Case Study (Policy)

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Zahid Husain 400260626 Section C07 1 Shopee and International Expansion: A Diamond-E Drill Role Sea limited grew to be a great success drawing in the attention of giant tech companies. Forrest Li, the founder, saw his once small business grow into a giant e-commerce giant that owned a significant market share. They were once placed ahead of Amazon for most user interactions for a single month. However, after a string a regulation from Singapore and India, countries in which Sea Limited had a lot of business, the company stock dropped heavily as stakeholders saw this loss of market share as the start of a line of problems. Shopee is currently in the middle of a large international expansion, trying to push into different markets. With Sea limited no longer able to offer financial support, the expansion may need to be halted. They do have cash on hand in cash reserves and Forrest is wondering if they should push on with the expansion and take the risk. Representing as an advisor for Forrest, I will analyze his company and offer an action plan moving forward. Organizational performance: The overall performance of the company so far has been great. Since its launch, they have grown significantly. They are the top-three e-commerce purchase destination in Latin America where they gained 37% of their consumers in 2021. They were thriving and as the pandemic boosted the e-commerce sales by 44% as consumers were pushed inside their homes. They jumped on this opportunity to assist small businesses by launching a service with Google Ads to assist in brand recognition. However, the company’s substantial growth was halted by regulations in India and Singapore. Both countries found that Sea Limited was in violation of foreign direct investment rules. The privacy of Indian citizens was apparently at stake and there was no deal to be made with India. As such they pulled out of India with all their production and left one of their most profitable countries behind. Despite this, Shopee still manages an impressive digital entertainment sector that generated $4.3 billion in revenue in 2021. Due to this, on a scale of 1-10 for performance ranking, they are a 6. Organizational Health: Sea Limited gained recognition in Singapore for being one of the best places to work in the market. From their launch in Singapore in 2012, they focused on consumer relations and building a strong community. The reputation of the company is high due to the rapid growth of the company and their care for local businesses. Morale at this point is a little down, as they were all but forced tom pull out of two key international markets. Overall, in the eye of the public and consumers the company cares for their consumers. The low-price offerings reflect this. Therefore, they are an 8 on a scale of 1-10. Despite some morale issues at the moments. Lack of employee turnover and a good reputation is helping their organizational health. 2x2 Matrix: Sea limited is currently in quadrant 2 of the Performance Matrix as a complacent company. They have a high organizational health (7 out of 10) and a low performance (6 out of 10). They are achieving their objectives, but the total profit is not there. They want to be in quadrant 1 in a desired state. After analyzing a strategy to organize the performance they will

Zahid Husain 400260626 Section C07 2 have a high performance and heath rank. This puts them in a better position to compete with the big tech companies like Amazon and Flipkart. Strategy Triangle: The company’s strategy has always been connecting their consumers. They operate in a competitive and intense environment with changing customer demands, technological advancements, and regulatory changes. They always focused on building a strong community of local businesses to do business with and offer free shipping. Currently, they don’t have the resources they may have had in the past. Having lost $16 billion in market capital, the company’s internal resources are scarce and are one more faulty move away from panic. Their strategic focus should lie in their ability to enter new markets. We have seen that they have done it in Malaysia and Taiwan with excellent results. With cash on hand, they can make strategic moves that would keep them competitive and in the market for the future. Goals: During the COVID-19 pandemic, the e-commerce industry surged, but physical smaller stores were suffering, as they don’t benefit from a large online presence and consumer population. Shopee was among many giant tech companies that benefited from the pandemic. As such, they decided to give back and help smaller businesses. Sea Limited had always considered itself a tech company, so they partnered with Google Ads to build a similar product and helped small businesses grow their online market. Their hard goal is trying to increase their market shares in different regions, this is difficult to achieve given the uncertainty of the market now. Their soft goals are to continue bolstering the local community and connect millions of consumers globally. 2x2 Matrix on Product/Market: Forrest Li was inspired to build his company with the idea of “connecting world gamers” back in 2009. Currently, the company is competing in a growing market and is utilizing low pricing to stay competitive. Li understood that gamers all understand the same thing. By 2015, they launched an e-commerce arm and they quickly gained market share. Li’s small business idea was low-effort and high value as he managed to get into markets just as they started to take off. Therefore, Li had a go-now product. Value Proposition: Sea limited still managed to stay competitive with their digital entertainment sector. That is the only revenue segment that has been profitable for them. They also manage to stay competitive in the e-commerce scene by offering free shipping and low commissions to local businesses. A lot of people believe they can succeed in expanding due to what they did in start-up counters like Singapore, Taiwan, and Malaysia. Core Activities: The core activities of Sea Limited are broken into three sectors. Digital entertainment, e- commerce, and digital financial services. Digital entertainment was the only thing funding other expenditures for the company due to their business in gaming. E-commerce is a growing model

Zahid Husain 400260626 Section C07 3 that is being widely adapted by companies. Shopee got in early and developed a good market share. They lost it in India and France, which were key markets for them. The e-commerce segment wasn’t profitable in 2019-2021. For digital financial services, they offered their own form of payment called SeaMoney and it was the leading digital payment and financial service provider in Southeast Asia. Sea has an opportunity to take their company to different markets. They can expand and move forward with integration. Shopee can deliver their own logistics and move away from an independent platform, they can shorten delivery time for its customers and make them happier. Causing Shopee to retain more repeat customers. Porter’s Five Forces: Threat of new entrants – India was a thriving economy in 2021. Sales were expected to hit $130 billion in four years, and they were expected to bring in 100’s of new consumers. With it, the country was expecting many business-to-business transactions to happen. The e-commerce industry has a low barrier to entry, so there is a high chance of new entrants. Shopee has an advantage because of an already established market presence in multiple robust e-commerce countries. The threat of new entrants is high. Bargaining power of buyers – Shopee is in a unique position as they have a large and diverse customer base which decreases the bargaining power of the buyer. However, with such a saturated market, a buyer could easily switch over to a competitor. Threat of substitutes – As mentioned, there are multiple competitors in the e-commerce market. Buyers could easily move to a competitor where they dissatisfied with Shopee. However, Shopee offers an advantage in pricing and in offering a wide range of products. Since the COVID-19 pandemic, the market has only grown larger, and the customer base has also grown larger. The threat of substitutes for Shopee is high. Bargaining power of suppliers – As a primary e-commerce platform, Shopee relies on shipping companies and third-party vendors to fulfill their orders. There are multiple suppliers, but they would have the bargaining power due to their unique services and their size. Intensity of rivalry – The e-commerce industry grew massively during the pandemic. During that time, the industry become highly competitive with large organizations going after market share. For example, Walmart managed to acquire a 77% majority stake in the first ever established e-commerce company in India. Amazon later came in and launched Amazon India and grew exponentially. The Intensity of the rivalry is high as every company in the industry is fighting for users and interaction. Conclusion – With a high threat of new entrants and intensity of rivalry as well as threat of substitutes, Shopee is a losing business right now. PEEST Analysis: Political – Shopee enjoyed the benefits of two key markets. India and France. They found main success In India, where they gained rapid market shares despite a tough market with multiple players in the industry. They were processing 10 million orders a day and gaining market share in 2021. However, in February of 2022, the Ministry of Electronics and Information Technologies in India announced a list of 54 apps that were being banned for their relation to China as they were deemed to pose a threat to national security. This hurt Shopee’s parent

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Zahid Husain 400260626 Section C07 4 company, Sea, as they had over $16 billions of market chaptalization wiped out. This will make it hard for Shopee to receive any financial support going forward, meaning they needed to seriously reconsider a risky expansion at the time. At the same time, the Confederation of all India traders enforced a ban of the Shopee platform, on the grounds of fearing compromising data of the Indian people and creating an over saturated market of Chinese made products. In short, there will be a great impact on Shopee’s business and on the decision-making process going forward. Economic – Shopee directs sales from the digital entertainment and the e-commerce sector. Both have generated close to $5 billion in revenue for the company in 2021 alone. The economic growth of the E-commerce platform saw sales grow almost $2 billion dollars from 2020 to 2021. The markets in India were expected to grow at a compounded annual growth rate of 27%. Sales in India were expected to hit $150 billion by 2025. There was a productive market growth for the company. However, as India begins to impose new regulations, Shopee’s sales went down, causing the company to lose money and lose the value of their market share. Environment – As an e-commerce platform, Shopee must be mindful of their environmental efforts due to their reliance on shipping and packaging as customers are growing increasingly weary of the environment. Additionally, many countries are weary of big tech companies expanding internet efforts that are considered unprofitable in nature. Social – Shopee enjoyed a boost in revenue and consumer base due to the COVID-19 pandemic that drove consumers away from physical stores and towards the E-commerce shopping platform. The sales were increased by 44% to $42 billion. From 2020 onwards, Shopee benefited from an upward trend of online shopping. Technological – Sea, the parent company of Shopee, considered itself to be a technology company. They wanted to develop technology relating to existing businesses. Then, Shopee partners with Google and created their own version of Google ads. They were aimed at helping small businesses grow. This launched in 2020, which helped those small businesses during a very difficult pandemic. Stakeholder: There are many stakeholders within Sea Limited and in Shopee directly. For example, federal governments want to ensure that Sea Limited operates within the laws of the country. Sea Limited was forced out of India because of this. Another stakeholder are the shareholders. When they initially went on the stock exchange, they were trading 59 million shares at $15 raising $884 for the company. Lastly, I would say the third most significant stakeholder are the consumers themselves. The sales from their e-commerce segment were $5.1 billion in 2021, more than double what it was the year before. The success of this segment moves with buyers and their buying and spending habits. Other examples of stakeholders for the company are the employees, partners, and their community of local businesses. Industry Structure: Sea Limited considers itself to be a tech company and has made moves to get into technology to help businesses and themselves over the years. As such, they operate in a free market. The price and demand of the market is expressed through the sellers and byer behaviours. As a tech company, Sea can always expect changes in the industry. It is already

Zahid Husain 400260626 Section C07 5 projected that India will get over 100 million consumers in the next few years and sales are supposed to hit $150 billion by 2025. Markets across the world are all increasing as consumers are moving towards shopping online, given how well that seemed to work during the pandemic, it is projected consumers will stick with this model because they get satisfaction almost instantly. There is a difference between products and how the companies perform their services. They are always trying to give the best price so there is no perfect competition. Genealogy: Sea limited started as a company called Garena, a small start-up by Forrest Li, a Southeast Asian businessman with a Master of Business Administration (MBA) from Stanford. With an initial goal to connect gamers globally, in 2015 he launched his first e-commerce platform, Shopee. Then in 2017, he rebranded to Sea Limited with the metaphor that the sea connects every market together. They were even the first Southeast Asian company to make it on the New York stock exchange where they offered 59 million shares at $15 apiece. In the process, they raised $884 million. Business Model: Sea Limited makes their money from digital market sales and in digital entertainment. The company operates their services mainly in the Southeast Asian market and is very prominent and successful there. They had also gained 37% of their new consumers from the Latin American market. The only revenue stream that was profitable was the gaming industry with popular games like Free Fire became the most downloaded title multiple quarters in a row. Some of the major costs to the company are their research and development costs as they must pay independent vendors to generate the logistics. They have high expenses in cost of goods sold, totalling close to $6.6 million. (See Exhibit 1). Sea could cut these costs easily if they do their logistical work internally. This will give them more operating income and allow to fund a possible rapid expansion. Resources Analysis: Forrest Li and Sea Limited are looking to expand into different international markets to keep up with the rapidly growing industry. For this, the company needs to determine which resources they have on hand and which resources are scarce. In terms of brand and growth marketing, the company had a team aimed at eyeing the current trends of the e-commerce and making business-to-business transactions and deals. The company has a high value because of it relieve efforts towards local businesses during the pandemic and their low pricing and free shipping. Sea offers a combination of business segments which are all primarily focused on the Southeast Asian market. The market is tense and there are many new entrants coming in. However, Sea has integrated entertainment, e-commerce, and financial services under one company giving them rarity. Their integration of a multiple segments markets makes it difficult for companies to imitate. While their technology may be imitated, their business model is difficult to replicate. In the organization, Forrest Li sits as CEO and a and the company has good organizational health as well as having substantial growth.

Zahid Husain 400260626 Section C07 6 Gap Analysis: Sea Limited needs to address and identify the areas in which they can improve so they can compete in the struggling e-commerce market. If they ever want to expand in new markets, they need to position their current markets more securely. They know they have previous success going to other markets, but they don’t have the resources they did then. After the India regulations came down, they lost market capital. Now they have some cash on hand and they are wondering if they should push into a new market and take the risk of losing what they built. On the upside they have a large growth opportunity to look forward to if they are successful. Management Preference: Sea Limited wants to expand their market into different countries, they just went through a rough year and lost money. So, any decision going forward regarding the once aggressive expansion is going to need to be made carefully. The company has poor corporate governance in the countries of Singapore and India. Forrest is thinking that he wants to take the company forward into new markets and reap the rewards of an expansion but at the same time, he understands the demands of the employees and of shareholders. There is a social responsibility places on the company by the brand team and the head of marketing, Peggy Zhu, Sea Limited wants to help in making sure every brand can succeed online. Organization: Sea limited operates in three separate business segments: digital entertainment, e- commerce, and digital financial services. They have partnerships and employee many people as a large tech company. As a large tech company, they have an organizational structure. For Sea Limited, my client Forrest Li is founder and sits as chairmen and CEO. Chris Feng is also a chief executive officer and is below Forrest. They also have a brand and growth marketing team that are keeping up to date with the retail ecosystem. Change Agenda: For non-behavioural changes, the company can focus on improving efficiency of operations. They can streamline their supply chain if they optimize their logistics automate the process themselves instead of relying on independent parties for assistance. In addition, this will reduce costs, improve quality of the product, and improve customer satisfaction. The behavioural changes that the company can make are creating a data-driven decision- making process. This is done by leveraging internal customer data and external environments to gain insights into customer spending habits and the market trends. This will help Sea improve efficiency, save resources, and help to make informed decisions. Crisis Curve: The company has hit the ‘reactive’ degree of urgency. They anticipated changes in the market and reacted as such, attempting to expand into different markets. The regulations put forth by India and Singapore caused Sea Limited to lose $16 billion of their market capitalization.

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Zahid Husain 400260626 Section C07 7 Alternatives: Sea limited need to evaluate the criteria they have before they can decide on which decision to make going forward. Should they continue the aggressive expansion or not? There are two strategies to consider, and we will weigh them both against each other (refer to exhibit 2). Cost is the biggest factor for Sea Limited right now as they just lost millions in market capital. They have some cash on hand for the Shopee expansion, but they can expect little help in the future when it comes to financial aid. They ideally would prefer a strategy that is cheap while also being effective. Growth in brand awareness and market share were always elements the company strived to achieve. Action Plan: The recommended action plan for Sea Limited is optimizing their operations to increase customer satisfaction and sales, in turn leading to increase in profits and revenue. Shop does not have its own logistics department and must go through an independent platform, costing them time and money. The company has still managed to grow very fast and has benefited from a surge in the e-commerce market, but these problems can be fixed. First, this isn’t the cheapest option for Sea now. They could always do nothing and continue as they have been. However, from 2019-2021, Sea only has one profitable division, its gaming division. They need to make their other segments profitable. Working the logistics internally will provide a better experience for all of Sea Limited consumers and create a happier consumer. In the short-term, for a two-month period the company should start to hire a team that will eventually form as the body of the logistics department, getting them in early helps build a sense of corporate identity. While they are developing this software, they start to train their employees on the changes. Last thing is putting a team in place to monitor the customer buying trends to see if anything changes after they implement. In the medium-term, for a six-month period, of the goals that company should put to the test is the logistics itself. In six months, the company should be able to handle logistics on their own, with all employees trained. During this time, they implement change and analyze the variable by analyzing the market trends and buyer habits. The long-term goal (two years) is to finally pull the e-commerce industry and the financial sector out of the negative and into pulling a positive revenue yearly. From 2019 to 2020, e-commerce went up by $1.7 billion in revenue. From 2020 to 2021 the same sector went up $3 billion in revenue. There is room for growth in the industry and buy optimizing company efficiency, through logistics for example, will help get more revenue yearly. Overall, this strategy will help with Sea Limited’s current cash problems, and they have an opportunity to gain some market share as well. With a logistical approach of implementation in mind, the company will be able to compete with other big tech companies despite their recent struggle in key markets. Exhibits: Exhibit 1: Financial Ratios COGS and Expenses relating to Revenue = 6,059,455 + 547, 765 / 9,995,190 = 0.66 à 66%

Zahid Husain 400260626 Section C07 8 Exhibit 2: Decision Matrix Measures Weight Option 1: Continue Expansion Option 2: Do Nothing Option 3: Optimization Strategy Cost 0.5 5 1 3 Opportunities for Market Share 0.3 5 1 4 Brand Awareness 0.2 4 1 2 Total 1.0 14 3 9 Weighted Total 4.8 1 3.1 Decision Matrix Criteria: Using this decision matrix, we can compare the three investments based on the criteria and assign a score of 1-5 for each option. 5 represents the highest score and 1 represents the lowest.

Case Study (Policy)

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