Will Alibaba Group Holding Ltd (NYSE:BABA) Win the War for Southeast Asia?

July 27, 2017, 11:53 am ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Alibaba Group Holding Ltd (NYSE:BABA) is among the dominant ecommerce platforms in Southeast Asia where it competes closely with Hong Kong’s Tencent Holdings Limited. However, Amazon.com, Inc. (NASDAQ:AMZN) has recently targeted the region as it seeks to expand operations to countries with significant potential for growth given that the ecommerce market in most developed countries is almost saturated.

Amazon.com is poised to enter the Southeast Asia market as reports indicate that the company might launch some of its services in Singapore by early next week. Alibaba currently has an established presence in this market, given that it owns a majority stake in Lazada, a dominant e-commerce site in Southeast Asian countries such as Singapore, Vietnam, Thailand, Malaysia, the Philippines, and Indonesia.

Currently, Alibaba’s closest competitor in China is JD.Com Inc (ADR) (NASDAQ:JD), which operates in over 50 cities in China and is valued at $66 billion. However, JD.com does not offer the wide array of services offered by Alibaba such as cloud and media services.

Alibaba increased its stake in Lazada by $1 billion in June to acquire an 83% ownership stake in the company. Amazon.com will be seeking to build on its global reputation as an efficient and trustworthy e-commerce platform as well as the popularity of its Amazon Prime service to attract customers in Singapore.

The Southeast Asian market has significant potential for growth given that its middle class population is expected to reach 400 million by 2020. This is the main reason why Alibaba and Amazon.com have targeted the region, which could easily guarantee sustained future growth for the two companies.

A recent Google report indicates that the ecommerce industry in South East Asia is expected to grow by 15 times its current size before 2025; this is largely due to the growing middle class, the young population and high rate of internet penetration in the region. For example, the ecommerce industry in Indonesia is projected to expand from the current $8 billion to about $65 billion by 2020.

The high potential for the growth of ecommerce in Southeast Asia is evidence that the competing ecommerce giants can each get a fair portion of this huge market. However, Alibaba might have a slight advantage over its competitors as it already has a presence in the region.

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