The risk of acquiring Lazada became a $ 4 billion mistake of Alibaba: After 3 years of no growth, even about to lose the No. 1 position in the region, Jack Ma also ‘give up’?

Last year, Alibaba’s Vietnam branch planned to win big with toilet paper.

In the home country of China, where the company is located, toilet paper is a popular item purchased online. By buying large quantities of paper worth hundreds of thousands of dollars, Alibaba can sell this product online at extremely cheap prices.

However, Vietnam’s e-commerce market is different from China. Customers did not rush to buy toilet paper as Alibaba predicted and their Lazada branch here sold only a very small part compared to the original goal.

Alibaba has long dominated the world’s largest online shopping market, China, and many expect it to conquer other markets. But the fact is, Alibaba – like many other Chinese technology companies – has trouble finding success in foreign markets.

Alibaba handles more transactions on its shopping website than any other company in the world. In the last fiscal year, ending in March, 654 million Chinese customers bought a total of $ 853 billion worth of goods through Alibaba’s websites – more than Amazon and eBay sold on all their platforms in all year combined.

The company achieved $ 56.2 billion in revenue last year with $ 36.9 billion – or 66% of retail sales in China.

The company has begun prioritizing global expansion since its IPO in 2014. Despite investing over $ 5 billion in markets like Singapore and India, Alibaba is still struggling. Last year alone, the company recorded $ 2.9 billion – about 5% of its retail sales globally.

This is becoming an important issue for Daniel Zhang, who recently took over as chairman of Alibaba from founder Jack Ma. Zhang has been the company’s CEO since 2015 and he himself oversaw many of the company’s international businesses. Unlike founder Jack Ma, who has always been a noisy media outlet, Alibaba employees describe Zhang as a more secretive leader.

Alibaba wants to reach the goal of serving 2 billion customers – Jack Ma

In a reply to investors in 2016, Ma said that Alibaba needed at least 1.2 billion people outside China to reach the goal of serving 2 billion customers.

A few initiatives show good prospects like the growth of AliExpress webstie in Russia and Brazil. However, the company’s bigger bet on Southeast Asia is far weaker than its competitors in both size and growth – meanwhile, the amount of money spent on day to day returns. a lot.

Alibaba seems to have had difficulty coordinating its workforce and making a difference for each market compared to its headquarters in China. A person who understands the problem reveals that sometimes the management style for operating in China is not effective when applied to other markets.

An Alibaba spokesperson said the company is committed to being a global brand. “The Southeast Asian market has great potential, and unlike our competitors – focusing on the short term, we enter the long-term game.”

Alibaba’s challenge abroad reflects the difficulties that Chinese giants face in the process of competing with Amazon, Google and other global competitors. Many Chinese tech companies prosper in their home countries because they have a team of employees who are ready to work with extreme intensity. In addition, the government also regulates foreign competition limits – an advantage that no foreign company has.

Since 2014, according to Dealogic data, Chinese technology companies including Tencent, JD and Baidu have carried out M&A deals abroad with a total value of 85 billion USD. However, so far, no Chinese company has reached the scale of its Western rivals. Usually, Chinese business leaders want to target the small market first.

Alibaba is still strongly focused on China. The company says it will target 500 million people in less developed cities next time – a group that is expected to spend more on online shopping in the next decade. An insider said that at this point, Alibaba is still under pressure to win in all foreign markets and the 2 billion customer milestone is expected to be completed by 2036.

Analysts say that with strong capital combined with deep technological knowledge and a hard working culture, Alibaba can win in many foreign markets. Last year, it bought an e-commerce company in Pakistan and bought another company in Turkey.

Since 2015, Alibaba and its financial subsidiary Ant Financial have invested hundreds of millions of dollars into Indian online payment company Paytm and its e-commerce affiliate. Alibaba’s payment business has made significant mark in overseas markets but e-commerce has not been so lucky, all inferior to Amazon and Walmart.

Southeast Asia seems to be a logical step for Alibaba when it bought a controlling stake in Lazada at the time it was the region’s largest e-commerce company for $ 1 billion in 2016. Then , Alibaba continued to increase by $ 1 billion last year and another $ 2 billion in 2018 to Lazada.

On the surface, these are quite the right steps. E-commerce in the region of 650 million people is growing rapidly, doubling in size to $ 23 billion last year. Many countries have similar cultures and economies to China.

However, after 3.5 years, Lazada has lost market share in major markets and even the No. 1 position in their region is threatened to be overtaken by Shopee – a subsidiary of Sea Group. In Indonesia, the region’s largest market, Lazada last year ranked fourth on the list of the largest e-commerce companies, after Shopee, Tokopedia and Bukalapak.

A Lazada spokesperson said e-commerce was in its infancy in Southeast Asia. The company is “confident and persistent with its strategy as the region’s leading e-commerce platform under the Alibaba Group.”

Initially, Lazada bosses – mostly from the founder company, Rocket Internet from Germany, were very satisfied with Alibaba’s acquisition. They admire the Chinese giant.

However, when Alibaba took full control of Lazada, it carried out a number of activities to reform Lazada, aiming to build a model like them. First, Alibaba built a new technology platform in Hangzhou and shifted Lazada’s business model from focusing heavily on selling its own products to acting like an e-commerce platform.

They also encourage more Chinese to sell on Lazada and try to reduce advertising spending and discounts to attract customers. They sent elite leaders from Hangzhou headquarters to run the operations of Lazada branches in Southeast Asia.

Some Lazada leaders feel overwhelmed even though they agree with the changes. “They move very fast, very intensely and as a result they cause a significant rift with the local activity group.”

Alibaba executives say that Lazada bosses in markets need to focus on long-term strategy instead of short-term. Lazada said that the growth in orders was a sign that their businesses were improving.

In Thailand, one of Lazada’s strongest markets, buyers have realized a few suspicious products of Chinese traders that are cheap but of extremely poor quality.

The descriptions on the packaging “are not what Thai people say”, according to a 26-year-old customer. She has been making purchases on Lazada for years but started noticing changes a few months ago. Now she has switched to shopping at Shopee more.

Why can not succeed in Vietnam?

By the end of 2018, nearly all of Lazada’s previous leaders before the acquisition of Alibaba were replaced by Alibaba’s people.

One of them is Max Zhang – who was sent to run Lazada Vietnam last year. He used to be the secretary for Alibaba CEO Daniel Zhang.

An unnamed source revealed that Zhang has never lived abroad, including Vietnam, and he often feels more comfortable talking in Chinese with local leaders instead of English. This person also commented that Zhang is a relatively young manager and has no experience in leading a company.

As soon as he took up the new position, he asked Lazada Vietnam to stop providing discount vouchers and other expenses to boost sales. He often criticized the staff, and even made harsh words like “you are spending ignorant money”, a former employee at Lazada Vietnam shared with WSJ.

Zhang stopped most free shipping policies – a step that plunged revenue and allowed customers to move to other platforms like Shopee. This decision also disappointed Vietnamese merchants – and moved to competitive platforms.

Zhang has tried to sell customers good products through bulk purchases such as toilet paper cases in China. However, the online shopping market in Vietnam is too small and unfortunately there are not enough buyers for him to get the expected price.

When Zhang or other executives were sent from Hangzhou to ask strategic questions, they always learned from their experience with Tmall and Taobao – Alibaba’s online platform.

“The answer we get for any question starts with: At Tmall or Taobao, we do this … or In China, this will be …”, quote a part of the letter. many Lazada Vietnamese branch leaders sent to Lucy Peng – the person appointed by Alibaba to run Lazada activities throughout Southeast Asia. “Unfortunately, we are not Tmall or Taobao, nor are we in China.”

Peng contacted the manager of Lazada in the localities sent by Alibaba, asking them to respect the staff and culture in each locality. An Alibaba spokesperson said: “Combining two different companies takes time and we are closely monitoring this issue.”

Zhang’s effort to demand incentives for users is to help Lazada Vietnam have a better financial situation. However, the opposite result, the revenue and the number of visitors are reduced and they have lost the No. 1 position in the hands of Shopee.

In June 2019, Zhang returned to China and CEO Lazada Thailand will take over the Vietnamese market.

Two months later, Alibaba CEO Daniel Zhang visited Ho Chi Minh City. In a message posted on Lazada’s recruiting fanpage, it is not “Taobao, not Tmall. We need our own Lazada in Vietnam, in Thailand, in the Southeast Asia market. localize your business “.