by Shopee's low-price model that is close to local consumption levels, but this situation has now improved.

Starting in 2022, after Southeast Asia relaxed its epidemic control, offline consumption rebounded, and online e-commerce performance declined. Shopee, which expanded during the epidemic, had to reduce costs and increase efficiency, such as reducing subsidies and cutting departments. Bjorn pointed out that recently, Shopee has canceled its free shipping subsidy policy, while Lazada is still subsidizing shipping, which makes some buyers prefer to use Lazada. Lazada Malaysia employee Amy told Xia Guang She that Lazada is promoting Free and Fast Shipping this year, while trying to speed up logistics to attract more brands to join the platform.

For more than a year, Jiang Fan's efforts in localization have been quite obvious, such as improving Lazada's logistics and warehousing system in Southeast Asia.

Xia Guang She learned that in 2020, Lazada upgraded its logistics technology system through Project Apollo, and the warehousing operation system was completely rewritten and upgraded. Through overseas warehouses, Lazada's cross-border logistics can almost reach the same 2-3 days as local purchases, greatly improving the user experience.

Akang pointed out that in the first quarter of this year, Lazada added a third-party warehouse cooperation system to encourage merchants to settle in third-party warehouses. "Official overseas warehouses have many restrictions and higher costs, while using third-party warehouses, sellers can reduce warehousing costs." Third-party warehouses are also more convenient for sellers. For example, Akang also does e-commerce on Shopee and Tiktok at the same time, and can unify shipments in third-party warehouses.

He speculated that Lazada may hope to control the platform product prices by helping sellers reduce costs, "because if the cost increases, we sellers will definitely have to raise the prices of goods, otherwise there will be no profit." He described that as an Alibaba system, Lazada began to "put down its body."

Bjorn's team has been operating dozens of stores on two platforms since 2018. In addition to their own stores, they also help more than 20 first-line brands operate stores. He found that higher-priced brand products are more suitable for Lazada, while low-priced products sell better on Shopee. Now, in order to compete for different markets, he found that Lazada's internal staff hope he will cooperate with some small and medium-sized enterprises, while Shopee has begun to take a high-end route and invited him to join Shopee Mall.

Amy pointed out that Shopee focuses on cheap and affordable products, and the entry threshold is lower, and the market share is larger. "Lazada focuses on genuine and quality products. This part has matured, and it has also begun to tap into the low-priced market, and is working hard to increase its market share in this area."

An industry insider close to Lazada told Xia Guang She that in Southeast Asia, Lazada's internal strategy will invest more resources in markets such as Thailand and the Philippines, and temporarily lower the priority in markets where it is far behind Shopee.

Akang clearly found that the traffic and transaction volume of Lazada's Thai stores are increasing, and their store performance is almost the same as Shopee's, and in some months, Lazada's sales even exceed Shopee's.

Thai data analysis service provider Creden data statistics show that Lazada Thailand's revenue in 2022 increased by 40.89% year-on-year to 20.675 billion baht. Profit surged by 82.07%, reaching 413 million baht, making it the first profitable e-commerce platform in the Thai market.

According to industry insiders close to Alibaba, Lazada Thailand's rapid growth is due to the huge market potential, high proportion of young people, and relatively developed social media. For example, the local Lazada team in Thailand will combine different Thai festivals and popular trends to invite popular celebrities to participate in Lazada's online and offline live broadcasts, concerts, and other forms of promotional activities.

According to data analysis website Similarwed's data released in March 2023 on the traffic (desktop + mobile) of various e-commerce platforms in Southeast Asia and related data, Lazada's traffic is close to Shopee in the Thai and Philippine markets, but Shopee is still far ahead in other countries.

Bjorn pointed out that Shopee still occupies a large market share in the Malaysian market. This is related to Malaysia's population structure, where Malays account for 60-70% of the three major races. They have a lower consumption level and prefer to use Shopee.

However, the unavoidable problem is that after Southeast Asia resumed offline shopping, online e-commerce heat declined and sales declined. "On the one hand, electronic banking and other payment functions in Southeast Asia are not perfect, and on the other hand, consumers over 50 years old have started to return to offline shopping, which has a great impact on e-commerce." He frankly said that now platform traffic cannot be compared with that during the epidemic.

Currently, the overall scale of Shopee and Lazada is quite different. According to the financial report released by Sea, Shopee's GMV was 73.5 billion US dollars in 2022, a year-on-year increase of 17.6%. According to Alibaba's public information, Lazada's GMV exceeded 21 billion US dollars in the 12 months ending in September 2021. Alibaba's financial report also showed that Lazada's order volume in the second quarter of 2022 decreased by 6% year-on-year, and it was not until the fourth quarter that "order growth is recovering" was mentioned again. Based on this, it is difficult to predict that Lazada's GMV will increase in 2022.

A Kang pointed out that whether it is Shopee or Lazada, the categories are not rich enough, unlike Taobao and Pinduoduo in China, which can cover all categories of products, which makes many people have to go offline shopping. In addition, there is still a lot of room for improvement in consumer repurchase rate.

In fact, in 2022, A Kang's overall performance declined by nearly 40%. Therefore, he also reduced nearly 40% of his staff. Now, the team has tapped into local resources in Vietnam, but he has not planned to expand into more markets until the market shows better expectations.

In the current situation, Lazada still has a long way to go to localize and catch up with Shopee.

After independence, what is the direction?

After the split of the international digital business group, without Alibaba to support the loss-making business, Jiang Fan must stand up and face the market test, and be responsible for the results. According to the financial report, in 2022, Alibaba's overseas digital business revenue was 64.9 billion yuan, which is not a small amount, but the overall loss was 5.853 billion yuan, and it still cannot be self-sufficient. In the past six months, Alibaba has invested heavily in key growth businesses such as Trendyol and Lazada.

According to Alibaba's latest financial report, the losses of Alibaba's overseas business have narrowed.

In the fourth quarter of 2022, the adjusted EBITA loss for international business was 763 million yuan, while the loss for the same period in 2021 was 2.917 billion yuan. The financial report pointed out that "the decrease in loss compared to the same period last year was mainly due to the decrease in losses of Trendyol and Lazada. The decrease in losses of Trendyol was mainly due to the increase in revenue and the improvement of operational efficiency. The continued narrowing of Lazada's losses was due to the continuous improvement of monetization rate by providing more value-added services and improving operational efficiency."

However, more business losses cannot be ignored outside of Trendyol and Lazada. For example, in South Asia, the platform Daraz is also part of Alibaba's overseas business, but this business has not been well developed.

Akang joined Daraz in the second half of 2021. At the beginning, he had about 20 orders per month. After more than a year, he now has about 20 orders per day. "It is a platform that can be done or not." He has talked to many peers and found that everyone's situation in doing this platform is similar.

According to media reports, on February 6, Daraz CEO Bjarke Mikkelsen announced in an open letter to employees that the company will lay off 11% to adapt to lower growth prospects in the coming years. The open letter stated that in the past five years, the number of active shoppers on the company's platform has grown from 3 million in 2018 to more than 15 million today. However, in 2022, the Russo-Ukrainian conflict, supply chain interruptions, soaring inflation, and reduced local government subsidies have made the market environment very difficult, and the company's growth has slowed down.

It is understood that Alibaba acquired Daraz from Rocket Internet in 2018. Daraz mainly includes sites in Pakistan, Bangladesh, and Sri Lanka, where the economic development level is slow and the e-commerce penetration rate is very low.

Elka, a Chinese person working in Pakistan, told Xia Guang She that the Daraz platform stores are still in a relatively chaotic mode, with products in disorder and often not matching the online pictures. The backend logistics also have no rules. For example, she bought "next-day delivery" products from a brand flagship store twice, and the order was cancelled the next day, but the customer service did not explain the reason. After encountering various problems, she no longer chooses to shop on Daraz.

Today, Alibaba's overseas business layout is something that many big companies have not been able to achieve. However, how to do well and expand business in different markets, continue to reduce losses, and even achieve profitability, is a huge challenge. After the overseas business is independent, Jiang Fan will have to find more financing for it. However, Alibaba will continue to invest in the overseas business as an investor. Hu Qimu, chief researcher of the China Metallurgical Economic Research Institute, told Xiaguang Society, "Alibaba does have many loss-making businesses. My judgment is that Alibaba will be an investor in the future, and Alibaba will definitely increase its investment in international business in the short term, but in the medium and long term, it will require profitability."

"The overseas business will become a key strategic business for Alibaba in the future. After being independent, it will have better autonomy, higher decision-making efficiency, and can seek better financing for independent listing and development." E-commerce analyst Zhuang Shuai told Xiaguang Society that for business development, it can seek independent financing and reform of equity structure, which is more beneficial than harmful.

"If we talk about the disadvantages, one is that the board of directors of the subsidiary will face great financing pressure, and the other is that after independence, fine-grained operation must build its own system, and organizational management and corporate culture construction will be a great challenge." Zhuang Shuai pointed out.

Throughout 2022, Jiang Fan is in the process of sorting out and adjusting Alibaba's overseas business. Since this year, facing the strong development of Shein and Temu, Jiang Fan has begun to emphasize "growth". For example, in the past, AliExpress, which seemed to be unknown, has increased its market investment in the Korean and European markets this year and began to pursue growth points.

Jiang Fan must build a localized team while seeking scale growth, otherwise it will be difficult to achieve profitability.

In 2018, Lazada CEO Peng Lei brought hundreds of Alibaba people to Southeast Asia and moved the Alibaba system to Lazada. In the same year, Shopee quickly rose. Later, Peng Lei left, and Zhang Yong became the highest decision maker of Lazada.

After Jiang Fan took over, Alibaba's overseas business finally had a trend of independence. Now that the International Digital Business Group has been established, can Jiang Fan get rid of the restrictions of the Alibaba system and build a team that adapts to different cultures?

The industry insiders close to Lazada mentioned above also revealed that Lazada Malaysia recently replaced its COO with a Chinese. Obviously, Lazada's localization is still a tortuous process, and Jiang Fan cannot achieve it overnight by "leaving Alibaba".

International business is undoubtedly a major growth point for Alibaba, especially to achieve the ambitious goal of covering 2 billion global users. As of March 31, 2022, Alibaba's global annual active consumers reached about 1.31 billion, of which 305 million were overseas consumers. From localization to scale effect, everything requires Jiang Fan to make greater efforts.