It was in April 2016 when Chinese internet giant Alibaba Group first tapped the Southeast Asia market with a big-ticket investment.
After writing a check of USD 1 billion for a 51% stake in Singapore-based e-commerce major Lazada, Alibaba said it had gained access to a platform with a large and growing consumer base outside China.
That year, Alibaba didn’t make a single investment in India. It had already committed almost a billion dollars collectively in digital payments firm Paytm and e-commerce marketplace Snapdeal the previous year, and was waiting to see how these investments would pan out in the world’s second-most populous country.
By the end of 2016, Alibaba knew it stood a fair chance to build its e-commerce business in the country and compete with its US rival Amazon. Although Snapdeal had lost 20% market share between March 2015 and March 2016 and was on the verge of bankruptcy, Paytm’s hallelujah moment had arrived with demonetization in November 2016. In January 2017, the company said it facilitated transactions worth INR 5,000 crore (USD 688 million) on the platform.
Seeing Paytm’s phenomenal growth, Alibaba resumed its investments in Indian startups in 2017 which included leading a USD 100-million round in logistic startup XpressBees. But the Chinese giant didn’t want to put all the eggs in one basket and still paid more attention to Southeast Asian region. That August, it put another USD 1 billion in Lazada, raising its stake in the company to 83%.
However, with time, Alibaba learned its investments in India are not going to yield as much as it expected. On one hand, Paytm’s payment business was growing, its e-commerce venture Paytm Mall failed to capture any significant market share. It was losing money as it got embroiled in a discounting war with bigger rivals Amazon and Flipkart. While Amazon pumped billions of dollars to grow its India unit, Flipkart had found a deep-pocketed parent in Walmart that acquired it in mid-2018.
“When some of its investments started faltering, Alibaba changed its focus to the Southeast Asia region and India became a low priority for them, because there was no senior person driving investment here,” Satish Meena, senior forecaster at Forrester told KrASIA. Over the next few years, Alibaba’s investment momentum in Southeast Asia grew at the expense of India.
The shift in focus
In March 2018, the Jack Ma-owned group put another USD 2 billion in Lazada in what was seen as a big vote of confidence in the growth potential of the region. Later that year, Alibaba made its second big bet in Southeast Asia, leading a USD 1.1 billion round in Tokopedia, an Indonesian e-commerce giant.
Unlike India, where Amazon had already emerged as one of the two dominating e-commerce players, Southeast Asia was still an unclaimed market market for the Chinese titan since the US tech giant had just entered there.
“Alibaba didn’t have any structured investment approach in India like the US companies,” Meena said.
Anil Joshi, managing partner at Unicorn India Ventures, believes that other than its investments, Alibaba was never truly focused on India.
“They came to India when it was early for them,” Joshi said. “Despite having wonderful insights, they missed the opportunity of being a true player in India. The only interest they had [in India] was through their investments.”
In contrast with its Chinese peers Tencent and Fosun, which back early-stage startups as well, Alibaba had always focused on writing big-ticket checks to only matured startups, Joshi said.
“Alibaba had no local (investment) team in India to guide them otherwise. That is where Alibaba lagged and was always deprived of deeper penetration into the startup world,” he added.
In 2016, when Michael Evans, Alibaba’s Global President, hired people for senior roles from India, they were a part of the team that was responsible for overseas expansion rather than an India-focused team. Senior hires from India included Bharati Balakrishnan, former chief business officer of local services marketplace LocalOye and Soumitra Sharma, former director of international expansion of Quixey, a startup that Alibaba acqui-hired, among others. The duo was supposed to chart out Alibaba’s India strategy. But as Alibaba’s focus shifted to Southeast Asia, Sharma left the company, and Balakrishnan moved to Paytm Mall as the vice president and head of categories.
“They had everything in their favor, but their inability to build a strategy for India has probably resulted in their downfall in the country,” Joshi said. He believes that Alibaba had an “I know everything” attitude, and probably that is what stopped them from leveraging their first mover advantage.
It was only in September 2018 that Alibaba appointed Raghav Bahl as the head of investments in India, who was given command of the three-member investment team. Soon after, Alibaba’s investment strategy changed and the group started scouting for early-stage deals in India. That also didn’t last long. After making a few small investments, the group reportedly hit a pause button on fresh investments in August 2019.
One last attempt
While it seemed Alibaba had given up on e-commerce in India by 2019, Paytm Mall managed to pare losses by reducing discounts and diverting its focus to online-to-offline (O2O) approach (a hyperlocal strategy under which it helps local sellers list and sell their products online, while sourcing and deliveries are done by sellers themselves). Despite these changes, it was still far behind its rivals.
Snapdeal, on its part, had turned its business around by letting go of non-core businesses, focusing on unit economics, and targeting non-metro cities. But Snapdeal couldn’t have served as the launchpad for Alibaba’s e-commerce dream in India as it owned only a 3% stake then in the homegrown e-tailer.
Alibaba then made an attempt to foray into the online shopping segment through its subsidiary UCWeb in September 2019.
“We have Alibaba’s e-commerce gene in us,” UCWeb Global Business Vice President Huaiyuan Yang then told local wire service PTI, adding the company would launch a new e-commerce product in India and that it would not have an adverse impact on Paytm.
But after UC Browser and UC News apps were banned in the country in mid-2020, the company immediately suspended its operations and laid off employees. Aside from these two apps, the Indian government also named AliExpress in a subsequent list of banned apps later in November, which meant Alibaba had no avenue left to enter India’s soon-to-be USD 84-billion e-commerce market.
Moreover, India amended FDI rules in 2020 which meant Alibaba couldn’t make a comeback through Paytm or invest in local startups. Unsurprisingly, the group is reported to be looking to offload its shares in its startup portfolios including Paytm, in which it currently owns a 30.33% stake.
According to industry veterans, Alibaba’s cloud business in India might also not sustain as many of its local customers were the Chinese apps that had to stop operations in the country after India put a ban on them citing cybersecurity reasons. However, its B2B e-commerce business seems to be unharmed as of now.
Despite all the adversities that Alibaba is facing in India and China, Joshi believes Jack Ma is someone who will always bounce back.
“With the maturity that Jack Ma has, they will be able to iron out the differences with their own government and get back on track,” he said. “As far as overseas business is concerned, beyond India, there are huge markets like Southeast Asia, Middle East, Europe, and the US that it can tap.”
“They cannot be written off for sure,” he added.
Read the first part of this series here.