Jul 04, 2014 03:47 PM

After Rising to Dominance at Home, Alibaba Eyes E-Commerce Opportunities Abroad

French Foreign Minister Laurent Fabius shakes hands with Jack Ma at Alibaba's headquarters in Hangzhou, eastern Zhejiang Province on May 16

(Beijing) – Alibaba Group Holding Ltd., China's largest e-commerce company, launched an invitation-only online shopping marketplace called in the United States on June 11, its latest step toward extending its overseas businesses.

The two U.S. subsidiaries Alibaba bought in 2010 – Vendio Services, which helps businesses sell goods on websites like and, and Auctiva, a software developer – launched the new e-commerce website.

As a dominant e-commerce company in the domestic market, it is natural for Alibaba to extend its business overseas, analysts say.

Alibaba has also tried other platforms abroad, including,, and the international division of

Before heading abroad, Alibaba started a price war in the export services sector and its founder, Jack Ma, visited many countries to meet government officials and entrepreneurs.

A Transformation

Small and medium-sized exporters can get rebates when they complete transactions using services from an Alibaba subsidiary named Shenzhen OneTouch Enterprise Service Co. Ltd., which runs, Alibaba Group said on May 13.

They can get back 0.03 yuan in cash from every U.S. dollar worth of goods when they complete transactions on, a provider of one-stop services, and 0.02 yuan when they partially complete transactions.

OneTouch says it earns about 0.07 yuan for each U.S. dollar of exported item.

The rebates are not high, but it is attractive to some exporters, especially clothing companies.

Last year, total exports through OneTouch reached US$ 3.7 billion, meaning Alibaba might refund some 100 million yuan. Alibaba did not specify the period for the rebate plan.

This is not the first time service providers have given refunds to exporters, but it was the first unified rebate plan being promoted on such a large scale, said Cen Andong, executive director of a Shenzhen-based export service company.

Others may follow Alibaba to offer similar rebates, Cen said.

Five days after Alibaba announced its rebate plan, the website, run by Zhejiang-based Great Tao, offered a rebate of 0.03 yuan for each U.S. dollar of export and added some free services.

A director at said his company is the largest service provider in the eastern province, and it has a financing ability similar to OneTouch, but lacked of promotional activities. This price war was helping his company, he said.

Shenzhen OneTouch was founded in 2001 to provide export services, including logistics, customs clearance and tax rebates. Alibaba acquired it in 2010. It served about 14,000 exporters last year, up from 4,000 in 2001.

OneTouch first earned money by collecting service fees, similar to many service providers in the Yangtze River Delta and Pearl River Delta regions. Later, it found that large providers made profits on data they collected from customers.

OneTouch then started providing banks with information such as transaction records to help exporters get cheaper financing and higher credit lines, and in return it got some of the interest returns every month.

Banks can log onto OneTouch's data system to check the information they want, said Wei Qiang, the company's president.

OneTouch became the largest financing service platform in the Pearl River Delta and helped exporters to get 5.5 billion yuan loans from 10 banks last year.

Alibaba highly values OneTouch's database and financing ability, Wei said. However, Ma was not satisfied with the speed of its expansion, which was a major reason the rebate was launched. The model was similar to one Alibaba used to promote the taxi-hailing app Kuaidi Dache.

The rebate plan aims to attract more customers to OneTouch and collect data on them to create a credit system and an ecosystem for business-to-business (B2B) export, said Wu Minzhi, president of Alibaba's B2B unit.

The promotion will attract exporters to complete transactions on, which will help the company quickly build up a database, she said. is a website for vendors and sellers to display their products and communicate, but no transactions can be completed on it because it lacks a third-party payment service like Alipay. The latter also helps Alibaba collect data on the massive number of transactions on Taobao and Tmall.

OneTouch will eventually play the role of Alipay to collect data for exporters that use, Wu said. Based on the data, OneTouch can set up ranking and credit systems to help Alibaba provide loans to exporters. will also adopt a user review system similar to that on its popular e-commerce websites Taobao and Tmall, enabling comments on the transactions, Wu said. With ranking, credit and review systems, will change into a Taobao-like platform.

Tmall's Business

On May 16, Alibaba signed an agreement with the French government to allow French brands to appear on Tmall, creating opportunities for them to reach millions of Chinese customers.

Some 30 French brands have started offering products on Tmall, including Evian water and Lafite wine.

In December, Alibaba signed an agreement with the Trade & Investment, a department of the British government that works with business, to introduce Britain's small and medium-sized companies to Tmall. British brands, such as Burberry and ASOS, then started appearing on

This became a model for Alibaba to sign agreements with foreign governments to import authentic foreign goods.

However, such goods sold on Tmall have no price advantage. Some brands on Tmall have prices similar to that of physical stores.

Burberry appeared Tmall on April 23, but sold only 132 items in 18 days. Some 32 were returned, a return rate of 24.2 percent, much higher than the average 7.21 percent for similar products, an earlier media report said.

"International brands entering Tmall have to be clear that they are to promote their brands or extend markets," said an Alibaba source.

Tmall International also signed agreements with local governments to carry out cross-border trades with foreign e-commerce platforms, brands and traders. Taobao has also tried to attract small and medium-sized retailers from abroad.

The cross-border online shopping market had revenue of 100 billion yuan last year, an increase of 100 percent over past three years, said Zhao Chen, president of Tmall International.

Many international bands, channel partners and e-commerce platforms plan to cooperate with Alibaba to enter the Chinese market. "It is similar to entering China through resellers," Zhao said.

A common way for e-commerce companies to enter the market is to buy goods directly from suppliers. Only a few e-commerce companies can get goods from overseas suppliers directly because large traders monopolize the market.

Some e-commerce companies with good performance in overseas businesses are supported by large traders, such as, a business-to-customer (B2C) website for food. utilizes the direct purchase system of the government-controlled food conglomerate China National Cereal, Oils and Foodstuffs Corp. (COFCO).

Liu Qiangdong, chairman of said he expects to take part in overseas businesses, and in May, joined in by buying wines directly from suppliers.

Alibaba has cooperated with foreign governments in its overseas businesses to get goods directly from suppliers.

After several years of development, the Chinese government began to take control the cross-border online shopping market, choosing certain pilot cities to carry out the business.

Tmall International has signed agreements with five cities. Its systems are connected with local governments, and trade data is open to governments, which facilitates taxation and supervision. The openness of the data is a big reason local governments cooperate with Tmall.

Tmall adopts strict procedures to introduce vendors, aiming to avoid overseas buyers cannot confirm the authenticity of products.

"Tmall checked companies carefully," Zhao said. "Some companies even have to provide more than 20 copies of their certificates."

The strict procedures mean that since February Tmall has accepted applications from more than 5,000 companies, but only it allowed 300 on the website.

Trade Barriers

Alibaba's overseas business profit maker is AliExpress, a B2C platform for Chinese vendors to sell goods to foreign customers in emerging markets.

In the prospectus it published in May, Alibaba detailed AliExpress businesses. In 2013, AliExpress had revenue of 392 million yuan, up 75.8 percent from 2012. In 2012, the increase was about 147.3 percent.

AliExpress business targeting Russia and Brazil has increased in recent years, said Yan Jun, the president of AliExpress.

AliExpress may hold 70 percent of Russia's cross-border online shopping market, said a senior manager of a large cross-border B2C company.

AliExpress vendors are from Taobao. In 2012, AliExpress convinced Taobao vendors to help it extend overseas market, offering them translation services.

"Though the information translated through software might not be so accurate, the information can be understood by foreigners, which helps vendors," Yan said.

In April, AliExpress held a closed-door meeting with vendors in Yiwu, an entrepreneurial hub in Zhejiang, pushing them to join. It had two main arguments: the market and the popularity of AliExpress. Russia has a need for light industrial products, and the average page views on AliExpress reached 100 million a day, up 700 percent from last year.

AliExpress has expanded rapidly and restructured the market in Russia, said the senior manager of a large B2C company.

LightInTheBox Holding Co., an international e-commerce operator in Beijing, used customized wedding dresses to open the overseas market, especially emerging markets. However, in 2013, its revenue fell to US$ 292 million and its net profit was cut to US$ 2.8 million. This forced LightInTheBox to turn to Europe.

"The cross-border B2C market is huge, and only 1 percent of the market could be startling," said LightInTheBox public relations director Lin Jiashu. "AliExpress cannot occupy the whole market." also eyes overseas businesses, and its first target market is also Russia., a B2C platform, has also cooperated with Russian websites to extend the market.

AliExpress has used free shipping and low prices to enter the Russian market, but this method could cause a price war, and industry insiders worry that it might lead to anti-dumping investigations.

The Russian government might take measures to restrict foreign e-commerce companies to protect domestic trading and manufacturing companies, said the senior manager of the large B2C company.

Russian President Vladimir Putin recently signed a decree to modify the tariff exemption regulations for online shopping. In the past, an individual who bought goods of not more than 1,000 euros and 31 kilograms every month could avoid tariffs. But the new regulations set the limits at 150 euros and 10 kilograms.

Russia is not the first country to limit cross-border online shopping businesses. In February, Argentina said an e-shopper could enjoy tariff-free purchases twice a year and the goods could not be worth more than US$ 25. A 50 percent tariff will be applied to anything over these limits.

Logistics and Payment

Ma has told Alibaba's subsidiaries to extend their B2C businesses to overseas markets by November 11 this year.

Supply chains, online payment services and logistics are an important part of this move.

Alipay has a license for international settlements, an important factor for Alibaba's platforms. Alipay supports settlements in 14 currencies, including in U.S. dollars, British pounds, euros, Swiss francs and Korean won, an Alipay source said.

When customers use foreign currencies for settlements, Alipay will convert the transaction into yuan using exchange rates quoted by banks that day. In 2011, to avoid risk caused by fluctuations in the yuan, Alipay allowed vendors to use U.S. dollars for settlements.

The online payment services are new for customers in Russia, and Alipay has had to help customers develop the habit.

Another big challenge is logistics, said Yan. E-commerce companies usually rely on logistics companies to ship goods, but in emerging markets, they have to rely on postal systems.

On May 28, Alibaba announced it would invest SG$ 312.5 million to buy 10.35 percent of Singapore Post, a leading provider of mail, logistics and retail solutions in Singapore and Asia Pacific.

Alibaba chose Singapore Post because it has a license to provide services and has transportation capability and storage facilities in Southeast Asia.

Alibaba and Singapore Post will build a logistics system for international e-commerce companies in Southeast Asia. Singapore Post first started cooperating with Taobao on logistics services in 2013, another Alibaba source said.

Alibaba has started to build a subsidiary named China Smart Logistics, also known as Cainiao Logistics, in China. Cainiao has signed agreements with border provinces and regions such as in Hainan and Guangxi to build storage facilities.

Alibaba expects vendors to send their goods to the border facilities first, and then on to overseas markets. is following in Alibaba steps. A source from said it began to arrange logistics systems by purchasing companies in Singapore.

But Alibaba and will have to renovate these local logistics systems. Their distribution ability is inefficient, meaning it will take more time to send goods to homes abroad. Foreign buyers may not complain, but Chinese sellers do not want to wait a long time for payment.

(Rewritten by Guo Kai)

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