Executive the Southeast Asia region. The group operates local

Executive SummaryThis report aims to outline a potential international expansion plan for Lazada Group, a prominent e-commerce firm in Southeast Asia. In this report, analyses on Lazada Group’s value chain and key competencies will be conducted. Following which, a new target market for international expansion will be identified and analysed with respect to macro-environmental factors, incumbent competitors and the most favourable mode of entry for Lazada Group. Table of Contents1. Introduction …………………………………………………………………………………………………………………………….12. Value Chain Analysis …………………………………………………………………………………………………………………23. Core Competencies…………………………………………………………………………………………………………………..44. International Expansion: Macroenvironmental Scan …………………………………………………………………….55. Competitor Analysis………………………………………………………………………………………………………………….76. Mode of Entry: Partnership with Singtel ……………………………………………………………………………………..87. Conclusion …………………………………………………………………………………………………………………………….108. References …………………………………………………………………………………………………………………………….101. IntroductionLazada Group is a leading online retail firm in the Southeast Asia region. The group operates local sites in Indonesia, the Philippines, Malaysia, Singapore, Thailand and Vietnam, reaching up to 560 million online consumers in the region. More than 100,000 local and international sellers and 2,500 brands have availed themselves to Lazada’s selling platform to reach Southeast Asian customers. The Group also operates its own first- and last-mile logistics solutions, in addition to partnering with a wide network of logistics providers, to offer expedited delivery of goods and services. Lazada Group is backed by Chinese e-commerce giant Alibaba, which holds an 83% stake in the company (Crunchbase, 2017). 2. Value Chain AnalysisTo better understand Lazada’s business model, a value chain analysis can be carried out. The Porter’s Value Chain framework will form the basis for this value chain analysis for Lazada Group. According to Porter’s Value Chain framework, a company’s activities can be classified into primary activities and support activities, as shown below:Primary activities can include inbound and outbound logistics, operations, marketing and sales, as well as customer service. In terms of logistics, a key aim of Lazada Group is to deliver goods to their respective customers at an industry-leading speed. Lazada Group operates its own in-house first- and last-mile logistics solutions in parallel with a comprehensive network of third-party logistics (3PL) delivery of goods and services. Lazada Group is backed by Chinese e-commerce giant Alibaba, which holds an 83% stake in the company (Crunchbase, 2017). 2. Value Chain AnalysisTo better understand Lazada’s business model, a value chain analysis can be carried out. The Porter’s Value Chain framework will form the basis for this value chain analysis for Lazada Group. According to Porter’s Value Chain framework, a company’s activities can be classified into primary activities and support activities, as shown below:Primary activities can include inbound and outbound logistics, operations, marketing and sales, as well as customer service. In terms of logistics, a key aim of Lazada Group is to deliver goods to their respective customers at an industry-leading speed. Lazada Group operates its own in-house first- and last-mile logistics solutions in parallel with a comprehensive network of third-party logistics (3PL) partners. For the former, Lazada Group operates own fleet of trucks, initially decided to invest in the development of its in-house logistics solutions due to a number of local 3PL providers’ inability to Lazada’s requirements pertaining to delivery lead time. In the case that a product ordered by a customer is in stock at one of Lazada’s suppliers, Lazada able to further reduce delivery time by sending one of its own drivers and vehicles to the supplier’s location to pick up the product, before heading directly to deliver the product to the customer. Additionally, opting to make use of in-house logistics solutions rather than 3PL partners also serves to prevent unauthorized leaking of information to competitors by potentially unreliable 3PL providers. Apart from a fleet of vehicles, Lazada operates its own warehouses near its customer bases, with major, central warehouses located in key Southeast Asian cities to hold inventory of a wider range of products, as well as smaller warehouses in minor towns and cities to store faster-selling items. To further enhance communication within its logistics network, Lazada Group has also introduced the Seller Center mobile application, enabling order details to be communicated between sellers, logistics providers and Lazada more seamlessly. As for 3PL partnerships, Lazada partners with a large number of 3PL providers so as to be able to enjoy the lowest shipping rate for each route it operates, given that a single 3PL would likely charge higher rates for some routes than for others (Calbeto et al., 2017). In terms of Sales and Marketing, Lazada Group places an emphasis on Social Media and Affiliate Marketing (Vicente, 2015). For example, Lazada regularly promotes its anniversary sales through Facebook advertisements, and engages in revenue sharing, paying out commissions to regular users who sign up to promote Lazada products. Additionally, Lazada also invests heavily in Search Engine Optimization (SEO). According to Think With Google, Lazada made use of Google’s Adwords platform to automate bids for advertisement placements on Google, such that Lazada was able to increase traffic to its site by as much as 30 percent and outrank its competitors in page rankings for relevant search terms (Google, 2017). Lazada’s website is thus in a highly favourable position for capturing potential customers searching for specific products in Google. Next, Lazada aims to differentiate itself from the competition by providing higher levels of customer service. For instance, in addition to promising fast delivery of goods to consumers, Lazada offers free returns of defective or incorrect goods delivered by all merchants on its seller platform, and even allows for “change of mind” returns for products fulfilled by Lazada itself. Furthermore, to enhance the convenience of this returns process, Lazada appoints logistics partners to collect returned items from locations near their customers’ delivery addresses (Lazada, 2017). Meanwhile, support activities would typically include technology development, human resource management and firm infrastructure management. Firstly, as the region’s leading e-commerce provider, Lazada is understandably a key investor in technology. In 2016, Lazada established its third Tech Hub in Bangkok, dedicated to the development of its shopping and selling mobile applications that aim to capitalize upon the growth of mobile commerce (Digital News Asia, 2016).Lazada also places a focus on employee wellbeing and motivation in its human resource management strategy. During its Online Revolution sale, wherein employees were required to work for a continuous 24-hour shift, Lazada rewarded employees with perks such as celebrations, commemorative gifts and cohesion activities (Azahar, 2016). From the above, it is clear that Lazada’s key value proposition that has enabled it to become one of Southeast Asia’s leading e-commerce providers would lie in its superior customer service, comprising industry-leading delivery times, convenient mobile applications and seamless merchandise return procedures. To support the provision of this customer service, the company also seeks to motivate employees, branding itself as a friendly employer that appreciates the efforts of employees. 3. Core CompetenciesFrom the above value chain analysis, one can derive and summarize Lazada Group’s core competencies.The first core competency of the group would lie in its logistics solutions. Lazada’s logistics strategy has been developed with the aim of reducing delivery lead times to ensure that customers receive their goods in a timely manner. As outlined earlier, Lazada Group has established, and operates, its in-house first-mile and last-mile logistics solutions, and has a wide network of 3PL partners. According to Calbeto (2017), a delivery lead time are a crucial area of differentiation between e-commerce platforms, and has been the reason for Amazon’s success in the United States, as well as Lazada’s growth in Southeast Asia. An in-house logistics solution requires a large amount of capital outlay to establish, with a prospective company needing to purchase or lease its own fleet of trucks and network of warehouses, but also enables a company to not only deliver items faster, but also serve more rural, lower-volume areas. As such, this in-house logistics system should be seen as a core competency that is difficult to imitate.Another core competency of Lazada Group would be technology development. Lazada Group currently has ‘Tech Hubs’ located in Vietnam and Thailand, special departments dedicated to the development of new commerce platforms that employ Web, Android and iOS developers. The latest ‘Tech Hub’ in Bangkok, for instance, was established as a centre for development of mobile commerce (mCommerce) solutions such as Android and iPhone applications for both sellers and buyers. Having a dedicated team of developers available means that Lazada Group will be able to update their applications and user experience quickly to suit the latest interface design trends, leading to the cultivation of an image of a company that is responsive and up-to-date (Kloefkorn, 2017).4. International Expansion: Macroenvironmental ScanThe selected market for international expansion of Lazada’s operations would be Nepal. Nepal has been cited as a country wherein e-commerce is in its nascent stages, but is projected to grow exponentially in the near future (Xue, 2017). As such, it represents a prime opportunity for international expansion for the Lazada Group. To better understand the opportunities and potential challenges associated with international expansion into Nepal, we may consider relevant political, economic, social and technological, (PEST) factors pertaining to the country.From a political perspective, Nepal can be classified as unstable due to the fact that no one elected government has remained in power for more than two years at a time since executive power was transferred from the monarchy to the state in 1991 (Market Research Reports, 2017). Potential frequent changes in government regulations on e-commerce or operations of foreign firms may thus adversely affect the business of a new e-commerce entrant in the Nepalese market. However, Nepal shares strong ties with neighboring China, and is currently negotiating a free trade agreement with China, a manufacturing hub of consumer products sold on e-commerce sites (Reuters, 2016). As such, if a free trade agreement were to come to fruition, it would become highly feasible for Lazada to set up a warehouse in Nepal, and import items directly from Chinese suppliers without incurring import tariffs. From an Economic point of view, Nepal’s economy grew at a considerable rate of 7.5% in 2016, as can be derived from the graph shown above (TradingEconomics, 2017). The relatively high rate of economic growth experienced by Nepal suggests a marked increase in income, and thus, a potential increase in demand for consumer goods. This thus constitutes an opportunity for an e-commerce provider such as Lazada to enter the market and capture sales from new customers. Next, from a social perspective, Nepal currently experiences an annual population growth rate of 1.35% (Market Research Reports, 2017). A positive population growth rate suggests that demand for consumer goods is likely to increase in the near future. Additionally, as a progressively larger number of people grow up in an environment where smartphones and internet access are ubiquitous, this increase in demand for consumer goods will most probably translate to an increase in demand for e-commerce. As such, Lazada would do well to capitalize fully on this growth in population by expanding operations to Nepal.Finally, the technological aspect of this analysis is especially pertinent to an e-commerce provider. In the case of Nepal, the country has only recently rolled out its 4G mobile network, with Nepal Telecom being the first telecommunications provider to launch the service in 2016 (NTC, 2017). Recent years have also seen a significant increase in internet usage in Nepal, with internet penetration rates rising more than sevenfold from 6.4% in 2000 to about 50% in 2017. The rapidly rising usage of the internet, coupled to the increased availability of fast mobile internet, translates to another factor contributing to Nepal’s potential as a desirable target market for a company specializing in eCommerce and mCommerce. It is thus recommended that Lazada seize this opportune moment to consider expanding its operations into Nepal. 5. Competitor AnalysisE-commerce is currently in its nascent stages of development in Nepal. The incumbent player in Nepal’s e-commerce space would be Kaymu, a Pakistan-based site offering a similar range of products as Lazada. Kaymu has also launched mobile applications for Android and iOS platforms. Kaymu’s key strength would be its mindshare in Nepal. In particular, Kaymu is often considered Nepal’s most popular online shopping destination (Xue, 2017). Given that Kaymu has already garnered the trust and loyalty of a large number of consumers in Nepal, a new entrant like Lazada would need to ensure that its product offering to Nepali consumers is at least as compelling as those of Kaymu, in order to garner an appreciable level of sales. Another strength of Kaymu’s is the availability of a dedicated Android and iOS app for the site. As mentioned earlier, internet penetration in Nepal currently stands at about 50%, and is projected to grow further in the coming years. With the introduction of the 4G mobile network, this growth in internet usage is likely to be mobile-based. As such, the availability of optimized smartphone apps for the site will enhance convenience of access to Kaymu’s e-commerce service, making for a more desirable user experience. However, Kaymu currently only accepts cash on delivery as a payment method, due to the fact that it lacks an integrated payment gateway. Additionally, return policies are set by individual merchants on Kaymu, suggesting that merchandise returns may not be as streamlined as with a policy that requires all sellers to comply with a standardized set of return rules (Kaymu, 2017). These two weaknesses thus form key areas where Lazada can claim a competitive advantage over Kaymu in Nepal – Lazada offers both cash on delivery and payment gateways such as PayPal and AliPay, allowing customers to choose between paying with credit cards and paying with cash, and also requires sellers to abide by a standardized returns policy. Another player in the Nepal e-commerce industry is GoGazzab. GoGazzab is similar to Kaymu in the scope of products sold, and was founded locally in Nepal in 2015. One of GoGazzab’s main strengths would be that it is one of the few e-commerce sites in Nepal that offer buyers the option of making payment via PayPal, a secure payment gateway. This means that unlike its rival Kaymu, GoGazzab is able to accept both cash and card payment, thus providing consumers with greater choice and convenience (GoGazzab, 2017). However, GoGazzab lacks a mobile interface or application, and may be perceived as less appealing to navigate than rivals with dedicated mobile interfaces. This weakness may prove to be particularly significant as adoption of mobile internet grows in Nepal. Additionally, and similarly to Kaymu, return policies are set by individual merchants, rather than standardized across the entire site. Lazada would thus be able to enjoy a competitive advantage over GoGazzab in the form of a superior mobile customer experience, as well as more streamlined return merchandise authorization (RMA) processes.The final prominent e-commerce incumbent in Nepal would be Hamro Bazaar. Hamro Bazaar serves primarily as a platform for users to sell and buy items. Transactions on the website are largely peer-to-peer in nature, and often involve the trading of secondhand goods. Consequently, the site takes no responsibility for fulfilment or returns of orders, and payment is arranged between individual account holders on the website. Hamro Bazaar’s service offering is thus not in direct competition with that of Lazada – despite the fact that similar types of goods and services are traded on both sites, Hamro Bazaar is merely a platform for individuals to sell used goods, while Lazada aims to be an online department store substitute, offering the latest items from popular global brands.6. Mode of Entry: Partnership with SingtelIn an international expansion attempt, a company must select its mode of entry based on its appetite for risk and its core competencies. Possible modes of entry include licensing and franchising, strategic joint venture with a local firm, acquisition of a local firm in the target market, and de novo entry, which involves the establishment of a foreign subsidiary or branch office at the beginning of a company’s operations in the target market (Vepakomma, 2015). These options can be considered with the aid of a risk-return graph shown below. In the case of Singtel and Lazada, the two Singaporean companies offer complementary products. Singtel’s mobile network services, for instance, are required for customers to be able to readily access Lazada’s e-commerce platform.Given that Nepal does not currently have an extensive 4G network in operation, the country represents a potential opportunity for Singtel to market its expertise in mobile network solutions. Up to 2017, the telecommunications market in Nepal has remained a monopoly. Given the market power of the incumbent firm, Nepal Telecom, Singtel may choose to enter an overseas joint venture with the incumbents to expand 4G network services, in return for the ability to operate Singtel-branded services as a mobile virtual network operator (MVNO). This would minimize costs of entry into a market that Chinese telecommunications companies are also eyeing, as compared to if Singtel were to set up a foreign subsidiary in Nepal, and opt to develop its own infrastructure in a region of undulating terrain at high cost (Gautam, 2016).The most plausible choices for Lazada, meanwhile, an experienced e-commerce company, would be an overseas acquisition or the establishment of a wholly-owned foreign subsidiary. Of the two, the former is likely to provide more favorable short run returns. Given that Lazada is entering the Nepalese market for the first time, the knowledge of local business culture possessed by a Nepali e-commerce retailer like GoGazzab may prove valuable in allowing Lazada to develop a customer experience that appeals to consumers in Nepal, and in turn build up a customer base in the country (IE Singapore, 2017). Lazada may even choose to continue operating the e-commerce site under its original name in initial stages, so as to take advantage of any existing mindshare that the company holds in Nepal. In the long run, Lazada may then adapt its core competencies to the firm it acquired, such as by setting up its own fleet of trucks and network of warehouses for greater efficiency in first- and last-mile logistics. In comparison, if Lazada were to choose the de novo mode of entry, it would have to contend with higher risk, as shown in the diagram above. Even though establishing a wholly-owned foreign subsidiary may theoretically allow Lazada to reap greater returns in the long run, Lazada would likely take a longer time to adapt to Nepalese business culture, and would also face greater competition in the form of the company that it could have acquired in the former option. In addition to the fact that Singtel’s 4G services may support Lazada’s expansion in Nepal, the two companies can then form a partnership whereby Lazada enables the sale of Singtel services and products on their e-commerce platform, while Singtel promotes Lazada offers that may come bundled with their mobile service packages.7. ConclusionIn conclusion, Lazada Group has developed a compelling set of core competencies in both logistics and technological development that will foreseeable allow it to become a competitive e-commerce retailer in multiple countries. As demonstrated by the above example of Nepal as a potential target market, a considerable amount of opportunity for e-commerce expansion can be found in emerging economies both in and out of Southeast Asia. As Lazada Group seeks to expand beyond its current region of operations, and indeed, out of Southeast Asia, it would be a judicious choice to consider the acquisition of local incumbent e-commerce firms, so as to benefit from locals’ understanding of the business environment and consumer preferences in the target country.Words 29608. ReferencesAzahar, W. (2016, November 11). Lazada rewards employees working 24 hours for its Online Revolution. Retrieved December 8, 2017, from http://www.humanresourcesonline.net/lazada-rewards-employees-working-24-hours-online-revolution/Calbeto, J. J., Abareshi, A., Sriratanaviriyakul, N., Nkhoma, M., Pittayachawan, S., Ulhaq, I., … Vo, H. X. (2017). Lazada’s Last Mile: Where No E-Commerce Company in Vietnam Had Gone Before. 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The Importance of User Experience (UX) for SEO. Retrieved December 8, 2017, from https://www.bizjournals.com/phoenix/news/2017/06/29/the-importance-of-user-experience-ux-for-seo.htmlLazada. (2017). Returns & Refunds. Retrieved December 8, 2017, from http://www.lazada.sg/helpcenter/returns-refunds/#answer-faq-return-ansMarket Research Reports Inc. (2017). Nepal. Retrieved December 8, 2017, from https://www.marketresearchreports.com/countries/nepalNTC. (2017). 4G LTE Network. Retrieved December 8, 2017, from https://www.ntc.net.np/pages/view/4g-lte-networkReuters. (2016, March 21). China to look at free trade, rail deal with Nepal. Retrieved December 8, 2017, from https://www.reuters.com/article/us-china-nepal/china-to-look-at-free-trade-rail-deal-with-nepal-idUSKCN0WN0CQTradingEconomics. (2017). Nepal GDP Annual Growth Rate 1993-2017 | Data | Chart | Calendar. Retrieved December 8, 2017, from https://tradingeconomics.com/nepal/gdp-growth-annualVicente. (2015). Social commerce will be the next big thing, says Lazada’s Balci. Retrieved December 8, 2017, from http://www.upgrademag.com/web/2015/05/21/social-commerce-will-be-the-next-big-thing-says-lazadas-balci/Xue, J. (2017, June 30). Why Nepal E-Commerce Is the Next Big Thing. Retrieved December 8, 2017, from https://themarketmogul.com/nepal-e-commerce/


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