KARACHI: Daraz Group, Pakistan’s leading online retailer on Tuesday announced its 100 per cent acquisition by Alibaba Group, a Chinese e-commerce giant.

Following the acquisition for an undisclosed amount, Daraz — which also operates in Bangladesh, Sri Lanka, Myanmar and Nepal — will continue under the same brand name.

Talking to Dawn, Mehdi Raza, Director Marketing at Daraz.pk said Alibaba has a policy of not disclosing financials. “We won’t be sharing the amount.”

Daraz, founded in Pakistan in 2012, was incubated by Germany’s Rocket Internet. Daraz.pk went to record Pakistan’s first Rs1 billion sales in 2016 with its Black Friday event. By 2017, it renamed the event as Big Friday and went on to secure four times more orders than the previous year, earning Rs3bn.

A statement issued on Tuesday by Rocket Internet quoted the company’s CEO Oliver Samwer saying the deal is “testament to Rocket Internet’s ability to successfully scale and exit market-leading companies”.

“There will be no restructuring or layoffs,” Mr Mehdi said. “In fact we will be hiring more people and have access to better technology. There will be work on consumer engagement front, with an increased focus on the mobile app and personalisation.”

First big acquisition in the country’s tech sector

The deal has been in the works for over a year now, and has been the subject of intense speculation, with wild figures being thrown around regarding the price.

Talking to Dawn, a source said the deal hovered between $450-500 million. “This is much better than the market estimates of around $400m.”

In a tweet, Badar Khushnood, VP of Growth at Fishry.com and Head of E-commerce Committee at P@SHA (Pakistan Software Houses Association) sought feedback on how the acquisition of Daraz might impact e-commerce and startups in Pakistan. Answering his own question, he told Dawn that the deal is an “excellent opportunity for Pakistan!”

“Most foreign direct investment has been in the telecom sector. This would be the next big emerging sector. Foreign investors have been hesitant and feared entering Pakistan. Now that a giant like Alibaba has entered Pakistan, there will be followers. Potential investors and companies which couldn’t bear the cost of due diligence will now follow Alibaba. So far Google, FaceBook and Twitter have been hesitant to enter Pakistan due to legal issue, law and order. So this is a good development,” he explained.

He went on to add that the move will help improve the quality of products as well as services for the consumers. “It will generate a healthy competition among players and help improve e-commerce business in Pakistan.”

But the move isn’t without some cons. With Alibaba now in the picture, smaller players will find it difficult to enter the market. However, Syed Salman Hassan, CEO TCS Ecom (which owns the e-commerce site Yayvo.com), thinks otherwise. “Compared to the retail sector of Pakistan, the current e-commerce market is just a tip of the iceberg. We have such interest but if you look at the numbers we are pretty small compared to the Indian market,” he said.

“The potential of the Pakistani consumers – 200 million plus population with 65pc below the age of 30 – is finally being realised. With Alibaba entering in the local market, it will get better from here onwards. Jack Ma and Alibaba have been supportive of the small-and medium-enterprises sector and China is proof.”

“I don’t think people will close shop but rather more innovation and expansion will take place. When you have international practices and technology coming into Pakistan, things will be better. We feel it’s a very good step,” he said.

Talking to Dawn, another source in the industry stressed that the e-commerce market is in infancy in Pakistan. “Its value still hasn’t crossed $1billion and most portals are conducting sales on cash-on-delivery basis. AliBaba’s decision to keep Daraz intact won’t make a huge difference in the sector immediately, but their marketing and financing muscle could be utilised with effectiveness over the course of time.”

However, Pakistan’s lack of payment gateways and adoption of credit cards for online transactions still remains a big hurdle in the way of e-commerce becoming a smashing success. Alibaba’s entry could change all that, though over a period of time, the source said. “Mobile payment penetration is way too low compared to other countries in the region,” the source said.

“Alibaba affiliate Antfinancial’s 45.4pc acquisition of Telenor Microfinance Bank aka Easy Paisa will fill that payment gateway gap and allow e-commerce transactions to be conducted digitally. Both these investments from Alibaba have a strategic angle,” the source added.

Published in Dawn, May 9th, 2018