Bamboo battle

How a mega-merger in Indonesia has fanned the Alibaba-Tencent rivalry

Tokopedia w

Indonesia’s answer to Alibaba’s Taobao

The trajectory of China’s economic resurgence would likely be very different were it not for the wealthy Chinese diaspora across Southeast Asia. Sharing the same language as well as cultural affinities, successful businessmen in the so-called ‘bamboo network’ brought capital and know-how back to their ancestral land in the initial decades of China’s reform and opening period. A reversal of these business flows began in the last decade as a rising China began to invest in ASEAN. Chinese internet companies, in particular, became a major force in the region’s digital economy. This was demonstrated again this month by a tie-up between two of Indonesia’s most prominent unicorns, which is set to intensify Alibaba’s rivalry with Tencent in the broader Southeast Asian market.

On May 17, Gojek, a ride-hailing and payments firm, announced that it had agreed to merge with e-commerce platform Tokopedia. They will form a holding company called GoTo Group through the transaction – potentially the largest ever in Indonesia – backed by their shareholders including Alibaba, Google and Softbank. According to Bloomberg, the new entity is being valued at about $18 billion. A dual-listing of GoTo is anticipated by the end of this year targeting a public market valuation of as much as $40 billion.

The deal emerged after Gojek the failed in merger talks with its bigger rival Grab. The union of Gojek and Tokopedia is viewed favourably, however, due to its potential to create a competitive super app that retains users in a ‘walled garden’ ecosystem. GoTo’s monthly active users exceed 100 million, while its merchant partners number about 11 million. It also claimed a total registered driver fleet of over two million as of the end of 2020. With Gojek and Tokopedia handling 1.8 billion transactions last year, sales on the GoTo ecosystem are estimated to encompass 2% of Indonesia’s GDP.

Gojek’s bikes and drivers will enhance Tokopedia’s last-mile delivery capabilities, while the new entity will likely spawn a fintech giant similar to China’s Ant Group. Both Tokopedia and Gojek already offer a wide array of financial services including digital wallets, micro-lending and insurance. Their merger would give them a significant advantage in compiling users’ spending and income. The ultimate goal? To build a more accurate credit-scoring system for loan generation – a business model that generally comes with fatter margins.

A backer of Tokopedia since 2017, Alibaba is set to become GoTo’s second largest shareholder with a 12.6% stake, behind Softbank’s 15.3%. Aside from looking to reap a financial windfall from GoTo’s planned IPO, Alibaba is hoping the merger will help to shore up its regional influence, which has been eroded by Sea, a Tencent-backed internet firm.

Founded by Tianjin-born Singaporean Forrest Xiaodong Li, Sea started out as an online game publisher in 2009, winning from Tencent both investment and the licence to monetise the popular title League of Legends in Southeast Asia. It then expanded into e-commerce through its marketplace Shopee. By providing merchant-friendly services, Shopee first displaced Lazada and then Tokopedia – both backed by Alibaba – as the largest e-commerce player in Southeast Asia. It was the most downloaded shopping app in the region last year, with gross merchandise value doubling to $35.4 billion, accounting for 57% of the entire Southeast Asian e-commerce market.

Much of Shopee’s strong performance can be attributed to the free rein given to it by Tencent, as well as its strategy of localisation, notes TMT Post. In contrast, Alibaba has kept a tighter grip over Lazada, whose Tmall-like business has also been constrained by frequent changes in leadership. “Nine months after former Ant Financial CEO Peng Lei replaced Max Bittner as Lazada’s CEO in March 2018, Peel Penglong [a Lazada co-founder] took over, only to be replaced by Li Chun, another Alibaba alumnus, in June 2020,” noted the tech news outlet.

E-commerce successes saw Sea venture into fintech (it won a digital banking licence in December) as well as food delivery in the first quarter. Its New York-listed stock has surged over six times since the beginning of last year, giving it a market capitalisation of $137 billion, exceeding that of JD.com. Tencent has held a 39.8% stake since Sea went public in 2017.

To bolster its presence in the region, Alibaba also made its first investment in Vietnam last week, leading a consortium to invest $400 million in The CrownX, the retail arm of Masan Group, for a 5.5% stake. As part of the deal, Masan’s VinCommerce will become the preferred grocery retailer on Lazada. Masan’s 130 supermarkets and 2,900 mini-marts across Vietnam will also serve as pick-up points for online orders.

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