Lazada, the primary e-commerce platform of Alibaba Group in Southeast Asia, has been the talk of the town since the turn of the year. On January 3, as first reported by The Edge, the company announced that layoffs were imminent, with at least 100 employees set to be retrenched. Observers surmised the move to affect a much larger proportion of Lazada’s employees, with up to 30% of its entire regional workforce affected, including senior management in countries like Singapore and Malaysia.
Since those reports first emerged, public discourse has centered heavily on the way Lazada has handled the layoffs. For instance, the National Trades Union Congress (NTUC) in Singapore issued a statement not long after Lazada’s announcement, expressing “deep disappointment” about the latter’s decision to initiate the layoffs without prior consultation with the local union (Lazada is Singapore-headquartered and is unionized under the FDAWU—short for the Food, Drinks and Allied Workers Union).
Subsequent media reports pointed out other related issues, including “really bad” post-layoff communications as well as questionable non-compete clauses that affected workers were bound by. Speculation was also rife over whether the move was undertaken to present a healthier financial position before a potential IPO by Alibaba’s global e-commerce arm in the US, which encompasses Lazada.
Yet, an aspect that has largely eluded discussions is the path forward for Lazada after the dust eventually settles.
Since the announcement on January 3, Lazada has hitherto disclosed little about its next steps. But here’s what we know so far:
- This marks Lazada’s initial significant round of layoffs since its acquisition by Alibaba in 2016, affecting up to 30% of its entire workforce. LatePost estimated that nearly 20% of the 10,000 employees will or have been affected as part of this move. The impact extends beyond Southeast Asia, also affecting employees in China. However, internal organizational changes are believed to have begun as early as August last year, with small numbers of employees being let go in each round of reorganization, according to former Lazada executives cited by Tech in Asia.
- This round of layoffs began to materialize when organizational restructuring of Lazada climaxed in mid-December last year, in response to the changing dynamics of e-commerce in Southeast Asia. Lazada’s move is driven at consolidating its core business functions. For instance, primary support functions like user products and seller strategy have been centralized at its Singapore headquarters, which will reportedly need to exercise more accountability to its China counterparts moving forward. Local support departments such as risk control, platform governance, and legal could be dismantled.
- Further shuffling of Lazada’s senior ranks is forthcoming and has already begun to take place. Kaya Qin (alias: Qin Xiao), COO and CEO of Lazada’s Vietnam unit, has been reassigned to replace Alan Chin in Malaysia as country CEO, while Victor (alias: Cai Xiao), Lazada’s COO in Indonesia, has been transferred to take over Qin’s CEO position in Vietnam.
- In alignment with its consolidation plans, Lazada has appointed several senior figures to supervise crucial functions across all six Southeast Asian countries where it maintains a significant presence, as opposed to assigning local heads for each country. For instance, Wei Meng (alias: Qian Cheng), formerly associated with Taobao, relocated to Lazada’s headquarters to oversee user products across all six countries. Similarly, Chen Xi (alias: Ji Yun), previously serving as the general manager of the fast-moving consumer goods division at Tmall, assumed responsibility for supply and operations for brands and small businesses. Chen is tasked with formulating strategies for merchant operations, product supply, and category planning in the six countries.
Context behind the Lazada layoffs
Alibaba invested USD 1 billion to acquire Lazada in 2016, when it was the largest e-commerce platform in Southeast Asia. The Chinese internet conglomerate has since further invested in Lazada on multiple occasions. Including the initial acquisition outlay, Alibaba has injected approximately USD 7.47 billion into Lazada, including a recent infusion of USD 634 million in December last year.
The rationale behind Alibaba’s repeated investment in Lazada is perceivably straightforward:
- Lazada is part of a roster of international e-commerce businesses within Alibaba’s portfolio, alongside counterparts such as Trendyol in Turkey and Daraz in South Asia. In the broader context of Alibaba’s business strategy, international digital commerce holds significant importance, evident in its classification as one of the organization’s six major business groups following the “1+6+N” restructuring exercise announced in March 2023.
- Maintaining its initial foothold in Southeast Asia has proven challenging for Lazada, particularly with the emergence of competing platforms like Shopee, Tokopedia, and more recently, TikTok and Temu. Despite the region’s growth potential, the e-commerce landscape has evolved into a fiercely competitive industry, compelling each player to partake in price-based competition through extensive discounts and subsidies. The competition has been so intense that even assertive entrants like Temu have exercised caution, avoiding rapid and expansive entry into the regional market.
Amidst the inherently unsustainable nature of price-based competition, the primary e-commerce players in Southeast Asia have, in recent months, been easing off on their subsidy campaigns. This has provided a window of opportunity for each player to strategize, reconsolidate, and halt losses while charting a viable path toward profitability. Lazada is responding accordingly.
Nevertheless, in this context, it’s worth noting that Shopee has displayed a more proactive response compared to Lazada. Shopee commenced its restructuring much earlier (in 2022) and yielded significant results last year by achieving three consecutive profitable quarters. As one of Lazada’s primary rivals, Shopee’s strides in this aspect may have also influenced Lazada’s recent strategic shift.
A change in modus operandi
While discussion over the layoffs is expected to be long drawn out, it is imperative to consider how Lazada will shape up when the tumult eventually clears.
Behind Lazada’s large-scale organizational adjustment may lie a reconfiguration of power dynamics between its headquarters and local offices, according to LatePost.
After Alibaba’s acquisition of Lazada in 2016, Lucy Peng (also known as Peng Lei), an Alibaba co-founder, and Daniel Zhang (also known as Zhang Yong), the then-CEO of Alibaba, regularly flew into the region to personally oversee operations at Lazada. However, their oversight proved ineffective in stemming the rapid rise of Shopee, which surpassed Lazada in 2019 as the e-commerce leader in Southeast Asia based on downloads, monthly activity, and user retention. This prompted Alibaba to reassess its approach, leading Lazada to adopt a country-centric approach, establishing dedicated departments in each country of operation and forming a closed-loop business structure.
The shift in approach began to take shape in 2022 when Jiang Fan, the former president of Taobao Tmall Commerce Group, took charge of Alibaba’s international digital business segment. In June the same year, James Dong (also known as Dong Zheng), then-CEO of Lazada in Thailand and Vietnam, was appointed as the CEO of Lazada, overseeing the entire entity. This shift aimed to transform the management style to a region-centric approach, emphasizing the enhancement of management capabilities at the headquarters.
However, this shift naturally implies a need to reduce headcount in teams serving functions that were previously duplicated across local offices and are now consolidated under one roof at the headquarters. This is likely the primary reason behind the recent layoffs.
An unnamed Lazada representative also told LatePost that the reasons for this round of adjustments are mainly threefold:
- Consolidating user product, brand, and small business operations teams at the headquarters is to emphasize that improving user and merchant experiences is Lazada’s focus for 2024. The company believes that direct oversight by the headquarters will enhance efficiency, and future strategies, such as subsidies and user growth, will be formulated at the headquarters for each country.
- While Lazada previously pursued a closed-loop business structure in each country, limited resources hindered effective competition against the company’s rivals. Lazada is aiming to address this by consolidating resources at the headquarters for collective action.
- Through streamlining multiple reporting lines at the headquarters, Lazada aims to simplify its decision-making processes and achieve more efficient decision-making.
LatePost added that this round of adjustments has led to the integration of the commercialization departments at Lazada and AliExpress, a move that Jiang has been advocating since taking over Alibaba’s international digital business segment. This integration is aimed at defining the roles of Lazada and AliExpress more clearly, with the former focusing on localization primarily in Southeast Asia, while the latter targets cross-border opportunities in key markets outside Southeast Asia, such as Spain, France, South Korea, and the US, among others.
By consolidating resources, enhancing integration, and reducing internal competition, Alibaba aims for Lazada to compete more effectively against rivals like Shopee. How this move will pan out remains too early to speculate, but Alibaba will want to make full use of what is expected to be a pivotal 2024.