Alibaba Group Acquiring Lazada To Win The Southeast Asia ECommerce Battle Case Solution

Weaknesses

Lazada is short on liquidity, which means that Alibaba will have to finance the acquisition as well as inject additional working capital to ensure that Lazada remains operational.

Opportunities

Southeast Asia is projected to become the fastest-growing internet. It is expected to grow 19% each year from 2015 up until 2020. The potential for growth is much higher than compared to the highly saturated markets around the world.

Threats

The huge potential for growth has prompted many other e-commerce retailers to enter the Southeast Asian market. JD.com (Alibaba's main domestic rival), Rakuten (Japanese e-commerce giant), and Qoo10 (Yahoo-backed regional rival) are all striving hard to dominate the regional market. There is also the eventuality of Amazon entering the market as the company has shown significant interest in the region.

2. There are merits and demerits to doing e-commerce in Southeast Asia; these are briefly discussed below:

Pros

The region has a high population density, and most of the population is under 40. Young people are quick to use new technology, especially when there is a lack of traditional retail options like malls. Many Southeast Asian countries have experienced economic growth in recent years and have a growing middle class. This means that businesses, especially those in the service and retail sectors, have a lot of potential for growth. 

Cons

The region is underdeveloped in terms of infrastructure that is a basic requirement for running an e-commerce business. This couple, with the fact that the region is highly fragmented, many countries spanning over several small islands, makes doing business even more difficult. Corruption is also a serious issue that can discourage businesses since setting up operations may mean bribing officials.

3. It makes sense for Alibaba to invest in Southeast Asia since it is a rapidly expanding market offering huge potential for growth. Domestically the company faces tough competition, and even though 50% of the population in China does not have access to the internet, the slowdown in the economy’s growth rate means that it will take some time for the domestic market to grow. Southeast Asia, on the other hand, is a region experiencing high growth rates. 

Another reason for investing in the region is a strategic one. Alibaba’s rivals, both domestic and foreign, are bound to enter the Southeast Asian market eventually. It makes sense for Alibaba to gain the first-mover advantage and enter the market early to establish a strong foothold before competition intensifies.

4. Lazada’s acquisition by Alibaba was a great strategic move. Other advantages aside, Lazada possessed a number of strategic assets. The company had brand recognition within the region, which meant that Alibaba would not have to spend a lot on marketing and establishing its services. 

Lazada's business model also resembles that of Amazon in that the company has its fulfillment centers, and it has a logistical network already in place. This is a requirement in a region where infrastructure remains underdeveloped. A competent management team at the helm of operations, which is much more aware of the regional tastes and preferences, is already in place. This entails that Alibaba will most likely need to finance Lazada’s expansion efforts.

Finally, the company has also developed strategic partnerships with the likes of Netflix and Uber. These partnerships can help cater to customers with a much wider range of services.