Alibaba seeks to break into South Asia on path to global expansion
In a vast warehouse on the arid outskirts of the Pakistani megacity of Karachi, hundreds of young workers sort through boxes of nappies, cooking oil and mobile phones.
Items are handpicked from the maze of shelves, transported by forklifts and finally packed into trucks for shipment to residents approximately 20 minutes from Karachi and beyond.
Although Alibaba’s orange name or logo is not visible, the warehouse is a central part of the Chinese tech giant’s strategy to break into South Asia, one of the fastest-growing e-commerce markets. fastest in the world.
Daraz, an e-commerce company acquired by Alibaba in 2018, has proved a promising path in a tricky region for the Hangzhou-based company, which was effectively shut out of India after the country cut Chinese investment in due to geopolitical tensions.
Thanks to Daraz, Alibaba has expanded its reach as the Pakistan-based group has expanded into Bangladesh, Sri Lanka, Nepal and Myanmar, becoming the region’s largest e-commerce company outside of India. India.
This comes as Alibaba steps up its global push. Its international businesses – including Daraz, Lazada in Southeast Asia, Trendyol in Turkey and AliExpress – are one of its most promising segments at a time when China’s tech crackdown, slowing economy and growing competition let its domestic operations crumble.
Chief Executive Daniel Zhang told investors in December that its international business had “tremendous potential” with a “long track ahead of us”. Meanwhile, earlier this year, new CFO Toby Xu said it was one of two segments set to become “increasingly important drivers of growth in the future. “.
Daraz was founded in Pakistan by Germany’s Rocket Internet in 2012 and expanded across South Asia before being acquired by Alibaba for $194 million in 2018. The company, which says it has around 40 million of users, is primarily an e-commerce marketplace for smaller vendors, but has expanded into lending and even streaming cricket matches.
Bjarke Mikkelsen, chief executive of Daraz, said the company is in its infancy. ” Integrating [with Alibaba’s] ecosystem, there is a huge opportunity,” he added.
It operates in one of the most populated regions in the world, with around 440 million people in its markets. Technology adoption is growing rapidly. For example, smartphone adoption in Pakistan and Bangladesh is expected to grow faster than in other major Asian markets such as India or Indonesia.
“Pakistan was seen as a very unstable market,” said Jehan Ara, a technology and software manager based in Pakistan, but added that it was now one of the last untapped opportunities. “It’s the biggest market left.”
Before stepping down in 2019, billionaire chairman Jack Ma planned to make Alibaba “a platform for global small businesses”, acquire Lazada, Trendyol and Daraz and expand the local cross-border platform AliExpress.
The addition of the three local players strengthened Alibaba’s position in three distinct emerging markets, while AliExpress shipped cheap Chinese goods around the world and spearheaded its European push.
But after Ma, a new generation of more introverted leaders took over, and international trade – which only accounted for about 7% of total revenue – became less of a priority, according to a person familiar with Alibaba’s operations at the stranger.
Now the internal pendulum is swinging back to international expansion. In December, Jiang Fan, one of Alibaba’s most promising young managers, took control of a revamped international division.
But the renewed global push is likely to be difficult. Sales at Alibaba’s international division have been volatile and appear to be slowing after a boom during the Covid-19 pandemic. Sales growth of 14% in the fourth quarter, compared to the previous year, fell to 4% in the first three months of the year, as the division was affected by the inflation crisis in Turkey and new taxes on packages shipped to the EU.
The growth of e-commerce and technology in countries like Pakistan and Bangladesh has lagged behind other markets like India and Southeast Asia. While venture capitalists invested a record $366 million in Pakistani start-ups last year, for example, they invested $38.5 billion in neighboring India, Data shows. Darbar and Bain & Company in Pakistan.
“Where India was in 2012, we are here in 2022. . . So we are catching up, change is happening, but the size is still very small,” said Mohammad Sohail, managing director of brokerage firm Topline Securities in Karachi.
Daraz is one of the most visible examples of Chinese tech investment in a region where Beijing has poured tens of billions of dollars into infrastructure projects through its Belt and Road Initiative, but the private sector’s follow was slower.
“Generally our countries are very pro-China and they are all sort of or part of One Belt, One Road,” Mikkelsen said. “Having a Chinese shareholder. . . was seen as quite positive, that we are attracting this type of investment.
While Daraz uses Alibaba’s infrastructure such as Alipay for payments or Cainiao for logistics, executives say the company has also benefited from a more passive approach.
At Lazada, the largest of its overseas businesses, Alibaba parachuted Chinese executives in a largely unsuccessful attempt to avoid competition from Singapore’s Shopee. But in Daraz and Trendyol, it left existing leaders in place. Mikkelsen, a former Danish banker at Goldman Sachs, joined Daraz in 2015, before the acquisition of Alibaba.
While its foray into South Asia has shown promise, the short-term outlook has become more uncertain. Daraz markets have been particularly affected by global economic shocks. Sri Lanka became the first Asian country in more than two decades to default on its external debt last month amid an economic crisis, while Pakistan and Nepal imposed import curbs in an attempt to control rising prices and declining foreign exchange reserves.
Soaring prices for fuel and other raw materials also drove up Daraz’s costs. Some of its competitors, like the Lahore-based e-commerce company Airlift, have turned to mass layoffs.
While Mikkelsen acknowledges that budget talks with Alibaba management are “more difficult this year than they have been in some time”, he argues that Daraz is better positioned to weather the storm – thanks to his parent with deep pockets.
“E-commerce is sexy. It’s big growth. Money comes in in good times [but] sometimes people kinda forget about efficiency and the path to profitability,” Mikkelsen said. “Alibaba is a long-term investor. Right now is a good time to have a long-term, strategic investor with plenty of cash. »