This article was originally published in Chinese on Momentum Works’ Wechat platform. You can access the Chinese article here

On Friday (26 June) morning, rumours were circulating that Lazada would make a major announcement the same afternoon. Friends at Lazada suspected it was about major personnel change, rather than a layoff. 

That suspicion turned out to be true. Group CTO and Indonesia CEO Chun Li is replacing 8 year old veteran, Rocket-era survivor, French operator Pierre Poignant as Group CEO of Lazada. 

Poignant will remain in Alibaba as special assistant to Daniel Zhang. Many asked whether this is promotion or demotion – well, if you really do not get it, you should not read this article. 

Interesting, our prophetic intern at Momentum Works wore this to work today: 

Cultural clashes 

You might remember that in 2018, Alibaba Co-Founder Lucy Peng came to Singapore to replace then CEO, Rocket-era veteran, chair-throwing German Max Bittner. Peng handed the post over to Poignant within a couple of months. 

We did not know what exactly went behind it. However, the fact that Shopee overtook Lazada within a very short time frame definitely gave a lot of pressure to Alibaba’s international efforts. Since Alibaba took over Lazada in 2016, cultural clashes, executional and communications problems kept happening – ecosystem partners and customers have been criticising Lazada for being out of touch with the market. 

Alibaba expected Lazada to grow on its own, while giving the group precious experience on international markets. However, for a variety of reasons, many of the executives sent from China (at different levels) were quickly replaced, or repatriated. 

Reuter ran an article earlier this year about the cultural issues at Lazada, which many insiders said was accurate. In fact, the positioning of Lazada has always been a blur – is it a Chinese company? Or is it a Southeast Asian company? Or an Western European company? This confusion manifested clearly in both internal politics and external competitive landscape. 

There are some deeper issues here – we are working on a book with our partners to systematically analyse the challenges and problems facing Chinese internet giants going overseas. 

A tough battle 

Anyway, problems need to be solved. Alibaba can’t afford to see Shopee beat up Lazada. Poignant has been a good operator, but he can’t solve all these issues alone. 

Chun Li joined Alibaba in 2014 as CTO of 1688 (Alibaba’s B2B site), and prior to that he was with eBay for 12 years. At eBay he did search, backend tech, Shanghai R&D centre, and PayPal risk control – accumulating a wealth of experience in ecommerce tech. 

In Summer 2017, Chun Li was sent to Lazada. Last year, he assumed the role of CEO of Indonesia, where he probably resurrected the company’s business from the most important market in the region. Lazada Indonesia has at least stopped from drifting into irrelevance and oblivion. This probably earned him quite a bit of credibility within the group. 

As a tech veteran who started working in 1988, Chun Li has a wealth of knowledge and experience through years of working in the US, China and Southeast Asia. This might be useful or Lazada’s next steps. 

Shopee’s parent Sea group has been a darling in US public equity markets, recently reaching a market cap to US$50 billion. More and more investors start to believe that Shopee’s Ecommerce->payment->financial services journey is a replica of Alibaba’s success in China. 

In addition, Sea has a highly lucrative gaming business, and Alibaba’s arch-rival Tencent as major backer (and biggest shareholder). 

The covid-19 pandemic has provided a valuable impetus to ecommerce in Southeast Asia. It also offers a landscape-changing opportunity for major players to grab, or lose.

So at this time, Alibaba should NOT care about face or conflict, but race forward to fight this battle head on.  

This is not an easy battle though. In the past, Lazada HQ has had difficulties reining in the countries, and many executives who had directly access to Hangzhou would bypass their superiors in Southeast Asia. 

To win, Lazada needs at least Shopee level organisational, mobilisation and all-weather execution capabilities. 

Hard time for Tokopedia and Bulakapak, for sure. 

Comments: 

Since we published the article, a few friends have made comments. We are sharing a few here: 

Miriam:

In their international efforts, Chinese companies will surely face a lot of intercultural communications and management issues. To do this well demands high maturity of senior managers. I would recommend Satya Nadella’s book Hit Refresh, which includes a capture on cultural change. 

Andy:

From his technical background, Alibaba is probably very determined to solve the super shitty tech stack of Lazada. Strategically this is the right thing. 

However, Chun Li, as many who played Street Fighter would remember, is a stereotypical Chinese character. He has no passion or emotional attachment to Southeast Asia, nor does he have the determination to devote his whole life to changing Lazada fundamentally. Rather, he would have a bigger role awaiting him at home if he ‘steers Lazada well’. 

Has he spent much time in Indonesia? Has he spent time talking to Indonesian consumers? I do not think so. Rather, he has a stupid chief of staff extending his arm to Indonesia, executing basic staff and supervising the team. This is not the way to succeed. 

In the eyes of his competitors, Indonesia is the whole universe for Tokopedia, Southeast Asia for Shopee, and Lazada is just an outpost of Alibaba. When the fight gets others, others have nowhere to fall back to, he can always go back to China. 

Gavin:

Many Chinese companies, in their early international efforts, love to use foreigners as senior executives to show how international they have become. When real pressure on performance hits, they quickly replace these foreigners with Chinese executives. There are communication problems, but fundamentally it is a cultural clash. I think ByteDance will face the same issue next. 

Eric:

Alibaba’s international efforts will be a long and torturous journey. As many have said, fundamentally it is a management cultural clash and challenges of ways of execution. Personally I am not optimistic about tech-background CEOs. Lazada’s challenges are not technological. 

Chinese managers who have been through international companies might be better at this task compared to those who only spent time with Chinese companies. However, international markets are complex and very challenging. 

In addition, Alibaba’s M&A in China have lacked successful cases – it needs to reflect the impact of its aggressive culture towards the companies acquired. 

Farewell: 

Below is the letter from Poignant to Lazada employees:

Dear Lazadians,

Thank you for joining me in this journey for the past 8 years. It has been an incredible one. I will remain part of Alibaba big family so you will certainly still hear from me.

I joined Lazada co-founders team 8 years ago with a big dream. It was a fantastic journey of building Southeast Asia’s first ecommerce and setting up the ecosystem in the fastest growing region. From mini warehouses & a few to having one of the largest fleet of deliveries in six countries with first and best in class crossborder operations. We make the region grow faster than anyone predicted, enabling small businesses to prosper through selling online,  buyers from anywhere can access goods they never had before.

I learnt so much from everyone, all of you. It was never easy, but Lazadians have always been resilient. I am eternally grateful for the journey and for you being alongside with me. Lazada will continue to embrace the challenges, the change and seize the opportunities to grow in our journey.

I want to thank Daniel Zhang, Lucy and all the Lazadians for your strongest support all these years. Without you, I will not be who I am today. I trust you are in the great hands of Chun. He has accomplished outstanding milestones, starting with Project Voyager, then as Indonesia CEO. With Chun helming Lazada, I am fully confident that Lazada’s competitive advantage in technology and logistics will be fully realised as we forge ahead to overtake competitors.

Thank you for your support and hardwork. Lazada is forever in my heart. Once a Lazadian, always a Lazadian. 

All the best

Pierre Poignant

Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at hello@mworks.asia.