INTERNET: Alibaba Eyes Japanese Imports, In Promising New Direction

By newsdoug on June 5, 2015

Bottom line: Alibaba’s potential new venture to bring Japanese imports to China looks like a smart move that plays to Beijing’s desire to boost consumer spending, and could serve as a template for similar import-related tie-ups.

Alibaba talks tie-up with Yahoo Japan

A potential major new tie-up between Alibaba (NYSE: BABA) and Yahoo Japan (Tokyo: 4689) aimed at bringing more Japanese imports to China looks full of promise, providing a possible major new growth source for the Chinese e-commerce giant. Such a tie-up would be especially exciting because it would bring together 2 of the largest e-commerce companies from the world’s second and third largest economies. It would also receive strong support from Beijing, which is rapidly dismantling many import barriers as it tries to boost consumer spending to prop up a slowing Chinese economy.

Such a deal between Alibaba and Yahoo Japan would actually be just the latest in a growing string of similar retail plans aimed at bringing more imported consumer goods into China. In the past Beijing discouraged such imports, mostly through high import tariffs, as it spent its limited foreign currency on big-ticket items like networking and manufacturing equipment to build up China’s infrastructure and high value-added industries.

But with foreign investment stagnating and many traditional industries showing signs of overcapacity, central leaders are hoping consumer spending can compensate for slowing economic contributions from those older sectors. Within the retail sector, global consumer names from discount grocer Costco (Nasdaq: COST) to e-commerce giant Amazon (Nasdaq: AMZN) and gaming console maker Microsoft (Nasdaq: MSFT) have all announced initiatives over the last year that rely on being able to import their products more cheaply into China.

Against that backdrop, this potential new tie-up between Alibaba and Yahoo Japan looks quite smart, because it dovetails with Beijing’s aim of increasing imports to boost consumer spending. The tie-up would also have a good chance of success because Alibaba has a strong long-term relationship with Yahoo Japan’s major stakeholder Softbank, which was one of Alibaba’s earliest investors.

According to the reports, the plan under discussion would see Alibaba and Yahoo Japan launch a dedicated section for imported Japanese goods on Tmall, Alibaba’s main B2C marketplace. (English article; Chinese article) The plan would see the Japan pavilion launch in the summer, and offer Chinese consumers a wide range of everyday products ranging from child care goods to cosmetics. The pavilion would start off with around 100 merchants, but Yahoo Japan would like to quickly boost that number to closer to 1,000.

Yahoo Japan shares shot up more than 10 percent on the news, which was first reported in Japanese media. Alibaba shares didn’t show any reaction, falling 1.8 percent in the latest trading session on Wall Street. I’ve previously said that Alibaba’s shares would fall back to their IPO level of $68, mostly due to overvaluation following a huge run-up in their price in the 2 months after their offering in September last year. Even at their latest close of around $89, they are still well above that level.

But this kind of new tie-up, aimed at selling imported goods to Chinese consumers, looks like quite novel and a good idea that could quickly add to both Alibaba’s top and bottom lines. That’s quite different from many of the company’s other major strategic moves into a wide range of industries over the last 2 years, including some that won’t provide meaningful contributions for years and others that never looked very wise to start with.

Beijing’s desire to boost consumer spending has seen China roll out a number of major initiatives in the last few months, including recent reductions in tariffs for many products that were once considered luxuries and non-essential. Beijing is also in the process of launching a series of free trade zones (FTZs) throughout China, which offer lower import duties and is where the new retail initiatives by Costco, Amazon and Microsoft are all based. Alibaba could soon join this tide, potentially with a Yahoo Japan venture in one of the FTZs. That could become a template for other similar import-related tie-ups, which could become a big new source of growth for Alibaba in the next 1-2 years.