Alibaba, Mail.Ru, Megafon form AliExpress Russia JV to double down on e-commerce in CIS

After announcing plans in September 2018 to build a joint venture together, today Russian internet giant,  Megafon and China’s Alibaba announced that the deal has closed. With support also from Russia’s sovereign wealth fund RDIF, the three are forming a new operation called AliExpress Russia JV — which will include business assets and investment from all three — to double down on building e-commerce services to serve consumers and businesses in Russia and neighboring countries. The joint effort is estimated to have a value in the region of $2 billion.

The operation has several moving pieces, which is one reason why it’s taken nearly eight months to bring it all together and close the deal:

  • Alibaba Group will invest $100 million and contribute AliExpress Russia into the joint venture. Alibaba says this includes Alibaba Group’s current Russia-based domestic and cross-border operations of the global retail marketplace business of AliExpress.
  • MegaFon will sell its 9.97% economic stake in Group to Alibaba Group. It will then own 24.3% of the AliExpress Russia JV with 30.2% voting rights.
  • Group will also contribute its Pandao e-commerce business and cash investments of $182 million in exchange for a 15% stake in the AliExpress Russia JV with 18.7% voting rights.
  • RDIF will invest $100 million into the AliExpress Russia JV “and may further acquire additional shares of the joint venture from Alibaba Group for $194 million.” Upon the exercise of the option to purchase the additional shares in the AliExpress Russia JV, the RDIF will own economic and voting stakes in the joint venture of 12.9% and 9.6%, respectively.
  • Alibaba and will respectively nominate a CEO each for the JV and they will run it jointly.

But while the business will largely be built on e-commerce know-how from Alibaba, it will be majority-controlled by Russian entities.

The deal underscores the potential of the Russian-speaking market, but also at the challenges of building a new e-commerce entity, or conversely expanding an established one into the market without deeper local knowledge. You could argue that Uber faced a similar challenge before forming a joint venture with Yandex to continue building out a combined ridesharing business.

Indeed, this is largely how the deal is being characterised by Alibaba:

“This partnership will enable the AliExpress Russia JV to accelerate the development of the digital consumer economy of Russia and CIS countries in ways that no one party could accomplish alone,” said Daniel Zhang, CEO of Alibaba Group, in a statement. “Together, we are uniquely positioned to offer consumers in Russia and neighbouring countries an innovative shopping experience by combining social platforms with commerce, as well as enabling regional brands and SMEs to sell their products locally and globally. Alibaba’s mission is to make it easy to do business anywhere. This JV is an important part of Alibaba’s international expansion and step toward our goal of supporting 10 million small businesses reach profitability and serving 2 billion consumers around the world.”

Megafon, the mobile operator that is an investor in, is not contributing an e-commerce business into the venture like and Alibaba are, but the fact that so much mobile commerce has moved to mobile creates some interesting possibilities for what they may contribute strategically in the longer term.

“MegaFon is pleased to enter into this partnership with global technology leaders Alibaba Group, RDIF and Mail.Ru Group,” said  Gevork Vermishyan, CEO of MegaFon, in a statement. “This agreement is in line with our digital strategy of ‘driving digital world’ aimed at creating new opportunities for over 76 million customers. E-commerce is a perfect fit for our rapidly developing ecosystem of partnerships to furnish best-in-class financial services, media, and other consumer offerings. This combination is beneficial for all parties, providing unparalleled access to the Russian consumer base.”

Russia and China have both been in the crosshairs of countries like the US over cybersecurity issues and allegations of nefarious online activity.

This is a turn away from that very messy issue, which is far from being resolved and will continue to see a lot of fallout, and focuses attention on the role of Russia as part of the “BRIC” bloc of large, emerging markets with lots of potential for growth.

“ Group is looking forward to leveraging the synergies within a leading social commerce joint venture in Russia and CIS countries,” said Boris Dobrodeev, CEO of Group, commented. “AliExpress Russia JV will become an undisputed leader in Russian e-commerce and create an unparalleled social commerce offering for our users. This partnership is in line with our strategy of bringing together people and businesses, as we will offer customers richer social experience and provide entrepreneurs with a platform for growth. We hope that the successful realization of the deal will strengthen our cooperation with local and global technology leaders. This is a major milestone for the Russian e-commerce market, and we believe it will promote the development of the digital economy.”

“This landmark partnership will bring both significant benefits to customers and create unprecedented opportunities for services growth,” said Kirill Dmitriev, CEO of the Russian Direct Investment Fund (RDIF), in a statement. “RDIF continues to support the acceleration of the digital transformation of the Russian economy through the expansion of the e-commerce market. Bringing together the expertise of the companies at the forefront of social commerce and global retail opens a new era for the Russian market.”