February 10, 2019

Business Talk with Ray Alimurung, CEO of Lazada Philippines

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  • Business Talk with Ray Alimurung, CEO of Lazada Philippines

    Ray Alimurung is Lazada Philippines’ chief executive officer, who assumed the position in June 2018.

    He first joined in 2012 until he left in 2013 to set up aCommerce Philippines, which is an end-to-end e-commerce fulfillment and solutions management for brands, with its headquarters based in Bangkok, Thailand. He re-joined Lazada as the chief commercial officer in 2016, at the time when Alibaba acquired control of Lazada Group.

    Succeeding Lazada Philippines’ co-founder Inanc Balci, Alimurung is the first Filipino CEO of the local e-commerce business.

    What made you decide to go back to Lazada? Is it mainly because of Alibaba’s acquisition?

    That’s the main reason. The other thing is that I really want to shape or lead shaping the e-commerce conversation in the country—not just in Lazada but also in policy-making, dealing or working with various regulatory and private organizations to try to shape the e-commerce conversation.

    I felt the only way to do that was to be seen as the leader or as one of the key faces in e-commerce, and I felt the only way to do that was through Lazada. It was the way to get credibility and to get the right audiences in e-commerce.

    What do you think is the most noteworthy among the unique points of Lazada, compared to other e-commerce companies?

    I would say that Lazada has several key differentiators now.

    One of our main strengths is technology. With the entrance of Alibaba, we have basically overhauled our tech stacks to the point that it is more robust now, a lot more powerful so that we could layer a lot of other features and functionality on top of it.

    For example, early this year, we launched personalization. Your Lazada app does not look like that of your friend. Have you tried looking at your apps? Your home page, it is different from everyone—it is personalized. If you click categories, the order will be different.

    In addition, we built a lot of tools that enable sellers to build their business; for example, there is an instant messaging, a way to talk to sellers and talk to the buyers. What you don’t see as a buyer is that there are a lot of tools that a seller has. For example, there is a drag-and-drop, which allows them to create a store and create banners, and they can also do it for their product pages. So, it’s like a self-service tool to design your store or to design your page.

    There’s also a boosting tool, which allows you to pick or feature a product for a day or a week. Those products will be manually boosted in Search, so it’s kind of taking the knowledge of the seller about their business, allowing them to influence how the search works.

    You might say that a lot of these tools may appear in a competitor’s side, but the point is we’re drawing from the extensive experience of Taobao teaming. A lot of tools are coming out from that experience and the team has an Alibaba pedigree so these teams are very experienced, very knowledgeable, and have built a product and tech for e-commerce before. So, to me, that’s our key strength.

    The second key strength is logistics. We deliver most of our parcels with an in-house fleet. We’re continuing to expand our logistics footprint. We currently have a warehouse in Manila—or in Cabuyao (Laguna), actually—and then we have one in Cebu. We just opened in Davao around a month ago. The idea behind building a logistics warehouse network or footprint is to put a lot of the products closer to the customers, at least in the metro areas, which shortens the lead time.

    One of the important things in e-commerce is how long it takes from the time you order to the time you’ll receive your item. This is one of the defining parts of your total customer experience. We need to continue to build out our logistics network and we’re coming in to get this. It is all about the network of warehouses, the delivery fleet, the logistics hubs of the delivery fleet, we have 40 of those around the country, and the tech that supports this.

    The tech comes in when you try to figure out one of the important things in delivery is transparency. I don’t necessarily need the items today, but I want to know where it is. I want to know what stage you are in delivery. This is something that we, historically, in the logistics industry did not have. Before, when you buy a parcel, it arrives if it will arrive. But in e-commerce, you need to know where it is.

    Another key strength of Lazada is our global business. Today, we have 60 million products on our website, but most of these products are actually coming in from abroad. Why is that happening? Because the expenditure in the Philippines is actually very limited, and this is a known fact.

    There’s a lot of stuff that people want to buy but simply is not available in the market or has a very high search cost; today it is very hard to find stuff offline. I mean, if I ever to ask you to buy a, let’s say, a folding table, where would you buy? You won’t know where to begin with. Maybe you can think of a place to buy but only one place. What I mean is technology, logistics, and global or cross-border business.

    What has changed with Lazada Philippines before Alibaba or after Alibaba came in?

    There are a lot of changes. Six years—going from a start-up, we are now in our fourth office. Our first office was in “The Spa.” The first office was a little spa on Jupiter Street (Makati); it is actually called The Spa.

    Big changes. Number one, we are clearly a marketplace now with a huge cross-border or global component. When we began, we were a retailer doing consignment or outright buying, which means our resources were limited.

    The second thing is that our technology changed dramatically. The original technology was very bare bones, and every time we had to add another feature, it was sort of layering on features for a platform that is not really designed to handle all those features. Today, it is a very, very robust platform, very similar to what Alibaba has in China.

    The third thing is, just like with any start-up, it’s a lot more professionally run from now. A lot of the policies and processes are in place but not to the point of becoming very bureaucratic. The idea here is not to have processes and policies that cause you to be very slow. We’re still a very nimble company.

    We are in our sixth year, and we are much bigger now than before. With the acquisition, we are much more attuned to what’s going on in China, so the best practices we see is coming from what’s going on in China; for example, the concept of social commerce. Social commerce is a very Asian e-commerce phenomenon.

    If you have ever been on the Amazon website, do you see any social commerce going on? Aside from product reviews, there isn’t anything much going on. There aren’t people group-buying a product, group-slashing a product, referring other people to join—this is not going on in Amazon. This is social commerce.

    There’s a lot more we’re going to do with social commerce—allow people to build a community to talk about certain types of product; let’s say, the bicycle enthusiasts getting together, all the car enthusiasts getting together. So, a lot of what you see is social networking, when it comes to China, it actually happens on the e-commerce side, hence the term social commerce. Social commerce has started to happen on Lazada. You can group-buy, you can slash, you can refer someone.

    What are the challenges that Lazada faced over the years, and how did you address them?

    The challenges that we have faced for over the years are still the same problems that we are facing today. And they are inherent to the e-commerce industry. You have to understand that when e-commerce happened in the US in ’95, the industry has already a robust mail-order catalog industry. It means people are already comfortable with entering their credit card details on a piece of paper, sticking it in an envelope, sending that and then having an item delivered to their home with a very well-functioning logistics system.

    If you think about those key elements, there was no internet, but there was a high prepaid penetration, meaning people had credit cards, they were comfortable entering those credit card details on a piece of paper, and the logistics systems were very reliable so you could get your item. Just think about those components and now we start our e-commerce in 2012.

    Today, less than 5% of Filipinos have a credit card, 30% have bank accounts, but the ability to use a bank account or ATM card online just started in Q4 of 2017. That coincided with the government mandating the EMV chips in credit cards. You recall that you couldn’t use your ATM card before to buy online unless the website was BankNet-enabled, which is a different story—many websites were not BankNet-enabled.

    And then, you have a very nascent logistics structure; for example, today, none of our parcels are delivered by the Philippine Post because we cannot rely on their transparency. There are two things that they are not going to fulfill for us, one is transparency and the other one is reliability. Therefore, we’re using the courier system. This is one of the few countries where you try to deliver parcels only in the courier system, no postal system.

    You go to Indonesia or Thailand, they have very strong functioning postal systems, which are internet-enabled. Ours is not. The way the parcel logistics landscape has spanned out continues to keep the cost of logistics of delivery high to the point that last mile delivery in the Philippines costs a lot more than in Indonesia despite the fact that both countries are archipelagos.

    Now, the delivery costs have come down but they continue to be high in relation to the cost of the item. To address the logistics, we had to build our own delivery fleet, which we continue to use for most of our deliveries.

    To address pre-payment, we had to offer cash-on-delivery nationwide, which is a pain because cash-on-delivery is a less reliable form of payment than the pre-payment because you pass a lot of the risks, you’re asking the seller to bear a lot more risks, as well as us when we shoulder the logistics part because we’re delivering to an address where the customer has not paid.

    When he rejects the item, it will get a lot higher cost. The seller’s inventory is tied up by going to the house and coming back. That could have been another sale but it is actually tied up. I think what you don’t realize is that the more you do cash-on-delivery, the more you’re keeping the logistics costs high because any cancellation on cash-on-delivery is incorporated with the cost, which makes the cost of your delivery high, even if you are on credit card. This is the type of cost that you can’t see but is born with everyone.

    Is there any way that you came up to minimize the risks with COD?

    The biggest risk with COD is the lead time, the delivery time. The faster you deliver, the lesser the risk because the buyer won’t have time to buy somewhere else. That’s why we are obsessed with making our lead time very fast. We have the fastest lead time, compared with other e-commerce company, both local and cross-border.

    Some of the challenges are market trust or the fact that the market is new to e-commerce. So, the way to address the distrust is through cash-on-delivery. I think we are slowly getting to a point where you trust Lazada. Actually, if you trust Lazada, you don’t need cash-on-delivery if you think about it. We have been actively promoting our wallet as an alternative for cash-on-delivery for those who don’t have credit cards or bank accounts. And we continue to increase our number of cash-in locations for the wallet.

    What can you say about the e-commerce industry in the Philippines and Lazada’s position in it?

    Lazada is clearly the leader in the e-commerce industry in the Philippines. I think the industry is too young. Less than 3% of retail is e-commerce. While we are the leader right now, there is no room for complacency because this is a platform type of business that has very strong network effects, meaning the value of your platform or network increases exponentially with every additional user.

    Basically, what it means is that the sellers want to come to your marketplace because there are many buyers and the buyers want to come to your marketplace because there are many sellers. Every addition of sellers and addition of buyers exponentially increases the value of your network, making the switching cost to another platform very high for either one to the point that they actually end up not going up anywhere else.

    Maybe you shop at two different marketplaces, but you don’t go on and shop again. You’ll see this in the behavior in the US. The people went from price-comparing across 20 websites to just buying from one without being bothered what’s being sold elsewhere because it has that winner-takes-all component to it if you continue to invest in the market to grow your user base and activity in your platform.

    Basically, it is a marketplace or platform with very strong platform effects. It is very important to give and create value for the users, consumers, and the sellers so they could be active on the platform. Otherwise, someone can just come in and take it from you.

    What plans do you have for Lazada with your new role for the foreseeable future?

    The plans in the Philippines are very highly related to our group strategy. We implement locally but we are not running in an independent strategy. Our goal as a group is for the thousands of sellers to grow to 8 million sellers by 2030.

    What we really want to do is help sellers and brands build a business, give them the tools, the technology, in order to build their business on Lazada. One of the tools we have is the Business Advisor.

    The sellers on the back-end can see the performance of their business using Business Advisor. It has things like the products that were viewed, what percent of the time, where they were purchased (known as the conversion rate). You can see these online.

    How many unique buyers went to your store and, based on this information, sellers can change their content, pricing, maybe get rid of some products. That Business Advisor is advising them on the health of their store.

    How long have you had that feature?

    Early in 2018. It also tells you what percent of the customers contacted you on chat you responded to, which you responded to the most, and how fast you responded. That is important because, as a customer, you want to know. They want to know if they are responding faster. You see an example of tools we build to help us provide value for the sellers in order to hit that goal of 8 million by 2030.

    The reality is in a platform—the difference between a platform business and a traditional business or what we call a linear business or piped business is, in a pipe business, you create a business upstream and you sell it downstream. All businesses are like this; you make a shampoo, then you sell it. You offer bandwidth, you sell it. You have a magazine, you sell it from here to there.

    In a platform business, it does not have to create value, the value is created by the users, the consumers, and the sellers. The role of the platform is to create a place where people can increase the livelihood of interacting, make it easier for that interaction, make it friction-less for them to join, set the rules and policies to reward good behavior, and penalize bad behavior, give them tools to facilitate the interaction between the two groups. That’s all we do; they create the value.

    Think about what you do on Facebook. Facebook does not post any pictures, but the value you as a user accrue on Facebook is the pictures, which are made by the users. But the key is that the platform makes it easier to load the pictures, to like a picture, to share a picture or a post.

    In the same way, you want to make it easy for a seller to onboard, to load a product, to manage his business, to grow with, to monitor with, make it easier for the customer to order, to receive the product, to know which are the good products, to know which are the good sellers and the bad sellers. That’s the role of Lazada as a platform. What we want to do is to continue providing that governance, that value to the consumers and sellers, and hit that goal that we mentioned.

    What is your management style in Lazada?

    My management style is the style of empowerment. I believe in aligning clear strategic goals and key performance indicators with each of my team members, and not micro-managing them on a daily or weekly basis in achieving those but being clear on what those are.

    The second thing I do is make sure that I remove for them any roadblock that they may have in achieving those goals. That roadblock removal can be mediating with other teams locally, interceding on their behalf, or handling an escalation with more regional function, for example, technology or finance. That’s how I operate.

    I heard that you really don’t have an office here.

    Actually, no one really has an office here. I don’t think you have seen any offices here. This is the new economy. This is a very open style. Even in Silicon Valley, you can see that a lot of the offices are leaning towards this style.

    There are trade-offs, gets a little bit harder to concentrate, but then I think the benefit far outweighs the cost or the drawbacks because what you create is a much more open environment. And there are a lot of people saying that they have an open-door policy, and they even leave their doors open—you think people are going to walk in?

    If you want to know what’s going on, for me, better to be on the floor with the team.

    Who are the people you look up to?

    I would say that, of course, there is Jack Ma. But rather than naming people, I would say I have the greatest admiration for two kinds of people. One is entrepreneurs because entrepreneurs, I feel, have basically put their lives on they’ve gone out on a limb and taken risks that most other people are not willing to do in order to create value. Entrepreneurs create, in my opinion, the greatest value in the world because they basically conceive things that are not there and then they bring it to fruition. Some of these things are making lives easier, uplift lives better.

    Second is people who are willing to fight for a cause and even give up their life for that cause. I think being an entrepreneur is a very admirable vocation but I think fighting for a cause is even nobler.

    Do you have your own cause?

    My cause right now is to find a way to uplift as many Filipinos as I can and the way I choose to do that today is through Lazada. I feel that Lazada is the lowest cost of opportunity for Filipinos today to build a nationwide business or brand and eventually an ASEAN one or Southeast Asian one and then eventually a global one.

    If you look at Jack Ma’s vision, he wants to enable any seller in the world to be able to get an order, to be able to sell to anyone in the world, get paid for and deliver it within 72 hours. And if you think about it, Lazada is part of Alibaba’s ecosystem. If Alibaba is able to, I am confident Alibaba can build this and Lazada, being part of that network, unlocks the world market or global market for the Filipinos.

    You tell me how the average Filipino today is going to reach even a national market. How? It is too expensive and costly for an average Filipino. He must know and figure out national distribution or he is to find a way to enter the shelf space of one of the top retailers. How many would be able to do that? Supposed he solves that, how would he go global? How does that help? Today, that’s the cause I am fighting for.

    Can you tell us what has made the most impact on your career in Lazada?

    I think there are a couple of things, but one thing that has really influenced me in my career is my love for reading. I have a reading target every year. I have to read X number of books across certain types of subjects. There are two subjects that I typically read about: one is the internet or tech businesses, typically started by entrepreneurs; the other thing that I read that is really relevant is a lot of behavioral psychology.

    Books by Malcolm Gladwell, Dan Arielli—these are the authors because I feel that it is important to understand other technology or tech companies or what challenges they faced and how they faced them. You’ll not apply it directly, but it is for creative tools and problem-solving. “Oh, so this is what company A did under that situation or this regulatory issue that this company did.”

    I think if you just try to rely on your own experience or the people around you only, I think you are limiting yourself unnecessarily because a lot of the challenges we face, people in the company have faced it in some shape or form. E-commerce and the internet did not start in the Philippines. They started in 1995. So there’s a lot of learning out there.

    I think behavioral psychology is for understanding what makes people think, what makes people do, why they do it, and I think that’s very important when you’re working with a lot of people, especially in Lazada wherein we work with people across six countries and across a lot more nationalities and even age ranges.

    Can you recommend a book for aspiring entrepreneurs?

    There are two books that I would recommend to anyone. One is, for e-commerce, 6 Billion Shoppers written by a former VP at Alibaba, Porter Erisman. I think what it does is it provides a good landscape of how e-commerce started and where it’s going. It touches across US, Europe, China, India, Southeast Asia, Latin America, there’s a little edge of Lazada there.

    The other book I would say is a book written in the 1930s, which is Dale Carnegie’s How to Win Friends and Influence People. I think that was the book that changed my life rather at an early age and something that I continuously refer to until today.

    Can you share a message to our readers?

    We, for many years, people in this country imported a lot of technology and services that are something we can build. Let’s make something else.

    I think that was very true that in the earlier stages of technology when the cost of RND was very high, the average Filipino would not think of the next car, television, or airplane. But today the cost of RND is just like the cost of a computer.

    So, my challenge for the Filipinos today is to go out and try to look at the country and find a problem that you want to solve. Ideally, look at the problems that are close to our hearts and ask yourself how you can take technology to go out and solve these problems and not wait for someone else from another country to solve it for us.

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