Southeast Asia becomes Alibaba and Tencent’s new battle field

7 min read 

Two global technological forces are disrupting the peaceful ecological environment in Southeast Asia. They’re not Silicon Valley technological companies like Google or Facebook. They are the two Chinese giants Tencent and Alibaba. The two companies provide the strongest financial support and the most successful business experience for venture capital firms in Southeast Asia.

More and more Chinese companies are beginning to realize the inherent potential of the Southeast Asian markets, and actively joining in this “battle”. This means that there will be more dramatic developments following their encounters in the near future, and thus bringing us to our topic today: Welcome to the Game of Thrones—South-East Asian technological VC Version.

 

Smartphones unlocked the potential in Southeast Asia.

Southeast Asian market includes six major players: Singapore, Indonesia, Thailand, Vietnam, Malaysia and the Philippines. With more than 600 million consumers within the region, their economic scale is constantly expanding along with the number of people in the middle class.

The catalyst known as a mobile phone has unlocked the Pandora box entitled Southeast Asian market. Like India, Internet users in the region have skipped the PC, and went straight to mobile and tablet shopping.

According to a joint report by Google last year, there are more than 260 million Internet users and a MAU (monthly active users) of over 3.8 million. By 2020, Internet users in Southeast Asia is expected to grow to around 480 million.

By 2025, the region’s economic benefits produced by the Internet would reach $200 billion, which is 6.5 times higher than back in 2005. E-commerce alone will see a rise from $5.5 billion in 2015 to $88 billion in 2025. Although there isn’t quite on the same level as China yet, these data have shown that like India, Southeast Asia is truly a region with a vast potential for technological development.

 Southeast Asia has become the first oversea stop for Chinese tech giants

Over the past year, Chinese enterprises have been attracted to the potential of the Southeast Asian market. This attraction began as a simple interest in the market that has gradually morphed into a vigorous competition of market claims through investments.

Alibaba acquired Lazada, a Singaporean Internet company, at $1 billion USD in 2016, the first major investment by Chinese tech companies in the region. At the end of June this year, Alibaba invested yet another $1 billion USD into Lazada to support the company, bumping the proportion of shareholding from 51% last year to 83% this year.

With Alibaba’s financing, Lazada began to expand its business by acquiring the retail express service startup, Redmart. Furthermore, Lazada cooperated with Uber and Netflix to launch a member service in Singapore similar to Amazon. Lazada CEO Max Bittner told TechCrunch last month that Alibaba’s experience and funding support on Lazada is already taking effect. And Lazada will expand its current services from Singapore outward, to several other Southeast Asian markets.

After Alibaba’s exploration on the market, Ant Financial (an affiliate company of Alibaba) also began its own ventures of investing in Southeast Asia’s financial tech companies. It Signed a cooperation agreement with the Thai payment enterprise Ascend Money; Put money into the capital raising of Philippine digital financial platform Mynt; Officially entered the Indonesian market and established a joint venture with the second largest local media company Emtek in the region; And invested in the Singapore financial technology startup M-DAQ.

Meanwhile, Tencent on the other hand, is also expanding its “sphere of influence” in the region. At the end of last year, Tencent bought out Thailand’s largest web portal Sanook, a site that over half the population of Thailand uses. At the same time, the company also invested $19 million USD and teamed up with the Thai digital platform Ookbee, and established a new company.

On the product front, Tencent is actively promoting its free-to-play music service Joox in Southeast Asia, competing the media streaming giant Spotify. Furthermore in May this year, the company has also led a round of financing for the popular American music platform Smule, which has a strong appeal in Southeast Asia. Tencent intends to continue its expansion throughout the Asian market through this investment

One of the partners of Singaporean VC Golden Gate V expressed that, the series of actions taken by Tencent and Alibaba throughout Southeast Asia, undoubtedly demonstrated their strong interest in the market. In Southeast Asia, Internet suppliers, electronic payment platforms and markets are all rich in opportunities.

Which side should one really choose to be on?

In addition to those already published and announced investments, there are a multitude of other investments and deals being struck in invisible on the surface. According to TechCrunch, Tencent and Alibaba have held business negotiations with startup companies in at least a dozen Southeast Asian e-commerce or Fintech businesses. Many are hoping to get a slice of the cake as well throughout Alibaba and Tencent’s investments. A tech investor who has declined to disclose his name, told TechCrunch that Tencent and Alibaba are rewriting the entrepreneurial ecosystem in Southeast Asia.

In the field of e-commerce, Tencent’s strategic ally JD is closely linked to Indonesia’s e-commerce platform Tokopedia. Reports in May have indicated that JD plans to invest hundreds of millions of USD to invest in Tokopedia. However according to insiders, Tokopedia has previously received investment from a soft creditor, and that Alibaba is also looking to negotiate and invest in the company. In view of the relationship between Alibaba and the aforementioned soft creditor, Tokopedia will have to make a choice between the two.

In addition to the fields of e-commerce and financial technology, the flames of war have spread to shared traveling. In June, certain sources have indicated that Alibaba intends to take part in the financing of the Southeast Asian taxi platform Grab, and face off with its competitor Uber. According to TechCrunch, Alibaba also discussed the same matter with another taxi platform Go-Jek, however Go-Jek opted for financing from Tencent instead.

The regional director of Global Founders Capital in South Asia and South-East Asia, Leon Hermann, has expressed that: the so-called cruel and bloody “war” that often occurs throughout the Chinese market, is absent in South-East Asia. It appears that the integrity in this claim must be re-examined, seeing as the aforementioned “war” has already begun in Singapore, Indonesia and Thailand, and may sprawl quickly across additional Southeast Asian countries in the near future.

Tencent and Alibaba are just the first wave

Though Tencent and Alibaba are the first and most influential players to be in the Southeast Asian market, the current standing is definitely not the end game. There will definitely be more Chinese companies breaking into this seductive goldmine of a market using the same approaches in the future.

The operating partner, Michael Smith, of the early venture capital company SeedPlus expressed to TechCrunch that, Singapore, as the hub of the ecosystem in Southeast Asia, will continue to attract major investment interests from Chinese enterprises and Chinese VCs. China’s shared biking giants Mobike and Ofo have both chosen Singapore as their first step throughout their scheme of overseas expansion; China’s Consetium Nesta, backed by the Chinese government, is looking to buy out Singapore’s global logistics property for about $11 billion USD.

Apart from China, Southeast Asia will definitely attract the attention of European and American big-tech companies as well, except they will be a step behind from the current looks of the market. At present, Google and Facebook has opened up their respective local offices in a number of Southeast Asian countries. Furthermore, Facebook is conducting an in-depth study on the Southeast Asian market, to learn about how emerging market users use information via the Internet. The company (Facebook) has even tested their payment system in Thailand to explore the potential of social media.

However, companies in Europe and the United States are more likely to promote their own products locally rather than to invest in VC.

 

This article by Evelyn Du originally appeared in 36kr and was translated by Pandaily.

Click here to read the original Chinese article.

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