E-Commerce Competition Intensifies in China

January 17, 2014 Leave a comment

E-Commerce Competition Intensifies in China

By ERIC PFANNERJAN. 16, 2014

TOKYO — An arms race between the two most powerful Internet companies in China has escalated again, with one of them, Tencent, announcing an investment that pushes it further into e-commerce — territory long controlled by its rival, Alibaba.Tencent said late Wednesday that it would pay about 1.5 billion Hong Kong dollars, or $193 million, for a nearly 10 percent stake in China South City Holdings, which operates warehouses and factory outlet malls, and provides a variety of other logistical services to retailers. Both companies are listed in Hong Kong.

Until recently, Alibaba and Tencent seemed largely content to develop their own areas of expertise without moving too aggressively onto each other’s turf. Alibaba owns e-commerce sites like Taobao and Tall, while Tencent operates messaging services like QQ and WeChat.

But over the last year or so, with Alibaba positioning itself for an initial public offering of shares and Tencent eyeing the lucrative earnings from the boom in online retailing in China, the companies have been pushing aggressively into each other’s traditional areas of dominance.

“Tencent is absolutely trying to get more aggressive in the e-business space, challenging Alibaba, as most of their services are now overlapping,’’ said Bryan Wang, an analyst at Forrester Research.

In October, Jack Ma, the chairman of Alibaba, announced that he was shutting down his WeChat account and urged followers to do the same and switch their allegiance to a new Alibaba messaging service called Laiwang.

Last week, Alibaba announced plans to set up a mobile game platform, where it will offer applications developed by outside programmers, sharing the revenue with them. Tencent generates more than half its revenue from games. It offers most for free but relies on the vast reach of WeChat, which says it has more than 270 million active monthly users, to fuel demand for subsequent in-game purchases by people determined to stay ahead of their friends.

The video game market in China grew by 38 percent last year, to $13.8 billion, according to a government agency that monitors the industry. Mobile games were the fastest-growing segment, with revenue more than tripling, to $1.8 billion.

E-commerce is a much bigger business. Last year, sales in China, including online transactions between businesses, rose to $335 billion from $221 billion in 2012, according to an Alibaba research center.

On one day in November when Chinese online retailers run a bevy of promotions, the company recorded $5.75 billion in transactions through its online payment system.

But Alibaba is not stopping there. In December, the company said it was investing about $360 million in Haier Group, one of the leading appliance makers in China. The companies said they would set up a logistics joint venture that would support Alibaba’s delivery operations. Alibaba also struck a deal last year with Sina Weibo, the operator of a microblogging platform, that is aimed at countering the popularity of WeChat and driving more users to Alibaba’s e-commerce platforms.

Tencent has responded with investments of its own, including the purchase of a stake in a search engine called Sogou. And the company has moved to build up its own e-commerce capabilities, which include sites like 51Buy and QQ Wanggou, by adding a payment feature to WeChat. Tencent said the agreement with China South City would enhance its e-commerce capabilities. The companies said they would work together to help small and midsize companies develop their online retail operations.

“Cooperation with China South City enables us to jointly facilitate such enterprises migrating online, utilizing China South City’s physical locations and logistics capabilities, together with Tencent’s Internet user platforms and technology capabilities,” Martin Lau, the president of Tencent, said in a news release.

In addition to warehouses and other logistical facilities, China South City operates factory outlet malls featuring brands like Nike and Adidas. Tencent and China South City said in a statement that they would “explore opportunities for cooperation with respect to online outlet services for branded goods.”

Both Tencent and China South City have their headquarters in Shenzhen, China.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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