On August 4th, BABA (BABA.US) released his results for the first quarter of fiscal year 2023 (April-June 2022).

According to the financial report, BABA's income from April to June 2022 was 205.555 billion yuan (RMB, which is the same as the following is not specified), no increase compared with the same period last year. Of this total, China's business revenue fell 1 per cent year-on-year to 141.935 billion yuan, cloud business revenue rose 10 per cent to 17.685 billion yuan, and international business revenue rose 2 per cent to 15.451 billion yuan.

There has been a big drop in profits. According to the financial report, BABA's net profit from April to June in 2022 was 20.298 billion yuan, down 53% from the same period last year, while the net profit belonging to common shareholders was 22.739 billion yuan, down 50% from the same period last year.

Obviously, the domestic commercial income of the main business has decreased, which puts pressure on BABA's profit space. It is urgent to seek new growth poles.

BABA Chairman and CEO Zhang Yong reiterated BABA's three major strategies, namely, consumption, cloud computing and globalization, in a letter to shareholders. "our direction of globalization is very clear. It is committed to exploring the globalization of consumption and the globalization of cloud computing. "

BABA's strategy of "globalization" has not changed since it was proposed in 2014. At present, of BABA's 1.31 billion global users, 903 million are from China and 305 million are from overseas. In order to achieve the goal of "serving 2 billion consumers worldwide by 2036", it is necessary to look for users overseas.

However, at present, it seems that BABA's international business income has not increased. BABA's international business income accounted for 7 per cent of total revenue from April to June 2022, compared with 7 per cent in fiscal year 2022. By contrast, the contribution of Aliyun's business revenue to total revenue rose slightly to 9% from 8% in the same period last year.

Fast-selling seller A Si told Burning Times that he could sell US $10-200000 a month in 2020-2021, but monthly sales dropped to US $60, 000-US $70, 000 this year. "affected by the war between Russia and Ukraine and the global economic situation, Europe has also introduced a value-added tax policy. The performance of Express has declined across the board. "

In July 2021, the European Union issued a new policy, announcing the abolition of VAT exemption for imports of products under 22 euros, which directly affected the transaction size of AliExpress.

BABA financial report said, "in the June quarter, overall orders from Lazada, AliExpress, Trendyol and Daraz fell 4% from a year earlier, mainly due to the revision of EU value-added tax rules, the depreciation of the euro against the dollar, and the continuing impact of supply chain and logistics disruptions caused by the conflict between Russia and Ukraine. "

In Southeast Asia, Lazada has been suppressed by Shopee since 2019. According to BABA's financial report, Lazada's orders in Southeast Asia recorded a healthy 10 per cent year-on-year growth from April to June 2022. In fiscal year 2022, Lazada's paid orders increased by 60 per cent year-on-year.

On the contrary, the score of Shopee is significantly better. In the first quarter of Shopee2022, total orders increased by 71.3% compared with the same period last year. In addition, the platform ranks first in the total downloads of the global shopping App, and in the global shopping App of Alphabet Inc-CL C App Store, the total user time also ranks first.

An industry source close to BABA told Burning Siyuan that since the beginning of this year, BABA has integrated the overseas consumer field, and the future stronghold of cross-border e-commerce is AliExpress, while the local consumer platform is Lazada. "the cross-border teams of BABA's system, such as AliExpress and Taobao Tmall, have been integrated, while the localization operation teams are all in Lazada. He pointed out that Trendyol and Daraz are still operated by the initial team, with BABA playing only the role of an investor.

"the construction of logistics system is the highest priority in the implementation of globalization strategy. He revealed that in BABA's overseas business strategy, building a localized logistics network is the top priority.

At the beginning of the year, Jiang Fan, president of the former business group of Tmall, Taobao and BABA, took over "overseas digital business" and will certainly make a difference this year. However, in the face of the changing global situation, it is not easy to win a piece of world.

Changes in overseas markets

In early 2018, I started to work as a cross-border e-commerce business in Southeast Asia as a young man in Guangzhou. At first, I opened a Lazada store, but it was half a year before I entered Shopee. By 2021, the company will have stores in six Southeast Asian countries, selling household products with an annual sales volume of 2 million yuan.

Xiao Xiang's team has begun to explore local operations since 2021, and now has its own local teams in Malaysia and Thailand, and then prepares to enter the Thai market. This year, they also decided to close Shopee's cross-border stores and do only local ones.

Xiao Xiang told Ji Yuan that since the beginning of this year, Lazada has issued some "plans" to support local sellers in Southeast Asia. For example, in Malaysia, if the monthly transaction volume of the store reaches 2000 US dollars, you can get some platform resources, such as exclusive waiter docking, participating in promotions and so on.

However, Xiao Xiang faces a test this year. "the economic situation is not good this year, and our sales have fallen by more than half, which is much worse than that of the previous two years as a whole. In fact, in 2020-2021, the epidemic accelerated the development of e-commerce in Southeast Asia, and Xiaoxiang can take advantage of this to double or triple its annual sales.

Asi, who mainly works in the Russian, Spanish and French markets, has a similar experience. At the end of 2019, he abandoned domestic e-commerce platforms such as Taobao and Pinduoduo and joined AliExpress to enter the blue ocean of cross-border e-commerce, selling sports and tool products.

"in my experience, the best time to do AliExpress is 2019-2020, while friends who joined the industry earlier said that 2018 is also easy to do, but not so good starting in 2021. Ah Si told Burning Times that after VAT was collected in Europe, Chinese cross-border businesses, which have always focused on low prices, will no longer have much competitive advantage there.

This year, for high-quality merchants, especially those who want to brand development, AliExpress launched "AE Mall". Ace said that this is a "gold and silver" rule, for example, if you meet some conditions such as monthly sales of 20,000 US dollars, you can become a gold medal seller, and there will be a "gold medal" logo in the store, which will increase the exposure. "but at the moment, I haven't felt much change yet. "

According to the industry source close to BABA, more than 5600 cross-border companies have signed up for AE Mall since its launch on April 19. AE Mall was launched in overseas markets on July 5 and is currently only for some users.

BABA's international business includes international retail businesses such as Lazada, AliExpress, Trendyol and Daraz, and international wholesale business such as BABA International Station. So far this year, Trendyol and Daraz have also made some moves.

Since the second half of last year, Xiao Xiang's team has also accessed the Daraz platform, which focuses on the South Asian market, and has done three sites in Pakistan, Bangladesh, and Sri Lanka. "BABA is now promoting this platform, encouraging more sellers to settle in, and opening up some logistics systems in the same city. But these countries are relatively poor, and now the orders at three sites a month add up to only more than 20. "

"these countries have a population of four or five billion, but there may only be hundreds of thousands of buyers. And they are all COD orders (Cash On Delivery, that is, cash on delivery), and the proportion of local non-pickups can reach 15-20%. Xiao Xiang said that at present, his team has not invested too many resources in this platform.

According to BABA's financial report, from April to June 2022, the International Business Division adjusted EBITA to a loss of 1.567 billion yuan, compared with a loss of 1.03 billion yuan in the same period in 2021. "the loss increased mainly due to Trendyol's investment in new business, including international business and local living services in Turkey. "

According to BABA's financial report, from April to June 2022, the overall order of Trendyol increased by 46% compared with the same period last year, serving more than 225000 merchants through its market platform. "in order to better serve the main consumer groups, Trendyol continues to invest and expand to the high-frequency local life service business. "

The industry person close to BABA pointed out that Trendyol is now doing some takeout business. But Trendyol faces poor conditions in markets such as Turkey, where inflation has continued to soar since the second half of last year. Turkey's inflation rate rose to 79.6% in July, a 24-year high, according to data released by the Turkish Bureau of Statistics on Aug. 3.

Southeast Asia is difficult to defend, Europe is difficult to attack

Deep ploughing Southeast Asian market for 10 years, Lazada faces round after round of competition, and it is difficult to hold its position.

"at the beginning, Lazada is still the leader of e-commerce in Southeast Asia, the overall data performance is relatively good, and so is our store. But after 2019, Shopee grew rapidly, and our Shopee store data began to outperform Lazada. Xiao Xiang pointed out that in Southeast Asia, Shopee still occupies the largest market share, while Lazada ranks second.

According to later LatePost, in 2017, before Shopee entered the Southeast Asian market, Lazada's work came to a standstill and even the most important investment promotion was suspended because of problems such as conflicts between BABA's resident staff and the local team.

In 2018, Shopee, which relies on the listed company Sea, began to explore the Southeast Asian market. Shopee is like Pinduoduo, spending money to buy traffic and making a lot of subsidies. In just one year, at the beginning of 2019, Shopee data surpassed Lazada.

Abby, a local Malaysian merchant, told Siyuan that before the outbreak, Malaysians rarely used platform e-commerce and preferred social media "WeChat commerce". After 2019, many local sellers began to move to Shopee, and the platform has gradually become the most popular local shopping platform.

Why are sellers flocking to Shopee? In addition to subsidies, simple backstage operation is also one of the major reasons. Abby said that sellers have a very low threshold to enter Shopee, and can directly open stores with the buyer's account, and can directly put goods on the shelves, without the need for review. And Lazada is more complex, registration requires personal real ID card, bank card information, goods also need to be examined before they can be put on the shelves.

Xiao Xiang also pointed out that the operation of Shopee is suitable for novice sellers, while Lazada is to directly use the globally verified functions of platforms such as Taobao and Express, which is difficult for novice sellers to get used to. "the number of local sellers in Shopee exceeds Lazada, which may be one of the reasons. "

Obviously, in Southeast Asia, where e-commerce has just started after the epidemic, both sellers and buyers are far less experienced than at home.

Abby pointed out that Shopee price war is more fierce than Pinduoduo, and similar to Pinduoduo, the use of the platform is also relatively simple, "you don't need to get coupons, make it clear that the price is calculated for you, direct auction is the lowest price." But Lazada is more difficult to operate, like Taobao, but also to get their own coupons, sometimes can not find a place to get coupons. While chatting with her friends, she found that many people don't use Lazada because they "don't understand."

Xiao Xiang also believes that, in addition to the price advantage, Shopee has now established its own basic plate, occupying a large market share in traditional popular categories such as clothing, beauty makeup, and home furnishings, while the audience groups are mostly women, "while Lazada's advantages are in the 3C electronic products category, which is less competitive. "

According to the Shopee financial report, Shopee's GAAP (generally accepted accounting principles) revenue in 2021 was $5.1 billion, an increase of 136.4% over the same period last year; the total number of orders was 6.1 billion, an increase of 116.5% over the same period last year; TGMV (total merchandise trading volume) was $62.5 billion, an increase of 76.8%.

In addition to Shopee, Tiktok Shop has opened sites in Indonesia, Thailand, Vietnam and Malaysia in the Southeast Asian e-commerce market. Based on the local team, Xiao Xiang has also launched Tiktok Shop in Thailand and Malaysia.

At present, the Southeast Asian market is a strong rival, and the European market is not optimistic.

Lazada, which is now in charge of localized operations, is also trying to enter the European market this year, a person familiar with the matter told the company. But Express Express, which has been in Europe and the United States for more than a decade, now faces many uncertainties.

Ace pointed out that after the war between Russia and Ukraine, the sales of his Express stores in Russia and Ukraine declined, while the sales of his stores from Russia accounted for 70-80%.

As a matter of fact, Russia and the United States have always been the two major countries with high orders, and sales in these two countries have inevitably decreased under various factors.

Of course, in Europe and the United States, Amazon.Com Inc's dominant position also makes it difficult for AliExpress to stand out. Comprehensive information learned that in the United States, Spain, France, the United Kingdom, Amazon.Com Inc's market share is the first.

In addition, in the European and American markets, decentralized independent websites also have a larger market share. In the US, Amazon.Com Inc accounted for about 41 per cent of Top e-commerce retailers in 2021. Independent stations represented by Shopify Inc and Shein are attracting a number of European and American consumers with their brand tonality.

Shopify Inc, a cross-border businessman in Hangzhou, said that Europeans and Americans are very tolerant of independent stations, and they are willing to spend higher prices to support niche brands and get better brand services at the same time.

How does BABA seize overseas opportunities?

This year, BABA's focus on overseas business is the construction of logistics network.

Xiao Xiang pointed out that Lazada's overseas positions are better than Shopee's.

Xiao Xiang said that in 2020, Lazada opened overseas warehouses, and they were also the first batch of merchants to enter, and after that, the data of Lazada stores also began to improve. "in addition to reducing costs, Lazada will also take advantage of this to do some activities, such as labeling products with a 'promise to arrive in 72 hours', which can play an important role. "

Shopee's overseas warehouses are prone to "mistakes", such as often sending the wrong goods, and when the order volume is large, the goods will not be shipped or take a long time to deliver. Relatively speaking, Lazada's logistics system is more perfect.

Burning dimension learned that in 2020, Lazada upgraded the logistics technology system through the Apollo project (Project Apollo), and the warehousing operation system was completely rewritten and upgraded. Data show that the "first kilometer" logistics of more than 82% of Lazada orders are completed by self-supporting logistics teams and facilities. Through overseas warehouses, the effectiveness of Lazada cross-border logistics can be reached in almost the same 2-3 days as local purchases, and the user experience has been greatly improved.

In 2021, Lazada launched the CPFR Intelligent Replenishment Planning system, which will guide merchants how to replenish goods in multiple dimensions according to their actual situation.

AliExpress in Europe has also made some achievements in localizing the logistics system this year.

Burning learned that at present, AliExpress has built 28 overseas warehouses in 9 overseas countries and regions, with a total area of more than 860000 square meters, and 10 preferred warehouses have been built in Shenzhen, Dongguan, Yiwu, Weihai, Xuchang and other cross-border merchants.

Through Weihai preferred warehouse, cross-border sales to South Korea can reach 3-5 days. After upgrading, South Korean sales on Express rose from 17th to 7th, with a rapid growth rate.

Ace said that he will stock some popular style products to overseas warehouses in Russia, Spain and France in advance, speeding up the logistics deadline from half a month to 7 days.

In March 2021, AliExpress also launched its customer pick-up (counter) service for the first time in Europe to solve the "last kilometer" distribution problem in overseas markets. In France, AliExpress currently has 15980 pick-up points (cabinets), with the coverage of key cities reaching 95%; in Spain, there are 11600 pick-up points (cabinets), with the coverage of key cities reaching 80%; and in Poland, there are 16000 pick-up points (cabinets). The coverage of key cities is 90%.

BABA has seen initial achievements in the construction of the local logistics network, but it will take time to verify how much effective benefits he can bring to its growth.

It is worth mentioning that both Lazada and Express are adjusting in the direction of brand upgrading.

According to Lazada's official website, 80% of + Forbes Top100 brands have entered the LazMall brand mall in 2021. However, in the early stage of the Southeast Asian e-commerce market, users have not yet learned to pay for the brand.

AliExpress's brand going out to sea may enhance its competitiveness. The industry person close to BABA pointed out that AE Mall is what AliExpress hopes to attract start-up brands with production plants and help them become cross-border new brands.

From a global point of view, China's supply chain still has irreplaceable advantages, but in the complex international situation, it is difficult for cross-border merchants to rely on early price advantages to occupy the market. Brand upgrading and improving competitiveness is the only way. From this point of view, there is still an opportunity for BABA to expand the cross-border e-commerce market with Quaotong as a carrier.

However, it is still difficult to predict whether the localization team based on Lazada can cope with the overseas challenges and win the market share of developed countries.

references

BABA's War in Southeast Asia: another surprise attack of Pandorto. Source: LatePost later.

* Photo, A Si and Abby are aliases.

* Disclaimer: under no circumstances shall the information or opinions expressed in this article constitute investment advice to anyone.