Alibaba Struggles in International Markets

Alibaba handles more business on its shopping sites than any other company in the world. In its most recent fiscal year, ending March, its 654 million Chinese customers bought $853 billion of goods. (More than Amazon and E-bay combined)

Alibaba has long been the world’s biggest online shopping market in China and naturally many thought it would gradually start to take over other markets. Instead, Alibaba, like many other Chinese giants, has found out how hard it is to duplicate its domestic success.

One such plan was hatched in the company’s home base of China. It wanted to target the Vietnam toilet paper market. Toilet paper is a popular online purchase in China and volumes are typically huge, but Vietnam’s e-commerce market wasn’t like China’s. Shoppers didn’t rush to buy as much as projected, and Alibaba’s local subsidiary, Lazada, sold a fraction of the original targets.

After going public in 2014, the company stated that would make globalization a priority. It got $2.9 billion, or 5% of its revenue, from its international retail business last fiscal year. Some initiatives have shown promise, Alibaba’s global shopping site AliExpress in Russia and Brazil, both large markets with price-conscious customers are doing well. However, despite investing more than $5 billion in places such as Singapore and India, it has struggled to gain traction. In fact some of its biggest bets, like Southeast Asia, have fallen behind competitors in growth or size, while costing the company lots of cash.

An Alibaba spokesman said the company is committed to becoming a global player. “Southeast Asia is a market of high potential, and unlike our rivals, who focus on short-term, slash-and-burn gains, we play the long game,” he said.

Southeast Asia seemed like a logical step for Alibaba when it bought a controlling stake in Singapore-based Lazada, at the time the region’s largest e-commerce firm, for $1 billion in 2016. Three and a half years later, Lazada has lost share in key markets, and its No. 1 spot region-wide is being challenged by Shopee. In Indonesia, the region’s biggest market, Lazada was ranked fourth among e-commerce companies, behind global unknowns Shopee, Tokopedia and Bukalapak in 2018.

A Lazada spokesperson said e-commerce is at an early stage in Southeast Asia, adding that the company has the “strategic confidence and perseverance to do this as Alibaba Group’s flagship e-commerce platform in this region.”

Initially, Lazada’s executives—mostly Europeans brought in by the company’s founder, Rocket Internet of Germany—were delighted by the Alibaba purchase, according to people close to the company. They admired the Chinese giant’s Silicon Valley-like campus in Hangzhou, where employees zoom around on bikes and workers typically toil from 9 a.m. to 9 p.m., six days a week—the infamous “996” schedule of Chinese internet businesses.

“It tends to be ‘my way or the highway,’ ” said Mr. Chan of Chinese executives’ management style. “The general consensus of Chinese companies in this part of the world is they’ll just bulldoze their way through.” Alibaba remains heavily focused on China, and it says it doesn’t feel pressure to win in all its international markets now and is laying the groundwork to reach a goal of two billion customers by 2036.

As Alibaba solidified control of Lazada it tried to repeat the model that worked domestically. It built Lazada a new technology platform in Hangzhou and shifted Lazada’s business from focusing heavily on selling its own products to operating more like a giant marketplace. It encouraged more Chinese merchants to sell on Lazada and tried to reduce costly spending on discounts or advertising to attract customers.

It sent veterans from Hangzhou, some of whom didn’t speak much English, to help run Lazada’s operations. Some Lazada executives felt overrun, even when they agreed with the changes. “They move very fast, very violently, which causes a significant rift” with the local team, said one former Lazada executive. Alibaba responded by telling Lazada managers to focus on long-term strategy.

In Thailand, one of Lazada’s strongest markets, shoppers have grown suspicious of new Chinese merchants on the site offering inexpensive goods alongside descriptions that seemed translated by machine into the local language.

The product descriptions are “not what Thai people say,” said 26-year-old customer-service employee Chanapa Kamawithee, who has shopped on Lazada for years and started noticing the change a few months ago. Ms. Chanapa said she now shops more on rival Shopee.

Max Zhang was sent to run Lazada Vietnam last year. He had been hired after he built one of the top-selling fashion brands on Alibaba in China. Mr. Zhang, the new Vietnam chief, had never lived abroad or spent significant time in Vietnam, and was far more comfortable chatting with compatriots in Chinese than with local managers in English. Mr. Zhang had a top-down management style that frustrated employees used to Lazada’s flatter, more Western style of operating, people close to the business say. He seldom explained decisions and expected to be obeyed without question, they said.

Besides his management style Mr. Zhang made a lot of cultural missteps when operating the new acquisitions in international markets.

“The answer we got for every single question started with ‘In Tmall/Taobao, we did…’ or ‘In China, this is how it happens,’ ” said one letter sent by several Vietnamese managers last year to Lucy Peng, an Alibaba executive sent to lead Lazada in Southeast Asia. “Unfortunately, we are neither Tmall/Taobao or in China.”

A Lazada spokesman said, “Integrating two distinct companies is a work in progress, and we are on a good track.”

Mr. Zhang’s efforts did cut down on customer subsidies and make Lazada’s Vietnam unit healthier financially, said a person familiar with the operations. But sales and traffic sagged, and it ceded its No. 1 spot to Shopee.

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