Executive BCG matrix. In summary, there is still

Executive Summary

Lazada has been
growing rapidly since its inception in 2012. Using the Porter’s Five Forces to
analyse the value chain of Lazada, the reasons of their success can be
identified. The PESTEL Analysis, is used to determine its competitive advantage.
A SWOT analysis will be used to determine Lazada’s positioning in a new market
while also analysing if they can competitively compete in the new market by
using the BCG matrix. In summary, there is still room for growth as no company
has been able to differentiate themselves in the Singapore market.  

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1a. Porter’s Five Forces and Value Chain Analysis

Using Porter’s Five
Forces we can conduct an industry analysis of the e-commerce market. We will then
determine the primary and support functions required for their survival being
either the cost or value drivers. In Porter’s Five Forces, we have 4 respective
aspects that contribute to competitive rivalry being threat of new entrants,
threat of substitutes, buyer power and supplier power. By completing an
industry analysis of the e-commerce market, we will be able to zone in on
Lazada’s Value Chain Analysis.

 

Threat of New
Entrants:

The
e-commerce industry is a competitive and disruptive one. Brands have transitioned
from offline to online (Department and Department,
2018),
changing the way that consumers shop. However, Lazada is not a brand producing
goods for their consumers, they pose as a middle man in inbound logistics finding
specific goods that are not readily available for consumers in offline retail
stores. This could be due to the lack of stock supply or the inconvenience of
visiting the store personally. The capital requirements to start an e-commerce
site are not high, averaging around S$30,000 – S$50,000 (Ltd, 2018). In that sense, the threat of new entrants is high
given that it may be simpler to start up the business and hence, why Lazada are
in the market of inbound and outbound logistics reducing the threat
significantly.

 

Threat of
Substitutes:

In the market, there
are 2 other players who pose as a stiff competitor to Lazada namely Qoo10 and
Amazon. Qoo10 was established 2 years before Lazada, but were overtaken by the
growth 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 and
Singapore markets. Amazon has been a long-standing logistics company in the US
since 1994 and have already controlled the markets there. They decided to step
in to Singapore to compete with the existing players here in 2017. In terms of
the price point, Qoo10 is much lower than Lazada however, consumers experience
counterfeit goods purchased on Qoo10. For Amazon, they are new to the market and
cannot compete with the range of goods on Lazada’s site. Lazada has grown so
rapidly and have managed to control and maintain market share due to their
return policy and hence why they still have a larger market share resulting in
a low threat of substitute for Lazada.

 

Bargaining of
Customers:

The bargaining power of consumers have increased tremendously over the
years in the e-commerce industry. Shopping can now be done anywhere and on any
device, customers are usually out for the best value (Price, 2018). Lazada has
a wide range of goods available and have a good reputation to sell original
goods where it is questionable on Qoo10’s website. In consumers mind, they have
a low bargaining power because Lazada is considered the best e-commerce site to
get original and low priced goods especially in consumer electronics.

 

Bargaining of
Supplier:

Naturally, with the
low bargaining power of consumers, the bargaining power of supplier is higher.
Lazada being the main player giving consumers little reason to purchase a
product elsewhere. Lazada has a competitive advantage due to their economies of
scale in their distribution network and resulting in remaining competitive. Even
though they control the market in Singapore, they would need to increase their
product range to combat Qoo10 and Amazon if they want to maintain market share.

Industry Rivalry:

Now, there is still
low rivalry in the market of e-commerce given that there are only 3 players in
the market, Lazada, Amazon and Qoo10. However, with the ever-growing world of
e-commerce, new players may decide to jump into the Singapore changing market
share very quickly. There is low rivalry because Lazada, Amazon and Qoo10 don’t
fall into similar strategic groups. Lazada’s cost difference is one of the
factors that they compete on where Amazon’s their price points are still higher
than Lazada being new players. In the strategic grouping range of goods, Qoo10
leads but have a track record in selling fake goods whereas Amazon has not
built up their range in the Asian markets yet. Qoo10’s main focus was in the
sales and user performance whereas Lazada was aiming to improve the inbound and
outbound logistics network and the range of products.

 

Value Chain Analysis:

Some would assume
Lazada 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 12
Warehouses and 92 Distribution centres that covers 6 ASEAN countries namely,
Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam.

 

To be a leader in
cost differentiation, Lazada would need to have economies of scale, efficiency
in its’ resources, and clarity of customer. In economies of scale, they can
provide cost differentiation with a huge network of warehouses and distribution
centres giving them competitive advantage in logistics. In the efficient use of
its resources, it has leveraged on Alibaba to improve the logistics network in
Southeast Asia. To have clarity of customer target, they have changed its
strategic grouping by acquiring Redmart, a groceries logistics company here. In
the operations area, their operations are a huge benefit to them as the return
policy proves as a tool for high conversion of their customer base from their
competitors. The support functions of lazada are not value drivers but are
still important in any organization.

 

 

1b. VRIO and Competitive Advantage:

There are many key
competencies that contributed to the success of Lazada since 2012. In Singapore
specifically, there were no firm players who were dominating the market and
since Lazada had received funding from Rocket Internet and Temasek holdings,
they were able to dominate Singapore.

Lazada brings high
value to the consumers through cost and benefits. With their economies of
scale, the cost savings are extended to their consumers. They are also cost
leaders in their pricing providing value to the customers. The capital backing
of Alibaba enabled Lazada to increase their range of goods with the addition of
the items that are sold on Taobao, an e-commerce company that controls the market
in China. With that, Lazada has a wider range of goods that may not be
available on competitors, Qoo10 and Amazon.

 

It is challenging for
Qoo10 and Amazon to imitate the range of goods Lazada has on their site.
Additionally, their main competitive advantage lies in their logistics network
making them a challenging company to imitate. It would take years of investment
and education of the Southeast Asian regulations to have a logistics network
that is in a strategically located within the region.

 

Lazada has good use
of its resources and can organize their logistics system well to meet the
demands of the consumers. Their processes from the purchase of goods to the
last mile delivery have good organization allowing them to keep their customer
base satisfied.

 

With the high value
for consumers, rarity in the range of goods, the low imitability factor and
proper organisation, they can have a sustained competitive advantage in
Singapore. Even though small, Singapore is a valuable one as the markets in the
region are still developing and there would be further room for an Lazada to
dominate a new market.

 

1c. PESTEL Analysis of a new market:

My choice of market
is 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 and
Alibaba are part of the same company, it would be easier for Lazada to enter
Cambodia. However, after conducting a PESTEL Analysis of Cambodia, we will be
able to determine if it is a beneficial market to enter.

 

Political & Legal:

The markets in
Cambodia is currently still young. The total market share of online shoppers is
8% in comparison to the total number of internet users at 32.5%. Cambodia
is a developing country who has a constitutional monarchy with a democracy run
by multiple parties together with an elected government. The recent elections
in 2008, resulted in a formation of a coalition government. Cambodia’s constitution
aided in the stable political environment in contrast to the recent years of
war. Cambodia is a member of the ASEAN and other international organisations such
as the UN, ADB, IMF, The World Bank and WTO. Good macroeconomic policies,
political stability, economic growth in the region and government openness
towards investment has attracted foreign investment since 2004. 

 

Economical:

Cambodia has a GDP (2009) of $10.8 billion, Per
Capita GDP (2009) of $731 and inflation (2009) of 4.5%. They are a huge
exporter 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 tourism
industries are key industries which improved Cambodia’s economy giving a growth
rate of 10% during the years of 2004-2007. 

 

Socio-Cultural:

The Cambodian population in 2008 stands at 13.4
million where 95% are in the Buddhism religion. The remaining 5% are in Islam
and Christianity. The major race are Cambodians making up 90% of the population,
while the remaining are 5% Vietnamese, 1% Chinese and 4% in other ethnic
groups. They have a literacy rate (2007) of 75.1%. Khmer is a first language
spoken by 95% of population and English is increasing as a second language due
to the increase of business being done in Cambodia.

 

Technological:

Cambodia is lagging in their technological
sector. However, with the increase of foreign investment into Cambodia, there
would be an eventual increase in technological knowledge brought in by
investors. There is a high possibility that there will be a spill-over and
effectively increase the knowledge in technology in the country.

 

Environmental:

Infrastructure is not adequate as Cambodia is
still developing. Due to the need for proper road networks with the increase of
foreign investment, the government has set aside an annual budget to rapidly
improve the infrastructures. 

 

With the PESTEL
analysis of Cambodia, it is viable to enter the market, given the market share
for online shopping is still small where only 8% of the population are currently
online consumers. Through building of trust by selling original goods, it could
increase the market share of Lazada since having a good track record of
retailing original goods. This would be a beneficial angle when targeting the
Cambodian market. Cambodia has an open economy and the government are
encouraging companies to set up business operations in the country to improve
the economy. Also, with the stable political environment, it is less risky for
Lazada. The economical, socio-cultural and technological factors are also
positive signs for penetration.

 

1d. SWOT Analysis of 3 e-commerce companies:

The current players
in the Cambodian market are Amazon, Maiomall and Shop168. Amazon had not fully
entered 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, they
can ship goods from US over to Vietnam before bringing them across the border.
Maiomall is one of Cambodia’s largest online shopping site there having
partnerships with Amazon and other online shopping sites from the US and
Canada. They are fundamentally a shopping centre that has an online presence.
For Shop 168, they have been recently gaining traction in the e-commerce
industry and launched the company sometime in 2012.

 

Strengths:

The main strengths of Amazon are the international branding that they
currently have. Many of the online shoppers in Cambodia still trust goods sold
on Amazon due to their good track record. They have a huge range of consumer
goods available to the Cambodian market making it a suitable place for online
shoppers to shop at. As for MaioMall, their main strength is in the area of
logistics. Since they are a shopping mall, they have no challenge of space
constraints as they already have the storage with their current tenants in
their malls. At the same time, they will constantly have a good control over
their stock supply giving consumers ease in finding for items. Shop168 has their own logistics team
that embarks on last-mile logistics like the current trend in Singapore. The
strength for Shop168 is in the primary function of outbound logistics where
their logistics team can provide delivery to the doorstep of the consumers.

 

Weaknesses:

Due to the current
lack of infrastructure in Cambodia, a few of the online stores suffer from poor
logistics capabilities. The postal system needs massive improvement for
e-commerce companies to remain competitive in the country. In that sense,
Amazon could potentially improve their logistics in Cambodia to deliver goods
directly to their consumers. For MaioMall, they already have an existing
consumer base, however since the trust component in Cambodian consumers is
still a challenge, it would be difficult to earn the trust in the goods that
are being sold online. Shop168 would need to improve their interface experience
as their site can be a little cluttered with ads shying away consumers who want
to have a fulfilling online shopping experience.

 

Opportunities:

With the increase of
foreign investment, the government of Cambodia will dedicate more of their
resource to improve the current road networks for ease of commuting within the
country. This would improve the opportunities for the e-commerce industry as
the main component for their survival is the delivery of goods. Additionally,
with the increase of the foreign investment, the Cambodian economy will
flourish and budgets available for an improved road network will increase. At
the same time, they are a relatively young market in e-commerce making it an
untapped market for e-commerce companies to enter Cambodia.

 

Threats:

Even though Cambodia
is run by a coalition government, and recently have enjoyed a stable political
environment, they still lag in a reliable police and government system. Making
them potentially susceptible to political unrest. As with developing countries,
poverty can drive citizens to extreme ends to change the system for their own
benefit. It is still risky to start business operations in Cambodia. Additionally,
for Lazada to enter this market, they would need to determine the shopping
culture of the Cambodians and what are of importance to them. Companies such as
Maiomall and Shop168 are locally positioned where they are already aware of the
local behaviours allowing giving them competitive advantage.

 

 

 

 

 

 

 

 

 

 

BCG Matrix:

 

The positioning of
Lazada in the Cambodian market is in the “Question Mark area where they would
be in a high growth market with low market share. The incumbents namely,
Amazon, Maiomall and Shop168 all have significant market share within the 8% of
the shopping community. Lazada’s strength are in the consumer electronics
department, hence they will be able to compete in that category pushing out
their competitors as there is no player controlling consumer electronics. Due
to the garment industry being the biggest industry now, most of the online
stores are in the business of selling apparel. With the increase of
technological knowledge within the country, Lazada would be able to reach out
to consumers who generate demand for consumer electronics. Once gaining trust
of the consumers, they will be able to push the other products on the site and
take over market share from the current players in Cambodia.

1e. Mode of Entry for Singtel:

The available entry
modes for Singtel and Lazada to enter the Cambodian market are through joint
ventures either in licensing and joint ownership and indirect exporting. It
would not make financial sense to start with direct investment in the country.
Alibaba already has a footing in the country through Aliexpress and, Lazada can
leverage on the footing to start business conversations with the local companies.

 

Joint ownership in a
company would pose as a higher risk as the contracting term and cost would be
much longer and higher. This is not a viable option with the possibility of
political unrest and making it difficult to pull the investment out if that should
happen. Indirect exporting would also not be a good option if they wish to
control the Cambodian market, as they would need sufficient branding and
marketing within the country. Without a significant presence through their
portrayal of their brands in the consumer market, it would be challenging to
enter later without sufficient familiarity with the consumers.

 

For Singtel and
Lazada to enter Cambodia, the entry mode of choice is through licensing. This mode of entry mode allows the target company to use
Singtel & Lazada’s technology, brand, expertise and they would receive a
fee or royalty in return. In this way, they will be able to tackle the challenge of branding and
marketing in Cambodia as through time, the consumers will become familiar with
the brands. The local company has an understanding of the cultures of
Cambodians making the entry have a lower risk factor.

 

 

 

Conclusion:

In the current
market, logistics faces a serious issue of bottlenecking where the supply
chains of various e-commerce sites cannot meet the demands of consumers for
quick delivery. If Lazada can improve the outbound logistics to be dependable
as the market grows in Cambodia as well as the markets they are in, they will
be able to control other markets.