Posted: May 1, 2018 |  AUTHOR: KEN FOX | CONTACT ME

 

Providing an update on Alibaba is like facing a challenging jigsaw puzzle. There are some many pieces and extensions to the story. Basically, the company is thriving and expanding globally. The company went public on the New York Stock Exchange on September 18, 2014 raising $21.8 billion in the largest IPO in history. In September 2017, the company generated revenue of $22.9 billion up 56% from the previous year. The company’s success story goes beyond sales and profits. It is a case study in inventing new businesses and penetrating new markets.

Alibaba is investing heavily in new start-ups, acquisitions and research and development. The company is inventing the future, with Joe Tsai, Alibaba Group Vice Chairman saying “we are a pioneer–there are no textbooks for what we are doing.” The company is creating value to its customers through new products and services. In doing so, it is leveraging synergies from its multiple businesses.

It is important to understand a few basic facts about Alibaba:
a. The company was started in 1999 by its present Group Executive Chairman, Jack Ma, and is based in Hangzhou, China.
b. Alibaba launched its Taobao and TMall on line shopping Internet sites
c. It launched the AliPay digital wallet in February 2004 and now has an estimated 520 million users worldwide.

The following are four strategic platforms being implemented to provide future company growth and success:

 

I. Driving Alipay Mobile Payment Usage
Mobile payment are regulated transactions which take place through a mobile device. It is accomplished digitally, so no cash, credit cards or checks are used or needed. Alibaba owns Alipay.
In China, QR codes such as these are used by smart phone users to pay bills, make purchases at shops and vending machines.* Alibaba’s AliPay and Tenecent’s Tenpay handle about 90% of China’s online payments. Hopes are these markets will grow overseas and contribute to further usage. Many emerging market merchants do not have credit card swipe machines where this alternative will be welcome. Additionally, the companies are hoping to offering this service to traveling Chinese tourists who are used to paying by this method.

Alibaba and Alipay are partnering with other foreign country financial services to offer mobile payment systems. This includes India, where mobile payment app, Paytm attracted funding from Alibaba. Paytm executives travel to Hanzhou, China for training from Alibaba staff to facilitate offering and implementing a mobile credit payment system. Paytm currently has 225 million users in India.

Alibaba is also affiliated with Chinese financial company, Ant Financial, which has partnered with similar companies in Thailand and Indonesia to offer digital payment services.

Alibaba wants to facilitate Chinese residents no matter where they travel to be able to use Alipay. Foreign penetration of Alibaba’s products and its partner services continue to expand around the world. Canada is becoming a major tourism destination for Chinese travelers. Alibaba partnered with Canada’s SnapPay, which will allow Alipay’s global users to use their Alipay mobile wallets to pay for products and services at participating Canadian merchants. The mobile system will ask buyers if they want to pay in U.S. dollars or Chinese yuan. So far, about 700 Canadian retailers accept Alipay. Alipay also launched in South Africa and is aggressively expanding elsewhere. Alibaba’s Tmall was launched in Russia during October 2017.

Alipay often competes with other payment services, such as Apple Pay and Google Pay, especially in western markets. Alibaba is using new technology and tools to attract new users and retailers to accept Alipay. As an example, Alibaba launched a facial recognition technology “Smile and Pay.” This technology uses 3-D cameras to scan a customer’s face to verify his or her identity and complete a payment. This system was recently launched at a KFC restaurant in Hanghzou, China. It is aimed at a younger audience in China.

The U.S. has been a problem to date, with several Alipay proposals being delayed or rejected, but efforts continue to tap this opportunity.

II. New Retail
Alibaba is redefining retail in different ways.

A. Alibaba launched a Future Mart in Hanzhou, China which has no cashiers and uses facial recognition to registered Alipay users for accepting and charging buyers.

Courtesy Alibaba Group

B. Most notably, Alibaba has launched an unmanned, 8 story car vending center in Guangzhou, China using Ford automobiles. Basically, it works like this:
1. It assumes the potential customer has been qualified as an Alipay user, who goes to a Tmall website to book a test drive, which is “free” for those with high scores on the Sesame Credit rating system developed by Alibaba affiliate Ant Financial Services. If one does not have a high test score, they have to pay 99 yuan (about $16) to test drive a selected sedan or 198 yuan for other models such as a Ford Mustang. A customer is verified on site using facial technology.
2. A potential buyer can request a test drive with a car of their choice for up to
three days.
3. There are potentially 100 Ford models to choose from.

There is no interaction with a sales person until a potential buyer wants to meet with one after the test drive. Alibaba plans to expand the car vending centers in China, pending its initial test center success.

A Hema Supermarket

C. Supermarkets
Alibaba owns 25 Hema Supermarkets in China with plans to open more. Hema offers shoppers an on line and in-store new experience. Layouts are easy to navigate and reinforce a freshness image. The stores also include restaurants where orders can be cooked on site. QR codes on line signifies the origin of every product sold, where it was made, where it is from and a guarantee of quality. On line shoppers can receive free delivery within 30 minutes (within a 3 kilometer radius). Shoppers can use Alipay to charge all purchases.

D. Convenience Stores
Alibaba is trying to reinvent the mom and pop stores in China with their Ling Shou Tong offering. The latter is a retail management plan to help store owners optimize product procurement and increase sales. Alibaba is offering the service for free if the stores owner offers their store as fulfillment and delivery centers, and makes available data from their shoppers behavior. The strategy provides store owners with recommendations based on sales analytics on what to buy and what to display in their stores. Alibaba also offers their cloud computing and logistics business to a digitally connect an inventory management and purchasing system, which allows cutting out the need for a middleman. Alibaba employs 2,000 what they call “foot soldiers, who are commission paid, to convince independent store owners to adopt the Ling Shou Tong platform.

E. Shopping Malls
Alibaba is experimenting with using augmented-reality mirrors and vending machines in shopping malls. The setup allows customers, let say women, to “virtually” try on a lipstick color or make up and see themselves with the new applications. If pleased they could buy the products tried on-site from a nearby vending machine using Alipay.

Alibaba continues to make acquisitions and form joint ventures under their New Retail Strategy. One example, in September 2017, Alibaba announced a joint venture with New Huadu Supercenter, a grocer in Fujian Province, to create a physical retail presence.

III. Logistics
Alibaba will spend $15 billion over the next five years on global logistics.
Alibaba’s goal is to create the capability to deliver anywhere in China within 24 hours and anywhere in the world in 72 hours. Two recent efforts to help reach this goal:

A. On line food delivery. Alibaba acquired a Chinese company called Ele.me (means “hungry yet” in Chinese) which delivers restaurant food orders from those already using Alipay. Ele.me has an army of delivery people on motorbikes across the country. This is a long term plan by Alibaba to compete against a strong Tencent Holding competitor Meituan Dianping, in this business.

B. Alibaba acquired a controlling stake in a Shenzhen, China logistics company Cainiao, in September 2017. The company provides real time information and delivers shipments to any city in China within 24 hours. Cainiao currently makes 57 million deliveries a day.

IV. R&D and Data
Alibaba announced in October 2017 it would spend $15 billion in a drive to build R&D capacity. Specifically, Alibaba will open seven technical laboratories across the world, under the name DAMO Academy. DAMO stands for: Discovery, Adventure, Momentum, and Outlook. Its main goal will be to increase technological collaboration worldwide with highly regarded universities and other institutions.

DAMO will help to position Alibaba with companies such as Google and Microsoft. It has an advisory board including professors from: Harvard, Princeton, MIT, Peking University, Beijing Institute of Technology, Columbia and the University of Washington.

Research efforts will focus on a wide range of areas, including but not be limited to:

  • data intelligence
  • the Internet of Things
  • financial tech
  • quantum computing
  • human-machine interaction
  • network security
  • visual computing
  • natural language processing.

The seven cities targeted for labs include: Beijing and Hangzhou in China, San Mateo, California and Bellevue, Washington in the U.S., Moscow, Tel Aviv and Singapore.

*This generated a $9 trillion mobile global payment market last year, according to iResearch, versus The U.S. mobile payment market of $112 billion according to Forrester Research.
Note: QR Codes=quick response codes, sometimes referred to as a matrix bar code

Commentary

Alibaba is on a course to change the world. Jack Ma, its CEO and a former teacher, consistently provides support to young people and entrepreneurs to learn from their mistakes and strive to go forward. Alibaba will help educate so many people on how to use the Internet in new ways, including how to use its Alipay mobile payment system. This will allow Alibaba to generate a growing and loyal database of Alipay users.

In advertently, Jack Ma and Alibaba have become a strong promoter of China, almost reflecting a soft power effort typically reserved by a government entity. This may also be why the Chinese government seems to not interfere with Alibaba’s global efforts.

The company wants to be the next Amazon, along with being seen as the best in high technology. Its generous funding will help push logistics and research & development to benefit the world, and at the same time create needed new jobs.

Resources:
Car-Vending Machine is Rolled Out, Liza LIn, The Wall Street Journal, April 6, 2018.
Alibaba Takes Control of Ele.me, at $9.5 Billion Value, Shelley Banjo and David Amli, Bloomberg Technology, April 1, 2018.
Alibaba Group’s Hema Supermarkets: The Real Deal with China’s “New Retail,” Tom Doctoroff, Ad Age, February 14, 2018.
Alibaba is Trying to Reinvent China’s Mom & Pop Stores, Karen Hao, Quartz, January 5, 2018.
Alibaba Invest $15 billion in New Global Research & Development Program, Catherine Shu, Tech Crunch, October 11, 2017.
Alibaba’s $15 billion Global R&D Push is Names After a Legendary Indian Monk from Centuries Ago, Zheping Huang, Quartz, October 13, 2017.
Alibaba Takes Controlling Stake in Cainiao and Will Invest $15 Billion in Global Logistics, Jonathan Webb, Forbes, September 28, 2017.
How Alibaba is Innovating to Drive Alipay Usage, Forbes, September 5, 2017.
Why Alibaba’s Jack Ma Can’t Seem to Win Over the U.S., Liza Lin and Chuin-Wei Yap, Wall Street Journal, January 3, 2018.
Alibaba and Tencent Set Fast Pace in Mobile Payment Race, Newly Purnell, Wall Street Journal, September 22, 2017.
Alibaba-related Company Alipay Expands Payment Processing Service to Canada, CBC News, September 25, 2017.
YouTube Tour of a Hema Supermarket, Alizila, July 16, 2017.

 

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©2017, The Global Galaxy blog is produced by The Soundings Group, LLC, Charleston, South Carolina, USA, www.thesoundingsgroup.com. The company is an international business consulting firm, specializing in new market assessments, market entry strategies and marketing guidance. The scope of Global Galaxy is to cover timely international trends, issues and business building ideas. Its purpose is to educate, inform and stimulate thinking for business opportunity analyses.

 

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