The region has the potential to help global retailers offset slowing
growth momentum in their core markets, but it comes with complex
regulatory, logistical and language barriers. Internet connections
can be slow and the vast archipelago landscape can prove daunting to
even hardened logistics experts.
In an interview in October, Lazada's chief operating officer Pierre
Poignant highlighted some of the hurdles in delivering packages in
the Philippines, for example.
"In some places, there's just no address. It's like 'take the house
on the left'. And in many places you have to take a boat to get
there... It can be several days or even weeks to reach some very
remote island," he told Reuters.
A study by CLSA last year showed that almost a quarter of the online
orders it placed in the Philippines failed to arrive, and multiple
delivery delays were reported.
Such obstacles mean the market is highly fragmented, with no
dominant force. Start-up funds say international companies wanting
to get in are likely to follow Alibaba's route by buying existing
operators rather than trying to go it alone.

"The strategy of coming in, looking for a local player who has shown
traction and buying them in order to get a foothold is a very good
one, and we will see more of that," said Vinnie Lauria, a founding
partner at Golden Gate Ventures which is invested in marketplace
Carousell and online grocer Redmart.
"Lazada has done a very good job of operating in multiple countries.
That's not something Alibaba is familiar with."
Headquartered in Singapore, Lazada also operates in Malaysia,
Indonesia, the Philippines, Thailand and Vietnam.
"KOMODO IN THE JUNGLE"
Though Lazada more than tripled the number of active customers to
7.3 million, its losses more than doubled last year, and experts
warn that investors should be prepared for a long wait before the
industry turns a profit.
The region has dozens of other e-commerce players, including
Amazon.com, Tokopedia, OLX, Qoo10, Zalora, Cung Mua, Blibli and Etsy
- but no one platform controls more than a fifth of the market,
according to Bain & Co.
And the list keeps growing, with payment start-ups such as Fastacash,
Xoom and GoSwift aiming for a foothold in the region.
Lauria said it would be easier for an international player to
acquire rather than "copy and paste", especially for online
marketplaces.
For those companies already scrapping it out for a small slice of
the market, consolidation may be the route to survival.
"The (market) shares of smaller players are definitely going to get
smaller with Alibaba jumping into the region," said Cris Duy Tran, a
consultant at Frost & Sullivan. "One way to survive is to partner
with some of the other players to get bigger."
[to top of second column] |

A person with direct knowledge of the Lazada deal said Alibaba
reviewed several targets before the acquisition.
"(Lazada) gives them scale. Organically, it would have taken a lot
of time to build," the person said.
An Alibaba spokesman in Hong Kong said the e-commerce giant sees the
Lazada deal as a "win-win investment."
"We see SE Asia as a strategic piece of our globalization strategy.
It's a market that shows significant e-commerce potential," with a
robust economic environment, attractive demographics, low e-commerce
penetration and some 33 million Chinese, who hold potential for
cross-border commerce, he said in an emailed response to Reuters
enquiries.
Another source with direct knowledge of the Lazada deal said Alibaba
would likely not stop at just one acquisition in the region. "It's a
$200 billion company ... doing a $1 billion deal in one segment of
e-commerce. Does that mean the end of it? I don't think so. They
still have appetite," the person said.
Other existing firms were primed for more competition.
"I say today that Tokopedia is the komodo in the 17,000-island
archipelago," said William Tanuwijaya, co-founder and CEO of
SoftBank-backed Tokopedia, in response to Alibaba Chairman Jack Ma's
one-time description of his e-commerce group as a crocodile in the
Yangtze river.
"Fighting in a river, the komodo will lose, but fighting in the
jungle on one of our islands, the komodo has a pretty good chance to
win," Tanuwijaya said.
(Reporting by Aradhana Aravindan and Eveline Danubrata, with
additional reporting by Saeed Azhar in SINGAPORE, Denny Thomas in
HONG KONG and Paul Carsten in BEIJING; Writing by Miyoung Kim;
Editing by Ian Geoghegan)
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