Alibaba Adds a Dash of Foreign Flavor

Alibaba Adds a Dash of Foreign Flavor

AARON BACK

May 29, 2014 5:37 a.m. ET

Alibaba Group has gone from dipping a toe in international waters to dunking a whole foot. It may be some time before it’s worth diving in all the way.

The Chinese e-commerce giant, which is preparing for what could be the largest ever U.S. initial public offering, sent the strongest signal yet of its intention to expand outside China by acquiring a 10% stake in Singapore Post S08.SG -2.08%for $249 million. The likes of Amazon and eBay EBAY -0.03% shouldn’t quiver in their boots just yet.

Earlier this week Alibaba stuck a deal with Australia Post aimed at helping Australian companies sell wares into China through its online retail sites, Taobao and Tmall. But the SingPost deal seems oriented the other way—at helping Chinese merchants reach Southeast Asian customers. Singapore is the region’s hub, and the joint announcement boasts of state-linked SingPost’s ability to offer warehousing, delivery and product returns.

Alibaba was founded as a site that connects global companies to Chinese parts and components suppliers, but the bulk of its business today is retail and consumer-to-consumer trading within China. It has been cautious in expanding consumer operations outside mainland China, with Chinese-language Taobao sites in Hong Kong and Taiwan.

The Southeast Asia expansion goes by the same playbook, targeting the region’s Chinese-speaking diaspora. Taobao has a dedicated Southeast Asia site that is almost entirely in Chinese.

This suggests limited growth potential. The ethnic-Chinese population of Malaysia, Singapore and Indonesia comes to around 14 million, and the number literate in Chinese characters is likely significantly lower.

Alibaba also has a global, English-language retail site called AliExpress, but it has narrow offerings. Overall, international consumer sales accounted for just 1.6% of revenue in the nine months ended December. A more ambitious overseas push could involve a substantial upgrade of AliExpress, and perhaps more partnerships with local logistics players.

It is unclear, however, what value proposition the company could bring to the table to compete with well-established competitors in major markets. Alibaba’s competitive advantage in China is knowing the local audience, partially explaining why it has bested foreign competitors. Moreover, Alibaba has plenty of growing to do on its own turf. As its IPO filing states, online shopping in China is projected to grow at a 27% compound annual rate over the next three years.

Alibaba’s foreign forays offer intriguing hints of its long-term ambitions. And the deal with SingPost creates a platform it might learn from, expand or replicate elsewhere. But potential IPO investors should stay focused on domestic growth. Alibaba’s home fires burn brightest.

 

About bambooinnovator
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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