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News  10, Sep 2012

Is Rocket Internet losing its grip in Southeast Asia?

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rocket internetRocket Internet has been setting up shop aggressively, especially in Southeast Asia. But is their strategy working for them?

Much have been written about the notorious Samwer Brothers and their online startup incubator, Rocket Internet. For those that are unfamiliar with the term, Rocket Internet is a German online startup incubator founded in Berlin in 2007 by the Samwer Brothers. The company’s business model is to clone successful internet sites, usually from the US, and then replicate them in other countries. We have also covered extensively about their footprint. Back in June, Rocket Internet launches HungryPanda in Vietnam to expand their online food delivery services. We also caught up with Opal Wu, 26-year-old cofounder and Managing Director of Rocket Internet Hong Kong, who gave us an insider look to the startup scene in Hong Kong. Last week, it was also reported that JP Morgan is investing heavily in Indonesia’s based Lazada, a Rocket Internet’s e-commerce startup.

Rocket Internet shuts down Home24. The story behind the closure

While things might look rosy, Rocket Internet definitely had its fair share of hard times in Southeast Asia. Few weeks back, it was reported that Rocket Internet is shutting down Home24, an online furniture shop based in Singapore. While the website is still up and running, we managed to confirm with a source close to the company that Home24 is indeed shutting down, with the company laying off its employees. Home24 was launched in Malaysia and Singapore after the success of its parent company Home24.com back in Germany. However, due to the high inventory cost, investors might not have sufficient funds to keep the Singapore chapter up and running. There were plans to move the Singapore chapter and merged it with the Malaysia chapter. However, nothing is confirmed at this point of time.

Rocket Internet’s strategy: Only a few clones need to work

The closing of four months old Home24.sg reveals one thing, Rocket Internet will not hesitate to pull the plug when it comes to evaluating a likely failure. As time passes, it became apparent that the strategy for Rocket Internet is somewhat similar to betting. For Rocket Internet, they clone proven business models and replicate them in other countries. For each clone, Rocket Internet puts in a huge amount of money into hiring as well as marketing. They only need a handful of their businesses to work. For clones that have low margins or those that are not doing very well, it will be shut down, alongside with all the employees. Our source also told us that because of this, Rocket Internet is notorious for having capricious hiring and firing operations.

Fresh graduates and job seekers beware

For fresh graduates and job seekers, joining any Rocket Internet company might seem attractive as they offer a very competitive salary package. It is also very attractive to be able to join companies which are at its growth stage. However, there is one thing which fresh graduates and job seekers have to be wary about. Rocket Internet do not need all their companies to be successful. If you end up in the wrong company, the career might actually do more harm than good, because some of the companies are shut down and employees laid off without proper notice. Sudden unanticipated unemployment is always a risk. Our source also warned fresh graduates to have a sense of what they want to achieve before joining any companies.

Terence Lee from SgEntrepreneurs also paid Zalora Singapore a visit and described the experience as “it felt a little like a sweatshop”. To further illustrate that, we manage to get hold of an internal email sent out by a disgruntled ex-employee of Zalora Vietnam to all the Zalora companies regionally. The ex-employee was fired from Zalora Vietnam and expressed that he was not treated with respect by the company. There was also another instance where an employee based in Phillipines was laid off and she publicly described her experience in a blogpost.

From Rocket Internet’s end, it seems like they are focusing on proving the high growth in terms of huge customer orders and rapid hiring, rather than focusing on proving revenue to their investors. Our source seems to agree on this as well. Whether the company is actually fulfilling orders and keeping up with its customer service is entirely a different story. Bernand Leong did an excellent piece on Rocket Internet’s madness, noting that companies are not built on spreadsheets and exit strategies.

Zalora Singapore doing well?

Among all its companies in Singapore, Zalora Singapore seemed to be doing the best, according to our source. We dug further on how true this is. A quick dive into their Facebook page, one can find that the page administrator has disabled the “post by others”. It makes one wonder, could there be too many complaints from its customer? Another quick dive into popular shopping forum Flowerpod also reveals that there are a lot of customers who are dissatisfied with their service. Back in June, we also saw Zalora’s senior product manager Danny Tan leaving Zalora to join Viki. Is Zalora Singapore truly a Rocket Internet success?

Final thoughts 

All the signs seems to consistently point out that Rocket Internet is pouring a lot of money into growing their companies. However, the explosive growth is outgrowing the customer service department. To solve that, Rocket Internet goes into a rapid hiring mode. Rapid hiring leads to overcrowding in the company, and slowly, the company infrastructures seem to not be able to keep up. Employees satisfaction and productivity drops. Disgruntled employees leave. Customer service is badly affected. The whole cycle repeats, and slowly snowballs into disaster. Look at Home24 which shuts down. Look at Zalora Singapore where there are a lot of dissatisfied customers.

Will Rocket Internet soon lose its foothold in Singapore, just as it did in Turkey? Judging from how they are performing, I would say it is highly likely.

Image Credits: eureferendum, home24, flowerpot

Jacky Yap

Jacky Yap

Having spent one year abroad in Shanghai under the NUS Overseas College Programme, Jacky has an avid interest in entrepreneurship and web based startups. Jacky used to run N-House, Singapore's first entrepreneurial themed residence in NUS, and was also part of the organizing team for Startup Weekend Singapore 2012. You can reach him at jacky [at] e27 [dot] co

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