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A Showdown Brews Between Amazon and Alibaba, Far From Home

  • Both are spending billions of dollars on Asia — particularly Southeast Asia and India — as they look for a place that could repeat China's explosive transformation into the world's biggest online shopping market.
  • The two companies have amped up their efforts to deliver more quickly to a growing group of customers.
  • Competing in the market is likely to be expensive, thanks to customer price cuts and rebates in addition to expansion costs.
Hong Wu | Getty Images

From this concrete warehouse perched on the edge of a potentially vast new market for online shopping, the Alibaba Group of China hopes to beat Amazon one head of lettuce at a time.

Under the glare of fluorescent lights, green-vested workers carefully wrap fruit, cheese and other perishables for delivery by vans to a growing group of Singaporeans who prefer to do their shopping online. On a nearby wall, printouts show the sorts of defects that customers have complained about in the past: overripe avocados, smelly spinach, rotten honeydews.

“It’s getting better and better,” said Vikram Rupani, president of RedMart, an online grocery company based in Singapore that is part of Alibaba’s push into the region, “but it’s a continuous process that never ends.”

Alibaba and Amazon already dominate the business of selling stuff online in their home markets. Increasingly, they are competing against each other on neutral ground.

Both are spending billions of dollars on Asia — particularly Southeast Asia and India — as they look for a place that could repeat China’s explosive transformation into the world’s biggest online shopping market.

Amazon has committed $5 billion to India, where it lures customers to sign up for its Prime service, which includes Western movies and television shows, for a small fraction of the $99 annual membership price in the United States. Alibaba has invested roughly $500 million for stakes in both Paytm — India’s largest mobile payments platform — and its e-commerce affiliate, Paytm Mall.

Alibaba’s bigger bet is in Southeast Asia. It has spent more than $2 billion to take control of Lazada, a five-year-old online shopping company based in Singapore and doing business in six countries. Last year, Lazada bought RedMart, the online retail grocery.

The promise is there, as the region’s young middle class grows and goes online. Southeast Asia’s e-commerce sales could total $88 billion by 2025, according to projections from Google and Temasek Holdings, the Singaporean sovereign wealth fund. Volume was less than one-tenth that in 2015.

Over about the same period, India’s market could increase six times to a similar amount, Bain & Company, a consulting firm, projects.

Alibaba and Amazon are seeking consumers like Janice Lee Fang, a Singaporean who decided she needed to buy a robot to amuse a 6-year-old daughter home sick from school. Through Amazon’s Prime Now service, introduced in Singapore in July, she bought a Sphero SPRK Plus — a clear plastic ball that can skitter across the floor with a tap of a smartphone — that arrived in less than a day.

“I was thrilled,” said Ms. Fang, who said she also uses Alibaba’s services. “I had time to unbox it and teach her how to use it. It’s a last-minute shopping savior.”

But Southeast Asia is no China. A diffuse area of 600 million people, the region is divided by politics, language and culture. Some places are modern, like Singapore. Other places lack the roads and other infrastructure to get people what they need.

“It’s a mix of urban, semi-urban and rural areas, separated by large distances and — in the Philippines and Indonesia — by water,” said Mike Booker, a partner at the Southeast Asian arm of Bain. “Cash on delivery is still prevalent, and other local players are in the fray.”

The challenges have forced Lazada, Alibaba’s biggest Southeast Asian operation, to get creative.

In Vietnam, local post offices take customer returns and give cash refunds. In Malaysia, customers can collect merchandise from lockers at 7-Eleven stores. And in the Philippines, Lazada uses gas stations as places where merchants can drop off their goods for delivery personnel to pick up.

“We’re in the super, super, super early days,” said Inanc Balci, who oversees Lazada operations in the Philippines.

Alibaba’s international arm has seen its latest quarterly sales more than double in a year, in part from Lazada’s contribution. Still, Lazada and its RedMart subsidiary remain a tiny, and unprofitable, part of Alibaba’s empire. Max Bittner, Lazada’s chief executive, said its Chinese parent has been willing to spend money to build its delivery capabilities and draw more customers.

“E-commerce is an economy of scale game,” Mr. Bittner said. “I don’t feel constrained in any way. I can go after this opportunity with the amount of firepower I need.”

Amazon so far counts Singapore as its only Southeast Asian market, though industry experts widely expect it will expand into other countries. An Amazon spokeswoman declined to comment.

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Until recently, direct competition between Alibaba and Amazon has been rare. Amazon has a modest presence in China. Alibaba sells goods in the United States through its AliExpress platform but has backed away from further expansion efforts.

Southeast Asia could offer a test of their vastly different business models on neutral turf.

Amazon owns more of the inventory it sells. By contrast, most of Lazada’s sales come from outside vendors who use its platform as a digital middleman to reach customers. That approach, which keeps costs low, is similar to what Alibaba does in China. But in China, the company’s Taobao platform has been accused of offering counterfeit goods. Alibaba says it is working to fight fakes.

Alibaba has a long lead over Amazon and is building up its infrastructure across Southeast Asia. In Indonesia, for example, it took a minority stake in August in another online marketplace, Tokopedia. Experts say Amazon could fight back by offering online Western movies and television programs as it does in the United States, which could increase its appeal with younger customers.

Amazon stumbled in Singapore initially when the service proved too popular, forcing it to turn away customers. But since then the two companies have amped up their efforts to deliver more quickly to a growing group of customers.

At the RedMart warehouse on a recent visit, workers packed cartons — sometimes nine at a time — from bins holding piles of cereal boxes and canned fruits and vegetables. For those who offer ways to improve the process, merit awards include movie tickets, vouchers and cash of up to $1,000.

Competing in the market is likely to be expensive, thanks to customer price cuts and rebates in addition to expansion costs.

“It’s fabulous,” said Uma Parameswar, a Singaporean who works in fine arts management. Over two and a half years of using RedMart, she said, only once did she receive fruit that was less than fresh.

The enticements make her even more inclined to shop online. She says RedMart gives her a 5 percent discount on grocery bills plus discounts on using Uber’s ride-hailing and other services.

“It’s saved me probably $200 in the last three or four months,” she said. “It’s a fair bit.”