PRC Tech Giants in Southeast Asia: a Competition that Boosts the Digital Scene

22/03/2019

Southeast Asia has become a key battleground for China’s tech giants, especially Tencent and Alibaba, whose investments in local startups are helping the development of the domestic technology scene, thus building a new Digital Silk Road

 

Tencent and Alibaba are China’s most famous companies abroad, while their founders, Pony Ma and Jack Ma, represent two of the richest and most influencing businessmen in the world. In the People’s Republic, the two giants rule many sectors including e-commerce, fintech, communication, entertainment, and so on.

Just like two brothers, Tencent and Alibaba compete to win one over the other. The battle to dominate the Chinese market also extends to bike and payment where the two titans control the main companies such as Mobike and Ofo for what concerns bike-sharing and WeChat Pay or Ant Financial for what concerns mobile payment.

Although the two firms totally win in the domestic market, they still collect only a small fraction of their revenue outside of China. But it is all different in Southeast Asia, where they found the highest room to grow and to replicate their home success.

Today, the Southeastern region has become a key battleground where Chinese tech giants are actually shaping the local technology scene.

 

In recent years, the number of internet and mobile users in China reached its peak. Out of a population of over 1,4 billion, more than 800 million people use the internet and 98% of them are mobile.

 

Even if the Dragon recorded an explosive growth in terms of internet penetration in the last decades, today the market almost reached its maximum leaving a smaller percentage of growth potential and a higher competition among hi-tech companies.

Southeast Asia, instead, looks like a younger modern PRC. The technological environment is still immature but it represents a blank canvas the Chinese companies could shape in their image.

If all the ten countries composing the Association of Southeast Asian Nations (ASEAN) were a single country, it would be the world’s third most populous region and the sixth-largest economy. Moreover, out of 640 million people, more than 25 million are ethnically Chinese, therefore more receptive to the Dragon’s influence.

So, in addition to a large portion of the population already familiar with the services the Chinese companies offer, the Southeastern region is also home to an emerging tech-savvy middle-class, just like China.

 

PRC Tech Giants in Southeast Asia - singapore - cifnews

© Unsplash. Marina Bay Sands, Singapore. The evolution of digital penetration in Southeast Asia has shifted internet usage massively towards mobiles. Just like the PRC, smartphones have acted as an introduction to the online world.

 

According to a report by Google and Temasek, the number of active internet users in Southeast Asia is expected to reach the figure of 480 million people by 2020 making the whole region’s internet economy grow to $240 billion by 2025, $40 billion more than previous estimates. This makes it the third-largest market globally in terms of internet users.

The report also found that only 51% of the local consumers are active mobile internet users revealing a giant space for market growth in this densely populated region.

The ASEAN countries thus represent a significant market for the global supremacy so much so that Beijing is not the only one to look at the Asian neighbors with interest. Here, leading Chinese companies, BAT – Baidu, Alibaba, Tencent – and major US companies join the battle for tech dominance in the Pacific area.

 

Western and Chinese enterprises have different approaches when investing in Southeast Asia. While US companies usually open regional headquarters run by their own teams, Dragon’s tech giants prefer to acquire or invest directly in fast-growing local players.

 

Nevertheless, the two nation’s approach is very different. Many Silicon Valley’s tech giants have been operating here for a decade or more but they always tend to replicate and move their business model in the region installing local offices run by US teams. Facebook, Google, Apple and more, all have regional headquarters in major cities in Asia from which they often make billions of dollars every year.

PRC companies, instead, prefer to acquire or invest in fast-growing local players, focusing on niches they know best, thus integrating and implementing original companies with cutting-edge ideas and technologies.

For what concerns the two Chinese direct competitors, Tencent and Alibaba, over the years, they invested a huge amount of money in the region’s multiple startups often trying to include their own mobile payment system in the market.

As they do not usually co-invest with each other, Southeast Asia turned into an economic battleground because local companies seeking new investors found themselves having to choose sides.

 

PRC Tech Giants in Southeast Asia - Alibaba vs Tencent - cifnews

© Xuehua. In Southeast Asia, Alibaba and Tencent are creating rival tech ecosystems that mirror their competition in China, requiring local startups to choose sides.

 

Alibaba arrived in the South East later than Tencent, but its arrival has been much powerful. It made its first big move in 2016, acquiring an initial $1 billion majority stake in Lazada, a Singapore-based online shopping website with operations across ASEAN.

In June 2017, Alibaba raised its stake to 83% and then announced a further $2 billion investment on March 19, bringing the total input to $4 billion. But the smartest move was acquiring the website’s HelloPay rebranding it Lazada Wallet.

Jack Ma also turned the Amazon-like marketplace based on goods’ storage and delivery into an Alibaba-style New Retail platform, where individual sellers can build and manage their own supply chain.

Lazada is running in six countries, including Vietnam, Thailand, Malaysia, the Philippines, Indonesia, and Singapore. Therefore, thanks to its wide presence, Southeast Asia has become Alibaba’s largest foreign market.

Since 2015, Alibaba has invested an estimated total of $10-12 billion throughout the region, with much of it going to e-commerce. In addition to the investment in Lazada, it also made a $1.1 billion investment in the Indonesian shopping platform Tokopedia, stealing it from JD.com.

Ant Financial also began its own ventures of investing in Southeast Asia’s financial tech companies signing cooperation agreements with many local enterprises such as with Indonesia’s second largest media firm Emtek.

 

According to TechCrunch, Tencent and Alibaba have already held business negotiations with startup companies in at least a dozen Southeast Asian e-commerce or fintech enterprises.

 

Meanwhile, on the other hand, compared to the other Chinese competitor, Tencent group is stronger in gaming and media, therefore its first debut in the area has been through the gaming industry.

In 2010, the firm invested in SEA Group, which operates ASEAN’s biggest gaming platform. It then invested in Thai firms Sanook and Ookbee about news and content before leading a $1.5 billion investment into the Indonesian ride-hailing platform, Go-Jek.

Go-Jek shows many signs of resemblance with Tencent’s all-in-one app WeChat. Indeed, launched in 2011 in Jakarta and encouraged by the Chinese partner, Go-Jek has evolved from a ride-hailing service to a one-stop app through which its customers can make online payments and order everything from food and groceries to massages.

Nevertheless, although both Tencent and Alibaba entered the Southeast Asian market diversifying their investments, there is one particular company from Singapore they both look with interest. It is Grab, a multi-functional app, similar to Uber, which is establishing itself as the leading tech actor in the area.

Like Chinese peers, Grab aims to enhance the cashless revolution that has already hit China. A revolution that companies like Tencent and Alibaba helped to start in their homeland and that they now want to assist in the neighboring area.

 

PRC Tech Giants in Southeast Asia - bangkok - thailand - cifnews

© Unsplash. Bangkok, Thailand. Southeast Asia as one of the fastest growing regions in the world may continue to be the battleground for Chinese tech titans as they continue to make their mark on the world stage.

 

However, Tencent and Alibaba are not alone in the Southeastern cashless revolution. After some years in the market, Chinese second-largest e-commerce, JD.com opened its first unmanned retail stores outside China in Indonesia, a fully automated shop where people pay with smartphones and that showcases new technologies like facial recognition.

JD.com is also involved in some local programs that aim to connect Thailand with China like the Eastern Economic Corridor, a development plan by the Thai government on cross-border e-commerce, to which the Chinese firm lends its logistics technology such as warehouse automation and AI-driven inventory management.

Recently, thanks to its young population and growing economies, Southeast Asia started to attract foreign investors. It is especially true for China, which considers the area as its historical friend and the natural extension of its region.

The Southeastern neighbor is not too much underdeveloped but it is not overdeveloped, either. It shares with China the same digital evolution and here, right in the local digital economy, the Dragon’s investment is building a sort of “Digital Silk Road” driven by its national tech champions.

Actually, it is too soon to decide who win the Southeast Asian battle. But what companies like Tencent and Alibaba are doing here is not just rewrite the entrepreneurial ecosystem, but rather build a digital bridge between countries that share the same culture. But above all, PRC companies also accompany and enhance domestic firms through digital development and the cashless revolution.

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