SINGAPORE -- Alibaba Group Holding is set to launch an expansion drive in Southeast Asia to counter the challenge of regional newcomer Amazon.com.
The initiative comes on the back of fresh investment in Singapore-based e-commerce platform Lazada and will focus on combining online and physical stores.
James Dong, who was sent by Alibaba to become Lazada Thailand CEO this year, told the Nikkei Asian Review that the Chinese e-commerce leader will soon bring its "new retail" strategy to the region, which he says is key to its global competition with the U.S. rival.
Alibaba, which doubled its investment in Lazada earlier this year with $2 billion in additional capital, operates in much of the world but generated only 8% of its revenue from commerce outside China last fiscal year. Southeast Asia represents its largest foreign market, one where Alibaba operates in six countries through Lazada. Dong called the region "very important" for Alibaba's global expansion.
In China, Alibaba has partnered with retailers like hypermarket chain RT-Mart, upgrading stores with e-payment systems, on-demand delivery and consumer data analysis.
Dong said in an interview in Bangkok that the retail model Alibaba will introduce to Southeast Asia "would be very similar to our play in China" and that "it should not be too long" until the launch of the first upgraded store. Thailand "will be a showcase to the rest of the region and the world," he added.
Southeast Asia's importance to Alibaba owes not only to the region's geographic proximity to China but also to the nature of its shoppers.
"The consumers in this market are very similar to the consumers in China" in their behavior, purchasing power and preferences, Dong said. "We felt our approach, technology and consumer engagement approaches will work very well in this market."
Lazada operates in Singapore, Thailand, Malaysia, the Philippines, Indonesia and Vietnam. Alibaba's latest investment raised its stake in the company from 83% to an undisclosed amount, and was accompanied by an injection of new leadership, including Thai chief Dong.
Lazada has since updated its technology to the same system as Alibaba. Besides Lazada, Alibaba also has a stake in Indonesian e-commerce leader Tokopedia.
E-commerce is only just catching on Southeast Asia, led by tech-savvy consumers. According to a recent report by Boston Consulting Group, which cited Euromonitor data, only 5.5% of retail purchases are transacted online in Singapore and just 3.1% in Indonesia -- compared with more than 20% in China.
Dong described Amazon as the biggest rival for Alibaba not only in Southeast Asia but also globally. "I would say five years from now, Amazon and us will have a lot of competition" against each other, the CEO said.
Amazon last year entered Singapore, and is reportedly set to move into Vietnam and Indonesia. Like Alibaba, the world's most valuable retail company has also ventured into offline commerce, including the Amazon Go automated convenience store.
"They are better in the developed world, and we're better in developing countries," Dong said of Alibaba's American rival.
He pointed to his company's insights into Southeast Asian consumers. Thais, for example, like spending time on online shopping sites for fun, so Lazada added more gamelike features to increase customer engagement. This "gamification" contrasts with Amazon's one-click purchase feature, which lets customers check out items fast. Lazada does not take this approach in Thailand, Dong said.
Alibaba's Southeast Asia push is likely to run into competition as some local companies are also venturing into new types of retail that connect online and offline businesses.
In mid-October, Singapore-based online delivery startup honestbee opened its first tech-driven grocery store in its home market. The 5,500 sq.-meter store lets shoppers scan bar codes of the items with the app and make cashless payments.
Indonesian e-commerce operator Bukalapak is creating a network of mom-and-pop-style small kiosks and distributing goods for them to reach consumers in remote areas of the archipelago.
"This market is the most important market for us to do globalization," Dong said. "We have to win it, it's as simple as that."