E55 – The Impulso Podcast – Why is Lazada CEO taking over Daraz?

Yesterday (24 Jan), it was announced that James Dong, CEO of Lazada, will take over as the Acting CEO of Daraz, the South Asia-ex-India-focused ecommerce platform under the Alibaba International Digital Commerce group (AIDC), with immediate effect. This announcement follows weeks of speculations regarding a leadership change at Daraz, and also comes a few weeks after Lazada’s recent major layoffs, which included several members of its leadership team.

But why did Daraz replace its CEO with Lazada’s CEO? Is this part of Alibaba’s restructuring efforts to simplify the organisation of both companies?

Tune in as we discuss the complexities faced by Lazada and Daraz, the motivation and challenges of Alibaba’s ongoing organisational restructuring, and the need for agility in the evolving competitive ecommerce landscape. 

You can listen to the full episode here:

Also available on Apple Podcast.

Featured materials:
Lazada CEO takes over Daraz, what next?, TheLowDown
Interview with COO: How to run ecommerce in Pakistan, India and Bangladesh (all at once), The Impulso Podcast
With big layoffs, Lazada is digging in, TheLowDown
What’s behind Lazada Layoffs, The Impulso Podcast
Lazada layoffs: lessons from history and Jack Ma, The Impulso Podcast
[Seeing the unseen] Our thoughts on Alibaba’s major restructuring, TheLowDown
Transforming Alibaba: Understanding Alibaba’s most radical changes in history, Momentum Works
Why does Alibaba replace Taobao CEO?, The Impulso Podcast

[AI-generated transcript]

[00:00:00] Sabrina: Hello everyone. Welcome to the Impulso podcast. Today, Jianggan and I are going to be talking about some recent updates in the e commerce scene, which is that Lazada’s CEO has also now been appointed the CEO of Daraz. Acting CEO. Acting CEO of Daraz. So we’ve talked about Daraz in a previous episode we did with Zori which will be linked in the show notes below.

And two weeks ago, of course, we also released. about Lazada’s layoffs and what’s happening, 

[00:00:29] Jianggan: before Daraz, let’s look at the past. We talked about Lazada, right? Of course, everyone’s been talking about layoffs. But what Lazada is going through is a huge restructuring, which I personally think makes lots of sense.

I mean, as we shared in the previous episodes, as well as in articles we publish on our blog basically they’re preparing for the longterm to make their organization more nimble and easier to to respond to change. This is happening in a bigger context of Alibaba’s. Transformation, which we did a report about.

[00:01:00] Sabrina: Also covered, yes. The report will be linked in the show notes. It’s called Transforming Alibaba. 

[00:01:05] Jianggan: Okay, now about Daraz. There are actually quite a bit of similarities between Lazada and Daraz. Both were regional e commerce platforms. Originally built by Rocket Internet. So, and both were later acquired by Alibaba Group.

We know that Alibaba acquired Lazada in 2016 for a pretty good price for the early investors including Rocket Internet for Daraz, we don’t know. They never released how much they acquired it for. So both are regional platforms. Lazada covers Southeast Asia, six major countries. Daraz. covers South Asian countries, four countries, Pakistan, Bangladesh, Nepal, and Sri Lanka. Have you been to any of them? 

[00:01:49] Sabrina: No. Have you? 

[00:01:50] Jianggan: I’m thinking about it. I actually have not been to any of these either. I’ve been to India many times, but I’ve not been. Just the one in the middle. Oh, yeah. India is in it. So these four countries geographically are actually surrounding India.

And of course, there are lots of geopolitical implications there, which I think makes a fascinating story. But we’re not talking about it today. Let’s look at the market, Daraz as you see. So, four South Asian countries with a combined population of 460 million. So what does that mean? If you look at the six countries that Lazada is operating in, in Southeast Asia, the combined population is 600 million.

So 460 versus 600. What 75%, 76%, but when you look at the economy, the disparity becomes much wider. The combined GDP of these four South Asian countries is only about 25 to 27 percent of the combined GDP of the Southeast Asian six. So we are dealing with four markets, which are, I mean, in the same region, maybe there’s a bit of a historical context there.

They are economically. Far behind Southeast Asia, and even within these four countries, I think there’s a big disparity as well. Bangladesh has been an amazing story I think it has recently overtaken India in terms of GDP per capita Sri Lanka, historically, I mean, it’s a port, it has natural resources, a lot of tea, tea, oh, I drink Sri Lanka tea.

And of course, there’s a large Sri Lankan diaspora population in Southeast Asia as well. But Pakistan and and, and Nepal are having economy which are far behind the other countries. So, of course we’re dealing with a very, very complex. For countries, I think we discussed with the episode with Daraz, right?

Even if you try to organize a meeting amongst the managers of different countries, sometimes there will be such restrictions and historical reasons that you can’t easily travel. So, eventually from the beginning, the headquarters has been in Singapore, which is actually a bit far from all the four countries, but you do with what you have. 

[00:03:53] Sabrina: You mentioned that it’s very complicated, why do you think Alibaba group wanted to acquire Daraz? 

[00:03:58] Jianggan: I don’t know, honestly, and I was jokingly saying to a friend that Alibaba acquired Dara in 2018. I was saying that they were very, very visionary because, I mean, it would take a long time for e commerce to be meaningful. In those countries, you don’t know how long it will take because there are things that you can do to develop. I mean, you can invest in infrastructure that you can control like payment logistics. You can educate customers, you can educate the sellers, but there are certain things you can’t do.

You can’t improve the security situation in Pakistan, for example. You can’t build roads for the government. But I do think that 2018 was probably a year when China was like, you know, very bullish about the one belt, one road. And, these four countries are quite strategic.

In this initiative, so maybe that was part of the consideration as well. Maybe they got it for a good price as well and maybe back then they were very confident about their international efforts. So they want to have a foot in the door early. I don’t know. But what is clear is that after so many years it’s a company which becomes a little bit difficult for them to take direct control over because I mean, four countries, I mean, I think, in the past, even Alibaba tried to build a business in India and they found, I think, two or three people who can fluently speak Mandarin, which means they can coordinate with Alibaba managers back in China. And one of the local languages, Hindi or whatever. And with this four countries, I think it’s even trickier. So it’s, I mean, managing this. 

[00:05:35] Sabrina: So now, of course, today, which is 24th January, when we’re filming this, it was announced that the Lazada CEO, James Dong, who is based in Singapore, has actually been appointed as acting CEO of Daraz Group, and like you mentioned, running Daraz is very complicated.

But running Lazada is also very complicated because Lazada is in the six different Southeast Asian countries, which of course has its own complexities as well. So why do you think Alibaba has decided to put James Dong as the acting CEO of Daraz? Wouldn’t he just be dealing with a lot of complicated countries?

[00:06:13] Jianggan: I think first Lazada is trying to simplify itself with the layoffs, and of course people only see the layoffs, but behind the layoffs you have the functions being adjusted, lots of powers being centralized, and lots of lots of functions being trimmed. Should they do the same thing with Daraz as a single effort or you just leave Daraz there and for the next three years and I do think that there’s also a bit of a understanding gap between the Daraz leadership as well as the Alibaba International Digital Commerce Group, AITC leadership.

As well as Alibaba group as a whole. So they might have come to a calculation that, okay, since we’re continuing to fund Daraz, maybe we should do something at one go. So, I mean, people know that it’s already very painful to, to, to restructure. And they have already kick started the whole restructuring process. And maybe we just, at the same time, just do that at one go. Since most of the key leadership of Daraz are in Singapore anyway. And and if you look at the leadership of Daraz and historically amongst the Alibaba companies, it has very few Chinese and even if the few Chinese there and not many, not everyone came from Alibaba background.

So they chose to let Daraz run on its own course for a long time. And and I think now maybe they have come to the conclusion that let’s do something about it. 

[00:07:27] Sabrina: But do you think James Dong is the right person to do something about it? Or do you think he has the mental capacity? Because something you mentioned in your book, also linked in the show notes below, is that leaders need to have the mental capacity to think, right?

When you’re running a business. I mean, in the book, it’s about Chinese. Tech giants venturing out and how they have to balance the overseas expansion with the China operations and in this case He has to balance the operations of Lazada in six Southeast Asian countries and now also Daraz in the four South Asian countries so Mentally, I would think that that’s very distracting he might not have the mental capacity to think of all ten countries 

[00:08:05] Jianggan: Oh, yeah, that’s 10 countries.

Then you think about Zhang Fan who is running AIDC, right? I think, I think I’m not sure to which extent James is like his deputy or something. But if you look at Aliexpress, they’re still opening new countries. So the issue I’ve been reflecting as well, the issue is from an organizational point of view naturally, eventually you will become multinational because you need to see growth, right?

And during this process, I mean, how do you prepare organization to be in a way that can actually scale? Can actually have the right resource allocation, can actually have a clear delegation of organizational capabilities, as well as things which need, need leadership’s attention. So I would think that to manage all these 10 countries is very hard.

Changes are happening, but maybe managing this chain, I mean, which is complex anyway it’s probably something that that needs to be done and something that he should be doing. And that’s why he’s acting CEO. So I don’t think that eventually he will become he will sort of remain CEO of both companies for a long time.

So they will eventually have someone to take over, even Lazada and Daraz. I think from James point of view, he would probably want someone to take over Daraz rather than Lazada. Yeah. But I think at least one of the positions that James Dong is holding now. 

[00:09:26] Sabrina: I think it’s interesting we see like both Lazada and Daraz owned by Alibaba are going through this restructuring right and it also aligns with what Alibaba has been doing last year which is they had one of their biggest restructuring where they split their businesses into six.

It’s not over yet. Yeah they are still splitting their businesses into six. I think now it’s five. 

[00:09:49] Jianggan: Yeah so they reversed the spin off of cloud intelligence group which which I think is the right thing to do. I do think that splitting a group into six is a way for them to Look, Alibaba is a very complex organization, so many business units will split of course you can say that, okay, it creates like, ownership of the CEO, so we need individual business units, but when you have that kind of a split, you can also allow the leadership to focus on one or two businesses which matter the most for them without worrying too much about all this interconnected.

interconnectedness, or whatever that word is. So for Alibaba, I think clearly the most important priority is Taobao and Tmall, where they face competition from Pinduoduo and Douyin. And the cloud is also important, because that’s where the whole AI capability will be based on. So that’s why I think they chose to focus on these two. That’s why Eddie is now CEO of Alibaba group talk about team Timo and CEO, the cloud. So 

[00:10:52] Sabrina: they’re prioritizing that and whatever is connected to that with Synergy, right? Mm-Hmm. Interesting that you mentioned Pinduoduo. I feel like these days when we talk about Alibaba, Pinduoduo always comes up and of course, compared to Alibaba, we know that Totos organization is so much more streamlined the speed at which they’re able to make decisions is very fast. And of course, I’m sure. Even if Alibaba wanted to, they wouldn’t be able to have that same organizational structure just because Pinduoduo is a much newer company compared to Alibaba. I

[00:11:23] Jianggan: I think nowadays lots of people are actually talking about, I mean, quite a lot of people are asking us at the, okay, Pinduoduo is amazing. It’s efficient. It’s like 13, 000 people versus Alibaba. 224, 000 and Lazada before the retrenchment is almost the same size as Pinduoduo in terms of number of people. Shopee is twice that. So everyone is asking, hey, how can we achieve Pinduoduo level of efficiency? I think the danger here is that there are certain things which are unique to Pinoduo’s culture. There are certain things which actually grew with Pinoduo, I mean, since the beginning. And these things are suitable for them now. Maybe it would not be suitable for them in the future. Maybe it didn’t suit them as much in the past. But definitely, I think it’s very hard for the same thing to be applied. Into other companies. 

So this is something that other companies need to be very careful about. But I do think the leadership of Alibaba and Lazada are Very accurately aware of this. And they’re not trying to copy Pinduoduo, but they are trying to leverage their strength and whatever they already have, whatever they can further build on whatever organization, whatever talent they have to try to fight this battle.

[00:12:29] Sabrina: And of course, it’s not just Pinduoduo that they’re fighting with for at least Alibaba in China right now. They also have Douyin, and for Lazada, of course, TikTok shop in Southeast Asia has become a very big name as well. 

[00:12:41] Jianggan: On this point, it’s actually interesting because when we think about Shopee, I think the entire organization seems to be focused on defending against the TikTok shop. which is growing really fast. I have a feeling that they don’t really spend too much effort trying to understand or defend against Temu which is now focused in Europe and the US. They have a bridgehead in Malaysia and the Philippines in the region, but they have not been doing much. I have a feeling that for the people within the Lazada ecosystem, I talk to the decision makers, they’re quite worried about Temu because I think compared to Shopee, they spend much more time dealing with the supply chain, the factories, the manufacturers, rather than just sellers.

And they look at how Temu is able to, you know sort of work with these people and squeeze these people and make the supply chain super efficient. So that’s why I think I think Lazada Alibaba as a whole is probably doing much more on a supply chain side to defend against Temu, even though Temu is not big in Southeast Asia yet.

[00:13:43] Sabrina: Yeah, but when they choose to come in then, but I’m sure Shopee would be worried about Temu when they come in as well, right? Because they do have their sellers from China as well. 

[00:13:54] Jianggan: Shopee has operations in China and I think Shopee has been dealing a lot with sellers not as much as Temu by dealing directly with manufacturers. I think they tried, but by sellers and manufacturers, there are different cohorts and, they, they experience very different behavior. So I do think that Temu will eventually have to include sellers to a certain extent to which extent we don’t know it has to see how it evolves.

[00:14:18] Sabrina: We will talk about this more on Friday’s podcast. Okay. Stay tuned. 

[00:14:22] Jianggan: But I think to summarize the restructuring of the Alibaba companies and the AIDC companies, Lazada and Daraz continue it’s very interesting exercise for everybody who manages a large organization and needs to make changes. So you should definitely stay tuned. 

[00:14:40] Sabrina: And it’s also, I guess the reorganization shakes up a lot of the e commerce scene, right? Once they’ve simplified their organization, made it less complex, what would they start doing so that they can improve their market share or bottom line in these regions?

[00:14:54] Jianggan: I do think that at least for Lazada, I think strategically they have I think they have come to a conclusion where, which position they should be in the market. And then they’re working towards that, but that said the market’s changing. So, they also need organization that where they’re working towards something, if the external environment changes, they can still be agile and respond very quickly.

[00:15:14] Sabrina: So I guess that’s it. Thank you for tuning into another episode of the Impost podcast. We hope you enjoyed today’s episode. Do like our podcast and follow us on Spotify, apple Podcast or your preferred podcast platform to stay up to date on the latest happenings and trends in tech, new retail, and the broader digital economy.

Thank you. Bye-Bye.