The BAT Face-Off in Southeast Asia is Imminent
Throughout all my encounters with the representatives of China’s tech circles one question has always inadvertently escaped my lips, “any plans for global expansion?” I knew well that I was most likely to be hit with the same protocoled answer that both PR watchdogs and c-suite executives stuck to adamantly – “The Chinese market is big, we still have plenty of room for growth here.”
Something about that statement didn’t sound right though. Indeed, the Chinese market is massive, and the western presence of the big three Baidu–Alibaba–Tencent (BAT) is miniscule. Tencent mainly reaches the west through gaming. Alibaba is forging partnerships with local merchants to allow Chinese tourists access to Alipay and is also pumping up its overseas e-commerce subsidiary AliExpress while still falling behind Amazon. Baidu’s western-facing business is even more obscure, hardly extending beyond numerous autonomous driving partnerships with local OEMs.
The arrival of young industry disruptors like Meituan-Dianping and Pinduoduo, on the other hand, also proves that China’s market is vast and full of untapped growth potential. However, global plans should not be limited only to the west, and China’s market size could hardly be standing in the way of the very natural vanity and ambitions that industry behemoths like the BAT are sure to have. So, when I booked my flight to Singapore in early October, I knew I was not going there for the Michelin-starred hawker food and eco-friendly architecture, but to finally get an answer to my question.
Ever since Alibaba took a controlling 83% stake in the Singapore-based e-commerce marketplace Lazada, the company became a media darling. Some praise Alibaba’s strategy of making a move into the dynamically developing region through e-commerce, a business the Chinese company knows best, while others criticize it for being too Chinese in the approach, overlooking the importance of market to market localization that had been Lazada’s trademark prior to Alibaba’s involvement.
The Singaporean company, launched in 2012 to tackle the lack of e-commerce infrastructure in Southeast Asia, has gone through a bit of a roller-coaster ride from being incubated by the German start-up studio Rocket Internet to joining the Chinese conglomerate Alibaba Group. Lazada jumped in at the deep end, not intimidated by the logistical challenges that it was facing and immediately started devising shrewd strategies including introducing cash on delivery payments, a game-changer for the region that is just joining the mobile internet revolution.
Alibaba’s involvement has reigned Lazada in as the company lost some ground to Shopee, its main rival, and started playing a longer game. Numbers suggest that the company’s operations have become healthier with a 100% year-on-year order growth for four consecutive quarters in 2019, and when asked about the recent developments local executives confidently emphasize that their goal is not to rake in as much cash as possible in the short run, but to make sure that the company still thrives in 2030, while most of their myopic competitors go extinct.
Similar to Amazon, Alibaba’s two main business directions include e-commerce and cloud computing services. While Amazon is dominating the western hemisphere with Amazon Web Services (AWS), Alibaba Cloud forayed into Southeast Asia under an ingratiating slogan “In Asia, for Asia”. Alibaba Cloud quickly won over the market through smart collaborations with universities and corporate partners, including the biggest local e-commerce players such as Alibaba’s own Lazada and the Indonesian marketplace Tokopedia, as well as launching ambitious smart city projects.
Tencent’s international strategy in Southeast Asia has been similar in style to the company’s approach to other regions – it is reliant on games and high-profile investments. The Chinese mega-company owns roughly 20% of SEA, a Singapore-based gaming and e-commerce company that listed on the New York Stock Exchange in 2017, raising over $1 billion. SEA, a company whose main source of revenue is gaming, also owns Shopee, Lazada’s main rival in the region.
In August 2019, a product manager at Tencent Cloud’s gaming solutions, shared with Reuters that the company was scouting for more partners in cloud-based games, with a particular focus on Southeast Asia, where users were less wedded to playing games on consoles such as Playstation and Xbox.
Nonetheless, apart from promoting games and challenging Alibaba in the e-commerce space, Tencent has also secured a strategic investment in Gojek, Indonesia’s leading super-app that started as a two-wheeler-hailing platform in 2010. Tencent has reportedly played an integral role in facilitating the transition that likened the ride-hailing platform to the company’s “swiss army knife” app WeChat.
In emblematic Jack Ma’esque competitive fashion, Alibaba is rumored to be considering an investment in Gojek’s archrival, Grab, the Singapore-based ride hailing giant dominating 6 of the 10 markets comprising Southeast Asia. Founded by Anthony Tan and Hooi Ling Tan, Harvard Business School classmates of the Gojek founder Nadiem Makarim, Grab is already waging a ruthless war against its competitor and is a natural choice as Alibaba’s ally in the region.
While Alibaba and Tencent are duking it out in proxy battles, Baidu is keeping a low profile. The Chinese search giant has had a research center in Singapore since 2012 and has recently expanded its cloud services to the city to catch up with its Chinese peers. However, according to the SCMP, the company’s biggest clients in the region currently are iQiyi, Baidu’s independent video-streaming subsidiary, and Do Global, the firm’s own mobile advertising platform spin-off.
Having lost out on a slew of opportunities in the past, Baidu is holding tight to its achievements in AI and autonomous driving, with a long-term plan to become a global leader in the space once the technologies are adopted on a wider scale. To this end, the company has established numerous partnerships with mobility players the world over. Southeast Asia is no exception. In 2018, Baidu joined efforts with Asia Mobility Industries to launch a mobility venture fund baptized Apollo Southeast Asia in Singapore. The fund has $200 million at its disposal to invest in autonomous driving and smart transportation ventures.
Interestingly while the “China is big” argument is still fairly prevalent among Chinese technocrats, facts paint a different picture. Southeast Asia, home to over 600 million people going through an economic and technological transformation akin to the one that China went through a decade ago, is a natural target for China’s tech titans. Geographic proximity, cultural overlaps (the region is home to 25 million ethnic Chinese), similar economic conditions and little attention from the western tech monopolists make the region not only enticing for Chinese firms but also dependent on them in terms of financing and technological knowhow.
As the long prophesied Asian century seems to be coming into its own, China’s bet on supporting, elevating, and leading the Asia Pacific region instead of playing a catch-up game with American behemoths in the west seems like a viable tactic. Yet, while competition from the likes of Google and Amazon is of little concern to the Chinese giants, another challenge is looming on the horizon – a cutthroat internal battle within the BAT.