Alibaba Looks to Expand its Globalization Strategy By Expanding All Subsidiaries
Yicai Global
/SOURCE : Yicai
Alibaba Looks to Expand its Globalization Strategy By Expanding All Subsidiaries

(Yicai Global) Sept. 22 -- Alibaba Group Holdings Ltd. [NYSE: BABA] has sped up its globalization strategy since their IPO became the biggest US listing ever on New York's stock exchange.

Its overseas development has further accelerated this year, according to a report by Tencent Penguin Intelligence's Institute for Global Venture on Alibaba's globalization strategy.

The report is the result of comprehensive research and is split into five sections, the first of which concerns the selling of foreign brands to the Chinese and home grown products across Asia.

The remaining sections deal with the globalization of existing subsidiaries, such as Cainiao Network, employing big data, Ant Financial, Alicloud and finally, Alibaba's entertainment division

A large part of Alibaba's globalization plans includes expanding their existing E-commerce platforms by marketing and selling world brands to Chinese consumers while simultaneously introducing products made in China to Asian consumers.

Cheap products manufactured in China give Alibaba the advantage to enter emerging markets. Payment and logistics distribution systems provided by Alibaba's AliExpress enable small and medium sized enterprises to conduct business more conveniently worldwide.

After a year of sluggish business, AliExpress registered a 123 percent growth in revenue from last year, according to its quarterly earnings.

The growth mainly comes from Russia, Southeast Asia, Brazil and other emerging markets, while consumers in Europe and America are less interested, which is caused by two factors.

Firstly, sales systems are already well equipped in Europe and America, and the fundamental needs of consumers can be met by Amazon and eBay. Secondly, Alibaba is rife with fake goods.

Several luxury goods makers filed lawsuits against Alibaba for selling counterfeit goods this year, undermining the trust of European and American consumers towards AliExpress.

Alibaba has already invested in a number of e-commerce enterprises in the US. E-commerce models, such as social media, have been adopted to attract local consumers.

Alibaba believes that social media platforms can boost consumer visits to Taobao, enhancing both the buyer-seller relationship and greater interaction between consumers.

Alibaba still faces great challenges at their current stage to wrest the E-commerce market share in the US from Amazon and eBay, two seemingly unshakeable opponents, and the online businesses of Wal-Mart and Best Buy.

The offline retail system in America is also very advanced and mature. The picture in Europe is similar to America, as they are similarly equipped with mature sales channels.

Alibaba also plans to globalize its existing subsidiaries which include the Cainiao Network. Through the use of big data, Alibaba seeks to overhaul its cross-border logistics services.

Alibaba has spent USD249 million on the acquisition of a 10.35 percent stake in Singapore's national postal service a year after establishing Cainiao Network Technology Co. which undertakes the logistics solutions of Alibaba's entire E-commerce platform. Additional investment has also been set aside to facilitate the pace of internationalization.

Cainiao Network has also cooperated with America, Brazil, Australia, Spain and Kazakhstan on postal services to export goods and bolster their logistics. Import is equally important,

Cainiao Network has opened five special importing lines respectively for Sino-American, Sino-German, Sino-Australian, Sino-Japanese and Sino-South Korean business, to give consumers access to the logistics services equivalent to domestic online shopping, Wan Lin, the vice-president of Cainiao Network, said.

Jointly financed by Alibaba Group, Yintai Group, Fosun Group, Forchun Holdings Group Co., STO Express, YTO Express, ZTO Express and Yunda Express, Cainiao Network has been established with Jack Ma as the president and Alibaba holding 48 percent of the equity.

In March this year, Cainiao Network completed its first round of funding from the Government of Singapore Investment Corporation, Temasek Holdings Private Limited, Khazanah Nasional Berhad and Primavera Capital. An insider revealed then that, the value of Cainiao Network is estimated to soar to around CNY50 billion following this round of financing.

Alibaba, as part of its extensive globalization strategy plans to develop Ant Financial overseas by leveraging interaction between overseas merchants and users with payment as a starting point.

As a new force under Alibaba Group Holdings Ltd., Ant Financial Services Group operates a wide range of businesses, covering payment, finance, banking, insurance, loans and credit, among other pan-finance sectors.

In the overseas market, although the business of Ant Financial is not yet as powerful as in China, a number of acquisitions by the group have been widely reported by financial news outlets.

In the next four years, Ant Financial will see 50 percent of its users in foreign countries, while the other half will be in China, Mr. Eric Jing, president of Ant Financial said.

Tencent's penguin intelligence research also found Ant Financial's deployment in the overseas market centers on two major directions., the first is Alipay, which facilitates outbound travelers and overseas Chinese people in shopping in Asia and Europe.

The second involves targeting investment banks, insurance and payment institutions.

For now, Alipay is promoted in Europe, Asia and Australia. In May, Douglas Feagin, a senior partner of Goldman Sachs Group Inc., joined Ant Financial to act as the company's senior vice president and lead its global business development.

Over the past four months, Ant Financial disclosed it has reached worldwide cooperation with Uber, allowing users in over 400 cities across the globe to pay fares through Alipay.

Ant Financial has then partnered with Grab, the largest ride-hailing App in Southeast Asia, whereby Chinese users in Singapore and Thailand can pay their taxi fare with Chinese yuan through Alipay.

In Asia, Alipay has tied up with King Power, a duty-free store in Thailand, and Resorts World Sentosa located in Singapore. In Europe, Alipay has recently established a collaboration with Wempe, a German wristwatch and jewelry brand, as well as Concardis, a payment service provider in Germany.

Prior to this, a German payment technology provider, WireCard, also cooperated with Alipay to develop business in 69 stores at the Munich Airport.

The second major overseas expansion of Ant Financial is primarily achieved by investment.

The first sector it invested in is insurance. Last year, Ant Financial teamed up with Taiwan-based Cathay Financial Holdings, to invest more for its shares of its wholly-owned property insurance arm in mainland China, Cathay Century Insurance, in a bid to develop standardized and scenario-based insurance services through the Internet.

This year, Ant Financial has again formed a strategic partnership with Alibaba and AXA Group, with a view to expand business opportunities for AXA's insurance products and services through Alibaba's global e-commerce eco-system.

Another direction for investment focuses on companies with encrypted payment services. To this end, Ant Financial has invested in V-Key Inc., a mobile security and encryption technology provider in Singapore, to enhance the security of its own products.

In South Korea, Ant Financial has purchased shares of K Bank, an Internet bank approved by the South Korean government. K Bank has been green lighted to engage in all banking services, including deposits, loans, credit, finance and foreign exchange, which also marks the first-ever Internet bank license granted in South Korea in the past 23 years.

IV. Globalization of Alicloud: both opportunities and challenges

AliCloud built a fundamental architecture for Alibaba Group, which operates the core transactions of Taobao, Tmall and Alipay with forms of both public and proprietary cloud.

Each year, the transactions on November 11, a special holiday to commiserate with single people, akin to Black Friday in the US, pose a considerable challenge for AliCloud's systems. Last year, its payment system was capable of processing 140,000 transactions per second.

Yu Sicheng, the vice president of AliCloud for international business, said that the global public cloud computing market is enjoying rapid growth. Public cloud magnates including Amazon, Microsoft, and Google have emerged in the US, however many customers' demands remain unfulfilled, for example, Chinese customers hope to have servers in the US and use Chinese linguistic services. Likewise, American customers doing business in China hope to have local cloud services there.

AliCloud, then is still in the preliminary period of its globalization with limited overseas cloud infrastructure. Security is always an issue, as a foreign enterprise, when offering cloud services to manage western enterprises' customers' data, certain limits and restraints may be encountered overseas.

In addition, AliCloud products still lag behind Amazon's AWS and Microsoft's Azure. In global markets, AliCloud still has no performance record, so its brand effectiveness also needs time to accumulate.

Finally, Alibaba hopes to go global with its entertainment business. To begin to achieve this, they acquired UC, an Indian web portal.

Two years ago, the UC browser was acquired by Alibaba, and its international expansion continued apace. In August 2015, the market share of the UC browser was top ranked in India and Indonesia, and also realized quick growth in emerging markets like Russia, Brazil, Pakistan and Bangladesh, according to the data of StatCounter, a website traffic monitoring service in the US

To summarize, Alibaba's focus on the five sectors above, E-commerce, logistics, finance, data computing, and UC's market globalization, is to aid their cross-border business.

Although highly detailed, the whole of these separate enterprises may only represents the first phase of its globalization. It is similar to Fosun Group's strategy, "to be on a par with global companies through Chinese buying power."

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