INTERNET: Alibaba Eyes India, South Korea
Bottom line: Alibaba’s new forays into India and South Korea look like good choices for its first major drive into foreign markets, as such markets are more similar to and have stronger links with China.
It’s been interesting to watch where China’s top Internet firms are placing their bets as they embark on an international expansion to show the world they can compete outside their home market. India is emerging as one destination of choice, with word that e-commerce leader Alibaba (NYSE: BABA) is following smartphone sensation Xiaomi into the market with a major new acquisition target. At the same time, other media reports are saying that Alibaba is also in talks for another major investment in South Korea.
All of this shows that there’s no clear choice for Chinese Internet companies as they decide where to take the first baby steps outside their home market. Alibaba and search leader Baidu (Nasdaq: BIDU) both made their first major global moves into Japan, and neither bid was very successful. Now the big Chinese names seem to be taking aim at more BRICS-style markets like India and Brazil, which share more common features with their home China market and where they face less competition from the big global giants.
Let’s begin with Alibaba’s India deal, which is the more interesting of its latest reported advances even though it’s the smaller of the 2 deals in the headlines. According to reports, Alibaba and its Alipay electronic payments arm are in talks to invest $550 million for a stake in Indian online payments firm One97 Communications. (English article) The deal would give Alibaba 30-40 percent of the company, meaning One97 would be valued at around $1.5 billion.
One97 has a nice pedigree, with investors that include China’s SAIF, as well as Intel’s (Nasdaq: INTC) venture capital arm. The service has 20 million registered users, which seems relatively small, and the deal would mark Alibaba’s first foray into India. Despite its relatively small size, I expect One97 is probably a leader in India’s electronic payments market, which is probably 5-10 years behind China’s. Accordingly, this looks like a nice entry vehicle for Alibaba into the market.
Next let’s look at the other deal, which will reportedly see Alibaba and the South Korean city of Incheon invest 1 trillion won ($923 million) in a major new business complex. (English article) The complex would include a shopping mall and hotel, but the attraction for Alibaba appears to be a logistics center that would also be included.
Alibaba said in 2013 that logistics would be a major focus area for the company over the next few years, and pledged to spend 100 billion yuan ($16 billion) to build up that part of its business. It made a similar global move last year, when it purchased 10 percent of Singaporean parcel delivery company Singapore Post Ltd (Singapore: SPOST) for $250 million.
These new deals would be 2 of the largest so far for Alibaba outside its home market. Their location in more developing-style Asian markets reflects the reality that despite its higher-profile proclamations that it wants to compete in North America and Western Europe, Alibaba realizes it probably has the best chances for success in these less competitive markets. PC leader Lenovo (HKEx: 992) has made a similar discovery, and has done quite well in these developing markets where the big global names are less entrenched.
Of China’s other big Internet names, only Baidu has really made much of a push outside China. Two of its biggest plays are in Brazil, where it has launched a search business and made a big e-commerce acquisition. It is also expanding into Thailand, which is another emerging favorite among Chinese expansion-minded tech firms. At the end of the day, these developing markets may not be as sexy as the US or Western Europe, but they really do seem to offer the best chances for success for China’s emerging field of private tech firms like Alibaba, Baidu and Xiaomi.
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