The Chinese e-commerce giant aims to expand its presence in Southeast Asia as rival Alibaba does too.

(Bloomberg)—JD.com Inc., Alibaba’s fiercest rival in Chinese e-commerce, is in talks to make a major investment in Indonesia’s PT Tokopedia to speed its expansion into Southeast Asia’s largest economy, people familiar with the matter said.

JD, No. 1 in the Internet Retailer 2016 China 500, is in early-stage negotiations to invest hundreds of millions of dollars in one of Indonesia’s largest online marketplaces, one of the people said, asking not to be identified because the deal is private. JD’s potential investment may propel Jakarta-based Tokopedia past $1 billion in valuation, another person familiar with the deal said.

A successful deal with Tokopedia will take JD’s competition with Alibaba Group Holding Ltd. to Indonesia, an oil-rich country of 260 million that’s experiencing a surge in smartphone usage and middle class affluence. It would be buying into a local ally ahead of a potential push into the region by Amazon.com Inc., No. 1 in the just-released Internet Retailer 2017 Top 500 Analysis Report. China’s two biggest e-commerce players have both poured major sums into Southeast Asia, capped by Alibaba’s acquisition of a controlling stake in Lazada Group SA last year. Lazada is No. 159 in the Internet Retailer 2016 Asia 500.

Unlike Alibaba and fellow Chinese internet giant Tencent Holdings Ltd., JD has tended to grow its business organically, relying on its own networks of shippers and delivery-people to control quality and service. The Beijing-based company, backed by Wal-Mart Stores Inc., had likewise chosen to build its Indonesian business from scratch. Wal-Mart is No. 3 in the Top 500 and No. 7 in the Asia 500.

advertisement

However, Alibaba’s Lazada has rapidly expanded operations around Southeast Asia over the past year, most recently via a tie-up with Netflix and Uber in Singapore. And Amazon is expected to orchestrate a big expansion into Indonesia and elsewhere, triggering a wave of industry consolidation, according to a recent report by Macquarie Research. Indonesia alone as an e-commerce market is expected to climb to $65 billion by 2020 from just $8 billion now, according to the report.

JD spokesman Josh Gartner declined to comment. Tokopedia officials weren’t immediately available to comment.

Tokopedia was co-founded by William Tanuwijaya, the son of a factory worker, in 2009. The business model is similar to that of Alibaba’s online emporium, matching customers with merchants instead of selling products from its own shelves. It raised a then-record $100 million funding round from SoftBank Group Corp. and Sequoia Capital in 2014, heralding Indonesia’s coming-of-age as a bona fide destination for technology investment.

advertisement

The company has never disclosed its valuation. Go-Jek, which started out as a motorcycle-hailing service in Jakarta before branching out to add other on-demand services like food delivery, became the country’s first startup valued at more than $1 billion last year when it raised $550 million led by Warburg Pincus and KKR & Co.

Favorite