SINGAPORE—A new battleground is emerging for China’s internet companies: a fast-growing multination market in Asia with almost double the U.S. population.
As Beijing grapples with a slowing economy, the country’s top technology companies are spending aggressively to expand in Southeast Asia, home to 620 million people. The region is becoming an important growth area for Alibaba Group Holding Ltd., Tencent Holdings Ltd., ride-hailing firm Didi Chuxing Technology Co. and e-commerce company JD.com Inc., as they expand in online retailing and mobile payments.
Alibaba and Tencent have led deals with a combined value of more than $1 billion to advance their e-commerce, logistics and social-network businesses. Southeast Asia is the third-largest region for China’s outbound tech mergers and acquisitions this year, behind Europe and North America, with $1.9 billion in deals, compared with $193 million last year, according to Dealogic. Industry executives say Chinese tech investments are likely to accelerate.
“What we have learned in China, we can apply the fastest in Southeast Asia,” Poshu Yeung, vice president of Tencent’s international business, said in an interview. “Everything in Southeast Asia, particularly in Indonesia, you will experience a pretty good growth rate.”
Southeast Asia’s $2.5 trillion economy is attractive for its growing incomes and rates of smartphone ownership. Research firm eMarketer projects smartphone users in the six largest regional economies will exceed 257 million by 2020, more than the 241.5 million users expected in the U.S. by that year.
Alibaba’s $1 billion acquisition of online retailer Lazada Group in April gave the company instant access to six markets: Indonesia, Thailand, Singapore, Malaysia, the Philippines and Vietnam. Beyond the exposure, Lazada gave Alibaba access to a wide logistics network to deliver parcels ordered by Southeast Asian consumers on Alibaba’s Chinese platforms.
Singapore-based Lazada improved its technology and logistics operations after sending at least 100 of its employees to Alibaba’s headquarters for knowledge-sharing expeditions, said Maximilian Bittner, its chief executive. Lazada also attracted several international brands, such as Unilever PLC and Mattel Inc., to open retail storefronts on its website after introductions by Alibaba.
Shenzhen-based Tencent jumped in by investing in Garena Interactive Holding Ltd., a Singapore-based startup valued this year at $3.75 billion. Garena entered e-commerce last year through a peer-to-peer marketplace app called Shopee, whose built-in payment, chat and delivery services smooth transactions. Shopee is going head-to-head with Lazada in the same six markets by allowing consumers and small merchants to sell products online.
Garena President Nick Nash said Shopee is on track to exceed $2 billion in gross merchandise volume—a closely watched metric for e-commerce companies—this calendar year and counts Indonesia, Thailand and Vietnam among its largest markets. Lazada doesn’t disclose its figure.
JD.com—China’s second-largest e-commerce provider, behind Alibaba—entered Indonesia’s online sales market last year and intends to use it as a launchpad for the rest of the region, its chief executive said in an interview. “Indonesia is like China’s market five years ago—the population is big, the e-commerce industry there is not very mature yet and internet users are growing rapidly,” said CEO Richard Liu.
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Expansion in Southeast Asia nonetheless comes with challenges. The region consists of fragmented markets, each with unique customer needs and regulations. In Indonesia, for example, competition is rife, with strong local players such as online marketplace Tokopedia. Intense local competition has led JD.com, Lazada and Shopee to dangle promotions, flash sales and coupons to attract more buyers at the expense of profitability.
Not all foreign competitors have enjoyed smooth sailing. Japanese e-commerce firm Rakuten Inc. shut its online marketplaces in Southeast Asia this year. Chinese companies also have had to navigate political tension, and counter an impression here that made-in-China products are inferior.
With the boom in e-commerce, Alibaba and Tencent are also competing to expand their payment platforms—Alipay and WeChat Pay—in Southeast Asia. Alibaba has an investment in Thai internet finance company Ascend Money, which has an app that allows Chinese tourists to make payments using Alipay at 20,000 merchants in cities such as Bangkok and Chiang Mai. Tencent—operator of the WeChat social-networking app, which has more than 800 million users—is looking to broaden its payment network in Malaysia and Indonesia, Mr. Yeung said.
There isn’t a dominant local mobile-payment competitor in Southeast Asia and consumers typically prefer to pay with cash. Ascend, Lazada and Garena have said they want to fill the gap, and each offers a digital wallet.
Didi, which counts Alibaba, Tencent and Apple Inc. as investors, indirectly entered the payments race through its investment in Grab, a Singapore-based ride-sharing app. Grab raised money from investors including Didi in a $350 million round of funding last year, and started a mobile wallet.
“Southeast Asia is one of the markets offering low prices and high growth potential,” said Michael Yeo, research manager at IDC Financial Insights, adding that it is becoming more expensive to make acquisitions in China as competition intensifies there.
Write to Liza Lin at Liza.Lin@wsj.com