SINGAPORE: From Laos to Lagos, Germany's Rocket Internet is racing to capture shoppers in emerging markets before the global e-commerce titans Amazon and Alibaba can catch up.
Few consumers have heard of Rocket Internet, but if they are regular shoppers on Zalora and Lazada, as many Southeast Asians are, they are part of a global network served by businesses of the German venture-capital comany.
Rocket is gearing up for an initial public offering (IPO) this month that will help provide the war chest it needs to build and defend what it hopes will be the largest online shopping empire outside the United States and China.
Chief executive Oliver Samwer, who founded Rocket Internet in 2007 with his brothers Alexander and Marc, sees huge opportunities for digital businesses in emerging markets, noting that the cities with the most active Facebook users are Bangkok, Jakarta and Istanbul - with no US city in the top 10.
"We like to collect countries, small markets that together can create a giant," he said at a retail conference in June.
But while Rocket Internet has launched about 70 companies - ranging from online fashion to food delivery and marketplaces for real estate - in more than 100 countries, many in the last couple of years, it is still far from being a giant.
Rocket's top eight e-commerce ventures in emerging markets - Lamoda in Russia, Dafiti in Brazil and Zalora in Southeast Asia - together made sales of 539 million euros (US$708 million) in 2013 and an operating loss of 351 million, according to figures from the Swedish investor AB Kinnevik.
That compares with the $2.54 billion in revenue that the 15-year-old Chinese e-commerce juggernaut Alibaba reported for the single quarter ended June 30. Alibaba's net income attributable to ordinary shareholders nearly tripled to $1.99 billion.
However, the Rocket businesses are growing fast - revenue was up 74% in 2013 - and they have succeeded in attracting 1 billion euros in capital from a raft of high-profile investors - most recently the German service provider United Internet AG and Philippine Long Distance Telephone Company.
But the business still faces a rocky road, not least due to competition from Alibaba itself as the Chinese company - soon to be bolstered by funds from a world-beating IPO - looks for new opportunities outside its home market.
The Samwer brothers have gained notoriety for cloning businesses pioneered in Silicon Valley in new markets - most notably the German online auction site Alando which they sold to eBay, the site on which it was modelled; and the Amazon Zappos-copy Zalando, now Europe's biggest online fashion site which is on track to list soon.
The Zalora website is displayed on a monitor at the e-commerce company's offices in Bangkok. (EPA Photo)
Rocket's strategy is to identify markets and niches where big players have yet to get established, cutting its losses if the competitive environment turns out to be too fierce, as it did in 2012 when it closed operations in Turkey.
It says it can launch a company within 100 days by drawing on expertise in areas such as legal, finance, communications, marketing and business intelligence at its Berlin head office, helping it start an average of three to six new firms a year.
It aims for its ventures to be operationally independent within another 100 days - but can pull the plug if the business is failing, as they have done in about 20% of cases.
In Russia and Brazil, home to the two Rocket businesses with the highest sales in 2013, Alibaba's AliExpress is already a force to be reckoned with: it is the No. 2 shopping site in Brazil behind the local firm MercardoLivre, and No. 2 in Russia behind Avito, according to web traffic measurement firm SimilarWeb.
In those markets, Rocket has sought to focus on fashion with its Dafiti and Lamoda sites rather than the general merchandise of AliExpress. Dafiti is No. 16 overall in e-commerce in Brazil, but is No. 1 in online fashion. In Russia, Lamoda is at No. 15 - but in fashion, it is No. 2 behind local rival Wildberries.
In Southeast Asia, Rocket has had a freer run to do both fashion with Zalora and general wares with Lazada, although Alibaba has positioned itself to expand in the region by taking a stake in the logistics business Singapore Post.
"They are smart to go into markets where most other big players don't have a footprint and (elsewhere) round out the offers of Alibaba and Amazon," said Zia Wigder, e-commerce research director of the consulting group Forrester.
"In Brazil there are lots of companies selling consumer electronics, but apparel is much less well penetrated."
Rocket has the top e-commerce sites in terms of overall rankings in Indonesia, the Philippines and Thailand, while its Jabong fashion site ranks No. 2 among all e-commerce sites in India. In Malaysia, Lazada is the No. 3 shopping site and Zalora is No. 1 in fashion, according to SimilarWeb measurements.
"You cannot think of beating the Chinese on cash, because they have so much of it," said Giulio Xiloyannis, managing director of Zalora Malaysia. "You beat them on branding and product quality."
To that end, the Rocket online fashion stores are investing in building their own fashion labels and spending on advertising, a lesson learned from Zalando, which gained widespread recognition in Europe with its "scream for joy" slogan and ads showing delighted shoppers ripping open parcels.
Rocket is also spending heavily on building warehouses and developing delivery networks, particularly in countries such as Vietnam, Thailand and Nigeria with poor local infrastructure.
In many markets where Rocket firms operate, credit-card ownership is low and shoppers prefer to pay in cash on the doorstep. That helps explain why e-commerce has been slow to take off in Latin America, apart from Brazil where cards are more common and online sales have reached $12 billion a year.
Rocket spokesman Andreas Winiarski says the company sees its cash-on-delivery offer as a key competitive advantage. "Cash is reconciled on a daily basis when sales representatives return to the transit warehouse in the evening. Ultimately, fraud occurs with credit cards and not cash," he said.
Mr Xiloyannis of Zalora, who is a former investment banker and used to work in Europe for Rocket Internet, also played down cost concerns.
"Southeast Asia is wonderful for delivering from a cost perspective: it's a fraction literally of the cost," he said, adding that he was particularly optimistic about fashion profits.
He said it took Amazon 10 years to break even. "When I look at Zalando, I see a venture which has done it in half the time - I see the Rocket companies performing faster than the first pioneers of e-commerce in terms of breaking even."