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Playing the global long game

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As Amazon and Alibaba continue their international expansions Emma Herrod investigates whether there will be a clash as East meets West.

 

Sales at Amazon over the last quarter of 2017 were the company’s strongest in 8 years with Cyber Monday 2017 becoming its single biggest shopping day, overtaking Prime Day for the most products ordered from the company worldwide. Revenue over the whole year increased by 31% over 2016 and the company looks likely to top $200bn (£143.1bn) in sales this year. One Click Retail estimates that Amazon was responsible for about 44% of all ecommerce sales in the US in 2017 (or about 4% of the country’s total retail sales figure).

 

Looking across to Asia and Alibaba is already the world’s largest retailer accounting for the vast majority of ecommerce in China. It continues to report staggering growth with an increase for its full year to 31 March 2018 of 58% over the previous year with revenue reported at $39.9bn (£29.54bn).

 

The number of people shopping on its platforms reached 552 million in China, an increase of 98 million from the 12-month period ended on March 31, 2017. Following its Singles Day event on 11 November 2017, Alibaba reported sales of $25.3bn (£18.1bn), an increase of 39% when compared to 2016 – and that’s just on one day. Orders were taken from shoppers in 225 regions and countries including Japan, the US, Australia, Germany and South Korea as well as from within China.

 

Both companies have been making moves into groceries in their home countries and into omnichannel retailing as well as investing in services to grow overall ecommerce markets. Both are trying to “swallow up the entire vertical service chain,” says Chris Vincent, Global CEO, Practicology. Instead of using middle men to supply services they are both trying to take more profit and revenue from key areas including payments and logistics.

 

Interestingly, neither sees itself as a retailer or a marketplace provider but as technology companies which are obsessed with the customer. Amazon launched in 1995 with the mission to be Earth’s most customer-centric company.

 

Alibaba, meanwhile, is “a technology company, born in China but created for the world. Our mission is and always has been to make it easy to do business anywhere: empowering businesses of all sizes across the world to connect, source and trade both with each other and with consumers, globally,” an Alibaba spokesperson told InternetRetailing.

 

Amazon taught retailers that they need to look at online retailing and now Amazon and Alibaba are both reaching back into the physical store environment. They are seemingly investing in new sectors at the same time, or at least making announcements at the same time, with grocery as an example. In 2017, Amazon bought Wholefoods and Alibaba bought a 36% stake in Sun Retail Group. The similarities between the two companies and their global ambitions will become more obvious over “the next year or two,” believes Wanda Cadigan, Vice President of Commerce, SiteCore.

 

INTERNATIONAL INTENTIONS

 

Internationally, Amazon has been moving towards Asia with marketplaces in Singapore and Australia, while Alibaba continues to expand outwards from China, operating in countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It has operations in more than 200 countries with companies ranging from the South China Morning Post newspaper to its Alipay payments arm which grew larger than PayPal in 2014.

 

Its cross-border and international retail businesses continue to show strong growth. Revenue from Alibaba’s international commerce retail business reached RMB4,733 million (US$727m, £520.71m) in the quarter ended December 31, 2017, representing 93% year-on-year growth, driven by the strong growth of its Southeast Asian platform Lazada and global retail marketplace AliExpress. “While the markets for Southeast Asia and cross-border commerce remain very competitive, they are in the early innings of the game. We are optimistic about the long-term secular growth prospects of our international markets and will therefore continue to make significant investments for market share growth and focusing on the best customer experience,” the company says.

 

As well as the business growth itself, Alibaba is also opening up markets for Chinese brands rather than purely products manufactured in China to Western specifications. When asked whether it has any designs on Europe, the Alibaba spokesperson told InternetRetailing that it wasn’t in competition with European retailers and brands. “Our role is to act as the trusted partner and adviser to European businesses, helping them to break into the Chinese market and equipping them with the knowledge needed to provide their customers with the very best possible experiences,” they said.

 

There have been murmurings though in the ecommerce world of a clash between Alibaba and Amazon as they continue with their global expansion plans and acquisitions.

 

Zi Wang, Project Manager, WebshopinChina.com believes that Amazon is “still strong and too formidable for Alibaba to compete against head on” in Europe, Japan or the US. “The two giants still very much focus on retailing yet both of them want to transform to other, more tech-intensive, sectors,” he says.

 

“Alibaba’s overseas businesses are mainly B2B-driven and focus heavily on cross-border ecommerce, whereas Amazon seems to be tapping into retail markets. Moreover, compared to Amazon, Alibaba’s recent expansion is still largely confined to SE Asia,” he added.

 

Any clash between Alibaba and Amazon is more a cultural phenomena believes Robin Phillips, former-Omnichannel Director at Boots. “The Western customer is very different to the Eastern consumer,” he says before adding that it is a broad brush statement. The social aspect of Chinese online purchases is embedded and so difficult for either company to take customers from the other in their home market.

 

What Alibaba is doing though is becoming more entrenched with its customer base of affluent middle-class Chinese consumers, enabling them to shop around the world. Phillips cites the addition of Alipay as a payment method for shoppers at London’s Westfield shopping centre as one of the ways in which Alibaba is enabling its customers to shop when visiting other countries.
The company is also raising awareness in geographies outside of China through events such as Single’s Day, believes Wanda Cadigan.

 

Where Phillips does see opportunities for the two players though is through mergers and acquisitions, although as he points out even emerging ecommerce geographies have incumbent marketplaces so there is less opportunity for a land grab than there may have been in the past. “This extends to categories as well as to geographic regions,” says Pete Brown, Consultant, Elixirr.

 

Both companies have invested in India; Amazon.in is the fastest growing marketplace in India, and the most visited site on both desktop and mobile, according to comScore and SimilarWeb. Alibaba meanwhile has invested in India’s popular digital payments and marketplace business Paytm as well as online grocery group BigBasket and food-ordering app Zomato. Many of the world’s leading grocery businesses are also investing in India in a bid to bag some of the growing market.

 

“If there’s anywhere in the world I can see an immediate head-to-head play it’s going to be in the Middle East,” says Chris Vincent, quantifying that by instant he means over the next 18 months. Both companies have made in-roads into ecommerce in the region with Alibaba heavily discounting goods and Amazon’s acquisition last year of the Souq.com marketplace.

 

“Alibaba is rumoured to be looking to make more acquisitions in western-facing markets,” he says.

 

“Both businesses are expansionists in nature,” he adds, so although “we’re not seeing a clash yet as broadly they have left each other alone... that’s not to say that they aren’t watching what each other is doing.”

 

Every retailer needs to be watching the two retail behemoths too to see how they are altering the consumer experience in their home countries and what those consumers will expect as ‘normal’ when they shop on other sites. And, as Richard Wolff, Managing Director of Javelin Group advises, they shouldn’t forget about the “thousand mice” operating online and disrupting local markets.

 

Alibaba and Amazon are similar in that they both do the basics brilliantly and keep their business’s fit for the future while cutting new ground in terms of data analytics, innovations and how retail can be reinvented. Yes, their businesses are different but their intent is similar – to rule the retail world. Alibaba has ambitions to be seen as an economy in its own right as it creates 100m jobs, supports ten million profitable businesses and serves two billion consumers worldwide over the next 20 years – to become the world’s fifth-largest economy behind the US, China, Europe and Japan.

 

So, as Alibaba and Amazon watch each other closely make sure you keep an eye on them and your own strategy. Are you a pawn waiting to be taken by either player in this global game of retail chess?

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