Executive SummaryLazada has beengrowing rapidly since its inception in 2012. Using the Porter’s Five Forces toanalyse the value chain of Lazada, the reasons of their success can beidentified. The PESTEL Analysis, is used to determine its competitive advantage.A SWOT analysis will be used to determine Lazada’s positioning in a new marketwhile also analysing if they can competitively compete in the new market byusing the BCG matrix. In summary, there is still room for growth as no companyhas been able to differentiate themselves in the Singapore market. 1a.
Porter’s Five Forces and Value Chain AnalysisUsing Porter’s FiveForces we can conduct an industry analysis of the e-commerce market. We will thendetermine the primary and support functions required for their survival beingeither the cost or value drivers. In Porter’s Five Forces, we have 4 respectiveaspects that contribute to competitive rivalry being threat of new entrants,threat of substitutes, buyer power and supplier power. By completing anindustry analysis of the e-commerce market, we will be able to zone in onLazada’s Value Chain Analysis. Threat of NewEntrants:Thee-commerce industry is a competitive and disruptive one.
Brands have transitionedfrom offline to online (Department and Department,2018),changing the way that consumers shop. However, Lazada is not a brand producinggoods for their consumers, they pose as a middle man in inbound logistics findingspecific goods that are not readily available for consumers in offline retailstores. This could be due to the lack of stock supply or the inconvenience ofvisiting the store personally. The capital requirements to start an e-commercesite are not high, averaging around S$30,000 – S$50,000 (Ltd, 2018). In that sense, the threat of new entrants is highgiven that it may be simpler to start up the business and hence, why Lazada arein the market of inbound and outbound logistics reducing the threatsignificantly. Threat ofSubstitutes: In the market, thereare 2 other players who pose as a stiff competitor to Lazada namely Qoo10 andAmazon. Qoo10 was established 2 years before Lazada, but were overtaken by thegrowth of Lazada due to the backing from Rocket Internet (Demystify Asia, 2018).
Qoo10 was started by Ebay and they had early success from the Japanese andSingapore markets. Amazon has been a long-standing logistics company in the USsince 1994 and have already controlled the markets there. They decided to stepin to Singapore to compete with the existing players here in 2017. In terms ofthe price point, Qoo10 is much lower than Lazada however, consumers experiencecounterfeit goods purchased on Qoo10. For Amazon, they are new to the market andcannot compete with the range of goods on Lazada’s site. Lazada has grown sorapidly and have managed to control and maintain market share due to theirreturn policy and hence why they still have a larger market share resulting ina low threat of substitute for Lazada.
Bargaining ofCustomers:The bargaining power of consumers have increased tremendously over theyears in the e-commerce industry. Shopping can now be done anywhere and on anydevice, customers are usually out for the best value (Price, 2018). Lazada hasa wide range of goods available and have a good reputation to sell originalgoods where it is questionable on Qoo10’s website. In consumers mind, they havea low bargaining power because Lazada is considered the best e-commerce site toget original and low priced goods especially in consumer electronics. Bargaining ofSupplier:Naturally, with thelow bargaining power of consumers, the bargaining power of supplier is higher.Lazada being the main player giving consumers little reason to purchase aproduct elsewhere.
Lazada has a competitive advantage due to their economies ofscale in their distribution network and resulting in remaining competitive. Eventhough they control the market in Singapore, they would need to increase theirproduct range to combat Qoo10 and Amazon if they want to maintain market share.Industry Rivalry:Now, there is stilllow rivalry in the market of e-commerce given that there are only 3 players inthe market, Lazada, Amazon and Qoo10. However, with the ever-growing world ofe-commerce, new players may decide to jump into the Singapore changing marketshare very quickly.
There is low rivalry because Lazada, Amazon and Qoo10 don’tfall into similar strategic groups. Lazada’s cost difference is one of thefactors that they compete on where Amazon’s their price points are still higherthan Lazada being new players. In the strategic grouping range of goods, Qoo10leads but have a track record in selling fake goods whereas Amazon has notbuilt up their range in the Asian markets yet. Qoo10’s main focus was in thesales and user performance whereas Lazada was aiming to improve the inbound andoutbound logistics network and the range of products. Value Chain Analysis:Some would assumeLazada to be an online retailer being Southeast Asia’s largest e-commerce site.However, their primary function is outbound logistics. They have a total of 12Warehouses and 92 Distribution centres that covers 6 ASEAN countries namely,Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. To be a leader incost differentiation, Lazada would need to have economies of scale, efficiencyin its’ resources, and clarity of customer.
In economies of scale, they canprovide cost differentiation with a huge network of warehouses and distributioncentres giving them competitive advantage in logistics. In the efficient use ofits resources, it has leveraged on Alibaba to improve the logistics network inSoutheast Asia. To have clarity of customer target, they have changed itsstrategic grouping by acquiring Redmart, a groceries logistics company here. Inthe operations area, their operations are a huge benefit to them as the returnpolicy proves as a tool for high conversion of their customer base from theircompetitors. The support functions of lazada are not value drivers but arestill important in any organization. 1b. VRIO and Competitive Advantage:There are many keycompetencies that contributed to the success of Lazada since 2012. In Singaporespecifically, there were no firm players who were dominating the market andsince Lazada had received funding from Rocket Internet and Temasek holdings,they were able to dominate Singapore.
Lazada brings highvalue to the consumers through cost and benefits. With their economies ofscale, the cost savings are extended to their consumers. They are also costleaders in their pricing providing value to the customers. The capital backingof Alibaba enabled Lazada to increase their range of goods with the addition ofthe items that are sold on Taobao, an e-commerce company that controls the marketin China. With that, Lazada has a wider range of goods that may not beavailable on competitors, Qoo10 and Amazon. It is challenging forQoo10 and Amazon to imitate the range of goods Lazada has on their site.Additionally, their main competitive advantage lies in their logistics networkmaking them a challenging company to imitate.
It would take years of investmentand education of the Southeast Asian regulations to have a logistics networkthat is in a strategically located within the region. Lazada has good useof its resources and can organize their logistics system well to meet thedemands of the consumers. Their processes from the purchase of goods to thelast mile delivery have good organization allowing them to keep their customerbase satisfied.
With the high valuefor consumers, rarity in the range of goods, the low imitability factor andproper organisation, they can have a sustained competitive advantage inSingapore. Even though small, Singapore is a valuable one as the markets in theregion are still developing and there would be further room for an Lazada todominate a new market. 1c. PESTEL Analysis of a new market:My choice of marketis Cambodia and I will conduct a PESTEL Analysis of the macro environmen.Cambodia is an up and coming market for the e-commerce industry. Now, Aliexpress,Amazon, Maiomall & Shop168 are present in the market. Since Lazada andAlibaba are part of the same company, it would be easier for Lazada to enterCambodia.
However, after conducting a PESTEL Analysis of Cambodia, we will beable to determine if it is a beneficial market to enter. Political & Legal:The markets inCambodia is currently still young. The total market share of online shoppers is8% in comparison to the total number of internet users at 32.5%. Cambodiais a developing country who has a constitutional monarchy with a democracy runby multiple parties together with an elected government. The recent electionsin 2008, resulted in a formation of a coalition government. Cambodia’s constitutionaided in the stable political environment in contrast to the recent years ofwar.
Cambodia is a member of the ASEAN and other international organisations suchas the UN, ADB, IMF, The World Bank and WTO. Good macroeconomic policies,political stability, economic growth in the region and government opennesstowards investment has attracted foreign investment since 2004. Economical:Cambodia has a GDP (2009) of $10.8 billion, PerCapita GDP (2009) of $731 and inflation (2009) of 4.5%.
They are a hugeexporter of goods worth $3.9 billion in 2009 to major countries such as the US,UK, Germany, Singapore, Japan. They have imported fuel, cigarette, vehicles,consumer goods, machinery costing $5.4 billion (2009). The garment and tourismindustries are key industries which improved Cambodia’s economy giving a growthrate of 10% during the years of 2004-2007.
Socio-Cultural:The Cambodian population in 2008 stands at 13.4million where 95% are in the Buddhism religion. The remaining 5% are in Islamand Christianity. The major race are Cambodians making up 90% of the population,while the remaining are 5% Vietnamese, 1% Chinese and 4% in other ethnicgroups. They have a literacy rate (2007) of 75.1%.
Khmer is a first languagespoken by 95% of population and English is increasing as a second language dueto the increase of business being done in Cambodia. Technological:Cambodia is lagging in their technologicalsector. However, with the increase of foreign investment into Cambodia, therewould be an eventual increase in technological knowledge brought in byinvestors.
There is a high possibility that there will be a spill-over andeffectively increase the knowledge in technology in the country. Environmental:Infrastructure is not adequate as Cambodia isstill developing. Due to the need for proper road networks with the increase offoreign investment, the government has set aside an annual budget to rapidlyimprove the infrastructures.
With the PESTELanalysis of Cambodia, it is viable to enter the market, given the market sharefor online shopping is still small where only 8% of the population are currentlyonline consumers. Through building of trust by selling original goods, it couldincrease the market share of Lazada since having a good track record ofretailing original goods. This would be a beneficial angle when targeting theCambodian market. Cambodia has an open economy and the government areencouraging companies to set up business operations in the country to improvethe economy. Also, with the stable political environment, it is less risky forLazada. The economical, socio-cultural and technological factors are alsopositive signs for penetration. 1d. SWOT Analysis of 3 e-commerce companies:The current playersin the Cambodian market are Amazon, Maiomall and Shop168.
Amazon had not fullyentered the market yet as they still do not deliver goods to Cambodia. However,with the help of a local freight forwarding company called Cambo Quick, theycan ship goods from US over to Vietnam before bringing them across the border.Maiomall is one of Cambodia’s largest online shopping site there havingpartnerships with Amazon and other online shopping sites from the US andCanada. They are fundamentally a shopping centre that has an online presence.For Shop 168, they have been recently gaining traction in the e-commerceindustry and launched the company sometime in 2012. Strengths:The main strengths of Amazon are the international branding that theycurrently have. Many of the online shoppers in Cambodia still trust goods soldon Amazon due to their good track record. They have a huge range of consumergoods available to the Cambodian market making it a suitable place for onlineshoppers to shop at.
As for MaioMall, their main strength is in the area oflogistics. Since they are a shopping mall, they have no challenge of spaceconstraints as they already have the storage with their current tenants intheir malls. At the same time, they will constantly have a good control overtheir stock supply giving consumers ease in finding for items.
Shop168 has their own logistics teamthat embarks on last-mile logistics like the current trend in Singapore. Thestrength for Shop168 is in the primary function of outbound logistics wheretheir logistics team can provide delivery to the doorstep of the consumers. Weaknesses:Due to the currentlack of infrastructure in Cambodia, a few of the online stores suffer from poorlogistics capabilities. The postal system needs massive improvement fore-commerce companies to remain competitive in the country. In that sense,Amazon could potentially improve their logistics in Cambodia to deliver goodsdirectly to their consumers.
For MaioMall, they already have an existingconsumer base, however since the trust component in Cambodian consumers isstill a challenge, it would be difficult to earn the trust in the goods thatare being sold online. Shop168 would need to improve their interface experienceas their site can be a little cluttered with ads shying away consumers who wantto have a fulfilling online shopping experience. Opportunities:With the increase offoreign investment, the government of Cambodia will dedicate more of theirresource to improve the current road networks for ease of commuting within thecountry. This would improve the opportunities for the e-commerce industry asthe main component for their survival is the delivery of goods. Additionally,with the increase of the foreign investment, the Cambodian economy willflourish and budgets available for an improved road network will increase. Atthe same time, they are a relatively young market in e-commerce making it anuntapped market for e-commerce companies to enter Cambodia. Threats:Even though Cambodiais run by a coalition government, and recently have enjoyed a stable politicalenvironment, they still lag in a reliable police and government system.
Makingthem potentially susceptible to political unrest. As with developing countries,poverty can drive citizens to extreme ends to change the system for their ownbenefit. It is still risky to start business operations in Cambodia. Additionally,for Lazada to enter this market, they would need to determine the shoppingculture of the Cambodians and what are of importance to them. Companies such asMaiomall and Shop168 are locally positioned where they are already aware of thelocal behaviours allowing giving them competitive advantage. BCG Matrix: The positioning ofLazada in the Cambodian market is in the “Question Mark area where they wouldbe in a high growth market with low market share.
The incumbents namely,Amazon, Maiomall and Shop168 all have significant market share within the 8% ofthe shopping community. Lazada’s strength are in the consumer electronicsdepartment, hence they will be able to compete in that category pushing outtheir competitors as there is no player controlling consumer electronics. Dueto the garment industry being the biggest industry now, most of the onlinestores are in the business of selling apparel. With the increase oftechnological knowledge within the country, Lazada would be able to reach outto consumers who generate demand for consumer electronics.
Once gaining trustof the consumers, they will be able to push the other products on the site andtake over market share from the current players in Cambodia. 1e. Mode of Entry for Singtel:The available entrymodes for Singtel and Lazada to enter the Cambodian market are through jointventures either in licensing and joint ownership and indirect exporting.
Itwould not make financial sense to start with direct investment in the country.Alibaba already has a footing in the country through Aliexpress and, Lazada canleverage on the footing to start business conversations with the local companies. Joint ownership in acompany would pose as a higher risk as the contracting term and cost would bemuch longer and higher. This is not a viable option with the possibility ofpolitical unrest and making it difficult to pull the investment out if that shouldhappen. Indirect exporting would also not be a good option if they wish tocontrol the Cambodian market, as they would need sufficient branding andmarketing within the country. Without a significant presence through theirportrayal of their brands in the consumer market, it would be challenging toenter later without sufficient familiarity with the consumers. For Singtel andLazada to enter Cambodia, the entry mode of choice is through licensing.
This mode of entry mode allows the target company to useSingtel & Lazada’s technology, brand, expertise and they would receive afee or royalty in return. In this way, they will be able to tackle the challenge of branding andmarketing in Cambodia as through time, the consumers will become familiar withthe brands. The local company has an understanding of the cultures ofCambodians making the entry have a lower risk factor.
Conclusion:In the currentmarket, logistics faces a serious issue of bottlenecking where the supplychains of various e-commerce sites cannot meet the demands of consumers forquick delivery. If Lazada can improve the outbound logistics to be dependableas the market grows in Cambodia as well as the markets they are in, they willbe able to control other markets.