China’s e-commerce war is heating up as Alibaba Group, parent company of top business and consumer online trading platforms, announced plans to invest at least $1.5 billion to build a nationwide network of warehouses as part of an ambitious bid to revolutionize China’s fragmented logistics sector.
At an Alibaba Group sponsored industry conference held in Beijing Jan. 19, company officials said that e-commerce sales are growing so quickly in China that logistics companies are in danger of being overwhelmed and unable to deliver merchandise ordered online to Chinese homes and businesses in a timely way. E-commerce transaction volume in China’s C2C (consumer-to-consumer) and B2C (business-to-consumer) markets grew more than 80% last year to $72 billion, according to a Deutsche Bank report; Alibaba Group’s Taobao subsidiary, China’s largest online retail website, accounts for nearly 80% of all C2C and B2C transactions.
China suffers from a shortage of warehouse space and has no national or international delivery companies comparable to UPS or FedEx in the U.S. “It’s clear that logistics is a crucial link in the e-commerce eco-system and in order for Chinese entrepreneurs to reach their future growth goals, this sector needs to develop rapidly,” said Alibaba Group Chairman Jack Ma. “It’s also clear that everyone involved in this sector needs to work together to accomplish this. Hopefully within 10 years’ time, anyone placing an order online from anywhere in China will receive their goods within eight hours, allowing for the virtual urbanization of every village across China.”
To spur development of what Ma called a “modern, 21st century logistics network,” Alibaba Group, which also owns listed B2B e-commerce website Alibaba.com, will over the next three to five years invest a minimum of $1.5 billion of its own funds in warehouses, which officials called a “key industry bottleneck.” But that’s just for starters. Company officials said the Group hoped to attract additional funding from private equity firms, venture capitalists and banks totaling $4.5 billion—and that seed capital would in turn draw more than $15 billion to the logistics sector.
Areas initially targeted for warehouses are the Beijing/Tianjin area, the Yangtze River Delta and the Pearl River Delta. Alibaba Group plans to build in those areas warehouse space totaling about 3 million square meters, enough to contain 560 American football fields.
The company’s announcement was just the latest salvo in an increasingly spirited fight for a piece of China’s online shopping market. China has some 420 million Internet users; about one third of them use the Web to purchase clothes, books,electronicgear and other goods.
The burgeoning market has attracted a number of new B2C ventures in the last 12 months. As more Internet companies elbow their way online, the ability to manage massive inventories and ensure goods are delivered quickly and cheaply is becoming “one of the most important differentiators” between e-commerce companies, according to a Deutsche Bank report on China’s Internet. “Only those companies with a mastery of logistics as part of their core value proposition will succeed in China’s e-commerce race,” bank analysts wrote.
Last month, B2C company 360buy Jingdong Mall, which accounts for about 14% of China’s B2C market, said it had secured $500 million from six strategic partners, one of them U.S. retail giant Wal-Mart, which is known for its ability to squeeze efficiencies out of its supply chain. The funds will be used to build logistics centers, the company said. And in August, Hong Kong-based Internet and media company Tom Group announced it was launching a Chinese B2C site in partnership with China’s post office, which has 46,000 branch offices and 56,000 delivery vehicles.
What sets Alibaba Group apart is that the company says it will not build and operate a proprietary warehouse and distribution system. The company invited members of China’s logistics industry to attend the Jan. 19 conference in Beijing in order to foster partnerships in what Ma and other Alibaba officials called an “open logistics platform.”
As outlined by Group officials at the conference, the plan is for Taobao, which is an open marketplace of some 370 million small businesses and other users, to function as ahub for logistics information and provider of a central supply chain management system. The planned nationwide network of warehouses will be available for use by logistics-industry partners, Taobao sellers and even independent B2C websites, the company said.
“We hear a lot of rumors, people saying that Alibaba wants to fight against the express delivery services,” Ma told the audience of several hundred logistics company officials at the Beijing conference.Butthe companydoes not plan to own trucks or other delivery hardware. “I say we will not fight you, we will participate in the development of this industry,” Ma said.
“Creating a network of warehouse facilities is a key tactic in our strategy to resolve the bottleneck facing the logistics industry in China,” said Zhang Wei, Alibaba Group senior vice president and head of strategic investments. “We will work with everyone in an open, dynamic and win-win environment to achieve this important goal of ensuring Chinese merchants are able to get their products to customers as quickly and efficiently as possible,” she said.