Chinese tech giants battle to win the Southeast Asian market

Chinese tech giants battle to win the Southeast Asian market

Chinese tech giants Alibaba and Tencent have been locked in a fierce battle to dominate the consumer internet business including bike-sharing, ride-hailing, and food delivery. Linette Lim finds out how Chinese capital is increasingly shaping the Southeast Asian tech scene.

SINGAPORE: Chinese tech giants Alibaba and Tencent have long been locked in a fierce battle to dominate the consumer Internet in their home country, but over the last several years, the jostle for supremacy has extended beyond China, with Southeast Asia becoming a key battleground.

The two firms have invested huge sums of money - and the prestige of their brand names - in multiple startups. But increasingly, their investments are starting to present a dilemma of sorts for companies seeking new investors - having to choose sides.

In Southeast Asia, Alibaba has focused on e-commerce acquisitions, while Tencent is spread across games, ride-hailing, bike-sharing, and e-commerce.

Marketwatchers told Channel NewsAsia that they expect Alibaba and Tencent to go head to head in more investment areas, as both want to tap into businesses using mobile payments.

This could put fundraising startups in a tight spot, because the two tech giants are not known to co-invest with each other. The unacknowledged rivalry between them seems to suggest that if you take money from one, you may have to forego an investment offer from the other, industry players said.

“From the talks that are going on within our (start-up) community ... I think (company) founders are starting to strategise around picking their camps – are they picking the Alibaba camp or are they picking the Tencent camp?” said Ms Grace Sai, who runs co-working space Found. in Singapore.

In August last year, Alibaba beat Tencent to take a minority stake in online retailer Tokopedia, also known as Indonesia’s Taobao, while in May 2017, Tencent led a US$1.2 billion funding round for Indonesia-based ride-hailing firm Go-Jek. 

In both cases, both Alibaba and Tencent were reportedly involved in initial talks. Another example is in bike-sharing - Ofo is funded by Alibaba while Mobike is backed by Tencent. 

A notable exception is ride-hailing firm Grab - both giants have an interest in it, via stakes in China’s ride-hailing firm Didi Chuxing. 

SOUTHEAST ASIA'S DRAW

As Chinese tech funding flows into Southeast Asia, the region's largest unicorns - startups valued at US$1 billion or more - have raised eye-popping levels of investment this year.

Market watchers said that Chinese tech giants and private equity investors are particularly drawn to Southeast Asia. It is seen as a market with few competitors of significant scale, and lower regulatory barriers compared to Europe and the US.

Ms Sai noted that as a region, Southeast Asia boasts favourable demographics, with 640 million people, a combined economy the size of the UK, and 340 million Internet users.

"We have the fastest growing mobile penetration rate, the fastest growing middle income population, and more than 65 per cent of our population is under 35," she said.

“On the other hand, the startup ecosystem is relatively nascent, we're only six to seven years in, and we only have six to seven unicorns."

In contrast, China has 20 times the number of unicorns at 124, according to IT Juzi, a database of startups in Beijing. Half of these are controlled or backed by the tech trinity of Baidu, Alibaba, and Tencent.

Alibaba and Tencent are the key players in China by far, dwarfing Baidu with revenues exceeding US$30 billion each.

SEEKING LOCAL PARTNERS

Alibaba and Tencent have grown aggressively at home by gaining market share and users through acquisitions, and they are taking this approach in Southeast Asia too.

Singapore-based venture capital firm Golden Gate Ventures said the localised approach to international expansion is the key difference between the Chinese tech giants and their Silicon Valley counterparts.

"When Amazon entered the region, they came with their own technology and sent Americans to Singapore to launch their products and services," said Mr Vinnie Lauria, managing partner of Golden Gate Ventures. Alibaba, on the other hand, acquired Lazada.

"So now they’re acquiring local knowledge, they’re localising it not just in different languages but with the team that has built that, with the brand that locals recognise. That is very key to their success," he added.

Golden Gate Ventures is familiar with the Chinese tech giants, having seen portfolio companies, RedMart and Ruma respectively, acquired by Alibaba's Lazada and Tencent affiliate Go-Jek.

“As a VC in the region, when we're looking at companies, there are always a few questions – who are the founders, why are they doing this, what is the tech, what is the competitive landscape, but a fifth point is: Who are the next investors, who are possible acquirers," said Mr Lauria.

“For us, we welcome them ... They come in at a much, much later stage. We want that sort of financing, we want that sort of acquisition coming into the region, and it’s a rising tide."

Tencent and Alibaba are making these bets as they face a slowing and saturating domestic market.

Chinese companies either look to replicate tried-and-tested business models in Southeast Asia or acquire technology they can bring back home, according to Mr Victor Ai, a Beijing-based managing partner at China Everbright. He has led investment deals totalling US$7.3 billion, including in startups such as iQiyi, SenseTime  and NIO.

“If you look at China, for the past 10 years, one of the key drivers for Internet companies is the growth of the population. (But) now, in 2017, we have reached over 700 million Internet users and mobile users - this means both the Internet and the mobile Internet in China has reached its peak, and the growth rate keeps slowing down," said Mr Ai.

"In that case, the giant companies in China – they have to get out of the country."

Source: CNA/ng/(hm/aj)

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