Empires: Alibaba (CN) | Interview, Impact on startups in SEA

· Press,Southeast Asia,VC and Angels

In this episode of Empires, Guang Jin Yeo, Cynthia Ding, and Jeremy Au discussed Alibaba's impact on the Southeast Asian markets. Jeremy highlights Alibaba's contributions in advancing e-commerce and fintech, and the significant late-stage financing provided to regional startups. He also mentioned the company's negative implications including founders’ struggle on whether to compete or collaborate. Cynthia shares the benefits and challenges Alibaba brought and emphasizes the company's hands-on approach to investments. Their conversation sheds light on Alibaba's dynamic role in shaping the region's tech ecosystem. They also shared their predictions for Alibaba's future developments in the region.

Check out the episode here and the transcript below.

[00:00:00] Guang Jin Yeo:

Welcome to Empires. I'm your producer, Guang Jin. Over the past episodes, we've delved into the formidable realm of Alibaba, one of the two titans shaping the economic landscape within China. To deepen our understanding of Alibaba's impact across east and Southeast Asia today, we are joined by two guests, each bringing unique insights and perspective on the topic.

Our first guest is Jeremy, an influential figure in the Southeast Asian startup space.

[00:00:41] Jeremy Au:

I am Jeremy Au. I'm a VC. I'm also the host of the Brave Southeast Asia Tech podcast at www.bravesea.com with over 20,000 listeners who are founders, VCs, and operators. I. My prior experience, I was a founder twice. First company bootstrap social enterprise to over a hundred clients and profitability.

And the second company I built an education tech company across C Series A and eventually to sale to a global education company where I was a GM there for a year afterwards as well.

[00:01:12] Guang Jin Yeo:

Jeremy's insights will help us understand how Alibaba has influenced the world of startups and its implications for the Southeast Asian market. Following, Jeremy will be hearing from Cynthia. Ding.

[00:01:28] Cynthia Ding:

Thank you everyone. Guang Jin, thanks for having me again. I used to head the Nokia and the Microsoft emerging market portfolio, and especially in charge of a breakout country at that point of time. And then I moved to Singapore in the end of 2016 and then start our own firm.

It's like incubator and our acceleration program, saga acceleration program together with the E D B and here try to help the Asia origin technology companies going global.

[00:01:58] Guang Jin Yeo:

Cynthia's geographical footprint has given her more comprehensive knowledge of Aaba while understanding the nuances within the emerging markets of Southeast Asia.

So without further ado, Let's dive into today's discussion, starting with Jeremy.

[00:02:21] Jeremy Au:

I'm happy to answer the questions you have.

[00:02:23] Guang Jin Yeo:

We're glad to have you here on board. All the listeners have some idea already. Okay. Alibaba is this behe of, they're involved in e-commerce and logistics. I. Then there's end financial for FinTech, but Alibaba's also very involved within our region.

And the question then is, what influence did Alibaba have across Southeast Asian and the East Asia region?

[00:02:42] Jeremy Au:

What's unique about Southeast Asia, of course, is that I. It's not just Chinese suppliers working with the e-commerce platform, but that there are e-commerce platforms and multiple portals that are actually backed by Alibaba and the group.

So there's a, not only the suppliers from China that is filling the demand and also bringing down the cost of living, bringing down the cost of inflation, bringing down, I think, the cost of goods for what the middle class Asian consumer wants. But we also see a lot of infrastructure being built from the marketplaces.

To financial payments and so forth. So there's an interesting confluence that's happening. And overall, I think what that's meant for the average Southeast Asian person is cheaper prices, right? Faster fulfillment, and a smoother e-commerce experience. So I think there's this interesting work that they're doing, which is that they.

Provided billions of dollars of capital in late stage financing. And so a lot of these platforms honestly, not only wouldn't have been able to build, but they wouldn't have been able to scale, build out the user interface, but also help educate suppliers and customers. About e-commerce. So a tremendous amount of money was funneled to educate consumers and change their consumer habits from offline to online.

The second category actually has been actually a similar playbook to both the US and China, right? Which is about the financials that power e-commerce. It's pretty obvious when we say out loud is if I buy something online, I shouldn't be paying cash, right? For example, in the US we saw PayPal, for example, come to existence because it was piggybacking off that desire and then became a chicken egg dynamic where it ended up becoming a flywheel, right?

The more PayPal became available, the more easier e-commerce could happen. The more e-commerce happened, the more PayPal came to existence and so forth. So there's a nice flywheel happened, and I think for the China market, I think they already had the benefit of seeing this synergy, right? And so I think Alibaba, with combination with and financial fall was able to replicate that flywheel.

I. We have a similar dynamic in Southeast Asia where I think people are saying, okay, I wanna buy more stuff online. Yes, we do have to pay cash on delivery. But then there's that push as a platform say, look, we're not gonna give that cut to credit cards, right? Because the, the banks aren't really giving out.

Credit cards, right? They're not really giving out the financial K Y C, they're not really given access that we need, but vice versa. So they need to educate consumer about how to use these items. So there's an interesting dynamic where both Shopee, as well as Lazada and so forth, have been able to build.

Now, in partnership of that, we see, of course M Pay, we see Aku, we see a whole bunch of FinTech players that have been invested in by and financial. Interesting.

[00:05:21] Guang Jin Yeo:

Are there any negative implications or impact that they’ve mad?

[00:05:26] Jeremy Au:

I think what local founders may struggle is are we going to collaborate? Are we gonna compete? What we've seen is that the ecosystem, because of I think the very strong execution velocity of Alibaba, but also other Chinese and American multinational corporations is then they have the make a certain side decisions, right? Which is, okay, if this is too hard for us to beat and they're too fast, that is it better for us to focus on other adjacent areas?

So I think there's an interesting dynamic where founders can be like, okay, let's ally with that. That being said, I think what's interesting to see is that a lot of these large companies are not just competing, but also open to invest at some point of time. So I think there's always that little bit of tension where I think a local founder can be like, okay, am I really going against this?

But also there's an opportunity to receive an investment from them later down the road. That's a question that you have here all the time, is that at the end of the day, these are still the strategic areas that, for example, Alibaba is very focused on, right? Which is payments, logistics, as well as e-commerce, and these are all areas they're gonna have there.

So I think we definitely see that in up and coming categories like live streaming and seller e-commerce support tools. A lot of these areas are folks who are accounting themselves. Okay, I'm gonna have to work with C group. I'm gonna have to work. With Lazada, for example, and Wikipedia and GoTo, and then beyond that there's Alibaba.

So I think there's always that navigation dynamic where these founders are saying, okay, I wanna build the next thing. And they're piggybacking or they're building on top of the rails or infrastructure that they have for these platforms. And so I think a lot of them are, are hopeful that these giants continue to be predictable, but also to be good partners over the medium to long term.

[00:07:08] Guang Jin Yeo:

I guess what could be happening is that. It's very factional right now. The negative implication then perhaps is if you're not part of the faction, you're kind of against the faction. Is, is that an accurate way to think of it?

[00:07:23] Jeremy Au:

Yeah, I think there is that competition between these various platforms. And from a supply perspective or from a merchant perspective.

Obviously you are. Your goal is to go where to your customers are, right? So you wanna sell in all of these various platforms and so forth. I think startups, I think you always have that conversation, which is, are you very tied to one platform or are you trying to be spread across all platforms? And I think that strategic choice is not clear.

And I think the truth is, my advice to them is to say, just focus. Keep growing the revenue. Don't worry about the competition, don't worry about platforms because that's, The truth is, you know, they're not thinking of you every day, so it got so much to handle, right? So you have just had to focus on your customers.

You gotta focus on your requirements and your product roadmap first, and have faith that if it hits some level of growth velocity that's growing very fast, then you know people will want to partner with you rather than to copy you or to displace you.

[00:08:19] Guang Jin Yeo:

Interesting. Do you have any predictions or any thinking that you think might happen around the region because of Alibaba?

[00:08:28] Jeremy Au:

I think what's happening is that we've been able to, in Southeast Asia, build a lot of the fundamental layers, right? We built internet infrastructure, which allowed for e-commerce platforms, which built and spread logistics, which also spread digital payments. So we can see these fundamentally are all stacking on each other similar to what we see in developed countries.

What's interesting now, of course, is. The next stack, right, of what the different layers are. I think there are lots of areas that are super of interest and have been stated be of interest by all of these various folks. And platforms. Big ones are gonna be, for example, okay, for merchants, right? They are managing millions of packages a year, even maybe even potentially billions of dollars of G M V A year.

How do they handle that? How do they increase their sales? How do they manage logistics? How do they cut costs? These are all aspects where these merchants are struggling, right? But helping these individual merchants grow is in the interest of the platform in general. So I think seller support is gonna be a big hot topic that's there.

What's intertwined with that, of course is actually live streaming and other types of what I call like growth dynamics and tools. For example, we know that Bite dance and TikTok is doing a big push into, uh, TikTok shop and live streaming has really been successful in China so far, but hasn't yet really taken off in Southeast Asia to the same extent.

So there's a lot of interest I think in live streaming or. You can call it sellers agents or folks who are trying to sell or resell this merchandising and create that distribution in terms of the audience. So that's the second area that's adding of big interest. And I think the third thing that's gonna be of interest is really, Actually capital efficiency.

We've entered a world where capital efficiency is king. The reason why is because obviously with interest rates going up. Therefore, I think a lot of the focus is really on profitability for every single company around the world, especially for companies that are public or companies that planning to go public soon.

As a result, what that means is that historically investments in startups was a way to deploy extra cash, right? But also to create a growth story as well as be a way to be able to potentially increase revenues quickly over the medium term. That being said, now with your cash that you have, you can earn a lot of a high interest rate in the banks.

Then you're like, okay, I park my cash in one side to find my continual operations. But two, of course, it raises the bar in your investment decisions to be like, okay, what are the companies that we think will not just be a potential long shot? That will potentially gimme a lot of growth in top line revenue over the medium long term.

But actually I think a lot of companies are really gonna be focused on saying, Hey, what companies can really drive profitability quickly? Or that if we do fund them, we'll be relatively capital efficient to drive great top line growth and is highly synergistic of a company business. In other words, I expect the bar for what is a great investment from a corporate perspective to rise across the sector.

I think this is gonna be true for all platforms that are thinking about what to invest in and how much to pay for that investment.

[00:11:37] Guang Jin Yeo:

Now that we've garnered an investor's perspective from Jeremy and delved into Alibaba's impact on the Southeast Asian market, It's time to shift our focus. We're fortunate to have another expert's voice to share the expansions of Alibaba. Please welcome Cynthia Ding.

[00:12:01] Cynthia Ding: Very happy to be here again. Thanks for the invitation.

[00:12:04] Guang Jin Yeo:

Cynthia is here today to talk about Alibaba, uh, and to kind of share her perspective on its impact across Southeast Asia is Asia regions. Right off the bat, what implications does Alibaba have across our region that you noticed?

[00:12:22] Cynthia Ding:

They start this adventures they say into Southeast Asia, more or less around 2016 or 2015. I think their first investment was made into Lazada around the 2016 is actually right after Alibaba got listed. So they were pretty early here. Uh, but when we talk about the investment. From Alibaba to Southeast Asia.

I think we cannot just talk about Alibaba Group itself. 'cause Alibaba has affiliate entities, so they have Alibaba group, they have S finance group or S group. They have, it's called Green Fund Fund. And which is a partner between my, the Jack Ma and the other founders. And they have also E W T P Fund, which is another strategic fund anchored by Alibaba Group.

So implication, I think it's the logic is the same as the last time we shared about the Tencent. And this is more a trial and error time in, in the beginning. I think they suggest for them good to have some markets explored outside of China at that point in time. Of course, time passed by, they start to realize, okay, try to build e-commerce as.

So what they did back in China, they also need to invest all the infrastructures related with them, and it will not be only one country in Southeast Asia. There will be many countries they have to invest to. So you can see their investment spread across payment for very natural logistics. Some other e-commerce platform and the countries system, including of course, Singapore, Philippines, Thailand, Indonesia, so many, I think they are.

In total, you have about 20 invested, more or less, even though most of them are in later stage. I think the motivation, strongest motivation for them to invest in associations is due to create a synergy for their e-commerce business outside of China.

[00:14:22] Guang Jin Yeo:

Will you know, some of these startups just to kind of share to the audience, What are the different startups that they're into and how interesting are they?

[00:14:30] Cynthia Ding:

The biggest one and the most famous of course is Lazada, right? The one of the two, I think one of the two players in the main, on the main stage of Asia e-commerce. So Lazada, they, the first investment was made in 2000. 16 and then it's actually take takeover, right? It's not just investment, it's a takeover.

And then they have just inject another round, about 1.6 billion US dollar last year. They add more fuel to the fire and definitely there's a higher ambition to split Lazada for independent i p o version. So that's for one of the most famous, I think even they did back. There's several wallet and the payment companies, they have investing across different countries.

So for example, Singapore, they have invested two C two P, if you ever heard, that's one of the old, not the oldest, but this is one of the payment company have been in the market for quite a long time. They finally closed the investment last year. Indonesia, Donna, the payment gateway, that's definitely another, um, very famous company.

I think most, uh, most like Vietnam. They also have a mansa. The another investment about payment. Those are about payment. And then they also have investment in, uh, several pretty famous logistic company like Ninja One, ninja One's, uh, one of the famous in Singapore about the logistics and the Flesh Express.

That's in Thailand. So those are also like the necessities for e-commerce company. So payments, logistics, and yeah, I think more or less those are the two biggest pillars.

[00:16:18] Guang Jin Yeo:

Interesting. Right now a lot of what we are sharing right, is obviously super positive. It almost sounds like Alibaba came true money and then everyone celebrated and then they left.

But as everyone will know, We've also written a little bit about what Alibaba does and that they're very hands on. Yeah. So there's some other implications that they do on the region and maybe you could share what are some of these hands-on interventions that they've done? I.

[00:16:46] Cynthia Ding:

Yeah. I think even compare, of course, theater style is slightly different from other strategic investors.

They are pretty hands-on. They have a very strong culture that's that's even very true back in China, outside of China, in Southeast Asia. I think except Lazada, you don't really see such kind of a strong intervention or control pattern. Actually, I think Lazada because they more. Looking into it as a takeover model instead of the direct investment.

Laal did have several years of a turbulence when the original amendment were kicked out, and then they landed someone from China, Hong, and then just took over in the middle. And then now obviously there's a culture shock, both for the management and also for the employees. And then the people just have a super high churn rate and everybody.

Was leaving at that point in time, not only the other employees, but also the the flying management team from. At least one or two of the GMs before the current one just to stay for a year. Or some of them even stay, even even shorter. So there was a kind of feeling at that point in time. Of course, Southeast Asia compared with China and still very small market.

I think there was a kind of a feeling for those management team who got flu in from China, if this is a, this is a. Penalize this is, this is how Alibaba want to penalize them. Is that to, to reward them. I guess that's the feeling. You get a bit away from the center of the power and you are not in the court team.

I. Things, of course change a lot, especially Lucy, step back, Lucy Pong, the co-founder of Alibaba, she took over and then she start to promote the local team and the things get stabilized. And now the new chairperson, John fan, uh, actually is. It's doing even better job to some extent to really mobilize the local team, so they are back to the track. I feel after all those advice, they paid to learn how to do localization.

[00:19:06] Guang Jin Yeo:

Interesting. It's like the Ian fees that they are paying to understand the market. Yes, true. When we talk about Alibaba now, Moving forward. Uh, do you have any predictions, anything that you think could be interesting that you observe Alibaba might make across the region?

[00:19:24] Cynthia Ding:

I think there are two things. One of course about the e e-commerce platform itself, like lada, right? I think definitely they have ambition to get this independent listed, which we believe it will have quite strong challenge to Shopee as well. 'cause now they start to get localized and having the resources they have, I think.

It there, they, at least from Alibaba perspective, they see there's a great chance to have a Lazada, um, be a viable business and, uh, a big one of the biggest platform, uh, really take the line share of this market of Southeast Asia. So I think that's one thing you can definitely see their development. On that end goal, and I guess the strategic importance now is even, even higher compared with years ago.

I mean from Lazada, from Alibaba perspective, Lazada now is something, not just the the second growth curve, but also potential star for the whole group to, to looking into their globalization plan. I think that's the first thing. Second is probably interesting about S Finance or S group. I think they also rebrand them.

Outside of China, they try to remove heavy mark put on by the S group itself, which I mean S group definitely have a, lots of, have suffered from lots of negative news in the past two or three years back in China especially. Get a huge pressure from regulators. Now the things start to come, come down, but I think the ENS finance group, Outside of China we're overseas.

Group part would love to also to live a new life by themselves. So they change their brand name, they start to change their strategy from doing everything by themselves, investing in different kind of a wallet and a pay payment gateway to. Become enabler for the FinTech companies back in Southeast Asia, to be able to connect it, to be able to connect to the merchants and users, which Alibaba or Lazada, the whole e-commerce platform, have to.

Basically become ecosystem builder. That's what, at least what I heard, rather than just try to grab everything by themselves. So I think this is also, as you just mentioned, they pay the tuition fee and did not understand what's the way to go to the business in Southeast Asia.

[00:22:00] Guang Jin Yeo:

That's actually our last question, so I'm not sure, Cynthia, and we can take this out, but is there anything that you wanna share to the audience?

Anything that you want to promote?

[00:22:11] Cynthia Ding:

I think, you know, first, I think I'm very grateful to have this opportunity to share a little bit about the, I will not see insider view, but actually close observer view of all those Chinese. Tech giants global journey. This is actually in the past five years that we saw how they learn, how they feel, and how they stand up again, and that's exactly our investment thesis as well.

We are trying to help. Those Chinese origin tech firms, especially deep tech firms, to grow from Singapore to global market and by giving them the best practice of how to be a global company and how to do business locally. And how to grow together the bigger ecosystem, really be a local responsible business citizen, and then to also invest their of the global market growth.

I do believe after all those lessons learned and that the geopolitical turbulence is happening just now, Singapore enjoys huge advantage of hosting those kind of companies and to deploy those kind of capital for such kind of opportunities. In the meanwhile, Uh, being able to grow the whole Asia, uh, as the next economic power engine for next 10 years.

Please, if you have any interest to be part of that journey, we are very happy to, to have a chance to discuss with you how to work with those kind of companies and how to become their, part of their ecosystem can either support or benefit from their growth.

[00:23:58] Guang Jin Yeo:

That was Cynthia, Y Incubator founding partner, and joining us before was Jeremy. He also runs a podcast named Brave. It talks more and all about startups. If you want to learn more about our guests, you can find their link in our description. In the next episode of Empires will explore v n g, the Tencent of Vietnam, which outgrew Facebook Messenger to become the dominant messenger within Vietnam.