Thursday, February 22, 2018

China is pushing its new digital Silk Road into Southeast Asia

Jack Ma and Alibaba will displace familiar Western names in Asia. Jean Chung

by Bede Moore

China is challenging the established Western powers with a new acumen for political and commercial expansion. The massive Belt and Road infrastructure plan is well-known. But in few places has the pace and strategy of Chinese growth been so palpable than the digital marketplaces of Southeast Asia.

Alibaba is China's largest e-commerce company and it has extended its leadership to Southeast Asia. The company has been actively pursuing deals in the region since 2012, but its activities and investments reached new highs in 2017.

In Indonesia, Alibaba poured almost $2 billion to super-charge the growth of country's two largest e-commerce companies, Lazada and Tokopedia, in an attempt to strategically secure Alibaba's dominance of the market ahead of any attempted entry by its American adversary, Amazon.

And it was not just Indonesia that received Alibaba's attention. Across the region, Alibaba, or its financial affiliate, Ant Financial, have taken major positions in most of the leading e-commerce and payments companies in Singapore, India, the Philippines, Thailand, and Vietnam, stitching up a vast empire of customers, payments and logistics.

Alibaba is not alone. Across the region, billions of dollars of Chinese investment poured into Southeast Asia tech companies in 2017, led by all the giants of Chinese tech. To name just a few: Tecent led a round into home-grown Indonesian ride-hailing app, Gojek, Didi Chuxing co-led a competing round into Southeast Asian ride-hailing giant, Grab, while Alibaba's chief competitor,, also got busy, taking a stake in Vietnamese e-commerce giant and a establishing a $500m JV with Thai retailer, Central Group.


The speed, size and spread of these investments are immense. And while they have not occurred in the absence of Western activity, they have certainly tipped the balance of Southeast Asia's technology scene in China's favour.

For Australian companies, the rapid evolution of the Southeast Asian market presents some immediate opportunities and some long-term ambiguities. 

Historically, selling into Southeast Asian markets meant enduring the laborious process of finding quality local distributors, sending stock overseas and navigating the intricacies of government regulation.

Today, Australian companies can already list directly on the Lazada marketplace in Malaysia, and the same capability will soon extend to the Singaporean and Indonesian sites. Orders can be dispatched directly from Australia via a hook-up between Australia Post and Lazada.

Before long, other channels will also exist. Last week, announced its launch in Australia, and the company will surely introduce its own supply chains from Australia into Southeast Asia in order to compete. Amazon, which launched last year in Australia, and has dipped its toe in Singapore, must eventually hope to do the same.

But there is a broader strategic question-mark that hangs over the region and it represents a risk for Australian companies.

It is a popular pastime amongst the tech elite of the West to poke fun at government, which is frequently derided as needing to "get out of the way". Neither President Xi nor Chinese tech firms have been distracted by such follies – Xi's visionary Belt Road Initiative, which is expected to top out at $1 trillion, will be the equivalent of seven Marshall Plans – the United States' transformative post-war reconstruction program for Western Europe.

China's tech companies are already reaping the advantages in Southeast Asia where the impact of the BRI is well underway. In November, Malaysia launched its Digital Free Trade Zone with China, a BRI initiative that is designed to ease trade between Malaysian and Chinese firms, manage cargo authorisations and assist on customs – Alibaba has been selected to lead it.

Its cloud-computing arm, Alibaba Cloud, has also been awarded the contract to set up a traffic control system in Kuala Lumpur to optimise local traffic conditions. The company's chairman, Jack Ma, is acting as the government's digital economy advisor.

Just across the Straits of Malacca, Mr Ma recently accepted a similar advisory position within the Indonesian government. In that country, where traditional bricks-and-mortar retailers are withering on the vine, Mr Ma now holds a majority interest in the two largest e-commerce sites. His ascendancy has been both commercial and political.

Australian companies, particularly those in our tech sector, have been born in an internet age dominated by Western infrastructure. Success in search meant Google. Success in social meant Facebook. Success in commerce, broadly, was governed by American pre-eminence.

Few of these tenets look like they will survive long in Southeast Asia. If they do not, Australian companies will have two choices: adapt or also face a struggle for survival in the region.

Bede Moore is a director of TechSydney. He is a co-founder and former managing director of Lazada Indonesia

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