Asia Briefing: Alibaba flotation would put Facebook in the shade

One of the most remarkable success stories to emerge from China's tech boom in recent years has been that of e-commerce company Alibaba, which has featured in Asia Briefing before, but continues to dominate headlines as it gears up for a listing that would make it worth more than Facebook.

Alibaba accounted for 70 per cent of all package deliveries in China last year and sales on its two main platforms, Taobao and Tmall, reached one trillion yuan (€120 billion) last year. That's nearly 2 per cent of China's entire gross domestic product (GDP).

The company, which is based in Hangzhou, offers an online marketplace for everything from shoes to Boeing jets. It is currently looking at a listing in New York after attempts to list on the Hong Kong stock market failed to materialise.

Last week it reported earnings and revenues that would make it more valuable than Facebook on going to market. Investment banks reckon it is worth about €88 billion, compared to the €76 billion Facebook was worth when it had its flotation.

Alibaba’s revenue rose 60 per cent to $1.73 billion, while net income attributable to ordinary shareholders more than doubled to $707 million. Alibaba’s second-quarter profit is more than double that of Facebook, on slightly less revenue.

The company was founded as a small business-to-business site in 1999 by the man often hailed as China's smartest chief executive, Jack Ma.

English teacher
An English teacher by training, he founded China's first internet company in 1995 and, although he retired a couple of years ago, he still has a key role in deciding strategy and leadership.

His recent focus has been on developing tai chi and kung fu skills in China with martial arts star Jet Li, but he remains one of China's most powerful people and has strong links to the ruling Communist Party, especially the premier, Li Keqiang.

The company is enormous. As one recent report pointed out, it has three data centres in China that can process over one petabyte of data in one day, which is about three times what it takes to store the entire US population’s DNA.

Taobao and Tmall are basically the Chinese equivalents of e-Bay and Amazon.com respectively, connecting retail brands with consumers. Alibaba makes most of its sales from commissions and advertising.

Taobao and Tmall have been able to build on the fact that almost half of China’s population now has direct access to the internet, and of those nearly 80 per cent own smartphones or tablets.

Alibaba has provided a platform for 80,000 online retailers to sell goods, and now it is going after 30,000 offline stores as it tries to blur the lines between online and offline shopping.

The focus is Singles' Day, November 11th, which is one of China's biggest shopping days. Shoppers are being encouraged to go to the physical shops, pick out what they want and scan them into online shopping carts, and then actually buy the items on November 11th when there will be massive discounts.

Investing billions
The group is planning to invest about €11.7 billion in logistics and support by 2020, and aims to open up China's vast interior and bring access to hundreds of millions of potential new customers.

"With more and more people shopping online, the business of brick-and-mortar stores has been challenged by online rivals. We want to put an end to that by integrating the online and offline shopping experiences," Zhang Yong, the chief operating officer of Alibaba, told the China Daily. "Rather than having e-commerce, the entire retail industry will be digitalised in the future," said Mr Zhang.

China’s e-commerce market grew at an average rate of 71 per cent from 2009 to 2012, and its value is expected to reach 3.3 trillion yuan (€400 billion) by 2015, according to a report by the consultancy Bain & Co.

Physical stores are growing much more slowly, at about 12 per cent last year. Wu Qian, the senior director of Tmall.com, said the future would combine both forms of consumption. “All shopping malls will be equipped with wifi,” she told the newspaper. “As soon as you enter a mall, your mobile phone will automatically send you a message about the location of the stores you may like, which is based on your previous shopping preferences online.

“There will be fewer and fewer cashiers because people will pay online, and shopping carts will be smaller as there will be home delivery.”