Will Alibaba use the capital gained from its IPO to expand fast internationally? China consultant Joel Backaler, expert on China´s outbound investments, does not think so, and explains in Forbes why Alibaba will be tied up at the domestic market at least in the short run.
Alibaba is the unmatched e-commerce market leader in China. It holds roughly95% of China’s C2C market (Taobao Division), and more than 50% of the B2C market (Tmall Division). With new Chinese consumers shopping online every day, potential growth in this sector remains tremendous. For this reason, Alibaba is unlikely to risk losing domestic market share by expanding aggressively into international markets after its IPO – especially as domestic competition continues to heat up. As recently as last month, Baidu , Tencent and Dalian Wanda all teamed up to create a competitive new e-commerce firm.
Moreover, Alibaba’s NYSE listing does not necessarily mean it intends to ramp up business operations in overseas markets like the U.S. – just look at Chinese internet firms such as VIPShop, Baidu and Youku Tudou YOKU +0.4%. All three built their businesses focused on the Chinese market, and they continue to do so today even after going public in the U.S. And as Jack Ma has said himself, for Alibaba’s e-commerce business: China is the “main course,” while developed markets like the U.S. are merely “dessert…
In the short-term, Alibaba is likely to continue focusing its efforts within China, where it is already a market leader and the growth potential is enormous. But as the domestic business environment grows increasingly competitive, Alibaba’s globalization strategy is not a question of ‘if’, but ‘when’. When Alibaba does ultimately expand aggressively into overseas markets, it will be ready. Alibaba has as much experience as its global competitors and it is run by internationally exposed leadership. Although Alibaba currently lacks significant international offices and dedicated platforms for markets outside of China, its founding model – connecting buyers and sellers around the world – makes the nature of its business inherently global.
Joel Backaler is based in Washington, but will be visiting Europe in October. You can check out his schedule here.