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Alibaba And Tencent Are The Only Options For Retailers Seeking Chinese Market

Alibaba And Tencent Are The Only Options For Retailers Seeking Chinese Market
According to a partner at Bain & Company, there is very little choice but to partner with Chinese online giants like Alibaba or Tencent for retailers who seek to enter the lucrative consumer market of China.
James Root said in a television interview that over the last four to five years, the two Chinese companies have become overwhelmingly dominant in the market.
Over 80 percent of China's e-commerce market is dominated jointly by the two firms – the largest e-commerce market in the world, said Root who is also the chairman of global think-tank Bain Insights Group. four out of five of China's largest hypermarket and supermarket chains is also collectively owned and controlled by the two companies.
"I'm describing a world of highly concentrated control amongst these two firms and the ecosystems around them," Root said.
"There is no real path for other retailers other than to choose one side here and then figure out the right partnership option to achieve their own objectives," he added. This is true for both Chinese as well as foreign retailers, he stressed.
Alibaba and Tencent has been very fast to move while dealing with competitive threats, he said. The strategies included investing in such threat firms, or acquiring them or shutting them down.
He added that the innovative capacity of the two companies also "stimulates others to innovate."
Last week, mixed fiscal Q1 results were reported by Alibaba. There was a 61 per cent year-on-year increase in revenues driven by the core e-commerce business of the company and the fast-growing cloud business. But the earning was lower than market expectations.
On the other hand, Tencent announced a 2 per cent drop in profit for the quarter ending in June which is its first drop in almost 13 years.

Mark Mahaney, RBC Capital Markets lead internet analyst believes that Alibaba will continue on its growth path.
"This company is clearly aggressively investing in a whole host of areas," Mahaney said. he pointed out to new retail businesses in China, takeovers in Southeast Asia, as well as logistics and core entertainment to bet h drivers for the growth.
"They clearly want to be much more than just an e-commerce player in China," he said. "They want to really offer everything to the Chinese consumer."
It is likely that Alibaba would add another 100 million or 200 million of active customers and daily average users in the next two years compared to the current figures of about 500 to 600 million, he said.
Bain's Root said that Alibaba and Tencent would feel very little impact of the U.S.-China trade war because the firms are virtually immunized because of their overwhelming focus on their domestic Chinese market.
"They make their living in China, so at some level it doesn't make any difference to them," he said. "They are still fundamentally about China for China." "Twenty years from now, we'll be having a different conversation," Root said.

Christopher J. Mitchell

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