Alibaba, the Chinese e-commerce giant, is today taking a play from the books of Amazon and eBay as it makes a key move to expand its presence across other countries in Asia. Today the company, gearing up for an IPO in the U.S., announced that it would invest 312.5 million Singapore dollars (U.S. $249 million) to take a 10.35% stake in Singapore Post Limited (SingPost).
“We are excited to collaborate with SingPost and leverage SingPost’s strong delivery networks and end-to-end e-commerce logistics solutions to facilitate international e-commerce,” said Daniel Zhang, Chief Operating Officer of Alibaba Group, in a statement. “Through this collaboration, we hope to create concrete benefits for our overseas buyers and sellers by enhancing the user experience and providing greater access to a suite of international e-commerce logistics solutions and products.”
This is the first overseas postal agency that Alibaba has invested in, but it is not the first investment in how it moves physical product out to customers. In China, alongside other investors, Alibaba has been working on a massive logistics and delivery network to enable 24-hour deliveries across the country, in a venture it’s calling China Smart Logistics (CSN). Other investments in China to further the effort include a stake in Haier.
In the U.S., it took a stake in ShopRunner last year, and you could also argue that Lyft is also a move in that direction for the company.
SingPost is formerly the 150 year-old state postal service for Singapore, but more recently it has repositioned itself as a profit-generating entity whose logistics and delivery operations extend across South East Asia. As part of the deal, the two will also move begin to work on a joint venture for further international expansion.
Alibaba says the strategic investment will cover “other e-commerce opportunities in Southeast Asia and beyond by providing amongst other things, greater access to SingPost’s international logistics capabilities, infrastructure and delivery networks, and as well as end-to-end solutions to Alibaba Group customers and merchants.”
The move will see Alibaba take 30 million existing ordinary shares in SingPost as well as 190.096 million new ordinary shares.
The move is interesting for a couple of reasons.
For one, it underscores how Alibaba continues to take a route similar to the one being pursued by its counterpart U.S. leviathans Amazon and eBay.
Controlling as much of the chain as possible in an e-commerce operation ensures not only a more efficient system, but helps consolidates margins in a business where margins are typically thin and based on economies of scale. Amazon, which has made a lot of investment into its logistics and delivery operations domestically, has recently started investing in companies abroad to build similar models out elsewhere. (Example: Amazon recently took a 25% stake in delivery company Colis Prive in France.)
For Alibaba, there will be some additional margin consolidation in the fact SingPost benefits specifically from some tax-free operations — specifically in the form of a bonded warehouse in Singapore’s Changi Airport, along with another that is being built in an airport in Malaysia. As Forbes points out, it means Alibaba will be exempt from taxes on products stored or passing through these warehouses.
The other is that it underscores Alibaba’s steady international march.
Today, Alibaba completely dominates digital commerce in China, and China dominates Alibaba: in the first nine months of 2013, the company made $6.5 billion in revenue according to its F-1 filing with the SEC, with $5.7 billion of that in China, and only around 9% of that value, $572 million, attributed to international operations. Those operations, Alibaba notes, come from business in its consumer-facing AliExpress and B2B focused Alibaba.com operations.
For Alibaba to position itself to investors and for itself as a business for future growth, it very much needs to focus its sights internationally. While domestic sales grew by over 60% in the first nine months of 2013, international revenues were up by only 14.1% in that period. At some point the China market will saturate sooner than its potential abroad.
Working with SingPost shows how Alibaba continues to cast its net ever wider.
In that regard, SingPost is an interesting company — and, I’d argue, instructive for the many other national incumbent postal operations. The company says that integrated e-commerce logistics solutions “covering freight transportation, warehouse fulfilment, delivery and returns as well as web solutions” account for 26% of its total revenue today. It has operations not only in South East Asia but also extending into North America,
“This strategic investment by Alibaba is a significant milestone in our transformation journey into the region and is an affirmation of our long-standing strategy in e-commerce logistics as part of SingPost’s growth trajectory,” said Mr Lim Ho Kee, Chairman of SingPost, in a statement. “SingPost will benefit from Alibaba’s expertise in e-commerce, technology and business volumes. We see considerable strategic advantages, such as the creation of new relationships and opportunities for strategic cooperation with the Alibaba Group, all of which are expected to increase the Company’s growth and development pace as it pursues regional opportunities.”