A major move to step up its international presence, Alibaba Group announced on Wednesday that it will purchase a 10.35% stake for $249 million in SingPost, Singapore’s national postal service provider.
The deal will render Alibaba the second largest shareholder in the public-traded SingPost, after the government-controlled Singapore Telecommunications which currently owns 25%. One member of Alibaba is expected to join the board of SingPost to oversee the parties’ joint initiative to develop an international e-commerce platform.
“Through this collaboration, we hope to create concrete benefits for our overseas buyers and sellers by enhancing the user experience and providing greater access to a suite of international e-commerce logistics solutions and products.” says Daniel Zhang, Chief Operating Officer of Alibaba in the press release.
Alibaba expects to grow the business of AliExpress and Tmall Global, the international versions of Taobao and Tmall to billions; Southeast Asia will be the fastest growing market, sources close to management said. For the nine months ended Dec 31, 2013, Alibaba recorded $572 million international sales, less than 10% of the total revenue. International retail revenue more than doubled in the same period because of growth in Russia, the U.S. and Brazil, though the total amount was still only $105 million, according to Alibaba’s IPO filing.
The investment is a first by Alibaba in a foreign logistics service provider. It follows Tuesday’s disclosure of an agreement to have Australia Post distribute Alipay shopping cards locally and open an online storefront for Australian products on Tmall Global.
The moves signal the resolve of this e-commerce giant to expand its sprawling ecosystem beyond China’s borders. The market in Southeast Asia is under-developed but fast-growing one. In 2013, e-commerce in Singapore and Malaysia increased by 15% and 25%, respectively, a report by Payvision says. In Indonesia, the growth figure was a stunning 65% for the year, according to e-Marketer. As evidence of the region’s potential, last year Rocket Internet launched Lazada, the Amazon equivalent of Malaysia, following the success of its online fashion retailer Zalora, while Japan’s Rakuten set up a regional headquarters in Singapore.
Besides local customers in the region, the SingPost investment also seeks to capture two underserved groups of Chinese customers: overseas Chinese looking to purchase products on domestic websites, and domestic ones looking to buy foreign products directly from abroad. Currently, the bulk of these transactions are conducted through friends, relatives, and buying agencies (dai gou), often evading tariffs. One estimate by the China e-business Research Center put the total transaction amount of delegated foreign purchases at $12 billion in 2013.
With a long history dating back to 1819, SingPost only began shifting from mail delivery to logistics and e-commerce in 2003. It has expanded aggressively since, now counting 12 warehouses that spread across Southeast Asia, Australia, UK and the U.S. E-commerce related practices account for about 26% of SingPost’s total businesses. A wholly-owned subsidiary Quantium Solutions has more than 200 e-commerce customers, according to the company’s 2013 annual report. Its ground distribution network covers Singapore, India, part of Thailand and the Philippines, and is expected to reach Vietnam and Indonesia this year.
In addition to its distribution network, SingPost has a bonded warehouse at the Airport Transit Center inside Changi Airport in Singapore, and is in the process of building another one in Malaysia – it means that Alibaba will not need to pay taxes for products stored at or passing through those locations.
The partnership is expected to allow Alibaba to lower the cost and have better control over the quality of its international deliveries. Without its own logistics network, the company has experienced delays and uncertainties with custom clearance and on the ground delivery for international sales. In Russia, the high volume of sales through AliExpress once paralyzed a local delivery services provider.
However, securing a trusted mailman is far from guaranteeing global success, especially in the target market of Southeast Asia. The region still faces a slew of challenges in growing e-commerce, such as the low penetration rates of Internet, smartphones and credit cards.