E-COMMERCE: JD.com Shops for Expansion in Thailand
Bottom line: JD.com’s Thai joint venture looks like a smart move into Southeast Asia, though it shouldn’t move too aggressively abroad and instead focus on becoming profitable.
China’s big Internet companies have a pretty varied record for expanding abroad. At one extreme there’s Alibaba (NYSE: BABA), which is using its big cash pot to buy a wide range of assets concentrated mostly in East and South Asia. Tencent (HKEx: 700) is in the middle, mostly buying strategic stakes in game-related companies, while Baidu (Nasdaq: BIDU) appears to have mostly abandoned the market after a few half-hearted attempts at global M&A and trying to open search sites in other countries.
And then there’s Johnny-come-lately JD.com (Nasdaq: JD), which admittedly has a far shorter history and is also the only one of the four leading Internet companies that’s still losing money. But that doesn’t mean that JD doesn’t have cash, and now it appears the company is looking to make its biggest splash abroad to date with the formation of a joint venture in Thailand.
According to a report from Reuters, JD is in late-stage talks for the venture, which would be with Thailand’s Central Group for the venture, which would have investment of $500 million. (English article) The investment would complement JD’s only other significant investments outside China to date, which are mostly in Indonesia.
Apparently this development isn’t completely new, as JD’s founder Richard Liu had previously said he planned to enter Thailand by the end of this year. At that time, he said the company planned to use its Thai operations as a springboard to serve other Southeast Asian markets, such as Malaysia and Vietnam.
The report also points out that JD was previously trying to invest in Indonesian online retailer Tokopedia, but ultimately ended up losing out that battle to larger rival Alibaba. That probably speaks to the fact that Alibaba is a better-known brand outside China, and thus a preferred partner for many potential investment targets, and also that Alibaba is willing to pay bigger premiums.
As to JD, it’s still quite early days for them to be making big moves internationally. Personally speaking, I think the company should be more focused on becoming profitable rather than international expansion at this stage. But that said, the company is a relative latecomer to China’s e-commerce market, and probably feels it can’t just sit around and wait while archrival Alibaba goes and buys up all the best assets in its backyard.
Well-Traveled Road
As to the Southeast Asia strategy, that particular tack into the global market is starting to become a big cliche among private Chinese tech companies looking to expand abroad. Smartphone maker Xiaomi was one of the first to launch such an approach, and is now reaping rewards of becoming one of the largest players in the fast-growing India market. But most of the other Chinese smartphone makers have taken a similar path, and Alibaba is marching down that path as well.
That said, other tacks have proven less successful. It turns out the other BRICS aren’t as hospitable to Chinese names, and no one has really had any success at all in Western markets with the possible exception of Huawei. Outside the smartphone realm, Alibaba doesn’t really have much to show for its Asian investments so far, at least not in terms of furthering its own businesses. Baidu also tried search services in Thailand, Brazil and Egypt at one point, but ended up scrapping those.
The bottom line is that the organic path is probably the way to go when going global, which is what this new foray by JD is. It’s also important to have a strong local partner, which again looks to be the case with this new joint venture. That doesn’t mean the venture will do well, as it’s always tough to compete with the established players. But JD is a pretty savvy company, and its choice of a strong and well-funded local partner could give this new venture at least a reasonable chance of success.
