What Alibaba's controlling stake in Lazada means for the industry

Alibaba will acquire Rocket Internet’s 9.1% stake in Lazada for US$137million, along with a transaction including Alibaba’s investment of US$500 million in Lazada.This move makes Alibaba the controlling shareholder of Lazada when complete, equating to an equity valuation of Lazada of US$1.5 billion.Oliver Samwer, CEO of Rocket Internet said “This transaction is a key milestone for Lazada as it underlines its position as leading online platform in Southeast Asia. Alibaba as the new major shareholder is further strengthening this position and provides the basis for significant future growth given Alibaba’s strong strategic position in the region.""We are looking forward to working with Alibaba and the existing Lazada shareholders to support Lazada in building the leading ecommerce franchise in South East Asia.”Experts at Forrester have said these being mobile first markets are more favorable to Alibaba as compared to Europe and North American market. Satish Meena, Forecast Analyst at Forrester said, "After doing significant investments in India, this deal will strengthen Alibaba's hold in the Asia Pacific market excluding Japan. Also setting overseas expansion can be very expensive when you include the cost of building the brand and investment in logistics. This will allow Alibaba to focus on bringing more merchants while using the existing brand name of Lazada to grow further."Some of the key challenges in Southeast Asia for eCommerce includes use of cash on delivery, insufficient logistics infrastructure and inconsistent customs/import duty. In particular, the lack of warehouses outside Singapore and Thailand is a key concern as eCommerce players who want to penetrate further into the rural areas and support the last mile delivery.They will have to invest more in non-metropolitan areas to ensure efficient time to market, she added.Before acquiring this stake in Lazada, Alibaba invested in Singpost and Quantium Solutions Internationale (QSI), a wholly-owned subsidiary of SingPost in 2015 which handles end-to-end eCommerce logistics and fulfillment services in APAC region."Alibaba will use the infrastructure built by Lazada, combined with its existing investment in Singpost to further build the logistics necessary for expanding in Southeast Asia," she said.Xiaofeng Wang, senior analyst at Forrester Beijing said this investment is an important move for Alibaba's global expansions in the B2C area. Alibaba has multiple approaches in global expansion:Tmall Global focuses on collaborating with global merchants to enrich inventories for Chinese consumers;AliExpress is to help Chinese merchants sell products to the global market; andOpening offices in countries like the US and the UK for better operation in the market."Investing in Lazada not only serves all the above purposes, it also helps Alibaba enter the large Southeast Asian market, and also provides benefits in areas like logistics and payment processes where Lazada has already established," he said.Founded in 2012, Lazada is an eCommerce gateway for local and international sellers as well as brands to reach consumers in distinct Southeast Asian markets such as Indonesia, Malaysia, the Philippines, Singapore Thailand and Vietnam.“We are very excited about joining forces with Alibaba and see significant synergies that will drive great benefits to our customers, sellers, brands and the broader eCommerce ecosystem in Southeast Asia. The transaction will help us to accelerate our goal to provide the 550 million consumers in the region access to the broadest and most unique assortment range," Maximilian Bittner, CEO of Lazada said.