Founder and Executive Chairman of Alibaba Group
Alibaba to invest more abroad as globalization becomes a top priority
Group Holding Ltd will invest heavily in existing and new ventures abroad, making its push beyond the China market a top priority, the Chinese e-commerce leader's new CEO, Daniel Zhang, said.
Zhang's comments come at a time when Alibaba aims to maintain its rapid growth even as the prospect of e-commerce saturation at home looms over the company.
Zhang said in his first speech since taking up his new post this week, according to a report on Thursday on Alibaba's news and commentary website, Alizila.
"We must absolutely globalize,"
The vast bulk of Alibaba's revenue comes from its dominant domestic online marketplaces, but the company has been investing in a range of sectors abroad. Just this week it announced it would set up a cloud computing base in Dubai, and boosted its stake in U.S. e-retailer Zulily Inc.
Alibaba Group Holding Limited - Revenues by Segment - 2010 Through 2014 - Includes China vs International Revenues - In Millions of Yuans - Statista (Click Image To Enlarge)
Zhang was quoted as saying.
"We will organize a global team and adopt global thinking to manage the business, and achieve the goal of 'global buy and global sell'."
Alibaba, which handles more transactions on its platforms than Amazon.com Inc and eBay Inc combined, would continue to invest heavily in new and existing overseas operations, Zhang was quoted as saying. Those included AliExpress, a platform for overseas consumers to buy Chinese goods, and Tmall Global, a marketplace for overseas goods to be sold online in China.
For the quarter ending in December 2014, Alibaba achieved $127 billion in China retail gross merchandise value (GMV). For calendar year 2014, Alibaba achieved $370 billion in China retail GMV. A key reason for the strong GMV growth is the continued growth in active buyers across its platforms—Taobao Marketplace and Tmall.com. The company explained that an active buyer is someone who came to its retail marketplaces to make at least one purchase during the period of measurement.
The GMV growth was also driven by category expansion. On November 11, 2014, the company’s Singles Day promotion generated GMV of $9.2 billion. This was an increase of 58% compared to the Singles Day in 2013. These transactions were settled through Alipay on its retail marketplaces within a 24-hour period.
Zhang said if Alibaba does not globalize it won't be able to last 100 years - a goal set out by Executive Chairman Jack Ma.
But growth of Alibaba's international commerce business is lagging the pace of growth in China, even as the new CEO faces the prospect of slowing domestic growth as saturation among online shoppers threatens to hobble expansion.
In the three months ended March, Alibaba's revenue from China commerce grew 39 percent to $2.2 billion. International commerce grew 27 percent to $264 million and only accounted for 9 percent of revenue, compared to 11 percent in the same period a year earlier.
Alibaba says some of its larger overseas markets include Brazil and Russia. The company and its affiliates are also making overtures in India, where it is in talks with phone maker Micromax Informatics to buy a $1.2 billion stake, according to several people with direct knowledge of the matter.
For the United States, Alibaba is planning a major move to win business this year, by offering American retailers new ways to sell to China's vast and growing middle class.
Mobile commerce is driving an increasing share of Alibaba's business
Alibaba’s growth has been further boosted by an exponential increase in mobile users. China’s 600 million-plus Internet users are migrating to smartphones, setting off a race to capture this new market. Alibaba’s mobile GMV now represents over 51% of a staggering 289 million mobile active users.
Alibaba said it had 289 million mobile active users (MAUs) out of 350 million buyers at the end of Q1 2015. Mobile users represented $49 billion or 51% of total gross merchandise volume (GMV) on its Chinese retail platforms during Q1 2015, up from 42% in Q4 2014. Mobile users also represented a whopping 40% of total ecommerce revenues for Q1 2015, up from 30% in Q4 2015.
Alibaba Total Mobile Active Users (MAUs) in Millions, Mobile Gross Merchance Volume (US$) and Mobile Revenues as a % of China Retail Rvenues (US$) for Q1 2015 (Click Image To Enlarge)
Does Alibaba represent a serious competititve threat to Amazon and eBay?
Wether Alibaba represents a serious to U.S. ecommerce leaders Amazon and eBay depends on who you ask. Let's look at the opinions of a few ecommerce experts.
Mike van Dulken, head of research at Accendo Markets, says Yes
In terms of sheer size, accounting for 80 per cent of all Chinese online shopping, with volume growth easily outstripping rival internet retailers thanks to 1 billion items on offer to 350 million buyers, and with 30 million shipments made per day, fast-growing behemoth Alibaba represents a genuine threat to the likes of Ebay and Amazon.
Jack Ma’s stateside charm offensive has provided key insight into the firm’s goals, with some impressive numbers, such as sales of a landmark $1 trillion by 2019, generated by a whopping 2 billion customers. The founder has made it clear that the aim is to reduce reliance on China, increasing rest-of-world sales by a factor of 20.
This implies taking market share, which the promise of 72-hour worldwide shipping and attracting US businesses to its already highly-successful platform may well help deliver. Outside China, Alibaba is looking increasingly like the retail elephant in the internet chatroom. The competition better watch out.
Steve Mader, a vice president at Kantar Retail, says No
In the short term, Alibaba is not focused on entering the US or European retail markets to compete on Amazon and Ebay’s home turf. Its attention is connecting Chinese businesses to Chinese consumers, Chinese businesses to the world, and the world to Chinese businesses.
Ma’s goal is to remove a significant amount of friction from Chinese retail trade and have Alibaba positioned as the conduit the traffic flows through, generating a massive number of monetisation opportunities through media and marketing services, or payment programmes such as Alipay.
With Alibaba focusing on China, it offers global retailers the ability to learn and adapt. We’re already seeing this with Amazon’s moves in the UK to become more flexible in its distribution network by partnering with other retailers such as Smiths News, and Ebay becoming increasingly brand focused. In the longer term, however, the tech giants would be foolish to dismiss the threat of Alibaba.
COMMENTARY: Based on Alibaba Group CEO Daniel Zhang goal to expand internationally by a "factor of 20," both Amazon and eBay should take this as a threat, but not an eminent one. Alibaba Group faces several hurdles in order to successfully penetrate the U.S. market.
1) U.S. buyers do not use escrow accounts to make online purchases like Alibaba Group uses to make sales. We prefer to use credit and debit cards to make our purchases, expect a liberal merchandise return policy, and delivery of our purchases within 1 to 5 days. I don't think Alibaba Group's business model translates well in the US market except for very expensive items like jewelry, art and collectables.
2) U.S. buyers are very loyal to both Amazon and eBay. The seller reviews on eBay weed out crooked sellers. Likewise, product reviews on Amazon are very useful in assisting buyers to make their purchasing decisions.
3) U.S. buyers have the advantage of buying products from sellers located and shipping within the U.S. Alibaba Group does not carry merchandise, but depends on millions of small sellers, to produce and ship the product directly to the customer. Alibaba would have to open large distribution centers in the U.S. in order to meet the demands of U.S. customers for quick turnaround of their orders. This would require a huge investment in facilities and merchandise inventory to meet the demand of customers in the U.S. and Europe.
4) Both eBay and Amazon have fond ways to weedout sellers of cheap knockoffs. On the other hand, Alibaba Group has been criticized by the government for the large number of sellers selling knockoff products through their ecommerce platforms. Alibaba Group has spent over $1 billion over the last two years to control the knockoff problem.
5) U.S. and European online buyers are much more sophisticated than Chinese consumers. They are very leary of these small Chinese producers, the quality of the products they sell, and how to deal with merchandise returns. This is a big reason why I believe that Alibaba Group will have to adopt a business model that is similar to Amazon and eBay in order to compete with those companies.
6) Alibaba Group does not have a well known brand name in the U.S. This lack of brand awareness by U.S. consumers is a huge weakness. This lack of a strong brand identity will hurt Alibaba with U.S. consumers who are used to buying from well established companies like eBay and Amazon.
In spite of these weaknesses and disadvantages, Alibaba Group still represents a threat, probably within 5 to 10 years. Alibaba cannot just compete on the basis of price, it must compete on the basis of the four P's (price, product, promotion and place).
Courtesy of an article dated June 11, 2015 appearing in CityAM, an article dated May 14, 2015 appearing in Reuters, an article dated January 29, 2015 appearing in The Wall Street Journal, an article dated March 23, 2015 appearing in Market Realist, an article dated March 23, 2015 appearing in Yahoo Finance, First Quarter 2015 Earnings Presentation for Alibaba Group, Full Year 2014 Earnings Statistics by Statista