Alibaba Adds a Dash of Foreign Flavor
June 2, 2014 Leave a comment
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.
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