SINGAPORE, Singapore — With its $1 billion buy of online retailer Lazada, Alibaba has signaled Southeast Asia as a regional e-commerce battleground — with 600 million people, and no shortage of logistical headaches.

The region has the potential to help global retailers offset slowing growth momentum in their core markets, but it comes with complex regulatory, logistical and language barriers. Internet connections can be slow and the vast archipelago landscape can prove daunting to even hardened logistics experts.

In an interview in October, Lazada’s chief operating officer Pierre Poignant highlighted some of the hurdles in delivering packages in the Philippines, for example.

“In some places, there’s just no address. It’s like ‘take the house on the left’. And in many places you have to take a boat to get there… It can be several days or even weeks to reach some very remote island,” he told Reuters.

A study by CLSA last year showed that almost a quarter of the online orders it placed in the Philippines failed to arrive, and multiple delivery delays were reported.

Such obstacles mean the market is highly fragmented, with no dominant force. Start-up funds say international companies wanting to get in are likely to follow Alibaba’s route by buying existing operators rather than trying to go it alone.

“The strategy of coming in, looking for a local player who has shown traction and buying them in order to get a foothold is a very good one, and we will see more of that,” said Vinnie Lauria, a founding partner at Golden Gate Ventures which is invested in marketplace Carousell and online grocer Redmart.

“Lazada has done a very good job of operating in multiple countries. That’s not something Alibaba is familiar with.”

Headquartered in Singapore, Lazada also operates in Malaysia, Indonesia, the Philippines, Thailand and Vietnam.

Komodo in the Jungle

Though Lazada more than tripled the number of active customers to 7.3 million, its losses more than doubled last year, and experts warn that investors should be prepared for a long wait before the industry turns a profit.

The region has dozens of other e-commerce players, including Amazon.com , Tokopedia, OLX, Qoo10, Zalora, Cung Mua, Blibli and Etsy — but no one platform controls more than a fifth of the market, according to Bain & Co.

And the list keeps growing, with payment start-ups such as Fastacash, Xoom and GoSwift aiming for a foothold in the region.

Lauria said it would be easier for an international player to acquire rather than “copy and paste”, especially for online marketplaces.

For those companies already scrapping it out for a small slice of the market, consolidation may be the route to survival.

“The (market) shares of smaller players are definitely going to get smaller with Alibaba jumping into the region,” said Cris Duy Tran, a consultant at Frost & Sullivan. “One way to survive is to partner with some of the other players to get bigger.”

A person with direct knowledge of the Lazada deal said Alibaba reviewed several targets before the acquisition.

“Lazada gives them scale. Organically, it would have taken a lot of time to build,” the person said.

An Alibaba spokesman in Hong Kong said the e-commerce giant sees the Lazada deal as a “win-win investment.”

“We see SE Asia as a strategic piece of our globalization strategy. It’s a market that shows significant e-commerce potential,” with a robust economic environment, attractive demographics, low e-commerce penetration and some 33 million Chinese, who hold potential for cross-border commerce, he said in an emailed response to Reuters enquiries.

 

Another source with direct knowledge of the Lazada deal said Alibaba would likely not stop at just one acquisition in the region. “It’s a $200 billion company … doing a $1 billion deal in one segment of e-commerce. Does that mean the end of it? I don’t think so. They still have appetite,” the person said.

Other existing firms were primed for more competition.

“I say today that Tokopedia is the komodo in the 17,000-island archipelago,” said William Tanuwijaya, co-founder and chief executive officer of SoftBank-backed Tokopedia, in response to Alibaba chairman Jack Ma‘s one-time description of his e-commerce group as a crocodile in the Yangtze river.

“Fighting in a river, the komodo will lose, but fighting in the jungle on one of our islands, the komodo has a pretty good chance to win,” Tanuwijaya said.

By Miyoung Kim, Aradhana Aravindan and Eveline Danubrata; additional reporting by Saeed Azhar, Denny Thomas and Paul Carsten; editor: Ian Geoghegan.

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