Chinese e-commerce giant Alibaba has made a slew of strategic investments aimed at building an ecosystem of businesses in India. With investments across mobile payments, e-commerce, logistics, lifestyle, and entertainment services, Alibaba’s strategy in India looks to be straight out of its China playbook.
Alibaba’s China Playbook
Since starting its journey as a B2B e-commerce site in 1999, Alibaba has built an ecosystem of synergistic businesses that keep customers engaged within its ecosystem. (Refer Fig 1.1 for Alibaba ecosystem). Dubbed the iron triangle, Alibaba’s China business model is mainly three-pronged—marketplace, payments, and logistics.
Fig 1.1: Alibaba Ecosystem
Following its B2B venture, Alibaba launched C2C (Taobao.com) and b2C (TMall.com) commerce platforms and created the online payment and escrow service, Alipay, which eventually became world’s largest online and mobile payments platform.
To overcome the challenges posed by a fragmented logistics industry, Alibaba and several logistics firms co-founded Cainiao Network in 2013, thus gaining a greater control over entire e-commerce value chain.
As online revenue growth declined, Alibaba began focusing on building a physical presence, heralding the era of “New Retail”—integrating online, offline, logistics and data. Meanwhile, it also forayed into cloud computing and doubled down its investment in digital media and entertainment as the Chinese economy slowed down in mid-2010s. It also began seeking growth opportunities outside China.
Alibaba entered the Indian market in early 2015 by investing in Paytm—a recharge service with a fledgling e-wallet—through its subsidiary, Ant Financial. It gradually ventured into marketplace and logistics space, thus replicating its iron triangle strategy in India. (Refer Fig 1.2 for Alibaba’s investments in India).
Fig 1.2: Alibaba’s investments in India
Payments, Handholding Paytm
It did not take long before Alibaba placed bigger bets on India. By September 2015, Alibaba grabbed a 40% stake in Paytm and invested in e-commerce player Snapdeal. Backed by Alibaba, Paytm expanded its mobile wallet offerings to include more consumption scenarios along the lines of Alipay and built a large user base by offering unprecedented discounts and freebies. It also pursued aggressive strategies to get more merchants onboard, including those from rural areas, and launched the payments bank.
The Paytm bet has paid off. By early 2018, Paytm had 280 million registered users and over six million merchant-partners and was offering a range of services across payments/financial services, e-commerce, logistics, and lifestyle & entertainment.
E-commerce, Creating India’s TMall
As its plan to piggyback on Snapdeal to take on Amazon and Flipkart hit a roadblock, Alibaba turned its attention to Paytm Mall, an emerging B2C retail platform started by Paytm’s parent company.
By late 2017, Paytm Mall announced plans to replicate Alibaba’s “New Retail” online-to-offline (O2O) model. It partnered with numerous physical retailer stores, transforming them by offering technology and logistics support, and collaborated with brands such as RedTape. Alibaba turned its attention to the red-hot online grocery segment by investing in Bigbasket.com, with plans to integrate it with Paytm Mall and start offline kiosks. It also invested in Zomato, a restaurant discovery and food ordering platform.
Logistics, The Final Element in the Iron Triangle Strategy
In early 2018, Alibaba invested in the logistics company XpressBees, which fulfills 50% of Paytm Mall’s shipments. As is the case with Cainiao, Alibaba plans to consolidate logistics operations of Paytm Mall and Bigbasket.com under XpressBees and make it a major cross-border logistics player.
Upping the Ante
Showing no signs of letting up, Alibaba began introducing other services it offered in China. It launched its data center for cloud computing by targeting SMBs and made huge investments in the media and entertainment space (refer Fig 1.3 for Alibaba’s presence across business segments in China and India).
Fig 1.3: Alibaba in India & China
The Juggernaut Rolls On
Along with India, South East Asia is another market where Alibaba has made steady inroads. It has partnered with local merchants to accept Alipay from Chinese tourists, acquired majority stake in e-commerce giant Lazada, planned to set up a logistics center in Thailand and carried out a series of fintech deals in this regard. Looking at the events unfolding in South East Asia, it appears that Alibaba is adopting the same strategy it has used in India and China to build an ecosystem of businesses.
Download our Whitepaper – “The Death of the Business As Usual and the Unravelling of the Vertical Industry Structure: The Emerging Threat from Chinese Giants”. The paper helps you understand the magnitude of the disruption, how it has the potential to unravel your business, and options available to compete.