The two biggest stories of April came from one company, a startup giant with enough capital it can compete toe-to-toe with the big banks
In recent weeks we’ve seen two mega deals that everyone should be paying attention to. The scale of these deals puts the strategic ace card of most multi-national corporate at threat.
I am talking about the one billion dollar acquisition of a controlling stake in Lazada, and US$4.5 billion dollar in capital raised by Ant Financial. Both deals had one thing in common: Alibaba Group.
China is a country that attracts attention, it is F*@!ing huge.
It is also far enough away geographically from most executives that they can be forgiven for forgetting about it. Especially when many of them have struggled to penetrate, or grow, in the Chinese market. Now the Chinese market is coming to them.
Many incumbent industry dominators have rested on their laurels, choosing instead to stick to what they know, and what is ‘safe’. Executives remain confident their dominant market position or superior capital reserves would eventually grant them a strategic option in the future.
However, by looking closely at any company that has dominated a market for more than 20 years, very little of their growth over the past decade has been organic.
Instead, they leap into mergers and acquisitions, too often buying companies that look very similar to themselves. As a result, the top decision makers have been isolated from market pressures as they pay their ‘strategy’ hand.
These two deals should make those decision makers sit-up, if not getting very nervous. Let’s take a closer look.
Alibaba and Lazada
Alibaba Group Holding Ltd made its largest overseas investment, a US$1 billion deal for control of Lazada Group SA, taking the Chinese e-commerce giant to Southeast Asia.
Alibaba and Alipay were already the largest companies of their kind. This moves them into the stratosphere.
Alibaba Chairman Jack Ma has set an ambitious goal of growing to ensure half the company’s revenue comes from overseas. The Lazada deal adds sales from clothing and electronics in six Southeast Asian markets.
“[Alibaba] has huge cash sitting on its balance sheet so it can do this kind of investment. It’s also seeking future growth drivers,” said Marie Sun, an analyst at Morningstar Investment Service. “It needs to find some other place for future growth.”
Founded in 2012 by Rocket, Lazada operates in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Indonesia is key, as it is Southeast Asia’s largest economy with 256 million people.
Lazada has seen growth in markets where the absence of financial services has held back the ability to sell goods online. But each time Lazada found a path to success.
Today, cash-on-delivery and escrow offers a work-around while companies like Doku, MOL, PayPal and Skrill fill the payments gap left wide open by the banks.
Get the hint yet?
Alibaba created AliPay to fill the payment needs of the commerce giant. Today AliPay is the largest unsecured lender on the planet.
Lazada has HelloPay to do much the same, but at a much lower scale. Once Alibaba merges AliPay and HelloPay they will be the largest lender and payments company in the region, if not the planet.
Lazada is also building it’s own logistics business to support the core vertical which, if successful, will give them complete control across the entire value chain.
The executives of many banks today see strong growth potential in Asia’s emerging affluent population. But the market may already have a resident if Alibaba beats them there, and right now it seems the company is doing just that. Banks have sat on piles of capital, unwilling to do anything different with it.
Ant Financial, the Alibaba affiliate that runs Alipay and other financial services in China, has announced a truly epic round of funding with a Series B weighing in at a staggering US$4.5 billion.
The Wall Street Journal previously reported that the company was raising new funding at a valuation of up to US$60 billion, now confirmed as the valuation for the recent deal. That is a higher number than PayPal’s current US$47 billion market cap.
Ant has piggy-backed on Alibaba’s e-commerce empire, with US$5.3 billion in revenue during the last quarter of business.
The company offers a range of financial services, with the most prominent being Alipay; China’s most popular online payment service, used to process payments on Alibaba-owned websites.
But Ant’s portfolio also includes a micro-loan programme and Alibaba’s digital bank, MyBank. Ant claims 450 million users, with focus on enabling people in remote areas who have limited access to traditional financial services. Sounds familiar?
Bank executives in Asia better have paid attention to these two deals, because it shows a clear move by the Chinese giant to become a regional superpower.
Alibaba has the e-commerce experience, and the capital behind them to fight head-to-head with banks. In fact, Alibaba Group could comfortably complete deals like DBS Bank’s attempt to acquire a controlling stake in Danamon Bank in Indonesia.
Add the Alibaba moves to Apple’s regional play into the issuance of payment products with Apple Pay, and within the space of a month the role of the bank is significantly diluted.
What do these executives need to do?
It is time to step up and start to invest capital in a company’s future. It is time to seek the guidance of those that think differently and act differently while granting them a license to try new strategies.
If not, the organisation will face pressure from ongoing compression on margins while the legacy of strength holds them back from embracing the digital economy.
Timely, just a week before my new book, Innovation Wars opens for pre-order.
A technology & innovation guru, Scott Bales is a global leader in the cutting edge arena known as “The Digital Shift”, encompassing innovation, culture, design, and mobility in a world gone digital. As thought leader, Scott thrives on the intersection between cultural and behavioural changes in the face of technology advancement.
Scott is a best-selling author, and sort after global keynote speaker. Scott runs boutique advisory firm, Innovation Labs Asia.
Alibaba photos courtesy of Alibaba.
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