Alibaba's Acquisition of Lazada: Is It Good or Bad for Indonesia?

BY :MUHAMAD AL AZHARI & TABITA DIELA

APRIL 14, 2016

Jakarta. The announcement of Alibaba Group Holding's buying a controlling stake in Southeast Asian e-commerce company Lazada Group brings both pros and cons to the domestic market.

Reuters reported on Tuesday (12/04) that the Chinese e-commerce giant is making its largest overseas investment by sealing the $1 billion deal for control of Lazada Group.

Local industry players have predicted that Alibaba, the world's biggest retailer, seeks fertile new ground as growth slows at home.

Lazada, established by Germany's Rocket Internet in 2012, is a Singapore-headquartered company with a focus on operations in Southeast Asia, including Indonesia, Malaysia, the Philippines, Vietnam and Thailand.

According to the reported deal, existing Lazada's investors Rocket Internet, Britain's biggest supermarket operator Tesco and Swedish investor Kinnevik are to let go of their stakes in Lazada to Alibaba.

"Indeed, Alibaba will not stand still after this acquisition, they will become more aggressive," Djoenaidi Handojo, chairman in the presidium of the Association of Indonesia's Telematics Industry, told the Jakarta Globe on Wednesday.

He did not deny that Alibaba's expansion into Southeast Asia, including Indonesia, could become a potential threat to local start-ups and small-medium-enterprises.

"With their experiences in China, it is clear that in the future, they will not only bring opportunities, but also threats to our SMEs," he said.

He said that Alibaba's entrance into the Indonesian market is a wake-up call for the local startups and SMEs with interests in e-commerce to improve their services and competitiveness.

The government, Djoenaidi said, needs to play a leading role to prevent unfair competition.

"Through the acquisition, we cannot be naive to ignore there is economical interests of China with the [e-commerce] industry in Southeast Asia. That is inevitable. It is just how we, as the house owner guard our door for the safety of those living inside," he said.

E-commerce analyst Mochammad James said Alibaba's entrance into Indonesian market will bring opportunities for a bigger flood of cheap imported goods from China.

“Lazada can facilitate a bigger flow of cheap imported goods from China, a country with massive production scale where Alibaba's base is. There will be more imports from China to Indonesia and other Southeast Asian countries," James said, thus from the trade balance aspect, the deficit of Indonesia's trade with China to soar.

Last year, Indonesia's trade deficit with China stood at $15.96 billion, up from 2014's about $14 billion.

Lazada.co.id, the Indonesian arm of the Singapore-based e-commerce, sits in the 21st ladder in Alexa ranking for popular websites in Indonesia.

The site sells inventory to customers from its own warehouses along with with a marketplace model that allows third-party retailers to sell their products through websites or smartphone application.

Among e-commerce sites that are popular in Indonesia, Lazada is only beaten by Bukalapak.com and Tokopedia.com, which sit at 12th and 14th in Alexa ranking for the biggest website traffic in Indonesia.

Among the top investors for Bukalapak, which was founded in September 2011, is Indonesia's conglomerate Elang Mahkota  Teknologi. Meanwhile, Tokopedia is backed by, among others, Japanese CyberAgent Ventures, South Korean Softbank Ventures, and US-based Sequoia Capital.

Not all bad

However, not all see the acquisition as a threat to Indonesia's local startups.

Communication and Information Minister Rudiantara said Alibaba's entrance into the Indonesian market through Lazada will not "drastically change the landscape of e-commerce competition in Indonesia."

"Competition is a beautiful thing. It gives benefits to consumers, as long as it is in a fair play," the minister, who is a veteran executive in the ICT sector, told the Jakarta Globe on Wednesday.

When asked whether Indonesia will see an influx of cheap Chinese goods and open the opportunity for illegal imports by third-party sellers, the minister said it is unlikely Alibaba will make a major change in the way Lazada does its business in Southeast Asia, including Indonesia.

"If anyone is selling goods that aren't certified, there is a mechanism to stop it. I believe the e-commerce player will also suspect the account of the third-party retailers should there is a report like that," said minister Rudiantara.

Daniel Tumiwa, the chairman of the Indonesian E-commerce Association (idEA) explained on how e-commerce industry in Indonesia has forged its defense against black market goods distributors.

He acknowledges that online marketplace gives easier way and a place to sell things via the cyber-world and sales of illegal goods are "indeed" easier to be done by online.

"It's inevitable," he said.

Still, he said the e-commerce industry is currently brewing a policy dubbed "Safe Harbor," join hands with the ICT Ministry and the Trade Ministry to protect the online market platform from such illegal practices.

"The platform is innocent. Say, there are fake products being sold on an e-commerce site and the brand's owner doesn't feel happy about that. The [upcoming] policy states that it is the brand owner's responsibility to protect its brand," he said.

"They should just inform the platform to block the seller's access in 24 hours," Daniel said, adding he expects the policy to be announced and implemented by the middle of this year.

Daniel welcomes Alibaba's acquisition of Lazada.

"Alibaba has a lot to share with Lazada, it is a good opportunity to learn [each other],"he said.

Foreign players aren't an anomaly among the top competitors to Lazada. Among the other top most popular e-commerce sites in Indonesia based on Alexa ranking are OLX.co.id, Elevenia.co.id, Mataharimall.com, Blibli.com, Bhinneka.com, Zalora.co.id and Blanja.com. Most of these top players are foreign-controlled or joint-ventures with foreign investors.

For example, OLX, formerly known as TokoBagus, serves as an online classifieds advertisement that enables registered users to create ads. It sits in the 30th ladder in Alexa ranking for Indonesia's most popular sites. In 2014, it formed a joint venture with local e-commerce site Berniaga and decided to rebrand the service into OLX Indonesia.

Several foreign investors, including South African Naspers and a Singapore-based media company 701Search, are behind the online platform.

There is also Elevenia, an online market that sits in the 31st place in Alexa's ranking for Indonesia. It is a joint venture between telco XL Axiata and South Korean online mobile service firm SK Planet. Elevenia is a marketplace.

Meanwhile, Zalora.co.id is another investment of Germanese Rocket Internet in Indonesia and Blanja.com is a joint venture between eBay and state telecommunication firm Telekomunikasi Indonesia (Telkom).

Among those names only a few are controlled by the local investors. They include Mataharimall.com, the Lippo Group's own e-commerce platform, which had its soft-launching in February 2015 and grand-launching in February this year.

The Jakarta Globe is affiliated with Mataharimall.com, through the Lippo Group.

Other locally-controlled e-commerce players are Bhineka and Blibli.

Bhineka, among Indonesia's first e-commerce site — founded in June 1999 — is backed by Indonesia's local investor Ideosource and Blibli is backed by a now diversified conglomerate Djarum Group, originally a cigarette producer.

"Like it or not, local e-commerce scene will be flooded with foreign investors. It's inevitable and we should not be against it. We should not just take their money, but should learn about their knowledge as well."

With additional reporting from Lona Olavia

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