Why Lazada vs. Shopee Is Faster Horse vs. Better Jockey (Tech Strategy – Podcast 40)

In this class, I talk how to fairly basic platform business models (Shopee, Lazada) compete. As the capabiltiies and strategies are similar this is mostly about operational performance and management over time.

You can listen here or at iTunes, Google Podcasts and Himalaya.

This is part of Learning Goals: Level 6, with a focus on:
  • #23: SMILE Operational Marathon

Concepts for this class:

  • Multihoming
  • Management Track Record and Incentives

Companies for this class:

  • Lazada
  • Shopee


I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

——transcription below

Welcome welcome everybody my name is jeff Towson and this is Tech Strategy and the topic for today. Why lazada versus shoppy is faster horse versus better jockey. In southeast asia ecommerce. What we’re gonna sort of talk about well i’m gonna talk about both of these companies they’ve been getting a lot of press in the last couple months in particular. This idea that maybe shoppy is pulling ahead maybe lazada is falling behind. I’m gonna kinda give you my take on what I think’s going on there and we’ll just talk about sort of ongoing operational competition between more or less the same business model, the same strategy, which is really what we’re seeing here and how that can play out over time. So that’ll be the topic for today. Now for those of you who are subscribers slash members, I am a… Coming at you every couple days with the homework assignment, which is usually reading. And this is kind of a new approach. I’ve decided to perpetually nag you from your email inbox with articles to read. Usually it’s about two articles per week. One probably in the starting of the week, one near the end of the week. I’m still sort of checking and seeing when people respond and when they don’t. And then usually a very simple sort of assignment, which is… The way I’m sort of laying this out is it should all be able to be done in about 20 minutes. So yes, it’s sort of ongoing step by step, step by step, a little bit of work, but not too much. I’m trying to find the right balance there. And then the idea is you can sort of consistently progress level one to level two to level three to level four over time, and that’ll be the process for getting smarter and smarter. That’s what we’re doing. And then, you know, sort of standard stuff on current events and, you know. what various companies are doing. We’ll keep doing that as well. But that’s the approach. So you’ve been getting those for a couple weeks from me now. That’ll keep going. And I’ll probably reach out to more of you and ask, or if you have any feedback you’d like to give on how that’s working and how it’s not. We’ll see. And for those of you who aren’t subscribers and members, please do so. You can go over to jeffthousen.com, sign up there. There’s a free 30 day trial. Give it a shot, see what you think. Anyways, it’s a lot of fun. We’re getting sort of more and more active in the community. And we just started. planning at least the first sort of in-person event which is probably gonna be in Bangkok So I’m reaching out to some partners. It looks like that’s gonna happen. Obviously not this month, but yeah end of the year Maybe and we’ll bring in some big speakers and we’ll bring in a lot of the subscribers out and that’s uh, yep That’s gonna be the next thing which is fun. Anyways, okay, let’s get into the topic so over the last couple months during particularly the COVID thing. There’s been these stories floating around about Shopee sort of pulling ahead of Lazada, management changes happening at Lazada. It’s kind of bubbling around. I’ve looked at it a little bit, but given what’s going on with COVID, I mean, who knows what’s real right now? The behavior is so strange. I figured we’d get some more visibility transparency in a couple months, but I thought I would read. a little bit to you. This is from a Reuters article that came out recently that basically said, here’s the title, Lazada Alibaba Southeast Asian arm appoints its third CEO in three years. Okay, now forget the COVID stuff. That’s actually kind of a big deal. The new person, Chan Lee, who is Lazada co-president and head of its Indonesia operations is going to take the head. So I mean, he was already kind of co-president and head of Indonesia. So it’s not a total outsider or anything, but that is the third CEO we’ve seen in a couple years. That is, there’s generally no way that’s good. And then they sort of go on with Singapore based Shopee, which is based by Tencent, backed by Tencent Holdings, was the most downloaded e-commerce app and the most used in Southeast Asia as of the end of 2019, knocking Lazada to second place, according to research firm iPrice, blah, blah, blah, blah. Okay, those numbers have been bubbling around. Who’s first, who’s second, and you kind of have to go really country by country because it’s really different. Malaysia is different than Vietnam, is different than whatever. Monthly downloads is not terribly useful. Website visits, app downloads, traffic, okay, these are all at best sort of secondary metrics. We don’t really know what’s going on. I asked, this was kind of fun, I had some students at Sassin Business School in the last month, both the executives and then MBAs, and I had them look at this. I said, you know, tell me what you think about Shopee versus Lazada in Thailand, because this was Thailand. And you know, the numbers that came back that they came up with were about monthly visits. So I can give you those numbers according to them. Like Shopee, first quarter 2020, Shopee in Thailand, 46 million-ish. visitors per month, Lazada is about 34 million. Okay, fine. If you look at other industries, other geographies like Vietnam and Malaysia, basically these two companies bounce back and forth between number one and number two, depending what number you’re looking at. And then there’s Tokopedia, who’s also in the mix a little bit. So I didn’t take a lot of… I didn’t make a lot of conclusions about that. It looked to me like a pretty serious ongoing competition. And I thought that would be a good thing to talk about, because how do you take that apart? Both of these companies are platform business models. These are marketplace business models. They’re not sort of cutting edge. I mean, basically what we’re seeing in Southeast Asia is we’re seeing what we saw in China about a decade ago. So this is sort of. E-commerce 1.0, building the basics, basic logistics, basic payment, get the hopefully the regulations and the governance place, that’s your foundation. On top of that, you try to build a marketplace platform, that means getting a lot of consumers and it means getting a lot of merchants and brands and getting that going. So none of this is sort of cutting edge, trying new stuff. It’s more like getting the basics in place that we’ve seen work elsewhere in Asia, mostly China. And both of these companies are backed by the Chinese giants. So Alibaba owns Lazada, Tencent is behind, Shopee, Garena, which is C Limited. Okay, so how do you take this apart? I mean, I’ll tell you how I look at it. I basically see two leading platform business models going head to head. And my area is digital meets competition, but there’s actually different types of competition. There’s… there’s product companies or service companies that compete like Volkswagen versus Honda or Toyota or something like that. Okay, they’re both making cars, they’re both competing for customers, they compete along a lot of dimensions including sort of product features, things like that. You could have service companies competing. So that’s ICBC versus Bank of China, whatever, McKinsey versus BCG. And that can be off platform, which is pretty much the examples I just gave you, but they could also be competition on platform. So it’s different when two small merchants, let’s say in Thailand or China, are competing by mostly selling on Lazada or Alibaba. So product-based competition does tend to be different if it’s on platform versus out in the more traditional business world. And we could also look at product versus platform. which is a lot of what Amazon is doing, right? There’s, you know, you could be a product company, you’re making UGG boots, you’re making nice backpacks, you’re making, I don’t know, nice jackets, and then you’re selling it on Amazon and directly, but then Amazon, which is a platform business model, is also acting as a retailer and selling itself the same product. So that’s a product versus platform competition. So you have to think about this. And then what we’re talking about here is a platform versus a platform. And that’s different. You have to think about that differently. It’s kind of like all our traditional competition frameworks and strategy frameworks were like regular chess. And now suddenly we’ve gone to three dimensional chess. And there’s another axis we have to think about with these platform business models in many industries really changing things and becoming players themselves in many ways. But when we look at Shopee versus Zada, okay, these are pure platform plays. They are both clearly the market leader, although Tokopedia and there’s just a little bit more going on there, but these are, I mean, it’s not like we have 50 platforms competing. We’re down to a couple giants who are out up front. And you know, this looks like a giants and dwarves scenario with two leading platforms sort of going head to head, which is not uncommon in e-commerce. And given that they more or less have the same. business model, although I’ll talk about some of the differences. This is mostly an operational competition. And I’ve talked about this previously that I think about things at two to three levels. One level would be competitive advantage. That’s a strategy question where you’re doing things that others can’t do or your business model is different. But then there’s, if you don’t have that, or even if you do have that, there’s another level which is just operational competition, which is day-to-day decision making. that restaurant on the one side of the street versus the other restaurant on the other side of the street, they’re competing on different things day to day, mostly at an operational level. It’s not like one of them has a very different business model than the other. And within operational based competition, I’ve called this the operational marathon and the learning goal for today is 23, which we’ve talked about before, which I called the SMILE operational marathon, which is if you’re doing an operational marathon, you’re competing on one or two primary dimensions, which I’ve given the acronym SMILE, S-M-I-L-E, which stands for S is operational scale effectiveness efficiency. That’s kind of like one factory competing versus another factory or a retailer. M, which stands for machine learning. and AI, so you’re competing mostly along how good you are at AI, that’s like Google. I stands for innovation, that’s Elon Musk, he’s in the innovation business, that’s his primary operational metric he has to think about. L stands for rate of learning, that’s like IBM, Goldman Sachs, companies like that, that it’s all about we can figure out what’s happening faster than you can, and our organization learns faster than you do. and our products adapt faster, rate of learning. And then the third one is E, which is ecosystem shaping and management, where our industry has a major platform or a major ecosystem effect and how well we can negotiate with that, like a merchant selling on Alibaba, is really a primary dimension we have to compete along and that’s managing the ecosystem. But we could also maybe shape it, which is what I think a lot of what’s going on with Lazada versus… shop is they’re both competing along their ability to shape ecosystems within various countries in Southeast Asia. Okay, so operational smile marathon learning goal 23. That’s the primary goal for this lesson, the primary thing you should take away if you want to learn more about this the podcast you can listen to his podcast 29, which was Ken Shopee slash Tencent, Pete Lazada slash Alibab in Southeast Asia. That’s sort of more the basics of the same question, but we looked at it a little differently. And the two ideas I want you to remember are multi-homing, which we’ll talk about, and then management incentives and track record, which is sort of a new one. So those are kind of your two main things to remember from this talk, multi-homing and management incentives and track record. which go under learning goal number 23, which is the Smile operational marathon. Okay, so the first thing to think about with platform competition, which is different than product competition, two products, let’s say a retail store, Walmart versus Carrefour, you’re really competing along sort of certain features and offerings as part of your service. You’re a retailer, if you’re making cars or motorcycles, you’re competing on certain dimensions, certain features. hey, you know, this is a 600cc bike versus 150cc bike. This is a better design than that. You’re competing sort of features of products and services. That’s okay, that’s not what platforms are competing on. Platforms aren’t a product or service themselves. What they’re really competing for is the participation of users. because they are in the business, not of creating any service, but of connecting entities, whether it’s businesses, people, consumers, locations in a railroad network, phones in people’s houses, by wires. Now the difference between a physical network, something where you lay the roads, you laid the track, you lay the copper wires, and a digital network, which is what we’re talking about, is you don’t really have any hold on people. I mean, you… your network is based on the connections between users who all happen to have your app on their phone. So if you get a lot of people to download the app, put it on their phones, it starts to create a network and that network is what you have your business platform built on. Now the difference between that and say AT&T for the last 100 years before it sort of fell apart was AT&T owned the physical network. But when it’s a digital network that we’ve built our platform on, we don’t really control it that much. People can leave. So you have to continually attract people, please download my app, and then you gotta get them to participate, and then you’ve gotta keep them. Because if they leave, you lose the network upon which you’ve built this platform business model. Now that never happened to AT&T, it doesn’t happen to railroads, it happens with digital platforms. Okay. So you’re competing for a community, a group of users, and their activity and their engagement. And that is very different than competing on a product. This is why something like Instagram was such a threat to Facebook, because they had very different products and services, but they had the same community. So it was a threat to their user base, so they bought them. WhatsApp was the same thing. you know, communication, you could make phone calls, you could send texts, very different than Facebook’s social network. So the product was different, but the community of users was the same. And that’s why these companies can move horizontally so easily and you think, oh, we’re in the hotel business, Alibaba’s not in the hotel business. No, no, no, no, Alibaba is in the user and community and engagement business. And they started, they can very easily sell hotels as a service to their same user group. It’s basically easier to add a product or a service to a user group than to build a new user group. That’s why these companies move horizontally so easily. So in all these little graphics I’ve been sending out with a little blue diamond, then the two user groups on the other side of the platform, I’ve always sort of said, like the first phase of any of this competition is based on demand side scale, which means you’ve got to get the various user groups to start. joining your platform, participating, and then the three intangible assets upon which you build your platform business model are users, activity, participation, and data. And I’ve put that in graphics so many times, I don’t know, I’ve been sending these out, you’re probably getting sick of those. Okay. And that’s really what we see these companies doing, and it turns out that’s actually kinda hard to do when you’re dealing with six or seven very different countries with different cultures, different languages, different regulations. So both Shopee and Lazard are working across all these countries trying to get participation of mostly consumers but also merchants and brands and things like that. And this is where this term multi-homing comes up which is sort of one of the key ideas for today. You’ll hear platform people always talk about multi-homing which is this idea of, you know, Uber is not a good platform business model because there’s a lot of multi-homing which means like drivers. will drive for Uber, but they’ll also drive for Lyft. And often it’ll be on the same phone on their dashboard and they’ll just switch back and forth. And that’s kind of the platform equivalent of switching costs. I would normally say it’s switching costs, like, you know, I use this bank or I use this lawyer, but then if they raise their prices, I go to another bank or lawyer. And if it’s more difficult, I tend to stay. This is sort of multi-homing is like switching costs, but for platforms. And the reason, It’s kind of a venture capital thing because what they’re really looking for is sort of winner take all markets. So they like a market with a high, with very little multi-homing. So when a driver joins DD, it’s very hard, difficult, or they don’t have any interest on being on another platform. And it concentrates the users and the demand and the activity on one platform if it’s difficult to multi-home. Okay, fine. I don’t think it’s… conceptually different than switching costs, but it does tend to impact how fast a platform will grow, how fast all the activity will concentrate to one platform. So it impacts the scaling, especially if there’s a network effect where the more people you have, the better the services. So it will impact the value of the platform. And ultimately it impacts the profitability because it’s hard to price aggressively if it’s easy for people to move back and forth. If you try and cut the take rate that drivers get on Uber or DD or Lyft, like even 5%, they will switch to another platform very quickly. And same with a lot of users of something like Uber. When it’s a commodity service, if you try and raise the rates, people switch pretty fast. So it impacts pricing, it impacts scaling, it impacts the network effect, it impacts whether the market ends up as a winner take all, a winner take most. or an ongoing competition forever. They call that multi-homing between platforms. I would just call it switching costs. But anyways, it’s good that you know that term. And that’s one of the ideas for today. So we could look at these platforms this way by demand side scale and whether they’re getting users and all that stuff. And if you look at the numbers, it’s kind of a wash. One company’s ahead of the other in some markets and the other in another. So I mean, they’re more or less neck and neck. They’re moving forward. Now the other way we think about competition with platforms is, okay, if you’re going to enable interactions on a platform, what you’re really selling is reductions in coordination costs. You often need a lot of infrastructure beneath that to make it happen, and that could be regulatory. It could be, hey, we have to have a payment mechanism by which people can pay. If you don’t make the interactions easy, they don’t happen. But the big one for e-commerce is, of course, logistics. Now all of these platforms have IT costs. You have to build lots of servers, develop all your software, stuff like that. That’s pretty standard. And e-commerce absolutely has that, which is why Alibaba has launched AliCloud and Amazon launched Amazon Web Service because they had a lot of economies of scale on the IT side. But the one that people talk about is logistics. That you have to build all these warehouses, you have to have all your delivery people. These warehouses are getting smarter and smarter. There’s a lot of IoT, all of it. I mean, if you’re talking about a country like China, JD and Sina have spent billions and billions of dollars year after year after year to build out their smart logistics networks that enable their transactions. So we’d call this supply side scale. And that’s a lot of what’s going on with Lazada versus Shopee is building out the supply side in Vietnam, Indonesia. Thailand, Malaysia, Singapore, the Philippines. And what jumps out at you when you think about this is it actually is kind of a lot harder. Cause you’re not dealing with a continental geography like Europe or the US or mainland China. You’re dealing with literally thousands of islands in Indonesia and little villages way up in the jungle and tiny little retailers everywhere and the traffic of Jakarta, which is crazy. So doing the logistics of Southeast Asia for e-commerce is actually kind of a Herculean task that both of these companies are dealing with. And generally, Lazada is building all this stuff in-house because Alibaba is very good at logistics. Shopee is using more third parties because they don’t really have a major e-commerce player behind them, Tencent doesn’t do this. So they tend to be a lot, you know. more clever on the user interface side and Lazada tends to be better on the logistics side just by their heritage as companies. Shopee is very good at the gamification aspects because they have Garena which is a major gaming company but they don’t have 20 years of building warehouses and in fact they have only been in e-commerce for a couple years. So this IT side is the other dimension of competition you wanna think about. You wanna think about that user thing, the demand side scale, and you wanna think about the supply side scale, which is mostly logistics and IT at this point. So based on this sort of framework, that this is mostly an operational marathon between two fairly similar business models, and the dimensions are the ones I just mentioned, my little simplistic summary is, It looks like Lazada has a faster horse, but it looks like Shopee has a better jockey. Which means I think there are inherent strengths and capabilities Lazada has, particularly in logistics and product selection, that it’s very hard for Shopee to match at this point in time. They just don’t have it. However, the management team, which will be the jockey, okay, the business model, the capabilities of the horse, the management is the jockey. but it looks like Shopee has a better jockey at this point, better management, more effective, they’re moving quicker. They seem to be more tightly attuned to the various consumer needs, geography by geography. A lot of cool stuff going on in their apps, a lot of gamification, a lot of gold coins, a lot of localization that’s happening on Shopee that we really don’t see on Lazada as much. So that’s kind of my working theory explanation for what is going on. And I had my students look at the logistics in Thailand, at least, you know, talk to people, see what they think. And the consensus coming back, and this was, you know, almost a hundred people talking to various people are looking at, and the consensus seems to be that the logistics of Lazada in Thailand are just better. What people want, what consumers want in logistics is basically cheap and fast. Cheaper is always better. If you can get it delivered for less, you’ll go with that company. And if one company comes to deliver in two days and the other five, you’re gonna go with the two days. You know, this is Amazon Prime, which is cheaper and faster is better. And you know, Lazada is building that in-house, which is a longer haul. It’s gonna be very expensive over time. But if they can stitch together a regional logistics network that connects all of these countries. that’s going to be pretty powerful and that might actually be very very difficult to replicate and then they can port in all their software out of China where they are really spending a ton of money making these warehouses a lot smarter than they used to be. But it allows them to do certain things so let’s say you’re ordering on Lazada in Thailand you have a lot of you know it’s very cheap it’s fast and they have good tools to track your package and if you have returns which can be definitely an issue in say fashion and apparel. They are better at that. Shopee is more outsourcing using third parties and I think their pricing is roughly the same. Fans, I mean, you have to kind of check and check and check, but they’re not, they don’t have as good IT tools, the tracking, the returns, not as fast, things like that. And that’s kind of what you’d expect. So that’s why I kind of mean by better, you know, faster horse. that yeah, if Alibaba is definitely building a more robust infrastructure on the logistics side and the IT side over time, that may end up being a big deal. However, in the short term, the issue that seems to be a little more pressing is the user experience. We’ve got to get people on board. We’ve got to get them to be active. And this, you know, you have two user groups. You have the merchants and you have the consumers. Really, you got to get the consumers. If you get a lot of consumers, the merchants, unless you’re really annoying them, they will also come. So it’s really a fight for the consumers, their activity, their participation. And this is where I think you point to Shopee as having a better management team right now and doing a lot more interesting stuff on that side. So what do consumers want? Well. I mean, I had students go around and executives go around and ask people, and what was the top three? I mean, people always want everything, right? But what are the three most important things they want? The three that came back, the top sort of triggers from the consumer side of the platform, big surprise, best value for money, which is, hey, if I can get cheaper prices over there, I’m going over there. Now, that’s not just cheaper prices, it’s promotions, it’s discounts. It’s offering activities and games that let you get cheaper things. And big surprise, Shoppe is better at this because they come from a gaming background. So if you go on Lazada somewhere like Thailand, there’s gonna be two big promotions per year, which is the one in June and the one in November. But really Shoppe is running them all the time. There are promotions all the time, there are discounts all the time, there’s ways you can get coins, you can share things, you can do activities, you can turn those in for discounts. They’re running things that really get you better value for your money all the time. And we heard that from pretty much everybody. So we give that one to Shopee right now. The second thing that consumers want, they want a wide assortment of quality goods. You don’t want a bunch of fake stuff. but you want a bigger selection, the Walmart effect. People like going to Walmart because they have everything. Now, I think Lazada actually has more product categories. They’re focusing on things like more electronics, things like that. Shopee is definitely more focused on sort of fashion. health and sort of wellness things, makeup, those sort of core categories for women. And keep in mind, 60 to 7% of all the consumers on both of these platforms are women. So they have a narrower product selection, or category selection, but within those categories, they have a pretty good selection. So they’re a little narrower, but again, seems pretty good on Shopee and Lazada. And then the third thing is people want a good shopping, sort of a good shopping experience, seamless, easy, and convenient. And delivery is actually part of that. And I think that’s a bit of a tie. I think Shopee is better on the user experience, all the little things that pop up all the time, all the games, all the activities. But delivery is a big part of that, and Lazada’s probably stronger there. So overall, I think… Shopee is probably stronger at this point. And one of the things they are doing is they’re localizing a lot more because when you start talking about user engagement, it turns out consumers in Vietnam want different things than consumers in Thailand, than consumers in the Philippines, than consumers in Indonesia. So localization is a big deal. Lazada is more taking a standard app and modifying it a little bit where it looks like Shopee is much more building from the ground up by geography. That’s high level. If you’re working at Shopee or Lazada, don’t yell at me. I mean, I’m generalizing here. Both of these companies are kind of neck and neck right now, but in terms of operational, that’s how I see it right now. It’s basically faster horse versus better jockey, which brings us to the second idea for today, which is management incentives and track record, because I think the one thing we can point to is the fact that Lazada has had three CEOs in a couple years. And that is bad. That is a real fact that matters. And in my experience, it can be a huge deal over the long term. So let’s talk about that. So when I look at companies, you know, I kind of look at a couple things. I look at a lot of the qualitative aspects, which are things that help you project into the future, like competitive advantage, strategy, structure, resources. That can often give you a longer term view. you look at the numbers, but the numbers don’t generally let you project more than a couple years into the future. These are just the qualitative aspects that maybe let you go further than that. And then within the center of that, there’s management, which is, you know, what about the people running this thing? How do they act? How do they behave? What are their incentives? What’s their track record? You know, you can have a really great company run into the ground by not great management. And you know, do you need great management? Some businesses are difficult. high quality management. Some businesses are so strong in their structure that you can kind of have not great people run it and it’ll still work out okay. But management is hard to get your brain around because it is difficult to assess people. And I have a short list of questions I look at and they have to do with generally their actions, not what they say. Track record with regards to debt is particularly important to me. Do they act like shareholders and owners as opposed to managers? But number one on my list is what is their incentives, what are their incentives, and track record. People do tend to do what the incentives lead them to do. That can be very good and it can be very bad depending on how you’ve set them up. Fortune 500 companies I don’t think are terribly good in this regard because your average Fortune 500 company CEO only lasts a couple years. That’s not really what you want. I’m far more impressed by a family that owns a small hotel or a family that owns a grocery store. And the family lives upstairs and everyone works in the store. And, you know, if the store doesn’t do well, nobody goes to college. I mean, that’s real investment like owner managers. That’s kind of a Buffett thing. He loves companies run by owner managers as opposed to professional CEOs who come and go, and yet generally get their big bonuses and salaries regardless of performance in terms of shares. So let’s assume that upper middle and senior management of Lazada and Shabi both have serious track records, which I haven’t checked, but I’m sure is the case. This is a very technical field. It’s not something you just fall into and say, oh, we’re going to make you head a product development for an e-commerce company. These are fairly technical skills that you have to prove yourself. Let’s assume that all the resumes are amazing and the track record is amazing. I would be looking at this idea of what are their incentives and what are their interests. This is where I think it gets kind of interesting. Because one of the funny things like I learned, really I learned the hardware. The hard way is, you know, I used to bring people with great resumes into developing economy projects. This was a lot of the Middle East, but also China. And I ended up having to replace a lot of them. And I really got to the point where my issue was not even so much the track record, it was what is your commitment to this region? You know, there was so many execs come out of… London, Australia, and doesn’t have to just be senior exec, could be doctors or lawyers or whatever. And they come out to somewhere like the Middle East or Southeast Asia or China. And it’s pretty clear they’re just there for a couple years. It’s kind of like a tour of duty. Maybe it’s gonna advance their career with the company back home. So they’re going out there, they’re gonna spend a couple years and then they go home. And they kind of know they’re going home. And I really learned to sort of avoid that group. like and I started to look for commitment as much as anything so I would ask questions if I was interviewing someone like uh… did you sell your house back in canada and so now we’re keeping it we’re renting it so that’s not good uh… where’s your family are they moving out with you are you coming to malaysia uh… are you learning the language and you could get a real sense of like this was a couple years and then they were going home in the back of their mind they weren’t This wasn’t gonna be their life. And there’s nothing wrong with that. It’s exciting. Maybe it’s an adventure. Maybe the boss has asked them to do it as a way and they said, look, you go out and work in Malaysia for a couple of years and we’ll come back and you’ll jump up the ranks and become senior vice president. Maybe some deal like that is very common. If it’s a multinational, they routinely move people around. And I really didn’t like that. I wanted someone who was like, look, we’re living here forever. Our family’s here. Our kids are in school here. All our friends are here. We’re very active in the community. We’re getting to know people. I mean, that’s really what I wanted. And I stopped hiring the other people almost entirely. Now, sometimes if you’re a multinational, and I think this is relevant to Alibaba as relates to Lazada, that you wanna hire people like that, but you also wanna sort of teach the company culture. So one way to do it is you have someone from Hanjo go out and… work for a couple years at Lazada, and then maybe they have a co-president, and one person represents the home culture and strategy, and a lot of times the technical expertise, and the other person is probably your long-term person, and you put them together as co-presidents for a couple years. That actually works pretty well. Now, if we look at Shopee, clearly you see that. Clearly this group, not only are they committed to the region, there’s no backup plan. They win or they lose, they live or they die in Southeast Asia, that is their play. There’s no going home to China if this doesn’t work. Alibaba’s gonna have more of a problem with that because they can sort of, well, if it doesn’t work out in Southeast Asia, we’ve got China. Which is kinda how they beat eBay 20 years ago, 18 years ago, when eBay came out to China when it actually was ahead of Alibaba. But eBay, they could go home if China didn’t work out. Jack Ma, there was no plan B. So there’s sort of that incentive which helps. And that’s just the weakness or the disadvantage you get when you’re successful in one region is you’re not as hungry and live and die like you were when you were a smaller company. When I look at incentives and commitment to the region, I mean, obviously, Shopee, Garena, Sea Limited, they have a strength there. And then on top of that, if you look at the, you know, the last three CEOs that have been in place in Lazada, two of them were clearly China professionals who, as far as I can tell by looking at their backgrounds, clearly they see their path in life professionally in Hangzhou primarily, as opposed to they’re moving to Southeast Asia and they’re never coming home. So yeah, that. It would not surprise me if the level of commitment, the incentives, the interest are just stronger for the purely Southeast player. So that would be one thing I’d think about. And then really, I think the analogy that makes sense here is Sam Su, Samuel Su, who is the guy who basically in 1988 was taken, hired away from Procter & Gamble Taiwan. to start to sort of lead KFC in China back when they had only four restaurants. And McDonald’s was also in play. I think they came in about 1990, but about the same number of restaurants. And you saw a really similar pattern of KFC versus McDonald’s, where they had equal strengths, very similar business models. Neither of them was weaker, really. That’s a lot like Shopee versus L’Vaute-Lazade in Southeast Asia. You know, the… The business models are kind of equally strong in different ways. So it’s really gonna come down to the management team, who’s gonna sort of run harder, faster over a long period of time. And that was Sam Su. I mean, he outran McDonald’s, he brought his team, he built a team, he moved to China, he didn’t look back, he burned the bridges behind him. And he committed and over the course of 25, 30 years, he built that business day by day, shop by shop, into roughly 7,000 outlets. And in the same time, McDonald’s got to about 3,300. He just ran them, he was more committed. You know, that looks a lot to me like Shopee versus Lazada. Who’s gonna win in the management side? Who’s gonna have the bigger jockey? Now, I put a caveat in there. that I think if Lazada really pulls out a robust logistics network that spans Southeast Asia, that could be, if not a game changer, a very powerful resource that might tilt the scales. But otherwise, I’m looking at management. So that’s kind of the other key concept for today is management, track record, and incentives. I think that’s a lot of what’s going on here. And one last point to make, and then I’ll let you go. So the two concepts for today is multi-homing and then management incentives and track record. And then the sort of last idea is this idea of a smile operational marathon, which is learning goal 23. You know, the SMILE, you know, what operational dimensions are these management teams really competing on? Is it scale, scale effectiveness and efficiency? I don’t really think that’s it. Is it machine learning? Nah, I think if your machine learning is good, that’s required, especially in logistics and customization. I don’t think that’s gonna be a game changer. Is it innovation, like an Elon Musk thing? Nah, I don’t think so. Rate of learning, I don’t think so. I think this is an ecosystem shaping and management competition. I think that’s sort of the key operational dimension. And then probably scale efficiency and effectiveness. I would point to the S and the E as the key dimensions I’d want my management teams winning on. How good are you at getting everyone online, getting them engaged, getting the users? I mean, that is really what these platform business models are, they’re ecosystem orchestrators and shapers. So that would be kind of my key dimension there that I’d be thinking about. And that’s really it for today. So a little bit shorter today, no case for today. I’m just sort of been looking at these companies a lot and I kind of wanted to share my thinking on what I’m looking at right now. And that’s probably the three things I’m keeping an eye on in the newspapers and all these press releases. I’m checking out management, incentives, interests, track record, which I’ve talked about. I’m looking at that sort of fight for demand side scale, which is users, activity. engagement, a lot of subtleties going on, gamification, lots of promotions and festivals and things like that. And then the third one is the logistics, the supply side scale, who’s going to put that together first, which is a lot of money and time and effort. And those are kind of the three things that are on my short list. And that’s it for today. Hopefully that was helpful. I’ve been having kind of a crazy week. I’m actually a little bit tired. I taught four days last week. I teach about 20 to 30% of my year, my time. But sometimes it all happens at the same time. So I had two days of teaching a bunch of students from Italy, all online, of course, these days. And then two days with at SEABS, China Europe International Business School in Shanghai. So altogether, I think I spoke for… be about 26 hours straight last week, which is crazy. That’s actually a ton of content. The funny thing about podcasting is like professors tend to be really naturals at podcasting because we’re kind of the only profession where it’s just normal to speak for three hours. So you know in a given class I might speak for 35-40 hours of lecture and then we’ll do cases and other things and you know and that’s usually probably about a thousand PowerPoint slides. So when podcasting came along, it was kind of a natural medium for us. Other groups like journalists and analysts, they tend to be better writers, or maybe they do videos, but then those are probably five to 10 minutes. But yeah, I’m not sure what kind of skill sets that is to be able to talk for so long about. I could probably talk for an hour on almost any subject at this point in my life. So. I don’t know what that means. Other stuff, I’m actually talking with some executives at AliExpress tomorrow, which that should be really interesting, just because there’s a lot of interesting cross border stuff going on between China and Russia and Southeast Asia. It’s actually an interesting subsector. For those of you who are members, I’ve been sending out a little bit about this in the daily updates. So I’m going to hopefully dig into that a little bit more. It’s kind of a… quiet trend that people don’t talk about. But this cross-border e-commerce thing, they’re slowly being stitched together sort of a global logistics network, a global payment network, and then these cross-border plays. It’s kinda happening off the radar, and it’s actually pretty important, but you don’t read about it very much. Anyways, that’ll be tomorrow, so that’s great. Anyways, that’s it for me. I hope everyone is doing well. I hope everyone’s gonna have a great week. and I will be sending out the updates and talk to you next week. Take care.

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